[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 1997 Edition]
[From the U.S. Government Publishing Office]


          7



          Agriculture



[[Page i]]

          PARTS 1500 TO 1899

          Revised as of January 1, 1997
          CONTAINING
          A CODIFICATION OF DOCUMENTS
          OF GENERAL APPLICABILITY
          AND FUTURE EFFECT

          AS OF JANUARY 1, 1997
          With Ancillaries
          Published by
          the Office of the Federal Register
          National Archives and Records
          Administration

          as a Special Edition of
          the Federal Register



[[Page ii]]

                                      




                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 1997



               For sale by U.S. Government Printing Office
 Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328



[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v
  Title 7:
      Subtitle B--Regulations of the Department of
        Agriculture--Continued:

    Chapter XV--Foreign Agricultural Service, Department of 
        Agriculture...........................................       5
    Chapter XVI--Rural Telephone Bank, Department of 
        Agriculture...........................................      43
    Chapter XVII--Rural Utilities Service, Department of 
        Agriculture...........................................      53
    Chapter XVIII--Rural Housing Service, Rural Business-
        Cooperative Service, Rural Utilities Service, and Farm 
        Service Agency, Department of Agriculture.............    1189
  Finding Aids:
    Material Approved for Incorporation by Reference..........    1237
    Table of CFR Titles and Chapters..........................    1247
    Alphabetical List of Agencies Appearing in the CFR........    1263
    Redesignation Tables......................................    1273
    List of CFR Sections Affected.............................    1277

[[Page iv]]







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

  Cite this Code:  CFR

  To cite the regulations in this volume use title, part
    and section number. Thus, 7 CFR 1520.1 refers to
    title 7, part 1520, section 1.                                                    

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


[[Page v]]

                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 1997), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 1986, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, or 1973-1985, published in seven separate volumes. For 
the period beginning January 1, 1986, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
requirement to publish regulations in the Federal Register by referring 
to materials already published elsewhere. For an incorporation to be 
valid, the Director of the Federal Register must approve it. The legal 
effect of incorporation by reference is that the material is treated as 
if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    Properly approved incorporations by reference in this volume are 
listed in the Finding Aids at the end of this volume.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed in 
the Finding Aids of this volume as an approved incorporation by 
reference, please contact the agency that issued the regulation 
containing that incorporation. If, after contacting the agency, you find 
the material is not available, please notify the Director of the Federal 
Register, National Archives and Records Administration, Washington DC 
20408, or call (202) 523-4534.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I), and Acts Requiring Publication 
in the Federal Register (Table II). A list of CFR titles, chapters, and 
parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.

[[Page vii]]

    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-523-5227 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408.
SALES

    The Government Printing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call 202-512-1800, 
M-F, 8 a.m. to 4 p.m. e.s.t. or fax your order to 202-512-2233, 24 hours 
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Customer Service call 202-512-1803.

                              Richard L. Claypoole,
                                    Director,
                          Office of the Federal Register.

January 1, 1997.



[[Page ix]]



                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: parts 0-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1499, 1500-1899, 1900-1939, 1940-1949, 1950-1999, and part 2000 to end. 
The contents of these volumes represent all current regulations codified 
under this title of the CFR as of January 1, 1997.

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

    All marketing agreements and orders for fruits, vegetables and nuts 
appear in the one volume containing parts 900-999. All marketing 
agreements and orders for milk appear in the volume containing parts 
1000-1199. Part 900--General Regulations is carried as a note in the 
volume containing parts 1000-1199, as a convenience to the user.

    Redesignation tables appear in the Finding Aids section of the 
volumes containing parts 210-299 and parts 1500-1899.

    For this volume, Cheryl E. Sirofchuck was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Frances D. McDonald, assisted by Alomha S. Morris.

[[Page x]]





[[Page 1]]



                          TITLE 7--AGRICULTURE




                 (This book contains parts 1500 to 1899)

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

  SUBTITLE B--Regulations of the Department of Agriculture--Continued:

                                                                    Part
chapter xv--Foreign Agricultural Service, Department of 
  Agriculture...............................................        1520

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

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

chapter xviii--Rural Housing Service, Rural Business-
  Cooperative Service, Rural Utilities Service, and Farm 
  Service Agency, Department of Agriculture.................        1806

[[Page 3]]



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

[[Page 5]]




   CHAPTER XV--FOREIGN AGRICULTURAL SERVICE, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
1520  Availability of information to the public.............           7
1530  Sugar import licensing................................           8
1540  International agricultural trade......................          31
1550  Programs to help develop foreign markets for 
  agricultural commodities..................................          35
1560  Procedures to monitor Canadian fresh fruit and 
  vegetable imports.........................................          38
1570  Export Bonus Programs.................................          40

[[Page 7]]



PART 1520--AVAILABILITY OF INFORMATION TO THE PUBLIC--Table of Contents




                           Subpart A--General

Sec.
1520.1  General statement.
1520.2  Organizational description.

   Subpart B--Availability of Program Information Staff Manuals, and 
                            Related Material

1520.3  Public inspection and copying.
1520.4  Indexes.

             Subpart C--Availability of Identifiable Records

1520.5  Request for records.
1520.6  Appeals.

    Authority: 5 U.S.C. 552.

    Source: 40 FR 27008, June 26, 1975, unless otherwise noted.



                           Subpart A--General



Sec. 1520.1   General statement.

    This part is issued in accordance with the regulations of the 
Secretary of Agriculture part 1, subpart A of subtitle A, of this title 
(7 CFR 1.1 to 1.16 and appendix A thereto), implementing the Freedom of 
Information Act (5 U.S.C. 552). The Secretary's Regulations, as 
implemented by the regulations in this part govern the availability of 
records of the Foreign Agricultural Service (FAS) to the public.



Sec. 1520.2   Organizational description.

    The description of the organization of FAS is published as a notice 
in the Federal Register and may be revised from time to time in like 
manner. Such description contains a listing of FAS organizational units 
and their functions.



   Subpart B--Availability of Program Information Staff Manuals, and 
                            Related Material



Sec. 1520.3  Public inspection and copying.

    5 U.S.C. 552(a)(2) requires that certain materials be made available 
for public inspection and copying. Members of the public may request 
access to such materials through the Information Division, FAS, Room 
5074, South Building, Department of Agriculture, 14th Street and 
Independence Avenue, SW., Washington, DC 20250-1004. The office will be 
open from 8:30 a.m. to 5 p.m. Monday through Friday, except legal 
holidays.

[61 FR 2898, Jan. 30, 1996]



Sec. 1520.4  Indexes.

    5 U.S.C. 552(a)(2) required that each agency publish or otherwise 
make available a current index of all materials required to be made 
available for public inspection and copying. Copies of the FAS Index may 
be obtained free of charge by telephoning (202) 720-7115 or writing to 
the Freedom of Information Officer, Information Division, FAS, Ag Box 
1004, Department of Agriculture, 14th Street and Independence Avenue, 
SW., Washington, DC 20250-1004.

[61 FR 2898, Jan. 30, 1996]



             Subpart C--Availability of Identifiable Records



Sec. 1520.5  Request for records.

    (a) Requests for records under 5 U.S.C. 552(a)(3) shall be made in 
accordance with 7 CFR 1.3(a) and addressed to the Freedom of Information 
Officer, Information Division, Foreign Agricultural Service, Ag Box 
1004, Department of Agriculture, 14th Street and Independence Avenue, 
SW., Washington, DC 20250-1004.
    (b) Processing of a request for information can be facilitated if 
``FOIA REQUEST'' is placed in capital letters on the front of the 
envelope and at the top of the letter. Additional information may be 
obtained by telephoning the FAS Information Division on (202) 720-7115.

[61 FR 2868, Jan. 30, 1996]



Sec. 1520.6   Appeals.

    (a) Any person whose request under Sec. 1520.5 is denied shall have 
the right to appeal such denial. This appeal shall be submitted in 
accordance with 7 CFR 1.3(e) and addressed to the Administrator, Foreign 
Agricultural Service, Department of Agriculture, 14th and Independence 
Avenue, SW., Washington, DC 20250-1001.

[[Page 8]]

    (b) In the event the request is denied and the requestor wishes to 
appeal such decision, it will facilitate processing such appeal by 
placing the words ``FOIA APPEAL'' in capital letters on the front of the 
envelope and at the top of the appeal letter. Additional information may 
be obtained by telephoning the FAS Information Division on (202) 720-
7115.

[40 FR 27008, June 26, 1975, as amended at 61 FR 2898, Jan. 30, 1996]



PART 1530--SUGAR IMPORT LICENSING--Table of Contents




           Subpart A--Sugar To Be Re-exported in Refined Form

Sec.
1530.100  Definitions.
1530.101  Application for a license.
1530.102  Issuance of a license.
1530.103  Bond requirements.
1530.104  Entry of sugar.
1530.105  Proof of export and notice of drawback claims.
1530.106  Transfer of sugar.
1530.107  Charges and credits to licenses.
1530.108  Replacement of sugars; substitution of sugars.
1530.109  Records.
1530.110  Enforcement.
1530.111  Appeals.
1530.112  Waivers.
1530.113  Expiration of licenses.
1530.114  Paperwork Reduction Act assigned number.
1530.115  Transitional provisions.

     Subpart B--Sugar To Be Re-exported in Sugar Containing Products

1530.200  Definitions.
1530.201  Application for a license.
1530.202  Issuance of a license.
1530.203  Bond requirements.
1530.204  Transfer of sugar.
1530.205  Proof of export and notice of drawback claims.
1530.206  Charges and credits to licenses.
1530.207  Replacement of sugars; substitution of sugars.
1530.208  Records.
1530.209  Enforcement.
1530.210  Appeals.
1530.211  Waivers.
1530.212  Expiration of licenses.
1530.213  Paperwork Reduction Act assigned number.
1530.214  Transitional provisions.

        Subpart C--Sugar for the Production of Polyhydric Alcohol

1530.300  Definitions.
1530.301  Application for a license.
1530.302  Issuance of a license.
1530.303  Bond requirements.
1530.304  Entry of sugar.
1530.305  Proof of production of polyhydric alcohols.
1530.306  Charges and credits to licenses.
1530.307  Replacement of sugars; substitution of sugars.
1530.308  Records.
1530.309  Enforcement.
1530.310  Appeals.
1530.311  Waivers.
1530.312  Expiration of licenses.
1530.313  Paperwork Reduction Act assigned number.
1530.314  Transitional provisions.

    Authority: Presidential Proclamation No. 6179, 55 FR 38293; 
additional U.S. note 3 to chapter 17 of the Harmonized Tariff Schedule 
of the United States (19 U.S.C. 1202).

    Source: 55 FR 41489, Oct. 12, 1990, unless otherwise noted.



           Subpart A--Sugar To Be Re-exported in Refined Form



Sec. 1530.100  Definitions.

    For purposes of this subpart, unless the context indicates 
otherwise, the following words and phrases have the meaning ascribed to 
them:
    (a) Additional U.S. note 3 means paragraph (c) of additional U.S. 
note 3 to chapter 17 of the HTS, unless otherwise described.
    (b) Agent means a licensed customhouse broker, freight forwarder, or 
other person authorized to act on behalf of the licensee.
    (c) Date of entry is the date when the U.S. Customs Service entry 
form is properly executed and deposited, together with any estimated 
duties and special import fees and any related documents required by law 
or regulation to be filed with such form at the time of entry with the 
appropriate customs official.
    (d) Date of export means the on-board date of an ocean carrier bill 
of lading or an airway bill or on-board date of an intermodal bill of 
lading; if exported by rail or truck, the date of entry shown on an 
authenticated landing certificate

[[Page 9]]

or similar document issued by an official of the government of the 
importing country; or the date of export established by such other proof 
of export as is acceptable to the Licensing Authority.
    (e) Date of Transfer means the date of shipment of sugar transferred 
from a refiner to a manufacturer.
    (f) Department means the United States Department of Agriculture.
    (g) Drawback and drawback entry have the meanings ascribed to them 
in 19 CFR part 191.
    (h) Enter or entry, with respect to sugar imported into the customs 
territory of the United States, refers to sugar that is entered or 
withdrawn from warehouse for consumption.
    (i) HTS means the Harmonized Tariff Schedule of the United States.
    (j) License means a license, issued by the Secretary through the 
Licensing Authority, which permits the entry, in accordance with the 
provisions of this subpart, of raw cane sugar described in subheading 
1701.11.02 of the HTS for the purpose of being refined and re-exported 
in refined form or of being transferred to a manufacturer under the 
provisions of subpart B of this part.
    (k) Licensee means a refiner to whom a license has been issued 
pursuant to the provisions of this subpart.
    (l) Licensing Authority means the Team Leader, import Quota 
Programs, import Policies and Trade Analysis Division, Foreign 
Agricultural Service, U.S. Department of Agriculture, or the Team 
Leader's designee.
    (m) Manufacturer means a person who is the recipient of a transfer 
of refined sugar from a refiner, who uses the sugar to produce a sugar 
containing product within the customs territory of the United States, 
and who exports or causes to be exported such product under a license 
issued under the provisions of subpart B of this part.
    (n) Notice of Transfer means a document, in form and substance 
satisfactory to the Licensing Authority, that is signed by both the 
licensee and a manufacturer certifying delivery of a specified quantity 
of refined sugar, corresponding to sugar imported under the provisions 
of this subpart, from the licensee to the manufacturer.
    (o) Number 11 contract price means the daily closing price per pound 
of raw sugar for the nearby Number 11 contract of the New York Coffee, 
Sugar and Cocoa Exchange.
    (p) Number 14 contract price means the daily closing price per pound 
of raw sugar for the nearby Number 14 contract of the New York Coffee, 
Sugar and Cocoa Exchange.
    (q) Person means any individual, partnership, corporation, 
association, estate, trust or any other business enterprise or legal 
entity.
    (r) Program means the licensing program provided for in the 
regulations in this subpart and includes the requirements and 
limitations of HTS subheading 1701.11.02 and additional U.S. note 3.
    (s) Raw value means, for a given quantity of sugar, the equivalent 
of that quantity of sugar in terms of ordinary commercial raw sugar 
testing 96 degrees by the polariscope as determined in accordance with 
regulations issued by the Secretary of the Treasury (19 CFR part 151, 
subpart B).
    (t) Refined sugar means commercial refined sugar testing 99.7 
degrees or above by the polariscope as determined in accordance with 
regulations issued by the Secretary of the Treasury.
    (u) Refiner means any person in the United States who engages in the 
processing (refining) of raw sugar into refined sugar by substantially 
subjecting the raw sugar to the processes of affination or defecation, 
clarification, and further purification by absorption or 
crystallization.
    (v) Sugar containing product means any product (other than articles 
described in subheadings 1701.11.01, 1701.11.02, 1701.11.03, 1701.12.01, 
1701.12.02, 1701.91.21, 1701.91.22, 1701.99.01, 1701.99.02, 1702.90.31, 
1702.90.32, 1806.10.41, 1806.10.42, 2106.90.11 and 2106.90.12 of the 
HTS) to which sugar has been added as an ingredient and which is to be 
exported without further processing.



Sec. 1530.101  Application for a license.

    (a) An applicant for a license must apply in writing to the 
Licensing Authority. The letter of application shall contain at a 
minimum the following information:

[[Page 10]]

    (1) The name and address of the applicant and of the refinery or 
refineries at which the raw cane sugar entered under subheading 
1701.11.02 will be processed (refined);
    (2) The license amount requested, not to exceed the maximum license 
amount;
    (3) A description of the kind and polarity of refined sugars to be 
exported or transferred;
    (4) The name of the firm that will establish a performance bond in 
favor of the United States Government on behalf of the applicant; and
    (5) A certification that the refiner shall:
    (i) Refine a quantity of sugar equal to the quantity of sugar 
entered under the license;
    (ii) Export or transfer such sugar or corresponding sugar within the 
applicable time limits; and
    (iii) Shall not request credit on the refiner's license, if such 
license is issued, for the exportation or transfer of any refined sugar, 
or if such credit has been granted, shall promptly (within 5 business 
days of the filing of a drawback entry) notify the Licensing Authority 
and request that such credit be revoked, if the exportation of such 
refined sugar or any sugar containing product manufactured with the use 
of such transferred sugar has resulted in, or has been used as the basis 
of a claim by the licensee or any other person for, a refund, as 
drawback, of any duties paid on the importation of any sugars, syrups or 
molasses described in subheadings 1701.11.03, 1701.12.02, 1701.91.22, 
1701.99.02, 1702.90.32, 1806.10.42, or 2106.90.12 of the HTS.
    (b) A licensee shall promptly notify the Licensing Authority if any 
of the information described in paragraph (a) of this section has 
changed and shall submit an amended application upon the request of the 
Licensing Authority.
    (c) The Licensing Authority may waive any provisions of this section 
for good cause if it is determined that such a waiver will not adversely 
affect the purposes of this program.



Sec. 1530.102  Issuance of a license.

    (a) The Secretary of Agriculture, through the Licensing Authority, 
may issue a license to a refiner under which the refiner may import 
sugar described in HTS subheading 1701.11.02 in accordance with the 
provisions of this program. The license may contain such conditions, 
limitations or restrictions as the Licensing Authority determines to be 
appropriate for the purposes of this program. The Licensing Authority 
may add or modify such conditions, limitations or restrictions at such 
time and in such manner as the Licensing Authority, in his or her 
discretion, determines to be necessary or appropriate for the purposes 
of this program. A refiner may hold only one license at any given time.
    (b) A quantity of refined sugar equivalent to the quantity of sugar, 
raw value, imported under a license, adjusted in accordance with 
Sec. 1530.107 of this subpart, must be exported within 90 days of the 
date of entry of such sugar or must be transferred to a manufacturer 
within 90 days of the date of entry of such sugar.
    (c) The maximum license amount is 50,000 metric tons of sugar, raw 
value. Quantities of sugar imported under the license will be charged to 
the license and quantities of refined sugar exported or transferred will 
be credited to the license as provided in Sec. 1530.107. At no time may 
the outstanding balance of charges or credits exceed the maximum license 
amount except as a result of adjustments for polarization made pursuant 
to Sec. 1530.107(c).
    (d) The licensee shall reserve all rights, if any, to claim drawback 
refunds with respect to the exportation or transfer of refined sugar 
under this program. No credit on a license shall be made if any refund, 
as drawback, of any duties paid on the importation of any sugars, syrups 
or molasses described in subheadings 1701.11.03, 1701.12.02, 1701.91.22, 
1701.99.02, 1702.90.32, 1806.10.42, or 2106.90.12 of the HTS is claimed 
or received on the basis, or as a result, of the exportation of such 
refined sugar or any sugar containing products manufactured with the use 
of such transferred sugar.
    (e) If a licensee has made a full settlement of the balance on a 
license, the licensee may surrender the license on terms and conditions 
acceptable to the Licensing Authority. A licensee may,

[[Page 11]]

with the written permission of the Licensing Authority, transfer a 
license to another refiner who does not hold a license, subject to such 
terms and conditions as the Licensing Authority may impose as he or she 
determines to be necessary or appropriate to carry out the purposes of 
this subpart.
    (f) The licensee may utilize an agent to import, export or make 
transfers of sugar. The licensee must provide to the Licensing Authority 
a written authorization designating such person to act as an agent for 
the purpose of importing, exporting or transferring sugar. If the 
licensee uses an agent to export the refined sugar, the licensee shall 
notify the Licensing Authority in writing of the agent's identity, and 
the agent shall certify to the Licensing Authority in writing that the 
refined sugar has been exported from the customs territory of the United 
States.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30863, July 8, 1991]



Sec. 1530.103  Bond requirements.

    (a) Unless the licensee has posted a performance bond with the U.S. 
Customs Service which is satisfactory to the Licensing Authority with 
respect to the requirements of this program, the licensee shall post a 
performance bond which meets the requirements of this section with the 
Licensing Authority. However, no bond will be required for the quantity 
of any sugar imported under license that corresponds to a quantity of 
sugar that has been exported or transferred prior to the importation of 
such sugar and credited to the license in accordance with Sec. 1530.107, 
provided that the Licensing Authority issues a written waiver of the 
bond requirement.
    (b) A bond may cover entries made either during the period of time 
specified in the bond (term bond) or for a specified entry (single entry 
bond).
    (c) Only the licensee who will process (refine) the sugar may be the 
principal on a bond to cover such sugar to be re-exported in refined 
form. The surety or sureties shall be among those listed by the 
Secretary of the Treasury as acceptable on Federal bonds.
    (d) The obligation under the bond shall be made effective as of the 
date of entry of the imported sugar.
    (e) The amount of the bond shall be equal to 20 cents per pound of 
sugar imported under the license.
    (f) The appropriate customs official or the Licensing Authority, as 
appropriate, will release the obligation under the bond by 20 cents per 
pound for the quantity of sugar credited to the license in accordance 
with Sec. 1530.107.
    (g) If the licensee fails to qualify for a credit to the license 
within 95 days of the date of export of corresponding sugar in an amount 
sufficient to offset the charge to the license for that corresponding 
sugar or if such a credit initially granted is subsequently revoked, 
payment will be made to the United States of America under the bond of a 
monetary amount equal to the difference between the Number 11 contract 
price and the Number 14 contract price, per pound of raw sugar, in 
effect on the last market day before the date of entry of the sugar or 
the last market day before the end of the period during which export was 
required, whichever difference is greater, times the quantity of refined 
sugar, converted to raw value, that should have been, but was not, 
exported in timely compliance with the requirements of this subpart. In 
the event no Number 11 contract price or Number 14 contract price is 
reported by the New York Coffee, Sugar and Cocoa Exchange, for the 
relevant market day, the Licensing Authority may estimate such price as 
he or she deems appropriate.
    (h) Within 10 business days of the date of issuance of a license, 
the licensee shall submit to the Licensing Authority a copy of the 
performance bond.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30863, July 8, 1991]



Sec. 1530.104  Entry of sugar.

    (a) The licensee shall be permitted to enter imported sugar under 
subheading 1701.11.02 of the HTS in conformity with the conditions, 
limitations and restrictions of the license, the provisions of this 
subpart and additional U.S. note 3, and any other procedures specified 
by the Licensing Authority.
    (b) The licensee must present the license to the appropriate U.S. 
Customs Service official at the time of entry.

[[Page 12]]

Such customs official will mark on the license:
    (1) The quantity of sugar entered;
    (2) The date of entry; and
    (3) The customs entry number.
    (c) The licensee shall submit to the Licensing Authority a copy of 
the license, as marked by the customs official, within 10 business days 
after each entry of sugar.
    (d) The licensee shall submit to the Licensing Authority a 
statement, certified as true and accurate, of the polarization and 
weight of the imported sugar to be charged to the license. This 
statement must adequately identify the imported sugar and state the 
basis for the determination of the polarization of the sugar. The basis 
for such determination must be either the settlement polarization or 
some other means approved by the Licensing Authority.



Sec. 1530.105  Proof of export and notice of drawback claims.

    (a) The licensee shall provide a written certification that he or 
she has exported a specified quantity of refined sugar. The 
certification shall include:
    (1) The licensee's name, address, and license number;
    (2) A description of the refined sugar exported, the polarity of 
such sugar, and its weight;
    (3) An identification of the imported sugar to which the exported 
sugar corresponds, including the quantity and polarization of the 
imported sugar;
    (4) The date of export, the port or point from which exported, the 
bill of lading number(s), and an identification of the vessel or other 
export carrier and any agent used in connection with the export;
    (5) The country of destination and foreign consignee;
    (6) The entry number of a claim, if any, by the licensee or any 
other person for a refund, as drawback, of any duties paid on the 
importation of any sugars, syrups or molasses described in subheadings 
1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, 
or 2106.90.12 of the HTS on the basis, or as a result, of the 
exportation of the refined sugar and the amount of such refund; and
    (7) A statement that the sugar has been exported from the customs 
territory of the United States, that the licensee has reserved all 
rights to claim drawback refunds, and that no refund, as drawback, of 
any duties paid on the importation of any sugars, syrups or molasses 
described in subheadings 1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 
1702.90.32, 1806.10.42, or 2106.90.12 of the HTS has been or will be 
claimed or received on the basis, or as a result, of the exportation of 
the refined sugar.
    (b) The certification must be submitted to the Licensing Authority 
within 95 days of the date of export. The Licensing Authority will not 
credit the license for sugar exported unless satisfactory and timely 
certification is received.
    (c) Notice of drawback claims. Whenever the licensee knows or has 
reason to know that any claim has been made, by the licensee or any 
other person for a refund, as drawback, of any duties paid on the 
importation of any sugars, syrups or molasses described in subheading 
1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, 
or 2106.90.12 of the HTS on the basis, or as a result, of the 
exportation of refined sugar under this program or of sugar containing 
products produced from sugar transferred from the licensee to a 
manufacturer, under the provisions of subpart B of this part, the 
licensee shall within 5 business days provide a written notification to 
the Licensing Authority. This notification shall include the following 
information, if known or reasonably believed to be true by the licensee:
    (1) The licensee's name, address, and license number;
    (2) A description of the refined sugar or sugar containing products 
exported, and the weight of such refined sugar or sugar containing 
products;
    (3) An identification of the imported sugar to which the exported 
sugar or sugar contained in the exported sugar containing products 
corresponds, including the quantity of the imported sugar;
    (4) The date of export, the port or point from which exported, the 
bill of lading number(s), and an identification of the vessel or other 
export carrier and any agent used in connection with the export;

[[Page 13]]

    (5) The country of destination and foreign consignee;
    (6) The entry number of the drawback claim and the amount of such 
refund of duties; and
    (7) The identity of the person who filed such drawback entry.
    (d) The Licensing Authority may waive any of the provisions of this 
section if compliance with the relevant provisions of HTS subheading 
1701.11.02, additional U.S. note 3, and all other regulations in this 
subpart is otherwise established to the Licensing Authority's 
satisfaction.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30863, July 8, 1991]



Sec. 1530.106  Transfer of sugar.

    (a) Transfers of sugar from a licensee to a manufacturer must 
conform with the conditions of the license, the provisions of this 
program and the program provided for in subpart B of this part, and any 
other procedures specified by the Licensing Authority.
    (b) Refined sugar transferred under a license must be shipped by the 
licensee to the manufacturer within 90 days of the date of entry of the 
sugar entered under subheading 1701.11.02 of the HTS to which the 
refined sugar corresponds.
    (c) The licensee shall submit to the Licensing Authority, within 10 
business days of the transfer of sugar, a Notice of Transfer which must 
adequately identify the refined sugar transferred by the licensee, 
including the polarization and weight of the transferred sugar and the 
date of transfer.
    (d) The licensee may make transfers of refined sugar to more than 
one manufacturer; however, the combined total of such transfers may not 
exceed the maximum license amount.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30863, July 8, 1991]



Sec. 1530.107  Charges and credits to licenses.

    (a) Charges will be made to a license, effective as of the date of 
entry, for quantities of sugar (adjusted on the basis set forth in 
paragraph (c) of this section to determine raw value) entered under the 
license, when the licensee submits the information required by 
Sec. 1530.104 or when the Licensing Authority otherwise determines that 
the licensee has made an entry under subheading 1701.11.02 of the HTS.
    (b) At the request of the licensee and upon satisfactory and timely 
proof that the licensee has complied with all of the requirements of 
this program, the Licensing Authority will credit a license for:
    (1) Quantities of refined sugar, adjusted pursuant to paragraph (c) 
of this section, for which proof of export has been submitted in 
accordance with the provisions of Sec. 1530.105 of this subpart, but 
such credit, if granted conditionally, will become final only when the 
Licensing Authority is satisfied that no refund, as drawback, of any 
duties paid on the importation of any sugars, syrups or molasses 
described in subheadings 1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 
1702.90.32, 1806.10.42, or 2106.90.12 of the HTS has been or will be 
claimed or received on the basis, or as a result, of the exportation of 
the refined sugar;
    (2) Quantities of refined sugar, adjusted pursuant to paragraph (c) 
of this section, for which a Notice of Transfer has been submitted to 
the Licensing Authority in accordance with Sec. 1530.106 of this 
subpart; and
    (3) Quantities of sugar charged to the license which the Licensing 
Authority determines have been destroyed, lost in processing the sugar, 
or otherwise disposed of so as to render the exportation or transfer of 
a corresponding quantity of sugar impossible or unnecessary.
    (c) Adjustments of the quantities of imported sugar charged to the 
license and refined sugar exports credited to the license will be made 
as follows:
    (1) To obtain the raw value for imported sugar with a polarization 
of 92 degrees or above, the adjustment will be made by multiplying the 
polarization times 0.0175, subtracting 0.68 from this product, and 
multiplying the difference by the weight. Expressed algebraically, this 
formula is: [(polarization X 0.0175) -0.68] X weight.
    (2) To obtain the raw value for imported sugar with a polarization 
of less than 92 degrees, the adjustment will be made by dividing the 
total sugar content by 0.972.
    (3) To determine the quantity of refined sugar that must be exported 
to

[[Page 14]]

equal a corresponding quantity of imported sugar charged to a license, 
the adjustment will be made by dividing the quantity of sugar imported, 
expressed in raw value, by 1.07.
    (d) The Licensing Authority may revoke any credit previously made to 
a license is the Licensing Authority determines, on the basis of 
evidence obtained after the credit was granted, that the licensee had 
not complied with all of the requirements of this subpart or if the 
exported sugar is re-exported or returned to the customs territory of 
the United States without having undergone a substantial transformation.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30863, July 8, 1991]



Sec. 1530.108  Replacement of sugars; substitution of sugars.

    (a) The sugar exported or transferred does not have to be the same 
sugar that was entered under subheading 1701.11.02 of the HTS.
    (b) Exportation or transfer of sugar for credit to the license may 
occur any time after the date on which the license was issued by the 
Licensing Authority. Any quantity of sugar exported or transferred after 
the date on which the license was issued, but prior to the entry of the 
corresponding sugar, will be treated as having been exported or 
transferred within the time limits of Sec. 1530.102(b).



Sec. 1530.109  Records.

    (a) Each licensee requesting credit in accordance with 
Sec. 1530.107(b) shall keep records to establish for all refined sugar 
exported under the provisions of this program:
    (1) The quantity and identity of the sugar, raw value, entered under 
subheading 1701.11.02 of the HTS;
    (2) The date or inclusive dates of processing (refining);
    (3) The quantity and description of the articles produced, and their 
polarities;
    (4) The quantity of sugar, refined basis, exported under the 
provisions of this subpart;
    (5) The quantity of sugar, refined basis, transferred to a 
manufacturer under the provisions of this subpart, and the identity of 
such manufacturer;
    (6) The country of destination, foreign consignee, date of export, 
port, export carrier and any agent used in connection with the export 
and all documents relating to such exportation, including but not 
limited to an original, certified U.S. Customs Service Form 7512, an 
original bill of lading or copy of a U.S. Customs Service Form 7511, and 
any contract, invoice, bill of lading, dock receipt, ship's manifest, or 
copies thereof; and
    (7) Any drawback entry, including all related documents, filed by 
the licensee or any other person for a refund, as drawback, of any 
customs duties paid on the importation of any sugars, syrups or molasses 
described in subheadings 1701.11.01, 1701.11.02, 1701.11.03, 1701.12.01, 
1701.12.02, 1701.91.21, 1701.91.22, 1701.99.01, 1701.99.02, 1702.90.31, 
1702.90.32, 1806.10.41, 1806.10.42, 2106.90.11 and 2106.90.12 of the HTS 
on the basis, or as a result, of the exportation of the refined sugar 
and the amount of any such refund paid.
    (b) All records required by this section to be kept by a licensee 
shall be retained for at least 5 years after a license is credited for 
the exportation or transfer of the refined sugar.
    (c) The licensee must, upon request, make the records covered by 
this section available for inspection and copying by the Licensing 
Authority or other appropriate official of the Federal Government.
    (d) If, after inspection of the records, the Licensing Authority 
determines that such records are inadequate to establish that the 
imported sugar was refined by the licensee, sugar was lost or destroyed 
or otherwise disposed of to render exportation or transfer impossible or 
unnecessary, refined sugar was exported, drawback of duties paid on the 
importation of any sugars, syrups or molasses described in subheadings 
1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, 
or 2106.90.12 of the HTS was not claimed or received on the basis, or as 
a result, of the exportation of the refined sugar, or any other 
requirement of this program was complied with, the Licensing Authority 
may revoke credits granted for the appropriate quantity of sugar.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30864, July 8, 1991]

[[Page 15]]



Sec. 1530.110  Enforcement.

    (a) If at any time after receiving the proof of export described in 
Sec. 1530.105 of this subpart, the Licensing Authority determines that 
the export of a quantity of refined sugar corresponding to the quantity 
of sugar entered under the license did not occur, and if the bond has 
been released under Sec. 1530.103, the Licensing Authority may hold the 
licensee liable for the difference between the Number 11 contract price 
and the Number 14 contract price, per pound of raw sugar, in effect on 
the last market day before the date of entry of the sugar or the last 
market day before the end of the period during which export was 
required, whichever difference is greater, times the quantity of refined 
sugar, converted to raw value, that should have been, but was not, 
exported. In the event no Number 11 contract price or Number 14 contract 
price is reported by the New York Coffee, Sugar and Cocoa Exchange, for 
the relevant market day, the Licensing Authority may estimate such price 
as he or she deems appropriate.
    (b) If at any time after receiving the licensee's certification that 
no refund, as drawback, of any duties paid on the importation of any 
sugars, syrups or molasses described in subheadings 1701.11.03, 
1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, or 
2106.90.12 of the HTS has been or will be claimed or received on the 
basis, or as a result, of the exportation of any refined sugar, the 
Licensing Authority determines that a refund of such customs duties has 
been claimed or received by the licensee or any other person, and if the 
bond has been released under Sec. 1530.103, the Licensing Authority may 
hold the licensee liable for the difference between the Number 11 
contract price and the Number 14 contract price, per pound of raw sugar, 
in effect on the last market day before the date of entry of the sugar 
or the last market day before the end of the period during which export 
was required, whichever difference is greater, times the quantity of 
sugar, converted to raw value, that should have been, but was not, 
exported. In the event no Number 11 contract price or Number 14 contract 
price is reported by the New York Coffee, Sugar and Cocoa Exchange, for 
the relevant market day, the Licensing Authority may estimate such price 
as he or she deems appropriate.
    (c) If at any time the Licensing Authority determines that a 
licensee has failed to comply with the requirements of this subpart, 
including the requirements of HTS subheading 1701.11.02 and of the 
relevant provisions of additional U.S. note 3, the Licensing Authority 
may, after notice to the licensee, suspend or revoke the license issued 
to the licensee under this program and may refuse to issue a license to 
that refiner. The Licensing Authority may suspend or revoke a license if 
claims are filed under 19 CFR part 191 for the refund, as drawback, of 
any duties paid on the importation of any sugars, syrups or molasses 
described in subheadings 1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 
1702.90.32, 1806.10.42, or 2106.90.12 of the HTS on the basis, or as a 
result, of the exportation of refined sugar under this program or if any 
claim under 19 CFR part 191 is denied on the basis that such refined 
sugar was not exported.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30864, July 8, 1991]



Sec. 1530.111  Appeals.

    (a) Any action or determination of the Licensing Authority under 
this subpart may be appealed to the Director, Import Policies and Trade 
Analysis Division, Foreign Agricultural Service (FAS), within 30 days 
from the date of notification. The appeal must be presented in writing 
and must specifically state any reason as to why such determination 
should not stand. The Director, Import Policies and Trade Analysis 
Division, FAS, will provide such person with an opportunity for an 
informal hearing on such matter.
    (b) A further appeal from the final decision of the Director, Import 
Policies and Trade Analysis Division, FAS, may be made to the 
Administrator, FAS, within five business days of the notification of the 
decision of the Director, Import Policies and Trade Analysis Division, 
FAS.



Sec. 1530.112  Waivers.

    Upon written application of the licensee, the Licensing Authority 
may

[[Page 16]]

extend the period for the export of refined sugar, may temporarily 
increase the maximum amount of the license, may extend the period for 
submitting proof of export, or may temporarily waive or modify any other 
requirement imposed by this subpart if such waiver or modification is 
necessary or appropriate under unusual, unforeseen or extraordinary 
circumstances and will not frustrate the purposes of this program and if 
compliance with the relevant provisions of HTS subheading 1702.11.02, 
additional U.S. note 3 is established to the Licensing Authority's 
satisfaction. The Licensing Authority may specify additional 
requirements or procedures in place of the requirements or procedures 
waived or modified.



Sec. 1530.113  Expiration of licenses.

    (a) The licenses issued under this program shall expire upon written 
notice to the licenses by the Licensing Authority. The notice will state 
the date on which the licensees will expire and any other details 
applicable to the expiration of the licenses.
    (b) If there have been no charges or credits on the License within 
12 months of the date on which the license was issued, or any subsequent 
period of 18 months, the license may be deemed to have expired.



Sec. 1530.114  Paperwork Reduction Act assigned number.

    The Office of Management and Budget has approved the information 
collection requirements contained in these regulations in accordance 
with 44 U.S.C. chapter 35 and OMB number 0551-0015 has been assigned.



Sec. 1530.115  Transitional provisions.

    (a) All licenses issued to refiners prior to October 1, 1990, 
pursuant to the former provisions of 7 CFR 6.101, are canceled effective 
October 9, 1990.
    (b) Any refiner who, on September 30, 1990, held a license which had 
a balance of charges and credits other than zero and which is canceled 
pursuant to paragraph (a) of this section may be issued a new license 
upon such refiner's agreement to:
    (1) Fully settle the balance outstanding on such previous license, 
by bringing such balance to zero;
    (2) Comply with all the provisions of this subpart, subheading 
1701.11.02 of the HTS, and additional U.S. note 3; and
    (3) Comply with any terms, conditions and procedures imposed by the 
Licensing Authority in order to assure an orderly transition.
    (c) During the transitional period between October 1, 1990, and the 
promulgation of a final rule to replace the interim rule issued on 
October 9, 1990, the Licensing Authority may modify or waive any 
requirement of this subpart, including the requirements that a refiner 
make a written application for a license prior to the issuance of the 
license and make a written application for a waiver under Sec. 1530.111 
of this subpart, if the Licensing Authority determines such modification 
or waiver is necessary or appropriate to assure an orderly transition 
and will not frustrate the purposes of this program.



     Supbart B--Sugar To Be Re-exported in Sugar Containing Products



Sec. 1530.200  Definitions.

    For purposes of this subpart, unless the context indicates 
otherwise, the following words and phrases have the meanings ascribed to 
them:
    (a) Additional U.S. note 3 means paragraph (c) of additional U.S. 
note 3 to chapter 17 of the HTS.
    (b) Agent means customs house broker, freight forwarder, sugar 
refiner, or other person authorized to act on behalf of the licensee.
    (c) Corresponding sugar means the identical sugar entered under 
subheading 1701.11.02 of the HTS, such sugar after having been refined, 
or other sugar substituted for, or in replacement of, such imported or 
refined sugar in accordance with Secs. 1530.108 and 1530.207 of this 
part.
    (d) Date of entry is the date when the U.S. Customs Service entry 
form is properly executed and deposited, together with any estimated 
duties and special import fees and any related documents required by law 
or regulation to be filed with such form at the time of entry with the 
appropriate customs official.

[[Page 17]]

    (e) Date of export means the on-board date of an ocean carrier bill 
of lading or an airway bill or on-board date of an intermodal bill of 
lading; if exported by rail or truck, the date of entry shown on an 
authenticated landing certificate or similar document issued by an 
official of the government of the importing country; or the date of 
export established by such other proof of export as is acceptable to the 
Licensing Authority.
    (f) Date of Transfer means the date of shipment of sugar transferred 
from a refiner to a manufacturer.
    (g) Drawback and drawback entry have the meanings ascribed to them 
in 19 CFR part 191.
    (h) Enter or entry, with respect to sugar imported into the customs 
territory of the United States, refers to sugar that is entered or 
withdrawn from warehouse for consumption.
    (i) HTS means the Harmonized Tariff Schedule of the United States.
    (j) License means a license, issued by the Secretary through the 
Licensing Authority, which permits the transfer, in accordance with the 
provisions of this subpart, of refined sugar, corresponding to sugar 
imported under subpart A of this part, from a refiner to a manufacturer.
    (k) Licensee means a manufacturer to whom a license has been issued 
pursuant to the provisions of this subpart.
    (l) Licensing Authority means the Team Leader, Import Quota 
Programs, Import Policies and Trade Analysis Division, Foreign 
Agricultural Service, U.S. Department of Agriculture, or the Team 
Leader's designee.
    (m) Manufacturer means a person who is the recipient of a transfer 
or refined sugar from a refiner, who uses the sugar to produce a sugar 
containing product within the customs territory of the United States, 
and who exports or causes to be exported such product.
    (n) Notice of Transfer means a document, in form and substance 
satisfactory to the Licensing Authority, that is signed by both a 
refiner and the licensee certifying delivery of a specified quantity of 
refined sugar, corresponding to sugar imported under the provisions of 
subpart A of this part, from the refiner to the licensee.
    (o) Number 11 contract price means the daily closing price per pound 
of raw sugar for the nearby Number 11 contract of the New York Coffee, 
Sugar and Cocoa Exchange.
    (p) Number 14 contract price means the daily closing price per pound 
of raw sugar for the nearby Number 14 contract of the New York Coffee, 
Sugar and Cocoa Exchange.
    (q) Person means any individual, partnership, corporation, 
association, estate, trust or any other business entity.
    (r) Program means the licensing program provided for in the 
regulations in this subpart and includes the requirements and 
limitations of HTS subheading 1701.11.02 and additional U.S. note 3.
    (s) Raw value means, for a given quantity of sugar, the equivalent 
of that quantity of sugar in terms of ordinary commercial raw sugar 
testing 96 degrees by the polariscope as determined in accordance with 
regulations issued by the Secretary of the Treasury.
    (t) Refiner means any person in the United States who engages in the 
processing (refining) of raw sugar into refined sugar by substantially 
subjecting the raw sugar to the processes of (1) affination or 
defecation, (2) clarification, and (3) further purification by 
absorption or crystallization and who holds a license issued under the 
regulations in subpart A of this part.
    (u) Sugar means commercial refined sugar testing 99.7 degrees or 
above by the polariscope as determined in accordance with regulations 
issued by the Secretary of the Treasury.
    (v) Sugar containing product means any product (other than articles 
described in subheadings 1701.11.01, 1701.11.02, 1701.11.03, 1701.12.01, 
1701.12.02, 1701.91.21, 1701.91.22, 1701.99.01, 1701.99.02, 1702.90.31, 
1702.90.32, 1806.10.41, 1806.10.42, 2106.90.11 and 2106.90.12 of the 
HTS) to which sugar has been added as an ingredient and which is to be 
exported without further processing.
    (w) Valueless sugar means sugar which has no commercial recovery 
value.

[[Page 18]]



Sec. 1530.201  Application for a license.

    (a) An applicant for a license must apply in writing to the 
Licensing Authority. The letter of application shall contain as a 
minimum the following information:
    (1) The name and address of the applicant and of the facility or 
facilities at which transferred sugar will be used to manufacture the 
sugar containing product(s);
    (2) The license amount requested, not to exceed the maximum license 
amount;
    (3) A description of the kind and polarity of refined sugar to be 
received from a refiner(s);
    (4) The name of the firm that will establish a performance bond in 
favor of the United States Government on behalf of the applicant;
    (5) A description of the sugar containing product(s) to be exported 
and estimated sugar content of such product(s); and
    (6) A certification that the manufacturer shall:
    (i) Use a quantity of sugar equal to the quantity of sugar 
transferred under the license to manufacture sugar containing products;
    (ii) Export such sugar containing products within the applicable 
time limits; and
    (iii) Shall not request credit on the manufacturer's license, if 
such license is issued, for the exportation of any sugar containing 
products, or if such credit has been granted, shall promptly (within 5 
business days of the filing of a drawback entry) notify the Licensing 
Authority and request that such credit be revoked, if the exportation of 
such sugar containing product manufactured with the use of such 
transferred sugar has resulted in, or has been used as the basis of a 
claim by the licensee or any other person for, a refund, as drawback, of 
any duties paid on the importation of any sugars, syrups or molasses 
described in subheadings 1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 
1702.90.32, 1806.10.42, or 2106.90.12 of the HTS.
    (b) A licensee shall promptly notify the Licensing Authority if any 
of the information described in paragraph (a) of this section has 
changed and shall submit an amended application upon the request of the 
Licensing Authority.
    (c) The Licensing Authority may waive any provisions of this section 
for good cause if it is determined that such a waiver will not adversely 
affect the purposes of this program.



Sec. 1530.202  Issuance of a license.

    (a) The Secretary of Agriculture, through the Licensing Authority, 
may issue a license to a manufacturer under which the manufacturer, in 
accordance with the provisions of this program, may receive transfers of 
sugar from refiners for the purpose of manufacturing sugar containing 
products to be exported. The license may contain such conditions, 
limitations, or restrictions as the Licensing Authority determines to be 
appropriate for the purposes of this program. The Licensing Authority 
may add or modify such conditions, limitations or restrictions at such 
time and in such manner as the Licensing Authority, in his or her 
discretion, determines to be necessary or appropriate for the purposes 
of this program.
    (b) A quantity of sugar equivalent to the quantity of sugar 
transferred under a license must be exported in a sugar containing 
product within 18 months of the date of transfer from the refiner. 
However, the Licensing Authority may credit a license for valueless 
sugar lost in normal product manufacture.
    (c) The maximum license amount is 10,000 short tons (20 million 
pounds) of sugar. Quantities of sugar transferred under the license will 
be charged to the license and quantities of sugar contained in sugar 
containing products exported will be credited to the license as provided 
in Sec. 1530.206. At no time may the outstanding balance of charges or 
credits exceed the maximum license amount.
    (d) The licensee shall reserve all rights, if any, to claim drawback 
refunds with respect to the exportation of sugar containing products 
under this program. No credit on a license shall be made if any refund, 
as drawback, of any duties paid on the importation of any sugars, syrups 
or molasses described in subheading 1701.11.03, 1701.12.02, 1701.91.22, 
1701.99.02, 1702.90.32, 1806.10.42, or 2106.90.12 of the HTS is claimed 
or received on the basis, or as

[[Page 19]]

a result, of the exportation of the sugar containing product.
    (e) If a licensee has made a full settlement of the balance on a 
license, the licensee may surrender the license on terms and conditions 
acceptable to the Licensing Authority. A licensee may, with the written 
permission of the Licensing Authority, transfer a license to another 
manufacturer who does not hold a license, subject to such terms and 
conditions as the Licensing Authority may impose as he or she determines 
to be necessary or appropriate to carry out the purposes of this 
subpart.
    (f) The licensee may utilize an agent for the transfer of refined 
sugar or the exportation of sugar containing products. The agent must, 
upon request, produce for inspection by the Licensing Authority written 
authorization designating such person to act as an agent for the purpose 
of receiving transferred sugar. If the licensee uses an agent to export 
sugar containing products, the licensee shall notify the Licensing 
Authority in writing of the agent's identity, and the agent shall 
certify to the Licensing Authority in writing that the sugar containing 
products have been exported from the customs territory of the United 
States.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30864, July 8, 1991]



Sec. 1530.203  Bond requirements.

    (a) A licensee shall post a performance bond, which meets the 
requirements of this section, with the Licensing Authority. However, no 
bond will be required for the quantity of any sugar transferred under 
license that corresponds to a quantity of sugar that has been exported 
in sugar containing products prior to the transfer of such sugar and 
credited to the license in accordance with Sec. 1530.206, provided that 
the Licensing Authority issues a written waiver of the bond requirement.
    (b) A bond may cover transfers made either during the period of time 
specified in the bond (term bond) or for a specified transfer (single 
entry bond).
    (c) Only the licensee who will use the sugar may be the principal on 
a bond to cover such sugar to be transferred. The surety or sureties 
shall be among those listed by the Secretary of the Treasury as 
acceptable on Federal bonds.
    (d) The obligation under the bond shall be made effective as of the 
date of transfer of the corresponding sugar.
    (e) The amount of the bond shall be equal to 20 cents per pound of 
sugar transferred under the license.
    (f) The Licensing Authority will release the obligation under the 
bond for transferred sugar by 20 cents per pound for the quantity of 
sugar credited to the license in accordance with Sec. 1530.206, as 
determined by the Licensing Authority.
    (g) If the licensee fails to qualify for a credit to the license 
within 95 days of the date of export of sugar containing products or the 
last date on which such products should have been exported, whichever 
occurs first, in an amount sufficient to offset the charge to the 
license for corresponding sugar, or if such a credit initially granted 
is subsequently revoked, payment will be made to the United States of 
America under the bond of a monetary amount equal to the difference 
between the Number 11 contract price and the Number 14 contract price, 
per pound of raw sugar, in effect on the last market day before the date 
of entry of the sugar or the last marketday before the end of the period 
during which export was required, whichever difference is greater, times 
the quantity of refined sugar, converted to raw value, that should have 
been, but was not, exported in the form of sugar containing products in 
timely compliance with the requirements of this subpart. In the event no 
Number 11 contract price or Number 14 contract price is reported by the 
New York Coffee, Sugar and Cocoa Exchange, for the relevant market day, 
the Licensing Authority may estimate such price as he or she deems 
appropriate.
    (h) Within 10 business days of the date of issuance of a license, 
the licensee shall submit to the Licensing Authority a copy of the 
performance bond.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30865, July 8, 1991]



Sec. 1530.204  Transfer of sugar.

    (a) Transfers of sugar from a refiner to a licensee must conform 
with the

[[Page 20]]

conditions of the license, the provisions of this program and the 
program provided for in subpart A of this part, and any other procedures 
specified by the Licensing Authority.
    (b) Refined sugar transferred under a license must be shipped by the 
refiner to the licensee within 90 days of the date of entry of the sugar 
entered under subheading 1701.11.02 of the HTS to which the refined 
sugar corresponds.
    (c) The licensee shall submit to the Licensing Authority, within 10 
business days of the transfer of sugar, a Notice of Transfer which must 
adequately identify the refined sugar received from a refiner, including 
the weight of the transferred sugar and the date of transfer.
    (d) The licensee may receive transfers of refined sugar from more 
than one refiner, as specified on the application for a license; 
however, the combined total of such transfers may not exceed the maximum 
license amount.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30865, July 8, 1991]



Sec. 1530.205  Proof of export and notice of drawback claims.

    (a) The licensee shall provide a written certification that he or 
she has exported a specified quantity of sugar in sugar containing 
products. The certification shall include:
    (1) The licensee's name, address, and license number;
    (2) The product description, the percentage of sugar in such 
product, and the total weight of sugar contained in the sugar containing 
product exported;
    (3) The percentage of valueless sugar lost in normal product 
manufacture and the quantity of valueless sugar actually lost in the 
manufacture of the product exported;
    (4) The date of export, the port or point from which exported, the 
bill of lading number(s), and an identification of the vessel or other 
export carrier and any agent used in connection with the export;
    (5) The country of destination and foreign consignee;
    (6) An identification of the transferred sugar which corresponds to 
the sugar exported in the sugar containing product, including the 
quantity of the transferred sugar;
    (7) The entry number of a claim, if any, by the licensee or any 
other person for a refund, as drawback, of any duties paid on the 
importation of any sugars, syrups or molasses described in subheadings 
1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, 
or 2106.90.12 of the HTS on the basis, or as a result, of the 
exportation of the sugar containing product and the amount of such 
refund;
    (8) A statement that the sugar containing products have been 
exported, that the licensee has reserved all rights to claim drawback 
refunds, and that no refund, as drawback, of any duties paid on the 
importation of any sugars, syrups or molasses described in subheadings 
1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, 
or 2106.90.12 of the HTS has been or will be claimed or received on the 
basis, or as a result, of the exportation of the sugar containing 
product.
    (b) The certification must be submitted to the Licensing Authority 
within 95 days of the date of export. The Licensing Authority will not 
credit the license for sugar exported in sugar containing products 
unless satisfactory and timely certification is received.
    (c) Notice of drawback claims. Whenever the licensee knows or has 
reason to know that any claim has been made, by the licensee or any 
other person for a refund, as drawback, of any duties paid on the 
importation of any sugars, syrups or molasses described in subheadings 
1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, 
or 2106.90.12 of the HTS on the basis, or as a result, of the 
exportation of sugar containing products produced from sugar transferred 
from a refiner to the licensee or corresponding sugars, under the 
provisions of Sec. 1530.204 of this subpart, the licensee shall within 5 
business days provide a written notification to the Licensing Authority. 
This notification shall include the following information, if known or 
reasonably believed to be true by the licensee:
    (1) The licensee's name, address, and license number;
    (2) A description of the sugar containing products exported, and the 
weight of such sugar containing products;

[[Page 21]]

    (3) An identification of the imported sugar to which the sugar 
contained in the exported sugar containing products corresponds, 
including the quantity of the imported sugar;
    (4) The date of export, the port or point from which exported, the 
bill of lading number(s), and an identification of the vessel or other 
export carrier and any agent used in connection with the export;
    (5) The country of destination and foreign consignee;
    (6) The entry number of the drawback claim and the amount of such 
refund of duties; and
    (7) The identity of the person who filed such drawback entry.
    (d) The Licensing Authority may waive any of the provisions of this 
section if compliance with the relevant provisions of HTS subheading 
1701.11.02, additional U.S. note 3, and all other regulations in this 
subpart is otherwise established to the Licensing Authority's 
satisfaction.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30865, July 8, 1991; 57 
FR 175, Jan. 3, 1992]



Sec. 1530.206  Charges and credits to licenses.

    (a) Charges will be made to a license for quantities of sugar 
transferred under the license, effective as of the date of transfer, 
when the licensee submits the information required by Sec. 1530.204 or 
when the Licensing Authority otherwise determines that a transfer has 
been made.
    (b) At the request of the licensee and upon satisfactory and timely 
proof that the licensee has complied with all of the requirements of 
this program, the Licensing Authority will credit a license for:
    (1) Quantities of sugar in the sugar containing products for which 
proof of export has been submitted in accordance with the provisions of 
Sec. 1530.205 of this subpart, but such credit, if granted 
conditionally, will become final only when the Licensing Authority is 
satisfied that no refund, as drawback, of any duties paid on the 
importation of any sugars, syrups or molasses described in subheadings 
1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, 
or 2106.90.12 of the HTS has been or will be claimed or received on the 
basis, or as a result, of the exportation of the sugar containing 
product; and
    (2) Quantities of sugar charged to the license which the Licensing 
Authority determines have been destroyed, lost in the production 
process, or otherwise disposed of so as to render the use or exportation 
of a corresponding quantity of sugar in sugar containing products 
impossible or unnecessary.
    (c) The Licensing Authority may revoke any credit previously made to 
a license if the Licensing Authority determines, on the basis of 
evidence obtained after the credit was granted, that the licensee had 
not complied with all of the requirements of this subpart or if the 
exported sugar containing products are re-exported or returned to the 
customs territory of the United States without having undergone a 
substantial transformation.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30865, July 8, 1991; 57 
FR 175, Jan. 3, 1992]



Sec. 1530.207  Replacement of sugars; substitution of sugars.

    (a) The sugar exported in sugar containing products does not have to 
be identical to the sugar transferred.
    (b) Exportation of sugar in sugar containing products for credit to 
the license may occur any time after the date on which the license was 
issued by the Licensing Authority. Any quantity of sugar exported in 
sugar containing products after the date on which the license was 
issued, but prior to the transfer of the corresponding sugar, will be 
treated as having been exported within the time limits of 
Sec. 1530.202(b).



Sec. 1530.208  Records.

    (a) Each licensee requesting credit in accordance with 
Sec. 1530.206(b) shall keep records to establish for all sugar 
containing products exported under the provisions of this program:
    (1) The date or inclusive dates of manufacture;
    (2) The quantity and identity of the sugar, refined basis, 
transferred to the licensee under the provisions of this subpart;
    (3) The quantity and description of the articles manufactured;

[[Page 22]]

    (4) The quantity of sugar, refined basis, contained in the sugar 
containing products exported;
    (5) The country of destination, foreign consignee, date of export, 
port, export carrier and any agent used in connection with the export 
and all documents relating to such exportation, including but not 
limited to an original, certified U.S. Customs Service Form 7512, an 
original bill of lading or copy of a U.S. Customs Service Form 7511, and 
any contract, invoice, bill of lading, dock receipt, ship's manifest, or 
copies thereof; and
    (6) Any drawback entry, including all related documents, filed by 
the licensee or any other person for a refund, as drawback, of any 
customs duties paid on the importation of any sugars, syrups or molasses 
described in subheadings 1701.11.01, 1701.11.02, 1701.11.03, 1701.12.01, 
1701.12.02, 1701.91.21, 1701.91.22, 1701.99.01, 1701.99.02, 1702.90.31, 
1702.90.32, 1806.10.41, 1806.10.42, 2106.90.11 and 2106.90.12 of the HTS 
on the basis, or as a result, of the exportation of the sugar containing 
product and the amount of any such refund paid.
    (b) Each licensee requesting credit for valueless sugar lost in 
normal product manufacture, or destroyed or otherwise disposed of, shall 
also keep records to establish the quantity of valueless sugar lost, 
disposed of, or destroyed.
    (c) All records required by this section to be kept by a licensee 
shall be retained for at least 5 years after a license is credited for 
the exportation of the sugar containing product.
    (d) The licensee must, upon request, make the records covered by 
this section available for inspection and copying by the Licensing 
Authority or other appropriate official of the Federal Government.
    (e) If, after inspection of the records, the Licensing Authority 
determines that such records are inadequate to establish that refined 
sugar was transferred, an appropriate sugar containing product was 
manufactured, valueless sugar was lost or destroyed, appropriate sugar 
containing products were exported, drawback of duties paid on the 
importation of any sugars, syrups or molasses described in subheadings 
1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, 
or 2106.90.12 of the HTS was not claimed or received on the basis, or as 
a result, of the exportation of the sugar containing product, or any 
other requirement of this program was complied with, the Licensing 
Authority may revoke credits granted for the appropriate quantity of 
sugar.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30865, July 8, 1991]



Sec. 1530.209  Enforcement.

    (a) If at any time after receiving the proof of export described in 
Sec. 1530.205 of this subpart, the Licensing Authority determines that 
the export of sugar in the form of sugar containing products 
corresponding to the quantity of sugar transferred under the license did 
not occur, and has not been otherwise disposed of or lost in the 
manufacturing process as valueless sugar, and if the bond has been 
released under Sec. 1530.203, the Licensing Authority may hold the 
licensee liable for the difference between the Number 11 contract price 
and the Number 14 contract price, per pound of raw sugar, in effect on 
the last market day before the date of transfer of the sugar or the last 
market day before the end of the period during which export was 
required, whichever difference is greater, times the quantity of sugar, 
converted to raw value, that should have been, but was not, exported in 
sugar containing products. In the event no Number 11 contract price or 
Number 14 contract price is reported by the New York Coffee, Sugar and 
Cocoa Exchange, for the relevant market day, the Licensing Authority may 
estimate such price as he or she deems appropriate.
    (b) If at any time after receiving the licensee's certification that 
no refund, as drawback, of any duties paid on the importation of any 
sugars, syrups or molasses described in subheadings 1701.11.03, 
1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, or 
2106.90.12 of the HTS has been or will be claimed or received on the 
basis, or as a result, of the exportation of any sugar containing 
product, the Licensing Authority determines that a refund of such 
customs duties has been claimed or received by the licensee or any other 
person, and if the bond has been released

[[Page 23]]

under Sec. 1530.203, the Licensing Authority may hold the licensee 
liable for the difference between the Number 11 contract price and the 
Number 14 contract price, per pound of raw sugar, in effect on the last 
market day before the date of transfer of the sugar or the last market 
day before the end of the period during which export was required, 
whichever difference is greater, times the quantity of sugar, converted 
to raw value, that should have been, but was not, exported in sugar 
containing products. In the event no Number 11 contract price or Number 
14 contract price is reported by the New York Coffee, Sugar and Cocoa 
Exchange, for the relevant market day, the Licensing Authority may 
estimate such price as he or she deems appropriate.
    (c) If at any time the Licensing Authority determines that a 
licensee has failed to comply with the requirements of this subpart, 
including the requirements of HTS subheading 1701.11.02 and of the 
relevant provisions of additional U.S. note 3, the Licensing Authority 
may, after notice to the licensee, suspend or revoke the license issued 
to the licensee under this program and may refuse to issue a license to 
that manufacturer. The Licensing Authority may suspend or revoke a 
license if claims are filed under 19 CFR part 191 for the refund, as 
drawback, of any duties paid on the importation of any sugars, syrups or 
molasses described in subheadings 1701.11.03, 1701.12.02, 1701.91.22, 
1701.99.02, 1702.90.32, 1806.10.42, or 2106.90.12 of the HTS on the 
basis, or as a result, of the exportation of a sugar containing product 
under this program or if any other claim under 19 CFR part 191 is denied 
on the basis that the sugar containing product was not exported.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30866, July 8, 1991]



Sec. 1530.210  Appeals.

    (a) Any action or determination of the Licensing Authority under 
this subpart may be appealed to the Director, Import Policies and Trade 
Analysis Division, Foreign Agricultural Service (FAS), within 30 days 
from the date of notification. The appeal must be presented in writing 
and must specifically state any reason as to why such determination 
should not stand. The Director, Import Policies and Trade Analysis 
Division, FAS, will provide such person with an opportunity for an 
informal hearing on such matter.
    (b) A further appeal from the final decision of the Director, Import 
Policies and Trade Analysis Division, FAS, may be made to the 
Administrator, FAS, within five business days of the notification of the 
decision of the Director, Import Policies and Trade Analysis Division, 
FAS.



Sec. 1530.211  Waivers.

    Upon written application of the licensee, the Licensing Authority 
may extend the period for the export of sugar containing products, may 
temporarily increase the maximum amount of the license, may extend the 
period for submitting proof of export, or may temporarily waive or 
modify any other requirement imposed by this subpart if such waiver or 
modification is necessary or appropriate under unusual, unforeseen or 
extraordinary circumstances and will not frustrate the purposes of this 
program and if compliance with the relevant provisions of HTS subheading 
1701.11.02, additional U.S. note 3 is established to the Licensing 
Authority's satisfaction. The Licensing Authority may specify additional 
requirements or procedures in place of the requirements or procedures 
waived or modified.



Sec. 1530.212  Expiration of licenses.

    (a) The licenses issued under this program shall expire upon written 
notice to the licensees by the Licensing Authority. The notice will 
state the date on which the licenses will expire and any other details 
applicable to the expiration of the licenses.
    (b) If there have been no charges or credits on the license within 
12 months of the date on which the license was issued, or any subsequent 
period of 18 months, the license may be deemed to have expired.



Sec. 1530.213  Paperwork Reduction Act assigned number.

    The Office of Management and Budget has approved the information 
collection requirements contained in these regulations in accordance 
with 44

[[Page 24]]

U.S.C. chapter 35 and OMB number 0551-0015 has been assigned.



Sec. 1530.214  Transitional provisions.

    (a) All licenses issued to manufacturers prior to October 1, 1990, 
pursuant to the provisions of 7 CFR 1530.201, under the program for 
``Sugar to be Re-exported in Sugar Containing Products,'' are canceled 
effective October 9, 1990.
    (b) Any manufacturer who, on September 30, 1990, held a license 
which had a balance of charges and credits other than zero and which is 
canceled pursuant to paragraph (a) of this section may be issued a new 
license upon such manufacturer's agreement to:
    (1) Fully settle the balance outstanding on such previous license, 
by bringing such balance to zero;
    (2) Comply with all the provisions of this subpart, subheading 
1701.11.02 of the HTS, and additional U.S. note 3; and
    (3) Comply with any terms, conditions and procedures imposed by the 
Licensing Authority in order to assure an orderly transition.
    (c) During the transitional period between October 1, 1990, and the 
promulgation of a final rule to replace the interim rule issued on 
October 9, 1990, the Licensing Authority may modify or waive any 
requirement of this subpart, including the requirements that a 
manufacturer make a written application for a license prior to the 
issuance of the license and make a written application for a waiver 
under Sec. 1530.210 of this subpart, if the Licensing Authority 
determines such modification or waiver is necessary or appropriate to 
assure an orderly transition and will not frustrate the purposes of this 
program.



        Subpart C--Sugar for the Production of Polyhydric Alcohol



Sec. 1530.300  Definitions.

    For purposes of this subpart, unless the context indicates 
otherwise, the following words and phrases have the meanings ascribed to 
them:
    (a) Additional U.S. note 3 means paragraph (c) of additional U.S. 
note 3 to chapter 17 of the HTS.
    (b) Agent means a licensed customs house broker, freight forwarder, 
or other person authorized to act on behalf of the licensee.
    (c) Date of entry is the date when the U.S. Customs Service entry 
form is properly executed and deposited, together with any estimated 
duties and special import fees and any related documents required by law 
or regulation to be filed with such form at the time of entry with the 
appropriate customs official.
    (d) Drawback and drawback entry have the meanings ascribed to them 
in 19 CFR part 191.
    (e) Enter or entry, with respect to sugar imported into customs 
territory of the United States, refers to sugar that is entered or 
withdrawn from warehouse for consumption.
    (f) HTS means the Harmonized Tariff Schedule of the United States.
    (g) License means a license, issued by the Secretary of Agriculture, 
through the Licensing Authority, which permits the entry, in accordance 
with the provisions of this subpart, of raw cane sugar described in 
subheading 1701.11.02 of the HTS for the sole purpose of producing 
(other than by distillation) polyhydric alcohols, except polyhydric 
alcohols for use as a substitute for sugar in human food consumption.
    (h) Licensee means a manufacturer to whom a license has been issued 
pursuant to the provisions of this subpart.
    (i) Licensing Authority means the Team Leader, Import Quota 
Programs, Import Policies and Trade Analysis Division, Foreign 
Agricultural Service, U.S. Department of Agriculture, or the Team 
Leader's designee.
    (j) Manufacturer means a person who is engaged in the production 
(other than by distillation) of polyhydric alcohols from sugar.
    (k) Number 11 contract price means the daily closing price per pound 
of raw sugar for the nearby Number 11 contract of the New York Coffee, 
Sugar and Cocoa Exchange.
    (l) Number 14 contract price means the daily closing price per pound 
of raw sugar for the nearby Number 14 contract of the New York Coffee, 
Sugar and Cocoa Exchange.
    (m) Person means any individual, partnership, corporation, 
association, estate, trust or any other business enterprise or legal 
entity.

[[Page 25]]

    (n) Program means the licensing program provided for in the 
regulations in this subpart and includes the requirements and 
limitations of HTS subheading 1701.11.02 and additional U.S. note 3.
    (o) Sugar means raw cane sugar described in subheading 1701.11.02 of 
the HTS.



Sec. 1530.301  Application for a license.

    (a) An applicant for a license must apply in writing to the 
Licensing Authority. The letter of application shall contain as a 
minimum the following information:
    (1) The name and address of the applicant and of the facility or 
facilities at which imported sugar will be used to produce polyhydric 
alcohols;
    (2) The license amount requested, not to exceed the anticipated 
requirements of the manufacturer on an annual basis;
    (3) The name of the person that will establish a performance bond in 
favor of the United States Government on behalf of the applicant;
    (4) The anticipated requirements of the manufacturer for sugar to be 
used in the production (other than by distillation) of polyhydric 
alcohols, except polyhydric alcohols for use as a substitute for sugar 
in human food consumption, on an annual basis; and
    (5) The total quantity of polyhydric alcohol produced (other than by 
distillation), except polyhydric alcholols for use as a substitute for 
sugar in human food consumption, by the manufacturer during the previous 
12-month period, and the total quantity of polyhydric alcohol produced 
by the manufacturer during the previous 12-month period.
    (b) An application for a license shall contain a certification that 
the manufacturer shall use the quantity of sugar entered under a license 
solely for the production (other than by distillation) of polyhydric 
alcohols, except polyhydric alcohols for use as a substitute for sugar 
in human food consumption, and that the manufacturer shall notify the 
Licensing Authority, within 95 days of the exportation of any polyhydric 
alcohols, if such exportation has resulted in, or has been used as the 
basis of a claim by the licensee or any other person for, a refund, as 
drawback, of any duties paid on the importation of any sugars, syrups or 
molasses described in subheadings 1701.11.03, 1701.12.02, 1701.91.92, 
1701.99.02, 1702.90.32, 1806.10.42, or 2106.90.12 of the HTS and the 
amount of such refund.
    (c) A licensee shall promptly notify the Licensing Authority if any 
of the information described in paragraph (a) of this section has 
changed and shall submit an amended application upon the request of the 
Licensing Authority.
    (d) The Licensing Authority may waive any provisions of this section 
for good cause if it is determined that such a waiver will not adversely 
affect the purposes of this program.



Sec. 1530.302  Issuance of a license.

    (a) The Secretary of Agriculture, through the Licensing Authority, 
may issue a license to a manufacturer under which the manufacturer, in 
accordance with the provisions of this program, may enter raw cane sugar 
described in subheading 1701.11.02 of the HTS for the sole purpose of 
producing (other than by distillation) polyhydric alcohols, except 
polyhydric alcohols for use as a substitute for sugar in human food 
consumption. The license shall state the maximum amount of sugar which 
may be imported under the license. The license may contain such 
additional conditions, limitations or restrictions as the Licensing 
Authority determines to be appropriate for the purposes of this program. 
The Licensing Authority may add or modify such conditions, limitations 
or restrictions at such time and in such manner as the Licensing 
Authority, in his or her discretion, determines to be necessary or 
appropriate for the purposes of this program.
    (b) The total quantity of sugar imported under a license must be 
used or the sole purpose of producing (other than by distillation) 
polyhydric alcohols, except polyhydric alcohols for use as a substitute 
for sugar in human food consumption, within 180 days of the date of 
entry of such sugar.
    (c) The maximum amount of sugar which may be imported under the 
license will be the requirements of the manufacturer for sugar to be 
used in the production (other than by distillation) of polyhydric 
alcohols, except

[[Page 26]]

polyhydric alcohols for use as a substitute for sugar in human food 
consumption, during the 12-month period following the effective date of 
the license, as determined by the Licensing Authority. Quantities of 
sugar imported under the license will be charged to the license and 
quantities of sugar used for the sole purpose of producing (other than 
by distillation) polyhydric alcohols, except polyhydric alcohols for use 
as a substitute for sugar in human food consumption, will be credited to 
the license as provided in Sec. 1530.306. At no time may the charges to 
the license exceed the maximum license amount specified in the license.
    (d) The licensee shall reserve all rights, if any, to claim drawback 
refunds with respect to the exportation of polyhydric alcohols under 
this program. No credit on a license shall be made if any refund, as 
drawback, of any duties paid on the importation of any sugars, syrups or 
molasses described in subheadings 1701.11.03, 1701.12.02, 1701.91.22, 
1701.99.02, 1702.90.32, 1806.10.42, or 2106.90.12 of the HTS is claimed 
or received on the basis, or as a result, of the exportation of such 
polyhydric alcohols.
    (e) If a licensee has made a full settlement of the balance on a 
license, the licensee may surrender the license on terms and conditions 
acceptable to the Licensing Authority. A licensee may not transfer a 
license to any other person. Any attempt to transfer or assign a license 
shall be null and void and shall be grounds for the revocation of the 
license by the Licensing Authority.
    (f) The licensee may utilize an agent to enter imported sugar. The 
licensee must provide to the Licensing Authority a copy of a written 
authorization designating such person to act as an agent for the purpose 
of entering sugar, and the agent shall produce such authorization for 
inspection by the appropriate U.S. Customs Service official at the time 
of entry. If the licensee uses an agent to export polyhydric alcohol, 
the licensee shall notify the Licensing Authority in writing of the 
agent's identity.



Sec. 1530.303  Bond requirements.

    (a) Unless the licensee has posted a performance bond with the U.S. 
Customs Service which is satisfactory to the Licensing Authority with 
respect to the requirements of this program, the licensee shall post a 
performance bond, which meets the requirements of this section, with the 
Licensing Authority.
    (b) A bond may cover entries made either during the period of time 
specified in the bond (term bond) or for a specified entry (single entry 
bond).
    (c) Only the licensee who will use the sugar may be the principal on 
a bond to cover such sugar to be imported. The surety or sureties shall 
be among those listed by the Secretary of the Treasury as acceptable on 
Federal bonds.
    (d) The obligation under the bond shall be made effective as of the 
date of entry of the sugar.
    (e) The amount of the bond shall be equal to 20 cents per pound of 
sugar imported under the license.
    (f) The appropriate customs official or the Licensing Authority, as 
appropriate, will release the obligation under the bond by 20 cents per 
pound for the quantity of sugar used in the production of polyhydric 
alcohols and credited to the license in accordance with Sec. 1530.306, 
as determined by the Licensing Authority.
    (g) If the licensee fails to qualify for a credit to the license 
within 95 days of the date of production of polyhydric alcohols in a 
quantity sufficient to offset the charge to the license for the imported 
sugar used for producing such polyhydric alcohols, or if such a credit 
initially granted is subsequently revoked, payment will be made to the 
United States of America under the bond of a monetary amount equal to 
the difference between the Number 11 contract price and the Number 14 
contract price, per pound of raw sugar, in effect on the last market day 
before the date of entry of the sugar or the last market day before the 
end of the period during which production of polyhydric alcohol was 
required, whichever difference is greater, times the quantity of raw 
sugar that should have been, but was not, used in the production of 
polyhydric alcohol in timely

[[Page 27]]

compliance with the requirements of this subpart. In the event no Number 
11 contract price or Number 14 contract price is reported by the New 
York Coffee, Sugar and Cocoa Exchange, for the relevant market day, the 
Licensing Authority may estimate such price as he or she deems 
appropriate.
    (h) Within 10 business days of the date of issuance of a license, 
the licensee shall submit to the Licensing Authority a copy of the 
performance bond.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30866, July 8, 1991]



Sec. 1530.304  Entry of sugar.

    (a) The licensee shall be permitted to enter imported sugar under 
subheading 1701.11.02 of the HTS in conformity with the conditions, 
limitations and restrictions of the license, the provisions of this 
subpart and additional U.S. note 3, and any other procedures specified 
by the Licensing Authority.
    (b) The licensee must present the license to the appropriate U.S. 
Customs Service official at the time of entry. Such customs official 
will mark on the license:
    (1) The quantity of sugar entered;
    (2) The date of entry; and
    (3) The customs entry number.
    (c) The licensee shall submit to the Licensing Authority a copy of 
the license, as marked by the customs official, within 10 business days 
after each entry of sugar.



Sec. 1530.305  Proof of production of polyhydric alcohols.

    (a) Certificate of use. Within 30 days of the date of production of 
polyhydric alcohols from sugar imported under a license, the licensee 
shall provide a written certification, signed by the licensee, to the 
Licensing Authority that he or she has used, within 180 days of the date 
of entry of sugar under the license, such sugar for the sole purpose of 
producing (other than by distillation) polyhydric alcohols, except 
polyhydric alcohols for use as a substitute for sugar in human food 
consumption. The certification shall include:
    (1) The licensee's name, address, and license number;
    (2) The customs entry number(s), date(s) of entry, and total weight 
of sugar used in the production of such polyhydric alcohols;
    (3) The date(s) on which such polyhydric alcohols were produced; and
    (4) The following certification, with all blank spaces appropriately 
filled in as indicated by the instructions placed in brackets:


    The undersigned hereby certifies that between [insert date(s) of 
production of polyhydric alcohols] ________, 19____, and ________, 
19____, the undersigned has used [insert total weight of imported sugar] 
________ pounds of sugar, imported on [insert date of entry] ________, 
19____, for the sole purpose of producing (other than by distillation) 
polyhydric alcohols, except polyhydric alcohols for use as a substitute 
for sugar in human food consumption. The undersigned further certifies 
that the quantity of sugar shown on this certificate of use does not 
include any sugar previously covered by another certificate of use.


    (b) If polyhydric alcohols produced with sugar imported under the 
license are exported, the licensee shall provide an additional written 
certification, signed by the licensee, to the Licensing Authority, 
within 95 days of the date of exportation of the polyhydric alcohols. 
The certification shall include:
    (1) The licensee's name, address, and license number;
    (2) The customs entry number(s), date(s) of entry, and total weight 
of sugar used in the production of such polyhydric alcohols;
    (3) The date(s) on which such polyhydric alcohols were produced;
    (4) The date of export, the port or point from which exported, the 
bill of lading number(s), and an identification of the vessel or other 
export carrier and any agent used in connection with the export;
    (5) The country of destination and foreign consignee;
    (6) The entry number of a claim, if any, by the licensee or any 
other person for a refund, as drawback, of any duties paid on the 
importation of any sugars, syrups or molasses described in subheading 
1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, 
or 2106.90.12 of the HTS on the basis, or as a result, of the 
exportation of the polyhydric alcohol and the amount of such refund; and

[[Page 28]]

    (7) A statement that the licensee has reserved all rights to claim 
drawback refunds with respect to the exportation of the polyhydric 
alcohol, and that no refund, as drawback, of any duties paid on the 
importation of any sugars, syrups or molasses described in subheading 
1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, 
or 2106.90.12 of the HTS has been or will be claimed or received on the 
basis, or as a result, of the exportation of the polyhydric alcohol.
    (c) If polyhydric alcohols produced with sugar imported under the 
license are exported, the licensee shall provide to the Licensing 
Authority, within 95 days of the date of exportation of the polyhydric 
alcohols, the following documentation:
    (1) An original, certified U.S. Customs Service Form 7512; and
    (2) An original bill of lading or copy of a U.S. Customs Service 
Form 7511.
    (d) Notice of drawback claims. Whenever the licensee knows or has 
reason to know that any claim has been made, by the licensee or any 
other person for a refund, as drawback, of any duties paid on the 
importation of any sugars, syrups or molasses described in subheading 
1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, 
or 2106.90.12 of the HTS on the basis, or as a result, of the 
exportation of polyhydric alcohol, whether or not such polyhydric 
alcohol was produced from sugar imported under the licensee's license, 
the licensee shall within 5 business days provide a written notification 
to the Licensing Authority. This notification shall include the 
following information, if known or reasonably believed to be true by the 
licensee:
    (1) The licensee's name, address, and license number;
    (2) A description, and the weight, of such polyhydric alcohol 
exported;
    (3) An identification of the imported sugar which was used in the 
production of the polyhydric alcohol, including the quantity of the 
imported sugar;
    (4) The date of export, the port or point from which exported, the 
bill of lading number(s), and an identification of the vessel or other 
export carrier and any agent used in connection with the export;
    (5) The country of destination and foreign consignee;
    (6) The entry number of the drawback claim and the amount of such 
refund of duties; and
    (7) The identity of the person who filed such drawback entry.
    (e) The Licensing Authority may waive any of the provisions of this 
section if compliance with the relevant provisions of HTS subheading 
1701.11.02, additional U.S. note 3, and all other regulations in this 
subpart is otherwise established to the Licensing Authority's 
satisfaction.



Sec. 1530.306  Charges and credits to licenses.

    (a) Charges will be made to a license, effective as of the date of 
entry, for quantities of sugar entered under the license, when the 
licensee submits the license as required by Sec. 1530.304(c) or when the 
Licensing Authority otherwise determines that the licensee has made an 
entry under subheading 1701.11.02 of the HTS.
    (b) At the request of the licensee and upon satisfactory and timely 
proof that the licensee has complied with all of the requirements of 
this program, the Licensing Authority will credit a license for 
quantities of sugar for which a Certificate of Use has been submitted in 
accordance with the provisions of Sec. 1530.305 of this subpart, but 
such credit, if granted conditionally, will become final only when the 
Licensing Authority is satisfied that no refund, as drawback, of any 
duties paid on the importation of any sugars, syrups or molasses 
described in subheadings 1701.11.03, 1701.12.02, 1701.91.22, 1701.99.02, 
1702.90.32, 1806.10.42, or 2106.90.12 of the HTS has been or will be 
claimed or received on the basis, or as a result, of the exportation of 
the polyhydric alcohol.
    (c) The Licensing Authority may revoke any credit previously made to 
a license if the Licensing Authority determines, on the basis of 
evidence obtained after the credit was granted, that the licensee had 
not complied with all of the requirements of this subpart.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30866, July 8, 1991]

[[Page 29]]



Sec. 1530.307  Replacement of sugars; substitution of sugars.

    The sugar used in the production of polyhydric alcohols under this 
program need not be the identical sugar imported under the license. The 
licensee may substitute other sugar for sugar imported under the license 
or replace such imported sugar with other sugar.

[56 FR 30866, July 8, 1991]



Sec. 1530.308  Records.

    (a) Each licensee requesting credit in accordance with 
Sec. 1530.306(b) shall keep records to establish for all sugar imported, 
and for all polyhydric alcohol produced, under the provisions of this 
program:
    (1) The quantity and identity of the sugar imported by the licensee 
under the provisions of this subpart, including the customs entry 
numbers;
    (2) The quantity and description of the polyhydric alcohols 
manufactured and the date or inclusive dates of manufacture;
    (3) The quantity of sugar actually used in the production (other 
than by distillation) of polyhydric alcohols, except polyhydric alcohols 
for use as a substitute for sugar in human food consumption; and
    (4) If any polyhydric alcohols have been exported, the country of 
destination, foreign consignee, date of export, port, export carrier and 
any agent used in connection with the export and all documents relating 
to such exportation, including but not limited to any contract, invoice, 
bill of lading, dock receipt, ship's manifest, or copies thereof; and 
all drawback entries, if any, including all related documents, filed by 
the licensee or any other person for a refund, as drawback, of any 
customs duties paid on the importation of any sugars, syrups or molasses 
described in subheadings 1701.11.01, 1701.11.02, 1701.11.03, 1701.12.01, 
1701.12.02, 1701.91.21, 1701.91.22, 1701.99.01, 1701.99.02, 1702.90.31, 
1702.90.32, 1806.10.41, 1806.10.42, 2106.90.11, and 2106.90.12 of the 
HTS on the basis, or as a result, of the exportation of the polyhydric 
alcohol and the amount of any such refund paid.
    (b) All records required by this section to be kept by a licensee 
shall be retained for at least 5 years after a license is credited for 
the production of the polyhydric alcohol.
    (c) The licensee must, upon request, make the records covered by 
this section available for inspection and copying by the Licensing 
Authority or other appropriate official of the Federal Government.
    (d) If, after inspection of the records, the Licensing Authority 
determines that such records are inadequate to establish that the sugar 
imported under the license was used for the sole purpose of producing 
(other than by distillation) polyhydric alcohols, except polyhydric 
alcohols for use as a substitute for sugar in human food consumption, or 
that drawback of duties on the importation of any sugars, syrups or 
molasses described in subheadings 1701.11.03, 1701.12.02, 1701.91.22, 
1701.99.02, 1702.90.32, 1806.10.42, or 2106.90.12 of the HTS was not 
claimed or received on the basis, or as a result, of the exportation of 
the polyhydric alcohol, or that any other requirement of this program 
was complied with, the Licensing Authority may revoke credits granted 
for the appropriate quantity of sugar.



Sec. 1530.309  Enforcement.

    (a) If at any time after receiving the proof of production of 
polyhydric alcohol described in Sec. 1530.305 of this subpart, the 
Licensing Authority determines that the sugar entered under the license 
was not used for the sole purpose of producing (other than by 
distillation) polyhydric alcohols, except polyhydric alcohols for use as 
a substitute for sugar in human food consumption, and if the bond has 
been released under Sec. 1530.303, the Licensing Authority may hold the 
licensee liable for the difference between the Number 11 contract price 
and the Number 14 contract price, per pound of raw sugar, in effect on 
the last market day before the date of entry of the sugar or the last 
market day before the end of the period during which production of 
polyhydric alcohol was required, whichever difference is greater, times 
the quantity of sugar that should have been, but was not, used in such 
production of such polyhydric alcohol. In the event no Number 11 
contract price or Number 14 contract price is reported by

[[Page 30]]

the New York Coffee, Sugar and Cocoa Exchange, for the relevant market 
day, the Licensing Authority may estimate such price as he or she deems 
appropriate.
    (b) If at any time after receiving the licensee's certification that 
no refund, as drawback, of any duties paid on the importation of any 
sugars, syrups or molasses described in subheadings 1701.11.03, 
1701.12.02, 1701.91.22, 1701.99.02, 1702.90.32, 1806.10.42, or 
2106.90.12 of the HTS has been or will be claimed or received on the 
basis, or as a result, of the exportation of any polyhydric alcohol, the 
Licensing Authority determines that a refund of such customs duties has 
been claimed or received by the licensee or any other person, and if the 
bond has been released under Sec. 1530.303, the Licensing Authority may 
hold the licensee liable for the difference between the Number 11 
contract price and the Number 14 contract price, per pound of raw sugar, 
in effect on the last market day before the date of entry of the sugar 
or the last market day before the end of the period during which export 
was required, whichever difference is greater, times the quantity of 
sugar used in the production of such polyhydric alcohol. In the event no 
Number 11 contract price or Number 14 contract price is reported by the 
New York Coffee, Sugar and Cocoa Exchange for the relevant market day, 
the Licensing Authority may estimate such price as he or she deems 
appropriate.
    (c) If at any time the Licensing Authority determines that a 
licensee has failed to comply with the requirements of this subpart, 
including the requirement of HTS subheading 1701.11.02 and of the 
relevant provisions of additional U.S. note 3, the Licensing Authority 
may, after notice to the licensee, suspend or revoke the license issued 
to the licensee under this program and may refuse to issue a license to 
that manufacturer.

[55 FR 41489, Oct. 12, 1990, as amended at 56 FR 30866, July 8, 1991]



Sec. 1530.310  Appeals.

    (a) Any action or determination of the Licensing Authority under 
this subpart may be appealed to the Director, Import Policies and Trade 
Analysis Division, Foreign Agricultural Service (FAS), within 30 days 
from the date of notification. The appeal must be presented in writing 
and must specifically state any reason as to why such determination 
should not stand. The Director, Import Policies and Trade Analysis 
Division, FAS, will provide such person with an opportunity for an 
informal hearing on such matter.
    (b) A further appeal from the final decision of the Director, Import 
Policies and Trade Analysis Division, FAS, may be made to the 
Administrator, FAS, within five business days of the notification of the 
decision of the Director, Import Policies and Trade Analysis Division, 
FAS.



Sec. 1530.311  Waivers.

    Upon written application of the licensee, the Licensing Authority 
may extend the period for the production of polyhydric alcohols, may 
temporarily increase the maximum amount of the license, may extend the 
period for submitting proof of use, or may temporarily waive or modify 
any other requirement imposed by this subpart if such waiver or 
modification is necessary or appropriate under unusual, unforeseen or 
extraordinary circumstances and will not frustrate the purposes of this 
program and if compliance with the relevant provisions of HTS subheading 
1701.11.02, additional U.S. note 3 is established to the Licensing 
Authority's satisfaction. the Licensing Authority may specify additional 
requirements or procedures in place of the requirements or procedures 
waived or modified.



Sec. 1530.312  Expiration of licenses.

    (a) The licenses issued under this program shall expire upon written 
notice to the licensees by the Licensing Authority. The notice will 
state the date on which the licenses will expire and any other details 
applicable to the expiration of the licenses.
    (b) If there have been no charges or credits on the license within 
12 months of the date on which the license was issued, or any subsequent 
period of 18 months, the license may be deemed to have expired.

[[Page 31]]



Sec. 1530.313  Paperwork Reduction Act assigned number.

    The Office of Management and Budget has approved the information 
collection requirements in these regulations in accordance with 44 
U.S.C. chapter 35 and OMB number 0551-0015 has been assigned.



Sec. 1530.314  Transitional provisions.

    (a) All licenses issued to manufacturers prior to October 1, 1990, 
pursuant to the provisions of 7 CFR 1530.201, under the program for 
``Sugar for Production of Polyhydric Alcohol,'' are canceled effective 
October 9, 1990.
    (b) Any manufacturer who, on September 30, 1990, held a license 
which had a balance of charges and credits other than zero and which is 
canceled pursuant to paragraph (a) of this section may be issued a new 
license upon such manufacturer's agreement to:
    (1) Fully settle the balance outstanding on such previous license, 
by bringing such balance to zero;
    (2) Comply with all the provisions of this subpart, subheading 
1701.11.02 of the HTS, and additional U.S. note 3; and
    (3) Comply with any terms, conditions and procedures imposed by the 
Licensing Authority in order to assure an orderly transition.
    (c) During the transitional period between October 1, 1990, and the 
promulgation of a final rule to replace the interim rule issued on 
October 9, 1990, the Licensing Authority may modify or waive any 
requirement of this subpart, including the requirements that a 
manufacturer make a written application for a license prior to the 
issuance of the license and make a written application for a waiver 
under Sec. 1530.210 of this subpart, if the Licensing Authority 
determines such modification or waiver is necessary or appropriate to 
assure an orderly transition and will not frustrate the purposes of this 
program.



PART 1540--INTERNATIONAL AGRICULTURAL TRADE--Table of Contents




    Subpart A--Emergency Relief From Duty-Free Imports of Perishable 
                                Products

Sec.
1540.1  Applicability of subpart.
1540.2  Definitions.
1540.3  Who may file request.
1540.4  Contents of request.
1540.5  Submission of recommendations.
1540.6  Information.
1540.7  Paperwork Reduction Act assigned number.

 Subpart B--Emergency Relief From Certain Perishable Products Imported 
                               From Israel

1540.20  Applicability of subpart.
1540.21  Definition.
1540.22  Who may file request.
1540.23  Contents of request.
1540.24  Determination of the Secretary of Agriculture.
1540.25  Information.
1540.26  Paperwork Reduction Act assigned number.

    Subpart C--Emergency Relief From Duty-Free Imports of Perishable 
                 Products From Certain Andean Countries

1540.40  Applicability of subpart.
1540.41  Definitions.
1540.42  Who may file request.
1540.43  Contents of request.
1540.44  Submission of recommendations by the Secretary of Agriculture.
1540.45  Information.

    Authority: Sec. 213(f), Pub. L. 98-67, 97 Stat. 391 (19 U.S.C. 
2703(f)); 5 U.S.C. 301; sec. 404, Pub. L. 98-573, 98 Stat. 3016, as 
amended (19 U.S.C. 2112 note); 5 U.S.C. 301.



    Subpart A--Emergency Relief From Duty-Free Imports of Perishable 
                                Products

    Authority: Sec. 213(f), Pub. L. 98-67, 97 Stat. 391 (19 U.S.C. 
2703(f); 5 U.S.C. 301.

    Source: 49 FR 22265, May 29, 1984, unless otherwise noted.

    Cross Reference: For United States International Trade Commission 
regulations on investigations of import injury and the rules pertaining 
to the filing of a section 201 petition, see 19 CFR part 206.



Sec. 1540.1  Applicability of subpart.

    This subpart applies to requests for emergency relief from duty-free 
imports of perishable products filed with the Department of Agriculture 
under section 213(f) of the Caribbean Basin Economic Recovery Act of 
1983, title II of Pub. L. 98-67, 97 Stat. 384 (19 U.S.C. 2701 et seq.) 
(the Act).



Sec. 1540.2  Definitions.

    (a) Perishable product means:

[[Page 32]]

    (1) Live plants provided for in subpart A of part 6 of schedule 1 of 
the Tariff Schedules of the United States (TSUS);
    (2) Fresh or chilled vegetables provided for in items 135.10 through 
138.42 of the TSUS;
    (3) Fresh mushrooms provided for in item 144.10 of the TSUS;
    (4) Fresh fruit provided for in items 146.10, 146.20, 146.30, 146.50 
through 146.62, 146.90, 146.91, 147.03 through 147.33, 147.50 through 
149.21 and 149.50 of the TSUS;
    (5) Fresh cut flowers provided for in items 192.17, 192.18, and 
192.21 of the TSUS; and
    (6) Concentrated citrus fruit juice provided for in items 165.25 and 
165.35 of the TSUS.
    (b) Beneficiary country means any country listed in section 212(b) 
of the Act with respect to which there is in effect a proclamation by 
the President designating such country as a beneficiary country for 
purposes of the Act.



Sec. 1540.3  Who may file request.

    A request under this subpart may be filed by an entity, including a 
firm, or group or workers, trade association, or certified or recognized 
union which is representative of a domestic industry producing a 
perishable product like or directly competitive with a perishable 
product that such entity claims is being imported into the United States 
duty-free under the provisions of the Act from a beneficiary 
country(ies) in such increased quantities as to be a substantial cause 
of serious injury, or the threat thereof, to such domestic industry.



Sec. 1540.4  Contents of request.

    A request for emergency action under section 213(f) of the Act shall 
be submitted in duplicate to the Administrator, Foreign Agricultural 
Service, United States Department of Agriculture, Washington, DC 20250. 
Such requests shall be supported by appropriate information and data and 
shall include to the extent possible:
    (a) A description of the imported perishable product(s) allegedly 
causing, or threatening to cause, serious injury;
    (b) The beneficiary country(ies) of origin of the allegedly 
injurious imports;
    (c) Data showing that the perishable product allegedly causing, or 
threatening to cause, serious injury is being imported from the 
designated beneficiary country(ies) in increased quantities as compared 
with imports of the same product from the designated beneficiary 
country(ies) during a previous representative period of time (including 
a statement of why the period used should be considered to be 
representative);
    (d) Evidence of serious injury or threat thereof to the domestic 
industry substantially caused by the increased quantities of imports of 
the product from the beneficiary country(ies); and
    (e) A statement indicating why emergency action would be warranted 
under section 213(f) of the Act (including all available evidence that 
the injury caused by the increased quantities of imports from the 
beneficiary country(ies) would be relieved by the suspension of the 
duty-free treatment accorded under the Act).

A copy of the petition and the supporting evidence filed with the United 
States International Trade Commission under section 201 of the Trade Act 
of 1974, as amended, must be provided with the request for emergency 
action.



Sec. 1540.5  Submission of recommendations.

    If the Secretary has reason to believe that the perishable product 
which is the subject of a petition under Sec. 1540.4 of this subpart is 
being imported into the United States in such increased quantities as to 
be a substantial cause of serious injury, or the threat thereof, to the 
domestic industry producing a perishable product like or directly 
competitive with the imported perishable product and that emergency 
action is warranted, the Secretary, within 14 days after the filing of 
the petition under Sec. 1540.4 of this subpart, shall recommend to the 
President that the President take emergency action. If the Secretary 
determines not to recommend the imposition of emergency action, the 
Secretary shall publish a notice of such determination and will so 
advise the petitioner within 14 days after the filing of the petition.

[[Page 33]]



Sec. 1540.6  Information.

    Persons desiring information from the Department of Agriculture 
regarding the Department's implementation of section 213(f) of the Act 
should address such inquiries to the Administrator, Foreign Agricultural 
Service, United States Department of Agriculture, Washington, DC 20250.



Sec. 1540.7  Paperwork Reduction Act assigned number.

    The Office of Management and Budget has approved the information 
collection requirements contained in these regulations in accordance 
with 44 U.S.C. chapter 25, and OMB number 0551-0018 has been assigned.



 Subpart B--Emergency Relief From Certain Perishable Products Imported 
                               From Israel

    Authority: Sec. 404, Pub. L. 98-573, 98 Stat. 3016, as amended (19 
U.S.C. 2112 note); 5 U.S.C. 301.

    Source: 50 FR 43692, Oct. 29, 1985, unless otherwise noted.

    Cross Reference: For U.S. International Trade Commission regulations 
concerning investigations of import injury and the rules pertaining to 
the filing of a section 201 petition, see 19 CFR part 206.



Sec. 1540.20  Applicability of subpart.

    This subpart applies to requests filed with the Department of 
Agriculture under section 404 of the Trade and Tariff Act of 1984, Pub. 
L. 98-573, for emergency relief from imports of certain perishable 
products from Israel entering the United States at a reduced rate of 
duty or duty-free pursuant to a trade agreement between the United 
States and Israel entered into under section 102(b)(1) of the Trade Act 
of 1974, as amended.



Sec. 1540.21  Definition.

    Perishable product means:
    (a) Live plants provided for in subpart A of part 6 of schedule 1 of 
the 1985 Tariff Schedules of the United States (the ``TSUS'');
    (b) Fresh or chilled vegetables provided for in items 135.03 through 
138.46 of the TSUS;
    (c) Fresh mushrooms provided for in item 144.10 of the TSUS;
    (d) Fresh fruits provided for in items 146.10, 146.20, 146.30, 
146.50 through 146.62, 146.90, 146.91, 147.03 through 147.44, 147.50 
through 149.21 and 149.50 of the TSUS;
    (e) Fresh cut flowers provided for in items 192.17, 192.18, and 
192.21 of the TSUS; and
    (f) Concentrated citrus fruit juice provided for in items 165.25, 
165.29 and 165.36 of the TSUS.



Sec. 1540.22  Who may file request.

    A request under this subpart may be filed by an entity, including a 
firm, or group or workers, trade association, or certified or recognized 
union which is representative of a domestic industry producing a 
perishable product like or directly competitive with a perishable 
product that such entity claims is being imported from Israel into the 
United States at a reduced duty or duty-free under the provisions of a 
trade agreement between the United States and Israel entered into under 
section 102(b)(1) of the Trade Act of 1974, as amended, in such 
increased quantities as to be a substantial cause of serious injury, or 
the threat thereof, to such domestic industry.



Sec. 1540.23  Contents of request.

    A request for emergency action under section 404 of the Trade and 
Tariff Act of 1984 shall be submitted in duplicate to the Administrator, 
Foreign Agricultural Service, United States Department of Agriculture, 
Washington, DC 20250. Such request shall be supported by appropriate 
information and data and shall include to the extent possible:
    (a) A description of the imported perishable product(s) allegedly 
causing, or threatening to cause, serious injury;
    (b) Data showing that the perishable product allegedly causing, or 
threatening to cause, serious injury is being imported from Israel in 
increased quantities as compared with imports of the same product from 
Israel during a previous representative period of time (including a 
statement of why the period selected by the petitioner should be 
considered to be representative);
    (c) Evidence of serious injury or threat thereof to the domestic 
industry substantially caused by the increased

[[Page 34]]

quantities of imports of the product from Israel; and
    (d) A statement indicating why emergency action would be warranted 
under section 404 (including all available evidence that the injury 
caused by the increased quantities of imports from Israel would be 
relieved by the withdrawal of the reduction of the duty or elimination 
of the duty-free treatment provided to the product under the trade 
agreement). A copy of the petition and the supporting evidence filed 
with the United States International Trade Commission under section 201 
of the Trade Act of 1974, as amended, must be provided with the request 
for emergency action.



Sec. 1540.24  Determination of the Secretary of Agriculture.

    If the Secretary of Agriculture has reason to believe that the 
perishable product(s) which is the subject of a petition under this 
subpart is being imported into the United States in such increased 
quantities as to be a substantial cause of serious injury, or the threat 
thereof, to the domestic industry producing a perishable product like or 
directly competitive with the imported perishable product and that 
emergency action is warranted, the Secretary, within 14 days after the 
filing of the petition under Sec. 1540.23 shall recommend to the 
President that the President take emergency action. If the Secretary 
determines not to recommend the imposition of emergency action, the 
Secretary, within 14 days after the filing of the petition, will publish 
in the Federal Register a notice of such determination and will so 
advise the petitioner.



Sec. 1540.25  Information.

    Persons desiring information from the Department of Agriculture 
regarding the Department's implementation of section 404 of the Trade 
and Tariff Act of 1984 should address such inquiries to the 
Administrator, Foreign Agricultural Service, United States Department of 
Agriculture, Washington, DC 20250.



Sec. 1540.26  Paperwork Reduction Act assigned number.

    The Office of Management and Budget has approved the information 
collection requirements contained in these regulations in accordance 
with 44 U.S.C. chapter 25, and OMB number 0551-0023 has been assigned.



    Subpart C--Emergency Relief From Duty-Free Imports of Perishable 
                 Products From Certain Andean Countries

    Authority: Title II, sec. 204(e), Pub. L. 102-182, 105 Stat. 1239 
(19 U.S.C. 3203(e)); 5 U.S.C. 301.

    Source: 58 FR 16104, Mar. 25, 1993, unless otherwise noted.

    Cross Reference: For United States International Trade Commission 
regulations on investigations of import injury and the rules pertaining 
to the filing of a section 201 petition, see 19 CFR part 206.



Sec. 1540.40  Applicability of subpart.

    This subpart applies to requests for emergency relief from duty-free 
imports of perishable products filed with the Department of Agriculture 
under section 204(e) of the Andean Trade Preference Act, title II of 
Public Law 102-182, 105 Stat. 1236 (19 U.S.C. 3201 et seq.) (the 
``Act'').



Sec. 1540.41  Definitions.

    (a) Perishable product means:
    (1) Live plants and fresh cut flowers provided for in chapter 6 of 
the Harmonized Tariff Schedule (HTS);
    (2) Fresh or chilled vegetables provided in heading 0701 through 
0709 (except subheading 0709.52.00) and heading 0714 of the HTS;
    (3) Fresh fruit provided for in subheadings 0804.20 through 0810.90 
(except citrons of subheadings 0805.90.00, tamarinds and kiwi fruit of 
subheading 0810.90.20, and cashew apples, mameyes colorados, sapodillas, 
soursops and sweetsops of subheading 0810.90.40) of the HTS; or
    (4) Concentrated citrus fruit juice provided for in subheadings 
2009.11.00, 2009.19.40, 2009.20.40, 2009.30.20, and 2009.30.60 of the 
HTS.

[[Page 35]]

    (b) Beneficiary country means any country listed in subsection 
203(b)(1) of the Act with respect to which there is in effect a 
proclamation by the President designating such country as a beneficiary 
country for purposes of the Act.



Sec. 1540.42  Who may file request.

    A request under this subpart may be filed by an entity, including a 
firm, or group of workers, trade association, or certified or recognized 
union which is representative of a domestic industry producing a 
perishable product like or directly competitive with a perishable 
product that such entity claims is being imported into the United States 
duty-free under the provisions of the Act from a beneficiary 
country(ies) in such increased quantities as to be a substantial cause 
of serious injury, or the threat thereof, to such domestic industry.



Sec. 1540.43  Contents of request.

    (a) A request for emergency action under section 204(e) of the Act 
shall be submitted in duplicate to the Administrator, Foreign 
Agricultural Service, United States Department of Agriculture, 
Washington, DC 20250. Such request shall be supported by appropriate 
information and data and shall include to the extent possible:
    (1) A description of the imported perishable product(s) allegedly 
causing, or threatening to cause, serious injury;
    (2) The beneficiary country(ies) of origin of the allegedly 
injurious imports;
    (3) Data showing that the perishable product allegedly causing, or 
threatening to cause, serious injury is being imported from the 
designated beneficiary country(ies) in increased quantities as compared 
with imports of the same product from the designated beneficiary 
country(ies) during a previous representative period of time (including 
a statement of why the period used should be considered to be 
representative);
    (4) Evidence of serious injury or threat thereof to the domestic 
industry substantially caused by the increased quantities of imports of 
the product from the beneficiary country(ies); and
    (5) A statement indicating why emergency action would be warranted 
under section 204(e) of the Act (including all available evidence that 
the injury caused by the increased quantities of imports from the 
beneficiary country(ies) would be relieved by the suspension of duty-
free treatment accorded under the Act).
    (b) A copy of the petition and the supporting evidence filed with 
the United States International Trade Commission under Section 201 of 
the Trade Act of 1974, as amended, must be provided with the request for 
emergency action.



Sec. 1540.44  Submission of recommendations by the Secretary of Agriculture.

    If the Secretary has reason to believe that the perishable 
product(s) which is the subject of a petition under Sec. 1504.43 of this 
subpart is being imported into the United States in such increased 
quantities as to be a substantial cause of serious injury, or the threat 
thereof, to the domestic industry producing a perishable product like or 
directly competitive with the imported perishable product and that 
emergency action is warranted, the Secretary, within 14 days after the 
filing of the petition under Sec. 1540.43 of this subpart, shall 
recommend to the President that the President take emergency action. If 
the Secretary determines not to recommend the imposition of emergency 
action, the Secretary within 14 days after the filing of the petition 
shall publish a notice of such determination and so advise the 
petitioner.



Sec. 1540.45  Information.

    Persons desiring information from the Department of Agriculture 
regarding the Department's implementation of section 204(e) of the Act 
should address such inquiries to the Administrator, Foreign Agricultural 
Service, United States Department of Agriculture, Washington, DC 20250. 
Issued at Washington, DC this 19th day of March, 1993.



PART 1550--PROGRAMS TO HELP DEVELOP FOREIGN MARKETS FOR AGRICULTURAL COMMODITIES--Table of Contents




Sec.
1550.1  Purpose and scope.

[[Page 36]]

1550.2  Definitions.
1550.3  Market Development Project Agreements.
1550.4  Export Incentive Program Agreements.
1550.5  Program participation and benefits.
1550.6  Compliance with program requirements.
1550.7  Paperwork Reduction Act assigned number.

    Authority: Sec. 601 of the Agricultural Act of 1954, as amended (7 
U.S.C. 1761); Secs. 108(d)(2)(B) and 108(f) of the Agricultural Trade 
Development and Assistance Act of 1954, as amended (7 U.S.C. 1708); Sec. 
4214(d) of the Agricultural Competitiveness and Trade Act of 1988 (7 
U.S.C. 5234(d)); E.O. 12220, 45 FR 44245.

    Source: 54 FR 37784, Sept. 13, 1989, unless otherwise noted.



Sec. 1550.1  Purpose and scope.

    (a) This part sets forth policies and requirements with respect to 
the conduct by the FAS of programs utilizing public or private entities 
in the United States to help develop foreign markets for United States 
agricultural commodities on a mutually benefiting basis. As far as 
practicable, FAS relies upon representatives of the private U.S. 
agricultural sector to carry out market development activities through 
cooperative agreements.
    (b) These activities include entering into contracts pursuant to 
which FAS procures, for a stated consideration, property and services 
needed in developing markets for U.S. agricultural commodities.



Sec. 1550.2  Definitions.

    (a) Agricultural commodities includes agricultural commodities and 
products thereof.
    (b) Affiliate or affiliated organization means any partnership, 
association, company, corporation, trust, or any other legal entity in 
which the program participant has any investment other than an 
investment in any mutual fund.
    (c) Cooperator means an entity entering into a Market Development 
Project Agreement.
    (d) Export Incentive Program Agreements mean cooperative agreements 
between FAS and a private United States entity for the purpose of 
maintaining, expanding or creating foreign markets for United States 
agricultural commodities through the promotion of brand-identified 
agricultural commodities.
    (e) FAS means the Foreign Agricultural Service of the United States 
Department of Agriculture.
    (f) Incentive payment means FAS reimbursement for eligible promotion 
costs incurred under the terms of an Export Incentive Program Agreement.
    (g) Market Development Project Agreements mean cooperative 
agreements between FAS and United States agricultural trade associations 
or associations of State Departments of Agriculture for the purpose of 
maximizing sales in foreign markets of U.S. agricultural commodities. 
Activities to be undertaken are intended to promote specific commodities 
on a generic or brand-identified basis, or through programs which 
include both elements.
    (h) Participant or program participant means any entity entering 
into an agreement within the scope of this part 1550.
    (i) Project funds are funds made available by FAS to program 
participants.
    (j) Sales teams are teams engaged in activities intended to result 
in specific sales by team members.
    (k) Trade teams are teams engaged in activities to promote the 
interests of the entire agricultural sector represented by the program 
participant.



Sec. 1550.3   Market Development Project Agreements.

    (a) Eligible Organizations. In selecting trade and Agricultural 
groups as cooperators, representative nonprofit U.S. agricultural trade 
organizations will be used to the maximum extent possible. Organizations 
selected should represent the commodity being promoted on the broadest 
possible basis, with priority given to those which are industry-wide or 
nationwide in membership and scope. Cooperators must demonstrate an 
ability to provide U.S.-based staff capable of developing, supervising, 
and carrying out projects overseas, and be willing and able to 
contribute resources to a joint project.
    (b) Use of Third Parties. A Cooperator that enters into a Market 
Development Project Agreement may undertake market development 
activities directly

[[Page 37]]

or through a third party provided that such Cooperator remains 
responsible for the activities of the third party.
    (c) Contributions. Cooperators are expected to contribute funds or 
make in-kind contributions towards completion of approved market 
development projects. Contributions by third parties will be accepted as 
partially satisfying the contribution obligation of the Cooperator.
    (d) Project Funds. FAS will make funds available, up to the amount 
stated in the Market Development Project Agreement, to reimburse 
Cooperators for expenditures incurred in conducting activities 
authorized by the agreement and budgeted in a marketing plan approved in 
advance by FAS. Funds will be paid in United States dollars unless the 
Cooperator and FAS specifically agree that payment will be made in 
foreign currencies.
    (e) Consideration of Projects. Market Development Project Agreements 
will be entered into by FAS only if it is determined that such 
agreements could contribute to the effective creation, expansion, or 
maintenance of foreign markets for U.S. agricultural commodities based 
on available supplies of those commodities for export and international 
market conditions. Marketing plans will be required from organizations 
selected to participate in Market Development Project Agreements and 
will serve as a basis for the expenditure of funds committed to Market 
Development Project Agreements. Marketing plans will be reviewed 
according to the following criteria:
    (1) The market potential for the commodities covered in the markets 
identified for promotional effort and the identification of conditions 
affecting the level of U.S. exports which could be influenced by the 
projects proposed;
    (2) The extent and complexity of activities proposed in relation to 
each Cooperator's prior export market development experience and U.S.-
based staff resources;
    (3) The likelihood of these activities influencing conditions 
affecting the level of U.S. exports.



Sec. 1550.4   Export Incentive Program Agreements.

    (a) Eligible Organizations. Export Incentive Program (EIP) 
agreements will be entered into with private U.S. entities.
    (b) Use of Third Parties. An entity that enters into an Export 
Incentive Program Agreement may undertake market development activities 
directly or through a third party provided such entity remains 
responsible for the activity.
    (c) Reimbursement. After submission of a claim for an incentive 
payment, FAS will reimburse a percentage of eligible promotion costs 
defined in the Export Incentive Program Agreement, up to the amount 
stated in the Agreement, to carry out the purposes of the project. Such 
a claim will be submitted on a marketing year basis or at such other 
time as may be agreed by FAS. The amount of funds to be paid by FAS on 
each claim will be specified in the Agreement and will be based upon 
either a stated percentage of the promotional expenditures claimed, 
volume of exports over a stated period, or a combination of both. Funds 
will be paid in U.S. dollars only.
    (d) Consideration of Projects. Export Incentive Program Agreements 
will be entered into by FAS only if it is determined that such 
agreements with private firms could contribute to the effective 
creation, expansion, or maintenance of foreign markets for the 
commodities concerned. Project proposals will be reviewed in relation to 
market conditions in the countries where activities are proposed, and in 
relation to the proposing firm's prior experience in exporting and in 
market promotion activites abroad, based upon the same criteria set 
forth in Sec. 1550.3(e)(1)--(3).



Sec. 1550.5   Program participation and benefits.

    (a) Scope. This section establishes requirements applicable only to 
participation in Market Development Project Agreements and any other 
agreement with FAS that specifically incorporates the provisions of this 
part.
    (b) General. It is the policy of FAS to insure that the benefits 
generated by agreements are as broadly distributed throughout the 
relevant agricultural

[[Page 38]]

sector as feasible and, particularly, that no program participant derive 
an unfair advantage or benefit from activities conducted pursuant to the 
agreement, whether funded with project funds or industry contributions.
    (c) Industry Participation. When required by FAS, program 
participants shall promptly furnish to FAS for approval its criteria for 
the selection of U.S. agricultural industry representatives to 
participate in activities conducted pursuant to the agreement such as 
trade teams, sales teams, and trade fairs, and its criteria for the 
selection of firms to participate in U.S. brand-identified promotions. 
Such criteria must ensure participation on an equitable basis by a 
representative cross section of the relevant U.S. agricultural industry. 
If FAS requests submission of criteria for approval, the program 
participant shall not use criteria disapproved by FAS after the program 
participant has been notified of FAS's disapproval.
    (d) Distribution of Information. All program participants shall 
provide, on a timely basis, upon request of any entity in the United 
States, other than a representative of a foreign government, any and all 
data developed and produced with project funds or contributions. Any fee 
charged in connection therewith may not exceed the costs incurred in 
assembling, duplicating and distributing the requested material.
    (e) Export Activities and Related Services. (1) Neither program 
participants nor their affiliated organizations shall, during the term 
of the agreement, make export sales of agricultural commodities of the 
kind which are promoted, in whole or in part, with project funds.
    (2) Neither the program participants nor affiliated organizations 
may assess fees for services provided to exporters in facilitating an 
export sale if the promotional activities intended to directly result in 
that specific export sale are supported, in whole or in part, by project 
funds. This paragraph applies to activities such as those involving 
discussions with potential buyers or the solicitation of specific sales 
including activities performed by sales teams and performed through 
trade fairs rather than activities of a more general promotional nature. 
This paragraph does not apply to checkoffs or membership dues based on 
commodity sales, when such assessments are a condition of membership in 
the participating organization.
    (3) Participants in approved program activities shall not use the 
activities to promote private self-interests or conduct private 
business, except as members of sales teams or as part of a U.S. brand-
identified promotion when such activities are specifically approved by 
FAS.



Sec. 1550.6   Compliance with program requirements.

    (a) Within 30 days after the effective date of these regulations, 
program participants shall submit a written statement to the 
Administrator, FAS, that neither they, nor their affiliated 
organizations, will make export sales of agricultural commodities 
promoted, in whole or in part, with project funds during the term of any 
agreement between the program participant and FAS within the scope of 
Sec. 1550.5. FAS may from time to time require program participants to 
submit certifications as to export sales for purposes of this part.
    (b) In the event of noncompliance with any provision of these 
regulations, FAS may disallow a claim submitted under an agreement for 
expenses incurred after the effective date of these regulations or 
terminate the agreement in addition to any other remedy available to 
FAS.



Sec. 1550.7   Paperwork Reduction Act assigned number.

    Information collection requirements contained in these regulations 
have been submitted to OMB for approval under control number 0551-0026. 
However, these requirements are not effective until final clearance is 
received from OMB.



PART 1560--PROCEDURES TO MONITOR CANADIAN FRESH FRUIT AND VEGETABLE IMPORTS--Table of Contents




Sec.
1560.1  Scope.

[[Page 39]]

1560.2  Definitions.
1560.3  Determination of fresh fruit or vegetable.
1560.4  Calculation of Data to Support Imposition of Temporary Duty.
1560.5  Calculation of Data to Support Removal of Temporary Duty.

    Authority: Secs. 105 and 301(a) of the United States-Canada Free-
Trade Agreement Implementation Act of 1988, Pub. L. 100-449 (102 Stat. 
1855 and 1865-67).

    Source: 54 FR 1327, Jan. 13, 1989, unless otherwise noted.



Sec. 1560.1  Scope.

    This part outlines the procedures that will be used by the 
Administrator of the Foreign Agricultural Service to monitor and inform 
the Secretary of Agriculture of data regarding the importation of fresh 
fruits and vegetables from Canada.



Sec. 1560.2  Definitions.

    The following definitions shall be applicable to this part:
    (a) Administrator means the Administrator of the Foreign 
Agricultural Service, United States Department of Agriculture.
    (b) Average Monthly Import Price means the average unit value for 
all shipments of a particular Canadian fresh fruit or vegetable imported 
into the United States from Canada during a particular calendar month 
based on official data from the U.S. Customs Service and/or the Bureau 
of Census, and shall be calculated by dividing the total value of the 
fresh fruit or vegetable imported in that month by the total quantity of 
the fresh fruit or vegetable imported in that month.
    (c) Average Planted Acreage means the average of the annual planted 
acreage in the U.S. for a particular fresh fruit or vegetable for the 
preceding five years excluding the years with the highest and lowest 
acreages based on available data from agencies within the United States 
Department of Agriculture and data from appropriate state agencies, as 
required.
    (d) Canadian fresh fruit or vegetable means a fresh fruit or 
vegetable that is a product of Canada as determined in accordance with 
the rules of origin set forth in section 202 of the U.S.-Canada Free-
Trade Agreement Implementation Act of 1988.
    (e) Corresponding Five-Year Average Monthly Import Price for a 
particular day means the average import price of a Canadian fresh fruit 
or vegetable imported into the United States from Canada, for the 
calendar month in which that day occurs, for that month in each of the 
preceding 5 years, excluding the years with the highest and lowest 
monthly averages.
    (f) F.O.B. Point of Shipment Price in Canada means the daily average 
of prices of a particular Canadian fresh fruit or vegetable imported 
into the United States from Canada that are reported to the U.S. Customs 
Service at the U.S. border as part of the official documentation 
accompanying such shipments less freight costs where applicable.
    (g) Fresh Fruit or Vegetable means a fruit or vegetable determined 
in accordance with Sec. 1560.3 within one of the HS headings.
    (h) HS heading means any of the following tariff headings of the 
Harmonized System (HS) as modified by the description for each heading:

------------------------------------------------------------------------
         HS tariff heading                       Description            
------------------------------------------------------------------------
07.01.............................  Potatoes, fresh or chilled.         
07.02.............................  Tomatoes, fresh or chilled.         
07.03.............................  Onions, shallots, garlic, leeks, and
                                     other alliaceous vegetables, fresh 
                                     or chilled.                        
07.04.............................  Cabbages, cauliflowers, kohlrabi,   
                                     kale and similar edible brassicas, 
                                     fresh or chilled.                  
07.05.............................  Lettuce (lactica sativa) and chicory
                                     (cichorium spp.), fresh or chilled.
07.06.............................  Carrots, salad beets or beetroot,   
                                     salsify, celeriac, radishes and    
                                     similar edible roots (excluding    
                                     turnips), fresh or chilled.        
07.07.............................  Cucumbers and gherkins, fresh or    
                                     chilled.                           
07.08.............................  Leguminous vegetables, shelled or   
                                     unshelled, fresh or chilled.       
07.09.............................  Other vegetables (excluding         
                                     truffles), fresh or chilled.       
08.06.10..........................  Grapes, fresh.                      
08.08.20..........................  Pears and quinces, fresh.           
08.09.............................  Apricots, cherries, peaches         
                                     (including nectarines), plums and  
                                     sloes, fresh.                      
08.10.............................  Other fruit (excluding cranberries  
                                     and blueberries), fresh.           
------------------------------------------------------------------------

    (i) Import Price means the unit value based on data available from 
the U.S. Customs Service of a particular Canadian fresh fruit or 
vegetable imported into the U.S. from Canada taking into account any 
other relevant data, as necessary.
    (j) Secretary means the Secretary of Agriculture.

[[Page 40]]

    (k) United States means the United States Customs Territory which 
includes the fifty states, the District of Columbia and Puerto Rico.
    (l) Wine Grape means grapes of labrusca, vinifera or hybrid vinifera 
varieties used for making wine.
    (m) Working Day means a day which falls on a Monday through Friday, 
excluding holidays observed by the United States Government and days in 
which the U.S. Customs Service is not operating.



Sec. 1560.3  Determination of fresh fruit or vegetable.

    The specific group of articles that will be monitored as a 
particular fresh fruit or vegetable will be determined based on the 
practicability of monitoring at the eight digit subheading level of the 
Harmonized Tariff Schedule of the United States. The determination of 
practicability will be made by the Administrator taking into account: 
(a) The availability of reliable volume and price data on imports from 
Canada and data on U.S. planted acreage, (b) market differentiation for 
the group of articles, and (c) such other factors as the Administrator 
determines to be appropriate.



Sec. 1560.4  Calculation of data to support imposition of temporary duty.

    The Administrator will inform the Secretary when the following 
conditions are met with respect to a particular fresh fruit or vegetable 
imported into the United States from Canada:
    (a) If for each of five consecutive working days the import price of 
the fresh fruit or vegetable is below ninety percent of the 
corresponding five-year average monthly import price for such fresh 
fruit or vegetable excluding the years with the highest and lowest 
corresponding monthly import price; and
    (b) The planted acreage in the United States for such fresh fruit or 
vegetable based on the most recent data available is no higher than the 
average planted acreage over the preceding five years excluding the 
years with the highest and lowest planted acreages. For the purposes of 
calculating any planted acreage increase attributed directly to a 
reduction in wine grape planted acreage existing on October 4, 1987 
shall be excluded.



Sec. 1560.5  Calculation of data to support removal of temporary duty.

    During the time a temporary duty on a particular fresh fruit or 
vegetable is imposed pursuant to section 301(a) of the United States-
Canada Free-Trade Agreement Implementation Act of 1988, the 
Administrator will inform the Secretary if the F.O.B. point of shipment 
price in Canada of such fresh fruit or vegetable exceeds, for five 
consecutive working days, ninety percent of the corresponding five-year 
average monthly import price excluding the years with the highest and 
lowest average corresponding monthly import price, adjusted to an F.O.B. 
point of shipment price, if necessary, for that fresh fruit or 
vegetable.



PART 1570--EXPORT BONUS PROGRAMS--Table of Contents




   Subpart A--Sunflowerseed Oil Assistance Program and Cottonseed Oil 
                       Assistance Program Criteria

Sec.
1570.10  General statement.
1570.20  Criteria.

             Subpart B--SOAP and COAP Drawback Certification

1570.1100  Drawback certification.

    Source: 56 FR 42223, Aug. 27, 1991, unless otherwise noted.



   Subpart A--Sunflowerseed Oil Assistance Program and Cottonseed Oil 
                       Assistance Program Criteria

    Authority: 7 U.S.C. 5663.



Sec. 1570.10  General statement.

    This subpart sets forth the criteria to be considered in evaluating 
and approving proposals for initiatives to facilitate export sales under 
the Sunflowerseed Oil Assistance Program (SOAP) and Cottonseed Oil 
Assistance Program (COAP) administered by the Foreign Agricultural 
Service (FAS). These criteria are interrelated and will

[[Page 41]]

be considered together in order to select eligible countries for SOAP 
and COAP initiatives which will best meet the programs' objective. The 
objective of the programs is to encourage the sale of additional 
quantities of sunflowerseed oil and cottonseed oil in world markets at 
competitive prices. Under the SOAP and the COAP, bonuses are made 
available by FAS to enable exporters to meet prevailing world prices for 
sunflowerseed oil and cottonseed oil in targeted destinations. In the 
operation of the SOAP and the COAP, FAS will make reasonable efforts to 
avoid the displacement of usual marketings of U.S. agricultural 
commodities.



Sec. 1570.20  Criteria.

    The criteria considered by FAS in reviewing proposals for SOAP and 
COAP initiatives will include, but not be limited to, the following:
    (a) The expected contribution which initiatives will make toward 
realizing U.S. agricultural export goals and, in particular, in 
developing, expanding, or maintaining markets for U.S. sunflowerseed 
and/or cottonseed oil;
    (b) The subsidy requirements of proposed initiatives in relation to 
the sums made available to operate the programs in any given fiscal 
year; and
    (c) The likelihood that sales facilitated by initiatives would have 
the unintended effect of displacing normal commercial sales of 
sunflowerseed and/or cottonseed oil.



             Subpart B--SOAP and COAP Drawback Certification

    Authority: 7 U.S.C. 5676.



Sec. 1570.1100  Drawback certification.

    An offer submitted by an exporter to FAS for an export bonus under 
the SOAP or the COAP must contain, in addition to any other information 
required by FAS, a certification stating the following: ``None of the 
eligible commodity (sunflowerseed oil and/or cottonseed oil) has been or 
will be used as the basis for a claim of a refund, as drawback, pursuant 
to section 313 of the Tariff Act of 1930 (19 U.S.C. 1313) of any duty, 
tax, or fee imposed under Federal law on an imported commodity or 
product.'' This certification must be signed by the exporter, if the 
exporter is an individual, or by a partner or officer of the exporter, 
if the exporter is a partnership or a corporation, respectively. FAS 
will reject any offer that does not contain the prescribed 
certification.


[[Page 43]]




    CHAPTER XVI--RURAL TELEPHONE BANK, DEPARTMENT OF AGRICULTURE



  --------------------------------------------------------------------
Part                                                                Page
1600  General information...................................          44
1610  Loan policies.........................................          47

[[Page 44]]





PART 1600--GENERAL INFORMATION--Table of Contents




     Meetings of the Board of Directors of the Rural Telephone Bank

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

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

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



     Meetings of the Board of Directors of the Rural Telephone Bank



Sec. 1600.1  General.

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



Sec. 1600.2  Definitions.

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



Sec. 1600.3  Open meetings.

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



Sec. 1600.4  Scheduling of meetings.

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

[[Page 45]]

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



Sec. 1600.5  Public announcement of meetings.

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



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

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

[[Page 46]]

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



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

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

[[Page 47]]

meeting. The vote of each Director participating in such vote shall be 
recorded and no proxy shall be allowed.
    (c) Before every Board meeting closed on the basis of one or more of 
the exemptions in Sec. 1600.6(a), the Legal Counsel will publicly 
certify that, in Counsel's opinion, the meeting may be closed to the 
public and shall state each relevant exemption.
    (d) Within one business day after any vote taken pursuant to 
paragraph (a), (b), or (c) of this section, the Board will make publicly 
available a written copy of the vote, reflecting the vote of each Board 
member. Except to the extent that such information is exempt from 
disclosure, if a meeting or portion of a meeting is to be closed to the 
public, the Board will make publicly available within one business day 
after the required vote a full written explanation of its action, 
together with a list of all persons expected to attend the meeting and 
their affiliation.



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

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



PART 1610--LOAN POLICIES--Table of Contents




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

[[Page 48]]

1610.10  Determination of interest rate on Bank loans.
1610.11  Prepayments.

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

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

    Editorial Note: Nomenclature changes to this part appear at 59 FR 
66439, Dec. 27, 1994.



Sec. 1610.1   General.

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

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



Sec. 1610.2  Definitions.

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

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



Sec. 1610.3   Loan authorizations.

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

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



Sec. 1610.4   Loan applications.

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

[58 FR 66252, Dec. 20, 1993]



Sec. 1610.5   Minimum Bank loan.

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

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



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

    (a) The Bank makes loans, under section 408 of the Act, concurrently 
with RUS cost-of-money loans made under section 305(d)(2) of the Act. To 
qualify for concurrent Bank and RUS cost-of-

[[Page 49]]

money loans on or after November 1, 1993, a borrower must meet each of 
the following requirements:
    (1) The average number of proposed subscribers per mile of line in 
the service area of the borrower is not more than 15, or the borrower 
has a projected TIER (including the proposed loans) of at least 1.0, but 
not greater than 5.0, as determined by the feasibility study prepared in 
connection with the loans, see 7 CFR part 1737, subpart H; and
    (2) The Administrator of RUS has approved and the borrower is 
participating in a telecommunications modernization plan for the state, 
see 7 CFR part 1751, subpart B.
    (b) The loan amounts from each program (Bank, including amounts for 
class B stock, and RUS cost-of-money) will be proportionate to the total 
amount of funds appropriated for the fiscal year for Bank loans and RUS 
cost-of-money loans. To determine the Bank portion, the total loan 
amount will be multiplied by the ratio of Bank funds appropriated for 
the fiscal year to the sum of RUS cost-of-money and Bank funds 
appropriated for the fiscal year in which the loan is approved. The same 
method would be used to calculate the RUS cost-of-money portion (see 7 
CFR 1735.31(b)). If during the fiscal year the amount of funds 
appropriated changes, the ratio will be adjusted accordingly and applied 
only to those loans approved afterwards.
    (c) The actual rate of interest on the Bank loan shall be determined 
as provided in Sec. 1610.10; the RUS cost-of-money loan shall bear 
interest at a rate equal to the current cost of money to the Federal 
Government, on the date of advance of funds to the borrower, for loans 
of similar maturity, but not more than 7 percent per year (see 7 CFR 
1735.31(c)).

[58 FR 66252, Dec. 20, 1993]



Sec. 1610.7   Acquisition of certain exchange facilities.

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



Sec. 1610.8  Adoption of applicable RUS policy.

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

[55 FR 39397, Sept. 27, 1990]



Sec. 1610.9  Class B stock.

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

[56 FR 26596, June 10, 1991]



Sec. 1610.10  Determination of interest rate on Bank loans.

    (a) All loan fund advances made on or after December 22, 1987 under 
Bank

[[Page 50]]

loans approved on or after October 1, 1987, shall bear interest at the 
rate determined as established below, but not less than 5 percent per 
annum.
    (b) The interest rate for the period beginning on the date the 
advance is made and ending at the close of the fiscal year in which the 
advance is made shall be the average yield on the date of advance on 
outstanding marketable obligations of the United States having a final 
maturity comparable to the final maturity of the advance. The interest 
rate shall be determined to the nearest 0.01 percent.
    (1) For this determination, the Bank will use yields on actively 
traded Treasury issues adjusted to constant maturities obtained from the 
Federal Reserve statistical release (``Treasury rate''). In accordance 
with standard Treasury procedures, the rate in effect for any given day 
is the rate set at the close of business on the preceding day. The 30-
year Treasury rate will be applied to all advances with a final maturity 
of at least 30 years from date of advance. A straight-line interpolation 
between other Treasury rates will be used to determine the rate 
applicable for advances with final maturities of less than 30 years.
    (2) The Bank will notify the borrower in writing of the interest 
rate that applies to each advance.
    (c) After the fiscal year in which the advance is made, the interest 
rate applied to the advance will be the sum of the calculations made in 
paragraphs (c) (1) through (5) of this section. This interest rate 
determination shall be made by the Governor within 30 days of the end of 
each fiscal year and shall be determined to the nearest 0.01 percent.
    (1) The aggregate of all amounts received by the Bank during the 
fiscal year from the issuance of Class A stock, multiplied by the rate 
of return payable by the Bank during the fiscal year as specified in 
section 406(c) of the Act, which product is divided by the aggregate of 
the amounts advanced by the Bank during the fiscal year.
    (2) The aggregate of all amounts received by the Bank during the 
fiscal year from the issuance of Class B stock, multiplied by the rate 
at which dividends are payable by the Bank during the fiscal year as 
specified in section 406(d) of the Act, which product is divided by the 
aggregate of the amounts advanced by the Bank during the fiscal year. 
Section 406(d) provides that ``No dividends shall be payable on Class B 
stock.'' The ``amounts received by the Bank during the fiscal year from 
the issuance of Class B stock'' means the amount of cash received during 
the fiscal year for the purchase of Class B stock, plus the amount 
advanced to borrowers by the Bank during the fiscal year for such 
purchases, less any Class B stock that is rescinded during the fiscal 
year.
    (3) The aggregate of all amounts received by the Bank during the 
fiscal year from the issuance of Class C stock, multiplied by the rate 
at which dividends are payable by the Bank during the fiscal year as 
specified in section 406(e) of the Act, which product is divided by the 
aggregate of the amounts advanced by the Bank during the fiscal year.
    (4) The amounts received by the Bank during the fiscal year from 
each issue of telephone debentures and other obligations of the Bank, 
multiplied, respectively, by the rates at which interest is payable by 
the Bank during the fiscal year to holders of each issue, each of which 
product is divided, respectively, by the aggregate of the amounts 
advanced by the Bank during the fiscal year.
    (5) The amount by which the aggregate of the amounts advanced by the 
Bank during the fiscal year exceeds the aggregate of the amount received 
by the Bank from the issuance of Class A stock, Class B stock, Class C 
stock, and telephone debentures and other obligations of the Bank during 
the fiscal year, multiplied by the historic cost of money rate as of the 
close of the immediately preceding fiscal year, which product is divided 
by the aggregate of the amounts advanced by the Bank during the fiscal 
year.
    (6) As used in paragraph (c)(5) of this section, the term ``historic 
cost of money rate as of the close of the immediately preceding fiscal 
year,'' means the sums of the results of the following calculations: The 
amounts advanced by the Bank in each fiscal year during the period 
beginning with fiscal year 1974

[[Page 51]]

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

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

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

[[Page 52]]

fiscal year. Borrower requisitions submitted late in the fiscal year may 
not be processed in that fiscal year because of workload and other 
factors.

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



Sec. 1610.11  Prepayments.

    (a) Bank loans approved before November 1, 1993, may be prepaid in 
accordance with the terms thereof, including payment of the premium as 
provided therein.
    (b) A borrower may prepay part or all of a Bank loan made on or 
after November 1, 1993, by paying the outstanding principal and any 
accrued interest without being required to pay a prepayment premium.

[58 FR 66252, Dec. 20, 1993]

[[Page 53]]




    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE



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

  Editorial Note: Nomenclature changes to Chapter XVII appear at 59 FR 
  66440, Dec. 27, 1994.

Part                                                                Page
1700            General information.........................          55
1703            Rural development...........................          84
1710            General and preloan policies and procedures 
                    common to insured and guaranteed 
                    electric loans..........................         143
1714            Pre-loan policies and procedures for insured 
                    electric loans..........................         188
1717            Post-loan policies and procedures common to 
                    insured and guaranteed electric loans...         194
1718            Loan security documents for electric 
                    borrowers...............................         238
1721            Post-loan policies and procedures for 
                    insured electric loans..................         280
1724            Electric system planning and design policies 
                    and procedures..........................         281
1726            Electric system construction policies and 
                    procedures..............................         282
1728            Electric standards and specifications for 
                    materials and construction..............         460
1730      Electric system operations and maintenance  [Reserved]
1735            General policies, types of loans, loan 
                    requirements--telephone program.........         484
1737            Pre-loan policies and procedures common to 
                    guaranteed and insured telephone loans..         505
1739            Pre-loan policies and procedures for 
                    guaranteed telephone loans..............         520
1741      Pre-loan policies and procedures for insured telephone loans  
              [Reserved]
1744            Post-loan policies and procedures common to 
                    guaranteed and insured telephone loans..         543
1746            Post-loan policies and procedures for 
                    guaranteed telephone loans..............         553

[[Page 54]]

1748      Post-loan policies and procedures for insured telephone 
              loans  [Reserved]
1751            Telecommunications system planning and 
                    design criteria, and procedures.........         558
1753            Telecommunications system construction 
                    policies and procedures.................         563
1755            Telecommunications standards and 
                    specifications for materials, equipment 
                    and construction........................         603
1757      Telephone systems operations and maintenance  [Reserved]
1767            Accounting requirements for RUS electric 
                    borrowers...............................         873
1770            Accounting requirements for RUS telephone 
                    borrowers...............................        1053
1773            Policy on audits of RUS borrowers...........        1074
1785            Loan account computations, procedures and 
                    policies for electric and telephone 
                    borrowers...............................        1118
1786            Prepayment of RUS guaranteed and insured 
                    loans to electric and telephone 
                    borrowers...............................        1120
1788            RUS fidelity and insurance requirements for 
                    electric and telephone borrowers........        1156
1789            Use of consultants funded by borrowers......        1166
1792            Compliance with other Federal Statutes, 
                    regulations, and Executive Orders.......        1171
1794            Environmental policies and procedures for 
                    electric and telephone borrowers........        1174

[[Page 55]]



PART 1700--GENERAL INFORMATION--Table of Contents




                  Subpart A--Organization and Functions

Sec.
1700.1  General.
1700.2  Office of the Administrator.
1700.3  Office of the Deputy Administrator--Program Operations.
1700.4  Rural electric program.
1700.5  Rural telephone program.
1700.6  Economic development and technical services.
1700.7  Office of the Deputy Administrator--Management and Policy 
          Support.
1700.8  Office of Assistant Administrator--Management.
1700.9  Information, legislation, policy and management analysis.
1700.10--1700.19  [Reserved]

                           Subpart B--Programs

1700.20  Insured electric loans pursuant to section 305 of the Rural 
          Electrification Act, as amended.
1700.21  Insured telephone loans pursuant to section 305 of the Rural 
          Electrification Act, as amended.
1700.22  Rural Telephone Bank loans pursuant to section 408 of the Rural 
          Electrification Act, as amended.
1700.23  Guaranteed loans pursuant to section 306 of the Rural 
          Electrification Act, as amended.
1700.24  Loans and grants pursuant to section 313 of the RE Act.
1700.25  Other loan authorities.
1700.26  Studies, investigations, and reports.
1700.27  Loan security activities.
1700.28  Issuances implementing procedure.
1700.29  [Reserved]

                      Subpart C--Public Information

1700.30  Availability of Agency publications and other information, and 
          collection of public comments to proposed rules.
1700.31  Indexes.
1700.32  Requests for records.
1700.33  Appeals.

              Subpart D--Delegations of Authority; General

1700.40  Exercise of delegated authority.
1700.41  Persons serving in acting capacities.
1700.42  Persons serving as acting Administrator.
1700.43  Persons serving as acting Assistant Administrator.
1700.44  Contracts approved on behalf of the Administrator.
1700.45--1700.59  [Reserved]

   Subpart E--Delegations of Authority; Agency Issuances and Certain 
                             Correspondence

1700.60  Agency issuances.
1700.61  Agency publications control officer.
1700.62--1700.69  [Reserved]

    Subpart F--Delegations; Authorities Reserved by the Administrator

1700.70  General.
1700.71  Rural economic development loan and grant and distance learning 
          and medical link grant programs.
1700.72  Electric program.
1700.73  Telephone program.
1700.74--1700.89  [Reserved]

       Subpart G--Delegations of Authority; Loan Review Committees

1700.90  General.
1700.91  Senior loan review committee.
1700.92  Assistant Administrator's loan committee.
1700.93  Rural economic development recommendation committee.
1700.94--1700.99  [Reserved]

Subpart H--Delegations of Authority; Rural Economic Development, Program 
               Support, and Borrower Accounting Activities

1700.100  General.
1700.101  Deputy Administrator.
1700.102  Assistant Administrator--Economic Development and Technical 
          Services.
1700.103  Director--Rural Development Assistance Staff.
1700.104  Chief, Financing Branch--Rural Development Assistance Staff.
1700.105  Director, Borrower Accounting Division.
1700.106  Chief, Technical Accounting and Auditing Staff.
1700.107  Chiefs, Area Accounting Branches.
1700.108  Field Accountants.
1700.109  Director--Program Support Staff.
1700.110--1700.119  [Reserved]

          Subpart I--Delegations of Authority; Electric Program

1700.120  General.
1700.121  Deputy Administrator.
1700.122  Assistant Administrator--Electric.
1700.123  Deputy Assistant Administrator--Electric.
1700.124  Regional Directors.
1700.125  Chiefs, Regional Engineering Branches.
1700.126  Chiefs, Area Operations Branches.
1700.127  Director--Power Supply Division.

[[Page 56]]

1700.128  Chief, Operations Branch, Power Supply Division.
1700.129  Chiefs, Power Engineering Branches, Power Supply Division.
1700.130  General Field Representatives--Electric.
1700.131  Director, Electric Staff Division.
1700.132  Technical Standards Committees ``A'' and ``B''--Electric.
1700.133--1700.139  [Reserved]

         Subpart J--Delegations of Authority; Telephone Program

1700.140  General.
1700.141  General delegations.
1700.142  Deputy Administrator.
1700.143  Assistant Administrator--Telephone.
1700.144  Deputy Assistant Administrator--Telephone.
1700.145  Regional Directors.
1700.146  Chiefs, Regional Engineering Branches--Telephone.
1700.147  Chiefs, Regional Operations Branches--Telephone.
1700.148  General Field Representatives--Telephone.
1700.149  Director--Telecommunications Standards Division.
1700.150  Technical Standards Committees ``A'' and ``B''--Telephone.
1700.151--1700.159  [Reserved]

         Subpart K--Delegations of Authority; Financial Services

1700.160  General.
1700.161  Program Advisor, Financial Services Staff.
1700.162--1700.169  [Reserved]

  Subpart L--Delegations of Authority; Financial Operations Activities

1700.170  General.
1700.171  Deputy Administrator.
1700.172  Director, Financial Operations Division.
1700.173  Chief, Loans Receivable Branch.
1700.174--1700.189  [Reserved]

    Authority: 7 U.S.C. 901 et seq.; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.); 7 U.S.C. 1921 et seq.; 5 U.S.C. 301, 552; 7 CFR 
1.1-1.16.

    Source: 55 FR 39596, Sept. 28, 1990, unless otherwise noted.



                  Subpart A--Organization and Functions

    Source: 57 FR 6285, Feb. 24, 1992, unless otherwise noted.



Sec. 1700.1  General.

    (a) The Rural Electrification Administration (REA) was established 
by Executive Order No. 7037, signed by the President on May 11, 1935. 
Statutory authority was provided by the Rural Electrification Act of 
1936 (RE Act) (49 Stat. 1363; 7 U.S.C. 901). The RE Act established REA 
as a lending agency with responsibility for developing a program for 
rural electrification.
    (b) On October 28, 1949, an amendment to the RE Act authorized REA 
to make loans to improve and extend telephone service in rural areas. 
The Rural Telephone Bank (RTB or the Bank), an Agency of the United 
States, was established by another amendment to the RE Act, approved May 
7, 1971. The Administrator of RUS serves as the Bank's chief executive 
with the title of Governor. On May 11, 1973, the RE Act was further 
amended to establish a revolving fund and to provide authority for REA 
to guarantee loans made by other legally organized lenders. The RE Act 
was amended further on December 21, 1987, to establish a Rural Economic 
Development Subaccount, and to authorize funds from this subaccount to 
provide zero-interest loans and grants to REA borrowers to promote rural 
economic development and job creation. The RE Act was also amended on 
November 5, 1990, to add a new section 314, which authorized REA to 
guarantee 90 percent of the principal and interest of loans made for 
electric and telephone facilities by legally organized lenders. It was 
further amended on November 28, 1990, to establish an Assistant 
Administrator for Economic Development and a rural development technical 
assistance unit; to expand the authorities and responsibilities of REA 
in rural economic development; and to establish a Rural Business 
Incubator Fund for making grants and reduced interest loans to electric 
and telephone borrowers to promote business incubator projects. At the 
same time, the Administrator was also granted authority for financial 
assistance for distance learning and medical link programs.
    (c) The Secretary of Agriculture (Secretary) was required to 
establish the Rural Utilities Service (RUS) pursuant to section 232 of 
the Federal Crop

[[Page 57]]

Insurance Reform and Department of Agriculture Reorganization Act of 
1994, (Pub. L. 103-354, 108 Stat. 3178) (Reorganization Act). The 
Reorganization Act established RUS as successor to REA. On October 20, 
1994, the Secretary abolished REA and established RUS. RUS was assigned 
responsibility for administering electric and telephone loan programs 
previously administered by REA, water and waste facility loans and 
grants previously administered by the Rural Development Administration, 
along with other functions as the Secretary determines appropriate. The 
rights, interests, obligations, duties, and contracts previously vested 
in REA are transferred to and vested in RUS. The Secretary designated 
the Administrator of RUS to serve as the Governor of RTB.
    (d) The offices of RUS are located in the South Building of the 
United States Department of Agriculture at 14th and Independence Avenue, 
SW., Washington, DC 20250-1500. The Electric and Telephone Programs are 
administered by regional offices located at this same address. There is 
a Northern and a Southern Regional Office, along with a Power Supply 
Division, for the electric program, and an Eastern and a Western 
Regional Office for the telephone program. (See Sec. 1700.4(b) and 
Sec. 1700.5(b).)

[59 FR 66440, Dec. 27, 1994]



Sec. 1700.2  Office of the Administrator.

    (a) The Administrator (who also serves as Governor of the RTB) is 
appointed by the President, with the advice and consent of the Senate, 
for a term of 10 years. The Administrator functions as the chief 
executive of the Agency under the general supervision and direction of 
the Under Secretary for Rural Economic and Community Development. The 
Administrator is aided directly by two Deputy Administrators and by 
Assistant Administrators for the Electric Program, the Telephone 
Program, for Economic Development and Technical Services, and for 
Management. The Financial Services Staff and the Equal Opportunity and 
Civil Rights Staff also report directly to the Administrator. The work 
of the Agency is carried out through the offices and divisions described 
in this part.
    (b) The Financial Services Staff performs the following functions:
    (1) Evaluates financial conditions of financially troubled 
borrowers;
    (2) Negotiates settlements and ``work-outs'' of financially troubled 
borrowers who have or may have delinquent loans in order to satisfy the 
government's interests, keeping abreast of financial and legal factors 
that may affect the negotiations;
    (3) Coordinates the Agency's efforts to identify and develop 
strategies for potentially financially troubled borrowers;
    (4) Develops techniques and criteria for evaluating the financial 
and operating performance of certain rural electric and telephone 
borrowers;
    (5) Develops certain standards, policies, and procedures in 
connection with loan requirements and processing for the electric and 
telephone programs;
    (6) Analyzes and evaluates certain loan requests and transactions to 
determine whether the documentation justifies the request;
    (7) Serves as staff to the Senior Loan Committee;
    (8) Keeps other government organizations advised concerning 
activities of the staff; and
    (9) Serves as RUS liaison to the capital markets.
    (c) The Equal Opportunity and Civil Rights Staff administers the 
program for equal opportunity in the delivery of services and benefits 
by RUS borrowers and in the employment practices in the Agency. The 
staff:
    (1) Formulates and coordinates plans, policies and procedures for a 
nationwide program of nondiscrimination on the part of RUS borrowers in 
carrying out borrower programs subject to the provisions of title VI of 
the Civil Rights Act of 1964 (42 U.S.C. 2000a-2000h-6); section 504 of 
the Rehabilitation Act of 1973 (29 U.S.C. 701 et seq.); the Age 
Discrimination Act of 1975 (42 U.S.C. 6101-6107); the Americans with 
Disabilities Act of 1990 (42 U.S.C. 12101 et seq.); and Executive Order 
11246 (3 CFR, 1964-1965 Comp., p. 339), as amended by Executive Orders 
11375 (3 CFR, 1966-1970 Comp., p. 684) and 12086 (3 CFR, 1978 Comp., p. 
230).

[[Page 58]]

    (2) Develops and monitors plans, policies and programs designed to 
promote equal employment opportunity for RUS personnel under title VII 
of the Civil Rights Act of 1964; the Age Discrimination in Employment 
Act of 1967 (29 U.S.C. 621-634); the Equal Employment Opportunity Act of 
1972 (42 U.S.C. 2000e et seq.); section 501 of the Rehabilitation Act of 
1973; pertinent provisions of the Civil Service Reform Act of 1978 (5 
U.S.C. 1101 et seq.); and applicable rules, regulations and other equal 
employment, nondiscrimination statutes.



Sec. 1700.3  Office of the Deputy Administrator--Program Operations.

    The Deputy Administrator--Program Operations directs and coordinates 
the electric, telephone and rural economic development programs, 
technical services, and borrower accounting activities; reviews Agency 
policies in these areas and, as necessary, implement changes; and 
participates with the Administrator and other officials in planning and 
formulating the programs and activities of the Agency.



Sec. 1700.4  Rural electric program.

    (a) The Assistant Administrator--Electric directs and coordinates 
the rural electrification program of the Agency, participating with the 
Administrator and Deputy Administrator--Program Operations and others in 
planning and formulating the programs and activities of the Agency.
    (b) Regional Offices. (1) The two regional offices are the primary 
points of contact between RUS and electric distribution system 
borrowers. Each office administers the rural electric program for an 
assigned geographical area with assistance of field representatives 
located in areas assigned to them. The regional offices are composed of 
the following states and territories:
    (i) Northern Region. Alaska, Connecticut, Delaware, Hawaii, Idaho, 
Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, 
Michigan, Minnesota, Montana, New Hampshire, New Jersey, New York, North 
Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Vermont, 
Virginia, Washington, West Virginia, Wisconsin, Wyoming, and present and 
former Pacific Trust Territories; and
    (ii) Southern Region. Alabama, Arizona, Arkansas, California, 
Colorado, Florida, Georgia, Kansas, Louisiana, Mississippi, Missouri, 
Nebraska, Nevada, New Mexico, North Carolina, Oklahoma, Puerto Rico, 
South Carolina, Tennessee, Texas, Utah, and the Virgin Islands.
    (2) The regional offices perform the following functions with 
respect to loan feasibility and security and accomplishment of the 
purposes of the RE Act:
    (i) Administer the rural electrification program for distribution 
borrowers in the region, serving as the single point of contact for 
distribution borrowers;
    (ii) Provide guidance to borrowers on Agency loan policies and 
procedures, and receives, evaluates, and processes insured and 
guaranteed loan applications and other requests for financing 
assistance;
    (iii) If delegated the authority by the Administrator, Regional 
Directors may approve certain loans, lien accommodations and other 
actions;
    (iv) Assure that distribution and transmission systems and 
facilities are designed and constructed in accordance with the terms of 
the loan and proper engineering practices and specifications;
    (v) Maintain oversight of borrower rate actions;
    (vi) Provide guidance to borrowers on supplemental power resources; 
load and energy management; and the environmental aspect of the design, 
construction and operation of their systems;
    (vii) Maintain necessary oversight of borrowers' financial 
management and technical operations and practices to assure the security 
of the government's loans. Institute operations and management studies 
or other forms of corrective action as necessary;
    (viii) Works to ensure accountability of loan and other financial 
transactions; and
    (ix) Supplements efforts of the Equal Opportunity and Civil Rights 
Staff to ensure borrower compliance with civil rights requirements.
    (c) Power Supply Division. The Division performs the following 
functions:

[[Page 59]]

    (1) Administers rural electrification program responsibilities that 
relate to power supply borrowers, and serves as the primary point of 
contact between RUS and all such borrowers;
    (2) Receives, evaluates, and processes insured and guaranteed loan 
applications and other requests for financial assistance from power 
supply borrowers;
    (3) Develops and administers engineering and construction functions 
related to planning, design, construction, operation, and maintenance 
for power supply borrowers;
    (4) Maintains a continuing financial and management overview of 
power supply borrowers to ensure that their operations are consistent 
with sound fiscal policies and procedures, loan security, and with RUS 
loan contracts, mortgages and regulatory requirements. Initiates 
operations and management studies or other forms of corrective action as 
necessary;
    (5) Provide guidance to borrowers on supplemental power resources; 
load and energy management; and the environmental aspects of the design, 
construction and operations of their systems;
    (6) Works to ensure accountability of loan and other financial 
transactions; and
    (7) Supplements efforts of the Equal Opportunity and Civil Rights 
Staff to ensure borrower compliance with civil rights requirements.
    (d) Electric Staff Division. This division administers certain 
engineering and operating activities relating to the rural electric 
program. The division:
    (1) Is responsible for engineering aspects of RUS's standards, 
specifications and other requirements with respect to design, 
construction, and technical operation and maintenance of power-plant, 
distribution, and transmission systems and facilities, including load 
management, energy conservation and communications;
    (2) Develops engineering practices, policies, standards, and 
guidelines for the Agency relating to electric borrowers' systems; 
conducts analysis and provides guidance on matters relating to fuels for 
electric generating stations; analyzes the effects of environmental laws 
and regulations on RUS-financed electric systems; and develops related 
policies and procedures for the Agency;
    (3) Develops criteria, procedures and analyses for improvement of 
the operating performance of electric borrowers;
    (4) Develops procedures, criteria and techniques for forecasting 
borrowers' power requirements; and develops and maintains expertise in 
matters relating to retail and wholesale rates;
    (5) Develops policies and procedures for adherence to environmental 
laws and regulations, and reviews borrowers' environmental studies;
    (6) Maintains and publishes a continuing updated list of materials 
compatible with current RUS standards;
    (7) From time to time provides consultation with borrowers regarding 
engineering matters;
    (8) Provides assistance to the other electric offices and, as 
appropriate, to borrowers; and
    (9) Maintains liaison with other Government agencies, utilities, 
industry officials and professional organizations on the above matters.



Sec. 1700.5  Rural telephone program.

    (a) The Assistant Administrator--Telephone directs and coordinates 
the rural telephone program of the Agency, participating with the 
Administrator and Deputy Administrator--Program Operations and other 
officials in planning and formulating the programs and activities of the 
Agency.
    (b) Regional Offices. (1) The two regional offices are the primary 
points of contact between RUS and all telephone system borrowers. Each 
office administers the rural telephone program for an assigned 
geographical area with assistance of field representatives located in 
areas assigned to them.
    (2) The regional offices are composed of the following states and 
territories:
    (i) Eastern Region. Alabama, Connecticut, Delaware, Florida, 
Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, 
Michigan, Mississippi, New Hampshire, New Jersey, New York, North 
Carolina, Ohio, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, 
Tennessee, Vermont, Virginia, Virgin Islands, West Virginia, and 
Wisconsin; and

[[Page 60]]

    (ii) Western Region. Alaska, Arizona, Arkansas, California, 
Colorado, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Missouri, 
Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, 
South Dakota, Texas, Utah, Washington, Wyoming and present and former 
Pacific Trust Territories along with the Northern Mariana Islands and 
Guam.
    (3) The regional offices have the following responsibilities with 
respect to loan feasibility and security and accomplishment of the 
purposes of the RE Act:
    (i) Provide guidance to applicants and borrowers on Agency and Rural 
Telephone Bank loan policies and procedures, and make recommendations to 
the Administrator on applications for loans or guarantees. If delegated 
the authority by the Administrator, Area Directors may approve certain 
loans, lien accommodations and other actions;
    (ii) Review and analyze borrowers' toll revenue settlements and 
local service rates for adequacy to meet loan service payments and other 
expenses;
    (iii) Assure that telephone systems and facilities are designed and 
constructed in accordance with the terms of the loan and the Agency's 
regulations. They review, analyze and approve borrowers' engineering 
plans and specifications; engineering, equipment and construction 
contracts; and borrowers' payments to engineers and contractors. They 
work with the borrowers to assure that completed construction meets RUS 
standards for quality of service and loan security; and
    (iv) Provide information to borrowers regarding management and 
technical operations and practices with respect to the feasibility and 
security of the Government's loans and achievement of RE Act purposes.
    (c) Telecommunications Standards Division. This division administers 
engineering staff activities related to the design, construction, and 
technical operation and maintenance of rural telephone systems and 
facilities. The division:
    (1) Develops Agency engineering practices, policies, guidelines and 
technical data relating to telephone borrowers' systems;
    (2) Evaluates the application of new communications network 
technology to rural telephone systems;
    (3) Develops standards, policies, and procedures in connection with 
construction activities financed by the rural telephone program;
    (4) Provides advice and assistance to the regional offices and, as 
requested, to borrowers on the above functions and responsibilities; and
    (5) Maintains liaison with other government agencies, utilities, 
industry officials, and professional organizations on the above matters.
    (d) Rural Telephone Bank Management Staff. This staff performs the 
following functions:
    (1) Prepares analyses and makes recommendations to the Assistant 
Governor of the RTB on RTB issues;
    (2) Performs the calculations needed to determine the cost of money 
rate to RTB borrowers;
    (3) Prepares the minutes of RTB board meetings;
    (4) Develops practices and procedures for determining toll forecasts 
for the telephone regional offices, and develops the toll forecasts for 
borrowers with complicated settlement arrangements; and
    (5) Maintains liaison with other government agencies, utilities, 
industry officials, and professional organizations on the above matters.



Sec. 1700.6  Economic development and technical services.

    (a) The Assistant Administrator--Economic Development and Technical 
Services directs and coordinates the rural economic development and 
technical services programs of the Agency, participating with the 
Administrator and Deputy Administrator--Program Operations and other 
officials in planning and formulating the programs and activities of the 
Agency. Two staffs and one division report to this Assistant 
Administrator.
    (b) Rural Development Assistance Staff. This staff performs the 
following functions:
    (1) Administers the Agency's rural economic development and job 
creation programs;

[[Page 61]]

    (2) Formulates and develops regulations, procedures, directives, and 
bulletins concerning the execution of Agency rural economic development 
activities;
    (3) In coordination with Agency personnel, provides guidance to 
borrowers on Agency rural economic development policies and procedures, 
and makes recommendations to the Administrator on borrowers' 
applications for rural economic development financial assistance;
    (4) Provides economic and community development technical assistance 
to borrowers; and
    (5) Advises Agency personnel on rural economic development matters.
    (c) Program Support Staff. This staff has the following 
responsibilities:
    (1) Prepares special and ongoing analyses regarding the operations 
of the Agency's loan, loan-guarantee, and grant programs, and supervises 
special projects as assigned;
    (2) Develops and maintains Agency regulations and bulletins on pre-
and post-loan policies and procedures, and provides advice and 
assistance to Agency staff and others regarding the achievement of 
program policies;
    (3) Coordinates with corresponding program staffs regarding the 
implementation of program-wide policies;
    (4) Coordinates joint program initiatives;
    (5) Provides coordination and assistance on management development 
of RUS and borrower personnel, as assigned; and collaborates with 
borrowers' organizations and professional groups in management 
development;
    (6) Develops and maintains a variety of loan fund control ledgers 
for electric and telephone program lending authorities; and
    (7) Keeps abreast of external developments by state, local and 
Federal regulatory and legislative bodies relating to RUS programs.
    (d) Borrower Accounting Division. This division ensures that 
accounting policies, systems and procedures with respect to borrowers' 
accounting operations meet regulatory, U.S. Department of Agriculture, 
General Accounting Office, Office of Management and Budget and Treasury 
Department requirements. The division:
    (1) Provides recommendations and assistance in solving special 
program and administrative problems involving accounting interpretations 
and analysis, including the development and presentation of data to 
agency staff, regulatory bodies, and other agencies;
    (2) Examines borrowers' records and operations and reviews 
expenditures of loan and other funds deposited in the RUS Construction 
Fund Account to determine that funds are expended in conformity with the 
RE Act. Reviews borrowers' plant accounting system and procedures to 
determine compliance with RUS regulations;
    (3) Approves Certified Public Accountants to perform audits for 
borrowers and reviews their reports to determine conformance with 
acceptable accounting practices, procedures and standards;
    (4) Develops proposed standards and procedures for Agency 
examination programs and evaluates adequacy and effectiveness of the 
review procedures; and
    (5) Evaluates borrowers' accounting systems and procedures and 
recommends changes, as necessary, to provide for more complete and 
accurate reporting of borrowers' operations. Provides advice and 
assistance to borrowers concerning the installation and operation of 
accounting systems;
    (e) Area Offices. The division is organized into four geographic 
area offices each of which has several field accountants located 
throughout the area.



Sec. 1700.7  Office of the Deputy Administrator--Management and Policy Support.

    The Deputy Administrator--Management and Policy Support directs and 
coordinates the legislative, public information, administrative and 
budget activities of the Agency and participates with the Administrator 
and other officials in planning and formulating the programs, policies 
and other functions of the Agency. Activities are carried out by an 
Assistant Administrator--Management and others who report directly to 
the Deputy Administrator.

[[Page 62]]



Sec. 1700.8  Office of Assistant Administrator--Management.

    The Assistant Administrator--Management directs and coordinates the 
general administrative activities of the agency, participates with the 
Administrator and Deputy Administrators and other officials in planning 
and formulating the programs and activities of the agency. The Office of 
Budget and four other divisions are directed and coordinated by the 
Assistant Administrator--Management.
    (a) The Office of Budget administers the budgetary and financial 
management program of the Agency. The office:
    (1) Determines the annual funding needs for current and multi-year 
forecasts, participating with the Administrator in presenting and 
supporting the Agency's budget and program plans; and
    (2) Administers budget execution, apportionment, allotment and use 
and control of all Agency funds.
    (b) The Personnel Management Division administers the personnel 
program of the Agency, covering both headquarters and field personnel. 
The division.
    (1) Administers the provisions of the Classification Act, to achieve 
uniform application of position classification principles and standards 
to all RUS positions; conducts organization studies and develops 
recommendations for changes; develops and administers the Agency's 
personnel management evaluation activities;
    (2) Administers the employment program for the Agency, including 
staffing, recruitment, placement and separation; administers the 
Agency's merit promotion program; maintains liaison with the National 
Finance Center on personnel data processing activities including 
payroll;
    (3) Administers Agency responsibilities for employee relations 
including: grievances and appeals, performance appraisals, performance 
recognition system, conflict of interest, awards, benefits, and leave;
    (4) Directs, coordinates, and evaluates a program of employee 
training to achieve the maximum utilization of skills and abilities of 
personnel; conducts training sessions; plans and directs conferences; 
prepares training budget; approves training requests; and coordinates an 
information program for foreign visitors;
    (5) Provides advice and assistance to Agency officials and employees 
to ensure sound and effective administration of the Agency's personnel 
program;
    (6) Maintains working relations and liaison on personnel management 
matters with the staff and other agencies of the Department and other 
government agencies; and
    (7) Participates with the Administrator, in conjunction with the 
Equal Opportunity and Civil Rights Staff, in the implementation and 
enforcement of USDA equal employment opportunity programs (see 
Sec. 1700.2(c) (2)); coordinates equal employment opportunity complaint 
system with the Department; develops and administers the Agency's 
Federal Equal Opportunity Recruitment Program.
    (c) The Administrative Services Division administers a wide array of 
management services. The division administers:
    (1) General services involving contracting and procurement, space 
management, property and supplies management, records management and 
communications;
    (2) The Agency's rulemaking and regulatory review activities, 
coordinating with the Office of the Federal Register, the Office of the 
General Counsel, and the Office of Management and Budget; and
    (3) The Agency's publications issuance system and the forms and 
report program.
    (d) The Automated Information Systems Division analyzes the 
application of data processing to RUS program activities, including 
feasibility studies of the costs and benefits of automated data 
processing. The division:
    (1) Establishes standards and procedures for developing, maintaining 
and using the Agency's major automated systems covering borrower 
information, loan accounting and special management programs; performs 
systems analyses, development, and programming; and ensures data 
security;
    (2) Operates the data processing equipment of the Agency, including 
the

[[Page 63]]

conversion of data from source documents and the preparation of 
statements, reports, analyses, and other information, and provides 
training and assistance to users; and
    (3) Collects and analyzes financial, operating, and other 
statistical data obtained from borrowers and other sources, and prepares 
reports on the progress and status of the programs of RUS and the RTB.
    (e) The Financial Operations Division administers the fiscal 
accounting program of the agency and the RTB. The division:
    (1) Develops, recommends and implements accounting policies, 
systems, and procedures regarding the Agency's and RTB's operations;
    (2) Maintains accounts to provide control over and accountability 
for all funds, assets, liabilities, income and expenses of the Agency 
and the RTB; and prepares reports required by RUS, RTB, the U.S. 
Department of Agriculture, and other government agencies;
    (3) Examines and certifies for payment, vouchers and invoices 
covering administrative expenses and loan fund advances of the Agency 
and the RTB;
    (4) Reviews, examines and processes monthly billings and debt 
service payments for RUS and RTB loans;
    (5) Reviews, examines and processes loan fund advances, billings, 
debt service payments and all other accounting related activities 
connected with Federal Financial Bank loans to RUS borrowers; and
    (6) Maintains custody of the original copies of notes and mortgages 
and certain loan collateral.



Sec. 1700.9  Information, legislation, policy and management analysis.

    The Deputy Administrator--Management and Policy Support, directs two 
separate staffs of the Agency dealing with public information and 
legislation, and policy and management analysis.
    (a) The Legislative and Public Affairs Staff performs the following 
functions:
    (1) Analyzes the policy, programs and procedural implications of 
Federal and State legislation affecting RUS programs; prepares special 
reports for the Administrator on legislative affairs; and responds to 
inquiries from Congress and others concerning RUS programs;
    (2) Maintains liaison with the Department's legislative staff and 
with congressional offices;
    (3) Manages the information activities of the Agency to provide 
borrowers and the public with timely information concerning the 
operations, status, progress and accomplishments of the rural 
electrification, rural telephone and rural development programs;
    (4) Evaluates the public information activities of the Agency and 
advises on actions that will improve public understanding and acceptance 
of Agency functions; and
    (5) Administers the public information provisions of 5 U.S.C. 551 et 
seq., the Administrative Procedure Act.
    (b) The Policy and Management Analysis Staff performs the following 
functions:
    (1) Coordinates the development and monitors the implementation of 
the Agency's long-term program and management plans, ensuring that these 
plans are up to date at all times;
    (2) Ensures that these long-term plans include quality-improvement, 
efficiency, and cost saving initiatives;
    (3) Ensures that audit resolutions are incorporated in the Agency's 
strategic planning and other processes for establishing goals and 
objectives; and
    (4) Initiates and coordinates management productivity programs of 
the Agency.
Secs. 1700.10--1700.19  [Reserved]



                           Subpart B--Programs



Sec. 1700.20  Insured electric loans pursuant to section 305 of the Rural Electrification Act, as amended.

    (a) General. These loans are made from the Rural Electrification and 
Telephone Revolving Fund for purposes authorized by section 4 of the RE 
Act. The standard interest rate on these loans is 5 percent, but a rate 
as low as 2 percent is authorized by section 305(b) of the RE Act if a 
borrower:
    (1) Has experienced extreme financial hardship; or

[[Page 64]]

    (2) Cannot, in accordance with generally accepted management and 
accounting principles and without charging rates to its customers or 
subscribers so high as to create a substantial disparity between such 
rates and the rates charged for similar service in the same or nearby 
areas by other suppliers, provide service consistent with the objectives 
of the RE Act.
    (b) These loans are made to finance the construction and operation 
of electric facilities and systems to provide initial and continued 
adequate electric service to persons in rural areas not receiving 
central station service at the time of the initial RUS loan. The loans, 
approval of which rests solely within the discretion of the 
Administrator, must be self-liquidating within a period not to exceed 35 
years, and must be reasonably secured in the judgment of the 
Administrator. Under the RE Act, they may be made to persons, 
corporations, public bodies, and cooperative, non-profit, or limited 
dividend associations. Preference is given to public bodies and 
cooperative, non-profit, or limited dividend associations.
    (c) Loan applications. Applications for these loans are made on 
forms prescribed by RUS and supported by a resolution of the applicant's 
board of directors. Copies of these standard forms are made available by 
RUS on request. Loan applicants are assisted, as necessary, in preparing 
the loan application and supporting data. If an application is 
acceptable after legal, engineering, economic, and financial studies, 
funds are obligated by a loan contract and the borrower gives a note, 
mortgage and, in some cases, other security.
    (d) Construction. Under the loan agreements, RUS reserves the right 
to approve the design and construction of the facilities, and to require 
progress reports on construction and audits of the borrower's records 
relating to construction.
    (e) Advance of loan funds. Loan funds are advanced on the basis of 
requisitions submitted by borrowers in accordance with the loan contract 
and RUS regulations.



Sec. 1700.21  Insured telephone loans pursuant to section 305 of the Rural Electrification Act, as amended.

    (a) General. (1) These loans are made from the Rural Electrification 
and Telephone Revolving Fund for purposes authorized by section 201 of 
the RE Act. The standard interest rate on these loans is 5 percent, but 
a rate as low as 2 percent is authorized by section 305(b) of the RE Act 
under the same conditions as specified in Sec. 1700.20(a) of this part.
    (2) These loans are made for the purpose of improvement, expansion, 
construction, acquisition and operation of telephone lines, facilities, 
or systems to furnish or improve telephone service in rural areas. 
Borrowers may be required to provide a portion of the investment 
themselves. The loans, approval of which rests solely within the 
discretion of the Administrator, must be repaid within a period, not to 
exceed 35 years, that approximates the expected useful life of the 
facilities financed and must be reasonably secured in the judgment of 
the Administrator. The loans may be made to any type of commercial or 
nonprofit corporation now providing or who may hereafter provide 
telephone service in rural areas. Preference is given to persons already 
providing telephone service in rural areas and to cooperative, 
nonprofit, limited dividend or mutual associations.
    (b) Loan applications. Applications for these loans are made on 
forms prescribed by RUS, copies of which are available from RUS on 
request. Loan applicants are assisted, as necessary, in conducting area 
coverage surveys and in preparing loan applications. If an application 
is acceptable after legal, engineering, economic and financial studies, 
funds are obligated by a loan contract and the borrower gives a note, 
mortgage and, in some cases, other security.
    (c) Construction. Under the loan agreements, RUS reserves the right 
to approve the design and construction of facilities and to require 
progress reports on construction and audits of the borrower's records 
relating to construction.

[[Page 65]]

    (d) Advance of loan funds. Loan funds are advanced on the basis of 
requisitions submitted by borrowers in accordance with the loan contract 
and 7 CFR part 1744.

[55 FR 39596, Sept. 28, 1990; 55 FR 42807, Oct. 23, 1990]



Sec. 1700.22  Rural Telephone Bank loans pursuant to section 408 of the Rural Electrification Act, as amended.

    These loans are made for the purposes authorized by section 201 of 
the Act. The loans, approval of which rests solely within the discretion 
of the Governor, bear interest at a rate equal to the cost of funds to 
the Bank; must be repaid within a period, up to a maximum of 35 years, 
that approximates the expected useful life of the facilities financed; 
and must be reasonably secured in the judgement of the Administrator. 
These loans are administered by RUS staff as part of the rural telephone 
program pursuant to the policies and procedures set forth in 7 CFR part 
1610.



Sec. 1700.23  Guaranteed loans pursuant to section 306 of the Rural Electrification Act, as amended.

    These loans are made by any legally organized lending agency and 
guaranteed in the full amount thereof by the Administrator for purposes 
provided in the RE Act, including without limitation, distribution, sub-
transmission, bulk transmission and generation facilities. The loans 
guaranteed under this section are serviced by the lender except that 
loans made by the Federal Financing Bank are serviced by RUS. The 
interest rate on these loans is as agreed upon by the borrower and the 
lender.

[56 FR 2671, Jan. 24, 1991]



Sec. 1700.24  Loans and grants pursuant to section 313 of the RE Act.

    These zero-interest loans and grants are made to borrowers under the 
RE Act for the purpose of promoting rural economic development and rural 
job creation projects. Selection and approval of applications for zero-
interest loans and grants rests solely within the discretion of the 
Administrator. (See 7 CFR part 1703.)

[57 FR 6290, Feb. 24, 1992]



Sec. 1700.25  Other loan authorities.

    (a) The Administrator has authority under section 314 of the RE Act 
to guarantee 90 percent of the principal and interest of loans made by 
qualified private lenders to finance electric and telephone facilities 
in rural areas. (See 7 CFR parts 1712 and 1739.) The Administrator also 
has authority under section 502 of the RE Act to make grants and reduced 
interest loans to promote business incubator programs or for the 
creation or operation of business incubators in rural areas. Authority 
is also granted to the Administrator by the Rural Economic Development 
Act of 1990 (7 U.S.C. 950aaa et seq.) to provide financial assistance 
for distance learning and medical link programs.
    (b) The Administrator has authority under section 5 of the RE Act to 
make loans to electric borrowers for the purpose of financing the wiring 
of the premises of persons in rural areas and for the purchase and 
installation of electrical and plumbing appliances and equipment, 
including machinery. The Administrator also has authority under the 
Consolidated Farm and Rural Development Act (7 U.S.C. 1921 et seq.) to 
finance community antenna television (CATV) services and facilities. 
Funds have not been appropriated for these purposes since 1969 in the 
case of section 5 loans and not since 1981 in the case of CATV loans.

[57 FR 6290, Feb. 24, 1992]



Sec. 1700.26  Studies, investigations, and reports.

    Pursuant to section 2 of the RE Act, the Agency may make, or cause 
to be made, studies, investigations, and reports concerning the 
condition and progress of electrification and telephony in rural areas 
in the several States and territories and may publish and disseminate 
information with respect thereto.

[[Page 66]]



Sec. 1700.27  Loan security activities.

    In carrying out its program, and in the interest of loan security, 
the Agency requires periodic reports of borrowers on operations, annual 
audits, etc., and provides specialized and technical accounting, 
engineering, and other managerial assistance to borrowers with respect 
to the construction and operation of their facilities, to help them 
establish efficient and economical service in rural areas.



Sec. 1700.28  Issuances implementing procedure.

    There are available from RUS, upon request:
    (a) Basic forms of loan agreements; and
    (b) Rules and bulletins issued from time to time which implement the 
loan agreements and the Agency's policies and procedures.
Sec. 1700.29  [Reserved]



                      Subpart C--Public Information



Sec. 1700.30  Availability of Agency publications and other information, and collection of public comments to proposed rules.

    (a) 5 U.S.C. 552(a)(2) requires that certain materials be made 
available for public inspection and copying.
    (b) The Rural Utilities Service (RUS) issues from time to time 
notices and regulations in the Federal Register as well as bulletins, 
informational publications, and staff instructions in order to:
    (1) Implement the provisions of the RE Act and the loan and security 
instruments;
    (2) Establish Agency procedures; and
    (3) Assist electric and telephone borrowers in the design, 
operation, and maintenance of their systems.
    (c) Information about availability and costs of Agency publications 
and other Agency materials is available from Publications and Directives 
Management Branch, Administrative Services Division, Rural Utilities 
Service, Room 0180, South Building, U.S. Department of Agriculture, 
Washington, DC 20250-1500.
    (d) RUS will provide for the distribution of indexes of publications 
in conformance with the Freedom of Information Act, 5 U.S.C. 552(a)(2). 
Single copies of individual bulletins, informational publications, staff 
instructions, and forms, including forms of basic loan and security 
instruments, are available to borrowers and other members of the public 
either directly from RUS, from the Superintendent of Documents, U.S. 
Government Printing Office, Washington DC 20402, or from another source 
to be established by RUS. Costs for these publications are established 
in conformance with 7 CFR part 1. Initial copies of Bulletins directed 
to RUS borrowers are provided at no cost to those borrowers.
    (e) RUS requires that all persons submitting comments to a proposed 
rule published by the Agency submit a signed original and three copies 
of their comments to the address shown in the preamble to the proposed 
rule. Copies of comments submitted are available to the public in 
conformance with 7 CFR part 1.

[56 FR 25349, June 4, 1991]



Sec. 1700.31  Indexes.

    5 U.S.C. 552(a)(2) requires that each agency publish or otherwise 
make available a current index of all materials required to be made 
available for public inspection and copying. RUS will maintain and 
publish current indexes and quarterly supplements thereto, providing 
identifying information for all RUS Bulletins and for staff manuals and 
instructions made available pursuant to Sec. 1700.30. Requests for 
copies should be addressed, in person or by mail, to the Office of the 
Director, Administrative Services Division, Room 0168--South Building, 
U.S. Department of Agriculture, Washington, DC 20250-1500.



Sec. 1700.32  Requests for records.

    Requests for records under 5 U.S.C. 552(a)(3) shall be made in 
accordance with 7 CFR 1.6(a) and addressed to Office of the Director, 
Legislative and Public Affairs Staff, Rural Utilities Service, room 
4043, South Building, U.S. Department of Agriculture, Washington, DC 
20250-1500. A request shall describe the records sought as set forth in 
7 CFR 1.6(b). A charge may be made

[[Page 67]]

to cover the costs of fulfilling the request. Requests may be submitted 
in person or by mail.

[55 FR 53487, Dec. 31, 1990]



Sec. 1700.33  Appeals.

    Any person whose request under Sec. 1700.32 is denied shall have the 
right to appeal such denial. This appeal shall be submitted in 
accordance with 7 CFR 1.3(e) and addressed to the Administrator, Rural 
Utilities Service, Room 4051, South Building, U.S. Department of 
Agriculture, Washington, DC 20250-1500.



              Subpart D--Delegations of Authority; General

    Source: 59 FR 21624, Apr. 26, 1994, unless otherwise noted.



Sec. 1700.40  Exercise of delegated authority.

    (a) Unless specifically reserved, or otherwise delegated, the 
delegations of authority contained in subparts D through L of this part 
include the authority to take any action or execute any document deemed 
necessary and proper to the discharge of such responsibilities. In the 
exercise of authority delegated in subparts D through L of this part, 
all applicable RUS policies, regulations, and procedures should be 
followed. All delegations previously made are superseded.
    (b) No delegation of authority by the Administrator or other person 
shall preclude the Administrator or other person from exercising any of 
the authority so delegated.



Sec. 1700.41  Persons serving in acting capacities.

    Incumbents delegated authority in subparts D through L of this part 
are authorized to designate a person to act for them as necessary, 
except that a Regional Director or the Director, Power Supply Division 
may not redelegate authority to approve loans, loan guarantees or lien 
accommodations, and related actions as set forth in Secs. 1700.124(a), 
1700.127(a) and 1700.145(a). If an incumbent of a position to whom 
delegations are made in subparts D through L of this part is absent or 
is unable to carry out such delegations, the person designated authority 
to act for the incumbent shall exercise the authority conferred by such 
delegations. Such designations shall be in accordance with any 
instruction issued by the incumbent's supervisor.

[59 FR 21624, Apr. 26, 1994, as amended at 59 FR 46723, Sept. 12, 1994]



Sec. 1700.42  Persons serving as acting Administrator.

    The following persons are authorized, in descending order, to act 
for the Administrator only in his or her absence, sickness, resignation, 
or death: Deputy Administrator, Assistant Administrator--Electric, 
Assistant Administrator--Telephone, Assistant Administrator--Economic 
Development and Technical Services. That is, if the first person on the 
list is also absent, sick, has resigned, or is dead, the second person 
on the list is authorized to act for the Administrator and so on down 
the list. Persons on this list may not redelegate the authority to act 
for the Administrator. The Administrator may in his/her discretion in 
writing, on a case-by-case basis, delegate authority to act as 
Administrator in his/her absence outside of this specified order.



Sec. 1700.43  Persons serving as acting Assistant Administrator.

    (a) Electric and telephone programs. The Deputy Assistant 
Administrator in each program is authorized to act for the respective 
Assistant Administrator in the absence, sickness, resignation or death 
of that Assistant Administrator. The Deputy Assistant Administrators may 
not redelegate this authority.
    (b) Assistant Administrator--Economic Development and Technical 
Services. (1) The Directors of the Rural Development Assistance Staff, 
Borrower Accounting Division and the Program Support Staff are 
authorized to act for the Assistant Administrator--Economic Development 
and Technical Services in his or her absence according to the following 
schedule:

------------------------------------------------------------------------
                Director of                            Months           
------------------------------------------------------------------------
Rural Development Assistance Staff........  January, April, July,       
                                             October.                   
Borrowers Accounting Division.............  February, May, August,      
                                             November.                  

[[Page 68]]

                                                                        
Program Support Staff.....................  March, June, September,     
                                             December.                  
------------------------------------------------------------------------

    (2) If a particular Director is absent, sick, has resigned or is 
dead during a scheduled month, the delegation will revolve back to the 
preceding month. These Directors may not redelegate this authority.



Sec. 1700.44  Contracts approved on behalf of the Administrator.

    (a) Nonstandard contracts. Prior to the approval or the execution of 
the following documents, the Office of the General Counsel (OGC) shall 
comment as to any legal matters concerning such nonstandard contracts:
    (1) Contracts for engineering services, architectural services, 
construction, and power supply that include a substantive deviation from 
the standard form contract approved by OGC; and
    (2) Other documents involving legal matters of concern to the 
approving official.
    (b) Signature. All contract approvals shall be signed:

________________________________________________________________________
(Name and Title)
For the Administrator
Secs. 1700.45--1700.59  [Reserved]



   Subpart E--Delegations of Authority; Agency Issuances and Certain 
                             Correspondence

    Source: 59 FR 21625, Apr. 26, 1994, unless otherwise noted.



Sec. 1700.60  Agency issuances.

    Except as may be specifically delegated from time to time to the 
Deputy Administrator, or others, all authority is reserved by the 
Administrator to approve and issue regulations and other information 
published in the Federal Register, bulletins, informational 
publications, staff instructions concerning Agency administrative 
matters and those affecting more than one program, and unnumbered 
memoranda (mailings to borrowers in more than one program and all RUS 
staff). Signature authority is also reserved by the Administrator for 
written responses to Members of Congress, Governors, State Legislators, 
Federal Agency heads or Cabinet officials, as well as other controlled 
correspondence for Agency response. Additionally, signature authority is 
reserved by the Administrator for Agency mass mailings which include but 
are not limited to mailings to accountants, engineers, and consultants.



Sec. 1700.61  Agency publications control officer.

    The Deputy Administrator is designated the Agency Publications 
Control Officer.

Secs. 1700.62--1700.69  [Reserved]



    Subpart F--Delegations; Authorities Reserved by the Administrator

    Source: 59 FR 21624, Apr. 26, 1994, unless otherwise noted.



Sec. 1700.70  General.

    Authority for all matters not specifically delegated in subparts D 
through L of this part, or by other written delegation, is reserved to 
the Administrator, including, without limitation, the following 
authorities reserved in this subpart.



Sec. 1700.71  Rural economic development loan and grant and distance learning and medical link grant programs.

    Approval of the following:
    (a) Applications for loans or grants when all conditions for such 
approval have been met.
    (b) All zero-interest loans and grants.
    (c) Any modifications in the method of carrying out loan purposes, 
or in the amount of applications selected and loans or grants approved.
    (d) Extension of principal and interest repayments for rural 
development purposes.



Sec. 1700.72  Electric program.

    (a) Approval of the following loans, loan guarantees, lien 
accommodations or subordinations:
    (1) All discretionary hardship loans.

[[Page 69]]

    (2) All insured loans, loan guarantees, and lien accommodations or 
subordinations to finance operating costs.
    (3) All loans, loan guarantees, and lien accommodations or 
subordinations of more than $15,000,000 for distribution and power 
supply borrowers.
    (4) All loans, loan guarantees, and lien accommodations or 
subordinations 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 insured loans, loan guarantees, and lien accommodations or 
subordinations that require an Environmental Impact Statement.
    (6) 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 mortgages, loan contracts or 
other necessary documents relating to the authorities reserved in 
paragraph (a) of this section.
    (b) And execution of all loan contracts, mortgages or other 
documents in connection with loans, loan guarantees and lien 
accommodations approved by the Administrator.
    (c) Approval of the following for unpaid and outstanding loans and 
loan guarantees:
    (1) Rescission of loans or termination of loan guarantee commitments 
when the amount of the rescission or termination is more than 
$15,000,000.
    (2) Requests to extend the time period for advancing loan funds if:
    (i) The borrower is delinquent in payments on loans made or 
guaranteed by RUS or in litigation that may affect loan security; or
    (ii) The request does not fully comply with the requirements 
specified in applicable RUS regulations.
    (3) Extension of time of prepayment principal and interest pursuant 
to Section 12 of the RE Act, for borrowers in default or currently 
assigned to the Financial Services Staff.
    (4) Agreements, plans, arrangements, recommendations to settle debt, 
or other actions affecting a borrower's financial or other obligations 
to the Government through the Administrator of RUS for loans, loan 
guarantees, or other financial obligations except as may be specifically 
delegated to the Financial Services Staff.
    (5) Loan budget adjustments (transfers or reclassifications) when 
approval is for:
    (i) Changes in generation facilities that are subject to a power 
survey or certification by RUS;
    (ii) Any proposed change of more than $15,000,000;
    (iii) Any proposed operating costs.
    (d) Approval of the following for borrower facilities, organization, 
operations, or corporate status:
    (1) Agreements for the merger or consolidation of borrowers.
    (2) Power surveys or certifications by RUS involving changes in 
generation facilities.
    (3) Contracts for the acquisition of plant-in-place of more than 
$15,000,000 and related financial transactions.
    (4) Approval, in amounts of $25,000,000 or more, of:
    (i) The use of general funds; or
    (ii) Sales or transfers of property and related releases of lien.
    (5) Equity development plans and amendments to equity development 
plans submitted by borrowers:
    (i) As part of an application for any loan and loan guarantee that 
requires approval of the Administrator;
    (ii) By any borrower whose equity as a percentage of total assets, 
is less than 10 percent at the time the plan is submitted, or whose 
equity is predicted to drop below 10 percent during the 10-year period 
of the plan.
    (6) Assumptions of debt.



Sec. 1700.73   Telephone program.

    (a) Approval of the following loans, loan guarantees, lien 
accommodations or subordinations:
    (1) All loans, loan guarantees, and lien accommodations or 
subordinations to finance operating costs.
    (2) All loans, loan guarantees, or lien accommodations or 
subordinations for more than $15,000,000.
    (3) Loans and loan guarantees with acquisition costs for more than 
$5,000,000.

[[Page 70]]

    (4) Loans and loan guarantees containing funds to refinance 
outstanding debt amounts for more than $5,000,000.
    (b) All loan contracts, mortgages and other documents to be executed 
in connection with loans and loan guarantees approved by the 
Administrator.
    (c) Approval of the following for unpaid and outstanding loans and 
loan guarantees:
    (1) Extension of time for payment of principal and interest pursuant 
to Section 12 of the RE Act, for borrowers in default.
    (2) Agreements, plans, arrangements, recommendations to settle debt, 
or other actions affecting a borrower's financial or other obligations 
to the Government acting through the Administrator of RUS for loans, 
loan guarantees or other financial obligations.
    (3) Sales and transfers of property for more than $5,000,000 and 
related releases of lien.

[59 FR 21624, Apr. 26, 1994, as amended at 59 FR 46724, Sept. 12, 1994]
Secs. 1700.74--1700.89  [Reserved]



       Subpart G--Delegations of Authority; Loan Review Committees

    Source: 59 FR 21624, Apr. 26, 1994, unless otherwise noted.



Sec. 1700.90   General.

    To assist in carrying out the authorities which are reserved or 
delegated in subparts D through L of this part, the roles of the 
following committees in this subpart are recognized.



Sec. 1700.91   Senior loan review committee.

    The Senior Loan Review Committee, appointed by the Administrator, 
shall review and make recommendations to the Administrator on all 
electric and telephone loans, loan guarantees, and lien accommodations 
or subordinations whose approval has been reserved by the Administrator. 
The committee shall be chaired by the Administrator and include the 
Assistant Administrator--Electric (AAE), Assistant Administrator--
Telephone (AAT), and such other members as the Administrator may 
appoint.



Sec. 1700.92   Assistant Administrator's loan committee.

    Both the electric and telephone programs shall have Assistant 
Administrator's Loan Committees (AALC), consisting of the Regional 
Directors or Acting Regional Directors of the respective programs as 
well as additional members appointed by the appropriate Assistant 
Administrator. The AALC shall be chaired by either the appropriate 
Assistant Administrator or Deputy Assistant Administrator. The AALC 
shall meet as required to review, analyze, and concur in recommendations 
for actions to be taken for all loan application requests, loan 
guarantee applications, and lien accommodations or subordinations. The 
recommending official may not vote.
    (a) Assistant Administrators and Regional Directors may approve 
loans, loan guarantees, or lien accommodations or subordinations under 
Sec. 1700.124 or Sec. 1700.146 only after the AALC has concurred with 
such actions.
    (b) An Assistant Administrator may, in their sole discretion, 
forward a recommendation for a loan, loan guarantee or other financing 
action to the Senior Loan Committee for its consideration.



Sec. 1700.93   Rural economic development recommendation committee.

    The Administrator may appoint a recommendation committee for the 
purpose of reviewing loan and grant recommendations.
Secs. 1700.94--1700.99  [Reserved]



Subpart H--Delegations of Authority; Rural Economic Development, Program 
               Support, and Borrower Accounting Activities

    Source: 59 FR 21624, Apr. 26, 1994, unless otherwise noted.



Sec. 1700.100   General.

    The following delegations of authority in this subpart are made by 
the Administrator.

[[Page 71]]



Sec. 1700.101  Deputy Administrator.

    The Deputy Administrator in conformance with applicable regulations 
and RUS policy is hereby delegated authority to exercise all authorities 
conferred upon other persons in Sec. 1700.102.



Sec. 1700.102   Assistant Administrator--Economic Development and Technical Services.

    The Assistant Administrator--Economic Development and Technical 
Services in conformance with applicable regulations and RUS policy is 
delegated authority to exercise all authorities conferred upon others in 
Secs. 1700.103 through 1700.109, approval of staff instructions 
affecting only the Rural Development Program, and unnumbered memoranda 
(mailings to two or more borrowers) sent to rural development borrowers 
or grant recipients.



Sec. 1700.103   Director--Rural Development Assistance Staff.

    The Director--Rural Development Assistance Staff in conformance with 
applicable regulations and RUS policy is delegated authority to approve 
for the Rural Economic Development Loan and Grant Programs and Distance 
Learning and Medical Link Grant Programs the following:
    (a) Releases of loan and grant funds including the approval of all 
agreements and documents between the RUS borrower and the ultimate 
recipient.
    (b) Cancellation of applications that have not been selected for 
approval by the Administrator.
    (c) Rescission of loan and grant funds.
    (d) Extension of the time period for the RUS borrower to meet the 
prerequisites to the advance of funds and the period to disburse the 
funds.
    (e) In addition, all authorities conferred upon other persons in 
Sec. 1700.104



Sec. 1700.104   Chief, Financing Branch--Rural Development Assistance Staff.

    The Chief, Rural Development Assistance Staff--Financing Branch in 
conformance with applicable regulations and RUS policy is delegated 
authority to approve and execute for the Rural Economic Development Loan 
and Grant and Distance Learning and Medical Link Grant Programs the 
following:
    (a) Reports of vouchers released; and
    (b) Notice to Financial Operations Division (FOD) authorizing the 
advance or release of funds.



Sec. 1700.105   Director, Borrower Accounting Division.

    The Director, Borrower Accounting Division in conformance with 
applicable regulations and RUS policy is delegated authority to:
    (a) Approve a certified public accountant (CPA) for borrower audits 
of its financial statements.
    (b) Take actions concerning the selection or change of a borrower's 
CPA (7 CFR 1773.4).
    (c) Serve as the RUS liaison within the Office of Inspector General 
(OIG) for all borrower irregularities.
    (d) In addition, execute all authorities conferred upon other 
persons in Secs. 1700.106 through 1700.108.



Sec. 1700.106  Chief, Technical Accounting and Auditing Staff.

    The Chief, Technical Accounting and Auditing Staff in conformance 
with Federal regulations and RUS policy is delegated authority to 
approve or execute:
    (a) Actions concerning accounting policies, procedures, standards, 
interpretations of Financial Accounting Standards Board (FASB) issuances 
or other technical accounting issues; and
    (b) Actions concerning the application of generally accepted 
auditing standards to borrowers' accounts.



Sec. 1700.107   Chiefs, Area Accounting Branches.

    The Chiefs, Area Accounting Branches in conformance with Federal 
regulations and RUS policy are delegated authority to approve or 
execute:
    (a) Statement of condition of borrower's records; and
    (b) In addition, all authorities conferred upon other persons in 
Sec. 1700.108.



Sec. 1700.108   Field Accountants.

    The Field Accountants in conformance with applicable regulations and 
RUS policy are delegated authority to approve or execute:

[[Page 72]]

    (a) Propriety of the disbursements of loan and equity funds as 
required by loan contract provisions and RUS policy.
    (b) Adequacy of borrowers' accounting systems and related records.



Sec. 1700.109  Director--Program Support Staff.

    The Director--Program Support Staff in conformance with applicable 
regulations and RUS policy is delegated authority to encumber loan funds 
for RUS and RTB loans.
Secs. 1700.110--1700.119  [Reserved]



          Subpart I--Delegations of Authority; Electric Program

    Source: 59 FR 21624, Apr. 26, 1994, unless otherwise noted.



Sec. 1700.120  General.

    The following delegations of authority are made by the Administrator 
to the electric program.



Sec. 1700.121  Deputy Administrator.

    The Deputy Administrator in conformance with applicable regulations 
and RUS policy is delegated authority to approve or execute for the 
electric program:
    (a) Agreements or contracts for management or operations services 
between telephone and electric borrowers.
    (b) Federal Register notices announcing the availability of final 
Environmental Impact Statements and the approval of RUS's final 
Environmental Impact Statements as well as Findings of No Significant 
Impact (FONSI).
    (c) In addition, all authorities conferred upon other persons in 
Sec. 1700.122.



Sec. 1700.122  Assistant Administrator--Electric.

    The Assistant Administrator--Electric in conformance with applicable 
regulations and RUS policy is delegated authority to approve or execute 
for the electric program:
    (a) Approval of the following loans and necessary documents, except 
for those approvals reserved for the Administrator in Sec. 1700.72(a):
    (1) Approval of loans of $15,000,000 or less for entities not 
previously financed by RUS.
    (2) Loans, loan guarantees, and lien accommodations or 
subordinations for distribution and power supply borrowers in amounts 
from $10,000,000 to $15,000,000.
    (b) The following actions for unpaid and outstanding loans:
    (1) Rescission of loans or termination of loan guarantee commitments 
when the amount of the rescission or termination is $15,000,000 or less.
    (2) Requests to extend the period for advancing loan funds in any 
amount except for:
    (i) Requests from borrowers that are delinquent in their loan 
payments to RUS or in payments guaranteed by RUS or in litigation that 
may affect loan security.
    (ii) Requests that do not comply with the requirements specified in 
applicable RUS regulations.
    (iii) Cases where the Administrator has further reserved this 
authority.
    (3) Extension of time for payment of principal and interest pursuant 
to section 12 of the RE Act for other than Energy Conservation Resources 
Loans, except for requests from borrowers in default or currently 
assigned to FSS.
    (4) Loan budget adjustments (transfers or reclassifications) except 
when such adjustments would provide funds for:
    (i) Changes in generation facilities that are subject to a power 
survey certification.
    (ii) Any proposed change for more than $15,000,000.
    (iii) Any proposed operating costs.
    (5) Imposition of and release of special controls on loan fund 
advances when the borrower is delinquent in payments on RUS loans or 
guarantees by RUS or the borrower is in litigation that may affect loan 
security.
    (6) Questions arising from the interpretations or clarifications of 
the application of 7 CFR 1721.1 to individual borrower circumstances.
    (c) The following changes in borrowers' facilities, organization or 
corporate status:
    (1) Changes in transmission facilities not identified to RUS at the 
time of loan approval that are subject to a

[[Page 73]]

power survey or certification by RUS involving the use of construction 
or general funds of $15,000,000 or less.
    (2) Power survey or certification by RUS involving changes in 
transmission facilities.
    (3) Contracts for the acquisition of plant-in-place of $15,000,000 
or less and related financial transactions.
    (4) Determination of the proper categorization of electric project 
proposals for the purpose of environmental review.
    (5) Execution of documents relating to inter-borrower assumption of 
indebtedness.
    (6) Approval in amounts of less than $25,000,000 of:
    (i) The use of general funds; or
    (ii) Sales or transfers of property and related releases of lien.
    (7) Approval or disapproval of the selection of a manager or 
attorney by an electric borrower.
    (d) Memoranda to electric staff or to two or more electric 
borrowers.
    (e) Approval of staff instructions affecting only the Electric 
Program.
    (f) Waivers of borrower requirements pursuant to 7 CFR part 1710, 
Subpart E--Power Requirements Studies.
    (g) All authorities conferred upon other persons in Sec. 1700.123.



Sec. 1700.123  Deputy Assistant Administrator--Electric.

    The Deputy Assistant Administrator--Electric in conformance with 
applicable regulations and RUS policy is delegated authority to approve 
or execute for the electric program:
    (a) Any contracts for the acquisition of plant-in-place for 
$10,000,000 or less and related financial transactions.
    (b) The following matters concerning borrowers' facilities, 
organization or corporate structure:
    (1) Changes in borrowers' corporate status.
    (2) Power supply contracts and agreements including wholesale power, 
fuel, interconnections and wheeling agreements, participation 
agreements, lease agreements for facilities or properties, power sales 
agreements with non-RE Act beneficiaries, and integrated transmission 
agreements between RUS borrowers and non-borrowers, any of which require 
a construction expenditure of more than $10,000,000.
    (c) Approvals required under the mortgage to retire capital credits 
or make other cash distributions in the following cases: (1) Any 
distribution borrower that does not meet the following conditions:
    (i) The retirement will not reduce total equity to less than 25 
percent of total assets and other debits;
    (ii) The oldest capital credits outstanding before the retirement 
are at least 10 years old where the retirement method is first-in, 
first-out, or the retirement is not more than 7 percent of all 
outstanding capital credits before the retirement where another method 
of retirement, authorized by the bylaws, is used; and
    (iii) TIER and DSC ratios exceed mortgage minimum, i.e., the average 
of the highest two of the last 3 years exceeds 1.5 for TIER and 1.25 for 
DSC.
    (2) Any power supply borrower.
    (d) All authorities conferred upon other persons in Secs. 1700.124 
and 1700.131.



Sec. 1700.124  Regional Directors.

    Regional Directors in conformance with applicable regulations and 
RUS policy are delegated authority to approve or execute for the 
electric program's distribution borrowers:
    (a) The following loans, loan guarantees, lien accommodations, and 
documents:
    (1) Insured loans, loan guarantees, and lien accommodations or 
subordinations in amounts of less than $10,000,000, except for those 
approvals reserved for the Administrator in Sec. 1700.72(a), or those 
reserved for the Assistant Administrator--Electric under 
Sec. 1700.122(a).
    (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 mortgages, 
loan contracts or other documents relating to the delegations set forth 
in paragraph (a)(1) of this section.
    (b) The following matters for unpaid and outstanding loans:
    (1) Rescission of loans or termination of loan guarantee commitments 
when

[[Page 74]]

the amount of the rescission or termination is $10,000,000 or less, 
except for discretionary or operating loans.
    (2) Requests to extend the period for advancing loan funds when the 
amount of unadvanced loan funds is $10,000,000 or less, except for:
    (i) Requests from borrowers that are delinquent in their loan 
payments to RUS or in loans guaranteed by RUS or in litigation that may 
affect loan security.
    (ii) Requests that do not fully comply with the requirements 
specified in RUS regulations.
    (iii) Cases where the Administrator has further reserved this 
authority.
    (3) Basis date agreements for all approved requests to extend the 
period for advancing loan funds.
    (4) Principal deferments under Section 12 of the RE Act for Energy 
Resource Conservation Loans and Rural Economic Development Investments.
    (5) Loan budget adjustments (reclassifications or transfers) except 
when such adjustments would provide funds for:
    (i) Changes in generation and transmission facilities that are 
subject to a power survey or certification by RUS.
    (ii) Any change exceeding $10,000,000.
    (iii) Any operating costs.
    (6) Advance of loan funds under ``stop orders'' and ``special 
conditional agreements'' when the conditions have been met, except when 
the borrower is delinquent in its loan payments to RUS, or its loans 
guaranteed by RUS, or when the borrower is in litigation which may 
affect loan security or the Office of the Administrator has reserved 
this authority.
    (7) Imposition of special controls on the further advance of loan 
funds when it has been determined that loan feasibility may be 
jeopardized.
    (8) Complete releases of lien and satisfaction in cases where a 
borrower has repaid its indebtedness in full.
    (9) Approval of prepayments in accordance with 7 CFR part 1786 and 
all related documents.
    (10) Cancellation or endorsement due to payment on borrowers' notes 
which have been paid in full in connection with a prepayment made under 
the provisions of 7 CFR part 1786, subpart F.
    (c) Matters concerning borrower facilities, organization, or 
corporate status:
    (1) Agreements between electric borrowers for the operation of 
facilities.
    (2) Management and operating agreements between electric borrowers 
and subsidiary organizations engaged in rural development activities.
    (3) Sales and leases of borrowers' capital assets involving 
transactions in amounts of $5,000,000 or less and the related releases 
of lien.
    (4) Use of general funds by a borrower for plant additions in the 
amount of $5,000,000 or less, except for facilities subject to power 
supply surveys or certification by RUS.
    (5) Annual review of loan security of borrowers.
    (6) Action concerning certain retirements of patronage capital and 
other cash distributions which meet the following conditions:
    (i) The retirement will not reduce total equity to less than 25 
percent of total assets and other debits;
    (ii) The oldest capital credits outstanding before the retirement 
are at least 10 years old where the retirement method is first-in, 
first-out, or the retirement is not more than 7 percent of all 
outstanding capital credits before the retirement where another method 
of retirement, authorized by the bylaws, is used; and
    (iii) TIER and DSC ratios exceed mortgage minimum, i.e., the average 
of the highest two of the last 3 years exceeds 1.5 for TIER and 1.25 for 
DSC.
    (7) Approval as a majority note holder of employment contracts 
between a borrower and its general manager.
    (8) Waiver of specified defects in title to property obtained by 
borrowers.
    (9) All equity development plans and amendments to equity 
development plans except those requiring approval of the Administrator.
    (10) Any contracts for the acquisition of plant-in-place of 
$5,000,000 or less and related financial transactions.
    (d) Letters certifying borrowing eligibility for non-borrower 
electric cooperatives seeking financing from the Bank for Cooperatives.

[[Page 75]]

    (e) In addition, all authorities conferred upon other persons in 
Secs. 1700.125, 1700.126 and 1700.130.

[59 FR 21624, Apr. 26, 1994, as amended at 59 FR 46724, Sept. 12, 1994]



Sec. 1700.125  Chiefs, Regional Engineering Branches.

    The Chiefs, Regional Engineering Branches in conformance with 
applicable regulations and RUS policy are delegated authority to approve 
or execute for the electric program with respect to distribution and 
transmission facilities for distribution borrowers:
    (a) The following matters concerning unpaid and outstanding loans 
and loan guarantees:
    (1) Financial requirements and expenditure statements when all 
conditions precedent to the advance of loan funds have been met, no 
litigation is pending pertaining to the loan or loan guarantee, the 
borrower is not delinquent in its loan payments to RUS or in loans 
guaranteed by RUS, and the Office of the Administrator has not reserved 
this authority.
    (2) Report of vouchers released.
    (3) Concurrent loan fund requisitions.
    (b) The following matters concerning technical specifications, and 
borrower facilities and organization, except for matters concerning 
generation facilities:
    (1) Selection by a borrower of an architect; plans and 
specifications, work orders, and contracts for architectural services 
for the construction of headquarters, garage, and warehouse facilities 
requiring RUS approval, and final inventory documents and payments to 
contractors and architects.
    (2) Selection by a borrower of an engineer and contracts for 
engineering services in cases requiring RUS approval.
    (3) Contracts for construction and right-of-way clearing and for the 
purchase of substation sites and Headquarters facility sites with clear 
title and special types of equipment requiring RUS approval.
    (4) Final inventory documents and payments to contractors and 
engineers.
    (5) Use of nonstandard drawings, materials, and equipment.
    (6) Technical engineering studies for transmission, load management, 
microwave, Supervisory Control and Data Acquisition (SCADA) and other 
facilities requiring RUS approval.
    (7) Borrowers' selection of a method of construction.
    (8) Plans and specifications for construction, preliminary design 
data and plans, and profile sheets.
    (9) Negotiation in lieu of competitive bidding of borrowers' 
contracts.
    (10) Award of contracts for construction of purchase of material and 
equipment with fewer than three bids.
    (11) Long-range engineering plans.
    (12) Borrowers' environmental reports.
    (13) Amendments to all types of power supply contracts or agreements 
including extensions of time to existing contracts and superseding 
contracts with no significant changes; the addition of new delivery 
points; and modification of existing delivery points between 
distribution borrowers and non-RUS borrower power suppliers, except 
where facilities are subject to a power survey or certification by RUS.
    (14) Final statements of engineering fees requiring RUS approval, 
except for generation facilities.
    (c) In addition, all other authorities of an engineering nature 
pertaining to distribution and transmission conferred upon other persons 
in Sec. 1700.130.



Sec. 1700.126  Chiefs, Area Operations Branches.

    The Chiefs, Area Operations Branches in conformance with applicable 
regulations and RUS policy are delegated authority to approve or execute 
for the electric program's distribution borrowers:
    (a) The following matters with unpaid and outstanding distribution 
loans.
    (1) Affidavits, certificates, filings, and confirmation statements 
with respect to the recording, filing or renewing of security 
instruments, including financing statements under the Uniform Commercial 
Code of the applicable state.
    (2) Municipal and county franchises, licenses, ordinances, and 
permits to construct or operate facilities obtained by borrowers as 
required by its security instruments.

[[Page 76]]

    (3) Notice of clearance of RUS loan documents.
    (b) Matters concerning borrower facilities, organization, or 
corporate status:
    (1) Sales and leases of borrower's capital assets involving 
transactions in amounts of $500,000 or less, except for facilities 
subject to power supply surveys or certification by RUS.
    (2) Partial releases of lien, associated with sales of a borrower's 
capital assets, involving transactions in amounts of $500,000 or less.
    (3) Approval of large retail power contracts which have not been 
delegated to the General Field Representatives--Electric.



Sec. 1700.127   Director--Power Supply Division.

    The Director--Power Supply Division in conformance with applicable 
Regulations and RUS policy is delegated authority to approve or execute 
for the electric program's power supply borrowers:
    (a) Approval of the following loans, loan guarantees, and loan 
documents:
    (1) Approval of insured loans, loan guarantees, and lien 
accommodations or subordinations in amounts of less than $10,000,000 for 
power supply borrowers, except for those approvals reserved for the 
Administrator in Sec. 1700.72(a).
    (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 mortgages, loan contracts or 
other documents relating to the delegations set forth in paragraph 
(a)(1) of this section.
    (b) The following matters for unpaid and outstanding loans:
    (1) Rescission of loans or termination of loan guarantee commitments 
when the amount of the rescission or termination is $10,000,000 or less, 
except for discretionary or operating loans.
    (2) Requests to extend the period for advancing loan funds when the 
amount of unadvanced loan funds is $10,000,000 or less, except for:
    (i) Requests from borrowers that are delinquent in their loan 
payments to RUS, loans guaranteed by RUS or in litigation that may 
affect loan security.
    (ii) Requests that do not fully comply with the requirements 
specified in RUS regulations.
    (iii) Cases where the Administrator has further reserved this 
authority.
    (3) Execution of basis date agreements for all approved requests to 
extend the period for advancing loan funds.
    (4) Loan budget adjustments (reclassifications or transfers) except 
when such adjustments would provide funds for:
    (i) Changes in generation and transmission facilities that are 
subject to a power survey or certification by RUS.
    (ii) Any proposed change for more than $10,000,000.
    (iii) Any proposed operating costs.
    (5) Advance of loan funds under ``stop orders'' and ``special 
conditional agreements'' when the conditions have been met, except when 
the borrower is delinquent in its loan payments to RUS, loan guaranteed 
by RUS or when the borrower is in litigation which may affect loan 
security or the Administrator has reserved this authority.
    (6) Imposition of special controls on the advance of loan funds when 
it has been determined that loan feasibility may be jeopardized.
    (7) Approval of prepayments in accordance with 7 CFR part 1786 and 
all related documents.
    (8) Complete releases of lien when a borrower has paid in full its 
indebtedness.
    (9) Approval of mortgages for refinancing transactions, regardless 
of amount.
    (10) Cancellation or endorsement due to payment on borrower's notes 
which have been paid in full in connection with a prepayment made under 
the provisions of 7 CFR part 1786, subpart F.
    (c) Matters concerning borrower facilities, organization, or 
corporate status:
    (1) Agreements between electric borrowers for operation of 
facilities.
    (2) Management and operating agreements between electric borrowers 
and subsidiary organizations engaged in rural development activities.
    (3) Sales and leases of borrowers' capital assets involving 
transactions in

[[Page 77]]

amounts of $10,000,000 or less and the related releases of lien.
    (4) Use of general funds by a borrower for plant additions in the 
amount of $10,000,000 or less, except for facilities subject to power 
supply surveys or certification by RUS.
    (5) Annual review of loan security of power supply borrowers.
    (6) Approval as a majority noteholder of employment contracts 
between a borrower and its general manager.
    (7) Wholesale power electric rates in connection with power supply 
contracts.
    (8) Waiver of specified defects in title to property obtained by 
power supply borrowers.
    (9) Interconnection Agreements, Wheeling Agreements, non firm Power 
Sales or Purchase Agreements requiring a construction expenditure of 
$10,000,000 or less.
    (10) Firm Power Sale or Purchase Agreements with a duration of 3 
years or less, which require a construction expenditure of $10,000,000 
or less.
    (11) Participation agreements with other utilities on jointly owned 
facilities for new transmission, subtransmission or distribution 
facilities requiring an expenditure of $10,000,000 or less.
    (12) Participation agreements with other utilities on jointly owned 
ucilities for generation modifications to existing plant requiring an 
expenditure of $10,000,000 or less.
    (13) Any contracts for the acquisition of plant-in-place of 
$5,000,000 or less and related financial transactions.
    (d) In addition, all authorities conferred upon other persons in 
Secs. 1700.128 and 1700.129.

[59 FR 21624, Apr. 26, 1994, as amended at 59 FR 46724, Sept. 12, 1994]



Sec. 1700.128   Chief, Operations Branch, Power Supply Division.

    The Chief, Operations Branch, Power Supply Division in conformance 
with applicable Regulations and RUS policy is delegated authority to 
approve or execute for the electric program:
    (a) The following matters dealing with outstanding power supply 
loans.
    (1) Affidavits, certificates, filings, and continuation statements 
with respect to the recording, filing or renewing of mortgages and deeds 
of trust, including financing statements under the Uniform Commercial 
Code of the applicable state.
    (2) Municipal and county franchises, licenses, ordinances, and 
permits to construct or operate facilities obtained by borrowers as 
required by the mortgage.
    (3) Notice of Clearance of RUS loan documents.
    (4) Approval of large retail power contracts.
    (5) Sales, transfers, and partial releases of liens involving sales 
of borrowers' capital assets with a value of $500,000 or less.
    (b) The following matters concerning unpaid and outstanding loans:
    (1) Financial requirements and expenditure statements when all 
conditions precedent to the advance of loan funds have been met, no 
litigation is pending pertaining to the loan, the borrower is not 
delinquent in its loan payments to RUS, loans guaranteed by RUS and the 
Administrator has not reserved this authority.
    (2) Report of vouchers released.
    (3) Concurrent loan fund requisitions.



Sec. 1700.129   Chiefs, Power Engineering Branches, Power Supply Division.

    The Chiefs, Power Engineering Branches, Power Supply Division in 
conformance with applicable Regulations and RUS policy are delegated 
authority to approve or execute for the electric program for electric 
power supply borrowers:
    (a) The following matters concerning technical specifications, and 
borrower facilities and organizational issues for power supply 
borrowers:
    (1) Selection by a borrower of an engineer or architect; plans and 
specifications, work orders, preliminary design data, plans and profile 
sheets, and contracts for architectural and all engineering services for 
facilities requiring RUS approval, and final inventory documents and 
payments to contractors and architects.
    (2) Borrowers' selection of method of construction.
    (3) Final statements of engineering fees.
    (4) Purchase of generating plant sites.

[[Page 78]]

    (5) Technical engineering studies for generation facilities.
    (6) Contracts for the construction and purchase of materials and 
equipment for generation and transmission facilities.
    (7) Use of nonstandard specifications, drawings, materials and 
equipment.
    (8) Negotiation in lieu of competitive bidding of borrowers' 
contracts.
    (9) Award of contracts for construction or purchase of materials and 
equipment with fewer than three bids.
    (10) Amendments to power supply contracts or agreements including 
extensions of time to existing contracts; the addition of new delivery 
points; and modification of existing delivery points, except where 
facilities are subject to a power survey or certification by RUS.
    (11) Contracts for construction and right-of-way clearing and for 
the purchase of substation sites with clear title and special types of 
equipment requiring RUS approval.
    (12) Long-range engineering plans.
    (13) Borrower environmental reports.
    (14) Interchange agreements and similar agreements where no 
construction is required.
    (15) Interconnection agreements where no construction is required.
    (16) Construction Work Plan (CWP) approval for G&T borrowers
    (b) The following matters pertaining to the generation facilities of 
distribution borrowers:
    (1) Selection by a borrower of an engineer or architect; plans and 
specifications, work orders, preliminary design data, plans, and 
contracts for architectural and all engineering services for facilities 
requiring RUS approval, and final inventory documents and payments to 
contractors and architects.
    (2) Borrowers' selection of method of construction.
    (3) Final statements of engineering fees.
    (4) Purchase of generating plant sites.
    (5) Technical engineering studies for generation facilities.
    (6) Contracts for the construction and purchase of materials and 
equipment for generation facilities.
    (7) Use of nonstandard specifications, drawings, materials and 
equipment.
    (8) Negotiation in lieu of competitive bidding of borrowers' 
contracts.
    (9) Award of contracts for construction or purchase of materials and 
equipment with fewer than three bids.
    (10) The borrower's generation portion of the CWP.



Sec. 1700.130  General Field Representatives--Electric.

    The General Field Representatives--Electric in conformance with 
applicable regulations and RUS policy are delegated authority to approve 
or execute for the electric program:
    (a) Cost estimates and facilities for distribution borrowers' large 
power applications.
    (b) Use of armless or narrow profile construction for distribution 
in scenic areas or where right-of-way is restricted.
    (c) Certificates of completion for distribution and transmission 
contract construction.
    (d) Power requirements and irrigation studies for distribution 
borrowers:
    (1) Without generation facilities;
    (2) With an ownership or lease interest in RUS financed generation 
facilities of less than 40 MW nameplate rating as set forth in ``RUS 
Financed Generating Plants,'' Information Publication (IP) 200-2, or its 
equivalent. This publication is available from Publications and 
Directives Management Branch, Administrative Services Division, Rural 
Utilities Service, room 0180, South Building, U.S. Department of 
Agriculture, Washington, DC 20250-1500;
    (3) With an ownership or lease interest in RUS financed generation 
facilities of 40 MW or more, provided the borrower has not received RUS 
financial assistance for generation capacity of 40 MW or more within 15 
years of the borrower's request for RUS approval of its Power 
Requirements Study; or
    (4) That are members of a power supply borrower when the member 
study is not prepared as part of the power supply borrower's Power 
Requirements Study.
    (e) Amendments to or revisions of previously approved power 
requirements or irrigation studies for distribution borrowers which are 
members of a power supply borrower when the amendment or revision is for 
support of

[[Page 79]]

a new loan application to be submitted by the member prior to RUS's 
approval of a new power-supply Power Requirements Study.
    (f) Distribution facilities in construction work plans including 
amendments and voltage drop, sectionalizing and power factor studies 
solely for distribution borrowers.
    (g) Long-range financial forecasts prepared for distribution 
borrowers.
    (h) Approval, for distribution borrowers, of large retail power 
contracts for which the borrower's investment in plant facilities does 
not exceed 10 percent of total utility plant except for distribution 
borrowers which are members of an RUS financed power supply borrower 
which is in default under its loan repayments or whose debt has been 
restructured.



Sec. 1700.131  Director, Electric Staff Division.

    The Director, Electric Staff Division in conformance with applicable 
regulations and RUS policy is delegated authority to approve the 
following:
    (a) Power Requirements Studies for:
    (1) All power supply borrowers.
    (2) All members of a power supply borrower when the members' studies 
were prepared as part of the power supply borrower's Power Requirements 
Study.
    (3) Distribution borrowers with an ownership or lease interest in 
generating facilities of 40 MW or more nameplate rating as set forth in 
RUS Financed Generating Plants (IP 200-2), or its equivalent, provided 
the borrower has received RUS financial assistance for generating 
capacity of 40 MW or more within 15 years of the borrower's request for 
RUS approval of its Power Requirements Study.
    (b) Approval of Integrated Resource Plans for power supply and 
distribution systems and Demand Side Management plans for distribution 
systems.



Sec. 1700.132  Technical Standards Committees ``A'' and ``B''--Electric.

    The Technical Standards Committees ``A'' and ``B''--Electric in 
conformance with applicable regulations and RUS policy are delegated 
authority to approve for the electric program:
    (a) Technical Standards Committee ``A''--Electric accepts or rejects 
all proposals of standard specifications, drawings, material and 
equipment submitted for acceptance for use in RUS financed electric 
systems.
    (b) Technical Standards Committee ``B''--Electric reviews and makes 
a final decision on cases referred to it by either Committee A or by 
appeal from a sponsor from an adverse decision made by Committee A.
Secs. 1700.133--1700.139  [Reserved]



         Subpart J--Delegations of Authority; Telephone Program

    Source: 59 FR 21624, Apr. 26, 1994, unless otherwise noted.



Sec. 1700.140  General.

    The delegations in this subpart relating to the RUS telephone 
program also apply to the Rural Telephone Bank (RTB).



Sec. 1700.141  General delegations.

    The following delegations of authority for the telephone program in 
this subpart are made by the Administrator.



Sec. 1700.142  Deputy Administrator.

    The Deputy Administrator in conformance with applicable regulations 
and RUS policy is delegated authority to approve or execute for the 
telephone program:
    (a) Agreements or contracts covering management or operations 
services between telephone and electric borrowers.
    (b) Federal Register notices announcing the availability of final 
Environmental Impact Statements and the approval of RUS's final 
Environmental Impact Statements as well as Findings of No Significant 
Impact (FONSI).
    (c) In addition, all authorities conferred upon other persons 
inSec. 1700.143.



Sec. 1700.143  Assistant Administrator--Telephone.

    The Assistant Administrator--Telephone in conformance with 
applicable

[[Page 80]]

regulations and RUS policy is delegated authority to approve or execute 
for the telephone program:
    (a) Loans, loan guarantees and lien accommodations or subordinations 
of between $7,500,000 and $15,000,000 except for those reserved for the 
Administrator in Sec. 1700.73(a).
    (b) Loans and loan guarantees with acquisition costs between 
$2,000,000 and $5,000,000.
    (c) Loans and loan guarantees with refinancing amounts between 
$2,000,000 and $5,000,000.
    (d) Approval of the following matters concerning unpaid and 
outstanding loans:
    (1) Basis date agreements or agreements for extension of advances 
and related recommendations;
    (2) Budget adjustments for loans made by the Administrator and loan 
budget adjustments amounting to more than $2,000,000.
    (e) Approval of the following concerning borrower facilities, 
organization or corporate status:
    (1) Field trial installations of telephone materials and equipment 
involving more than $250,000;
    (2) Approval of the purchase price of properties to be acquired by 
telephone borrowers when the purchase price exceeds RUS approved 
appraisal value;
    (3) Contracts between $2,000,000 and $5,000,000 for acquisition by 
telephone borrowers of existing facilities in place;
    (4) Approval of sales of property and related partial releases of 
lien in amounts greater than $500,000 up to $5,000,000;
    (5) Approval of the investment in an affiliate which exceeds the 
allowable distribution level of more than $50,000;
    (6) Action concerning disapproval of the selection of a manager or 
an attorney by a telephone borrower;
    (7) Agreements for the merger or consolidation of RUS telephone 
borrowers; and
    (8) Waiver of mortgage provisions for payments of dividends or other 
cash distributions, where such excess payments or distributions exceed 
$50,000 in any year.
    (f) Memoranda to telephone staff or to two or more telephone 
borrowers.
    (g) Reports and invoices for more than $100,000 under contracts 
covering research services performed for RUS in connection with the 
telephone program.
    (h) Approval of staff instructions affecting only the Telephone 
Program.
    (i) All authorities conferred upon other persons in Sec. 1700.144.



Sec. 1700.144  Deputy Assistant Administrator--Telephone.

    The Deputy Assistant Administrator--Telephone in conformance with 
applicable regulations and RUS policy is delegated authority to approve 
or execute for the telephone program:
    (a) Revisions of the borrower's capital structure by amendment to 
its charter or bylaws or by issuance of additional shares of stock.
    (b) In addition, all authorities conferred upon other persons in 
Secs. 1700.145 and 1700.149.



Sec. 1700.145  Regional Directors.

    The Regional Directors in conformance with applicable regulations 
and RUS policy are delegated authority to approve or execute for the 
telephone program:
    (a) The following loans, loan guarantees, and lien accommodations or 
subordinations except for those approvals reserved by the Administrator 
in Sec. 1700.73(a):
    (1) Loans, loan guarantees and lien accommodations or subordinations 
of $7,500,000 or less.
    (2) Loans and loan guarantees with acquisition costs of less than 
$2,000,000.
    (3) Loans and loan guarantees containing refinancing for less than 
$2,000,000.
    (b) The following loan documents and related actions:
    (1) Interim financing requests.
    (2) Special loan contract conditions, except for changes in such 
conditions for loans made by the Administrator or the Assistant 
Administrator.
    (3) Waivers of contract conditions for release of funds.
    (4) Loan designs.
    (5) Characteristics letters to loan applicants setting forth loan 
requirements proposed for inclusion in pending loan recommendations.

[[Page 81]]

    (6) Loan contracts and security instruments, except for loans made 
by the Administrator.
    (c) The following matters concerning outstanding loans:
    (1) Telephone loan fund releases.
    (2) Telephone loan rescissions.
    (3) Loan budget adjustments, except for:
    (i) Loans approved by the Administrator.
    (ii) Adjustments greater than $2,000,000.
    (4) The placement of special controls on the advance of loan funds 
when it has been determined that loan security may be affected, except 
when the Administrator has further reserved this authority.
    (5) Advance of loan funds under ``special conditional agreements'' 
and special controls when the conditions have been met, except when the 
Administrator has reserved this authority.
    (6) Lien accommodations or subordinations granted to other parties 
by RUS or the RTB for amounts of less than $7,500,000.
    (7) Principal deferments under Section 12 of the RE Act for Rural 
Economic Development Investments.
    (8) Complete releases of lien and satisfaction when a borrower has 
paid in full its indebtedness.
    (d) The following matters concerning borrower facilities, 
organization, and corporate status:
    (1) Increases in salaries and other compensations to be paid to 
borrowers' officers, directors and managers when RUS approval is 
required under the mortgage.
    (2) Borrowers' requests to waive competitive bidding procedures.
    (3) Award of contracts (bid approval) for construction and central 
office equipment.
    (4) Selection by telephone borrowers of force account engineering 
and construction.
    (5) Waiver of specified special defects in title and rights-of-way.
    (6) Field trial installations of telephone materials and equipment 
involving $250,000 or less, jointly with Director, Telecommunications 
Standards Division (TSD).
    (7) Waiver of mortgage provisions relating to a borrower's payment 
of dividends or other cash distributions when such excess payments or 
distributions do not exceed $50,000 in any year.
    (8) Approval of the investment in an affiliate of general funds that 
is within the allowable distribution level.
    (9) Approval of sales or transfers of property and related partial 
releases of lien of more than $100,000 up to $500,000.
    (10) Contracts for acquisition by telephone borrowers of existing 
facilities in place of less than $2,000,000.
    (11) Approval of employment contracts with the borrower's general 
manager.
    (12) Use of materials, equipment, and specifications not yet 
accepted by RUS.
    (13) Letters certifying borrowing eligibility for non-borrower 
telephone organizations seeking financing from the Bank for 
Cooperatives.
    (14) In addition, all authorities conferred upon other persons in 
Secs. 1700.146, 1700.147, 1700.148.

[59 FR 21624, Apr. 26, 1994, as amended at 59 FR 46724, Sept. 12, 1994]



Sec. 1700.146  Chiefs, Regional Engineering Branches--Telephone.

    The Chiefs, Regional Engineering Branches--Telephone in conformance 
with applicable regulations and RUS policy are delegated authority to 
approve or execute for the telephone program:
    (a) The following matters for unpaid and outstanding loans:
    (1) Financial Requirement Statements, RUS Form 481; and
    (2) Construction loan budget adjustments except those involving 
change of loan budget purposes or new or revised administrative 
findings.
    (b) The following matters concerning technical specifications and 
borrower facilities and organization:
    (1) The selection by a borrower of an engineer or an architect and 
contracts for engineering and architecture services;
    (2) Final inventory documents and payments to contractors and 
engineers;
    (3) Statements of final engineering fees;
    (4) Borrowers' proposals and cost estimates for force account 
engineering and construction;

[[Page 82]]

    (5) Plans and specifications for central office equipment, radio, 
and microwave equipment, garage and warehouse buildings and for 
nonstandard central office equipment buildings;
    (6) All major construction contracts. Major construction shall be 
defined as any project estimated to cost more than $250,000 in total;
    (7) Borrowers' proposals for purchase of additions and modifications 
to central office equipment;
    (8) Borrowers' Environmental Reports; and
    (9) Borrowers' Outside Plant Layouts.
    (c) In addition, all authorities conferred upon other persons in 
Sec. 1700.148 (a) and (b).

[59 FR 21624, Apr. 26, 1994, as amended at 59 FR 46724, Sept. 12, 1994]



Sec. 1700.147  Chiefs, Regional Operations Branches--Telephone.

    The Chiefs, Regional Operations Branches--Telephone in conformance 
with applicable regulations and RUS policy are delegated authority to 
approve or execute for the telephone program:
    (a) The following matters concerning unpaid and outstanding loans:
    (1) Affidavits, certificates, filings, and continuation statements 
with respect to the recording, filing or renewing of mortgages and deeds 
of trust, including financing statements under the Uniform Commercial 
Code of the applicable state after clearance when necessary by OGC;
    (2) Municipal and county franchises obtained by borrowers from the 
standpoint of acceptability for RUS loans;
    (3) State regulatory body orders and approvals from the standpoint 
of acceptability for RUS loans;
    (4) Special legal fees to be paid by borrowers from loan funds; and
    (5) Non-construction loan budget adjustment items, except those 
involving legal or policy questions or new or revised administrative 
findings.
    (b) The following matters concerning borrower organization or 
corporate or capital structure:
    (1) Certificates regarding a borrower's incorporation and Articles 
of Incorporation and Bylaws and changes in a borrower's corporate name;
    (2) Forms of stock and equity certificates;
    (3) Borrowers' cash sales of material and equipment, excluding 
property in place, when approval is required and releases of lien and 
all other documents relating to such sales;
    (4) Borrowers' insurance and fidelity coverage;
    (5) Borrowers' lease agreements;
    (6) Approval, in amounts up to $100,000 of sales of property and 
related partial releases of lien;
    (7) Purchase or lease of real estate by borrowers; and
    (8) Management and operating agreements. When the borrowers involved 
are in more than one region, both chiefs must approve.
    (c) In addition, all authorities conferred upon other persons in 
Sec. 1700.148(c).

[59 FR 21624, Apr. 26, 1994, as amended at 59 FR 46724, Sept. 12, 1994]



Sec. 1700.148  General Field Representatives--Telephone.

    The General Field Representatives--Telephone in conformance with 
applicable regulations and RUS policy are delegated authority to approve 
or execute for the telephone program:
    (a) Plans and specifications for RUS standard Form 772, central 
office buildings, or borrower specific standardized central office 
building plans and specifications, repeaters, standardized lightwave 
equipment, subscriber carrier and trunk carrier. Also, outside plant 
plans and specifications that conform to an approved design.
    (b) Outside plant contracts up to $250,000 and all other 
construction and equipment contracts less than $100,000.
    (c) Results of the Area Coverage Survey.



Sec. 1700.149  Director--Telecommunications Standards Division.

    The Director--Telecommunications Standards Division in conformance 
with applicable regulations and RUS policy is delegated authority to 
approve or execute for the telephone program:

[[Page 83]]

    (a) Reports and invoices up to $100,000 submitted under contracts 
covering research services performed for RUS in connection with the 
telephone program.
    (b) Field trial installations of telephone materials and equipment 
involving $250,000 or less, jointly with the appropriate regional 
director.



Sec. 1700.150  Technical Standards Committees ``A'' and ``B''--Telephone.

    The Technical Standards Committees ``A'' and ``B''--Telephone in 
conformance with applicable regulations and RUS policy are delegated 
authority to approve for the telephone program:
    (a) Technical Standards Committee ``A''--Telephone accepts or 
rejects all proposals of standard specifications, drawings, material and 
equipment submitted for acceptance for use on RUS financed telephone 
systems.
    (b) Technical Standards Committee ``B''--Telephone reviews and makes 
a final decision on cases referred to it by Committee ``A'' or by appeal 
from a sponsor from an adverse decision of Committee ``A''.
Secs. 1700.151--1700.159  [Reserved]



         Subpart K--Delegations of Authority; Financial Services

    Source: 59 FR 21624, Apr. 26, 1994, unless otherwise noted.



Sec. 1700.160  General.

    The following delegations of authority in this subpart are made by 
the Administrator to the Financial Services Staff for assigned loan 
servicing projects.



Sec. 1700.161  Program Advisor, Financial Services Staff.

    The Program Advisor, Financial Services Staff in conformance with 
applicable regulations and RUS policy is delegated authority to approve 
and execute for the Financial Services Staff (FSS):
    (a) Approval in amounts of less than $25,000,000 for:
    (1) The use of general funds; or
    (2) Sales and transfers of property and related releases of lien.
    (b) Disapproval of the selection of a manager or attorney by a 
borrower.
    (c) Power supply contracts and agreements including wholesale power, 
fuel, interconnections, wheeling, participation agreements, lease 
agreements for facilities or properties, and power sales agreements with 
non-RE Act beneficiaries.
    (d) Wholesale power rates.
    (e) Contracts for the construction and purchase of materials and 
equipment.
    (f) Retail rate contracts between borrowers and others relating to 
large power installations.
    (g) Additional authorities, as specifically delegated by the 
Administrator, necessary to effectively resolve troubled borrower 
situations.
    (h) Authority to execute or testify, consistent with USDA 
Departmental Regulations, on behalf of RUS as follows:
    (1) Affidavits and certificates concerning borrowers assigned to 
FSS.
    (2) Testify on behalf of the Agency before regulatory bodies or 
courts on matters pertaining to borrowers assigned to the FSS.
Sec. 1700.162--1700.169  [Reserved]



  Subpart L--Delegations of Authority; Financial Operations Activities

    Source: 59 FR 21624, Apr. 26, 1994, unless otherwise noted.



Sec. 1700.170  General.

    The following delegations of authority in this subpart are made by 
the Administrator to the Financial Operations Division (FOD).



Sec. 1700.171  Deputy Administrator.

    The Deputy Administrator in conformance with applicable regulations 
and RUS policy is delegated authority to approve or execute for FOD all 
authorities conferred upon other persons in this subpart.

[[Page 84]]



Sec. 1700.172  Director, Financial Operations Division.

    The Director, Financial Operations Division in conformance with 
applicable regulations and RUS policy is delegated authority to approve 
and execute for FOD:
    (a) Standard Form 1151, Nonexpendable Transfer Authorization, for 
the following activities related to loans made to the Administrator of 
RUS by the Secretary of Treasury under authority of section 3(a) and 304 
of the RE Act:
    (1) Advances of principal on notes executed by the Administrator; 
and
    (2) Payment of principal on loans made by the Administrator.
    (b) Letters to the Federal Financing Bank (FFB) granting RUS 
approval to requests from borrowers, which are concurred in by the 
applicable Regional Director in the Electric or Telephone program for:
    (1) Extensions of short-term maturity dates of advances on the 
specified maturity date;
    (2) Prepayment of short-term maturities, including prepayment for 
the purpose of extending to long-term prior to the scheduled maturity 
date; and 7
    (3) Prepayments of long-term maturities.
    (c) Endorsements or assignments on promissory notes or other 
collateral pledged by borrowers as security for loans, as may be 
necessary in connection with the return of such documents to borrowers, 
due to the payment of the obligations in full or in order that the 
borrowers may institute legal action thereon or in connection therewith 
and the transmittal to the borrowers of such promissory notes or other 
collateral pledged by the borrower.
    (d) Cancellation or endorsement due to payment on the borrowers' 
notes which have been paid in full or which are to be returned to 
borrowers by reason of the cancellation of such notes resulting from the 
receipt of RUS of funding, renewal or substituted notes and transmittal 
to the borrower.
    (e) Actions concerning borrower loan accounting, computations, 
procedures and policies.
    (f) Liaison responsibility with the Federal Financing Bank, the 
Department of Treasury.
    (g) Liaison responsibility with General Accounting Office (GAO).
    (h) In addition, all authorities conferred upon other persons in 
Sec. 1700.173.



Sec. 1700.173  Chief, Loans Receivable Branch.

    The Chief, Loans Receivable Branch in conformance with applicable 
regulations and RUS policy is delegated authority to approve and execute 
for FOD:
    (a) Preparation and forwarding of Energy Resource Conservation (ERC) 
loan documents to the Office of the General Counsel (OGC).
    (b) Preparation and forwarding of basis date agreements to OGC.

Secs. 1700.174--1700.189  [Reserved]



PART 1703--RURAL DEVELOPMENT--Table of Contents




                          Subpart A--[Reserved]

      Subpart B--Rural Economic Development Loan and Grant Program

Sec.
1703.10  Purpose.
1703.11  Policy.
1703.12  Definitions.
1703.13  Source of funds.
1703.14  Disposition of funds in the subaccount.
1703.15  [Reserved]
1703.16  Eligibility.
1703.17  Uses of zero-interest loans and grants.
1703.18  Types of projects eligible for grant funding.
1703.19  General requirements for grant funding.
1703.20  Ineligible uses of zero-interest loans and grants.
1703.21  Limitations on the use of zero-interest loan and grant funds.
1703.22  Revolving loan program.
1703.23  Supplemental funds requirements for zero-interest loans and 
          grants.
1703.24  [Reserved]
1703.25  Significance of RUS financing to the total project cost.
1703.26  [Reserved]
1703.27  Owner's equity in the project.
1703.28  Maximum and minimum sizes of a zero-interest loan or grant 
          application.
1703.29  Terms of zero-interest loan repayment.
1703.30  Approval of agreements.

[[Page 85]]

1703.31  Transfer of employment or business.
1703.32  Environmental requirements.
1703.33  Other considerations.
1703.34  Applications.
1703.35  Section of the application covering the selection factors.
1703.36  Section of the application covering the project description.
1703.37  Section of the application covering the environmental impact of 
          the project.
1703.38--1703.44  [Reserved]
1703.45  Review and analysis of applications.
1703.46  Documenting the evaluation and selection of applications for 
          zero-interest loans and grants.
1703.47--1703.57  [Reserved]
1703.58  Post selection period.
1703.59  Final application processing and legal documents.
1703.60  [Reserved]
1703.61  Disbursement of zero-interest loan and grant funds.
1703.62--1703.65  [Reserved]
1703.66  Review and other requirements.
1703.67  Changes in project objective or scope.
1703.68  Loan and grant termination provisions.
1703.69--1703.79  [Reserved]

         Subpart C--Rural Business Incubator Program  [Reserved]

1703.80--1703.99  [Reserved]

       Subpart D--Distance Learning and Telemedicine Grant Program

1703.100  Purpose.
1703.101  Policy.
1703.102  Definitions.
1703.103  Applicant eligibility.
1703.104  Allowable grant funding percentage, grant purposes, and in-
          kind matching provisions.
1703.105  Ineligible grant purposes.
1703.106  Maximum and minimum sizes of a grant.
1703.107  The grant application.
1703.108  Conflict of interest.
1708.109  Determining what is rural.
1703.110--1703.112  [Reserved]
1703.113  Application filing dates, location, processing, and public 
          notification.
1703.114--1703.116  [Reserved]
1703.117  Criteria for scoring applications.
1703.118  Other application selection and appeal provisions.
1703.119--1703.121  [Reserved]
1703.122  Further processing of selected applications.
1703.123--1703.125  [Reserved]
1703.126  Disbursement of grant funds.
1703.127  Reporting and oversight requirements.
1703.128  Audit requirements.
1703.129--1703.134  [Reserved]
1703.135  Grant administration.
1703.136  Changes in project objectives or scope.
1703.137  Grant termination provisions.
1703.138--1703.139  [Reserved]
1703.140  Expedited telecommunications loans.

 Appendix A to Subpart D of Part 1703--ERS Rural--Urban Continuum Scale.

   Appendix B to Subpart D of Part 1703--Environmental Questionnaire.

    Subpart E--Deferments of RUS Loan Payments for Rural Development 
                                Projects

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

    Authority: 7 U.S.C. 901 et seq. and 950aaa et seq.; Pub. L. 103-354, 
108 Stat. 3178 (7 U.S.C. 6941 et seq.).

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

    Editorial Note: Nomenclature changes to part 1703 appear at 55 FR 
39397, Sept. 27, 1990.



                          Subpart A--[Reserved]



      Subpart B--Rural Economic Development Loan and Grant Program

    Source: 57 FR 44317, Sept. 25, 1992, unless otherwise noted.



Sec. 1703.10  Purpose.

    (a) This subpart sets forth RUS's policies and procedures for making 
zero-interest loans and grants to borrowers in accordance with the 
cushion

[[Page 86]]

of credit payments program authorized in section 313 of the Act (7 
U.S.C. 940c).
    (b) The zero-interest loans and grants are provided for the purpose 
of promoting rural economic development and job creation projects.



Sec. 1703.11  Policy.

    (a) It is RUS's policy that borrowers use the Rural Economic 
Development Loan and Grant Program to promote projects that will result 
in a sustainable increase in the productivity of economic resources in 
rural areas and thereby lead to a higher level of income for rural 
citizens.
    (b) It is RUS's policy that borrowers promote economic development 
in rural areas and job creation projects that:
    (1) Are based on sound economic and financial analyses; and
    (2) Take a long-term perspective.
    (c) It is RUS's policy to direct the funds under this program to 
projects which are located in, or will primarily benefit, those rural 
areas that are experiencing the greatest economic hardship.
    (d) It is RUS's policy to encourage economic development in rural 
areas and job creation projects without regard to service area.
    (e) It is RUS's policy to encourage borrowers to make cushion of 
credit payments.
    (f) It is RUS's policy to maintain liaisons with officials of other 
Federal, state, regional and local rural development agencies to 
coordinate this program with other rural economic development programs.



Sec. 1703.12  Definitions.

    Act--the Rural Electrification Act of 1936, as amended (7 U.S.C. 901 
et seq.).
    Administrator--the Administrator of the Rural Utilities Service or 
the Administrator's designee.
    Approved purpose--a purpose that the Administrator has specifically 
approved in the letter of agreement covering the use of the RUS zero-
interest loan and/or grant funds provided to the borrower.
    Borrower--an entity that has outstanding RUS and/or Rural Telephone 
Bank (RTB) loan(s) or loan guarantee(s) for an electric or telephone 
purpose under the provisions of the Act.
    Business incubator--a facility in which small businesses can share 
premises, support staff, computers, software or hardware, 
telecommunications terminal equipment, machinery, janitorial services, 
utilities, or other overhead expenses, and where such businesses can 
receive technical assistance, financial advice, business planning 
services or other support. The business incubator program, however, does 
not necessarily have to involve the sharing of premises.
    Cushion of credit payment--a voluntary unscheduled payment made 
after October 1, 1987, on an RUS note, which is credited to the cushion 
of credit account of a borrower.
    Demonstration Project--a project for which the owner agrees in 
writing to provide RUS, if requested, with detailed information on the 
steps it takes in organizing and operating the project, will permit RUS 
and RUS's guests to make reasonable visits to the project, and honor any 
other reasonable RUS request to disseminate information on the project. 
Examples of information include a description of incorporation 
procedures, types of financing obtained, permits required by 
governments, amount of time required for various stages of the project, 
sources of technical assistance from government programs, private 
foundations or trade organizations, any experiences or lessons that the 
owner wishes to share with the public and other information which will 
assist RUS in promoting similar projects. It will not require the 
disclosure of trade secrets or proprietary techniques.
    Electric or telephone purpose--a purpose that:
    (1) The Administrator or Governor of the RTB is authorized to 
finance under sections 2, 4, 5, 201, 305, and 408 of the Act; or
    (2) Is characterized as furnishing, generating or transmitting 
electric energy or other activities involved in providing electricity, 
or is characterized as providing telephone service. It will include 
electric and telephone facilities and equipment used in connection with 
providing such a service. It will not include a relatively insignificant 
amount

[[Page 87]]

of customer premises equipment, as determined by the Administrator.
    Job creation--creation of jobs in rural areas. This includes the 
implementation of a project in close enough proximity to rural areas so 
that it is likely that the majority of the jobs created will be held by 
rural residents.
    Letter of agreement--a legal document executed by the Administrator 
and the borrower that contains certain terms, conditions, requirements 
and understandings applicable to the zero-interest loan and/or grant, as 
determined by the Administrator.
    Letter of credit--a commitment from a financial institution 
satisfactory to the Administrator to honor a draft drawn on the RUS 
borrower should the RUS borrower fail to pay on a zero-interest loan.
    Pass-through-grant--a grant that the borrower makes to another 
entity that will own or undertake the project using the proceeds of the 
RUS grant.
    Pass-through-loan--a loan that the borrower makes to another entity 
that will own or undertake the project using the proceeds of the RUS 
zero-interest loan.
    Project--an undertaking that develops the economy of a rural area or 
results in job creation. As used in subpart B, the term ``project'' 
includes both direct undertakings by borrowers as well as those 
sponsored by other parties using the proceeds of pass-through-loans or 
pass-through-grants. It is the component or phase of the undertaking for 
which the borrower is requesting RUS funds, as determined by the 
Administrator.
    Project feasibility studies--studies, analyses, designs, reports, 
manuals, guides, literature, or other forms of creating and/or 
disseminating information for use in evaluating or developing a proposed 
project. For example, it would include market research and environmental 
studies.
    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.
    Reasonable loan servicing charges--charges for expenses the borrower 
incurs to service a loan provided to another entity unaffiliated with 
the borrower using the proceeds of the RUS zero-interest loan. The 
charges over the life of the loan for routine loan servicing expenses 
must not exceed an amount equal to the sum of one percent per year of 
the outstanding principal on the first day of each year on the 
borrower's RUS zero-interest loan. The charges for extraordinary 
expenses associated with collection of delinquent payments or other 
similar expenses must receive the prior approval of the Administrator.
    Revolving loan program--a program established and operated by the 
Borrower, using grant funds, the Borrower's contribution and loan 
repayments to make loans to businesses or others for rural economic 
development and job creation purposes.
    RTB--the Rural Telephone Bank, established as a body corporate and 
an instrumentality of the United States, to obtain supplemental funds 
from non-Federal sources and utilize them in making loans, for the 
purposes of financing, or refinancing, the construction, improvement, 
expansion, acquisition, and operation of telephone lines, facilities, or 
systems, for RUS Borrowers financed under sections 201 and 408 of the 
Act.
    Rural area--a rural area as defined in section 13 of the Act.
    Rural economic development--job creation or preservation or 
community facilities improvement projects that clearly demonstrate 
significant benefits to rural areas.
    Rural economic development account--a federally insured account into 
which the borrower deposits any advances of zero-interest loan funds 
from RUS until the borrower disburses the funds.
    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.

[[Page 88]]

    Scope of work--a detailed plan, which has been approved by the 
Administrator, covering the work to be performed by the loan and/or 
grant recipient using the loan and/or grant funds.
    Significant stockholder--an owner or holder of five percent or more 
of the common stock (or shares) or five percent or more of the preferred 
stock (or shares) of the RUS borrower.
    Subaccount--the rural economic development subaccount created by 
section 313 of the Act.
    Technical assistance--analysis of facilities or processes, 
managerial, financial and operational consultation by independent 
qualified entities to assist project owners to identify and evaluate 
problems or potential problems and provide training to enable project 
owners to successfully implement, manage, operate and maintain viable 
projects.
    Tribal government--The governing body or a governmental agency of 
any Indian tribe, band, nation, or other organized group or community 
(including any Native village as defined in 43 U.S.C. 1602) certified by 
the Secretary of the Interior as eligible for the special programs and 
services provided through the Bureau of Indian Affairs.

[57 FR 44317, Sept. 25, 1992, as amended at 59 FR 11706, Mar. 14, 1994; 
59 FR 53930, Oct. 27, 1994; 59 FR 66440, Dec. 27, 1994]



Sec. 1703.13  Source of funds.

    Funds provided under this program come from interest differential 
credits to the subaccount and appropriated amounts made available to the 
subaccount.



Sec. 1703.14  Disposition of funds in the subaccount.

    Zero-interest loans and grants will be made during each fiscal year 
to the full extent of the amounts held in the subaccount subject only to 
limitations imposed by law. For administrative purposes, the 
Administrator will make a determination of the fiscal year-end amount 
held in the subaccount as of a date prior to, but as near as practicable 
to, the end of the fiscal year.
Sec. 1703.15  [Reserved]



Sec. 1703.16  Eligibility.

    Zero-interest loans and grants may be made to any borrower that is 
not delinquent on any outstanding Federal debt or in bankruptcy 
proceedings. However, a zero-interest loan or grant will not be made 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 Act. The determination 
to suspend eligibility for assistance under this subpart will be based 
on one or more of the following factors:
    (a) The borrower's demonstrated unwillingness to exercise diligence 
in repaying RUS loans or loan guarantees that results in the 
Administrator being unable to find that a loan, or loan guaranteed by 
RUS, would be repaid within the time agreed;
    (b) The borrower's demonstrated unwillingness to meet requirements 
in RUS's legal documents or regulations; or
    (c) Other actions on the part of the borrower that thwart the 
achievement of the objectives of the RUS program.



Sec. 1703.17  Uses of zero-interest loans and grants.

    (a) Zero-interest loans and grants must be used exclusively to 
promote rural economic development and/or job creation projects, 
including, but not limited to, project feasibility studies, start-up 
costs, business incubator projects, and other reasonable expenses for 
the purpose of fostering rural economic development.
    (b) The Administrator will give preference to providing funds under 
this subpart for projects other than business incubator projects to the 
extent funds are available to borrowers for business incubator projects 
from a rural business incubator fund administered by the Administrator 
in accordance with section 502 of the Act (7 U.S.C. 950aa-1).
    (c) Zero-interest loans and grants may be used for Projects that 
enhance

[[Page 89]]

rural economic development by providing advanced telecommunications 
services and computer networks for medical and educational services, as 
follows: (1) For telecommunications end use and/or transmission 
facilities; and (2) Other portions of the project, such as modifications 
to buildings necessary to accommodate telecommunications equipment for 
medical care and other services, public or private education, and 
employment training.
    (d) Zero-interest loans and grants may be used for community antenna 
television systems or facilities. The borrower will document that such 
facilities provide a tangible economic benefit to the proposed service 
area in accordance with Sec. 1703.46 of this subpart. Notwithstanding 
this, the Administrator reserves the right to deny any proposal for 
community antenna television systems or facilities. Community antenna 
television systems or facilities will be considered for funding in 
accordance with Sec. 1703.46 of this subpart and this section only when 
all of the following conditions exist:
    (1) The proposed community antenna television system or facility is 
established in cooperation with a local educational and/or medical 
entity(ies) to provide educational and/or medical programming which 
addresses specific needs of rural residents;
    (2) Services to be provided by the proposed community antenna 
television systems or facilities are not available in the area to be 
served, or services are not being provided by the existing television 
programming carrier at an affordable cost to residents; and
    (3) Such community antenna systems or facilities will not present 
undue competition for existing television programming carriers in the 
area.

[57 FR 44317, Sept. 25, 1992, as amended at 59 FR 11706, Mar. 14, 1994; 
59 FR 53930, Oct. 27, 1994]



Sec. 1703.18  Types of projects eligible for grant funding.

    Grants may be made for the following purposes:
    (a) The establishment and operation of a revolving loan program by 
Borrowers in accordance with Sec. 1703.22;
    (b) Project feasibility studies to assist for-profit and non-profit 
entities in conjunction with a loan for an authorized project. 
Feasibility studies will include management assistance, consultation, 
and research for planning individual projects that the Borrower has 
determined will benefit the rural community. Feasibility studies which 
may be financed under this section must be performed by qualified 
entities subject to Sec. 1703.19, General requirements for grant 
funding. Feasibility studies must address the important aspects of 
project assessment and planning to ensure, to the extent practicable, 
the success of projects. These include the market, technical, economic, 
financial, and managerial issues related to project feasibility. 
Feasibility studies may be funded in connection with viable projects as 
a reimbursement to the project owner for expenses incurred during the 
initial planning stages of the project prior to project funding by RUS;
    (c) The acquisition of technical assistance in conjunction with 
projects funded with zero-interest loans to enable for-profit and non-
profit entities to obtain analysis of facilities and processes, 
managerial, financial and operational consultation. Grant funds may also 
be used in conjunction with zero-interest loans to enable non-profit 
business incubators to provide technical assistance. Technical 
assistance will enable project owners to identify and evaluate problems 
or potential problems and provide training in order that they may 
ultimately implement, manage, operate and maintain viable projects which 
are financed with zero-interest loan funds. Technical assistance 
financed under this section must be performed by qualified entities 
which are independent of the project owner subject to Sec. 1703.19, 
General requirements for grant funding;
    (d) Business incubators established by non-profit organizations to 
assist in developing emerging enterprises. Business incubators funded in 
conjunction with zero-interest loans will include those facilities in 
which single or multiple businesses may use premises, support staff, 
computer software, hardware, telecommunications equipment, machinery, 
janitorial services, utilities, or other overhead facilities. Grant 
funding may also be provided to allow

[[Page 90]]

business incubators to provide feasibility studies and technical 
assistance in accordance with paragraphs (b) and (c) of this section;
    (e) Community development assistance to non-profit entities and 
public bodies for employment creation projects, or other projects which 
provide needed community facilities and services;
    (f) Facilities and equipment to public, for-profit and non-profit 
entities to provide education and training to rural residents to 
facilitate economic development. Equipment and facilities may be funded 
to enable rural businesses to provide educational and job enhancement 
skills to employees;
    (g) Facilities and equipment to public, for-profit and non-profit 
entities to provide medical care to rural residents. Equipment and 
facilities may be funded to enable eligible entities to provide medical 
training and related professional health care skills to rural health 
care providers;
    (h) Projects which utilize advanced telecommunications and/or 
computer networks to facilitate medical or educational services or job 
training in accordance with paragraphs (f) and (g) of this section.

[59 FR 11706, Mar. 14, 1994, as amended at 59 FR 38341, July 28, 1994]



Sec. 1703.19  General requirements for grant funding.

    (a) Grants made under Sec. 1703.18(a), establishment and operation 
of a revolving loan program by Borrowers, will be limited to Borrowers 
and can be made without zero-interest loans. Grants made under 
Sec. 1703.18 (b) through (h) will be made only in conjunction with zero-
interest loans, and on a pass-through basis.
    (b) Pass-through grant funding for projects under Sec. 1703.18 (b), 
(c), (f), (g) and (h) will be available for non-profit and for-profit 
entities. Pass-through grant funding for projects under Sec. 1703.18 (d) 
and (e) will be available only for non-profit entities.
    (c) All projects funded with zero-interest loans and grants will 
require supplemental funding in accordance with Sec. 1703.23. For grants 
made under Sec. 1703.18(a), the portion eligible for RUS funding may be 
fully funded with grant funds. For all other grants funded under 
Sec. 1703.18, the portion of project costs eligible for RUS funding may 
be funded up to 20 percent with grant funds.
    (d) Grant funding will be provided only to the extent necessary for 
a feasible project. A feasible project is a project which expects to 
generate sufficient income to pay operating expenses and debts and 
compensate for depreciation of equipment and facilities for the project 
which is to be funded by RUS. Depreciation must be based on allowable 
depreciation schedules as set forth by the United States Internal 
Revenue Service. Borrowers whose analyses of projects show feasibility 
without grant funds should not apply for grant funding. Borrowers 
requesting pass-through grant funds will base grant funding requests on 
borrower projected income and expense projections for the project, and 
documentation regarding depreciation of the equipment and facilities for 
the project. The Administrator will determine whether the Borrower's 
projections of income, expenses and depreciation are reasonable.
    (e) For projects that project insufficient operating revenue the 
first two years to show feasibility, borrowers should first consider the 
deferral provisions set forth in Sec. 1703.29(b) before determining the 
appropriate level of requested grant funding. Zero-interest loan and 
grant funding will be approved in accordance with paragraph (d) of this 
section based on the option which results in the lowest required grant 
percentage.
    (f) The owner of the pass-through project that receives grant funds 
will be encouraged to commit that the project will be a demonstration 
project.
    (g) Borrowers or project owners must demonstrate the availability 
and commitment of other sources of funding needed to complete a project 
in addition to RUS loan and/or grant funds, prior to the first advance 
of RUS funds.
    (h) Feasibility studies and/or technical assistance funded with 
grants under Sec. 1703.18 (b) and (c) must be performed by entities 
which are independent of the Borrower and qualified to provide such 
services. The project

[[Page 91]]

owner, if deemed qualified in accordance with this paragraph, may 
furnish a feasibility study under Sec. 1703.18(b). Entities furnishing 
technical assistance under Sec. 1703.18(c), must be independent of the 
project owner. To be deemed qualified, entities providing feasibility 
studies and/or technical assistance must:
    (1) Provide sufficient documentation evidencing their proven 
ability, background and experience to furnish such services; and
    (2) Provide sufficient documentation evidencing their legal 
authority and capacity to furnish such services.

[59 FR 11706, Mar. 14, 1994]



Sec. 1703.20  Ineligible uses of zero-interest loans and grants.

    (a) Zero-interest loans and grants must not be used:
    (1) To fund or assist projects of which any director, officer, 
general manager or significant stockholder of the Borrower, or close 
relative thereof, is an owner, stockholder, partner or director, or 
which would, in the judgment 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 conflict of 
interest, potential conflict of interest or any appearance of a conflict 
of interest. The Administrator will determine whether there is a 
conflict of interest or whether any potential conflict of interest or 
appearance of a conflict of interest may adversely affect RUS's 
interests. A Borrower organized as, or consisting of a cooperative, 
widely held mutual corporation, tribal government, municipal power 
corporation, public power district, or a similar widely held 
organization would ordinarily be able to have an ownership interest in 
or manage a project operated on either a for-profit or non-profit basis. 
A Borrower organized as a closely held, for-profit corporation with more 
than 5 percent of its stock held by one legal person, its subsidiary or 
an affiliate, would ordinarily be able to own or manage a project 
operated on a non-profit basis only;
    (2) For any costs incurred on the project: (i) Prior to receipt of 
the Borrower's completed application by RUS during an application period 
unless the Administrator has specifically approved such usage in 
writing; or
    (ii) For site development, the destruction or alteration of 
buildings, or other activities that would adversely affect the 
environment or limit the choice of reasonable alternatives prior to 
satisfying the requirements of Sec. 1703.32;
    (3) By the Borrower to purchase or lease any real property, 
materials, equipment, or services from its subsidiary, an affiliate, or 
significant stockholders, officers, managers or directors of the 
Borrower, or close relatives thereof, where the purchase or lease has 
not been fully disclosed to the Administrator and received the 
Administrator's prior written approval;
    (4) By the recipient of a pass-through-loan or pass-through-grant to 
purchase or lease any real property, materials, equipment, or services 
from the Borrower, its subsidiary, an affiliate of the Borrower, or 
significant stockholders, officers, managers or directors of the 
Borrower, or close relatives thereof, where the purchase or lease has 
not been fully disclosed to the Administrator and received the 
Administrator's prior written approval;
    (5) To pay off or refinance existing indebtedness incurred prior to 
receipt of the Borrower's completed application by RUS or for 
refinancing or repaying a loan made under the Act or a program 
administered by the Administrator;
    (6) For any electric or telephone purpose, as determined by the 
Administrator;
    (7) For the Borrower's electric or telephone operations or for any 
operations affiliated with the Borrower unless the Administrator has 
specifically informed the Borrower in writing that the operations are 
part of the approved purposes;
    (8) To pay the salaries of any employee or owner of the Borrower, 
its subsidiaries, or affiliates. This restriction does not prohibit the 
use of loan or grant funds for printing and similar costs for project 
feasibility studies it has prepared, commissioned or purchased if 
specifically approved by the Administrator. This restriction is subject 
to the operating expense allowance

[[Page 92]]

for revolving loan funds set forth in Sec. 1703.22 (a)(6);
    (9) To fund feasibility studies and technical assistance as set 
forth in Sec. 1703.18 independently of projects which are funded under 
the zero-interest loan and grant program;
    (10) For community antenna television systems or facilities except 
as provided in Sec. 1703.17(d) of this subpart;
    (11) For proposed projects located in areas covered by the Coastal 
Barrier Resources Act (16 U.S.C. 3501 et seq.); or
    (12) For anything other than an approved purpose.
    (b) [Reserved]

[59 FR 11707, Mar. 14, 1994, as amended at 59 FR 53930, Oct. 27, 1994]



Sec. 1703.21  Limitations on the use of zero-interest loan and grant funds.

    (a) A borrower may not charge interest for the use of the proceeds 
of the zero-interest loan provided under this program; however, it may 
charge reasonable loan servicing charges, reasonable legal fees involved 
in providing the RUS funds to the recipient, and the amount paid for an 
irrevocable letter of credit made payable to RUS and issued on behalf of 
the borrower that guarantees repayment of an RUS zero-interest loan, all 
as determined by the Administrator. A borrower may require the recipient 
of a pass-through-loan to provide and/or obtain adequate security for 
the zero-interest loan funds.
    (b) A borrower must calculate any costs to charge in connection with 
the use of grant funds under this program for the project and must 
temporarily deposit the grant funds in accordance with 7 CFR parts 3015, 
Uniform Federal Assistance Regulations, and 3016, Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments, as appropriate. Grant funds will be disbursed to the 
Borrower in accordance with Sec. 1703.61(b).
    (c) A borrower may not make a profit from any zero-interest loan or 
grant provided from the subaccount, with the exception of the $500 
interest income exclusion in paragraph (d) of this section.
    (d) The Borrower may not requisition zero-interest loan funds unless 
those funds are deposited into the Borrower's RUS construction fund 
trustee account. The Borrower will be required to set up a separate 
Federally insured account called the Rural Economic Development Account, 
if loan funds are not expected to be disbursed within two months after 
receipt from RUS. All interest earned on temporarily deposited zero-
interest loan funds in excess of $500 per 12-month period must be used 
for approved purposes or returned to RUS. Interest earned in excess of 
$500 per 12 month period and returned to RUS will not be used to reduce 
the Borrower's principal indebtedness. Grant funds will be disbursed by 
RUS in accordance with 7 CFR parts 3015 and 3016, and Sec. 1703.61 (b).
    (e) The borrower may not condition the receipt of the proceeds of a 
zero-interest loan or grant under this subpart with the requirement that 
the recipient take electric or telephone service from the borrower.

[57 FR 44317, Sept. 25, 1992, as amended at 59 FR 11708, Mar. 14, 1994]



Sec. 1703.22  Revolving loan program.

    Grant funds under this section will be provided only to RUS 
Borrowers on a non pass-through basis. RUS Borrowers will, in turn, 
provide loans to foster rural economic development in accordance with 
this subpart and the specific requirements of this section.
    (a) General. Grant funds disbursed to RUS Borrowers to establish 
revolving loan programs under this section are subject to the following 
requirements:
    (1) The uses, restrictions and limitations for zero-interest loans 
set forth in Secs. 1703.17, 1703.20 and 1703.21 respectively;
    (2) Loans made by RUS Borrowers initially lending grant funds 
disbursed by RUS are limited to types of projects specified in 
Sec. 1703.18 (d), (e), (f), (g) and (h). Loans may also be made for 
feasibility studies and technical assistance in accordance with 
Sec. 1703.18 (b) and (c), respectively, but only for those types of 
projects specified in this paragraph (a)(2). Loans made from repayments 
of the initial loans made by RUS Borrowers may be used for any rural 
economic development purpose in accordance with a prior agreement 
between the Borrower and RUS;

[[Page 93]]

    (3) All other requirements relevant to zero-interest pass-through 
loans and grants outlined in this subpart, except the minimum size of a 
zero-interest loan as specified in Sec. 1703.28(f);
    (4) The initial loans made from the revolving loan fund using the 
grant funds must carry an interest rate of zero percent; however, loans 
made from repayments of the initial loan may carry an interest rate in 
accordance with prior agreement with RUS. In either case, the Borrower 
may charge reasonable loan servicing fees;
    (5) The Borrower will provide a board resolution certifying a 
commitment to provide and maintain additional funding to the revolving 
loan fund in an amount no less than 20 percent of the RUS grant 
approved. The Borrower will provide documentation that the additional 
funding has been deposited in the appropriate account in 
Sec. 1703.22(h)(1) prior to grant disbursement. This requirement does 
not pertain to supplemental funding requirements for individual projects 
as set forth in Sec. 1703.23. Additional funding required in this 
paragraph pertains only to borrowers establishing revolving loan funds, 
with the following provisions:
    (i) Use of additional funding is subject to requirements set forth 
in paragraph (b) of this section and with RUS concurrence;
    (ii) Individual projects funded under this section are subject to 
supplemental funds requirements set forth in Sec. 1703.23;
    (iii) At the Borrower's option with RUS concurrence, all or a 
portion of the additional funding may be used to assist project owners 
receiving funding from Federal grant funds under this section to meet 
their supplemental funding requirements set forth in Sec. 1703.23 of 
this subpart. Such additional funding will be deemed as Federal funds 
and accounted for in accordance with paragraph (h)(1)(i)(A) of this 
section for electric borrowers or paragraph (h)(1)(ii)(A) of this 
section for telephone borrowers, as appropriate;
    (iv) At the Borrower's option, all or a portion of the additional 
funding may be retained as non-Federal funds, for any rural economic 
development project(s), subject to paragraph (g) of this section and RUS 
concurrence. Additional funding committed as non-Federal will be 
accounted for in accordance with paragraph (h)(1)(i)(E) of this section 
for electric borrowers or paragraph (h)(1)(ii)(E) of this section for 
telephone borrowers, as appropriate;
    (6) Grant funds will only be provided to an RUS Borrower for a 
revolving loan program when a proposed budget submitted to RUS 
demonstrates and the Borrower agrees in writing that no more than 10 
percent of grant funds received are used to cover operating expenses of 
the revolving loan program. Operating expenses include the costs of 
administering the revolving loan fund and the provision of technical 
assistance to project owners. All proceeds in excess of those needed to 
cover authorized expenses, as described above, must revert to the 
revolving fund and be available for re-lending for eligible projects. 
Budgets which reflect expenses incurred in operating the fund must be 
submitted to RUS annually;
    (7) The Borrower may charge reasonable loan servicing charges. For 
purposes of this section, loan servicing charges must not exceed an 
amount equal to the sum of one percent per year of the outstanding 
principal on the first day of each year on each project owner's zero-
interest loan which is made from the RUS grant proceeds;
    (8) The Borrower will submit documentation indicating that potential 
projects which are eligible for funding have sufficiently progressed in 
the planning stage to allow grant funding approved for a revolving loan 
program to be requisitioned by the Borrower, disbursed by RUS, and 
loaned to recipients within 3 years of the date of grant approval by 
RUS. Grant funds that have not been requisitioned within 3 years will be 
cancelled, unless the Administrator has approved an extension in 
writing. Grant funds will be disbursed by RUS in accordance with 
paragraphs (d) and (g) of this section;
    (9) If the revolving loan program is terminated, further 
disbursement of grant funds will be cancelled. Repayments of loans made 
using grant funds which have been disbursed will be used

[[Page 94]]

in accordance with the Borrower's rural development plan;
    (10) Payment of creditors which provide interim or construction 
financing to a viable project for eligible purposes as set forth in 
Sec. 1703.18 of this subpart may be authorized. Refinancing for the sole 
purpose of replacing higher interest conventional financing with zero-
interest revolving loan funds is not authorized.
    (b) The Borrower's rural development plan. RUS requires that the 
revolving loan program be administered in accordance with a rural 
development plan, developed by the Borrower and approved by RUS. The 
plan must be of sufficient detail to provide RUS with a complete 
understanding of what the Borrower intends to accomplish by 
administering a revolving loan program. The rural development plan will 
provide the mechanics of how the revolving loan funds will be disbursed 
to the project owner. The rural development plan must outline the 
Borrower's plans for administering the revolving loan program, during 
the initial period when RUS grant funds are lent by the Borrower and 
after the revolving fund becomes non-Federal in accordance with 
paragraph (g) of this section. The plan must outline the following:
    (1) Specific objectives for the revolving loan program, revolving 
loan operating procedures, lending parameters, maximum and minimum loan 
amount, and types of projects to be funded;
    (2) Documentation of Borrower's coordination of lending activities 
with other local entities that provide financing for rural economic 
development projects. Such documentation will indicate that the Borrower 
will not compete with, but supplement other sources of legal financing;
    (3) Eligibility criteria if other than outlined in this subpart;
    (4) The application process and method of disposition of the funds 
to the project owner; and
    (5) A procedure for monitoring the project owner's accomplishments 
and reporting requirements by the project owner's management.
    (c) The Borrower's scope of work. Borrowers applying for grant 
funding under this section must submit a scope of work to RUS. 
Applications for grants under this section will be evaluated for funding 
based on the Borrower's rural development plan in paragraph (b) of this 
section and the scope of work. The scope of work must contain the 
following items:
    (1) Documented need for grant funds. The Borrower must identify a 
sufficient number of rural development projects of the type specified in 
Sec. 1703.18 (d), (e), (f), (g), and (h) which are currently being 
planned requiring zero-interest loans equal to the amount of grant 
assistance requested from RUS. These projects may be supported with a 
community facilities plan, or other development plan, prepared by local 
community leaders in cooperation with the Borrower. For each project, 
the Borrower will submit information required under Sec. 1703.34;
    (2) Documented authority and ability of the Borrower to administer a 
revolving rural development loan program in accordance with the 
provisions of this subpart. The Borrower must provide a complete listing 
of all personnel responsible for administering this program along with a 
statement of their qualifications and experience;
    (3) Documented ability of the Borrower to commit financial resources 
under the control of the Borrower to assist in the establishment of a 
rural development revolving loan program. This should include a 
statement of the sources of funding for the administration of the 
Borrower's operations, as well as financial and technical assistance for 
projects;
    (4) Documentation that the Borrower has secured commitments of 
significant financial support from public agencies and/or private 
organizations for supplemental funding to support a rural development 
loan program;
    (5) A list of proposed fees and other charges the Borrower will 
assess the projects it funds; and
    (6) The Borrower's rural development policy for non-Federal funds in 
accordance with paragraphs (b) and (g) of this section.
    (d) Grant processing and approval. Applications for grants to 
establish revolving loan funds will be reviewed in accordance with 
Secs. 1703.45 and 1703.46, and with the Borrower's rural development 
plan and scope of work outlined

[[Page 95]]

in paragraphs (b) and (c) of this section. Grants will be processed in 
accordance with Secs. 1703.58 and 1703.59.
    (e) Disbursement of grant funds. Borrowers are not authorized to 
commence projects to be funded under this section until those projects 
have been submitted for authorization in accordance with paragraph 
(c)(1) of this section, or the projects have been submitted for 
authorization subsequent to grant approval in accordance with paragraph 
(e)(2) of this section. RUS grant funds will be disbursed on a 
reimbursement basis. However, upon written justification by borrowers 
and approval by the Administrator, borrowers unable to fund projects 
under reimbursement provisions, for financial or other extraordinary 
reasons, may receive grant funds under the special disbursement method 
by submitting unpaid invoices from project owners, and grant funds will 
be disbursed to borrowers and passed directly to project owners. In 
either case, RUS grant funds will be disbursed in accordance with the 
provisions of 7 CFR Part 3015, Uniform Federal Assistance Regulations, 
the applicable requirements of this subpart, the administrative 
provisions outlined in paragraph (g) of this section, and the following 
requirements:
    (1) Only projects authorized by RUS in accordance with paragraphs 
(c)(1) and (e)(2) of this section, for which adequate documentation is 
submitted, including receipts for expenditures under the reimbursement 
method or unpaid invoices under the special disbursement method, as 
applicable, and certification of approved purposes, will be considered 
for disbursement;
    (2) A project which was not submitted prior to grant approval in 
accordance with paragraph (c)(1) of this section, may be authorized for 
funding subsequent to grant approval. A project which is authorized for 
funding under this paragraph will be considered for disbursement at the 
first allowable time period after project authorization in accordance 
with paragraphs (e)(3) and (e)(4) of this section. Project authorization 
after grant approval is subject to the following requirements:
    (i) The project meets the specific objectives for the Borrower's 
revolving loan program as outlined in paragraph (b)(1) of this section;
    (ii) The Borrower presents evidence that the project requested for 
authorization can be funded prior to projects which were authorized 
prior to grant approval in accordance with paragraph (b)(1) of this 
section; and
    (iii) RUS approves the project for funding in accordance with 
Sec. 1703.34;
    (3) Under the reimbursement method, grant funds requisitioned for 
individual projects in increments of less than $100,000, or less than 25 
percent of the amount approved for the revolving loan fund, whichever is 
less, may be disbursed semi-annually. Submission periods for 
requisitioning grant funds on a semi-annual disbursement basis will be 
14 days commencing from the 6-month anniversary date of grant approval. 
Grant funds under the special disbursement method will be requisitioned 
in accordance with the applicable provision in paragraph (e)(4) of this 
section;
    (4) For the reimbursement method, grant funds requisitioned for 
individual projects in increments of $100,000 or greater, or at least 25 
percent of the amount approved for the revolving loan fund, whichever is 
less, may be submitted for disbursement at any time. Under the special 
disbursement method, grant funds of less than $100,000 may be 
requisitioned for disbursement at any time. However, the minimum 
requisition will be $50,000, or the total grant award, whichever is 
less.
    (f) Reporting requirements. (1) The Borrower must maintain financial 
management systems and retain financial records in accordance with 7 CFR 
part 3015, Uniform Federal Assistance Regulations.
    (2) Borrower records must include an accurate accounting and source 
documentation to support each transaction involving the revolving loan 
fund. Records are subject to a rural economic loan review as set forth 
in Sec. 1703.66(g).
    (3) SF-269, ``Financial Status Report,'' and a revolving loan 
program activity report will be required of all Borrowers on an annual 
basis. Reports will be submitted no later than 90 days after December 31 
of each year. The program activity report will contain an aggregate list 
of projects funded, the

[[Page 96]]

amount funded for each project, the project repayment schedule, a brief 
description of each project, the project objectives, whether or not the 
project has been completed, and the projected number of jobs created or 
saved by each project. Reports under this paragraph will be required 
until all grant funds have been disbursed and projects completed.
    (4) A performance report will be required for each project funded on 
an annual basis. Performance reports will be due no later than 90 days 
after December 31 of each year. Performance reports will be submitted 
until one year after project completion. Project performance reports 
will contain the following:
    (i) A comparison of actual accomplishments during the reporting 
period to the objectives established for the project and, if not 
attained, reasons why established objectives were not met;
    (ii) Problems, delays, or adverse conditions which will materially 
affect attainment of planned project objectives, prevent the meeting of 
time schedules or objectives, or preclude the attainment of project work 
elements during established time periods. This disclosure shall be 
accompanied by a statement of the action taken or contemplated to 
resolve the situation;
    (iii) Projected accomplishments for the next reporting period, if 
applicable; and
    (iv) Status of compliance with any special conditions for project 
funding, if applicable.
    (5) Borrowers must report and remit interest earned on advances of 
grant funds deposited in interest accounts to RUS on a quarterly basis 
in accordance with 7 CFR part 3015, Uniform Federal Assistance 
Regulations.
    (g) Non-Federal funds. Once all RUS-derived grant funds have been 
utilized by the Borrower to fund rural development projects according to 
the provisions of this section and the applicable provisions of this 
subpart, loans made by the Borrower thereafter from repayments to the 
revolving loan fund shall not be considered as being derived from 
Federal funds and the requirements of these regulations will not be 
imposed on the Borrower or project owners. However, the Borrower will, 
as a condition for receiving a grant under this section, agree to the 
following conditions:
    (1) To maintain a revolving loan account to promote rural economic 
development in accordance with the Borrower's rural development plan for 
non-Federal funds submitted in accordance with paragraph (b) of this 
section;
    (2) To maintain the additional funding supplied by the Borrower in 
accordance with paragraph (a)(5) of this section and interest earnings 
within the revolving loan fund;
    (3) Approval may be granted by the Administrator to terminate the 
revolving loan program, or modify the requirements set forth in 
paragraphs (g)(1) and (g)(2) of this section, upon written request and 
justification by the Borrower. Should the Borrower terminate the 
revolving loan program without obtaining approval by the RUS 
Administrator, the Borrower will return the amount of the original grant 
to RUS.
    (h) Administrative provisions. The requirements of this paragraph 
set forth the procedures for accounting, requisitioning and disbursement 
of Federal funds, those funds initially disbursed for projects which may 
be funded in accordance with an approved rural development plan and 
scope of work submitted by the Borrower. Disbursement of grant funds 
will be approved on a reimbursement basis after the grant agreement is 
executed by RUS and the Borrower, the applicable provisions of this 
subpart are met, subject to disbursement restrictions in paragraph (e) 
of this section, and the requirements in paragraphs (h) (1) through (3) 
of this section.
    (1) Accounting requirements. Accounting will be performed in 
accordance with 7 CFR part 1767, Accounting Requirements for RUS 
Electric Borrowers, or 7 CFR part 1770, Accounting Requirements for RUS 
Telephone Borrowers, as appropriate. The Borrower will maintain accounts 
for the revolving funds as follows:
    (i) RUS electric Borrowers. (A) A general ledger Account 131.13, 
``Cash-General--Economic Development Grant Funds.'' The Borrower will 
debit this account in an amount equal to the

[[Page 97]]

amount of the grant received from RUS, any additional funds deemed 
Federal from the Borrower as required by paragraph (a)(5)(iii) of this 
section, and all other funds advanced for the project, regardless of the 
source, if controlled by the Borrower. The Borrower will credit this 
account for all expenditures made with Federal funds on behalf of the 
rural development project.
    (B) A general ledger Account 124.1, ``Other Investments--Federal 
Economic Development Loans.'' The Borrower will debit this account in 
the amount of Federal funds the Borrower advances to non-associated 
organizations for authorized rural economic development projects. For 
each debit in this account, a corresponding credit will be made in 
Account 131.13 in paragraph (h)(1)(i)(A) of this section. This account 
will be credited with repayments of loans made with Federal economic 
development grant funds.
    (C) A general ledger Account 123.3, ``Investment in Associated 
Companies--Federal Economic Development Loans.'' The Borrower will debit 
this account in the amount of Federal funds the Borrower advances to 
associated organizations for authorized rural economic development 
projects. For each debit in this account, a corresponding credit will be 
made in Account 131.13 in paragraph (h)(1)(i)(A) of this section. This 
account will be credited with repayments of loans made with Federal 
economic development grant funds.
    (D) Account 421, ``Miscellaneous Non-operating Income.'' The 
Borrower will credit this account in the amount of grant funds disbursed 
by RUS resulting from an approved requisition request in accordance with 
paragraph (h)(2) of this section.
    (E) A general ledger Account 131.14, ``Cash-General--Economic 
Development Non-Federal Revolving Funds.'' The Borrower will debit this 
account with any additional funds deemed non-Federal from the borrower 
as required by paragraph (a)(5)(iv) of this section, cash received from 
the repayment of loans made from accounts in paragraphs (h)(1)(i)(B), 
(h)(1)(i)(C), (h)(1)(i)(F), and (h)(1)(i)(G) of this section. The 
Borrower will credit this account to reflect loans made for rural 
economic development projects from non-Federal funds from accounts 
specified in paragraphs (h)(1)(i)(F) and (h)(1)(i)(G) of this section.
    (F) A general ledger Account 124.2, ``Other Investments--Non-Federal 
Economic Development Loans.'' The Borrower will debit this account in 
the amount of non-Federal funds the Borrower advances to non-associated 
organizations for authorized rural economic development projects. For 
each debit in this account, a corresponding credit will be made in 
Account 131.14, in paragraph (h)(1)(i)(E) of this section. This account 
will be credited with repayments of loans made from non-Federal economic 
development funds.
    (G) A general ledger Account 123.4, ``Investment in Associated 
Companies--Non-Federal Economic Development Loans.'' The Borrower will 
debit this account in the amount of non-Federal funds the Borrower 
advances to associated organizations for authorized rural economic 
development projects. For each debit in this account, a corresponding 
credit will be made in Account 131.14, in paragraph (h)(1)(i)(E) of this 
section. This account will be credited with repayments of loans made 
from non-Federal economic development funds.
    (H) A general ledger Account 171 ``Interest and Dividends 
Receivable.'' The Borrower will debit this account with the amount of 
interest earned on the revolving loan fund. The Borrower will credit 
this account and debit the appropriate cash account when the cash is 
received.
    (I) A general ledger Account 419, ``Interest and Dividend Income.'' 
The Borrower will credit this account with the amount of interest earned 
on the revolving loan fund.
    (ii) RUS telephone Borrowers. (A) A general ledger Account 1130.4, 
``Cash--General Fund--Economic Development Grant Funds (Class A 
Companies)'', or Account 1120.14, ``Cash-General Fund--Economic 
Development Grant Funds (Class B Companies).'' The Borrower will debit 
the appropriate account in an amount equal to the amount of the grant 
received from RUS, any additional funds deemed Federal from the Borrower 
required by paragraph (a)(5)(iii) of this section, and all other

[[Page 98]]

funds advanced for the project, regardless of the source, if controlled 
by the Borrower. The Borrower will credit the appropriate account for 
all expenditures made with Federal funds on behalf of the rural 
development project.
    (B) A general ledger Account 1402.4, ``Other Investments in 
Nonaffiliated Companies--Federal Economic Development Grant Loans.'' The 
Borrower will debit this account in the amount of Federal funds the 
Borrower advances to nonaffiliated organizations for authorized rural 
economic development projects. For each debit in this account, a 
corresponding credit will be made in the appropriate account in 
paragraph (h)(1)(ii)(A) of this section. This account will be credited 
with repayments of loans made from Federal economic development grant 
funds.
    (C) A general ledger Account 1401.1, ``Other Investments in 
Affiliated Companies--Federal Economic Development Grant Loans.'' The 
Borrower will debit this account in the amount of Federal funds the 
Borrower advances to affiliated organizations for authorized rural 
economic development projects. For each debit in this account, a 
corresponding credit will be made in the appropriate account in 
paragraph (h)(1)(ii)(A) of this section. This account will be credited 
with repayments of loans made from Federal economic development grant 
funds.
    (D) Account 7360, ``Other Non-operating Income (Class A 
Companies)'', or Account 7300, Non-operating Income and Expense (Class B 
Companies), as appropriate. The Borrower will credit these accounts, as 
appropriate, in the amount of grant funds disbursed by RUS resulting 
from an approved requisition request in accordance with paragraph (h)(2) 
of this section.
    (E) A general ledger Account 1130.5, ``Cash--General Fund--Economic 
Development Non-Federal Revolving Funds (Class A Companies)'', or 
Account 1120.15, ``Cash--General Fund--Economic Development Non-Federal 
Revolving Funds (Class B Companies)'', as appropriate. The Borrower will 
debit the appropriate account with any additional funds deemed non-
Federal from the Borrower as required by paragraph (a)(5) of this 
section, cash received from the repayment of loans made from accounts in 
paragraphs (h)(1)(ii)(B), (h)(1)(ii)(C), (h)(1)(ii)(F), and 
(h)(1)(ii)(G) of this section. The Borrower will credit the appropriate 
account to reflect loans made for rural economic development projects 
from non-Federal funds from accounts specified in paragraphs 
(h)(1)(ii)(F) and (h)(1)(ii)(G) of this section.
    (F) A general ledger Account 1402.5, ``Other Investments in 
Nonaffiliated Companies-Non-Federal Economic Development Grant Loans.'' 
The Borrower will debit this account in the amount of non-Federal funds 
the Borrower advances to nonaffiliated organizations for authorized 
rural economic development projects. For each debit in this account, a 
corresponding credit will be made in the appropriate account in 
paragraph (h)(1)(ii)(E) of this section. This account will be credited 
with repayments of loans made from non-Federal economic development 
funds.
    (G) A general ledger Account 1401.2, ``Other Investments in 
Affiliated Companies--Non-Federal Economic Development Grant Loans.'' 
The Borrower will debit this account in the amount of non-Federal funds 
the Borrower advances to affiliated organizations for authorized rural 
economic development projects. For each debit in this account, a 
corresponding credit will be made in the appropriate account in 
paragraph (h)(1)(ii)(E) of this section. This account will be credited 
with repayments of loans made from non-Federal economic development 
funds.
    (H) A general ledger Account 1210, ``Interest and Dividends 
Receivable.'' The Borrower will debit this account with the amount of 
interest earned on the revolving fund loan. The borrower will credit 
this account and debit the appropriate cash account when the cash is 
received.
    (I) A general ledger Account 7320, ``Interest Income (Class A 
Companies)'', or Account 7300.2, ``Interest Income (Class B 
Companies)'', as appropriate. The Borrower will credit this account with 
the amount of interest earned on the revolving fund loans.
    (2) Requisition requirements. Grant funds may be requisitioned by 
RUS Borrowers in accordance with disbursement requirements in paragraph 
(e) of

[[Page 99]]

this section. Borrowers will be fully reimbursed for funds expended for 
approved projects funded. For each completed project, the Borrower will 
submit the following for reimbursement:
    (i) Standard Form 270, ``Request for Advance of Reimbursement'';
    (ii) Copies of cancelled checks and other verifiable source records 
supporting the transactions; and
    (iii) Certification and evidence that the project costs to be 
reimbursed are for a project which has been authorized by RUS and are 
authorized costs for that project.
    (3) RUS review. Requisition requests will be evaluated for 
compliance with loan purposes previously submitted by the Borrower for 
project authorization in accordance with paragraphs (c)(1) or (e)(2) of 
this section, compliance with the Borrower's rural development plan, 
accounting documentation submitted in paragraph (h)(1) of this section, 
and the cancelled checks and source records submitted.

[59 FR 11708, Mar. 14, 1994, as amended at 59 FR 38341, July 28, 1994; 
59 FR 53931, Oct. 27, 1994]



Sec. 1703.23  Supplemental funds requirements for zero-interest loans and grants.

    The Administrator will not select an application unless the project 
will receive supplemental funds in an amount at least equal to 20 
percent of the RUS zero-interest loan and grant to be provided to the 
project, as determined by the Administrator. Supplemental funds as used 
in this section may come from the project owner in the form of equity 
funds, private sources, state and local government sources, other 
Federal Government sources, the borrower or other sources. Only 
supplemental funds that will be provided to the project after the date 
RUS receives the borrower's completed application may be used to satisfy 
this requirement. Supplemental financing must be verified and committed 
to the project in form and substance satisfactory to the Administrator 
before RUS will advance any funds.
Sec. 1703.24  [Reserved]



Sec. 1703.25  Significance of RUS financing to the total project cost.

    Selection of applications will be based on a preference for 
applications requesting RUS financing which will be at least equal to 5 
percent of the total project costs, as determined by the Administrator. 
Projects costs will be based on the amount that would be spent over the 
first 2 years after the first advance of RUS funds for the component or 
phase of the undertaking for which the borrower is requesting RUS funds, 
as determined by the Administrator. The Administrator may determine that 
a component or phase, especially actions necessary to initiate a larger 
project, constitute a distinct project for the purposes of this section.
Sec. 1703.26  [Reserved]



Sec. 1703.27  Owner's equity in the project.

    The Administrator may require, as a condition to RUS financing, that 
the owner(s) of the project invest equity capital if determined to be 
financially necessary, based on an RUS financial analysis and sound 
lending practices.



Sec. 1703.28  Maximum and minimum sizes of a zero-interest loan or grant application.

    (a) The maximum size of an application that will be considered for 
funding under this subpart during a fiscal year will be 3 percent of the 
projected total amount available for the zero-interest loans or grants 
under section 313 of the Act during that fiscal year, rounded to the 
nearest $10,000. This determination will be made by the Administrator 
for each fiscal year.
    (b) Regardless of the projected total amount that will be available, 
the maximum size may not be lower than $200,000.
    (c) The projected total amount available during a particular fiscal 
year is calculated as the sum of the projected amount that will be 
credited to the subaccount during a particular fiscal year from the 
interest differential calculation based on the RUS borrowers' cushion of 
credit levels at the time the

[[Page 100]]

Administrator makes the determination and any amounts appropriated for 
that fiscal year for zero-interest loans or grants made under section 
313 of the Act.
    (d) After the Administrator has determined the maximum size for a 
fiscal year, a notice of the calculation and amount will be published 
promptly in the Federal Register. Thereafter, the maximum size will 
remain in effect until the Administrator has published the maximum size 
for the next fiscal year.
    (e) All unselected applications on file at RUS, including both loan 
and grant applications, from the same borrower for the same project will 
be considered to be one application in determining that the maximum size 
of the application is in accordance with this section.
    (f) The minimum size of an application for assistance under this 
subpart that will be considered for funding is $10,000.

[57 FR 44317, Sept. 25, 1992, as amended at 59 FR 11711, Mar. 14, 1994]



Sec. 1703.29  Terms of zero-interest loan repayment.

    (a) The Administrator will determine the terms and repayment 
schedule of the zero-interest loan to the borrower based on the nature 
of the project and approved purposes. Ordinarily, the total term of the 
zero-interest loan, including any principal deferment period, will not 
exceed 10 years. The repayment terms the borrower sets on a pass-
through-loan must equal the terms of the loan provided to the borrower 
unless a written request from the borrower to provide a longer deferment 
period, shorter total term of the loan, or other benefits is approved by 
the Administrator.
    (b) The Administrator has the discretion to defer the repayment of 
principal up to two years, based on an analysis of the feasibility of 
the project. Ordinarily, if the Administrator considers the project to 
be a business expansion or going concern, the first repayment of 
principal will not begin until one year after the date of the RUS note. 
Ordinarily, if the Administrator considers the project to be a start-up 
project, the first repayment of principal will not begin until 2 years 
after the date of the RUS note. Loans must be repaid under terms set 
forth in RUS's legal documents.
    (c) Unless the Administrator has specifically approved otherwise, 
the borrower will be required to repay the RUS zero-interest loan in 
full at such time as a pass-through-loan has been fully repaid to the 
borrower. If the borrower uses the proceeds of the RUS zero-interest 
loan to provide pass-through-loans to more than one entity, this 
requirement will only apply to that portion of the zero-interest loan 
associated with the loan that has been fully repaid to the borrower.
    (d) If the Administrator determines that, as a result of state law, 
court rulings, or regulatory commission decisions, it is necessary to 
ensure that the borrower will repay the RUS zero-interest loan, the 
borrower may be required to provide an irrevocable letter of credit, or 
another form of guarantee satisfactory to the Administrator. The letter 
of credit or other guarantee is to be made payable to RUS. The letter of 
credit or other guarantee may not be secured by any assets under a RUS 
and/or Rural Telephone Bank mortgage and must be in form and substance 
satisfactory to the Administrator. RUS must receive the letter of credit 
or other guarantee prior to the advance of any zero-interest loan funds.



Sec. 1703.30  Approval of agreements.

    (a) The Administrator must approve any agreements between the 
borrower and the owner(s) of the project, those undertaking the project, 
or any intermediary that will re-lend or transfer the proceeds of the 
RUS funds, that the Administrator deems necessary.
    (b) Borrowers must obtain the Administrator's approval of any loan, 
grant or security agreement, mortgage or note between the borrower and 
the owner(s) of the project, those undertaking the project or any 
intermediary that will re-lend or transfer the proceeds of the RUS 
funds, prior to the advance of RUS zero-interest loan or grant funds to 
the borrower. The borrower must receive the Administrator's approval of 
the final draft version of the documents prior to their execution.
    (c) Borrowers must obtain the Administrator's written approval prior 
to

[[Page 101]]

revising or amending any loan, grant or security agreement, mortgage or 
note that has been reviewed and approved by the Administrator pursuant 
to paragraph (b) of this section. Additionally, the borrower must obtain 
the Administrator's written approval prior to executing, revising or 
amending any other agreement, in connection with the project, between 
the borrower and the owner(s) of the project, those undertaking the 
project or any intermediary that will re-lend or transfer the proceeds 
of the RUS funds.
    (d) The borrower and the owner(s) of the project, or those 
undertaking the project, should make agreements and prepare documents in 
accordance with all applicable laws.

(Approved by the Office of Management and Budget under control number 
0572-0090)

[57 FR 44317, Sept. 25, 1992, as amended at 59 FR 11711, Mar. 14, 1994; 
59 FR 38341, July 28, 1994]



Sec. 1703.31  Transfer of employment or business.

    The project must not result primarily in the transfer of any 
existing employment or business activity from one area to another.



Sec. 1703.32  Environmental requirements.

    (a) Prospective recipients of zero-interest loans or grants should 
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.
    (b) Application for zero-interest loans or grants for project 
feasibility studies. For a proposal to fund a project feasibility study, 
the only environmental information normally required is whether or not 
the proposed project being studied or analyzed will be located within an 
area protected under the Coastal Barrier Resources Act (16 U.S.C. 3501 
et seq.) Generally, the use of Federal funds to promote development on 
coastal barriers is strictly limited by the Coastal Barriers Resources 
Act.
    (c) Application for zero-interest loans or grants for a project that 
is not considered project feasibility studies. (1) The Administrator 
will review support materials in the application and initiate an 
environmental review process pursuant to 7 CFR part 1794. This process 
will focus on any environmental concerns or problems that are associated 
with the project.
    (2) The level and scope of the environmental review will be 
determined in accordance with the National Environmental Policy Act of 
1969 (NEPA), as amended, (42 U.S.C. 4321 et seq.), the Council on 
Environmental Policy for Implementing the Procedural Provisions of NEPA 
(40 CFR parts 1500--1508), RUS's environmental policies and procedures 
(7 CFR part 1794) and other relevant Federal environmental laws, 
regulations and Executive Orders.
    (3) Activity related to the project that will adversely affect the 
environment or limit the choice of reasonable alternatives must not be 
undertaken prior to completion of RUS's environmental review process.



Sec. 1703.33  Other considerations.

    (a) Equal opportunity and nondiscrimination requirements. All zero-
interest loans and grants made under this subpart are subject to the 
nondiscrimination provisions of title VI of the Civil Rights Act of 
1964, as amended, (42 U.S.C. 1971 et seq., 1975a et seq., 2000a et seq.; 
7 CFR part 15); section 504 of the Rehabilitation Act of 1973, as 
amended, (29 U.S.C. 701 et seq.; 7 CFR part 15b); the Age Discrimination 
Act of 1975, as amended, (42 U.S.C. 6101 et seq.; 45 CFR part 90); and 
Executive Order 11246, Equal Employment Opportunity, (3 CFR, 1964--1965 
Comp., p. 339) as amended by Executive Order 11375, Amending Executive 
Order 11246, Relating to Equal Employment Opportunity (3 CFR, 1966--1970 
Comp., p. 684).
    (b) Architectural barriers. All facilities financed with RUS zero-
interest loans or grants that are open to the public or in which 
physically handicapped persons may be employed or reside must be 
designed, constructed, and/or altered to be readily accessible to, and 
usable by handicapped persons. Standards for these facilities must 
comply with the Architectural Barriers Act of 1968, as amended, (42 
U.S.C. 4151 et seq.) and with the Uniform Federal Accessibility 
Standards (UFAS), (Appendix A to 41 CFR part 101.19, subpart 101-19.6).

[[Page 102]]

    (c) Flood hazard area precautions. In accordance with 7 CFR part 
1788, if the project is in an area subject to flooding, flood insurance 
must be provided to the extent available and required under the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001 et seq.). 
The insurance must cover, in addition to the buildings, any machinery, 
equipment, fixtures and furnishings contained in the buildings. RUS will 
comply with Executive Order 11988, Floodplain Management (3 CFR, 1977 
Comp., p. 117), and Sec. 1794.41 of this chapter, in considering the 
application for the project. As set forth in Sec. 1794.41 of this 
chapter, public notice is required if a project will be located in a 
floodplain.
    (d) Uniform relocation assistance. Relocations in connection with 
this program are subject to 49 CFR part 24 as referenced by 7 CFR Part 
21, Uniform Relocation Assistance and Real Property Acquisition for 
Federal and Federally Assisted Programs except that the provisions in 
Title III, Uniform Real Property Acquisition Policy, of the Uniform 
Relocation Assistance and Real Property Acquisition Act of 1970, as 
amended, (42 U.S.C. 4601-4655) (the ``Uniform Act'') do not apply to 
this program.
    (e) Drug-free workplace. Grants made under this program are subject 
to the requirements set forth in 7 CFR part 3017, subpart F, Drug-Free 
Workplace Requirements, which implements the Drug-Free Workplace Act of 
1988 (41 U.S.C. 701 et seq.). A borrower requesting a grant will be 
required to certify that it will establish and make a good faith effort 
to maintain a drug-free workplace program.
    (f) Debarment and suspension. The requirements of Executive Order 
12549, Debarment and Suspension (3 CFR, 1986 Comp., p. 189), and 7 CFR 
part 3017, subparts A through E, Governmentwide Debarment and Suspension 
(Nonprocurement), regarding debarment and suspension are applicable to 
this program.
    (g) Intergovernmental review of Federal programs. (1) This program 
is subject to the requirements of Executive Order 12372, 
Intergovernmental Review of Federal Programs (3 CFR, 1982 Comp., p. 197) 
and 7 CFR part 3015, subpart V, Intergovernmental Review of Department 
of Agriculture Programs and Activities, which implements Executive Order 
12372.
    (2) With the exception of zero-interest loans and grants for project 
feasibility studies, proposed projects are subject to the state and 
local government review process set forth in 7 CFR part 3015. Under the 
review process, state and local governments have 60 days to comment on 
the proposed project.
    (3) The Administrator will not give final approval to an application 
until the requirements of 7 CFR part 3015, subpart V, regarding state 
and local government review have been satisfied.
    (h) Restrictions on lobbying. (1) The restrictions and requirements 
imposed by 31 U.S.C. 1352, entitled ``Limitation on Use of Appropriated 
Funds to Influence Certain Federal Contracting and Financial 
Transactions'' and the implementing regulation, 7 CFR part 3018, New 
Restrictions on Lobbying, are applicable to this program.ca 7v15.018
    (2) The regulation that implements this statute requires applicants 
for a zero-interest loan in excess of $150,000 and applicants for a 
grant in excess of $100,000 to file a certification statement regarding 
the use of Federal appropriated funds to lobby the Executive and 
Legislative branches of the Federal Government, and to file a disclosure 
form if engaged in these activities using unappropriated funds.
    (3) In addition, persons that receive contracts or subcontracts in 
excess of $150,000 under a zero-interest loan and persons that receive 
subgrants, contracts or subcontracts in excess of $100,000 under a grant 
are required to file certification statements regarding lobbying the 
Executive and Legislative branches and, if engaged in these activities, 
to file disclosure forms.



Sec. 1703.34  Applications.

    (a) Borrowers may file an application on any official workday during 
the first 14 days of every month. A borrower must send a copy of the 
application, except for an application that requests a zero-interest 
loan or grant for project feasibility studies, to the state single point 
of contact for state and local governments at the same time it

[[Page 103]]

submits the application to RUS. As discussed in Sec. 1703.33(g), state 
and local governments have 60 days to review a borrower's proposal 
before the Administrator gives final approval to an application, except 
a proposal for project feasibility studies. The Administrator may 
establish a special application period if determined necessary.
    (b) A completed application will consist of an original and two 
copies of:
    (1) An application form. The application must include a completed 
application form, ``Application for Federal Assistance,'' Standard Form 
424;
    (2) A board resolution. The application must include a board 
resolution that:
    (i) Requests a zero-interest loan and/or grant, including the amount 
of the zero-interest loan and/or the amount of the grant rounded to the 
nearest 1,000 dollars;
    (ii) Includes the total combined deferment and repayment period 
requested for a zero-interest loan if less than 10 years;
    (iii) Includes the board's endorsement of the proposed rural 
economic development project as described in the application;
    (iv) States the proposed project does not violate Secs. 1703.20 and 
1703.21; and discloses any information regarding a conflict of interest, 
potential conflict of interest, or appearance of a conflict of interest 
that would allow the Administrator to make an informed decision;
    (v) Authorizes an official of the borrower to requisition zero-
interest loan or grant funds under this program;
    (vi) For an application for a grant only, authorizes the chief 
executive officer of the borrower to execute and deliver on behalf of 
the borrower the certification Form AD-1049 regarding a drug-free 
workplace program as required in part 3017, subpart F of this title; and
    (vii) Any other matters deemed necessary by the Administrator;
    (3) Miscellaneous Federal forms. The application must include the 
following completed forms:
    (i) Form AD-1047, ``Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transactions,'' as 
required in part 3015, subparts A through E of this title; and
    (ii) Assurance statement or certification statement required under 
the Uniform Act as set forth in Sec. 1703.33(d). For pass-through-loans 
and pass-through-grants, the ultimate recipient of the proceeds of the 
RUS zero-interest loan or grant must sign the assurance statement that 
it will comply with the applicable provisions of the Uniform Act or sign 
a certification that the provisions of the Uniform Act will not apply to 
the rural development project which will be partially financed with the 
proceeds of RUS funds. If the borrower will not provide a pass-through-
loan or pass-through-grant to another entity, the borrower must submit a 
completed assurance statement or certification regarding the applicable 
provisions of the Uniform Act, or have such an assurance statement on 
file at RUS;
    (4) Contingent certifications and disclosures. As determined by the 
type and amount of requested funds, the application must include the 
following completed forms:
    (i) For an application for a zero-interest loan in excess of 
$150,000 or for an application for a grant in excess of $100,000, a 
certification statement, ``Certification Regarding Lobbying,'' and, if 
the borrower is engaged in lobbying activities described under 
Sec. 1703.33(h), a completed disclosure form, ``Disclosure of Lobbying 
Activities''; and
    (ii) For an application for a grant only, a completed certification 
form, ``Certification Regarding Drug-Free Workplace Requirements 
(Grants),'' Form AD-1049 as required in part 3017, subpart F of this 
title;
    (5) Other requirements. The following:
    (i) A section entitled ``Selection Factors'' as set forth in 
Sec. 1703.35;
    (ii) A section entitled ``Project Description'' as set forth in 
Sec. 1703.36;
    (iii) Except for applications for project feasibility studies, a 
section entitled ``Environmental Impact of the Project'' as set forth in 
Sec. 1703.37;
    (iv) Monitoring plan. For a pass-through loan and/or grant, a copy 
of the Borrower's plan to monitor the loan and/or grant and ensure that 
the

[[Page 104]]

requirements of this subpart are met; and
    (v) Scope of work. For an application for a loan and/or grant, a 
proposed scope of work for the project.
    (c) The Administrator may request additional information it 
considers relevant from the borrower.
    (d) During the application review process, the borrower may change 
the amount of the zero-interest loan or grant funds requested or other 
portions of its application, only if approved by the Administrator. A 
borrower that changes its request from a grant to a zero-interest loan 
must submit information necessary for the Administrator to evaluate a 
loan proposal as set forth in this subsection, and submit a new board 
resolution requesting the loan.

(The information collection requirements contained in paragraph (b) of 
this section were approved by the Office of Management and Budget under 
control number 0572-0090)

[57 FR 44317, Sept. 25, 1992, as amended at 59 FR 11711, Mar. 14, 1994; 
59 FR 38341, July 28, 1994]



Sec. 1703.35  Section of the application covering the selection factors.

    The application must contain a section addressing the ``selection 
factors'' consisting of the following:
    (a) ``Nature of the project'' (Sec. 1703.46(g)(1)), which includes 
any information considered appropriate including aspects of the project 
that may not be obvious to an outside observer;
    (b) ``Job creation project'' (Sec. 1703.46(g)(2)), which includes 
any information that is not readily apparent concerning whether the 
project would directly create jobs in rural areas. The number of the 
jobs and the basis for the job projection should be included under 
``Number of long-term jobs'';
    (c) ``Long-term improvements in economic development'' 
(Sec. 1703.46(g)(3)), which addresses the extent to which the project 
will improve the productive potential of the labor force, industrial 
plant, infrastructure, natural resources and institutions by employing 
advanced technology, creating higher-skilled occupations, adding higher 
value to natural resources, creating jobs with higher-career potential, 
or is considered part of a knowledge intensive industry;
    (d) ``Diversifying the rural economy or alleviating 
underemployment'' (Sec. 1703.46(g)(4)), which includes any information 
the borrower desires the Administrator to consider;
    (e) ``Supplemental funds'' (Sec. 1703.46(h)(1)), which includes the 
name of each source and the respective amount of supplemental funds that 
was provided to the project within 6 months of submitting the 
application to RUS, and the amount that will be provided within two 
years of receiving RUS funds. Also indicate the nature and strength of 
the commitments to make these supplemental funds available, when these 
funds are expected to be disbursed, any special terms and conditions 
associated with the commitments, copies of the commitments, and, if 
established, the interest rate, term and deferment period on any loan 
for the project;
    (f) ``Economic conditions and job creation'' (Sec. 1703.46(h)(2)), 
which includes:
    (1) ``Unemployment rates'' (Sec. 1703.46(h)(2)(i)). List the county 
or counties in which the project will be located. It is not necessary to 
include the county, state or national unemployment rates. RUS obtains 
these rates from other Federal agencies;
    (2) ``Per capita personal income'' (Sec. 1703.46(h)(2)(ii)). As with 
``Unemployment rates,'' it is not necessary to include the county, state 
or national per capita personal income levels;
    (3) ``Change in population'' (Sec. 1703.46(h)(2)(iii)). It is not 
necessary to include the county population levels;
    (4) ``Number of long-term jobs'' (Sec. 1703.46(h)(2)(iv)). Include 
the number of long-term jobs that the project will directly create in 
rural areas and the total project cost;
    (5) ``Community-based economic development program'' 
(Sec. 1703.46(h)(2)(v)). Explain if the project is part of a community-
based economic development program; and
    (6) ``Plan for improving the marketable skills of people in rural 
areas'' (Sec. 1703.46(h)(2)(vi)). Include information on any written 
plan for the project to provide opportunities or incentives to improve 
the marketable skills of rural

[[Page 105]]

residents through training and/or education. For projects that consist 
of providing training or education, indicate how it will benefit rural 
residents;
    (g) ``Location'' (Sec. 1703.46(h)(3)), which indicates whether or 
not the project will be located in a town and, if so, the name of the 
town;
    (h) ``Support for the program--cushion of credit payments'' 
(Sec. 1703.46(h)(4)), which mentions any cushion of credits payments 
made recently in accounts at RUS;
    (i) ``Demonstration project'' (Sec. 1703.46(h)(5)), which includes a 
discussion of any commitments from the owner(s) of the project to be a 
demonstration project and a copy of the written commitment;
    (j) ``Probability of success'' (Sec. 1703.46(h)(6)), which includes:
    (1) ``Owners and management of the project'' (Sec. 1703.46(h)(6)(i)) 
that discusses how the knowledge, experience, education and training of 
the proposed owners and management of the project increases the 
likelihood of long-term success; and
    (2) ``Ultimate recipient's business plan'' (Sec. 1703.46(h)(6)(ii)), 
that references an attached copy of the business plan.
    (i) The plan should include:
    (A) A description of the project;
    (B) A description of the business, if applicable, its products and 
the prospects of the industry;
    (C) What will be produced or accomplished;
    (D) The area to be served;
    (E) Any market research or marketing plan;
    (F) Any operating plan;
    (G) Total project costs and projected use of funds by purpose or 
category;
    (H) A financial plan, including a feasibility study with projected 
balance sheets, income statements and cash flow statements;
    (I) The source of supplemental funds, the nature and strength of 
commitments from other sources of financing, and the equity 
contribution;
    (J) The proposed ownership and management of the project;
    (K) A description of any coordination with a local, regional or 
state development organization; and
    (L) Other relevant information.
    (ii) The scope of the plan should reflect the amount requested in 
the application, the risks involved with developing and operating the 
project, and the overall cost of the project. The plan should describe 
any coordination with a local, regional or state development 
organization.



Sec. 1703.36  Section of the application covering the project description.

    In general, this section should be more detailed the larger the 
project for which the borrower is requesting funding. The section of the 
application on the ``project description'' must include:
    (a) A description of the proposed project including the nature of 
the project, the location of the project, organizations that will be 
involved in the project and the primary beneficiaries of the project. 
Also include in this subsection a statement describing whether the 
borrower has or will have a direct or indirect (through a subsidiary or 
affiliated organization) ownership or similar beneficial interest in the 
facilities to be constructed or in the entity that will occupy or 
utilize these facilities. In addition, explain whether it seems likely 
that the proposed project will be undertaken or completed in the absence 
of an RUS zero-interest loan or grant;
    (b) A separate paragraph entitled ``Uses of RUS Funds and Total 
Project Costs'', that includes a breakdown of the specific uses of RUS 
funds and a breakdown of the specific uses of all funds necessary to 
ensure completion of the project. Project costs should be limited to the 
amount to be spent over the 2-year period after receiving RUS funds;
    (c) For a project that involves the establishment of a new venture, 
such as a rural business incubator or a similar start-up venture, a 
discussion of how the costs of establishing, organizing and arranging 
financing for the venture will be paid, how start-up costs incurred 
after the venture has been established will be paid, the expected 
sources of revenue necessary to sustain the project and revenue and 
expense projections for the first 3 years of the project;
    (d) If the borrower will provide a pass-through-loan or pass-
through-

[[Page 106]]

grant to another entity, outline the terms and conditions that the 
borrower intends to place on the recipient of the RUS funds including 
the security arrangements and collateral on a zero-interest loan. The 
discussion of proposed security arrangements and collateral should 
reflect the amount requested in the application, the risks involved with 
developing and operating the project, and the overall cost of the 
project;
    (e) For pass-through-loans and pass-through-grants, a description of 
the ultimate recipient, including the form of organization and ownership 
(i.e., corporation, nonprofit corporation, cooperative, partnership, 
sole proprietor), the owner(s) and the chief officers;
    (f) If the project involves construction, a brief description of the 
construction necessary to make the project operational and the 
organization involved with the project that will be responsible for 
building the project facilities or having them built;
    (g) A discussion of the manner in which the borrower intends to 
monitor the zero-interest loan and/or grant proceeds to ensure that they 
are used only for approved purposes; and
    (h) If applicable, a discussion on any potential conflict of 
interest or the appearance of a conflict of interest, a clarification of 
any aspect of the project with respect to the restriction that it must 
not result primarily in the transfer of any existing employment or 
business activity from one area to another or a clarification of any 
aspect of the project with respect to limitations in Secs. 1703.20 and 
1703.21.



Sec. 1703.37  Section of the application covering the environmental impact of the project.

    (a) For a proposed project that only involves internal modifications 
or equipment additions to buildings or other structures (for example; 
relocating interior walls or adding computer facilities) and/or external 
changes or additions to existing buildings, structures or facilities 
requiring physical disturbance of less than 0.4 hectare (0.99 acre), the 
environmental information normally required is:
    (1) A copy of a flood hazard zone map from the Federal Emergency 
Management Agency with the location of the project site marked;
    (2) A statement of whether or not the proposed project will be 
located within an area protected under the Coastal Barrier Resources Act 
(16 U.S.C. 3501 et seq.);
    (3) A description of the internal modifications or equipment 
additions, and the external changes or additions to existing buildings, 
structures or facilities being proposed, the size of the site in 
hectares, and the general nature of the proposed use of the facilities 
once the project is completed, including any hazardous materials to be 
used, created or discharged, any substantial amount of air emissions, 
wastewater discharge, or solid waste that will be generated; and
    (4) A statement of whether the project site contains or is near a 
property listed or eligible for listing in the National Register of 
Historic Places (16 U.S.C. 470).
    (b) For all other proposed projects include:
    (1) A copy of a flood hazard zone map from the Federal Emergency 
Management Agency with the location of the project site marked (42 
U.S.C. 4001 et seq.);
    (2) A diagram showing the general layout of the proposed facilities 
on the project site;
    (3) The size of the project site in hectares;
    (4) A map (preferably a U.S. Geological Survey map) of the project 
area indicating the boundaries of the project;
    (5) A statement of whether or not the project will be located within 
an area protected under the Coastal Barrier Resources Act;
    (6) The amount of property to be cleared, excavated, fenced or 
otherwise disturbed by the project;
    (7) The current land use and zoning of the project site and any 
vegetation on the project site;
    (8) A description of buildings or other major structures, including 
dimensions, to be constructed or modified;
    (9) A statement of whether the presence of wetlands or existing 
agricultural operations are present at the project site (7 CFR part 
1794); whether properties listed or eligible for listing in the National 
Register of Historic

[[Page 107]]

Places are on or near the project site; whether threatened or endangered 
species or critical habitat are on or near the project site (16 U.S.C. 
1531 et seq.);
    (10) The general nature of the proposed use of the facilities once 
the project is completed, including any hazardous materials to be used, 
created or discharged, any substantial amount of air emissions, 
wastewater discharge, or solid waste that will be generated (7 CFR part 
1794); and
    (11) A copy of any environmental review, study, assessment, report 
or other document that has been prepared in connection with obtaining 
permits, approvals or other financing for the proposed project from 
state, local or other Federal agencies. Such material, to the extent 
relevant, may be used to fulfill the requirements of this section.
    (c) The Administrator may request additional environmental 
information in specific cases to satisfy Sec. 1703.32.
Secs. 1703.38--1703.44  [Reserved]



Sec. 1703.45  Review and analysis of applications.

    Completed applications received at RUS by the 14th day of the month 
will be considered at the first selection date which occurs at least 40 
days after the application was received. Completed applications received 
at RUS after the 14th day of a month will be either be held for the next 
application period or returned to the borrower, at the borrower's 
option. The review period of at least 40 days should allow sufficient 
time for state and local governments to review the proposed projects 
under the intergovernmental review process, as set forth in 7 CFR part 
3015, and to provide sufficient time for the Administrator to fully 
review and analyze these applications. In the event state and local 
government review has not been completed, the Administrator's approval 
may be contingent upon the review being satisfactorily documented. The 
Administrator reserves the discretion to consider applications outside 
the normal selection period.



Sec. 1703.46  Documenting the evaluation and selection of applications for zero-interest loans and grants.

    (a) The Administrator will only consider for selection applications 
that request funds for purposes as set forth in Secs. 1703.17 and 
1703.18 and are not ineligible under Sec. 1703.20, as determined by the 
Administrator. The Administrator will not consider applications that do 
not conform with all of the provisions of this subpart, as determined by 
the Administrator. The Administrator will make the determination of all 
numbers, dollars, levels and rates, as well as the nature, costs, 
location and other characteristics of the proposed project, to calculate 
the number of points assigned to an application for each selection 
factor. Applications for zero-interest loans and grants will be ranked 
separately. In addition, applications requesting less than 5 percent of 
the total project costs as provided in Sec. 1703.25 will be ranked 
separately, subject to Sec. 1703.46(j). The Administrator will select 
applications that receive the greatest number of total points under 
paragraphs (f) and (g) of this section, subject to available funds and 
the provisions of Sec. Sec. 1703.25, 1703.46(i), and 1703.46(j).
    (b) After reviewing an application, the Administrator may decline to 
select an application:
    (1) That would result in a conflict of interest or the appearance of 
a conflict of interest;
    (2) Based on the management and financial situation of the borrower 
applying for the zero-interest loan or grant. In determining the 
borrower's financial situation, the Administrator will consider, among 
other things, the borrower's existing and projected cash flows, equity 
to asset ratios, times interest earned ratios, debt service coverage 
ratios, the level of its investments, the level of its cash and other 
liquid assets, its working capital and repayment of its debts;
    (3) Based on a determination that limitations under state laws will 
lessen the likelihood of repayment of the RUS zero-interest loan in the 
event that the borrower does not receive funds from the project 
necessary to cover the RUS zero-interest loan payments;
    (4) Based on the unwillingness of the borrower applying for the 
zero-interest loan or grant to exercise diligence in repaying RUS loans 
or loan guarantees, and comply with RUS's legal documents and 
regulations;

[[Page 108]]

    (5) For an otherwise eligible project when any of the revenues of 
the project are derived from a legalized gambling activity; or
    (6) For any illegal activity.
    (c)(1) The Administrator will first evaluate the application and the 
project with respect to the three factors in this paragraph. The 
Administrator will not select applications requesting funds for projects 
that in the Administrator's best judgment have a low probability of:
    (i) Being a viable business or operation;
    (ii) Being successful as measured by long-term job creation or 
retention; and
    (iii) Producing long-term economic development in rural areas.
    (2) The Administrator's determination in paragraph (c) of this 
section will be based on the ultimate recipient's feasibility studies, 
income statements, cash flow statements, existing and projected balance 
sheets, market research, job creation potential, industry trends, and 
current economic conditions given the nature of the project. Long-term 
job creation and economic development in rural areas as used for this 
factor will mean jobs or economic development that would generally be 
expected to last at least five years.
    (d) The Administrator will not award points under the selection 
factors in paragraphs (f) and (g) of this section for applications that:
    (1) Involve the purchase land that will not be developed or used as 
a site for a project structure during the current phase of the project, 
as determined by the Administrator;
    (2) Will be used for residential purposes or entertainment purposes 
at the residential level, such as residential dwellings and land sites, 
facilities to provide entertainment television, or personal, non-
business related vehicle(s); however, nursing homes providing medical 
care, as determined by the Administrator, will not be considered to be 
residential dwellings;
    (3) Will be used primarily to finance the purchase of an established 
business or operation rather than for economic development in rural 
areas or job creation purposes; or
    (4) Will be used primarily to transfer property or real estate 
between owners without making any improvements or additions that will 
promote economic development in rural areas or job creation.
    (e) After the above determinations, the Administrator will evaluate 
the applications and assign points with respect to the factors in 
paragraph (f) of this section. Applications evaluated under paragraph 
(f) of this section that do not receive at least 35 points or are not 
within the top 75 percent when all applications being assigned points 
are ranked from high to low by total number of points will not be 
evaluated with respect to the factors in paragraph (g) of this section. 
The only exception to this evaluation process would be the 
Administrator's determination that additional applications must be 
selected in accordance with Sec. 1703.14. After such a determination, 
the remaining applications evaluated in paragraph (f) of this section 
will be also evaluated under the factors in paragraph (g) of this 
section.
    (f) Selection factors pertaining to the type of project. The number 
of points assigned for each selection factor will be determined as 
follows:
    (1) Nature of the project. The extent to which the nature of the 
project will promote economic development in rural areas and/or job 
creation--up to 50 points. The determination for this factor will be 
based on whether the project:
    (i) Is considered a start-up, expansion, or enhancement of a 
business, a business incubator, an industrial building or park, 
infrastructure necessary to connect these types of projects to existing 
infrastructure, necessary for the development and operation of these 
types of projects, or, in the Administrator's determination, basic 
infrastructure necessary for successful businesses in the rural economy;
    (ii) Will provide technical assistance to rural businesses or rural 
residents, train or educate rural residents, promote economic 
development in rural areas on a non-profit basis, or provide medical 
care to rural residents; and
    (iii) Will succeed as envisioned in the application, and the 
possibility that

[[Page 109]]

the owners or operators may become delinquent on their loan payments.
    (2) Job creation project. The extent to which the project will 
directly lead to job creation given the size of the project and the 
amount of RUS funds requested or the project is necessary for job 
creation--up to 25 points. As part of the determination, the 
Administrator will consider whether the project will provide long-term 
employment for rural residents. For industrial parks, industrial 
buildings, and similar projects, the Administrator will consider whether 
the application includes information on businesses or tenants that will 
occupy the building(s) and the nature and extent of the commitments to 
use the buildings in determining the number of points to award. The 
Administrator will also consider the probability that the project will 
not result in job creation as envisioned in the application in terms of 
both the number of jobs and the duration of the jobs.
    (3) Long-term improvements in economic development. Projects that 
lead directly to an increase in long-term productivity and per capita 
income in rural areas--up to 25 points. The Administrator's 
determination will be based on the extent to which the project will 
improve the productive potential of the labor force, industrial plant, 
natural resources, institutions, and infrastructure necessary for 
economic development and job creation by utilizing advanced technology, 
creating higher skilled occupations, creating jobs with higher career 
potential or jobs that are considered part to be of a knowledge 
intensive industry, or adding higher value to natural resources. In 
considering infrastructure projects, the Administrator will award points 
only for the facilities, such as water and sewer facilities, that will 
serve and are necessary for commercial activities described under this 
factor.
    (4) Diversifying the rural economy or alleviating underemployment. 
Projects that in the judgement of the Administrator will diversify the 
rural economic base or assist in alleviating chronic underemployment for 
rural residents--10 points. The Administrator will assign points only to 
the extent the application contains convincing evidence pertaining to 
this factor.
    (g) Other selection factors. The number of points assigned for each 
selection factor will be determined as follows:
    (1) Supplemental funds. (i) A determination of the amount of 
supplemental funds provided or to be provided to the project from the 
project owner in the form of equity funds, private sources, state and 
local government sources, other Federal Government sources, the borrower 
or other sources of funds. The supplemental funds used in this 
calculation must be disbursed to the project during the period covering 
six months prior to the receipt of the application by RUS and two years 
after the first advance of RUS funds for the project. Supplemental funds 
must be committed to the project before RUS will advance its funds. RUS 
loan or grant funds from the borrower or RUS loan or grant funds from 
any other organization will not be included in the calculations. The 
Administrator will determine what constitutes expenditures on the 
project. If supplemental funds as a percentage of the RUS zero-interest 
loan and/or grant to be provided to the project is:
    (A) Equal to 20%--10 points, the minimum number of points;
    (B) Equal to 100%--20 points;
    (C) Equal to 500%--30 points, the maximum number of points.
    (ii) Ratios of supplemental funds to RUS funds falling between these 
levels will be assigned points based on a straight-line interpolation 
calculated to the nearest whole point. The result will be rounded based 
on the standard convention of a fraction of 1/2 or greater equals 1.
    (2) Economic conditions and job creation. (i) A comparison will be 
made of the unemployment rate in the county where the project will be 
located to the state and national unemployment rates.
    (A) If the unemployment rate in the county where the project will be 
located exceeds the National unemployment rate by 30 percent or more--10 
points, the maximum number of points awarded.
    (B) If the unemployment rate in the county where the project will be 
located is equal to the National unemployment rate--5 points.

[[Page 110]]

    (C) If the unemployment rate in the county where the project will be 
located is equal to or less than 75 percent of the National unemployment 
rate--0 points.
    (D) If the unemployment rate in the county where the project will be 
located exceeds the state unemployment rate by 30 percent or more--8 
points, the maximum number of points awarded.
    (E) If the unemployment rate in the county where the project will be 
located is equal to the state unemployment rate--4 points.
    (F) If the unemployment rate in the county where the project will be 
located is equal to or less than 75 percent of the state unemployment 
rate--0 points.
    (G) For both the state and national unemployment rate calculations, 
rates falling between the levels will be assigned points based on 
straight-line interpolation calculated to the nearest whole point. The 
result will be rounded based on the standard convention of a fraction of 
1/2 or greater equals 1. If the project will be located in several 
counties, the Administrator will use a simple average (mean) of the 
counties for the comparison. The Administrator will use the average of 
the most recent twelve months of unemployment rates it has obtained from 
the Bureau of Labor Statistics, U.S. Department of Labor or other 
government sources and processed into a suitable format.
    (ii) A comparison will be made of the per capita personal income in 
the county where the project will be located to the state and national 
per capita personal income levels.
    (A) If the per capita personal income level in the county where the 
project will be located is less than or equal to 90 percent of the 
National per capita personal income level--10 points, the maximum number 
of points awarded.
    (B) If the per capita personal income level in the county where the 
project will be located is equal to the National per capita personal 
income level--5 points.
    (C) If the per capita personal income level in the county where the 
project will be located exceeds the National per capita personal income 
level by 15 percent or more--0 points.
    (D) If the per capita personal income level in the county where the 
project will be located is less than or equal to 90 percent of the state 
per capita personal income level--8 points, the maximum number of points 
awarded.
    (E) If the per capita personal income level in the county where the 
project will be located is equal to the state per capita personal income 
level--4 points.
    (F) If the per capita personal income level in the county where the 
project will be located exceeds the state per capita personal income 
level by 15 percent or more--0 points.
    (G) For both the state and national per capita personal income 
calculations, incomes falling between the levels will be assigned points 
based on straight-line interpolation calculated to the nearest whole 
point. The result will be rounded based on the standard convention of a 
fraction of 1/2 or greater equals 1. If the project will be located in 
several counties, the Administrator will use a simple average (mean) of 
the counties for the comparison. The Administrator will use the most 
recent annual per capita personal income levels it has obtained from the 
Bureau of Economic Analysis, U.S. Department of Commerce or other 
government sources and processed into a suitable format.
    (iii) A calculation will be made of the change in total population 
over the most recent two-year period in the county where the project 
will be located. The population change will be the based on the total 
percentage change over the two-year period calculated as follows: the 
population for the most recent year less the population as of two years 
prior to that year with the difference being divided by the population 
as of two years prior to the most recent year.
    (A) If the percentage growth over the two-year period is negative 
2.00 percent or higher negative amount (a population decline)--8 points, 
the maximum number of points.
    (B) If the percentage growth over the two-year period is equal to 
zero or is positive (population increase)--0 points.

[[Page 111]]

    (C) Population growth percentages falling between these levels will 
be assigned points based on straight-line interpolation calculated to 
the nearest whole point. The result will be rounded based on the 
standard convention of a fraction of 1/2 or greater equals 1. If the 
project will be located in several counties, the Administrator will use 
a simple average (mean) of the counties for the comparison. The 
Administrator will use the most recent population data for all counties 
it has obtained from the Bureau of Economic Analysis, U.S. Department of 
Commerce or other government sources and processed into a suitable 
format. The data provide one population figure for the year.
    (iv) The number of long-term jobs that the project will directly 
create in rural areas.
    (A) For five or more direct long-term jobs per $100,000 of total 
project costs--15 points, the maximum number of points awarded.
    (B) For two direct long-term jobs per $100,000 of total project 
costs--8 points.
    (C) For no direct long-term jobs--0 points.
    (D) Direct, long-term jobs under this factor are jobs that would 
generally be expected to last at least five years. Long-term jobs that 
would provide 6 months per year of equivalent full-time employment will 
be counted under this factor. Long-term jobs that would provide fewer 
months of employment would be given points based on the ratio of the 
number of months per year of employment to 12 months. Jobs of at least 
20 hours per week will be counted under this factor. For construction of 
an industrial building, extension of water and/or sewer lines to a 
building, or a similar project, the Administrator will require a 
reasonable analysis of the number of jobs that will be created before 
awarding points for this factor. The Administrator reserves the right to 
adjust the number based on its analysis of the project, the explanation 
in the application of the businesses that will locate in the 
building(s), and any commitments from businesses to locate in the 
building(s). This factor will not count indirect job creation that 
results from an overall increase in the local economy once the project 
is completed. If total project costs per job falls between these levels, 
points will be assigned based on straight-line interpolation calculated 
to the nearest whole point. The result will be rounded based on the 
standard convention of a fraction of 1/2 or greater equals 1.
    (v) Projects that are part of a local, community-based rural 
economic development program that would improve the local economy and 
enhance the well-being of rural residents--10 points. The determination 
will be based on information submitted by the borrower in its 
application and other information the Administrator considers 
appropriate.
    (vi) Projects that have a written plan to provide opportunities or 
incentives to improve marketable skills for rural residents through 
training and/or education, or projects which consist of providing this 
training and/or education--5 points.
    (3) Location. Projects that will be physically in a rural area--20 
points.
    (4) Support for program--cushion of credit payments. (i) 
Applications submitted by borrowers that have made cushion of credit 
payments as set forth in section 313 of the Act based on the following:
    (A) If the borrower has $300,000 or three percent of total assets, 
whichever is less, in cushion of credit payments--15 points;
    (B) If the borrower has $100,000 or one percent of total assets, 
whichever is less, in cushion of credit payments--10 points;
    (C) If the borrower has at least $5,000 or 0.5 percent of total 
assets, whichever is less, in cushion of credit payments--5 points.
    (ii) The amount of cushion of credit payments will be based on the 
amount at the time the Administrator evaluates the project. The 
calculation of a borrower's total assets will be based on RUS's most 
recently published Statistical Report, Rural Electric Borrowers (RUS 
Informational Publication 201-1) or Statistical Report, Rural Telephone 
Borrowers (RUS Informational Publication 300-4). These publications are 
available from the Rural Utilities Service, Administrative Services 
Division, Washington, DC 20250. If the amount of cushion of credits 
payments falls between these levels, points will

[[Page 112]]

be based on a straight-line interpolation calculated to the nearest 
whole point. The result will be rounded based on the standard convention 
of a fraction of 1/2 or greater equals 1.
    (5) Demonstration project. If the application contains a written 
commitment from the owner(s) of the project that the project will be a 
demonstration project--5 points.
    (6) Probability of Success. (i) The knowledge, experience, education 
and training of the proposed owners and management of the project--up to 
10 points.
    (ii) The ultimate recipient's business plan and indications that the 
project will successfully result in economic development in rural areas 
and/or job creation--up to 40 points. The Administrator's evaluation of 
the success of the project will be based on indications in the 
application and RUS's analysis that the project will be a viable 
business or operation, be successful in creating or retaining long-term 
jobs, and be successful in producing economic development that will 
result in long-term benefits to rural areas. The plan should include:
    (A) A description of the project;
    (B) A description of the business, if applicable, its products and 
the prospects of the industry;
    (C) What will be produced or accomplished;
    (D) The area to be served;
    (E) Any market research or marketing plan;
    (F) Any operating plan;
    (G) Total project costs and projected use of funds by purpose or 
category;
    (H) A financial plan, including a feasibility study with projected 
balance sheets, income statements and cash flow statements;
    (I) The source of supplemental funds, the nature and strength of 
commitments from other sources of financing, and the equity 
contribution;
    (J) The proposed ownership and management of the project;
    (K) A description of any coordination with a local, regional or 
state development organization; and
    (L) Other relevant information.
    (iii) The Administrator expects the ultimate recipient's business 
plan referenced in paragraph (g)(6)(ii) of this section to be comparable 
to a plan normally submitted to a bank for long-term financing. In 
evaluating an application for this selection factor, the Administrator 
will consider the probability that the project will result in long-term 
economic development in rural areas and/or job creation as envisioned in 
the application.
    (iv) Quality and completeness of borrower's initial application 
submitted to RUS--up to 10 points. The Administrator's determination 
will be based on the completeness and quality of the application as 
measured by the additional information required from the borrower to 
complete the analysis. For a pass-through loan and grant, the quality of 
the Borrower's plan to monitor the loan and grant and assure that the 
requirements of this subpart and 7 CFR parts 3015 and 3016 are met will 
also be considered.
    (7) Special economic status. The Administrator has the discretion to 
designate special economic status (up to 25 points) to applications 
submitted by borrowers that have documented one or more of the following 
four conditions in one or more county(ies) to be served by the proposed 
project:
    (i) A designation of disaster area by the President of the United 
States which has been so designated within three years prior to applying 
to RUS;
    (ii) The loss, removal, or closing of a major source or sources of 
employment in the last 3 years which causes an increase of 2 percentage 
points or more in the area's most recent unemployment rate compared with 
the period immediately before the dislocation;
    (iii) Chronic or long-term economic deterioration, documented by one 
or both of the following conditions:
    (A) An unemployment level equal to or greater than 1.5 times the 
National average unemployment percentage from 4 out of the last 5 years, 
starting with the most current statistics available. The applicant, when 
calculating recent years' unemployment percentages, should compare 
county statistics with the National Average unemployment for the 
corresponding year. Statistics on unemployment will be based on figures 
provided by the U.S. Bureau of Labor Statistics. However, the 
Administrator may, at his discretion, also

[[Page 113]]

consider verifiable, published State statistical data provided by the 
applicant in situations where county-wide statistical data is not 
representative of local conditions. Such statistical data must be part 
of a recognized database which reflects information for other areas 
within the State;
    (B) A 15% loss of population due to out-migration over the most 
recent 10-year decennial census, based on the U.S. Bureau of the Census 
decennial data;
    (iv) A designation as a Rural Empowerment Zone or Rural Enterprise 
Community by the Empowerment Zone Program authorized by Section 13301 of 
the Omnibus Reconciliation Act of 1993, Public Law 103-66 (107 Stat. 
312), 26 U.S.C. 1391-1393.
    (h) Outline of selection factors. The selection factors contained in 
Secs. 1703.46(f) and 1703.46(g) and the maximum number of points that 
may be assigned to each is listed below:
    (1) Nature of the project--50 points;
    (2) Job creation project--25 points;
    (3) Long-term improvements in economic development--25 points;
    (4) Diversifying the rural economy or alleviating underemployment--
10 points;
    (5) Supplemental funds--30 points;
    (6) Economic conditions and job creation:
    (i) Unemployment rates--18 points;
    (ii) Per capita personal income--18 points;
    (iii) Change in population--8 points;
    (iv) Number of long-term jobs--15 points;
    (v) Community-based economic development program--10 points;
    (vi) Plan for improving the marketable skills of people in rural 
areas--5 points;
    (7) Location--20 points;
    (8) Support for program--cushion of credit payments--15 points;
    (9) Demonstration project--5 points;
    (10) Probability of success:
    (i) Owners and management of the project--10 points;
    (ii) Ultimate recipient's business plan--40 points; and
    (iii) Completeness of borrower's initial application--10 points;
    (11) Special economic status--25 points.
    (i) Regardless of the number of points assigned to a borrower's 
application, the Administrator may:
    (1) Limit the number of applications selected in any one state 
during any fiscal year to the ratio of borrowers in that state to the 
total number of borrowers multiplied by three, or ten percent of the 
total number selections that have been made during the current fiscal 
year, or ten, whichever is greatest. The number of borrowers will be 
determined as of the latest published RUS statistical reports 
(Statistical Report, Rural Electric Borrowers, RUS Informational 
Publication 201-1 and Statistical Report, Rural Telephone Borrowers, RUS 
Informational Publication 300-4. These publications are available from 
the Rural Utilities Service, Administrative Services Division, 
Washington, DC 20250);
    (2) Limit a borrower to one selected application during any 
selection period;
    (3) Limit the number of applications selected for a particular 
project;
    (4) Allocate available funds between applications from electric and 
telephone borrowers;
    (5) Select an application receiving fewer points than another 
application if there are insufficient funds during a particular budget 
period to select the higher ranked application; except that the 
Administrator may ask the borrower that submitted the higher ranked 
application if it desires to reduce the amount of its application to the 
amount of funds available. The reduction may require additional 
supplemental funds to ensure a successful project. Based on information 
the borrower provides, the Administrator will re-analyze the project to 
ensure that the project will still be feasible with reduced funding; or
    (6) Select the highest ranking applications for funds to finance 
projects that the Administrator classifies as project feasibility 
studies.
    (j) During each selection period, the highest ranking application 
from among the applications requesting less than 5 percent of the total 
project costs as provided in Sec. 1703.25 will be considered with the 
applications requesting 5 percent or more of total project costs.
    (k) The Administrator reserves the right to use the region or data 
it considers most appropriate if ``county''

[[Page 114]]

data are unavailable for a particular area.

[57 FR 44317, Sept. 25, 1992, as amended at 59 FR 11711, Mar. 14, 1994; 
59 FR 38341, July 28, 1994; 59 FR 53931, Oct. 27, 1994]
Secs. 1703.47--1703.57  [Reserved]



Sec. 1703.58  Post selection period.

    (a) RUS will inform a borrower whether the Administrator has 
selected its application. The advance of RUS funds after the selection 
has occurred is contingent upon the borrower meeting any terms and 
conditions the Administrator determines are necessary. A borrower that 
submitted an application which was not selected will be asked to inform 
RUS whether it desires to be reconsidered at a later date. The borrower 
may modify the application after it has been considered without 
resubmitting all the required material in an application, except if it 
changes the request from a grant to a zero-interest loan it must submit 
information necessary for the Administrator to evaluate a loan proposal 
as set forth in Secs. 1703.35 and 1703.36 and submit a new board 
resolution requesting a loan. If the borrower so desires, the 
Administrator will consider an application for up to one year after the 
date RUS originally received the application. A borrower may submit new 
applications as often as it desires.
    (b) During the period between the selection of the application and 
the execution of RUS's legal documents, the borrower must inform the 
Administrator if the project is no longer viable or the borrower no 
longer desires a zero-interest loan or grant for the project. Upon a 
determination by the Administrator to that effect, the selected 
application will be considered cancelled.
    (c) If an application has been selected and the nature of the 
project changes, as determined by the Administrator, the borrower may be 
required to submit a new application to RUS for consideration. The 
selection may not be transferred to another project, as determined by 
the Administrator. At any time after the selection of an application, 
the Administrator may, upon a request from the borrower and receipt of 
any documentation the Administrator considers necessary, approve changes 
in the method of carrying out the purpose of the project as long as the 
overall purpose of the project remains the same, revise the amount of 
the zero-interest loan and/or grant, revise the loan maturity date and 
principal deferment period and make other adjustments. The Administrator 
may reduce the amount of the RUS loan or grant to reflect reductions in 
the amount of supplemental funds to be provided to the project. For 
substantial reductions in amount of supplemental funds to be provided to 
the project, the Administrator may require the borrower to re-apply for 
the RUS loan or grant funds.
    (d) If state or local governments raise objections to a proposed 
project under the intergovernmental review process that are not resolved 
within three months of the Administrator's selection of the application, 
the Administrator may consider the selection of the application 
cancelled.



Sec. 1703.59  Final application processing and legal documents.

    (a) After a borrower has submitted all information the Administrator 
determines is necessary for the selected application, RUS will send the 
necessary legal documents to the borrower to execute and return to RUS. 
The legal documents will include a letter of agreement and any legal 
documents the Administrator deems appropriate, including any loan 
agreements, notes, security instruments, certifications or legal 
opinions. The letter of agreement will, among other things, constitute 
the Administrator's approval of funds for the project subject to certain 
terms and conditions as determined by the Administrator, and include a 
project description, approved purposes of the zero-interest loan and/or 
grant, the maximum amount of zero-interest loan and/or grant, 
supplemental funds to be provided to the project and certain agreements 
or commitments the borrower proposed in its application.
    (b) The Administrator has the discretion to include as an approved 
purpose the reimbursement of short-term financing and expenditures that 
were used for costs incurred on the project in accordance with 
Sec. 1703.20(a)(2).

[[Page 115]]

    (c) If the borrower fails to submit within one month from the date 
of the Administrator's selection of an application all of the 
information that the Administrator determines to be necessary for RUS to 
prepare legal documents, the Administrator may consider the selection of 
the application cancelled.
Sec. 1703.60  [Reserved]



Sec. 1703.61  Disbursement of zero-interest loan and grant funds.

    (a) RUS will disburse zero-interest loan funds to the borrower which 
must disburse zero-interest loan proceeds to the project for approved 
purposes in accordance with the legal documents executed by the 
Administrator and the borrower and applicable RUS regulations. The 
borrower must make payments on a zero-interest loan as set forth in the 
legal documents executed by the Administrator and the borrower. The 
Borrower or project owner's share in the cost of the project must be 
utilized in advance of RUS zero-interest loan funds, or upon RUS 
approval, on a pro-rata distribution basis with loan funds during the 
disbursement period. The Borrower or project owner will not be permitted 
to provide its contribution at the end of the loan disbursement period.
    (b) RUS will disburse grant funds to the borrower which must 
disburse grant proceeds to the project for approved purposes in 
accordance with the provisions of 7 CFR part 3015 and 7 CFR part 3016, 
as appropriate, the legal documents executed by the Administrator and 
the borrower, and applicable RUS regulations. Prior to the disbursement 
of grant funds under this subpart, the Borrower will provide evidence of 
fidelity bond coverage as required by 7 CFR 3015.17. The grant portion 
of a pass-through zero-interest loan and grant will be disbursed to the 
Borrower on a reimbursement basis after all other project funds have 
been utilized and evidence is provided that the project has been 
completed. Grants to Borrowers for establishment of revolving loan funds 
will be disbursed in accordance with Sec. 1703.22 of this subpart.
    (c) If the borrower fails to satisfy all conditions, requirements, 
and terms prerequisite to the advance of zero-interest loan and/or grant 
funds as set forth in the letter of agreement or other RUS legal 
documents within 120 days from the date the borrower signs the letter of 
agreement agreeing and accepting the conditions, requirements, and terms 
of the RUS zero-interest loan and/or grant, or such later date as the 
Administrator may approve, the Administrator may rescind the zero-
interest loan and/or grant commitment.
    (d) During the period between the execution of RUS's legal documents 
and the disbursement of funds, the borrower must provide the 
Administrator written notification if the project is no longer viable or 
the borrower no longer desires a zero-interest loan or grant for the 
project. After RUS has received the borrower's notification, the 
Administrator will rescind the commitment.
    (e) The borrower must return to RUS all proceeds of the zero-
interest loan and/or grant, including any interest earned on the funds 
being returned, which have not been lent or disbursed by the borrower 
for approved purposes during the six months following the advance of the 
loan or grant funds from RUS to the borrower, or such later date as the 
Administrator may approve. If the project is under the control of the 
borrower, all proceeds of the zero-interest loan and/or grant must be 
returned to RUS, including any interest earned on the funds being 
returned, which have not been expended by the borrower for approved 
purposes before the first anniversary of the date of the advance of the 
loan or grant funds from RUS to the borrower, or such later date as the 
Administrator may approve. Authorization of any extension rests solely 
within the discretion of the Administrator.

[57 FR 44317, Sept. 25, 1992, as amended at 59 FR 11712, Mar. 14, 1994]
Secs. 1703.62--1703.65  [Reserved]



Sec. 1703.66  Review and other requirements.

    (a) RUS will review borrowers receiving zero-interest loans or 
grants, as necessary, to ensure that funds are expended for approved 
purposes. Borrowers receiving zero-interest loans or

[[Page 116]]

grants must monitor the project to the extent necessary to ensure that 
the project is in compliance with all applicable regulations, including 
ensuring that funds are expended for approved purposes. The borrower is 
responsible for ensuring that disbursements and expenditures of funds 
are properly supported with certifications, invoices, contracts, bills 
of sale, 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 or this rural economic 
development program. Borrowers will be required to permit RUS to inspect 
and copy its records and documents that pertain to the project.
    (b) The Borrower must require the recipient of a pass-through loan 
and grant to provide an itemized list to the Borrower that shows the 
expenditures made on the project for approved purposes, including a 
certification to that effect. The Borrower will also require the 
recipient to attach invoices, receipts, bills of sale, and other 
evidence representing the items on the list of expenditures that at 
least total the amount of the RUS zero-interest loan and grant. In 
addition, the Borrower will also require the recipient to furnish a 
record of itemized receipts showing total project costs in such detail 
that will permit auditors to establish the RUS funding percentage. RUS's 
legal agreements will include the terms and conditions that the Borrower 
must require in its agreement with the recipient of a pass-through loan 
and grant covering the use and intended schedule of expenditures of the 
loan funds.
    (c) RUS's legal documents may require the borrower to include in its 
legal documents with the recipient of a pass-through loan or a pass-
through-grant the requirement to expend the funds for approved purposes 
by a certain date specified in RUS's legal documents or return to the 
borrower all funds that have not been expended by such date. The 
borrower must promptly return to RUS all unexpended funds that the 
recipient returns to the borrower under the terms set forth in the legal 
documents executed between the Administrator and the borrower. The 
borrower may request an extension due to delays in the project. 
Authorization of any extension rests solely within the discretion of the 
Administrator.
    (d) The legal documents executed between the Borrower and the 
Administrator in connection with a zero-interest loan and/or grant must 
contain certain provisions giving the Administrator discretionary rights 
and remedies in the event a Borrower fails to comply with this subpart, 
other Federal regulations and statutes, or the terms, conditions and 
requirements of the executed legal documents. Regardless of any right or 
remedy the Administrator chooses to assert, if the Borrower uses any 
zero-interest loan and/or grant funds other than for approved purposes, 
the Borrower will be required to return to RUS the amount used for 
unapproved purposes. An unauthorized zero-interest loan amount which is 
returned will be considered a prepayment on the RUS note.
    (e) Borrowers receiving zero-interest loans and/or grants will be 
subject to a rural economic development review of zero-interest loan and 
grant funds.
    (f) The borrower must promptly notify the Administrator in writing 
if another entity is in default on a pass-through-loan between the 
borrower and the entity.
    (g) Grants provided under this program will be administered in 
accordance with 7 CFR part 3015 and 7 CFR part 3016, as appropriate. 
Copies of these USDA Uniform Assistance regulations can be obtained by 
contacting RUS in Washington, DC. A Borrower that receives a grant for 
the establishment of a revolving loan fund, or project owner that 
receives a pass-through loan and grant, will be subject to requirements 
under these regulations which cover, among other things, financial 
reporting, accounting records, budget controls, record retention and 
audit requirements. For pass-through loans and grants, RUS Borrowers 
will be required to include in their legal documents the requirement for

[[Page 117]]

project owners to provide sufficient financial, accounting and budget 
information and other records deemed necessary to facilitate audits in 
accordance with 7 CFR part 3015 and 7 CFR part 3016 for non-profit 
entities, and RUS rural economic development loan reviews for projects 
in a for-profit status.
    (h) For pass-through loans and grants awarded under this subpart, 
the Borrower must 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. The 
Borrower must submit an original and one copy of each report to RUS on 
an annual basis. The project performance reports shall include, but not 
be limited to, the following:
    (1) A comparison of actual accomplishments to the objectives 
established for that period;
    (2) Reasons why any established objectives were not met;
    (3) 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 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
    (4) Objectives and timetable established for the next reporting 
period.
    (i) For pass-through loans and grants, a final project performance 
report will be required with the last SF 269, ``Financial Status 
Report,'' available from RUS in Washington, DC. The final report also 
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.
    (j) Monitoring requirements for Borrowers receiving grants for 
revolving loan funds are specified in Sec. 1703.22.

[57 FR 44317, Sept. 25, 1992, as amended at 59 FR 11712, Mar. 14, 1994]



Sec. 1703.67  Changes in project objective or scope.

    For loans and grants awarded under this subpart, the Borrower must 
obtain prior approval for any material change to the scope or objectives 
of the approved project, including changes to the scope of work or 
budget. Failure to obtain prior approval of changes can result in 
suspension or termination of grant funds.

[59 FR 11712, Mar. 14, 1994]



Sec. 1703.68  Loan and grant termination provisions.

    (a) Termination for cause. The Administrator may terminate any loan 
and/or grant in whole, or in part, at any time before the date of 
completion of loan and/or grant disbursement, whenever the Borrower has 
failed to comply with the conditions of the loan and/or grant. The 
Administrator will promptly notify the Borrower in writing of the 
determination and the reasons for the termination, together with the 
effective date. The termination date will be no less than 30 days 
following receipt of the termination notice. The Borrower will have such 
time to cure the default, or to state why it feels the loan and/or grant 
should not be terminated. The Administrator will stay the termination 
upon the curing of the default, and may delay termination if, sufficient 
cause has been given by the Borrower.
    (b) Termination for convenience. The Administrator or the Borrower 
may terminate a loan and/or grant in whole, or in part, when both 
parties agree that the continuation of the project would not produce 
beneficial results commensurate with further expenditure of funds. The 
two parties will agree upon termination conditions, including the 
effective date, and in the case of partial terminations, the portion to 
be terminated. The Borrower will not incur new obligations for the 
terminated portion after the effective date, and will cancel as many 
outstanding obligations as possible. The Administrator will allow full 
credit to the Borrower for the Federal share of unfulfilled contractual 
obligations which were incurred in good faith by

[[Page 118]]

the Borrower prior to grant termination.

[59 FR 11712, Mar. 14, 1994]
Secs. 1703.69--1703.79  [Reserved]



         Subpart C--Rural Business Incubator Program  [Reserved]

Secs. 1703.80--1703.99  [Reserved]



       Subpart D--Distance Learning and Telemedicine Grant Program

    Source: 61 FR 33626, June 27, 1996, unless otherwise noted.



Sec. 1703.100  Purpose.

    The grants provided under this subpart D are to encourage, improve, 
and make affordable the use of advanced telecommunications, computer 
networks, and related advanced technologies to provide educational and 
medical benefits through distance learning and telemedicine projects to 
people living in rural areas and to improve rural opportunities.



Sec. 1703.101   Policy.

    (a) RUS recognizes that the transmission of communications and 
information is a vital component of the infrastructure of rural areas 
and is necessary to promote rural development. Enhancing communication 
and information transmission by making affordable advanced 
telecommunications, computer networks, and related advanced technologies 
more widely available in rural areas will improve rural opportunities, 
promote rural economic growth, and enhance the quality of life of rural 
residents. To further this objective, RUS will award grants under this 
subpart to distance learning and telemedicine projects that will improve 
the access of people residing in rural areas to improved educational, 
training, and medical services, and to opportunities that rely on 
advanced communication and information technologies to provide such 
services.
    (b) In providing assistance under this subpart, RUS will give 
priority to rural areas that it believes have the greatest need of 
enhanced communications. RUS believes that generally the need is 
greatest: in the most sparsely populated rural areas; and in rural areas 
that are experiencing economic hardship. RUS will take into 
consideration the community's involvement in the project and the 
applicant's ability to leverage grant funds based on its access to 
capital.
    (c) RUS believes that the residents of rural areas and their local 
institutions which service them can best determine what are the most 
appropriate communications or information systems for use in their 
respective communities. Therefore, in administering this subpart, RUS 
will not favor or mandate the use of one particular technology over 
another. RUS does believe that it is generally desirable to use 
technology that would incidentally allow other providers or developers 
to purchase the elemental functions or access so other users, in 
addition to educational and medical users, may benefit from any 
transmission facilities receiving funding under this subpart. In 
addition, RUS believes it is generally desirable for the project to use 
products and technologies that are considered open systems. Further, RUS 
believes that it is desirable to use products and technologies that 
employ or adhere to nationally recognized standards that will permit 
equipment from various companies to be connected to the system, and 
permit the system to be connected to other systems or networks.
    (d) Applicants, if they are to be successful in obtaining grant 
funds must:
    (1) Explain the problem that the applicant is intending to solve 
using grant funds;
    (2) Explain how the applicant will use the grant as well as other 
funds to solve the problem and why this is the best solution;
    (3) Explain why RUS grant funds are needed for the project to be 
successful;
    (4) Explain how the grant will be leveraged using funds from the 
applicant, and local and non-Federal sources;
    (5) Show that rural areas are the primary beneficiaries; and,
    (6) Show that the project will be sustainable without additional 
grant funds.
    (e) RUS electric and telecommunications borrowers are encouraged to

[[Page 119]]

cooperate with each other and with applicants and end users in promoting 
the program being implemented under this subpart.
    (f) RUS staff will make diligent efforts to inform potential 
applicants in rural areas of the program being implemented under this 
subpart.
    (g) The applicant must check with the Rural Development State 
Director, U.S. Department of Agriculture, before submitting the 
application to RUS in order to explore any funding sources that may be 
available at the state or local level. Evidence of this consultation is 
a requirement of the grant application.



Sec. 1703.102   Definitions.

    Act means Title XXIII, subtitle D, chapter 1, of the Rural Economic 
Development Act of 1990 (7 U.S.C. 950aaa through 950aaa-4).
    Administrator means the Administrator of the Rural Utilities Service 
or his or her designee.
    Applicant means an eligible organization which applies for a grant 
under this subpart.
    Approved purpose means a purpose that RUS has specifically approved 
in the letter of agreement and scope of work covering the use of RUS 
grant funds provided to the grantee.
    Borrower means any organization which has an outstanding loan made 
by RUS or RTB, or guaranteed by RUS, or which is seeking such financing.
    Communication satellite ground station complex means transmitters, 
receivers, and communications antennas at the earth station site 
together with the interconnecting terrestrial transmission facilities 
(cables, line, or microwave facilities) and modulating and demodulating 
equipment necessary for processing traffic received from the terrestrial 
distribution system prior to transmission via satellite and the traffic 
received from the satellite prior to transfer to terrestrial 
distribution systems.
    Comprehensive rural telecommunications plan means the plan submitted 
by an applicant in accordance with Sec. 1703.107(a).
    Computer networks means computer hardware and software, terminals, 
signal conversion equipment including both modulators and demodulators, 
or related devices, used to communicate with other computers to process 
and exchange data through a telecommunication network in which signals 
are generated, modified, or prepared for transmission, or received, via 
telecommunications terminal equipment and telecommunications 
transmission facilities.
    Consortium means a combination or group of eligible entities formed 
to undertake the purpose of which the distance learning and telemedicine 
grant is provided. Each consortium shall be composed of the following:
    (1) A tertiary care facility, rural referral center, medical 
teaching institution, or educational institution accredited by the 
State;
    (2) Any number of institutions that provide health care services or 
educational services; and,
    (3) Not less than three rural hospitals, clinics, community health 
centers, migrant health centers, local health departments, or similar 
facilities, or not less than three educational institutions accredited 
by the State.
    Construct means to construct, acquire, install, improve, or extend a 
facility or system.
    Data terminal equipment means equipment that converts user 
information into data signals for transmission, or reconverts the 
received data signals into user information, and is normally found on 
the terminal of a circuit and on the premises of the end user.
    Distance learning means a telecommunications link to an end user 
through the use of eligible equipment to:
    (1) Provide educational programs, instruction, or information 
originating in nonrural areas to students and teachers who are located 
in rural areas; or
    (2) Connect teachers and/or students, located in one rural area with 
teachers and/or students that are located in a different rural area.
    Eligible equipment means a communication satellite ground station 
complex, computer networks, data terminal equipment, fiber-optic cable, 
interactive video equipment, microwave transmission equipment, 
telecommunications transmission facilities, and

[[Page 120]]

telecommunications terminal equipment.
    Eligible organization means an incorporated entity that meets the 
requirements of Sec. 1703.103.
    End user means either or both of the following:
    (1) Rural elementary or secondary schools or other educational 
institutions, such as institutions of higher education, county extension 
services, vocational and adult training and education centers, and 
teacher training centers, and students, teachers and instructors using 
such rural educational facilities, that participate in a rural distance 
learning telecommunications program through a project funded under this 
subpart;
    (2) Rural hospitals, primary care centers or facilities, such as 
medical centers and clinics, and physicians and staff using such rural 
medical facilities, that participate in a telemedicine 
telecommunications program through a project funded under this subpart.
    End user site means a facility located in a rural area that is part 
of a network or telecommunications system that is utilized by end users.
    ERS means the Economic Research Service, an agency of the United 
States Department of Agriculture.
    Grantee means a recipient of a grant from RUS to carry out the 
purposes of this subpart.
    Hub means originating source of a network or telecommunications 
system.
    Instructional programming means educational programming, including 
computer software, which would be used for tutorial purposes in 
connection with eligible equipment.
    Interactive video equipment means equipment used to produce and 
prepare for transmission audio and visual signals from at least two 
distant locations such that individuals at such locations can verbally 
and visually communicate with each other. Such equipment includes 
monitors, other display devices, cameras or other recording devices, 
audio pickup devices, and other related equipment.
    Letter of agreement means a legal document executed by RUS and the 
grantee that contains specific terms, conditions, requirements, and 
understandings applicable to a particular grant.
    Local exchange carrier means a commercial, cooperative or mutual-
type association, or public body that provides telecommunications 
service, through a local central switching office, to the subscribers 
within its designated service area, and between the local subscribers 
and the toll network.
    Project means an undertaking to provide or improve distance learning 
or telemedicine by using financial assistance from RUS under this 
subpart.
    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.
    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 
telecommunications loan programs.
    Rural means any area of the country that meets the determining 
criteria in Sec. 1703.109.
    Rural community facilities means facilities such as schools, 
libraries, hospitals, medical centers, or similar facilities, located in 
rural areas, or primarily used by residents of rural areas, that will 
use a telecommunications, computer network, or related advanced 
technology system to provide educational and/or medical benefits 
primarily to residents of rural areas.
    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 (Public Law 103-354, 108 Stat. 3178), 
successor to REA with respect to administering certain electric and 
telecommunications programs. See 7 CFR 1700.1.
    Scope of work means a detailed plan of work that has been approved 
by the Administrator and that will be performed by the applicant using 
funds provided under the grant.
    Secretary means the Secretary of Agriculture.

[[Page 121]]

    Technical assistance means
    (1) Assistance in learning to operate equipment or systems; and
    (2) Studies, analyses, designs, reports, manuals, guides, 
literature, or other forms of creating, acquiring, and/or disseminating 
information.
    Telecommunications terminal equipment means the assembly of 
telecommunications equipment at the end of a circuit or path of a 
signal, including but not limited to over the air broadcast, satellite, 
and microwave, normally located on the premises of the end user, that 
interfaces with telecommunications transmission facilities, and that is 
used to modify, convert, encode, or otherwise prepare signals to be 
transmitted via such telecommunications facilities, or that is used to 
modify, reconvert, or carry signals received from such facilities, the 
purpose of which is to accomplish the goal for which the circuit or 
signal was established.
    Telecommunications transmission facilities means facilities that 
transmit, receive, or carry data between the telecommunications terminal 
equipment at each end of the telecommunications circuit or path. Such 
facilities include microwave antennae, relay stations and towers, other 
telecommunications antennae, fiber-optic cables and repeaters, coaxial 
cables, communication satellite ground station complexes, copper cable 
electronic equipment associated with telecommunications transmissions, 
and similar items.
    Telemedicine means a telecommunications link to an end user through 
the use of eligible equipment which electronically links medical 
professionals at separate sites in order to exchange medical information 
in audio, video, graphic, or other format for the purpose of providing 
improved health care services primarily to residents of rural areas.



Sec. 1703.103  Applicant eligibility.

    (a) To be eligible to receive a grant under this subpart, the 
applicant must be organized in one of the following corporate 
structures:
    (1) An incorporated organization, partnership, Indian tribes and 
tribal organizations as defined in 25 U.S.C. 450b (b) and (c), or other 
legal entity which operates, or will operate, a school, college, 
vocational training facility, or other educational institution, 
including a regional educational laboratory, library, hospital, medical 
center, medical clinic or other rural community facility. A state 
government, other than a state government entity that operates a rural 
community facility, is not considered an eligible applicant. The 
applicant may be a private or municipal corporation organized on a for-
profit or not-for-profit basis, or
    (2) A consortium, as defined in Sec. 1703.102. A consortium which 
includes a state government entity is only eligible if the state 
government entity operates a rural community facility.
    (3) An incorporated organization, partnership, or other legal entity 
which is providing or proposes to provide telemedicine service or 
distance learning service to other legal entities or consortia at rates 
calculated to ensure that the economic value and other benefits of the 
distance learning or telemedicine grant is passed through to such other 
legal entities or consortia.
    (b) At least one of the entities of a partnership or consortium must 
be eligible individually, and the partnership or consortium must provide 
written evidence of its legal capacity to contract with RUS. If a 
partnership or consortium lacks the capacity to contract, each 
individual entity must contract with RUS on its own behalf.



Sec. 1703.104  Allowable grant funding percentage, grant purposes, and in-kind matching provisions.

    (a) Grants may be used by eligible organizations for distance 
learning and telemedicine projects to finance up to 70 percent of the 
cost of allowable grant purposes outlined in paragraph (b) of this 
section. The applicant will, therefore, provide matching funding in an 
amount no less than 42.85 percent of the RUS grant. (If the grant covers 
70 percent of total project costs, the applicant provides the other 30 
percent of the project costs. Thirty percent of the project costs is 
42.85 percent of the 70 percent, i.e., the minimum amount of the match.)
    (b) Grants for purposes outlined in paragraphs (b)(2) through (b)(6) 
of this

[[Page 122]]

section shall be limited to costs associated with initial capital 
expenses for establishing the project. The following are allowable grant 
purposes:
    (1) Acquiring, by lease or purchase, eligible equipment as defined 
in Sec. 1703.102;
    (2) Acquiring, by lease or purchase, software to operate eligible 
equipment, including any related software;
    (3) Acquiring or developing instructional programming;
    (4) Providing technical assistance and instruction for using 
eligible equipment, including any related software;
    (5) Engineering or environmental studies relating to the 
establishment or expansion of the phase of the project that is being 
financed with the RUS grant; and
    (6) Facilities, equipment, or activities and non-recurring service 
charges that are described in a comprehensive rural telecommunications 
plan which has been approved by the Administrator.
    (c) In kind matching--the applicant's minimum 30 percent funding 
contribution for allowable grant purposes, i.e., 42.85 percent matching 
of the RUS grant, generally is required in the form of cash. However, 
certain in-kind contributions may be substituted for cash as follows:
    (1) Equipment, activities and facilities as set forth in 
Sec. 1703.104(b);
    (2) Improvements made to real property necessary to accommodate 
eligible equipment;
    (3) Facilities constructed to accommodate eligible equipment, such 
as buildings in which terminal equipment and/or transmission facilities 
would be located;
    (4) Real property purchased or acquired for the sole purpose of 
accommodating distance learning and telemedicine facilities; or
    (5) The present value of long term leases of eligible equipment, 
with duration according to recognized industry standards and compatible 
with the type of equipment leased.
    (d) In kind items furnished in paragraph (c)(1) of this section must 
be non-depreciated or new assets with established monetary value by 
industry standards. The value of improvements or construction in 
paragraphs (c)(2) and (c)(3) of this section must be established by a 
qualified independent real property appraiser based on the actual cost 
of those improvements. The value of land in paragraph (c)(4) of this 
section must be established by a qualified independent real property 
appraiser based on a market value appraisal.
    (e) In kind contributions can be an integral component of an 
approved comprehensive rural telecommunications plan as set forth in 
Sec. 1703.107(a).
    (f) In kind contributions shall not consist of eligible equipment 
which has been subject to depreciation (used equipment), or for 
equipment, services and labor not eligible for grant funding as set 
forth in Sec. 1703.105.
    (g) Funding may be provided for end user sites. Funding may also be 
provided for hubs located in rural and non-rural areas, if they are 
necessary to provide distance learning and/or telemedicine services to 
rural residents at end user sites. However, funding will not be provided 
for sites proposed as hubs if it is not demonstrated that they are an 
integral part of the proposed network and are necessary to transmit 
distance learning and/or telemedicine services to end users.

[61 FR 33626, June 27, 1996; 61 FR 37961, July 22, 1996]



Sec. 1703.105  Ineligible grant purposes.

    (a) Grants must not be used;
    (1) To fund more than 70 percent of the eligible costs of a project 
under this subpart;
    (2) To cover the costs of installing or constructing 
telecommunications transmission facilities, except as provided in 
paragraph (c) of this section;
    (3) To pay for medical equipment except medical equipment primarily 
used for encoding and decoding data, such as images, for transmission 
over a telecommunications or computer network;
    (4) To pay salaries, wages, or employee benefits to medical or 
educational personnel;
    (5) To pay for the salaries or administrative expenses of the 
applicant;
    (6) To purchase equipment that will be owned by the local exchange 
carrier or another telecommunications service provider;

[[Page 123]]

    (7) To duplicate services in place on the date the completed 
application is received by RUS, or to reimburse the applicant or others 
for costs incurred prior to RUS's receipt of the completed application;
    (8) To pay costs of preparing the application package for funding 
under this program;
    (9) To refinance indebtedness incurred prior to receipt of the 
completed application by RUS;
    (10) For projects whose sole objective is to provide links between 
teachers and students or medical professionals who are located at the 
same facility;
    (11) For site development, the destruction or alteration of 
buildings, or other activities that might adversely affect the 
environment or limit the choice of reasonable alternatives unless and 
until the requirements of Sec. 1703.107(j) have been satisfied;
    (12) For projects located in areas covered by the Coastal Barrier 
Resources Act (16 U.S.C. 3501 et seq.); or
    (13) For any purpose that the Administrator has not specifically 
approved.
    (b) Except as otherwise provided in Sec. 1703.140, funds shall not 
be used to finance a project in part when success of the project is 
dependent upon the receipt of additional funding under this subpart D or 
is dependent upon the receipt of other funding that is not assured.
    (c) Grants must not be used to cover the costs of telecommunications 
transmission facilities if the local exchange carrier for the project 
area will install such facilities through the use of the expedited 
telecommunications loans made under the RE Act or through other 
financing procedures within a reasonable time period and at a cost that 
does not destroy the feasibility of the project, as determined by the 
Administrator.
    (d) Except for leases provided in Sec. 1703.104(b) (1) and (2), 
grants must not be used to pay the cost of recurring or operating 
expenses for the project.

[61 FR 33626, June 27, 1996; 61 FR 37961, July 22, 1996]



Sec. 1703.106   Maximum and minimum sizes of a grant.

    Applications for grants to be considered under this subpart will be 
subject to limitations on the proposed amount of funding. The maximum 
grant amount that will be awarded for any one project in any given 
fiscal year will not exceed 10 percent of the appropriated funds 
available for all grants during the fiscal year in which the application 
for such project is selected. The Administrator may publish notice of 
the annual maximum grant amount in the Federal Register. An applicant 
submitting an application which exceeds the maximum will be notified to 
that effect by RUS and given the opportunity to revise the application. 
The minimum size of a grant is $50,000.



Sec. 1703.107   The grant application.

    The following items comprise the required material that must be 
submitted to RUS in support of the grant request:
    (a) Comprehensive Rural Telecommunications Plan. A Comprehensive 
Rural Telecommunications Plan, consisting of the following is required 
only when the applicant is requesting grant funds for telecommunications 
transmission facilities:
    (1) A detailed explanation of the proposed rural telecommunications 
system, how such system is to be funded, and a description of the 
intended uses for a grant received under this subpart.
    (2) 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

[[Page 124]]

for operating and maintaining the network, and include evidence that 
alternative delivery methods and systems were evaluated.
    (3) 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.
    (4) 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 the 
grant funds.
    (5) An explanation of the special financial or other needs of the 
affected rural communities and of the applicant for such grant 
assistance.
    (6) An analysis of the relative costs and benefits of proposals for 
leasing or purchasing of facilities, equipment, components, hardware and 
software, or other items.
    (7) A description of the consultations with the appropriate local 
exchange carrier or carriers and with a wide variety of additional 
telecommunications service providers (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.
    (b) Proposed scope of work of the project. The proposed scope of 
work of the project which includes, 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;
    (4) A budget for capital expenditures reflecting the line item costs 
for both the grant funds and other sources of funds for the project;
    (5) Information indicating the ability of the applicant to reduce 
the size or scope of the project in the event RUS funding, or other 
projected sources of funding, were reduced or delayed. The applicant 
must indicate the respective components of the project that would 
receive the highest priority of funding; and
    (6) Information about the potential of the proposed network to 
expand its size or scope if additional funding was available.
    (c) Executive summary for the project. The applicant must provide 
RUS a general project overview, verification of compliance with the 
general requirements of this subpart, and documentation of eligibility. 
The executive summary should not exceed eight one-sided double spaced 
pages, size 8.5'' x 11'', with a minimum font size of 12 points. The 
executive summary shall contain the following 10 categories:
    (1) A description of the applicant, documenting eligibility with 
Sec. 1703.103.
    (2) An explanation of:
    (i) The problem the applicant is intending to solve;
    (ii) How the applicant will use the grant funds to solve the 
problem;
    (iii) The amount of RUS grant funds required and why such grant 
funds are needed; and
    (iv) How the RUS grant funds will be leveraged, including both 
amount and source of these additional funds.
    (3) A brief economic and demographic description of the proposed 
service area, the types of educational and/or medical services to be 
offered by the project, and the benefits to the rural residents.
    (4) A physical description of the project service area. The 
applicant should include information regarding topography and available 
transportation and telecommunications infrastructure.

[[Page 125]]

    (5) A description of the project as distance learning or 
telemedicine facility as defined in Sec. 1703.102. If the project 
provides both distance learning and telemedicine services, the applicant 
must identify the predominant use of the system.
    (6) A list of expected outcomes, benefits or services to be provided 
by the project. Some examples include, but are not limited to:
    (i) Improved education opportunities for a specified number of 
students;
    (ii) Travel time and money saved by telemedicine diagnosis;
    (iii) Number of doctors retained in rural areas;
    (iv) Number of additional students electing to attend higher 
education institutions,
    (v) Lives saved due to prompt medical diagnosis and treatment;
    (vi) New education courses offered, including college level courses; 
and
    (vii) Expanded use of educational facilities such as night training.
    (7) A general overview of the telecommunications system to be 
developed, including the types of equipment, technologies, and 
facilities used.
    (8) A description of the participating hubs and end user sites and 
the number of rural residents which will be served by the proposed 
project at each end user site.
    (9) A brief narrative describing the project service area to allow a 
determination of rural eligibility in accordance with Sec. 1703.109. The 
applicant must list all counties located in the proposed service area, 
and the Economic Research Service's Rural--Urban Continuum Category for 
each county. These categories may be obtained from RUS, any USDA Rural 
Development state office or from State Land Grant University Cooperative 
Extension Offices.
    (10) The applicant must indicate whether or not it is willing to 
have its grant application forwarded to other agencies within USDA for 
consideration in the event the application is not selected for funding 
under this subpart.
    (d) A section on compliance with scoring criteria. The applicant 
must provide a justification for the number of points the proposed 
project will obtain for each of the criteria for scoring applications 
set forth in Sec. 1703.117.
    (e) Financial information. The applicant must provide financial 
information to support the need for the grant funds for the project, 
show its financial capacity to carry out the proposed work, and show 
project feasibility. The financial information must include the 
following:
    (1) A current balance sheet from the applicant reflecting its 
financial condition. When the applicant is a partnership, company, 
corporation or other entity, current balance sheets 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 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. While not required, an audit 
report is preferable and must be for a period which ended no earlier 
than 12 months preceding the date of the application; and
    (2) A pro-forma income and expense statement for each participating 
hub and end user site for the project covered by the application. The 
pro-forma statements must cover a minimum of 5 years after completion of 
the project and reflect that the project is feasible and sustainable in 
order to be considered for grant funds by showing sufficient income to 
pay cash operating expenses including telecommunications access and/or 
toll charges, system maintenance, salaries, training, and any other 
general operating expenses; and provide for replacement of depreciable 
items. Depreciation shall be based on Internal Revenue Service 
depreciation rules, or other recognized telecommunications industry 
guidelines. The applicant shall provide sufficient documentation to 
substantiate any depreciation projections.
    (3) 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.

[[Page 126]]

    (4) For applicants eligible under Sec. 1703.103(a)(3), and 
explanation of the economic analysis justifying the rate structure to 
ensure that the benefit of the financial assistance is passed through to 
the other persons receiving telemedicine or distance learning services.
    (5) Exception. An exception is granted for K to 12 school systems in 
meeting the requirements of paragraphs (e)(1) through (e)(4) of this 
section. In lieu of submitting the financial data required in paragraphs 
(e)(1) through (e)(4) of this section, RUS will accept the current 
financial statements in a form currently acceptable to the applicant 
school system's county or State authority.
    (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 
education or health care endeavor and any project similar to the 
proposed project. Experience in a similar project is desirable but not 
required.
    (g) Funding commitment from other sources. The applicant must 
provide evidence of the commitment of funds for the project in addition 
to the funds requested under this subpart. Evidence should be from an 
authorized representative of the source organization that the funds are 
available and will be used for the proposed project.
    (h) Proposed evaluation methodology. The applicant must provide a 
proposed method of evaluating the success of the project in meeting the 
objectives of the program as set forth in Secs. 1703.100 and 1703.101 
and the proposed scope of work.
    (i) Compliance with other Federal statutes and regulations. The 
applicant is required to submit evidence that it is in compliance with 
other Federal statutes and regulations, as detailed in Sec. 1703.33 as 
follows:
    (1) Equal opportunity and nondiscrimination requirements;
    (2) Architectural barriers;
    (3) Flood hazard area precautions;
    (4) Uniform Relocation Assistance and Real Property Acquisition for 
Federal and Federally Assisted Programs;
    (5) Drug-free workplace;
    (6) ``Certification Regarding Debarment, Suspension and Other 
Responsibility Matters--Primary Covered Transaction (See 7 CFR 
3017.510);
    (7) Intergovernmental review of Federal programs; and
    (8) Restrictions on lobbying. For an application for a grant in 
excess of $100,000, a certification statement, ``Certification Regarding 
Lobbying:'' is required. If the applicant is engaged in lobbying 
activities, the applicant must submit a completed disclosure form, 
``Disclosure of Lobbying Activities'' (see 7 CFR part 3018).
    (j) Environmental impact and historic preservation. The applicant 
must provide details of the project's impact on the environment and 
historic preservation. Grants made under this part are subject to part 
1794 of this chapter which contains the policies and procedures of RUS 
for implementing a variety of Federal statutes, regulations and 
executive orders generally pertaining to protection of the quality of 
the human environment that are listed in Sec. 1794.1 of this chapter. 
The application shall contain a separate section entitled 
``Environmental Impact of the Project.''
    (1) Environmental information. An ``Environmental Questionnaire,'' 
appendix B to this subpart, may be used by applicants to assist in 
complying with the requirements of this section. Copies of the 
Environmental Questionnaire are available from RUS.
    (2) Grants for technical assistance projects. For a proposal to fund 
a technical assistance project, the only environmental information 
normally required is whether or not the proposed project being studied 
or analyzed will be located within an area protected under the Coastal 
Barrier Resources Act (16 U.S.C. 3501 et seq.). Generally, the use of 
Federal funds to promote development on coastal barriers is strictly 
limited by the Coastal Barrier Resources Act.
    (3) Grants for all other projects. Applications for a grant to fund 
a project that is not subject to paragraph (j)(2) of this section must 
be accompanied by the information described in this paragraph. The 
Administrator will review supporting materials in the application and 
initiate an environmental review

[[Page 127]]

process pursuant to part 1794 of this chapter. This process will focus 
on any environmental concerns or problems that are associated with the 
project. The level and scope of the environmental review will be 
determined in accordance with the National Environmental Policy Act of 
1969 (NEPA), as amended, (42 U.S.C. 4321 et seq.), the Council on 
Environmental Policy for Implementing the Procedural Provisions of NEPA 
(40 CFR parts 1500 through 1508), RUS's Environmental Policies and 
Procedures (part 1794 of this chapter) and other relevant Federal 
environmental laws, regulations and Executive orders. Activity related 
to the project that may adversely affect the environment or limit the 
choice of reasonable alternatives shall not be undertaken prior to 
completion of RUS's environmental review process.
    (4) For a proposed project that only involves internal modifications 
or equipment additions to buildings or other structures (for example, 
relocating interior walls or adding computer facilities) and/or external 
changes or additions to existing buildings, structures or facilities 
requiring physical disturbance of less than 0.4 hectare (0.99 acre) the 
environmental information normally required is: a description of the 
internal modifications or equipment additions, and the external changes 
or additions to existing buildings, structures or facilities being 
proposed, the size of the site in hectares, and the general nature of 
the proposed use of the facilities once the project is completed, 
including any hazardous materials to be used, created or discharged, any 
substantial amount of air emissions, wastewater discharge, or solid 
waste that will be generated.
    (k) A completed Standard Form 424 ``Application for Federal 
Assistance,'' along with a board of directors resolution authorizing the 
grant request.
    (l) Evidence of the applicant's legal existence and authority to 
enter into a grant agreement with RUS and perform activities proposed 
under the grant application.
    (m) Evidence that the applicant is not delinquent on any obligation 
owed to the Federal government (7 CFR parts 3015 and 3016).
    (n) Evidence that the applicant has consulted with the USDA State 
Director, Rural Development, concerning the availability of other 
sources of funding available at the state or local level.
    (o) Supplemental information. The applicant should provide any 
additional information it considers relevant to the project and likely 
to be helpful in determining the extent to which the proposed project 
would further the purposes of this subpart.
    (p) Additional information requested by RUS. The applicant must 
provide any additional information the Administrator may consider 
relevant to the application and necessary to adequately evaluate the 
application and make grant decisions. The Administrator may also request 
modifications or changes, including changes in the amount of funds 
requested, in any proposal described in a grant application submitted 
under this part.

[61 FR 33626, June 27, 1996; 61 FR 37814, 37961, July 22, 1996; 61 FR 
42462, Aug. 15, 1996]



Sec. 1703.108  Conflict of interest.

    At any time prior to the disbursement of a grant awarded under this 
subpart, the Administrator may disqualify an otherwise eligible project 
whenever, in the judgment of the Administrator, the project would create 
a conflict of interest or the appearance of a conflict of interest. The 
Administrator will notify the applicant in writing of his/her intention 
to disqualify the project under this section and set forth the basis for 
his/her determination that a conflict of interest or appearance exists. 
Thereafter, the applicant will have 30 days from the date of such notice 
to file a written response with the Administrator. If the Administrator 
receives the applicant's response within the 30-day period, the 
Administrator will consider the information contained therein before 
making a final determination whether to disqualify the project. The 
Administrator will promptly notify the applicant of the final 
determination whether a conflict of interest or appearance of a conflict 
exists. If the determination is affirmative, the notice will also advise 
the applicant whether the project is disqualified or conditionally

[[Page 128]]

disqualified. If the project is conditionally disqualified, the notice 
will state under what circumstances the project may continue to be 
eligible for assistance under this subpart. The Administrator's decision 
under this section will be final.



Sec. 1703.109  Determining what is rural.

    The RUS Administrator shall determine whether a project service area 
possesses sufficient characteristics to be considered a rural area for 
purposes of this subpart. The Administrator shall make such 
determination on the following basis:
    (a) The project service area is located within nonmetropolitan 
counties included in one of the lowest four categories (6-9) of the ERS 
Rural--Urban Continuum Scale (rural--urban continuum) as set forth in 
appendix A to this subpart. Those categories are as follows:
    (1) Aggregate urban population (sum of cities, towns, villages or 
other incorporated communities of 2,500 or more) of less than 20,000, 
adjacent to a metropolitan area (category 6);
    (2) Urban population of less than 20,000, not adjacent to a 
metropolitan area (category 7);
    (3) Completely rural (no cities, towns, villages or other 
incorporated areas of 2,500 or greater) adjacent to a metropolitan area 
(category 8);
    (4) Completely rural, not adjacent to a metropolitan area (category 
9).
    (b) In the case of project service areas not categorized as rural 
areas under paragraph ( a) of this section, consideration will be given 
to the degree of rurality the area possesses taking into account such 
factors as:
    (1) Whether the project service area is located within the 
boundaries of an incorporated community of 2,500 persons or more as 
determined by the U.S. Census Bureau;
    (2) Where the county or counties in which the project service area 
is located rank on the rural--urban continuum;
    (3) Whether natural geographic barriers or an absence of roads may 
impede access from the project service area to metropolitan areas;
    (4) Whether the county is a spatially large county and the project 
service area is not within the commuting area of an urbanized area; and
    (5) Whether the economy of the project service area centers on 
natural resource-based activities such as farming, ranching, mining, or 
timber production, or is highly specialized.
    (c) In the case of a project that will serve end users located in 
more than one county, at least one of which is not categorized as rural 
under paragraph (a) of this section, RUS will determine the rurality of 
the project service area case-by-case using factors such as those 
identified in paragraph (b) of this section. To the extent practicable, 
in the case of a project that is expected to benefit residents of urban 
areas as well as residents of rural areas, instead of rejecting an 
application because it benefits areas they are not rural, RUS may 
allocate the grant accordingly to assure that grant funds primarily 
benefit only residents of rural areas.
    (d) If a determination made under this section results in the denial 
of an application, the applicant may appeal such determination to the 
Administrator in writing setting forth the reasons why it disagrees. 
Thereafter, the Administrator will review the determination and decide 
in writing whether to sustain, reverse or modify the original 
determination. The Administrator's determination will be final. A copy 
of the Administrator's decision will be furnished promptly to the 
applicant.
Secs. 1703.110--1703.112  [Reserved]



Sec. 1703.113  Application filing dates, location, processing, and public notification.

    (a) Applications for funding under this subpart shall be submitted 
to the Administrator, Rural Utilities Service, U.S. Department of 
Agriculture, 14th and Independence Avenue, SW., Washington, DC 20250-
1500. Applications should be marked ``Attention: Assistant 
Administrator, Telecommunications Program''.
    (b) Applications will be reviewed for eligibility and considered for 
funding on a quarterly or annual basis. The Administrator will publish a 
notice in the Federal Register indicating the deadline(s) for 
application submissions and the amount of available grant funds.

[[Page 129]]

    (c) RUS will review each application for completeness in accordance 
with Sec. 1703.107, and notify the applicant, within 15 working days of 
the receipt of the application, of the results of this review, citing 
any information which is incomplete. To be considered, the applicant 
must submit the remaining information postmarked no later than the 
application filing deadline set forth in paragraph (b) of this section, 
or 15 working days from the receipt of RUS's letter, whichever is the 
later date. If the applicant fails to submit such information to 
complete the application in accordance with Sec. 1703.107, the 
application shall be denied and returned to the applicant.
    (d) After receipt of all completed applications, the Administrator 
will publish notice in the Federal Register of all completed 
applications received for funding under this subpart. The Administrator 
will also make those applications available for public inspection at the 
U.S. Department of Agriculture, 14th and Independence Avenue, SW., 
Washington, DC. For purposes of this paragraph, applications include any 
information not protected by the Privacy Act of 1974, 5 U.S.C. 552a, and 
any other information that has not been designated as proprietary 
information by the applicant.
    (e) For instances where multiple applicants are necessary to carry 
out a project due to project feasibility or applicant authorities, 
multiple applications may be submitted jointly by the applicants. The 
applicants must clearly mark or otherwise identify any information in 
the application it deems proprietary.
    (f) The applicant must submit an original and three copies of a 
completed application. The applicant must also submit a copy of the 
application to the State government point of contact at the same time it 
submits an application to RUS. All applications must include the 
information described in Sec. 1703.107.
Secs. 1703.114--1703.116  [Reserved]



Sec. 1703.117  Criteria for scoring applications.

    (a) Criteria. The criteria in this section will be used by the 
Administrator to score applications that have been determined to be in 
compliance with the requirements of this subpart. There are six general 
criteria for scoring applications:
    (1) The financial need of the community and the project;
    (2) The financial composition of the project;
    (3) The comparative rurality of the proposed project service area;
    (4) The documented need for services;
    (5) Connectivity with outside networks; and
    (6) The cost effectiveness of the design.
    (b) Selection. Applications will be selected for funding based on 
scores, availability of funds, and the provisions of Sec. 1703.118. The 
Administrator will make determinations regarding the reasonableness of 
all numbers; dollar levels; rates; the nature of the project; cost; 
location; and other characteristics of the application and the proposed 
project to determine the number of points assigned to an application for 
all selection criteria. Joint applications submitted by multiple 
applicants as set forth in Sec. 1703.113 will be rated as a single 
application.
    (c) Financial need of community and project. A comparison of the per 
capita personal income in the county or counties where the project of 
the beneficiaries are located to the national per capita personal income 
levels--up to 80 points.
    (1) If the per capita personal income level in the county where the 
grant beneficiaries will be located:
    (i) Is less than or equal to 80 percent of the national per capita 
personal income level, 80 points, the maximum number of points;
    (ii) Is greater than 80 percent and less than or equal to 90 percent 
of the national per capita personal income level--60 points;
    (iii) Is greater than 90 percent and less than or equal to 100 
percent of the national per capita personal income level--30 points;
    (iv) Is greater than 100 percent and less than or equal to 110 
percent of the national per capita personal income level--5 points;

[[Page 130]]

    (v) Exceeds 110 percent of the national per capita personal income 
level--0 points.
    (2) If the project will serve grant beneficiaries in several 
counties, the Administrator will use an unweighted mean of the counties 
for the comparison.
    (3) RUS will use the most recent annual per capita personal income 
levels it has obtained from the Bureau of Economic Analysis, U.S. 
Department of Commerce, or other government sources and processed into a 
suitable format.
    (d) Financial composition of project. A comparison of the ability of 
the applicant to contribute financially to the project, and to secure 
other non-Federal sources of funding. Criteria include:
    (1) Evidence of additional financial support for the project from 
non-Federal sources above the applicant's required 42.85 percent 
matching of the RUS grant as set forth in Sec. 1703.104; the applicant 
must include evidence from authorized representatives of the sources 
that the funds are available and will be used for the proposed project--
up to 60 points.
    (i) Matching for allowable grant purposes less than or equal to 50 
percent of the RUS grant--0 points;
    (ii) Matching for allowable grant purposes greater than 50 percent, 
but less than or equal to 100 percent of the RUS grant--10 points;
    (iii) Matching for allowable grant purposes greater than 100 
percent, but less than or equal to 150 percent of the RUS grant--20 
points;
    (iv) Matching for allowable grant purposes greater than 150 percent, 
but less than or equal to 200 percent of the RUS grant--30 points;
    (v) Matching for allowable grant purposes greater than 200 percent, 
but less than or equal to 250 percent of the RUS grant--40 points;
    (vi) Matching for allowable grant purposes greater than 250 percent, 
but less than or equal to 300 percent of the RUS grant--50 points;
    (vii) Matching for allowable grant purposes greater than 300 percent 
of the RUS grant--60 points;
    (2) Bonus points for community involvement. In addition to the 
points allocated under Sec. 1703.117(d)(1), bonus points will be scored 
for funding supplied by local sources. Criteria include:
    (i) Proportion of non-Federal sources of funding supplied by local 
sources above the applicant's required 42.85 percent matching of the RUS 
grant. For purposes of this paragraph, local funding sources shall 
constitute any for-profit or non-profit entity or entities which derive 
income from the area to be served by the proposed project, and any 
village, town, county, regional, or other local governmental or public 
entity whose jurisdiction includes at least part of the proposed project 
service area. A local funding source shall not include a state or 
Federal governmental entity. The applicant shall provide evidence from 
authorized local representatives that the funds are available and will 
be used for the proposed project--up to 20 points.
    (A) Less than or equal to 50 percent to the RUS grant supplied by 
local funding sources--0 points;
    (B) Greater than 50 percent, but less than or equal to 100 percent 
of the RUS grant supplied by local funding sources--5 points;
    (C) Greater than 100 percent, but less than or equal to 150 percent 
of the RUS grant supplied by local funding sources--10 points;
    (D) Greater than 150 percent, but less than or equal to 200 percent 
of the RUS grant supplied by local funding sources--15 points;
    (E) Greater than 200 percent of the RUS grant supplied by local 
funding sources--20 points, the maximum number of points;
    (ii) [Reserved]
    (e) The comparative rurality of the proposed project service area. 
(1) This criterion is used after a project service area has been 
determined eligible in accordance with Sec. 1703.109. The methodology 
contained in the section is used to evaluate the relative rurality 
(i.e., population and isolation) of service areas for various projects. 
Under this system, the end user sites and hubs (as defined in 
Sec. 1703.102) contained within the proposed project service area are 
identified. Then, that service area is given a score according to the 
characteristics for the county(ies) in which the end user sites are 
located.

[[Page 131]]

Evaluation is based on the population of the county or counties, and the 
location of the county or counties relative to metropolitan statistical 
areas. This system incorporates a framework based on the classification 
of nonmetropolitan counties by urbanization and proximity to 
metropolitan areas, developed by analysts and demographers at the USDA 
Economic Research Service (ERS), as set forth in appendix A to this 
subpart.
    (2) The following definitions are used in the evaluation of 
rurality:
    (i) Metropolitan statistical area (MSA)--as defined by the Office of 
Management and Budget (OMB), an MSA includes core counties containing a 
city of 50,000 or greater population or containing several smaller 
cities totaling 50,000 or greater population and a total population of 
at least 100,000. Additional contiguous counties are included in the MSA 
if they are economically and socially integrated with the core county.
    (ii) Metropolitan county--as defined by OMB, a metropolitan county 
is part of an MSA and contains a place, or two adjoining places, 
totaling at least 50,000 in population, and has residents who are 
economically and socially integrated with a metropolitan core.
    (iii) Adjacency to metropolitan area--the proximity of a county to 
an MSA measured by a shared boundary with an MSA, and having at least 2 
percent of employed county residents commuting to MSA's for employment.
    (3) If the end user site(s) for the project are located in a 
nonmetropolitan county or counties (ERS Rural--Urban Continuum Scale 
categories 4-9 as set forth in Appendix A to this subpart), the 
applicant will receive points as follows:
    (i) With an ERS category of 9--60 points, the maximum number of 
points;
    (ii) With an ERS category of 8--55 points;
    (iii) With an ERS category of 7--40 points;
    (iv) With an ERS category of 6--35 points;
    (v) With an ERS category of 5--20 points;
    (vi) With an ERS category of 4-15 points; or
    (vii) With an ERS category of 0 through 3 (metropolitan counties)--0 
points.
    (4) Applicants having proposed end users sites located in a 
nonmetropolitan county or counties which are adjacent to a metropolitan 
area, may receive an adjustment of up to 5 additional points, as 
determined by the Administrator. Applicants must document that the end 
users are isolated from urban centers by virtue of available mass 
transportation, highway infrastructure, or geography.
    (5) Applicants having proposed user sites located in a metropolitan 
county or counties (ERS categories 0-3) may receive 10 points if the 
population density of the county or counties is no greater than 110 
percent of the adjoining nonmetropolitan county with the lowest 
population density.
    (6) If all the end user sites in a proposed network or system are 
located in a single county or in multiple counties which have the same 
characteristics, a score will be assigned directly from one of the 
categories set forth in Sec. 1703.117(e)(3).
    (7) If end user sites are located in multiple counties with 
different characteristics, a weighted average will be calculated using 
the following:
    (i) The total number of end user sites located in rural areas will 
be determined and be assigned a uniform percentage to be used in a 
weighted average formula (e.g., with 5 sites, each site would be 
weighted 20%). A hub will not be counted in a weighted average unless 
the hub is also utilized as an end user site. For purposes of ranking, 
if a hub also is utilized as an end user site, the hub will be 
considered as an end user site.
    (ii) The counties which contain end user sites will be identified.
    (iii) Each end user site will be assigned a number of points 
according to the classification system for the county in which it is 
located.
    (iv) The percentage value for each site determined in step 1 will be 
multiplied by the number of points scored from the site's county 
classification.
    (v) The total points for each end user site, obtained from the 
calculations in step 4, will be added to reach a final weighted average 
for the project.

[[Page 132]]

    (8) The following example illustrates the provision of paragraph 
(e)(7) of this section.

    Example Calculation. Greenbriar Valley Development Authority has 
submitted an application for an interactive classroom network which 
includes a hub in a metropolitan area and 3 end user sites, located in 3 
rural counties. The hub is located in a large city and is not utilized 
as an end user site, so the hub will not be considered part of the 
network or system.
    The first end user site is located in the town of Midway, in 
Greenbriar County, less than 20,000 adjacent to a metropolitan area. 
Thus, it has a category of 6 on the ERS Rural--Urban Continuum Scale.
    The second end user site is in Lewistown, in Lewis County, which has 
an aggregate urban population of less than 20,000, not adjacent to a 
metropolitan area. Thus, it has a category of 7 on the ERS Rural--Urban 
Continuum Scale.
    The third end user site is in the town of Rocky Creek, in Fayette 
County, which has an aggregate urban population of 20,000 or more, but 
not adjacent to a metropolitan area. Thus, it has a category of 5 on the 
ERS Rural--Continuum Scale.
    Step (1) The total number of end user sites = 3; thus each end user 
site receives 33% weight in the formula.
    Step (2) The counties identified are Greenbriar, Lewis and Fayette.
    Step (3) Greenbriar County, ERS Rural-Urban Continuum Scale category 
6=35 points;
    Lewis County, ERS Rural-Urban Continuum Scale category 7=40 points;
    Fayette County, ERS Rural-Urban Continuum Scale category 5=20 
points.
    Step (4) Midway site-35 points  x 33%=11.6 points.
    Lewistown site-40 points x 33%=13.2 points.
    Rocky Creek site-20 points  x 33%=6.6 points.
    Step (5) 11.6+13.2+6.6=31.4 total weighted average score.

    (f) Documented need for services. (1) This criterion will be used by 
the Administrator to score applications based on the documentation 
submitted in the support of the grant application that reflects the need 
for the services proposed by the project. The applicant should indicate 
whether or not the proposed services could be provided if RUS grant 
funds were not available. Up to 60 points can be assigned to this 
criterion.
    (2) The Administrator will consider the extent to which the need for 
improved educational or medical services in the proposed rural area 
compares to other regions. RUS will also consider any support by 
recognized experts in the related educational or medical field, and 
documentation substantiating the educationally and/or medically 
underserved nature of the applicant's proposed service area. The 
Administrator will consider the extent of the applicant's documentation 
showing:
    (i) The justification for specific educational and/or medical 
services which are needed and will provide direct benefits to rural 
residents;
    (ii) That rural residents, and other beneficiaries, desire the 
educational and/or medical services to be provided by the project (a 
strong indication of need is the willingness of local end users or 
institutions to pay, to the extent possible, for proposed services);
    (iii) The applicant's inability to pay for the proposed project 
without grant funds, given the financial strength of the applicant, its 
partners, or subsidiaries, as described in Sec. 1703.107(e)(1);
    (iv) The project's development and support based on input from the 
local residents and institutions.
    (v) The extent to which the application is consistent with the State 
strategic plan prepared by the Rural Development State Director of the 
United States Department of Agriculture.
    (3) Examples of the need for medical services could include rural 
physicians and medical professionals inability to access support 
functions, such as consulting with others on a diagnosis or access to 
the latest recommendations in treatment procedures and techniques, up-
to-date health-care research, or continuing medical studies. Other 
medical needs could be to retain more patients at the local hospital or 
medical facility in order to prevent the closure of the rural hospital 
or medical facility.
    (g) Connectivity with outside networks. (1) This criterion will be 
used by the Administrator to score applications based on the 
documentation submitted in support of the grant application that 
reflects the connectivity of the proposed projects with other 
educational and/or medical networks. Up to 25 points can be assigned to 
this criterion.
    (2) Consideration will be given to the extent that the proposed 
project will

[[Page 133]]

interconnect with other existing networks at the regional, statewide or 
national levels. RUS believes that to the extent possible, educational 
and medical networks should be designed to connect to the widest 
practicable number of other networks that expand the capabilities of the 
proposed project, thereby affording rural residents opportunities that 
may not be available at the local level.
    (3) Consideration will also be given to the extent that facilities 
constructed with federal financial assistance, particularly financial 
assistance under this chapter provided to entities other than the 
applicant, will be utilized to extend or enhance the benefits of the 
proposed project.
    (h) Cost effective design. (1) This criterion will be used by the 
Administrator to score applications based on the documentation submitted 
in the support of the grant application that reflects the cost 
efficiency of the project design. Up to 15 points can be assigned to 
this criterion.
    (2) Consideration will be given to the extent that the proposed 
technology or technologies for delivering the proposed educational and/
or medical services for the project service area are the most cost 
effective for the type of project proposed, including utilizing the 
transmission facilities of the local telecommunications provider. The 
Administrator will consider the applicant's documentation comparing 
various systems and technologies, and the choice of the applicant's 
system as being the most cost-effective system. The Administrator will 
also consider the applicant's documentation relating to buying or 
leasing options for specific equipment. The application must contain 
information necessary for the Administrator to use accepted analytical 
and financial methodologies to determine whether the applicant is 
proposing the most cost-effective option.

[61 FR 33626, June 27, 1996; 61 FR 37814, 37961, July 22, 1996]



Sec. 1703.118  Other application selection and appeal provisions.

    (a) Regardless of the number of points an application receives in 
accordance with Sec. 1703.117, the Administrator may, based on his/her 
review of the applications in accordance with the requirements of this 
part:
    (1) Limit the number of applications selected for projects located 
in any one state during a fiscal year;
    (2) Limit the number of selected applications for a particular 
project; and
    (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; provided, 
however, the Administrator may ask the applicant of the higher scoring 
application if it desires to reduce the amount of its application to the 
amount of funds available if, notwithstanding the lower grant amount, 
the Administrator determines the project is financially feasible in 
accordance with Sec. 1703.107(e) at the lower amount.
    (b) The Administrator will not approve a grant application if he/she 
determines that:
    (1) The applicant's proposal does not indicate financial feasibility 
or is not sustainable in accordance with the requirements of 
Sec. 1703.107(e) (1) and (2);
    (2) The applicant's proposal indicates technical flaws, which, in 
the opinion of the Administrator, would prevent successful 
implementation, operation, or sustainability of the proposed 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 the Administrator, undermine the ability of the 
project to meet the general purpose of this part or comply with policies 
of the Distance Learning and Telemedicine Grant Program set forth in 
Sec. 1703.101.
    (c) The Administrator may reduce the amount of the applicant's grant 
award based on insufficient program funding for the fiscal year in which 
the project is reviewed if the Administrator determines that, 
notwithstanding a lower grant award, the project will show financial 
feasibility in accordance with Sec. 1703.107(e), and the program 
purposes set forth in Sec. 1703.100 can be met. RUS will discuss its 
findings informally with the applicant and make every effort to reach a 
mutually

[[Page 134]]

acceptable agreement with the applicant. Any discussions with the 
applicant and agreements made with regard to a reduced grant amount will 
be confirmed in writing, and these actions shall be deemed to have met 
the notification requirements set forth in paragraph (d) of this 
section.
    (d) The Administrator will provide the applicant an explanation of 
any determinations made with regard to paragraphs (b)(1) through (b)(3) 
of this section prior to making final project funding selections for the 
year. The applicant will be provided 15 days from the date of the 
Administrator's 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.
    (e) For Fiscal Year 1996 grant applications, RUS will notify all 
grant applicants of the numerical scoring each complete grant 
application received and the cutoff points needed to receive funding for 
Fiscal Year 1996. If the grant application numerical scoring is below 
the score necessary to obtain funding, the applicant may appeal the 
numerical scoring to the Secretary in writing not later than 10 days 
after the applicant is notified of the scoring level. The applicant must 
state the reason it is appealing the numerical scoring and submit the 
reasons the application should be reconsidered. RUS will allow 14 days 
after the close of the appeal period to make the final grant selections 
for Fiscal Year 1996.
    (f) RUS reserves the right to use other data it considers most 
appropriate if ``county'' data is unavailable for a particular area. In 
those cases, the Administrator will use data compiled on a basis of the 
equivalent of a county in the state, such as a parish, or on another 
basis that most approximates ``county'' level data.

[61 FR 33626, June 27, 1996; 61 FR 37814, July 22, 1996]
Secs. 1703.119--1703.121  [Reserved]



Sec. 1703.122  Further processing of selected applications.

    (a) During the period between the selection of the application and 
the execution of implementing documents, the applicant must inform the 
Administrator if the project is no longer viable or the applicant no 
longer desires a grant for the project. If the applicant so informs the 
Administrator, the selection will be rescinded and written notice to 
that effect shall be sent promptly to the applicant.
    (b) If an application has been selected and the nature of the 
project changes, the applicant may be required to submit a new 
application to the Administrator for consideration depending on the 
degree of change. A new application will be subject to review in 
accordance with this subpart. The selection may not be transferred to 
another project.
    (c) If state or local governments raise objections to a proposed 
project under the intergovernmental review process that are not resolved 
within 3 months of the Administrator's selection of the application, the 
Administrator may rescind the selection and written notice to that 
effect will be sent promptly to the applicant.
    (d) Recipients of grants will be required to submit RUS Form 479-A, 
``Distance Learning and Telemedicine Technical Questionnaire.''
    (e) After an applicant has submitted such additional information, if 
any, the Administrator determines is necessary for completing the grant 
documents, the Administrator will send the documents to the applicant to 
execute and return to RUS.
    (1) The grant documents will include a letter of agreement and any 
other legal documents the Administrator deems appropriate, including 
suggested forms of certifications and legal opinions.
    (2) The letter of agreement will, among other things, constitute the 
Administrator's approval of funds for the project subject to certain 
terms and conditions and include at a minimum, a project description, 
approved purposes of the grant, the maximum amount of the grant, 
supplemental

[[Page 135]]

funds to be provided to the project and certain agreements or 
commitments the applicant may have proposed in its application.
    (f) Until the letter of agreement has been executed and delivered by 
RUS and by the applicant, the Administrator reserves the right to 
require any changes in the project or legal documents covering the 
project to protect the integrity of the program and the interests of the 
United States Government.
    (g) If the applicant fails to submit, within 120 calendar days from 
the date of the Administrator's selection of an application, all of the 
information that the Administrator determines to be necessary to prepare 
legal documents and satisfy other requirements of this subpart, the 
Administrator may rescind the selection of the application and written 
notice to that effect will be sent promptly to the applicant.
Secs. 1703.123--1703.125  [Reserved]



Sec. 1703.126  Disbursement of grant funds.

    (a) For grants of $100,000 or greater, prior to the disbursement of 
funds, the grantee, if it is not a unit of government, will provide 
evidence of fidelity bond coverage as required by Sec. 3015.17 of this 
title.
    (b) Grant funds will be disbursed to grantees on a reimbursement 
basis, or with unpaid invoices for the eligible purposes set forth in 
this subpart, by the following process:
    (1) An SF 270, ``Request for Advance or Reimbursement,'' will be 
completed by the applicant and submitted to RUS not more frequently than 
once a month; and
    (2) After receipt of a properly completed SF 270, payment will 
ordinarily be made within 30 days.
    (c) The grantee's share in the cost of the project will be disbursed 
in advance of grant funds, or if the grantee agrees, on a pro rata 
distribution basis with grant funds during the disbursement period. 
Grantee will not be permitted to provide its contribution at the end of 
the project.

[61 FR 33626, June 27, 1996; 61 FR 37961, July 22, 1996]



Sec. 1703.127  Reporting and oversight requirements.

    (a) A project performance activity report will be required of all 
grantees on a semi-annual basis.
    (b) A final project performance report will be required. 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 semi-
annual report.
    (c) RUS will monitor grant recipients as necessary to assure that 
projects are completed in accordance with the approved scope of work and 
that funds are expended for approved purposes. Grants made under this 
part will be administered under, and are subject to parts 3015 through 
3018 of this title.
    (d) Grantees 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. 
Grantees are to submit an original and one copy of each report to RUS. 
The project performance reports shall include, but not be limited to, 
the following:
    (1) A comparison of actual accomplishments to the objectives 
established for that period;
    (2) Reasons why established objectives were not met;
    (3) 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
    (4) Objectives and timetable established for the next reporting 
period.



Sec. 1703.128  Audit requirements.

    The grantee will provide an audit report in accordance with part 
3015, subpart I, of this title. The audit requirements only apply to the 
year(s) in which grant funds are received. Audits must be prepared in 
accordance with

[[Page 136]]

generally accepted government auditing standards (GAGAS) using 
publication, ``Standards for Audit of Governmental Organization, 
Programs, Activities and Functions.''

[61 FR 33626, June 27, 1996; 61 FR 37961, July 22, 1996]
Secs. 1703.129--1703.134  [Reserved]



Sec. 1703.135  Grant administration.

    (a) The Administrator will review grantees, as necessary, to 
determine whether funds were expended for approved purposes. The grantee 
is responsible for ensuring that the project complies with all 
applicable regulations, and that the grant funds are expended only for 
approved purposes. The grantee 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 the Administrator, upon request, and is otherwise made 
available, at the grantee's premises, for review by the RUS 
representatives, grantee's certified public accountant, the Office of 
Inspector General, U.S. Department of Agriculture, the General 
Accounting Office and any other officials conducting an audit of the 
grantee's financial statements or records, and program performance under 
the grant awarded under this subpart. Grantees will be required to 
permit RUS to inspect and copy any records and documents that pertain to 
the project.
    (b) Grants provided under this program will be administered under, 
and are subject to parts 3015 and 3016 of this title, as appropriate. 
Parts 3015 and 3016 of this title subject grantees to a number of 
requirements which cover, among other things, financial reporting, 
accounting records, budget controls, record retention and audits, 
bonding and insurance, cash depositories for grant funds, grant related 
income, use and disposition of real property and/or equipment purchased 
with grant funds, procurement standards, allowable costs for grant 
related activities, and grant close-out procedures.



Sec. 1703.136  Changes in project objectives or scope.

    The grantee will obtain prior approval for any material change to 
the scope or objectives of the approved project, including changes to 
the scope of work or budget. Failure to obtain prior approval of changes 
can result in suspension or termination of grant funds.



Sec. 1703.137   Grant termination provisions.

    (a) Termination for cause. The Administrator may terminate any grant 
in whole, or in part, at any time before the date of completion of grant 
disbursement, whenever it is determined that the grantee has failed to 
comply with the conditions of the grant. The Administrator will promptly 
notify the grantee in writing of the determination and the reasons for 
the termination, together with the effective date.
    (b) Termination for convenience. The Administrator or the grantee 
may terminate a grant in whole, or in part, when both parties agree that 
the continuation of the project would not produce beneficial results 
commensurate with further expenditure of funds. The two parties will 
agree upon termination conditions, including the effective date, and in 
the case of partial terminations, the portion to be terminated. The 
grantee will not incur new obligations for the terminated portion after 
the effective date, and will cancel as many outstanding obligations as 
possible. The Administrator will allow full credit to the grantee for 
the Federal share of the noncancelable obligations, properly incurred by 
the grantee prior to termination.
Secs. 1703.138--1703.139  [Reserved]



Sec. 1703.140   Expedited telecommunications loans

    (a) General. (1) The Administrator will afford expedited 
consideration and determination to an application for a loan or a 
request for advance of funds submitted by a local exchange carrier 
pursuant to section 2334(h) of the Act (7 U.S.C. 950aaa et seq.).
    (2) Funds obtained through the expedited procedures established by 
this

[[Page 137]]

section must be used primarily to provide advanced telecommunications 
services in rural areas using a telecommunications project that the 
Administrator has approved under this subpart.
    (3) Only those elements of a telecommunications project that have 
not been funded in whole, or in part, with a grant made under this 
subpart are eligible for expedited consideration or determination under 
this section.
    (b) Expeditied loan applications. (1) In order to qualify for 
expedited consideration or determination under paragraph(a)(1) of this 
section, the loan application must:
    (i) Be from a local exchange carrier that will use the requested 
funds for the purpose set forth in paragraph(a)(2) of this section;
    (ii) Be a completed one that complies with the requirements of part 
1737, subpart C, of this chapter; and
    (iii) Be received concurrently with the related grant application or 
within 14 days of the date notice of such application is published in 
the Federal Register as set forth in Sec. 1703.113(d).
    (2) Expedited consideration and determination of a qualifying 
application for a loan under this section means that within 45 days of 
receipt or 45 days of selection of the related grant application, 
whichever occurs later, the Administrator will:
    (i) Issue a characteristics letter, as set forth in part 1737, 
subpart I, of this chapter, to the loan applicant; or
    (ii) Inform the loan applicant that its application for a loan has 
been denied.
    (c) Expedited advances. (1) In order to qualify for expedited 
consideration or determination under paragraph(a)(1) of this section, 
the request for advance of funds must:
    (i) Be from a local exchange carrier that will use the funds for the 
purpose set forth in paragraph(a)(2) of this section;
    (ii) Be for all or part of a loan which has received release 
approval pursuant to part 1737, subpart K, of this chapter; and
    (iii) Be in compliance with the requirements of part 1744 of this 
chapter.
    (2) Expedited consideration and determination of a qualifying 
request for advance of loan funds under this section means that the 
Administrator will advance funds to the borrower within 45 days of 
receiving a request which complies with the provision of this section.

[61 FR 33626, June 27, 1996; 61 FR 37961, July 22, 1996]

 Appendix A to Subpart D of Part 1703--ERS Rural--Urban Continuum Scale

                    ERS Rural--Urban Continuum Codes:

                         Metropolitan Counties:

    0--Central counties of metropolitan areas of 1 million population or 
more.
    1--Fringe counties of metropolitan areas of 1 million population or 
more.
    2--Counties in metropolitan areas of 250 thousand to 1 million 
population.
    3--Counties in metropolitan areas of less than 250 thousand 
population.

                        Nonmetropolitan Counties:

    4--Aggregate urban population (sum of cities, towns, villages or 
other incorporated communities of 2,500 or more) of 20,000 or more, 
adjacent to metropolitan area.
    5--Aggregate urban population of 20,000 or more, not adjacent to a 
metropolitan area.
    6--Aggregate urban population of 2,500 to 19,999, adjacent to a 
metropolitan area.
    7--Aggregate urban population of 2,500 to 19,999, not adjacent to a 
metropolitan area.
    8--Completely rural (no cities, towns, villages or other 
incorporated areas of 2,500 or greater) adjacent to a metropolitan area.
    9--Completely rural, not adjacent to a metropolitan area.

    Notes: Metropolitan status is that announced by the Office of 
Management and Budget in June 1993, when the current population criteria 
were first applied to results of the 1990 Census. Adjacency was 
determined by physical boundary adjacency and a finding that at least 2 
percent of the employed labor force in the nonmetropolitan county 
commuted to metropolitan central counties.

  Codes prepared in Rural Economy Division, Economic Research Service, 
 USDA. A listing of counties and corresponding codes are available from 
                      ERS at the following address:

Room 337, 1301 New York Avenue, NW, Washington, DC 20005-4788, Phone: 
(202) 219-0534

or through the Internet via the ERS Home Page or directly at the 
following Internet address:

    gopher://usda.mannlib.cornell.edu:70/11data-sets/rural/89021

[61 FR 33626, June 27, 1996; 61 FR 37961, July 22, 1996]

[[Page 138]]

    Appendix B to Subpart D of Part 1703--Environmental Questionnaire

    Note: It is extremely important to respond to all questions 
completely to ensure expeditious processing of the Distance Learning and 
Telemedicine grant. The information herein is required by Federal law.
    Important: Any activity related to the project that may adversely 
affect the environment or limit the choice of reasonable development 
alternatives shall not be undertaken prior to the completion of Rural 
Utilities Service's environmental review process.
Legal Name of Applicant_________________________________________________
Signature
(Type/Sign/Date)________________________________________________________

    The applicant's representative certifies, to the best of his/her 
knowledge and belief, that the information contained herein is accurate. 
Any false information may result in disqualification for consideration 
of the grant or rescission of the grant.
    I. Project Description--Detailing construction, including, but not 
limited to, internal or external modifications of existing structures, 
new building construction, and/or installation of telecommunications 
transmission facilities (defined in 7 CFR 1703.102), including satellite 
uplinks or downlinks, microwave transmission towers, and cabling.
    1. Describe the portion of the project, and site locations 
(including legal ownership of real property), involving internal 
modifications, or equipment additions to buildings or other structures 
(e.g., relocating interior walls or adding computer facilities) for each 
site.
    2. Describe the portion of the project, and site locations 
(including legal ownership or real property) involving external changes 
or additions to existing buildings, structures or facilities requiring 
physical disturbance of less than .99 acres. List the size of each 
individual site in acres and attach a diagram showing the general layout 
of the proposed facilities for each site.
    3. Describe the portion of the project, and site locations 
(including legal ownership or real property), involving construction of 
transmission facilities, including cabling, microwave towers, satellite 
dishes; or, new construction of buildings; or, disturbance of property 
of .99 acres or greater for each project site.
    4. Describe the nature of the proposed use of the facilities, and 
whether any hazardous materials, air emissions, wastewater discharge or 
solid waste will result.
    5. State whether or not any project site(s) contain or are near 
properties listed or eligible for listing in the National Register of 
Historic Places, and identify any historic properties (The grantee must 
supply evidence that the State Historic Preservation Officer (SHPO) has 
cleared development regarding any historical properties).
    6. Provide information whether or not any facility(ies) or site(s) 
are located in a 100-year floodplain. A National Flood Insurance Map 
should be included reflecting the location of the project site(s).
    II. For projects which involve construction of transmission 
facilities, including cabling, microwave towers, satellite dishes, new 
construction of buildings, or physical disturbance of real property of 
.99 acres or greater, the following information must be submitted (7 CFR 
1703.107(j)(3))
    1. A map (preferably a U.S. Geological Survey map) of the area for 
each site affected by construction (include as an attachment).
    2. A description of the amount of property to be cleared, excavated, 
fenced or otherwise disturbed by the project and a description of the 
current land use and zoning and any vegetation for each project site 
affected by construction.
    3. A description of buildings or other structures (i.e., 
transmission facilities), including dimensions, to be constructed or 
modified.
    4. A description of the presence of wetlands or existing 
agricultural operations and/or threatened or endangered species or 
critical habitats on or near the project site(s) affected by 
construction.
    5. Describe any actions taken to mitigate any environmental impacts 
resulting from the proposed project (use attachment if necessary).

    Note: The applicant may submit a copy of any environmental review, 
study, assessment, report or other document that has been prepared in 
connection with obtaining permits, approvals or other financing for the 
proposed project from State, local or other Federal bodies. Such 
material, to the extent relevant, may be used to meet the requirements 
herein.



    Subpart E--Deferments of RUS Loan Payments for Rural Development 
                                Projects

    Source: 58 FR 21639, Apr. 23, 1993, unless otherwise noted.



Sec. 1703.300  Purpose.

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

[[Page 139]]



Sec. 1703.301  Policy.

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



Sec. 1703.302  Definitions and rules of construction.

    (a) Definitions. For the purpose of this subpart, the following 
terms will have the following meanings:1
    Administrator means the Administrator of RUS.
    Borrower means any organization which has an outstanding direct loan 
or insured loan made by RUS for the provision of electric or telephone 
service.
    Cushion of credit payment means a voluntary unscheduled payment on 
an RUS note made after October 1, 1987, credited to the cushion of 
credit account of a borrower.
    Deferment means a re-amortization of a payment of principal and/or 
interest on an RUS direct loan or insured loan for over either a 5- or 
10 year period, with the first payment beginning on the date of the 
deferment.
    Direct loan means a loan that is made by the Administrator pursuant 
to section 4 or section 201 of the RE Act (7 U.S.C. 901 et seq.) for the 
provision of electric or telephone service in rural areas and does not 
include a loan made to promote economic development in rural areas.
    Financially distressed borrower means an RUS-financed borrower 
determined by the Administrator to be either:
    (i) In default or near default on interest or principal payments due 
on loans made or guaranteed under the RE Act;
    (ii) A borrower that was in default or near default, but is 
currently participating in a workout or debt restructuring plan with 
RUS; or
    (iii) Experiencing a financial hardship.
    Insured loan means a loan that is made, held, and serviced by the 
Administrator, and sold and insured by the Administrator, pursuant to 
Section 305 of the RE Act (7 U.S.C. 901 et seq.) for the provision of 
electric or telephone service in rural areas and does not include a loan 
made to promote economic development in rural areas.
    Job creation means the creation of jobs in rural areas, or in close 
enough proximity to rural areas so that it is likely that the majority 
of the jobs created will be held by residents of rural areas.
    Project means a rural development project that a borrower proposes 
and the Administrator approves as qualifying under this subpart.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RTB means the Rural Telephone Bank (telephone bank), a body 
corporate and an instrumentality of the United States, that obtains 
supplemental funds from non-Federal sources and utilizes them in making 
loans, operating on a self-sustaining basis to the extent practicable 
(section 401, RE Act).
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    Technical assistance means market research, product or service 
improvement, feasibility studies, environmental studies, and similar 
activities that benefit rural development or rural job creation 
projects.
    (b) Rules of construction. Unless the context otherwise indicates; 
``includes'' and ``including'' are not limiting, and ``or'' is not 
exclusive. The terms defined in Sec. 1703.302(a) include both the plural 
and the singular.

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

[[Page 140]]



Sec. 1703.303  Eligibility criteria for deferment of loan payments.

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



Sec. 1703.304  Restrictions on the deferment of loan payments.

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



Sec. 1703.305  Requirements for deferment of loan payments.

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

[[Page 141]]



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

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



Sec. 1703.307  Uses of the deferments of loan payments.

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



Sec. 1703.308  Amount of deferment funds available.

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



Sec. 1703.309  Terms of repayment of deferred loan payments.

    (a) Deferments made to enable the borrower to provide financing to 
local businesses will be repaid over a period of 60 months, in equal 
installments, with payments beginning on the date of the deferment, and 
continuing in such a manner until the total amount of the deferment is 
repaid. The deferment payments will be made on either a monthly or 
quarterly basis depending on the existing repayment terms of the direct 
loan or insured loan being deferred. The deferment will not accrue 
interest.
    (b) In the case of deferments made to enable the borrower to provide 
community development assistance, technical assistance to businesses, 
and for other community, business, or economic development projects not 
included in paragraph (a) of this section, the deferment will be repaid 
over a period of 120 months, in equal installments, with payments 
beginning on the date of the deferment and continuing in such a manner 
until the total amount of the deferment is repaid. The deferment 
payments will be made on either a monthly or quarterly basis depending 
on the existing repayment terms of the direct loan or insured loan being 
deferred. The deferment will not accrue interest.
    (c) The maturity date of a loan may not be extended as a result of a 
deferment.
    (d) If the required payment is not made by the borrower or received 
by the Administrator when due, the Administrator will reduce the 
borrower's cushion of credit account established under this subpart in 
an amount equal to the deferment payment required.
    (e) The balance in a borrower's cushion of credit account shall not 
be reduced by the borrower below the level of the unpaid balance of the 
payment deferred.



Sec. 1703.310  Environmental considerations.

    Prospective recipients of funds received from the deferment of loan 
payments are encouraged to consider the potential environmental impact 
of their proposed projects at the earliest planning stage and plan 
development

[[Page 142]]

in a manner that reduces, to the extent practicable, the potential to 
affect the quality of the human environment adversely.



Sec. 1703.311  Application procedures for deferment of loan payments.

    (a) A borrower applying for a deferment must:
    (1) Submit a certified board resolution to the Administrator 
requesting a deferment of principal and interest. The resolution must:
    (i) Be signed by the president or vice president of the borrower;
    (ii) Contain information on the total amount of deferment requested 
for each specific project;
    (iii) Contain information on the type of project and the length of 
deferment requested as defined in Sec. 1703.309; and
    (iv) Specify which officer of the borrower has been given the 
authority to certify to those matters required in this section;
    (2) Submit certification by the appropriate officer to the 
Administrator that the proposed project will not violate the limitations 
set forth in Sec. 1703.306 and disclose all information regarding any 
potential conflict of interest or appearance of a conflict of interest 
that would allow the Administrator to make an informed decision;
    (3) Submit certification by the appropriate officer to the 
Administrator that an investment in the rural development project will 
be made by the borrower in an amount equal to the deferred debt service 
payment;
    (4) Submit certification by the appropriate officer to the 
Administrator that the amount of the deferment will not exceed 50 
percent of the total cost of the project for which the deferment is 
provided;
    (5) Submit certification by the appropriate officer to the 
Administrator that it will make a cushion of credit payment necessary to 
satisfy the requirement of Sec. 1703.305(a);
    (6) Submit certification by the appropriate officer to the 
Administrator that it will comply with Sec. 1703.313 and provide 
documentation showing that its total investments, including the proposed 
investment, will not exceed the investment limitations specified in 7 
CFR part 1717, Subpart N, Investments, Loans and Guarantees by Electric 
Borrowers, or 7 CFR Part 1744, Post Loan Policies and Procedures Common 
to Guaranteed and Insured Loans. The documentation must provide a list 
of each rural development project the borrower has invested in to date, 
including the investment amounts;
    (7) Submit to the Administrator written identification of the direct 
loan(s) and/or insured loan(s) for which payments are to be deferred;
    (8) Submit to the Administrator a written narrative which contains 
information regarding the proposed rural development or job creation 
project such as the manner in which the project will promote community, 
business, or economic development in rural areas, the nature of the 
project, its location, the primary beneficiaries, and, if applicable, 
the number and type of jobs to be created; and
    (9) Submit to the Administrator a letter of approval from the state 
regulatory authority, if applicable, granting its approval for the 
borrower to defer direct loan payment(s) and/or insured loan payment(s) 
and invest the amount in a rural development project.
    (b) The Administrator reserves the right to determine that special 
circumstances require additional data from borrowers before acting on a 
deferment. The Administrator also reserves the right to require, as a 
condition of approving a loan payment deferment pursuant to this 
subpart, that the borrower execute and deliver any amendments or 
supplements to its loan documents that may be necessary or appropriate 
to achieve the purposes outlined in Sec. 1703.300.
    (c) The Administrator will decide whether the borrower is eligible 
for the deferment and will notify the borrower of the decision.



Sec. 1703.312  RUS review requirements.

    Borrowers shall ensure that funds are invested in the rural 
development project as approved by RUS. The Administrator reserves the 
right to review the books and copy records of borrowers receiving loan 
payment deferments as necessary to ensure that the investments in the 
rural development project are in accordance with

[[Page 143]]

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



Sec. 1703.313  Compliance with other regulations.

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



PART 1710--GENERAL AND PRE-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND GUARANTEED ELECTRIC LOANS--Table of Contents




                           Subpart A--General

Sec.
1710.1  General statement.
1710.2  Definitions and rules of construction.
1710.3  Form and bulletin revisions.
1710.4  Exception authority.
1710.5  Availability of forms.
1710.6  Applicability of certain provisions to completed loan 
          applications.
1710.7  Exemptions of RUS operational controls under section 306E of the 
          RE Act.
1710.8--1710.49  [Reserved]

              Subpart B--Types of Loans and Loan Guarantees

1710.50  Insured loans.
1710.51  Loan guarantees.
1710.52--1710.99  [Reserved]

              Subpart C--Loan Purposes and Basic Policies.

1710.100  General.
1710.101  Types of eligible borrowers.
1710.102  Borrower eligibility for different types of loans.
1710.103  Area coverage.
1710.104  Service to non-RE Act beneficiaries.
1710.105  State regulatory approvals.
1710.106  Uses of loan funds.
1710.107  Amount lent for acquisitions.
1710.108  Mergers and consolidations.
1710.109  Reimbursement of general funds and interim financing.
1710.110  Supplemental financing.
1710.111  Refinancing.
1710.112  Loan feasibility.
1710.113  Loan security.
1710.114  TIER, DSC, OTIER and ODSC requirements.
1710.115  Final maturity.
1710.116  [Reserved]
1710.117  Environmental considerations.
1710.118  [Reserved]
1710.119  Loan processing priorities.
1710.120  Construction standards and contracting.
1710.121  Insurance requirements.
1710.122  Equal opportunity and nondiscrimination.
1710.123  Debarment and suspension.
1710.124  Uniform Relocation Act.
1710.125  Restrictions on lobbying.
1710.126  Federal debt delinquency.
1710.127  Drug free workplace.
1710.128--1710.149  [Reserved]

             Subpart D--Basic Requirements for Loan Approval

1710.150  General.
1710.151  Required findings for all loans.
1710.152  Primary support documents.
1710.153  Additional requirements and procedures.
1710.154--1710.199  [Reserved]

                  Subpart E-Power Requirements Studies

1710.200  Purpose.
1710.201  Requirement to prepare a PRS--power supply borrowers.
1710.202  Requirement to prepare a PRS--distribution borrowers.

[[Page 144]]

1710.203  Basic policies and requirements for a PRS.
1710.204  PRS work plan requirements.
1710.205  Basic criteria for RUS approval of a PRS.
1710.206  Waiver of borrower requirements.
1710.207--1710.249  [Reserved]

         Subpart F--Construction Work Plans and Related Studies

1710.250  General.
1710.251  Construction work plans--distribution borrowers.
1710.252  Construction work plans--power supply borrowers.
1710.253  Engineering and cost studies--addition of generation capacity.
1710.254  Alternative sources of power.
1710.255--1710.299  [Reserved]

                Subpart G--Long-Range Financial Forecasts

1710.300  General.
1710.301  Financial forecasts--distribution borrowers.
1710.302  Financial forecasts--power supply borrowers.
1710.303  Power cost studies--power supply borrowers.
1710.304--1710.349  [Reserved]

     Subpart H--Demand Side Management and Renewable Energy Systems

1710.350  Purpose.
1710.351  General policy; renewable energy systems.
1710.352  General policy; energy resource conservation programs.
1710.353  General policy; demand side management.
1710.354  Eligible DSM activities.
1710.355  DSM loan applications.
1710.356  Integrated resource plans.
1710.357  DSM plans.
1710.358  Requirements for a DSM plan.
1710.359  DSM effects.
1710.360  Submittal of alternate documentation.
1710.361  Type and term of loans.
1710.362  Loan approval.
1710.363  Advance and documentation of use of loan funds.
1710.364  Loan limits.

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

1710.400  Initial contact.
1710.401  Loan application documents.
1710.402--1710.403  [Reserved]
1710.404  Additional requirements.
1710.405  Supplemental financing documents.
1710.406  Loan approval.
1710.407  Loan documents.

    Authority: 7 U.S.C. 901-950(b); Pub. L. 99-591, 100 Stat. 3341; Pub. 
L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

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

                           Subpart A--General



Sec. 1710.1  General statement.

    (a) This part establishes general and pre-loan policies and 
requirements that apply to both insured and guaranteed loans to finance 
the construction and improvement of electric facilities in rural areas, 
including generation, transmission, and distribution facilities.
    (b) Additional pre-loan policies, procedures, and requirements that 
apply specifically to guaranteed and/or insured loans are set forth 
elsewhere:
    (1) For guaranteed loans in 7 CFR part 1712 and RUS Bulletins 20-22, 
60-10, 86-3, 105-5, and 111-3, or the successors to these bulletins; and
    (2) For insured loans in 7 CFR part 1714 and in RUS Bulletins 60-10, 
86-3, 105-5, and 111-3, or the successors to these bulletins.
    (c) This part supersedes those portions of the following RUS 
Bulletins and supplements that are in conflict.

20-5  Extensions of Payments of Principal and Interest
20-20  Deferment of Principal Repayments for Investment in Supplemental 
Lending Institutions
20-22  Guarantee of Loans for Bulk Power Supply Facilities
20-23  Section 12 Extensions for Energy Resources Conservation Loans
60-10  Construction Work Plans, Electric Distribution Systems
86-3  Headquarters Facilities for Electric Borrowers
105-5  Financial Forecast-Electric Distribution Systems
111-3  Power Supply Surveys
120-1  Development, Approval, and Use of Power Requirements Studies

    (d) When parts 1710, 1712, and 1714 are published in final form, the 
bulletins cited in paragraph (b) of this section will be rescinded, in 
whole or in part, or revised.

[57 FR 1053, Jan. 9, 1992, as amended at 58 FR 66262, Dec. 20, 1993]

[[Page 145]]



Sec. 1710.2  Definitions and rules of construction.

    (a) Definitions. For the purpose of this part, the following terms 
shall have the following meanings:
    Administrator means the Administrator of RUS or his or her designee.
    APRR means Average Adjusted Plant Revenue Ratio calculated as a 
simple average of the adjusted plant revenue ratios for 1978, 1979 and 
1980 as follows:

[GRAPHIC] [TIFF OMITTED] TC16SE91.000


where:
    A=Distribution (plant), which equals Part E, Line 14(e) of RUS Form 
7;
    B=General Plant, which equals Part E, Line 24(e) of RUS Form 7;
    C=Operating Revenue and Patronage Capital, which equals Part A, Line 
1 of RUS Form 7; and
    D=Cost of Power, which equals the sum of Part A, Lines 2, 3, and 4 
of RUS Form 7.
    Area Coverage means the provision of adequate electric service to 
the widest practical number of rural users in the borrower's service 
area during the life of the loan.
    Borrower means any organization that has an outstanding loan made or 
guaranteed by RUS for rural electrification, or that is seeking such 
financing.
    Bulk Transmission Facilities means the transmission facilities 
connecting power supply facilities to the subtransmission facilities, 
including both the high and low voltage sides of the transformer used to 
connect to the subtransmission facilities, as well as related 
supervisory control and data acquisition systems.
    Call provision has the same meaning as ``prepayment option''.
    Consolidation means the combination of 2 or more borrower or 
nonborrower organizations, pursuant to state law, into a new successor 
organization that takes over the assets and assumes the liabilities of 
those organizations.
    Consumer means a retail customer of electricity, as reported on RUS 
Form 7, Part R, Lines 1-7.
    Demand side management (DSM) means the deliberate planning and/or 
implementation of activities to influence consumer use of electricity 
provided by a distribution borrower to produce beneficial modifications 
to the system load profile. Beneficial modifications to the system load 
profile ordinarily improve load factor or otherwise help in utilizing 
electric system resources to best advantage consistent with acceptable 
standards of service and lowest system cost. Load profile modifications 
are characterized as peak clipping, valley filling, load shifting, 
strategic conservation, strategic load growth, and flexible load 
profile. (See, for example, publications of the Electric Power Research 
Institute (EPRI), 3412 Hillview Avenue, Palo Alto, CA 94304, especially 
``Demand-Side Management Glossary'' EPRI TR-101158, Project 1940-25, 
Final Report, October 1992.) DSM includes energy conservation programs. 
It does not include sources of electrical energy such as renewable 
energy systems, fuel cells, or traditionally fueled generation, such as 
fossil or nuclear fueled generators.
    Distribution Borrower means a borrower that sells or intends to sell 
electric power and energy at retail in rural areas.
    Distribution Facilities means all electrical lines and related 
facilities beginning at the consumer's meter base, and continuing back 
to and including the distribution substation.
    DSC means Debt Service Coverage of the borrower calculated as:
    [GRAPHIC] [TIFF OMITTED] TR29DE95.000
    
Where:

    All amounts are for the same calendar year and are based on the RUS 
system of accounts and RUS Forms 7 and 12. References to line numbers in 
the RUS Forms 7 and 12 refer to the June 1994 version of RUS Form 7 and 
the December 1993 version of RUS Form 12, and will apply to 
corresponding information in future versions of the forms;
    A=Depreciation and Amortization Expense of the borrower, which 
equals Part A, Line 12 of RUS Form 7 (distribution borrowers) or Section 
A, Line 20 of RUS Form 12a (power supply borrowers);
    B=Interest expense on total long-term debt of the borrower, which 
equals Part A, Line 15 of RUS Form 7 or Section A, Line 22 of RUS Form 
12a, except that interest expense shall be increased by \1/3\ of the 
amount, if any, by

[[Page 146]]

which restricted rentals of the borrower (Part M, Line 3 of RUS Form 7 
or Section K, Line 4 of RUS Form 12h) exceed 2 percent of the borrower's 
equity (RUS Form 7, Part C, Line 36 [Total Margins & Equities] less Line 
26 [Regulatory Assets] or RUS Form 12a, Section B, Line 38 [Total 
Margins & Equities] less Line 28 [Regulatory Assets]);
    C=Patronage Capital or Margins of the borrower, which equals Part A, 
Line 28 of RUS Form 7 or Section A, Line 35 of RUS Form 12a; and
    D=Debt Service Billed (RUS + other), which equals the sum of all 
payments of principal and interest required to be made on account of 
total long-term debt of the borrower during the calendar year, plus \1/
3\ of the amount, if any, by which restricted rentals of the borrower 
(Part M, Line 3 of RUS Form 7 or Section K, Line 4 of RUS Form 12h) 
exceed 2 percent of the borrower's equity (RUS Form 7, Part C, Line 36 
[Total Margins & Equities] less Line 26 [Regulatory Assets] or RUS Form 
12a, Section B, Line 38 [Total Margins & Equities] less Line 28 
[Regulatory Assets]);
    DSM activities means activities of the type referred to in 
Sec. 1710.354(f).
    DSM plan means a plan that describes the implementation at the 
distribution level of the DSM activities identified in the integrated 
resource plan as having positive net benefits. See Sec. 1710.357.
    Electric system means all of the borrower's interests in all 
electric production, transmission, distribution, conservation, load 
management, general plant and other related facilities, equipment or 
property and in any mine, well, pipeline, plant, structure or other 
facility for the development, production, manufacture, storage, 
fabrication or processing of fossil, nuclear, or other fuel or in any 
facility or rights with respect to the supply of water, in each case for 
use, in whole or in major part, in any of the borrower's generating 
plants, including any interest or participation of the borrower in any 
such facilities or any rights to the output or capacity thereof, 
together with all lands, easements, rights-of-way, other works, 
property, structures, contract rights and other tangible and intangible 
assets of the borrower in each case used or useful in such electric 
system.
    Equity means total margins and equities, which equals Part C, Line 
33 of RUS Form 7 (distribution borrowers) or Section B, Line 34 of RUS 
Form 12a (power supply borrowers).
    Final maturity means the final date on which all outstanding 
principal and accrued interest on an electric loan is due and payable.
    Five percent hardship rate means an interest rate of 5 percent 
applicable to a hardship rate loan.
    Fund advance period means the period of time during which the 
Government may advance loan funds to the borrower. See 7 CFR 1714.56.
    Generation Facilities means the generating plant and related 
facilities, including the building containing the plant, all fuel 
handling facilities, and the stepup substation used to convert the 
generator voltage to transmission voltage, as well as related energy 
management (dispatching) systems.
    Hardship rate loan means a loan made at the 5 percent hardship rate 
pursuant to 7 CFR 1714.8.
    Insured Loan means a loan made pursuant to Section 305 of the RE 
Act, and may include a direct loan made under Section 4 of the RE Act.
    Integrated Resources Plan (IRP) means a plan resulting from the 
planning and selection process for new energy resources that evaluates 
the benefits and costs of the full range of alternatives, including new 
generating capacity, power purchases, DSM programs, system operating 
efficiency, and renewable energy systems.
    Interest rate cap means a maximum interest rate of 7 percent 
applicable to certain municipal rate loans as set forth in Sec. 1710.7.
    Interest rate term means a period of time selected by the borrower 
for the purpose of determining the interest rate on an advance of funds. 
See 7 CFR 1714.6.
    Loan means any loan made or guaranteed by RUS.
    Loan Contract means the agreement, as amended, supplemented, or 
restated from time to time, between a borrower and RUS providing for 
loans made or guaranteed pursuant to the RE Act.
    Loan Feasibility means that the borrower has the capability of 
repaying the loan in full as scheduled, in accordance with the terms of 
the mortgage, note, and loan contract.

[[Page 147]]

    Loan Guarantee means a loan guarantee made by RUS pursuant to the RE 
Act.
    Loan period means the period of time during which the facilities 
included in a loan application will be constructed. It commences with 
the date shown on page 1, in the block headed ``Cost Estimates as of,'' 
of RUS Form 740c, Cost Estimates and Loan Budget for Electric Borrowers, 
which is the same as the date on the Financial and Statistical Report 
submitted with the loan application. The loan period may be up to 4 
years for distribution borrowers and, except in the case of a loan for 
new generating and associated transmission facilities, up to 4 years for 
the transmission facilities and improvements or replacements of 
generation facilities for power supply borrowers. The loan period for 
new generating facilities is determined on a case by case basis.
    Merger means the combining, pursuant to state law, of borrower or 
nonborrower organizations into an existing survivor organization that 
takes over the assets and assumes the liabilities of the merged 
organizations.
    Mortgage means any and all instruments creating a lien on or 
security interest in the borrower's assets in connection with loans or 
guarantees under the RE Act.
    Municipal rate loan means a loan made at a municipal interest rate 
pursuant to 7 CFR 1714.5.
    ODSC means Operating Debt Service Coverage of the electric system 
calculated as:
[GRAPHIC] [TIFF OMITTED] TR29DE95.001

Where:

    All amounts are for the same calendar year and are based on the RUS 
system of accounts and RUS Form 7. References to line numbers in the RUS 
Form 7 refer to the June 1994 version of the form, and will apply to 
corresponding information in future versions of the form;
    A=Depreciation and Amortization Expense of the electric system, 
which usually equals Part A, Line 12 of RUS Form 7;
    B=Interest expense on total long-term debt of the electric system, 
which usually equals Part A, Line 15 of RUS Form 7, except that such 
interest expense shall be increased by \1/3\ of the amount, if any, by 
which restricted rentals of the electric system (usually Part M, Line 3 
of RUS Form 7) exceed 2 percent of the borrower's equity (RUS Form 7, 
Part C, Line 36 [Total Margins & Equities] less Line 26 [Regulatory 
Assets]);
    C=Patronage Capital & Operating Margins of the electric system, 
which usually equals Part A, Line 20 of RUS Form 7, plus cash received 
from the retirement of patronage capital by suppliers of electric power 
and by lenders for credit extended for the Electric System; and
    D=Debt Service Billed (RUS + other), which equals the sum of all 
payments of principal and interest required to be made on account of 
total long-term debt of the electric system during the calendar year, 
plus \1/3\ of the amount, if any, by which restricted rentals of the 
Electric System (usually Part M, Line 3 of RUS Form 7) exceed 2 percent 
of the borrower's equity (RUS Form 7, Part C, Line 36 [Total Margins & 
Equities] less Line 26 [Regulatory Assets]).
    Off-grid renewable energy system means an energy source which is not 
electrically attached to the grid. Off-grid systems are operated as an 
island and will have no direct impact on a utility system's physical 
operations. An off-grid system need not meet electric utility power 
quality standards.
    On-grid renewable energy system means an energy source electrically 
attached to an existing grid. It can be attached on either side of a 
consumer's meter. On-grid systems are operated as part of the overall 
utility system and have a direct impact on a utility system's 
operations. An on-grid system must meet electric utility power quality 
and safety standards.
    Ordinary Replacement means replacing one or more units of plant, 
called ``retirement units'', with similar units when made necessary by 
normal wear and tear, damage beyond repair, or obsolescence of the 
facilities.
    OTIER means Operating Times Interest Earned Ratio of the electric 
system calculated as:
[GRAPHIC] [TIFF OMITTED] TR29DE95.002

Where:

    All amounts are for the same calendar year and are based on the RUS 
system of accounts and RUS Form 7. References to line numbers in the RUS 
Form 7 refer to the June 1994 version of the form, and will apply to 
corresponding information in future versions of the form;

[[Page 148]]

    A=Interest expense on total long-term debt of the electric system, 
which usually equals Part A, Line 15 of RUS Form 7, except that such 
interest expense shall be increased by \1/3\ of the amount, if any, by 
which restricted rentals of the electric system (usually Part M, Line 3 
of RUS Form 7) exceed 2 percent of the borrower's equity (RUS Form 7, 
Part C, Line 36 [Total Margins & Equities] less Line 26 [Regulatory 
Assets]); and
    B=Patronage Capital & Operating Margins of the electric system, 
which usually equals Part A, Line 20 of RUS Form 7, plus cash received 
from the retirement of patronage capital by suppliers of electric power 
and by lenders for credit extended for the Electric System.
    Power Requirements Study (PRS) means the thorough study of a 
borrower's electric loads and the factors that affect those loads in 
order to determine, as accurately as practicable, the borrower's future 
requirements for energy and capacity.
    Power Supply Borrower means a borrower that sells or intends to sell 
electric power at wholesale to distribution or power supply borrowers 
pursuant to RUS wholesale power contracts.
    Prepayment option means a provision included in the loan documents 
to allow the borrower to prepay all or a portion of an advance on a 
municipal rate loan on a date other than a rollover maturity date. See 7 
CFR 1714.9.
    PRR means Plant Revenue Ratio calculated as:

    [GRAPHIC] [TIFF OMITTED] TC16SE91.001
    

where:
    A = Total Utility Plant, which equals Part C, Line 3 of RUS Form 7;
    B = Operating Revenue and Patronage Capital, which equals Part A, 
Line 1 of RUS Form 7; and
    C = Cost of Power, which equals the sum of Part A, Lines 2, 3, and 4 
of RUS Form 7.
    PRS Work Plan means the plan that sets forth the resources, methods, 
schedules, and milestones to be used in the preparation and maintenance 
of a power requirements study.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    RE Act beneficiary means a person, business, or other entity that is 
located in a rural area.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    Renewable energy system means a source of energy (kWh) used to meet 
borrower electric load that is fueled by any of the following 
technologies: Hydropower, geothermal, biomass, municipal waste, solar 
thermal, photovoltaic, wind, fuel cells not fueled by fossil fuels. See, 
for example, ``Renewable Resources in U.S. Electricity Supply,'' 
February 1993, Publication number DOE/EIA 0561, published by the 
Department of Energy, Energy Information Administration, Forrestal 
Building, EI-231, Washington, DC 20585.
    Retirement Unit means a substantial unit of property, which when 
retired, with or without being replaced, is accounted for by removing 
its book cost from the plant account.
    Rollover maturity date means the last day of an interest rate term.
    Rural area means any area of the United States, its territories and 
insular possessions (including any area within the Federated States of 
Micronesia, the Marshall Islands, and the Republic of Palau) not 
included within the boundaries of any urban area, as defined by the 
Bureau of the Census. For purposes of the ``rural area'' definition, the 
character of an area is determined at the time of the initial loan to 
furnish or improve service in the area.
    (i) For initial RUS loans made prior to November 1, 1993, the RE Act 
defined ``rural area'' to mean any area of the United States not 
included within the boundaries of any city, village, or borough having a 
population exceeding 1500. An area determined to be a ``rural area'' for 
the purposes of an initial loan made prior to November 1, 1993, shall 
continue to be considered a ``rural area.''
    (ii) For initial RUS loans made on or after November 1, 1993, this 
definition shall apply. In determining the character of the area, RUS 
will rely on the Bureau of the Census designation.

[[Page 149]]

    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    Subtransmission Facilities means the transmission facilities that 
connect the high voltage side of the distribution substation to the low 
voltage side of the bulk transmission or generating facilities, as well 
as related supervisory control and data acquisition facilities.
    System Improvement means the change or addition to electric plant 
facilities to improve the quality of electric service or to increase the 
quantity of electric power available to RE Act beneficiaries.
    TIER means Times Interest Earned Ratio of the borrower calculated 
as:
[GRAPHIC] [TIFF OMITTED] TR29DE95.003

Where:

    All amounts are for the same calendar year and are based on the RUS 
system of accounts and RUS Forms 7 and 12. References to line numbers in 
the RUS Forms 7 and 12 refer to the June 1994 version of RUS Form 7 and 
the December 1993 version of RUS Form 12, and will apply to 
corresponding information in future versions of the forms;
    A=Interest expense on total long-term debt of the borrower, which 
equals Part A, Line 15 of RUS Form 7 or Section A, Line 22 of RUS Form 
12a, except that interest expense shall be increased by \1/3\ of the 
amount, if any, by which restricted rentals of the borrower (Part M, 
Line 3 of RUS Form 7 or Section K, Line 4 of RUS Form 12h) exceed 2 
percent of the borrower's equity (RUS Form 7, Part C, Line 36 [Total 
Margins & Equities] less Line 26 [Regulatory Assets] or RUS Form 12a, 
Section B, Line 38 [Total Margins & Equities] less Line 28 [Regulatory 
Assets]); and
    B=Patronage Capital or Margins of the borrower, which equals Part A, 
Line 28 of RUS Form 7 or Section A, Line 35 of RUS Form 12a.
    Total Assets means Part C, Line 26 of RUS Form 7 (distribution 
borrowers) or Section B, Line 27 of RUS Form 12a (power supply 
borrowers).
    Total Utility Plant means Part C, Line 3 of RUS Form 7 (distribution 
borrowers) or Section B, Line 27 of RUS Form 12a (power supply 
borrowers).
    Transmission Facilities means all electrical lines and related 
facilities, including certain substations, used to connect the 
distribution facilities to generation facilities. They include bulk 
transmission and subtransmission facilities.
    Urban area is defined by the Bureau of the Census as an area 
comprising all territory, population, and housing units in urbanized 
areas and in places of 2500 or more persons outside urbanized areas. 
More specifically, ``urban'' consists of territory, persons, and housing 
units in:
    (i) Places of 2500 or more persons incorporated as cities, villages, 
boroughs (except in Alaska and New York), and towns (except in the six 
New England States, New York, and Wisconsin), but excluding the rural 
portions of ``extended cities.''
    (ii) Census designated places of 2500 or more persons.
    (iii) Other territory, incorporated or unincorporated, included in 
urbanized areas.
    Urbanized area means an urbanized area as defined by the Bureau of 
the Census in notices published periodically in the Federal Register. 
Generally an urbanized area is characterized as an area that comprises a 
place and the adjacent densely settled territory that together have a 
minimum population of 50,000 people.
    (b) Rules of Construction. Unless the context otherwise indicates, 
``includes'' and ``including'' are not limiting, and ``or'' is not 
exclusive. The terms defined in paragraph (a) of this part include the 
plural as well as the singular, and the singular as well as the plural.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5, 1992, as amended at 58 FR 
66263, Dec. 20, 1993; 59 FR 495, Jan. 4, 1994; 59 FR 66440, Dec. 27, 
1994; 60 FR 3730, Jan. 19, 1995; 60 FR 67400, Dec. 29, 1995]



Sec. 1710.3  Form and bulletin revisions.

    References in this part to RUS or REA forms or line numbers in RUS 
or REA forms are based on RUS or REA Form 7 and Form 12 dated December 
1992, unless otherwise indicated. These references will apply to 
corresponding information in future versions of the

[[Page 150]]

forms. The terms ``RUS form'', ``RUS standard form'', ``RUS 
specification'', and ``RUS bulletin'' have the same meanings as the 
terms ``REA form'', ``REA standard form'', ``REA specification'', and 
``REA bulletin'', respectively, unless otherwise indicated.

[59 FR 66440, Dec. 27, 1994]



Sec. 1710.4  Exception authority.

    Consistent with the RE Act and other applicable laws, the 
Administrator may waive or reduce any requirement imposed by this part 
or other RUS regulations on an electric borrower, or a lender whose loan 
is guaranteed by RUS, if the Administrator determines that imposition of 
the requirement would adversely affect the Government's financial 
interest.



Sec. 1710.5  Availability of forms.

    Information about the availability of RUS forms and publications 
cited in this part is available from Administrative Services Division, 
Rural Utilities Service, United States Department of Agriculture, 
Washington, DC 20250-1500. These RUS forms and publications may be 
reproduced.



Sec. 1710.6  Applicability of certain provisions to completed loan applications.

    (a) Certain new or revised policies and requirements set forth in 
this part, which are listed in this paragraph, shall not apply to a 
pending loan application that has been determined by RUS to be complete 
as of January 9, 1992, the date of publication of such policies and 
requirements in the Federal Register. This exception does not apply to 
loan applications received after said date, nor to incomplete 
applications pending as of said date. This exception applies only to the 
following provisions:
    (1) Paragraph 1710.115(b)--with respect to limiting loan maturities 
to the expected useful life of the facilities financed;
    (2) Section 1710.116--with respect to the requirement to develop and 
follow an equity development plan;
    (3) Paragraph 1710.151(f)--with respect to the borrower providing 
satisfactory evidence that a state regulatory authority will allow the 
facilities to be included in the rate base or otherwise allow sufficient 
revenues to repay the loan;
    (4) Paragraphs 1710.250(b), 1710.251(a), and 1710.252(a)--with 
respect to the requirement that improvements, replacements, and 
retirements of generation plant be included in a Construction Work Plan; 
and
    (5) Paragraph 1710.300(d)(5)--with respect to the requirement that a 
borrower's financial forecast include a sensitivity analysis of a 
reasonable range of assumptions for each of the major variables in the 
forecast.
    (b) Certain provisions of this part apply only to loans made on or 
after February 10, 1992. These provisions are identified in the 
individual sections of this part.


[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5, 1992, as amended at 58 FR 
66263, Dec. 20, 1993]



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

    (a) General policy. (1) Section 306E of the RE Act directs the 
Administrator to issue interim final regulations to minimize approval 
rights, requirements, restrictions, and prohibitions imposed on the 
operations of electric borrowers whose net worth exceeds 110 percent of 
the outstanding loans made or guaranteed to the borrower by RUS. The 
section also directs the Administrator, when requested by a private 
lender providing financing for capital investments by such borrowers, to 
offer, without delay, to share the government's lien on the borrowers' 
systems or subordinate the government's lien on the property financed by 
the private lender.
    (2) In issuing the regulations, the Administrator is authorized to 
establish requirements, guided by the practices of private lenders with 
respect to similar credit risks, to ensure that the security, including 
the assurance of repayment, for loans made or guaranteed by RUS will 
remain reasonably adequate. If the regulations are not issued within 180 
days of enactment of section 306E, the Administrator may not, until the 
regulations are issued, require prior approval of, or establish any 
requirement, restriction, or prohibition, with respect to the operations 
of any

[[Page 151]]

electric borrower that meets the 110 percent ratio.
    (3) Nothing in section 306E limits the authority of the 
Administrator to establish terms and conditions on the use of funds from 
loans made or guaranteed by RUS, to establish loan feasibility criteria 
and other requirements for the approval of RUS loans or loan guarantees, 
such as those set forth in this part, or to take any other action 
specifically authorized by law.
    (4) This section addresses the application of section 306E of the RE 
Act to RUS operational controls and other requirements that apply in 
general to RUS borrowers. The application of section 306E to lien 
accommodations and subordinations is set forth in 7 CFR 1717.860 and 
1717.904.
    (5) The exemptions granted by this section, 7 CFR 1717.860, and 7 
CFR 1717.904 apply only to RUS controls and approval rights. They do not 
affect the controls and approval rights of other co-mortgagees under the 
RUS mortgage.
    (6) For purposes of this section, the terms ``default,'' ``financed 
or funded by RUS,'' ``interchange agreement,'' ``interconnection 
agreement,'' ``loan documents,'' ``pooling agreement,'' ``power supply 
contract,'' and ``wheeling agreement'' have the meanings as set forth in 
7 CFR 1717.602.
    (b) Determination of ratio. The following principles and procedures 
will apply to the calculation of net worth as a ratio, expressed as a 
percent, to the outstanding balance of all loans made or guaranteed to 
the borrower by RUS, hereinafter called the borrower's ``net worth to 
RUS debt ratio'', or simply ``the ratio'':
    (1) For purposes of determining whether a borrower is exempt from 
approvals, requirements, restrictions, or prohibitions imposed by RUS 
with respect to borrower operations, i.e., ``operational controls,'' the 
ratio normally will be based on data as of December 31. Net worth will 
be based on the year-end financial and statistical reports submitted by 
borrowers to RUS, and outstanding loans made or guaranteed by RUS will 
be based on RUS's records. The financial and statistical reports (Form 7 
for distribution borrowers and Form 12a for power supply borrowers) are 
subject to RUS review and revision, and they must comply with RUS's 
system of accounts and accounting principles set forth in 7 CFR part 
1767. Since sinking fund depreciation is not approved under 7 CFR part 
1767, net worth for borrowers using sinking fund depreciation will be 
calculated as if the borrower had been using straight line depreciation;
    (2) Net worth will be calculated by taking total margins and 
equities (from Part C of RUS Form 7 for distribution borrowers, or 
Section B of RUS Form 12a for power supply borrowers) and subtracting 
assets properly recordable in account 182.2, Unrecovered Plant and 
Regulatory Study Costs, and account 182.3, Other Regulatory Assets, as 
defined in 7 CFR part 1767; and
    (3) By no later than May 1 of each year, RUS will notify each 
borrower in writing of its ratio as of December 31 of the preceding 
year. If a borrower's net worth to RUS debt ratio exceeds 110 percent 
based on the year-end data, the borrower will be exempt from the 
operational controls exempted under paragraph (c) of this section until 
subsequently notified in writing by RUS that it is no longer exempt.
    (c) Borrower operations exempted from RUS controls. Borrowers who 
are notified by RUS in writing that their net worth to RUS debt ratio 
exceeds 110 percent are exempted from the operational controls of the 
RUS mortgage and loan contract listed in this paragraph. These controls, 
which are implemented through RUS regulations and other documents, are 
as follows:
    (1) RUS approval of extensions and additions. RUS approval of 
extensions and additions to borrowers' electric systems, except for the 
following:
    (i) Extensions and additions financed by RUS;
    (ii) Construction, procurement, or leasing of generating facilities, 
regardless of the source of funding, if the combined capacity of the 
facilities to be built, procured, or leased, including any future 
facilities included in the planned project, will exceed 25 megawatts in 
the case of power supply borrowers, or the lesser of 5 megawatts or 30 
percent of the borrower's equity in the case of distribution borrowers;

[[Page 152]]

    (iii) Acquisition or leasing of existing electric facilities or 
systems in service, regardless of the source of funding, whose purchase 
price, or capitalized value in the case of a lease, exceeds 10 percent 
of the borrower's net utility plant; and
    (iv) Construction, procurement, or leasing of electric facilities, 
regardless of the source of funding, to serve a customer whose annual 
kWh purchases or maximum annual kW demand in the foreseeable future is 
projected to exceed 25 percent of the borrower's total kWh sales or 
maximum kW demand in the year immediately preceding the acquisition or 
start of construction;
    (2) Long-range engineering plans and construction work plans. RUS 
approval of long-range engineering plans and CWPs if the borrower does 
not intend to seek RUS financing for any of the facilities, equipment or 
other purposes included in those plans. However, if requested by RUS, a 
borrower must provide an informational copy of such plans to RUS;
    (3) Plans and specifications. RUS approval of plans and 
specifications for construction not financed by RUS;
    (4) Standard forms of construction contracts, and engineering and 
architectural services contracts. RUS requirements to use standard forms 
of contracts for construction, procurement, engineering services, and 
architectural services, if the construction, procurement or services are 
not financed by RUS. To be eligible for this waiver the contracts used 
must not contain any provisions that prohibit or restrict the assignment 
of the contracts to the government upon the exercise by RUS of its 
remedies under security instruments securing loans made or guaranteed by 
RUS;
    (5) Contract bidding requirements. RUS requirements regarding the 
competitive bidding of construction contracts, if the construction is 
not financed by RUS;
    (6) RUS approval of contracts. (i) Construction contracts and 
architectural and engineering contracts. RUS approval of contracts for 
construction and procurement and for architectural and engineering 
services, if such construction, procurement or services are not financed 
by RUS.
    (ii) Large retail power contracts. RUS approval of contracts to sell 
electric power to retail customers except when the contract is for 
longer than 2 years and the kWh sales or kW demand for any year covered 
by the contract exceeds 25 percent of the borrower's total kWh sales or 
maximum kW demand for the year immediately preceding execution of the 
contract. This exemption applies regardless of the source of funding of 
any plant extensions, additions or improvements that may be involved in 
connection with the contract.
    (iii) Power supply arrangements. (A) RUS approval of power supply 
contracts (including but not limited to economy energy sales and 
emergency power and energy sales), interconnection agreements, 
interchange agreements, wheeling agreements, pooling agreements, and any 
other similar power supply arrangements subject to approval by RUS, if 
they have a term of 2 years or less. Amendments to said power supply 
arrangements are also exempted from RUS approval provided that the 
amendment does not extend the term of the arrangement for more than 2 
years beyond the date of the amendment.
    (B) Any amendment to a schedule or exhibit contained in any power 
supply arrangement subject to RUS approval that merely has the effect of 
either altering a list of interconnection or delivery points or changing 
the value of a variable term (but not the formula itself) contained in a 
formulary rate or charge.
    (C) The exemptions under this paragraph (c)(6)(iii) apply regardless 
of whether the borrower is a seller or purchaser of the services 
furnished by the contracts or arrangements, and regardless of whether or 
not a Federal power marketing agency is a party to any of them.
    (iv) System management and maintenance contracts. RUS approval of 
contracts for the management and operation of a borrower's electric 
system or for the maintenance of the electric system, if such contracts 
do not cover all or substantially all of the electric system.
    (v) Other contracts. [Reserved];

[[Page 153]]

    (7) RUS approval of general manager. RUS approval of the selection 
of a borrower's manager and employment contract, provided that the 
borrower is not in default under its loan documents or any other 
agreement with RUS. Nothing herein shall limit the right of RUS under 
the loan documents to request termination of the employment of a manager 
in the event of a default by the borrower;
    (8) Board of directors. RUS approval of compensation of a borrower's 
board of directors;
    (9) Certain expenditures. (i) RUS approval of expenditures for 
legal, accounting, and supervisory services by a borrower. However, 
while expenditures for accounting do not require RUS approval, the 
selection of a certified public accountant by the borrower to prepare 
audited reports required by RUS remains subject to RUS approval.
    (ii) RUS approval of expenditures for engineering services by a 
borrower, if such engineering services will not be financed by RUS;
    (10) Banks. RUS approval of banks or other depositories used by a 
borrower. However, without the prior written approval of RUS, a borrower 
shall not deposit funds from loans made or guaranteed by RUS in any bank 
or other depository that is not insured by the Federal Deposit Insurance 
Corporation or other Federal agency acceptable to RUS, or in any account 
not so insured.
    (11) Certain equipment. RUS approval of the purchase of data 
processing equipment and system control equipment by a borrower, if the 
equipment is not financed by RUS;
    (12) Notification of rate changes. Requirement that distribution 
borrowers notify RUS in writing of proposed changes in electric rates 90 
days prior to the effective date of such rates. Instead, the required 
notification period shall be 30 days, and such notification shall be 
required only if requested by RUS;
    (13) Consolidations and mergers. RUS approval of mergers and 
consolidations, and conveyances or transfers of the mortgaged property 
substantially as an entirety, if the following conditions are met:
    (i) Such consolidation, merger, conveyance or transfer shall be on 
such terms as shall fully preserve the lien and security of the mortgage 
and the rights and powers of the mortgagees;
    (ii) The entity formed by such consolidation or with which the 
borrower is merged or the corporation which acquires by conveyance or 
transfer the mortgaged property substantially as an entirety shall 
execute and deliver to the mortgagees a mortgage supplemental in 
recordable form and containing an assumption by such successor entity of 
the due and punctual payment of the principal of and interest on all of 
the outstanding notes and the performance and observance of every 
covenant and condition of the mortgage;
    (iii) Immediately after giving effect to such transaction, no 
default under the mortgage shall have occurred and be continuing;
    (iv) The borrower shall have delivered to the mortgagees a 
certificate of its general manager or other officer, in form and 
substance satisfactory to each of the mortgagees, which shall state that 
such consolidation, merger, conveyance or transfer and such supplemental 
mortgage comply with this section and that all conditions precedent 
herein provided for relating to such transaction have been complied 
with;
    (v) The borrower shall have delivered to the mortgagees an opinion 
of counsel in form and substance satisfactory to each of the mortgagees; 
and
    (vi) The entity formed by such consolidation or with which the 
borrower is merged or the corporation which acquires by conveyance or 
transfer the mortgaged property substantially as an entirety shall be an 
entity:
    (A) Having equity equal to at least 27% of its total assets on a pro 
forma basis after giving effect to such transaction;
    (B) Having a pro forma TIER of not less than 1.50 and a pro forma 
DSC of not less than 1.25 for each of the two preceding calendar years; 
and
    (C) Having net utility plant equal to or greater than 1.0 times its 
total long-term debt on a pro forma basis;
    (14) Sale, lease, or transfer of capital assets. RUS approval for a 
distribution

[[Page 154]]

borrower to sell, lease, or transfer capital assets, if the following 
conditions are met:
    (i) The borrower is not in default;
    (ii) In the most recent year for which data are available, the 
borrower achieved a TIER of at least 1.5, DSC of at least 1.25, OTIER of 
at least 1.1, and ODSC of at least 1.1, in each case based on the 
average or the best 2 out of the 3 most recent years;
    (iii) The sale, lease, or transfer of assets will not reduce the 
borrower's existing or future requirements for energy or capacity being 
furnished to the borrower under any wholesale power contract which has 
been pledged as security to the government;
    (iv) Fair market value is obtained for the assets;
    (v) The aggregate value of assets sold, leased, or transferred in 
any 12-month period is less than 10 percent of the borrower's net 
utility plant prior to the transaction;
    (vi) The proceeds of such sale, lease, or transfer, less ordinary 
and reasonable expenses incident to such transaction, are immediately:
    (A) Applied as a prepayment of all notes secured under the mortgage 
equally and ratably;
    (B) In the case of dispositions of equipment, materials or scrap, 
applied to the purchase of other property useful in the borrower's 
utility business; or
    (C) Applied to the acquisition of construction of utility plant; and
    (vii) If the borrower has an RUS-approved wholesale power contract 
with a power supply borrower (seller), the circumstances of the sale, 
lease or transfer of capital assets conform with the conditions in such 
contract under which the seller may not withhold its consent to the 
sale, lease or transfer;
    (15) Limitations on distributions. RUS approval for a borrower to 
declare or pay dividends, pay or determine to pay patronage refunds, 
retire patronage capital, or make any other cash distributions, if the 
following conditions are met:
    (i) After giving effect to the distribution, the borrower's equity 
will be greater than or equal to 30 percent of its total assets;
    (ii) The borrower is current on all payments due on all notes 
secured under the mortgage;
    (iii) The borrower is not otherwise in default under its loan 
documents; and
    (iv) After giving effect to the distribution, the borrower's current 
and accrued assets will be not less than its current and accrued 
liabilities.
    (d) RUS requirements and operational controls not exempted. All 
requirements and operational controls contained in the RUS mortgage and 
loan contract, or otherwise imposed on borrowers pursuant to statute or 
regulation, that are not specifically listed in paragraph (c) of this 
section are not exempted and shall continue to apply according to their 
terms. Examples of such requirements and controls not exempted are 
listed in this paragraph for the convenience of the public. This list is 
not exhaustive, and the absence of a requirement or control from this 
list in no way means that the requirement or control has been exempted:
    (1) Requirements and operational controls contained in the RUS 
mortgage or loan contract that are necessary to ensure that the security 
for loans made or guaranteed by RUS is reasonably adequate and that the 
loans will be repaid, or to accomplish other fundamental purposes of the 
RE Act. Some of these also represent terms and conditions with respect 
to the use by borrowers of the proceeds of loans made or guaranteed by 
RUS. Together, these controls include, but are not limited to, the 
following:
    (i) Area coverage requirements set forth in the loan contract and in 
Sec. 1710.103;
    (ii) Requirement that certain borrowers maintain, on an ongoing 
basis, a power requirements study and a power requirements study work 
plan, as set forth in Secs. 1710.201 and 1710.202;
    (iii) Requirement that borrowers follow RUS construction standards 
and use RUS accepted materials, as set forth in Sec. 1710.41, 
Sec. 1710.45, and 7 CFR part 1728;
    (iv) Requirement that borrowers maintain, on an ongoing basis, a 
long-range engineering plan and a construction work plan, as set forth 
in Sec. 1710.250(b);

[[Page 155]]

    (v) Requirement that borrowers set rates for electric service 
sufficient to maintain certain coverage ratios, as set forth in 
Sec. 1710.114;
    (vi) Certain RUS approvals of retirements of capital credits in 
excess of amounts specifically authorized in the mortgage;
    (vii) RUS approval of borrower investments, loans, guarantees, and 
other obligations under 7 CFR part 1717, subpart N;
    (viii) RUS requirements on accounting, auditing, irregularities, 
financial reporting, and access to books and records;
    (ix) Requirement that borrowers record the mortgage and mortgage 
amendments;
    (x) Requirement that the mortgagor maintain and preserve the 
priority lien of the mortgage and defend title to the mortgaged 
property;
    (xi) Requirements on maintenance and repair of the mortgaged 
property;
    (xii) Requirements on insurance of the mortgaged property; and
    (xiii) Certain RUS approvals of borrower mergers and consolidations; 
and
    (2) Requirements imposed on borrowers pursuant to statute or 
regulation and not specifically exempted by paragraph (c) of this 
section. See, for example, Secs. 1710.122 through 1710.127.
    (e) Rescission of exemptions if borrower defaults. If a borrower is 
in default with respect to any requirement of its mortgage, loan 
contract with RUS, or any other agreement with RUS that has not been 
exempted pursuant to paragraph (c) of this section or other RUS 
regulations, upon written notice to the borrower RUS may rescind all or 
any part of the exemptions granted pursuant to paragraph (c) of this 
section or other RUS regulations. The reinstated requirements and 
controls will remain in effect until RUS determines that they are no 
longer needed to help ensure that the security, including the assurance 
of repayment, for loans made or guaranteed by RUS will remain reasonably 
adequate.
    (f) Reinstated controls. If RUS controls are reinstated because the 
borrower defaults or its net worth falls below 110 percent of RUS debt, 
such controls and approval rights will apply to all applicable 
subsequent actions of the borrower, including without limitation the 
amendment of contracts that the borrower entered into while eligible for 
an exemption under this section.

[60 FR 67401, Dec. 29, 1995]
Secs. 1710.8--1710.49  [Reserved]



              Subpart B--Types of Loans and Loan Guarantees



Sec. 1710.50  Insured loans.

    RUS makes insured loans under section 305 of the RE Act.
    (a) Municipal rate loans. The standard interest rate on an insured 
loan made on or after November 1, 1993, is the municipal rate, which is 
the rate determined by the Administrator to be equal to the current 
market yield on outstanding municipal obligations with remaining periods 
to maturity, up to 35 years, similar to the interest rate term selected 
by the borrower. In certain cases, an interest rate cap of 7 percent may 
apply. The interest rate term and rollover maturity date for a municipal 
rate loan will be determined pursuant to 7 CFR part 1714, and the 
borrower may elect to include in the loan documents a prepayment option 
(call provision).
    (b) Hardship rate loans. RUS makes hardship rate loans at the 5 
percent hardship rate to qualified borrowers meeting the criteria set 
forth in 7 CFR 1714.8

[58 FR 66263, Dec. 20, 1993]



Sec. 1710.51  Loan guarantees.

    RUS provides financing through 100 percent loan guarantees made 
under sections 306 and 306A of the RE Act. RUS also provides 90 percent 
loan guarantees under section 311 of the RE Act to enable borrowers to 
secure financing from certain private lenders. The loan guarantees are 
made for a term of up to 35 years, and the interest rate is established 
at a rate agreed to by the borrower and the lender, with RUS 
concurrence. The guarantee applies to the repayment of both principal 
and interest.

[58 FR 66264, Dec. 20, 1993]

[[Page 156]]

Secs. 1710.52--1710.99  [Reserved]



               Subpart C--Loan Purposes and Basic Policies



Sec. 1710.100  General.

    RUS makes loans and loan guarantees to finance the construction of 
electric distribution, transmission and generation facilities, including 
system improvements and replacements required to furnish and improve 
electric service in rural areas, and for demand side management, energy 
conservation programs, and on grid and off grid renewable energy 
systems. In some circumstances, RUS may finance selected operating 
expenses of its borrowers. Loans made or guaranteed by the Administrator 
of RUS will be made in conformance with the Rural Electrification Act of 
1936, as amended (7 U.S.C. 901 et seq.), and 7 CFR chapter XVII. RUS 
provides certain technical assistance to borrowers when necessary to aid 
the development of rural electric service and to protect loan security.

[58 FR 66264, Dec. 20, 1993]



Sec. 1710.101  Types of eligible borrowers.

    (a) RUS makes loans to corporations, states, territories, and 
subdivisions and agencies thereof; municipalities; people's utility 
districts; and cooperative, nonprofit, limited-dividend, or mutual 
associations that provide or propose to provide:
    (1) The retail electric service needs of rural areas, or
    (2) The power supply needs of distribution borrowers under the terms 
of power supply arrangements satisfactory to RUS.
    (b) In making loans, RUS gives preference to states, territories, 
and subdivisions and agencies thereof; municipalities; people's utility 
districts; and cooperative, nonprofit, or limited-dividend associations. 
RUS does not make loans to individual consumers.
    (c) For the purpose of determining eligibility of a distribution 
borrower not in default on the repayment of a loan made or guaranteed 
under the RE Act for a loan, loan guarantee, or lien accommodation, a 
default by a borrower from which a distribution borrower purchases 
wholesale power shall not:
    (1) Be considered a default by the distribution borrower;
    (2) Reduce the eligibility of the distribution borrower for 
assistance under the RE Act; or
    (3) Be the cause, directly or indirectly, of imposing any 
requirement or restriction on the borrower as a condition of the 
assistance, except such requirements or restrictions as are necessary to 
implement a debt restructuring agreed on by the power supply borrower 
and RUS.
    (d) For the purpose of determining the eligibility of a distribution 
borrower, RUS will consider whether the distribution borrower is current 
on its obligations to its wholesale power supplier under the RUS 
wholesale power contract.
    (e) Nothing in paragraph (c) of this section relieves any 
distribution borrower that is a member of a power supply borrower in 
default on its obligations to RUS or operating under a debt 
restructuring agreement, of requirements set forth in RUS regulations, 
including, without limitation, Sec. 1710.112(b)(6), or of any terms and 
conditions that the Administrator may otherwise impose on any borrower 
as a condition of obtaining a loan or loan guarantee (including, in 
appropriate cases, member guarantees).
    (f) Except as provided in paragraph (g) of this section, former 
borrowers that have paid off all outstanding loans may reapply for a 
loan to serve RE Act beneficiary loads accruing from the time the former 
borrower's complete loan application is received by RUS. The 
determination of whether an area is rural will be based on the Census 
designation of the area at the time of the reapplication for a loan, if 
the area is not served by electric facilities financed by RUS. If the 
area is served by electric facilities financed by RUS, it will continue 
to be considered rural.
    (g) Former borrowers that have prepaid all, or portions of 
outstanding insured and direct loans in accordance with RUS regulations 
must comply with the provisions of 7 CFR part 1786

[[Page 157]]

before being considered eligible to borrow additional funds from RUS.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5, 1992. Revised and 
redesignated at 58 FR 66264, Dec. 20, 1993]



Sec. 1710.102  Borrower eligibility for different types of loans.

    (a) Insured loans under section 305. Insured loans are normally 
reserved for the financing of distribution and subtransmission 
facilities of both distribution and power supply borrowers, including, 
under certain circumstances, the implementation of demand side 
management, energy conservation programs, and on grid and off grid 
renewable energy systems. In accordance with Sec. 1710.110, the 
Administrator may require the borrower to obtain no more than 30 percent 
of the total debt financing required for a proposed project by means of 
a supplemental loan from another lender without an RUS guarantee.
    (b) One hundred percent loan guarantees under section 306. Both 
distribution and power supply borrowers are eligible for 100 percent 
loan guarantees under section 306 of the RE Act for any or all of the 
purposes set forth in Sec. 1710.106, including, under certain 
circumstances, the implementation of demand side management, energy 
conservation programs, and on grid and off grid renewable energy 
systems. (See 7 CFR part 1712). These guarantees are normally used to 
finance bulk transmission and generation facilities, but they may also 
be used to finance distribution and subtransmission facilities. If a 
borrower applies for a section 306 loan guarantee to finance all or a 
portion of distribution and subtransmission facilities, such request 
will not affect the borrower's eligibility for an insured loan to 
finance any remaining portion of said facilities or for any future 
insured loan to finance other distribution or subtransmission 
facilities. A section 306 loan guarantee, however, may not be used to 
guarantee a supplemental loan required by Sec. 1710.110.
    (c) One hundred percent loan guarantees under section 306A. Under 
section 306A of the RE Act, both distribution and power supply borrowers 
are eligible under certain conditions to use an existing section 306 
guarantee to refinance advances made on or before July 2, 1986 from a 
loan made by the Federal Financing Bank. (See 7 CFR part 1786.)
    (d) [Reserved]
    (e) Ninety percent guarantees of private-sector loans under section 
311. Under section 311 of the RE Act, both distribution and power supply 
borrowers in the state of Alaska are eligible under certain conditions 
to obtain from RUS a 90 percent guarantee of a private-sector loan to 
refinance their Federal Financing Bank loans. (See 7 CFR part 1786.)

[57 FR 2832, Jan. 24, 1992, as amended at 58 FR 66264, Dec. 20, 1993]



Sec. 1710.103  Area coverage.

    (a) Borrowers shall make a diligent effort to extend electric 
service to all unserved persons within their service area who:
    (1) Desire electric service; and
    (2) Meet all reasonable requirements established by the borrower as 
a condition of service.
    (b) If economically feasible and reasonable considering the cost of 
providing such service and/or the effects on all consumers' rates, such 
service shall be provided, to the maximum extent practicable, at the 
rates and minimum charges established in the borrower's rate schedules, 
without the payment by such persons, other than seasonal or temporary 
consumers, of a contribution in aid of construction. A seasonal consumer 
is one that demands electric service only during certain seasons of the 
year. A temporary consumer is a seasonal or year-round consumer that 
demands electric service over a period of less than five years.
    (c) Borrowers may assess contributions in aid of construction 
provided such assessments are consistent with the policy set forth in 
this section.
[57 FR 1053, Jan. 9, 1992, as amended at 60 FR 67404, Dec. 29, 1995]



Sec. 1710.104  Service to non-RE Act beneficiaries.

    (a) To the greatest extent practical, loans are limited to providing 
and improving electric facilities to serve consumers that are RE Act 
beneficiaries. When it is determined by the Administrator to be 
necessary in order to furnish or improve electric service in

[[Page 158]]

rural areas, loans may, under certain circumstances, be made to finance 
electric facilities to serve consumers that are not RE Act 
beneficiaries.
    (b) Loan funds may be approved for facilities to serve non-RE Act 
beneficiaries only if:
    (1) The primary purpose of the loan is to furnish or improve service 
for RE Act beneficiaries; and
    (2) The use of loan funds to serve non-RE Act beneficiaries is 
necessary and incidental to the primary purpose of the loan.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5, 1992, as amended at 58 FR 
66264, Dec. 20, 1993]



Sec. 1710.105  State regulatory approvals.

    (a) In States where a borrower is required to obtain approval of a 
project or its financing from a state regulatory authority, RUS may 
require that such approvals be obtained, if feasible for the borrower to 
do so, before the following types of loans are approved by RUS:
    (1) Loans requiring an Environmental Impact Statement;
    (2) Loans to finance generation and transmission facilities, when 
the loan request for such facilities is $25 million or more; and
    (3) Loans for the purpose of assisting borrowers to implement demand 
side management and energy conservation programs and on and off grid 
renewable energy systems.
    (b) At minimum, in the case of all loans in states where state 
regulatory approval is required of the project or its financing, such 
state approvals will be required before loan funds are advanced.
    (c) In cases where state regulatory authority approval has been 
obtained, but the borrower has failed to proceed with the project in a 
timely manner according to the schedule contained in the borrower's 
project design manual, or if there are cost overruns or other 
developments that threaten loan feasibility or security, RUS may require 
the borrower to obtain a reaffirmation of the project and its financing 
from the state authority before any additional loan funds are advanced.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5, 1992, as amended at 58 FR 
66265, Dec. 20, 1993]



Sec. 1710.106  Uses of loan funds.

    (a) Funds from loans made or guaranteed by RUS may be used to 
finance:
    (1) Distribution facilities. (i) The construction of new 
distribution facilities or systems and the cost of system improvements 
and removals, less salvage value, needed to meet load growth 
requirements or improve the quality of service.
    (ii) The purchase, rehabilitation and integration of existing 
distribution facilities and associated service territory when the 
acquisition is an incidental and necessary means of providing or 
improving service to persons in rural areas who are not receiving 
adequate central station service, and the borrower is unable to finance 
the acquisition from other sources. See Sec. 1710.107.
    (2) Transmission and generation facilities. (i) The construction of 
new transmission and generation facilities or systems and the cost of 
system improvements and removals, less salvage value, needed to meet 
load growth and improve the quality of service.
    (ii) The purchase of an ownership interest in new or existing 
transmission or generation facilities to serve RE Act beneficiaries.
    (3) Ordinary plant replacements. The excess of the total cost of 
ordinary replacements over the original cost of the facilities being 
replaced, unless financing of the total cost is specifically authorized 
by the Administrator.
    (4) Warehouse and garage facilities. The purchase, remodeling, or 
construction of warehouse and garage facilities required for the 
operation of a borrower's system. See paragraph (b) of this section.
    (5) 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.
    (6) Certain costs incurred in demand side management, energy 
conservation programs and on and off grid renewable energy systems.
    (b) In cases of financial hardship, as determined by the 
Administrator, loans may also be made to finance the following items:

[[Page 159]]

    (1) The headquarters office and other headquarters facilities in 
addition to those cited in paragraph (a)(4) of this section;
    (2) General plant equipment, including furniture, office, 
transportation, data processing and other work equipment; and
    (3) Working capital required for the initial operation of a new 
system.
    (c) RUS will not make loans to finance the following:
    (1) Electric facilities, equipment, appliances, or wiring located 
inside the premises of the consumer, except qualifying items included in 
a loan for demand side management or energy resource conservation 
programs, or on or off grid renewable energy systems;
    (2) Facilities to serve consumers who are not RE Act beneficiaries 
unless those facilities are necessary and incidental to providing or 
improving electric service in rural areas (See Sec. 1710.104);
    (3) Any facilities or other purposes that a state regulatory 
authority having jurisdiction will not approve for inclusion in the 
borrower's rate base, or will not otherwise allow rates sufficient to 
repay with interest the debt incurred for the facilities or other 
purposes; and
    (4) Any facilities or other specific purposes that were included in 
a loan made or guaranteed by RUS that the borrower has prepaid or that 
has been rescinded.
    (d) A distribution borrower may request a loan period of up to 4 
years. Except in the case of loans for new generating and associated 
transmission facilities, a power supply borrower may request a loan 
period of not more than 4 years for transmission and substation 
facilities and improvements or replacements of generation facilities. 
The loan period for new generating facilities is determined on a case by 
case basis. The loan period for DSM activities will be determined in 
accordance with Sec. 1710.355. The Administrator may approve a loan 
period shorter than the period requested by the borrower, if in the 
Administrator's sole discretion, a loan made for the longer period would 
fail to meet RUS requirements for loan feasibility and loan security set 
forth in Secs. 1710.112 and 1710.113, respectively.
    (e) To make optimal use of available loan funds in furthering the 
purposes of the RE Act, the amount lent to any one borrower in a given 
year may be limited to less than the total amount eligible for RUS 
financing, taking into consideration the amount of loan funds available 
and the size of RUS's loan application inventory. Such limitation will 
not be imposed unless the amount authorized for lending in a given year 
is substantially less, as determined by the Administrator, than the 
amount of eligible loan funds requested. Such reductions will be made on 
an equal proportion basis for all applicants based on the amount of 
funds for which an applicant is eligible. The portion of a request for 
which a borrower is eligible that is not loaned in one year will be 
eligible for a loan in subsequent years, provided that a resolution is 
submitted to RUS by the borrower's board of directors certifying that 
the funds are still needed to complete purposes contained in the 
original loan application.
    (f)(1) For borrowers having one or more loans approved on or after 
October 1, 1991, advances of funds will be made only for the primary 
budget purposes included in the loan as shown on RUS Form 740c as 
amended and approved by RUS, or on a construction work plan or a 
construction work plan amendment approved by RUS. Each advance will be 
charged to the oldest outstanding note(s) having unadvanced funds for 
the primary budget purpose for which the request for advances was made, 
regardless of whether such notes are associated with loans approved 
before or after October 1, 1991, unless any conditions on advances under 
any of these notes have not been met by the borrower.
    (2) For borrowers whose most recent loan was approved before October 
1, 1991, advances will be made on the oldest outstanding note having 
unadvanced funds, unless any conditions on advances under such note have 
not been met by the borrower.

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



Sec. 1710.107  Amount lent for acquisitions.

    The maximum amount that will be lent for an acquisition is limited 
to the

[[Page 160]]

value of the property, as determined by RUS. If the acquisition price 
exceeds this amount, the borrower shall provide the remainder without 
RUS financial assistance.



Sec. 1710.108  Mergers and consolidations.

    (a) RUS encourages its borrowers to consider merging or 
consolidating with another electric borrower when such action will 
contribute to greater operating efficiency and financial soundness.
    (b) After a merger or consolidation, RUS will give priority 
consideration per Sec. 1710.119 to the processing of loans for the 
surviving system to finance the integration and rehabilitation of 
electric facilities, if necessary, and the improvement or extension of 
electric service in rural areas. Such priority consideration will also 
be given in the case of a borrower that has merged or consolidated with 
an electric system that has not previously received RUS financial 
assistance, if such system was serving primarily rural residents at the 
time of the merger or consolidation and such rural residents will 
continue to be served by the merged or consolidated system. RUS does not 
make loans for costs incurred in effectuating mergers or consolidations, 
such as legal expenses or feasibility study costs.



Sec. 1710.109  Reimbursement of general funds and interim financing.

    (a) Borrowers may request that a loan include funds to reimburse 
general funds and/or replace interim financing used to finance equipment 
and facilities that were included in an RUS-approved construction work 
plan, work plan amendment or other RUS-approved plan, and for which loan 
funds have not been provided by RUS. Such reimbursement and/or 
replacement of interim financing may include the direct costs of 
procurement and construction, as well as the related cost of 
engineering, architectural, environmental and other studies and plans 
needed to support the project, when such cost is capitalized as part of 
the cost of the facilities.
    (b) If procurement and/or construction of the equipment and 
facilities was completed prior to the current loan period, 
reimbursement, including replacement of interim financing, will be 
limited, except in cases of extreme financial hardship as determined by 
the Administrator, to the cost of procurement and construction completed 
during the period immediately preceding the current loan period, as 
specified in paragraph (c) of this section. As defined in Sec. 1710.2, 
the loan period begins on the date shown on page 1 of RUS Form 740c, 
Cost Estimates and Loan Budget for Electric Borrowers.
    (c)(1) The period immediately preceding the current loan period for 
which reimbursement and replacement of interim financing is authorized 
under paragraph (b) of this section is as follows:
    (i) The number of months agreed to by RUS and the borrower for 
complete loan applications received by RUS before February 10, 1992;
    (ii) 36 months for complete loan applications received from February 
10, 1992 through February 10, 1993; or
    (iii) 24 months for complete loan applications received after 
February 10, 1993.
    (2) Policies for reimbursement of general funds and interim 
financing following certain mergers, consolidations, and transfers of 
systems substantially in their entirety are set forth in 7 CFR 1717.154.
    (d) If the reimbursement of general funds and/or replacement of 
interim financing is for approved expenditures for equipment and 
facilities whose procurement and/or construction is completed during the 
current loan period, the time limits of paragraph (c) of this section do 
not apply.

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

    Effective Date Note: At 61 FR 66870, Dec. 19, 1996, Sec. 1710.109 
was amended by redesignating paragraphs (c) introductory text, (c)(1), 
(c)(2), and (c)(3) as paragraphs (c)(1) introductory text, (c)(1)(i), 
(c)(1)(ii), and (c)(1)(iii), respectively, and by adding a new paragraph 
(c)(2), effective Jan. 21, 1997.



Sec. 1710.110  Supplemental financing.

    (a) Except in the case of financial hardship as determined by the 
Administrator, and following certain mergers, consolidations, and 
transfers of systems substantially in their entirety as

[[Page 161]]

set forth in 7 CFR 1717.154, applicants for a municipal rate loan will 
be required to obtain a portion of their loan funds from a supplemental 
source without an RUS guarantee, in the amounts set forth in paragraph 
(c) of this section. RUS will normally grant a lien accommodation to the 
supplemental lender. RUS does not require supplemental financing in 
conjunction with an RUS guaranteed loan. However, if a borrower elects 
to obtain supplemental financing in conjunction with a guaranteed loan, 
the granting of RUS's loan guarantee may be conditioned on the 
borrower's obtaining supplemental financing.
    (b) The terms and conditions of supplemental financing and any 
security offered to the supplemental lender are subject to RUS approval. 
Generally, supplemental loans must have the same final maturity and be 
amortized in the same manner as RUS loans made concurrently. Borrowers 
may elect to repay the loans either in substantially equal periodic 
installments covering interest and principal, or in periodic 
installments that include interest and level amortization of principal.
    (c) Supplemental financing required for municipal rate loans--(1) 
Distribution borrowers.
    (i) Distribution borrowers that had, as of December 31, 1980, an 
average consumer density of 2 or fewer consumers per mile or an average 
adjusted plant revenue ratio (APRR), as defined in Sec. 1710.2, of over 
9.0 shall obtain supplemental financing equal to 10 percent of their 
loan request.
    (ii) All other distribution borrowers must obtain supplemental 
financing according to their plant revenue ratio (PRR), as defined in 
Sec. 1710.2, based on the most recent year-end data available on the 
date of loan approval, as follows:

------------------------------------------------------------------------
                                                       Supplemental loan
                         PRR                               percentage   
------------------------------------------------------------------------
9.00 and above.......................................                 10
8.01-8.99............................................                 20
8.00 and below.......................................                 30
------------------------------------------------------------------------

    (iii) If a distribution borrower enters into a merger, 
consolidation, or transfer of system substantially in its entirety, and 
the provisions of 7 CFR 1717.154(b) do not apply, required supplemental 
financing will be determined as follows for loans approved by RUS after 
December 19, 1996. If one of the merging parties met the criteria in 
paragraph (c)(1)(i) of this section prior to the effective date of the 
merger consolidation or transfer, the borrower will be required to 
obtain supplemental financing equal to 10 percent of any loan funds 
requested for facilities to serve consumers located in the territory 
formerly served by the ``paragraph (c)(1)(i)'' borrower. The required 
amount of supplemental financing for the rest of the loan will be 
determined according to the provisions of paragraph (c)(1)(ii) of this 
section.
    (2) Power supply borrowers. The supplemental loan proportion 
required of a power supply borrower is based on the simple arithmetic 
mean of the supplemental loan proportions required of the borrower's 
distribution members.
    (3) Subsequent loans. (i) If more than 5 percent of an insured loan 
made prior to November 1, 1993, or of a municipal rate loan is 
terminated or rescinded, the amount of supplemental financing required 
in the borrower's next loan after the rescission for which supplemental 
financing is required, pursuant to paragraph (a) of this section, will 
be adjusted to average the actual supplemental financing portion on the 
terminated or rescinded loan with the supplemental financing portion 
that would have been required on the new loan according to paragraphs 
(c)(1) and (2) of this section, in accordance with the formulas set 
forth in paragraphs (c)(3)(ii) and (iii) of this section.
    (ii) If a borrower's supplemental financing requirement as set forth 
in paragraphs (a), (c)(1), and (c)(2) of this section has not changed 
between the most recent loan and the loan being considered, then the 
amount of supplemental financing required for the new loan will be 
computed as follows:

Supplemental financing amount, new loan = [(A + B)  x  C] - D

where:

A = The total funds ($) actually advanced from the first loan, including 
both RUS loan funds and funds from the supplemental loan, plus any 
unadvanced funds still available to the borrower after the rescission.

[[Page 162]]

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

    (iii) If a borrower's supplemental financing requirement as set 
forth in paragraphs (a), (c)(1), and (c)(2) of this section has changed 
between the most recent loan and the loan being considered, then the 
amount of supplemental financing required for the new loan will be the 
weighted average of the portions otherwise applicable on the two loans 
and will be computed as follows:
Supplemental financing amount, new loan = 
(A x C1)+(B x C2)-D

where:

A = The total funds ($) actually advanced from the first loan, including 
both RUS loan funds and funds from the supplemental loan, plus any 
unadvanced funds still available to the borrower after the rescission.
B = The total amount ($) for facilities of the new loan request, 
including both RUS funds and funds from supplemental loans.
C1 = The proportion (%) of supplemental financing required on 
the old loan according to paragraphs (a), (c)(1) and (c)(2) of this 
section.
C2 = The proportion (%) of supplemental financing required on 
the new loan according to paragraphs (a), (c)(1) and (c)(2) of this 
section.
D = The amount ($) of supplemental funds actually advanced on the first 
loan, plus any unadvanced supplemental funds still available to the 
borrower after the rescission.
    (d) Supplemental financing will not be required in connection with 
hardship rate loans. Borrowers that qualify for hardship rate loans but 
elect to take municipal rate loans instead, will be required to obtain 
supplemental financing pursuant to this section, unless at the time of 
loan approval, there are no funds remaining available for hardship 
loans, in which case supplemental financing will not be required.

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

    Effective Date Note: At 61 FR 66870, Dec. 19, 1996, Sec. 1710.110 
was amended by revising the first sentence of paragraph (a) and adding a 
new paragraph (c)(1)(iii), effective Jan. 21, 1997. For the convenience 
of the user, the superseded text is set forth as follows:
Sec. 1710.110  Supplemental financing.
    (a) Except in the case of financial hardship as determined by the 
Administrator, 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.

                                * * * * *



Sec. 1710.111  Refinancing.

    (a) RUS makes loans or loan guarantees to refinance the outstanding 
indebtedness of borrowers in the following cases:
    (1) Loans or loan guarantees to refinance long-term debt owed by 
borrowers to the Tennessee Valley Authority fpr credit extended under 
the terms of the Tennessee Valley Authority Act of 1933, as amended.
    (2) Loan guarantees made in accordance with the provisions of 
section 306A of the RE Act to prepay a loan (or any loan advance 
thereunder) made by the Federal Financing Bank.
    (b) In certain circumstances, RUS may make a loan to replace interim 
financing obtained for the construction of facilities (See 
Sec. 1710.109).



Sec. 1710.112  Loan feasibility.

    (a) RUS will make a loan only if there is reasonable assurance that 
the loan, together with all outstanding loans and other obligations of 
the borrower, will be repaid in full as scheduled, in accordance with 
the mortgage, notes, and loan contracts. The borrower must provide 
evidence satisfactory to the Administrator that the loan will be repaid 
in full as scheduled, and that all other obligations of the borrower 
will be met.

[[Page 163]]

    (b) Based on evidence submitted by the borrower and other 
information, RUS will use the following criteria to evaluate loan 
feasibility:
    (1) Projections of power requirements, rates, revenues, expenses, 
margins, and other factors for the present system and proposed additions 
are based on reasonable assumptions and adequate supporting data and 
analysis, including analysis of a range of assumptions for the 
significant variables, when required by Sec. 1710.300(d)(5).
    (2) Projected revenues from the rates proposed by the borrower are 
adequate to meet the required TIER and DSC ratios based on the 
borrower's total costs, including the projected maximum debt service 
cost of the new loan.
    (3) The economics of the borrower's operations and service area are 
such that consumers can reasonably be expected to pay the proposed rates 
required to cover all expenses and meet RUS TIER and DSC requirements, 
and the borrower can reasonably compete with other utilities and other 
energy sources to prevent substantial load loss while providing 
satisfactory service to its consumers.
    (4) Risks of possible loss of substantial loads from large consumers 
or from load concentrations in particular industries will not 
substantially impair loan feasibility.
    (5) Risks of loss of portions of the borrower's service territory 
from annexation or other causes will not substantially impair loan 
feasibility. If there appears to be a substantial risk, RUS may require 
additional information from the borrower, such as a summary and analysis 
of the risk by the borrower; state, county or local planning reports 
having information on projected growth or expansion plans of local 
communities; annexation plans of the municipalities in question; and any 
other relevant information.
    (6) In states where rates or investment decisions are subject to 
approval by state regulatory authorities, there is reasonable 
expectation that such approvals will be forthcoming to enable repayment 
of the loan in full according to its terms.
    (7) The experience and performance of the system's management is 
acceptable.
    (8) In the case of joint ventures, the borrower has sufficient 
management control or other contractual safeguards with respect to the 
construction and operation of the jointly owned facility to ensure that 
the borrower's interests are protected and the credit risk is minimized.
    (9) The borrower has implemented adequate financial and management 
controls and there are and have been no significant financial or other 
irregularities.
    (10) The borrower's projected capitalization, measured by its equity 
as a percentage of total assets, is adequate to enable the borrower to 
meet its financial needs and to provide service consistent with the RE 
Act. Among the factors to be considered in reviewing the borrower's 
projected capitalization are the economic strength of the borrower's 
service territory, the inherent cost of providing service to the 
territory, the disparity in rates between the borrower and neighboring 
utilities, the intensity of competition faced by the borrower from 
neighboring utilities and other power sources, and the relative amount 
of new capital investment required to serve existing or new loads.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5, 1992, as amended at 60 FR 
3731, Jan. 19, 1995]



Sec. 1710.113  Loan security.

    (a) RUS makes loans only if, in the judgment of the Administrator, 
the security therefor is reasonably adequate and the loan will be repaid 
according to its terms within the time agreed.
    (b) RUS generally requires that borrowers provide it with a first 
lien on all of the borrower's real and personal property, including 
intangible personal property and any property acquired after the date of 
the loan. This lien shall be in the form of a mortgage by the borrower 
to the Government or a deed of trust between the borrower and a trustee 
satisfactory to the Administrator, together with such security documents 
as RUS may deem necessary in a particular case.
    (c) When a borrower is unable by reason of preexisting encumbrances, 
or otherwise, to furnish a first mortgage

[[Page 164]]

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.
    (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.



Sec. 1710.114  TIER, DSC, OTIER and ODSC requirements.

    (a) General. Requirements for coverage ratios are set forth in the 
borrower's mortgage, loan contract, or other contractual agreements with 
RUS. The requirements set forth in this section apply to borrowers that 
receive a loan approved by RUS on or after February 10, 1992. Nothing in 
this section, however, shall reduce the coverage ratio requirements of a 
borrower that has contractually agreed with RUS to a higher requirement.
    (b) Coverage ratios. (1) Distribution borrowers. The minimum 
coverage ratios required of distribution borrowers, whether applied on 
an annual or average basis, are a TIER of 1.50, DSC of 1.25, OTIER of 
1.1, and ODSC of 1.1. OTIER and ODSC shall apply to distribution 
borrowers that receive a loan approved by RUS on or after January 29, 
1996.
    (2) The minimum coverage ratios required of power supply borrowers, 
whether applied on an annual or average basis, are a TIER of 1.05 and 
DSC of 1.00.
    (3) When new loan contracts are executed, the Administrator may, 
case by case, increase the coverage ratios of distribution and power 
supply borrowers above the levels cited in paragraphs (b)(1) and (b)(2), 
respectively, of this section if the Administrator determines that the 
higher ratios are required to ensure reasonable security for and/or the 
repayment of loans made or guaranteed by RUS. Also, the Administrator 
may, case by case, reduce said coverage ratios if the Administrator 
determines that the lower ratios are required to ensure reasonable 
security for and/or the repayment of loans made or guaranteed by RUS. 
Policies for coverage ratios following certain mergers, consolidations, 
and transfers of systems substantially in their entirety are in 7 CFR 
1717.155.
    (4) If a distribution borrower has in service or under construction 
a substantial amount of generation and associated transmission plant 
financed at a cost of capital substantially higher than the cost of 
funds under section 305 of the RE Act, then the Administrator may 
establish, in his or her sole discretion, blended levels for TIER, DSC, 
OTIER, and ODSC based on the respective shares of total utility plant 
represented by said generation and associated transmission plant and by 
distribution and other transmission plant.
    (c) Requirements for loan feasibility. To be eligible for a loan, 
borrowers must demonstrate to RUS that they will, on a pro forma basis, 
earn the coverage ratios required by paragraph (b) of this section in 
each of the years included in the borrower's long-range financial 
forecast prepared in support of its loan application, as set forth in 
subpart G of this part.
    (d) Requirements for maintenance of coverage ratios--(1) Prospective 
requirement. Borrowers must design and implement rates for utility 
service to provide sufficient revenue (along with

[[Page 165]]

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.

[60 FR 67404, Dec. 29, 1995, as amended at 61 FR 66871, Dec. 19, 1996]

    Effective Date Note: At 61 FR 66871, Dec. 19, 1996, Sec. 1710.114 
was amended by adding a sentence at the end of paragraph (b)(3), 
effective Jan. 21, 1997.



Sec. 1710.115  Final maturity.

    (a) RUS is authorized to make loans and loan guarantees with a final 
maturity of up to 35 years. The borrower may elect a repayment period 
for a loan not longer than the expected useful life of the facilities, 
not to exceed 35 years. Most of the electric facilities

[[Page 166]]

financed by RUS have a long useful life, often approximating 35 years. 
Some facilities, such as load management equipment and Supervisory 
Control and Data Acquisition equipment, have a much shorter useful life 
due, in part, to obsolescence. Operating loans to finance working 
capital required for the initial operation of a new system are a 
separate class of loans and usually have a final maturity of less than 
10 years.
    (b) Loans made or guaranteed by RUS for facilities owned by the 
borrower generally must be repaid with interest within a period, up to 
35 years, that approximates the expected useful life of the facilities 
financed. The expected useful life shall be based on the weighted 
average of the useful lives that the borrower proposes for the 
facilities financed by the loan, provided that the proposed useful lives 
are deemed appropriate by RUS. RUS Form 740c, Cost Estimates and Loan 
Budget for Electric Borrowers, submitted as part of the loan application 
must include, as a note, either a statement certifying that at least 90 
percent of the loan funds are for facilities that have a useful life of 
33 years or longer, or a schedule showing the costs and useful life of 
those facilities with a useful life of less than 33 years. The useful 
lives proposed by the borrower for the facilities financed must be 
consistent with the borrower's proposed depreciation rates for these 
facilities. In states where the borrower must obtain state regulatory 
authority approval of depreciation rates for rate making purposes, the 
depreciation rates used for the purposes of this paragraph shall be the 
rates currently approved by the state authority or rates for which the 
borrower plans to seek state authority approval, provided that these 
rates are deemed appropriate by RUS. In other states, if the rates 
proposed by the borrower are not deemed appropriate by RUS, RUS will 
base expected useful life on the depreciation rates listed in Bulletin 
183-1, or its successor, revising such rates as necessary to reflect 
current industry practice (for availability of bulletins, see 
Sec. 1710.5.). Final maturities for loans for the implementation of 
programs for demand side management and energy resource conservation and 
on and off grid renewable energy sources not owned by the borrower will 
be determined by RUS. Due to the uncertainty of predictions over an 
extended period of time, RUS may add up to 2 years to the composite 
average useful life of the facilities in order to determine final 
maturity.
    (c) [Reserved]
    (d) The Administrator may approve a repayment period longer than the 
expected useful life of the facilities financed, up to 35 years, if a 
longer final maturity is required to ensure repayment of the loan and 
loan security is adequate.
    (e) The final maturity of a loan established pursuant to the 
provisions of this section shall not be extended as a result of 
extending loan payments under section 12(a) of the RE Act.

[58 FR 66265, Dec. 20, 1993, as amended at 60 FR 3731, Jan. 19, 1995]
Sec. 1710.116  [Reserved]



Sec. 1710.117  Environmental considerations.

    Borrowers are required to comply with 7 CFR part 1794, which sets 
forth applicable requirements of the National Environmental Policy Act 
(NEPA), as amended (42 U.S.C. 4321 et seq.); the Council on 
Environmental Quality Regulations for Implementing the Procedural 
Provisions of NEPA (40 CFR parts 1500-1508); and certain other statutes, 
regulations and orders. Borrowers must also comply with any other 
applicable Federal or state environmental laws and regulations.
Sec. 1710.118  [Reserved]



Sec. 1710.119  Loan processing priorities.

    (a) Generally loans are processed in chronological order based on 
the date the complete application is received in the Regional office.
    (b) The Administrator may give priority to processing loans that are 
required to meet the following needs:
    (1) To restore electric service following a major storm or other 
catastrophe;
    (2) To bring existing electric facilities into compliance with any 
environmental requirements imposed by Federal or state law that were not 
in effect

[[Page 167]]

at the time the facilities were originally constructed;
    (3) To finance the capital needs of borrowers that are the result of 
a merger, consolidation, or a transfer of a system substantially in its 
entirety, provided that the merger, consolidation, or transfer has 
either been approved by RUS or does not need RUS approval pursuant to 
the borrower's loan documents (See 7 CFR 1717.154); or
    (4) To correct serious safety problems, other than those resulting 
from borrower mismanagement or negligence.
    (c) The Administrator may also change the normal order of processing 
loan applications when it is necessary to ensure that all loan authority 
for the fiscal year is utilized.

[57 FR 1053, Jan. 9, 1992, as amended at 61 FR 66871, Dec. 19, 1996]

    Effective Date Note: At 61 FR 66871, Dec. 19, 1996, Sec. 1710.119 
was amended by revising paragraph (b)(3), effective Jan. 21, 1997. For 
the convenience of the user, the superseded text is set forth as 
follows:
Sec. 1710.119  Loan processing priorities.

                                * * * * *

    (b) * * *
    (3) To finance the capital needs of borrowers that have merged or 
consolidated after the effective date of this regulation, provided that 
the merger or consolidation has been approved by RUS and determined to 
enhance the repayment or security of RUS loans. Such priority will be 
considered for a period up to 5 years after RUS approval of the merger 
or consolidation; or

                                * * * * *



Sec. 1710.120  Construction standards and contracting.

    Borrowers shall follow all RUS requirements regarding construction 
work plans, construction standards, approved materials, construction and 
related contracts, inspection procedures, and bidding procedures.



Sec. 1710.121  Insurance requirements.

    Borrowers are required to comply with certain requirements with 
respect to insurance and fidelity coverage as set forth in 7 CFR part 
1788.



Sec. 1710.122  Equal opportunity and nondiscrimination.

    Borrowers are required to comply with certain regulations on 
nondiscrimination in program services and benefits and on equal 
employment opportunity as set forth in RUS Bulletins 20-15 and 20-19 or 
their successors; 7 CFR parts 15 and 15b; and 45 CFR part 90.



Sec. 1710.123  Debarment and suspension.

    Borrowers are required to comply with certain requirements on 
debarment and suspension as set forth in 7 CFR part 3017.



Sec. 1710.124  Uniform Relocation Act.

    Borrowers are required to comply with applicable provisions of 49 
CFR part 24, which sets forth the requirements of the Uniform Relocation 
Assistance and Real Property Acquisition Policy Act of 1970 (Pub. L. 91-
646; 84 Stat. 1894), as amended by the Uniform Relocation Act Amendments 
of 1987 (Pub. L. 100-17; 101 Stat. 246-256) and the Intermodal Surface 
Transportation Efficiency Act of 1991.



Sec. 1710.125  Restrictions on lobbying.

    Borrowers are required to comply with certain requirements with 
respect to restrictions on lobbying activities. See 7 CFR part 3018.



Sec. 1710.126  Federal debt delinquency.

    (a) Prior to approval of a loan or advance of funds, a borrower must 
report to RUS whether or not it is delinquent on any Federal debt, such 
as Federal income tax obligations or a loan or loan guarantee from 
another Federal agency. If delinquent, the reasons for the delinquency 
must be explained, and RUS will take such explanation into consideration 
in deciding whether to approve the loan or advance of funds.
    (b) Applicants for a loan or loan guarantee must also certify that 
they have been informed of the collection options the Federal government 
may use to collect delinquent debt.



Sec. 1710.127  Drug free workplace.

    Borrowers are required to comply with the Drug Free Workplace Act of 
1988 (Pub. L. 100-690, title V, subtitle D)

[[Page 168]]

and the Act's implementing regulations (7 CFR part 3017) when a borrower 
receives a Federal grant or enters into a procurement contract awarded 
pursuant to the provisions of the Federal Acquisition Regulation (title 
48 CFR) to sell to a Federal agency property or services having a value 
of $25,000 or more.
Secs. 1710.128--1710.149  [Reserved]



             Subpart D--Basic Requirements for Loan Approval



Sec. 1710.150  General.

    The RE Act and prudent lending practice require that the 
Administrator make certain findings before approving an electric loan or 
loan guarantee. The borrower shall provide the evidence determined by 
the Administrator to be necessary to make these findings.



Sec. 1710.151  Required findings for all loans.

    (a) Area coverage. Adequate electric service will be made available 
to the widest practical number of rural users in the borrower's service 
area during the life of the loan. See Sec. 1710.103.
    (b) Feasibility. The loan is feasible and it will be repaid on time 
according to the terms of the mortgage, note, and loan contract. At any 
time after the original determination of feasibility, the Administrator 
may require the borrower to demonstrate that the loan remains feasible 
if there have been, or are anticipated to be, material changes in the 
borrower's costs, loads, rates, rate disparity, revenues, or other 
relevant factors from the time that feasibility was originally 
determined. See Sec. 1710.112 and subpart G of this part.
    (c) Security. RUS will have a first lien on the borrower's total 
system or other adequate security, and adequate financial and managerial 
controls will be included in loan documents. See Sec. 1710.113.
    (d) Interim financing. For loans that include funds to replace 
interim financing, there is satisfactory evidence that the interim 
financing was used for purposes approved by RUS and that the loan meets 
all applicable requirements of this part.
    (e) Facilities for nonrural areas. Whenever a borrower proposes to 
use loan funds for the improvement, expansion, construction, or 
acquisition of electric facilities for non-RE Act beneficiaries, there 
is satisfactory evidence that such funds are necessary and incidental to 
furnishing or improving electric service for RE Act beneficiaries. See 
Sec. 1710.104.
    (f) Facilities to be included in rate base. In states having 
jurisdiction, the borrower has provided satisfactory evidence based on 
the information available, such as an opinion of counsel, that the state 
regulatory authority will not exclude from the borrower's rate base any 
of the facilities included in the loan request, or otherwise prevent the 
borrower from charging rates sufficient to repay with interest the debt 
incurred for the facilities. Such evidence may be based on, but not 
necessarily limited to, the provisions of applicable state laws; the 
rules and policies of the state authority; precedents in other similar 
cases; statements made by the state authority; any assurances given to 
the borrower by the state authority; and other relevant information and 
experience.



Sec. 1710.152  Primary support documents.

    The following primary support documents and studies must be prepared 
by the borrower for approval by RUS in order to support a loan 
application:
    (a) Power requirements study (PRS). This study provides the borrower 
and RUS with an understanding of the borrower's system loads, the 
factors influencing those loads, and valid estimates of future loads. It 
provides a basis for projecting annual kWh sales and revenues, and for 
engineering estimates of plant additions required to accommodate the 
forecasted loads. The requirements for a PRS and the circumstances under 
which one must be submitted to RUS are set forth in subpart E of this 
part.
    (b) Construction work plan (CWP). The CWP shall specify and document 
the capital investments required to serve a borrower's planned new 
loads, improve service reliability and quality, and service the changing 
needs of existing loads. The requirements for a CWP are set forth in 
subpart F of this part.

[[Page 169]]

    (c) Long-range financial forecasts. RUS encourages borrowers to 
maintain on a current basis a long-range financial forecast, which 
should be used by a borrower's board of directors and manager to guide 
the system toward its financial goals. The forecast submitted in support 
of a loan application shall show the projected results of future actions 
planned by the board of directors. The requirements for a long-range 
financial forecast are set forth in subpart G of this part.
    (d) Borrower's environmental report (BER). This document is used to 
determine what effect the construction of the facilities included in the 
construction work plan will have on the environment. In developing a BER 
a borrower shall follow the policy and procedural requirements set forth 
in 7 CFR part 1794. After reviewing the BER, RUS will determine whether 
additional environmental studies will be required.



Sec. 1710.153  Additional requirements and procedures.

    Additional requirements and procedures for obtaining RUS financial 
assistance are set forth in 7 CFR part 1712 for loan guarantees, and in 
7 CFR part 1714 for insured loans.
Secs. 1710.154--1710.199  [Reserved]



                  Subpart E--Power Requirements Studies



Sec. 1710.200  Purpose.

    This subpart sets forth the policies, procedures and criteria for 
the preparation, approval and use of power requirements studies (PRSs) 
and PRS work plans. A PRS is a thorough study of a borrower's electric 
loads and the factors that affect those loads in order to determine, as 
accurately as practicable, the borrower's future requirements for energy 
and capacity. The PRS of a power supply borrower includes and integrates 
the PRSs of its member systems.



Sec. 1710.201  Requirement to prepare a PRS--power supply borrowers.

    (a) A power supply borrower having total assets of $300 million or 
more shall:
    (1) Meet one of the following two requirements:
    (i) Prepare and obtain RUS approval of a new PRS not less frequently 
than every 3 years, which shall include new or revised equations and 
models, and annually update the PRS in the intervening years based on 
new data and assumptions, but not necessarily new or revised equations 
and models, and file the annual updates with RUS; or
    (ii) Prepare and obtain RUS approval of a new PRS not less 
frequently than every 2 years, which shall include new or revised 
equations and models;
    (2) Maintain a current PRS work plan approved by RUS which shall set 
forth the resources, methods, schedules and milestones required for the 
preparation and maintenance of the PRS; and
    (3) Provide a current PRS approved by RUS in support of any request 
for RUS financial assistance or for RUS approval of long-term power 
contracts or other actions as appropriate.
    (b) A power supply borrower with total assets of less than $300 
million is not required to have a current, RUS-approved PRS on an 
ongoing basis but is required to provide a current, RUS-approved PRS in 
support of:
    (1) An application for an RUS loan or loan guarantee if said loan or 
guarantee exceeds $25 million or 10 percent of the borrower's total 
utility plant, whichever is smaller; and
    (2) Requests for RUS approval of long-term power contracts or other 
actions, as may be required by RUS on a case by case basis.
    (c) A power supply borrower that is a member of another power supply 
borrower that has total assets of $300 million or more is subject to the 
requirements of Sec. 1710.201(a), except that such member is not 
required to have a separate PRS work plan. The distribution members of 
such a power supply borrower are also subject to the requirements of 
Sec. 1710.201(a), except that such members are not required to have 
separate PRS work plans.
    (d) At the borrower's request, RUS may extend for up to 3 months the 
time frames set forth in Sec. 1710.201(a)(1) if RUS determines the 
borrower is in substantial compliance with its RUS-approved work plan 
and significant

[[Page 170]]

changes in existing PRS models and assumptions are not required.
    (e) For purposes of paragraphs (a)(3) and (b) of this section, the 
determination of whether a borrower's PRS is current will be made by RUS 
at the time financial assistance or other RUS action is requested. The 
borrower may be required to update the PRS to incorporate the most 
recently available operating data and other information.



Sec. 1710.202  Requirement to prepare a PRS--distribution borrowers.

    (a) If a distribution borrower is a member of a power supply 
borrower that has total assets of $300 million or more, it must meet the 
requirements of Sec. 1710.201(a), except for the requirement to prepare 
a work plan, which is the responsibility of the power supply borrower. 
Certain other distribution borrowers, as set forth in Sec. 1710.201(c), 
are also subject to provisions of Sec. 1710.201(a).
    (b) All other distribution borrowers, including unaffiliated 
distribution systems as well as members of power supply borrowers with 
total assets of less than $300 million, must either:
    (1) Meet the requirements of Sec. 1710.201(a), if the distribution 
borrower owns generation and bulk transmission plant valued at $300 
million or more, or
    (2) Meet the requirements of Sec. 1710.201(b), except that the loan 
threshold set forth in paragraph (b)(1) in the case of these 
distribution borrowers shall be $3 million and 10 percent of total 
utility plant.



Sec. 1710.203  Basic policies and requirements for a PRS.

    (a) A PRS or PRS update must be completed and submitted to RUS on a 
timely basis to enable prompt review by RUS.
    (b) A PRS completed more than 12 months prior to submission will not 
be considered by RUS.
    (c) Adequate coordination is required between power supply borrowers 
and their members in the preparation of their respective PRSs or PRS 
updates.
    (d) To facilitate RUS review of the PRS work plan and the PRS, the 
borrower shall make available to RUS appropriate staff for consultation, 
and all essential documentation, data, and other relevant information, 
in formats acceptable to RUS, that support the PRS work plan and the 
PRS.
    (e) Notwithstanding any other provisions of this subpart, any power 
supply or distribution borrower may be required to prepare a new or 
updated PRS, or to maintain a current PRS on an ongoing basis, if 
required for RUS to determine loan feasibility, to ensure loan security, 
or to consider requests submitted for approval under a borrower's loan 
contract or mortgage.
    (f) All PRSs shall include the following information, using a format 
approved by RUS, unless such information has already been provided to 
RUS in the PRS work plan or other submissions:
    (1) A discussion of the scope of the PRS, including the proposed 
uses of the information developed for planning load management and 
energy efficiency programs, plant investments, and financial 
requirements;
    (2) A discussion of the borrower personnel, consultants, data, and 
other resources used in the preparation of the PRS;
    (3) A discussion of the procedures used to collect, validate, 
process, and update the data used in the study;
    (4) Documentation of the analysis and modeling of the borrower's 
electric system loads and other pertinent information used in the PRS. 
All relevant data, primary sensitivity analyses and other substantive 
procedures used to test significant assumptions and to generate the load 
estimates and related factors must be included in the PRS or otherwise 
made available to RUS, and clearly identified, sourced and dated;
    (5) An analysis of the borrower's past, existing, and future 
electric system loads of RE Act beneficiaries and others, including 
explanation and documentation of all substantive assumptions, primary 
sensitivity analyses and other substantive considerations used to 
prepare the estimates. Areas of analysis shall normally include, but are 
not limited to: developing land use patterns; potential losses of load 
due to annexation or other causes; prospective residential and 
commercial development; probable rate levels; the effects

[[Page 171]]

of rates and competition from neighboring utilities on loads; existing 
and anticipated patterns of energy usage and appliance saturation; and 
availability of alternative energy sources. Load management, 
conservation, and power marketing considerations must also be included;
    (6) A discussion and analysis of alternative scenarios, which shall 
be required for all PRSs submitted to RUS for approval after January 1, 
1993. Normally, unless waived by RUS under Sec. 1710.206, the borrower 
shall provide a discussion and analysis of the following five scenarios:
    (i) Most-probable economic assumptions, with normal weather;
    (ii) Most-probable economic assumptions, with severe weather causing 
higher loads;
    (iii) Most-probable economic assumptions, with mild weather causing 
lower loads;
    (iv) Normal weather with more pessimistic macroeconomic assumptions 
causing lower loads; and
    (v) Normal weather with more optimistic macroeconomic assumptions 
causing higher loads;
    (7) Completed RUS Forms 341 and 345 and 10 years data from RUS Form 
7 part R. Computer-generated facsimiles may be used if acceptable in 
form to RUS. Graphs, tables, spreadsheets or other exhibits shall be 
included as appropriate;
    (8) A discussion and documentation of the coordination activities 
between a power supply borrower and its RUS-borrower members, as 
applicable, and between the borrower and RUS. If a power supply borrower 
and any member disagree on an issue or estimate, RUS will provide 
assistance, if requested, in attempting to resolve the disagreement;
    (9) The borrower's general manager's recommendation to the board of 
directors on adoption of the PRS; and
    (10) Approval of the PRS by the borrower's board of directors.
    (g) A PRS and its essential supporting data and analysis shall be 
retained in the borrower's records until the next new PRS is approved by 
RUS.
    (h) Completed PRSs submitted to RUS for approval prior to the 
effective date of this part, as well as PRSs prepared under work plans 
approved by RUS prior to the effective date of this part, may meet the 
requirements of paragraph (f) of this section or corresponding 
requirements of RUS Bulletin 120-1, at the option of the borrower. All 
other PRSs must meet the requirements of paragraph (f) of this section.



Sec. 1710.204  PRS work plan requirements.

    (a) All borrowers required to prepare and maintain a PRS on an 
ongoing basis are required to prepare and obtain RUS approval of a PRS 
work plan, except for those borrowers that are members of a power supply 
borrower that is required to prepare a PRS work plan. The PRS work plan 
shall establish the resources, methods, schedules, and milestones to be 
used in the preparation and maintenance of the PRS.
    (b) A power supply borrower's work plan shall include the member 
inputs and coordination mechanisms required for the preparation of its 
PRS as well as the PRSs of the system's members. Member concurrences in 
the work plan are required before the plan is submitted to RUS for 
approval. The member systems, as well as the power supply borrower, are 
required to follow the work plan in preparing their respective PRS.
    (c) A PRS work plan must be approved by the borrower's board of 
directors.
    (d) A borrower may amend its work plan subject to RUS approval. A 
new or revised work plan may be required by RUS if RUS concludes the 
existing plan will not result in a satisfactory PRS on a timely basis.
    (e) In addition, a PRS work plan shall:
    (1) Identify the borrower and, as applicable, member personnel that 
will serve as project leaders or liaisons with the authority to make 
decisions and commit resources within the scope of the work plan;
    (2) Provide for residential consumer surveys at least every 3 years 
to obtain data on appliance and equipment saturation and electricity 
demand, when residential demand is 50 percent or more of total kWh 
sales. In the case of a power supply borrower, such surveys

[[Page 172]]

shall be coordinated with the borrower's members. They may be based on 
the aggregation of member-based samples or on a system-wide sample, 
provided that the latter provides for relevant regional breakdowns as 
appropriate;
    (3) Provide for all other data collection and verification, 
analyses, modeling, and documentation required in Sec. 1710.203; and
    (4) Provide for an ongoing RUS review of the PRS.
    (f) Generally, a work plan shall cover a period of 1 to 3 years.

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



Sec. 1710.205  Basic criteria for RUS approval of a PRS.

    RUS will use the following basic criteria in deciding whether to 
approve a PRS:
    (a) The borrower objectively analyzed all relevant factors that 
influence the consumption of electricity and the requirements for 
generation and transmission capacity;
    (b) The borrower accurately analyzed power requirements stemming 
from RE Act beneficiaries and non-RE Act beneficiaries;
    (c) The borrower developed adequate supporting data, used valid 
assumptions, analyzed a reasonable range of relevant alternative 
assumptions and scenarios, and used valid and verifiable analytical 
techniques and models;
    (d) The borrower provided RUS with adequate documentation and 
assistance to allow for a thorough and independent review;
    (e) In the case of a power supply borrower, the preparation of the 
work plan and PRS was adequately coordinated with its members; and
    (f) The PRS was recommended for approval by the borrower's general 
manager and has been approved by the borrower's board of directors.



Sec. 1710.206  Waiver of borrower requirements.

    For good cause shown by the borrower, the Administrator may waive 
any of the requirements applicable to borrowers in this subpart if the 
Administrator determines that waiving the requirement will not 
significantly affect accomplishment of the objectives of this subpart 
and if the requirement imposes a substantial burden on the borrower. The 
waiver must be requested in writing by the borrower's general manager.

(Approved by the Office of Management and Budget under control number 
0572-0032)
Secs. 1710.207--1710.249  [Reserved]



         Subpart F--Construction Work Plans and Related Studies



Sec. 1710.250  General.

    (a) An ongoing, integrated planning system is needed by borrowers to 
determine their short-term and long-term needs for plant additions, 
improvements, replacements, and retirements. The primary components of 
the system consist of long-range engineering plans, construction work 
plans (CWPs), CWP amendments, and special engineering and cost studies. 
Long range engineering plans identify plant investments required over a 
period of 10 years or more. CWPs specify and document plant requirements 
for the short-term, usually 2 to 3 years, and special engineering and 
cost studies are used to support CWPs and to identify and document 
requirements for specific items or purposes, such as load management 
equipment, System Control and Data Acquisition equipment, sectionalizing 
investments, and additions of generation capacity and associated 
transmission plant.
    (b) Generally, all borrowers are required to maintain up-to-date 
long range engineering plans approved by their boards of directors. 
Current CWPs approved by the borrower's board must also be developed and 
maintained for distribution and transmission facilities and for 
improvements and replacements of generation facilities. All such 
distribution, transmission or generation facilities must be included in 
the respective CWPs regardless of the source of financing.
    (c) A long range engineering plan specifies and supports the major 
system additions, improvements, replacements, and retirements needed for 
an orderly transition from the existing system to the system required 10 
or more years in the future. The planned

[[Page 173]]

future system should be based on the most technically and economically 
sound means of serving the borrower's long-range loads in a reliable and 
environmentally acceptable manner, and it should ensure that planned 
facilities will not become obsolete prematurely.
    (d) A CWP shall include investment cost estimates and supporting 
engineering and cost studies to demonstrate the need for each proposed 
facility or activity and the reasonableness of the investment 
projections and the engineering assumptions used in sizing the 
facilities. The CWP must be consistent with the borrower's long range 
engineering plan and both documents must be consistent with the 
borrower's RUS-approved power requirements study.
    (e) Applications for a loan or loan guarantee from RUS (new loans or 
budget reclassifications) must be supported by a current CWP approved by 
both the borrower's board of directors and RUS. RUS approval of these 
plans relates only to the facilities, equipment, and other purposes to 
be financed by RUS, and means that the plans provide an adequate basis 
from a planning and engineering standpoint to support RUS financing. RUS 
approval of the plans does not mean that RUS approves of the facilities, 
equipment, or other purposes for which the borrower is not seeking RUS 
financing. If RUS disagrees with a borrower's estimate of the cost of 
one or more facilities for which RUS financing is sought, RUS may adjust 
the estimate after consulting with the borrower and explaining the 
reasons for the adjustment.
    (f) Except as provided in paragraph (g) of this section, to be 
eligible for RUS financing, the facilities, including equipment and 
other items, included in a CWP must be approved by RUS before the start 
of construction. This requirement also applies to any amendments to a 
CWP required to add facilities to a CWP or to make significant physical 
changes in the facilities already included in a CWP.
    (g) In the case of damage caused by storms and other natural 
catastrophes, a borrower may proceed with emergency repair work before a 
CWP or CWP amendment is prepared by the borrower and approved by RUS, 
without loosing eligibility for RUS financing of the repairs. The 
borrower must notify the RUS regional office in writing, not later than 
45 days after the natural catastrophe, of its preliminary estimates of 
damages and repair costs. Not later than 120 days after the natural 
catastrophe, the borrower must submit to RUS for approval, a CWP or CWP 
amendment detailing the repairs.
    (h) A CWP may be amended or augmented when the borrower can 
demonstrate the need for the changes.
    (i) A borrower's CWP or special engineering studies must be 
supported by a Borrower's Environmental Report, and when necessary by an 
Environmental Analysis or Environmental Impact Statement, as set forth 
in 7 CFR 1794 or required by other Federal or state regulations or laws.
    (j) All engineering activities required by this subpart must be 
performed by qualified engineers, who may be staff employees of the 
borrower or outside consultants.
    (k) Upon written request from a borrower, RUS may waive in writing 
certain requirements with respect to long-range engineering plans and 
CWPs if RUS determines that such requirements impose a substantial 
burden on the borrower and that waiving the requirements will not 
significantly affect the accomplishment of the objectives of this 
subpart. For example, if a borrower's load is forecast to remain 
constant or decline during the planning period, RUS may waive those 
portions of the plans that relate to load growth.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5, 1992, as amended at 60 FR 
67405, Dec. 29, 1995



Sec. 1710.251  Construction work plans--distribution borrowers.

    (a) All distribution borrowers must maintain a current CWP approved 
by their board of directors covering all new construction, improvements, 
replacements, and retirements of distribution and transmission plant, 
and improvements replacements, and retirements of any generation plant. 
Construction of new generation capacity need not be included in a CWP 
but must be specified and supported by specific engineering and cost 
studies. (See Sec.  1710.253.)

[[Page 174]]

    (b) A distribution borrower's CWP shall cover a construction period 
of between 2 and 4 years, and include all facilities to be constructed 
which are eligible for RUS financing, whether or not RUS financial 
assistance will be sought or be available for certain facilities. Any 
RUS financing provided for the facilities will be limited to a 4 year 
loan period. The construction period covered by a CWP in support of a 
loan application shall not be shorter than the loan period requested for 
financing of the facilities.
    (c) The facilities, equipment and other items included in a 
distribution borrower's CWP may include:
    (1) Line extensions required to connect consumers, improve service 
reliability or improve voltage conditions;
    (2) Distribution tie lines to improve reliability of service and 
voltage regulation;
    (3) Line conversions and changes required to improve existing 
services or provide additional capacity for new consumers;
    (4) New substation facilities or additions to existing substations;
    (5) Transmission and substation facilities required to support the 
distribution system;
    (6) Distribution equipment required to serve new consumers or to 
provide adequate and dependable service to existing consumers, including 
replacement of existing plant facilities;
    (7) Residential security lights;
    (8) Communications equipment and meters;
    (9) Headquarters facilities;
    (10) Improvements, replacements, and retirements of generation 
facilities;
    (11) Load management equipment, automatic sectionalizing facilities, 
and centralized System Control and Data Acquisition equipment. Load 
management equipment eligible for financing, including the related costs 
of installation, is limited to capital equipment designed to influence 
the time and manner of consumer use of electricity, which includes peak 
clipping and load shifting. To be eligible for financing, such equipment 
must be owned by the borrower, although it may be located inside or 
outside a consumer's premises; and
    (12) The cost of engineering, architectural, environmental and other 
studies and plans needed to support the construction of facilities, when 
such cost is capitalized as part of the cost of the facilities.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5, 1992, as amended at 60 FR 
3731, Jan. 19, 1995; 60 FR 67405, Dec. 29, 1995]



Sec. 1710.252  Construction work plans--power supply borrowers.

    (a) All power supply borrowers must maintain a current CWP approved 
by the borrower's board of directors covering all new construction, 
improvements, replacements, and retirements of distribution and 
transmission plant, and improvements, replacements, and retirements of 
generation plant. Applications for RUS financial assistance for such 
facilities must be supported by a current, RUS-approved CWP. 
Construction of new generation capacity need not be included in a CWP 
but must be specified and supported by specific engineering and cost 
studies.
    (b) Normally a power supply borrower's CWP shall cover a period of 3 
to 4 years. While comprehensive CWP's are desired, if there are 
extenuating circumstances RUS may accept a single-purpose transmission 
or generation CWP in support of a loan application or budget 
reclassification. The construction period covered by a CWP in support of 
a loan application shall not be shorter than the loan period requested 
for financing of the facilities.
    (c) Facilities, equipment, and other items included in a power 
supply borrower's CWP may include:
    (1) Distribution and related facilities as set forth in 
Sec. 1710.251(c);
    (2) Transmission facilities required to deliver the power needed to 
serve the existing and planned new loads of the borrower and its 
members, and to improve service reliability, including tie lines for 
improved reliability of service, line conversions, improvements and 
replacements, new substations and substation improvements and 
replacements, and Systems Control and Data Acquisition equipment, 
including communications, dispatching and sectionalizing equipment, and 
load management equipment;

[[Page 175]]

    (3) The borrower's proportionate share of transmission facilities 
required to tie together the operating systems of supporting power pools 
and to connect with adjacent power suppliers;
    (4) Improvements and replacements of generation facilities; and
    (5) The cost of engineering, architectural, environmental and other 
studies and plans needed to support the construction of facilities, when 
such cost is capitalized as part of the cost of the facilities.
    (d) A CWP for transmission facilities shall normally include studies 
of load flows, voltage regulation, and stability characteristics to 
demonstrate system performance and needs.

[57 FR 1053, Jan. 9, 1992, as amended at 60 FR 3731, Jan. 19, 1995; 60 
FR 67405, Dec. 29, 1995]



Sec. 1710.253  Engineering and cost studies--addition of generation capacity.

    (a) The construction or purchase of additional generation capacity 
and associated transmission facilities by a power supply or distribution 
borrower, including the replacement of existing capacity, shall be 
supported by comprehensive project-specific engineering and cost studies 
as specified by RUS. The studies shall cover a period from the beginning 
of the project to at least 10 years after the start of commercial 
operation of the facilities.
    (b) The studies must include comprehensive economic present-value 
analyses of the costs and revenues of the available self-generation, 
load management, energy conservation, and purchased-power options, 
including assessments of service reliability and financing requirements 
and risks. Requirements for analyzing purchased-power options are set 
forth in Sec. 1710.254.
    (c) Generally, studies of self-generation, load management, and 
energy conservation options shall include, as appropriate, analyses of:
    (1) Capital and operating costs;
    (2) Financing requirements and risks;
    (3) System reliability;
    (4) Alternative unit sizes;
    (5) Alternative types of generation;
    (6) Fuel alternatives;
    (7) System stability;
    (8) Load flows; and
    (9) System dispatching.
    (d) At the request of a borrower, RUS, in its sole discretion, may 
waive specific requirements of this section if such requirements imposed 
a substantial burden on the borrower and if such waiver will not 
significantly affect the accomplishment of the objectives of this 
subpart.



Sec. 1710.254  Alternative sources of power.

    (a) General. (1) RUS will make loans to finance the construction of 
generation facilities by distribution or power supply borrowers and 
transmission facilities by power supply borrowers only under the 
following conditions if said borrowers do not already own and operate 
such types of facilities:
    (i) Where no adequate and dependable source of power is available to 
meet the consumers' needs; or
    (ii) Where the rates offered by other power sources would result in 
a higher cost of power to the consumers than the cost from facilities 
financed by RUS, and the amount of the power cost savings that would 
result from the RUS-financed facilities bears a significant relationship 
to the amount of the proposed loan.
    (2) If a borrower already owns and operates the types of facilities 
included in a loan request, then a loan for the purposes set forth in 
paragraph (a)(1) of this section, as well as for the construction of 
transmission facilities by a distribution borrower, will be considered 
and evaluated by RUS in terms of whether the proposed facilities 
constitute the most effective and economical means of meeting the power 
requirements of the consumers.
    (b) Loan requests for addition of generation capacity, including 
replacement of existing capacity, will be accepted by RUS only when the 
applicant has satisfactorily completed the investigations of possible 
alternative sources of power as set forth in this section. The 
investigations must be coordinated in advance with RUS. The capacity in 
question may be owned solely by the borrower or owned on an undivided 
ownership basis with other utilities.

[[Page 176]]

    (c) The applicant is required to search out and attempt to utilize 
capacity available from RUS borrowers and other organizations before 
developing plans for additional generation capacity. The applicant 
shall:
    (1) Solicit power and energy purchase proposals from all reasonable 
potential sources of power, such as other electric cooperatives, 
investor-owned utilities, municipal utility organizations, and Federal 
and state power authorities.
    (2) Except as herein exempted, solicit proposals from independent 
power producers, including co-generators, to determine the terms and 
conditions under which these producers can supply the additional power 
and energy needs of the applicant, without RUS financial assistance. 
Such solicitations shall be placed in at least three national newspapers 
or trade publications, and they shall meet all planning, coordination or 
other requirements imposed by state authorities, as well as RUS's 
environmental requirements. The following projects are exempted from 
this requirement to solicit proposals:
    (i) Additions to or replacements of generation capacity of less than 
10 megawatts.
    (ii) Modifications of existing generation units if any resulting 
increase in generation capacity does not exceed 10 percent of the 
capacity of the existing unit.
    (d) The applicant will evaluate all alternative proposals on an 
economic, present-value basis, giving consideration to cost-
effectiveness, reliability of service, the short- and long-term 
financial viability of the supplier, and the financial risk to the 
borrower and its creditors. The applicant will keep RUS fully informed 
on these evaluations and provide supporting information and analysis as 
requested by RUS.
    (e) After evaluation of all proposals and having informed RUS of the 
results, the applicant will be expected to negotiate final proposals 
with the entities submitting the best acceptable offers, if any, keeping 
RUS fully informed. All contracts entered into shall either be approved 
in advance by the Administrator or contain language to the effect that 
the contract is not valid until approved in writing by the 
Administrator. The Administrator will approve such contracts in a timely 
manner provided that the borrower has met all applicable requirements, 
including RUS's environmental requirements, and provided adequate 
evidence that the alternative selected is the most economical and 
effective alternative.
    (f) RUS may make independent inquiries with potential power 
suppliers as to the availability of power to meet borrowers' needs. 
Information developed by RUS will be shared with borrowers at their 
request.
    (g) Further details of RUS requirements for financing of generation 
and bulk transmission facilities are set forth in 7 CFR part 1712.
    (h) At the request of a borrower, RUS, in its sole discretion, may 
waive specific requirements of paragraphs (b) through (e) of this 
section if such waiver is required to prevent unreasonable delays in 
obtaining generation capacity that could result in system reliability 
problems.


(Approved by the Office of Management and Budget under control number 
0572-0032)
Secs. 1710.255--1710.299  [Reserved]



                Subpart G--Long-Range Financial Forecasts



Sec. 1710.300  General.

    (a) RUS encourages borrowers to maintain a current long-range 
financial forecast. The forecast should be used by the board of 
directors and the manager to guide the system towards its financial 
goals.
    (b) A borrower must prepare, for RUS review and approval, a long-
range financial forecast, approved by its board of directors, in support 
of its loan application. The forecast must demonstrate that the 
borrower's system is economically viable and that the proposed loan is 
financially feasible. Loan feasibility will be assessed based on the 
criteria set forth in Sec. 1710.112.
    (c) The financial forecast and related projections submitted in 
support of a loan application shall include:
    (1) The projected results of future actions planned by the 
borrower's board of directors;

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    (2) The financial goals established for margins, TIER, DSC, equity, 
and levels of general funds to be invested in plant;
    (3) A pro forma balance sheet, statement of operations, and general 
funds summary projected for each year during the forecast period;
    (4) A full explanation of the assumptions, supporting data, and 
analysis used in the forecast, including the methodology used to project 
loads, rates, revenue, power costs, operating expenses, plant additions, 
and other factors having a material effect on the balance sheet and on 
financial ratios such as equity, TIER, and DSC;
    (5) Current and projected cash flows;
    (6) Projections of future borrowings and the associated interest and 
principal expenses required to meet the projected investment 
requirements of the system;
    (7) Current and projected kW and kWh energy sales;
    (8) Current and projected unit prices of significant variables such 
as retail and wholesale power prices, average labor costs, and interest;
    (9) Current and projected system operating costs, including, but not 
limited to, wholesale power costs, depreciation expenses, labor costs, 
and debt service costs;
    (10) Current and projected revenues from sales of electric power and 
energy;
    (11) Current and projected non-operating income and expense;
    (12) A discussion of the historical experience of the borrower, and 
in the case of a power supply borrower its member systems as 
appropriate, with respect to the borrower's market competitiveness as it 
relates to the rates charged for electricity, competition from other 
fuels, and other factors. Additional data and analysis may be required 
by RUS on a case by case basis to assess the probable future 
competitiveness of those borrowers that have a history of serious 
competitive problems; and
    (13) An analysis of the effects of major factors, such as projected 
increases in rates charged for electricity, on the ability of the 
borrower, and in the case of a power supply borrower its member systems, 
to compete with neighboring utilities and other energy sources.
    (d) The following plans, studies and assumptions shall be used in 
developing the financial forecast:
    (1) The RUS-approved CWP;
    (2) RUS-approved power requirements data;
    (3) The current rate schedules or new rates already approved by the 
board of directors;
    (4) Future plant additions and operating expenses projected at 
anticipated future cost levels rather than in constant dollars, with the 
annual rate of inflation for major items specified; and
    (5) A reasonable range of assumptions for each of the major 
variables to test the sensitivity of the results to changes in 
assumptions, if the financial forecast is used in support of a loan or 
loan guarantee that exceeds the smaller of 10 percent of the borrower's 
total utility plant or the following dollar amount: $25 million for 
power supply borrowers, or $3 million for distribution borrowers.
    (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.
    (f) RUS will 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.



Sec. 1710.301  Financial forecasts--distribution borrowers.

    (a) Financial forecasts prepared by distribution borrowers shall 
cover at least a ten-year period, unless a shorter period is authorized 
by other RUS regulations.
    (b) In addition to the requirements set forth in Sec. 1710.300 of 
this part, financial forecasts prepared by distribution borrowers in 
support of a loan application shall:
    (1) Include expenditures for any maintenance determined to be needed 
in the current system's operation and

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maintenance review and evaluation in order to comply with mortgage 
covenants and prudent utility practice;
    (2) Fully explain the basis for the power cost projections used. 
Generally, the power supplier's most recent forecasted rates shall be 
used; and
    (3) Use RUS Form 325 or computer-generated equivalent reports.



Sec. 1710.302  Financial forecasts--power supply borrowers.

    (a) The requirements of this section apply only to financial 
forecasts submitted by power supply borrowers in support of a loan from 
RUS. The financial forecast prepared by power supply borrowers shall 
demonstrate the effects that the addition of generation, transmission 
and any distribution facilities will have on the power supply borrower's 
sales, costs, and revenues, and on the cost of power to the member 
distribution systems.
    (b) The financial forecast shall cover a period beginning with the 
present and extending at least 10 years beyond the projected in-service 
date of proposed generation and transmission facilities.
    (c) Financial forecasts prepared in support of loan applications to 
finance additional generation capacity shall include a power cost study 
as set forth in Sec. 1710.303.
    (d) In addition to the requirements set forth in Sec. 1710.300, 
financial forecasts prepared by power supply borrowers shall:
    (1) Identify all plans for generation and transmission capital 
additions and system operating expenses on a year-by-year basis, 
beginning with the present and running for a minimum of 10 years after 
initial commercial operation of the facilities. RUS may request 
projections for a longer period of time if deemed necessary;
    (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 as required by Sec. 1710.300(d)(5). 
Examples of sensitivity analysis that might be used are:
    (i) Effects of a 100 to 200 basis point increase in the financing 
interest rate;
    (ii) Effects of a 50 percent reduction in the rate of projected RE 
Act beneficiary load growth;
    (iii) Effects of a 10 to 20 percent increase in the projections for 
fuel costs;
    (iv) Effects of a 20 percent or more increase in construction costs; 
and
    (v) Effects of a 20 percent or more increase in maintenance, 
retrofit and decommissioning costs of nuclear power plants.
    (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.



Sec. 1710.303  Power cost studies--power supply borrowers.

    (a) All applications for financing of additional generation capacity 
and the associated bulk transmission facilities

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shall be supported by a power cost study to demonstrate that the 
proposed generation and associated transmission facilities are the most 
economical and effective means of meeting the borrower's power 
requirements. This study usually is a separate study but it may be 
integrated with the financial forecast required by Sec. 1710.302.
    (b) A power cost study shall include the following basic elements:
    (1) A study of all reasonably available self-generation, purchased-
power, load management, and energy conservation alternatives as set 
forth in Secs. 1710.253 and 1710.254;
    (2) A present-value analysis of the costs of the alternatives and 
their effects on total power costs, covering a period of at least 10 
years beyond the projected in-service date of the facilities;
    (3) A description of proposed new power-purchase contracts or 
revisions to existing contracts, and an analysis of the effects on power 
costs;
    (4) Use of sensitivity analyses to determine the vulnerability of 
the alternatives to a reasonable range of assumptions about fuel costs, 
failure to achieve projected load growth, changes in operating and 
financing costs, and other major factors, if the financial forecast is 
used in support of a loan or loan guarantee that exceeds the smaller of 
$25 million or 10 percent of the borrower's total utility plant. 
Individual sensitivity analyses need not be duplicated if they have been 
included in other materials submitted to RUS; and
    (5) Assessment of the financial risks of the various alternatives, 
especially as between capital-intensive and non-capital-intensive 
alternatives, under the range of assumptions set forth in paragraph 
(b)(4) of this section.
    (c) Power cost studies must use current, RUS-approved power 
requirements data, and all major assumptions are subject to RUS 
approval. Alternative assumptions about projected power requirements may 
be used, however, in conjunction with the sensitivity analyses required 
by paragraph (b)(4) of this section.

(Approved by the Office of Management and Budget under control number 
0572-0032)
Secs. 1710.304--1710.349  [Reserved]



     Subpart H--Demand Side Management and Renewable Energy Systems

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



Sec. 1710.350  Purpose.

    This subpart sets forth RUS policies and procedures with regard to 
loans and loan guarantees to RUS borrowers for the purpose of 
implementing their demand side management (DSM) plans, energy 
conservation programs, and on-grid and off-grid renewable energy 
systems. The Administrator reserves the right to determine if loans for 
purposes under this subpart will be made to a borrower in default under 
its mortgage and loan contract. As is the case with all other RUS loans, 
loans for purposes under this subpart will not be made to individuals.



Sec. 1710.351  General policy; renewable energy systems.

    (a) Off-grid renewable energy systems will be considered the same as 
DSM activities and will qualify for either insured loans or loan 
guarantees pursuant to Sec. 1710.102.
    (b) On-grid renewable energy systems will be treated as a generation 
resource and will be eligible only for loan guarantees pursuant to 
Sec. 1710.102. Existing RUS policy with respect to generation resources 
shall generally apply.
    (c) RUS loans for renewable energy systems will be made only for 
systems utilizing technologies that are proven and commercially 
available.



Sec. 1710.352  General policy; energy resource conservation programs.

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



Sec. 1710.353  General policy; demand side management.

    (a) RUS will make loans for the purpose of assisting electric 
borrowers to implement RUS approved demand side management plans. For 
the purposes of this regulation energy conservation

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programs are included as a DSM activity.
    (b) RUS will treat demand-side and supply-side resources on an equal 
basis. All requirements applicable to loans for traditional electric 
facilities will apply to loans for DSM. In addition the requirements set 
forth in this subpart will apply.
    (c) DSM will be considered a distribution loan purpose, eligible for 
either insured loans or loan guarantees pursuant to Sec. 1710.102.
    (d) RUS will conduct its own evaluation, as specified in this 
subpart, of a borrower's DSM activities before making a determination on 
the disposition of a borrower's loan application.
    (e) RUS loans for DSM activities will be made only for systems 
utilizing technologies that are proven and commercially available.
    (f) In general, RUS will require pilot project testing of DSM 
activities new to the borrower.
    (g) If the borrower's IRP, DSM plan, project construction and/or 
financing, and/or rate recovery is subject to the approval of state 
authorities, the borrower must obtain such approvals before RUS will 
approve a loan for any purpose for which an RUS approved DSM plan or IRP 
is required under this subpart.



Sec. 1710.354  Eligible DSM activities.

    DSM activities that are projected to result in more efficient use of 
electric system resources and which are consistent with an RUS approved 
Integrated Resource Plan (IRP) and DSM plan may be eligible for 
financing. Examples of such DSM activities, which are not mutually 
exclusive, are as follows:
    (a) General information and education;
    (b) Purchase and installation of borrower owned or consumer owned 
equipment or materials, including:
    (1) Heating, ventilation, air conditioning;
    (2) Building envelope;
    (3) Appliances;
    (4) Load control;
    (5) Lighting and lighting control;
    (6) Thermal storage; and
    (7) Efficient motors and drives;
    (c) Rebates for DSM equipment and facilities;
    (d) Fuel switching for dual fuel applications where one of the 
energy sources is electricity; and
    (e) Pilot DSM projects.



Sec. 1710.355  DSM loan applications.

    (a) Any loan application which includes funds for DSM must include 
all loan support documents required for a loan for electric facilities, 
and must demonstrate that requirements for need, loan feasibility and 
loan security are satisfied. In addition, the application must be 
supported by an RUS approved IRP, except as provided in 
Sec. 1710.356(a)(1), and an RUS approved DSM plan.
    (b) DSM loans will be made to provide financing for DSM activities 
planned to be implemented within a two year period.



Sec. 1710.356  Integrated resource plans.

    (a)(1) An RUS approved IRP is required for all loans that include 
funds for DSM activities, unless the cumulative total of all previous 
DSM loans and the loan under consideration for that applicant is less 
than 1 percent of the applicant's total utility plant.
    (2) An RUS approved IRP is required for all loans that include funds 
for on-grid renewable energy systems.
    (3) An RUS approved IRP is required for all loans that include funds 
for off-grid renewable energy systems unless the Administrator 
determines that an IRP is not needed to determine that the loan is both 
feasible and secure pursuant to Secs. 1710.112 and 1710.113, 
respectively.
    (b)(1) When an IRP is required, a distribution borrower that is a 
member of a power supply borrower must use the IRP prepared by the power 
supply borrower for its overall system. This IRP must have been 
coordinated with all of the member systems and it must have been 
approved by the board of directors of the power supply borrower. Because 
of the relationship between the power supply borrower and its members 
under which the loans incurred by the power supply borrower are 
primarily to construct, improve or acquire facilities that benefit all 
members directly or indirectly, the security of loans to all

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parties is interlinked. Consequently, DSM activities and renewable 
energy activities must be coordinated among all parties to insure that 
the activities of one member do not jeopardize the financial integrity 
or loan security of any other member or that of the power supply 
borrower.
    (2) A distribution system that is not a member of an RUS financed 
power supply borrower shall prepare its own IRP. An IRP developed by a 
distribution borrower that is not a member of a power supply borrower 
need only address its own system, but shall include an analysis of the 
effects of its DSM activities on its wholesale power costs.
    (c) The IRP shall identify supply side and demand side options and 
analyze their benefits and costs in order to provide adequate and 
reliable electric service to consumers at the lowest cost for the system 
as a whole.
    (d) The IRP shall include necessary features for system operation, 
such as diversity, reliability, dispatchability, and other factors of 
risk; and it shall take into account the ability to verify energy and 
cost savings achieved through DSM, energy conservation, and renewable 
energy systems, and the projected durability of such savings measured 
over time.
    (e) The following elements also included in a DSM plan, pursuant to 
Secs. 1710.357 and 1710.358, shall be included except where RUS 
determines that they are not necessary:
    (1) Load shape objectives;
    (2) Wholesale power pricing policy and costs, and their relationship 
to the proposed DSM activities;
    (3) Ownership and costs of DSM related hardware;
    (4) Incentive and marketing costs;
    (5) Communication and control costs; and
    (6) Monitoring methods and costs.
    (f) The IRP shall analyze the DSM effects set forth in 
Sec. 1710.359.



Sec. 1710.357  DSM plans.

    (a) A DSM plan approved by the borrower's board of directors is 
required in support of a loan that includes funds for DSM activities or 
for off-grid renewable energy systems. The DSM plan shall address the 
borrower's existing and proposed activities for the same period covered 
by the Long-Range Financial Forecast submitted in support of the loan 
application.
    (b)(1) A DSM plan prepared by a member of a power supply borrower 
must be consistent with the IRP prepared by the power supply borrower.
    (2) A DSM plan prepared by a distribution borrower that is not a 
member of an RUS financed power supply borrower must be consistent with 
the borrower's own IRP.
    (c) The level of detail required in the DSM plan is dependent on 
several factors, for example:
    (1) Size and term of loan;
    (2) Financial impact of loan on the borrower;
    (3) Probability of realization of the estimated impacts;
    (4) Magnitude of the estimated effects; and
    (5) Potential effects, if any, on other distribution members of a 
power supply borrower.
    (d) RUS will consider effects of proposed and existing DSM plans on 
government loan security, rates, revenue requirements, competitiveness, 
other distribution borrowers, power supply borrowers or other industry 
recognized tests as applicable.



Sec. 1710.358  Requirements for a DSM plan.

    A DSM plan shall include:
    (a) A list of the DSM activities to be financed by the loan 
including details on implementation such as beginning and completion 
dates and estimated draw downs of loan funds;
    (b) An analysis of the borrower's existing and proposed DSM 
activities, including sources of financing and projections of the 
effects of those activities as set forth in Sec. 1710.359;
    (c) System specific load research and DSM pilot projects as required 
by Sec. 1710.353(f);
    (d) A benefit/cost and net present value cash flow analysis of each 
DSM activity included in the plan. Benefits and costs must be expressed 
in the same units where possible. Short term and long term impacts must 
be addressed. Who benefits and who pays must be clearly identified. 
Objectives of a DSM plan shall be stated in terms

[[Page 182]]

of load profile adjustments by customer rate class and/or market 
segment. The benefit/cost analysis shall include the following steps:
    (1) Identification of objectives, alternatives, and effects;
    (2) Simulation of impacts on the system and its consumers, and the 
probable costs and benefits, including sensitivity/probability and 
scenario analysis; and
    (3) Selection of DSM activities;
    (e) An outline of monitoring and reporting procedures to evaluate 
the performance of the implemented DSM plan;
    (f) A narrative discussing the following:
    (1) Scope of the DSM plan;
    (2) Resources used to develop the DSM plan;
    (3) Internal and external data collection and analysis;
    (4) Analysis method used to screen and evaluate the projected 
programs;
    (5) Analysis of existing and projected plans; and
    (6) Coordination activities with power supplier.



Sec. 1710.359  DSM effects.

    The IRP and the DSM plan shall consider and discuss the expected 
effects of the borrower's DSM activities. The expected effects to be 
considered and discussed includes, but are not limited to, the 
following:
    (a) Effects on the utility (supply side effects):
    (1) Operations;
    (2) Maintenance;
    (3) Environmental compliance;
    (4) Capacity planning, including deferment of capacity and 
reliability of capacity;
    (5) DSM equipment including purchase, operation and maintenance 
considerations;
    (6) Transmission and distribution effects;
    (7) Administrative costs, including administrative and general 
costs, program costs, DSM planning costs, integration of supply and DSM 
planning, marketing costs, incentive costs, infrastructure support, 
monitoring and evaluation costs, bidding costs; and
    (8) Revenues and rates;
    (b) Effects on consumers (demand side effects):
    (1) Equipment purchases;
    (2) Operation costs;
    (3) Maintenance costs;
    (4) Supply voltage quality;
    (5) Availability of service and reliability (outages);
    (6) Change in benefits received from appliances and housing;
    (7) Convenience (availability of equipment, appliances and 
services);
    (8) Change in comfort and air quality levels of buildings; and
    (9) Rates, billing level and elasticity;
    (c) Effects on competitiveness;
    (d) Effects on other member distribution systems of the power supply 
borrower; and
    (e) Effects on power supply borrower.



Sec. 1710.360  Submittal of alternate documentation.

    (a) The borrower may have performed analysis and prepared comparable 
documentation for other purposes, such as for a state regulatory 
commission. This information may be acceptable to RUS as an IRP or a DSM 
plan if the borrower demonstrates that the alternative information meets 
the goals and objectives of this subpart.
    (b) The borrower shall advise RUS of all material information 
provided to other lenders or other governmental authorities relating to 
their DSM plans. This information shall be provided to RUS as requested.



Sec. 1710.361  Type and term of loans.

    (a) The final maturity of loans for purposes under this subpart 
shall be determined by RUS based on the expected life of needed capital 
improvements, expected cost recovery periods, the expected life of 
program benefits, the certainty of these benefits, and matching costs 
and benefits.
    (b) RUS will normally consider final maturities for DSM loans of up 
to 5 years. Longer loan terms, not to exceed 10 years, for loans for 
these purposes will be considered if the borrower can satisfactorily 
demonstrate to the Administrator an acceptable basis for doing so and 
can demonstrate that the loan will be feasible and secure pursuant to 
Secs. 1710.112 and 1710.113, respectively, for the longer period. As 
used in

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this paragraph, renewable energy resource equipment and facilities are 
not considered a DSM purpose. Maturities for such loans will be limited 
to the expected useful life of the equipment and facilities.



Sec. 1710.362  Loan approval.

    The amount and scope of loans approved by RUS under this subpart are 
subject to the discretion of RUS. Applications will be evaluated on the 
merits of the proposals as outlined in the plans specified in this 
subpart. RUS approval of a loan for purposes under this subpart and/or 
RUS approval of IRPs and DSM plans does not relieve a borrower of its 
responsibilities under this subpart or constitute a representation or 
warranty by RUS to the borrower or any person that its IRP or DSM plan 
will work as described therein.



Sec. 1710.363  Advance and documentation of use of loan funds.

    (a) Loan funds for on-grid renewable energy systems will be advanced 
using the same procedure as loans for other electric system facilities.
    (b) Loan funds for DSM activities.
    (1) Funds for these purposes shall be advanced and used only for the 
specific projects and purposes detailed in the loan application and 
supporting documents. Generally funds shall be drawn down on a 
reimbursement basis. The borrower shall certify completion of work 
according to the DSM plan.
    (2) The borrower shall maintain accounting and plant records 
sufficient to document the cost and location of DSM activities and to 
support loan fund advances and disbursements.
    (3) All cost associated with DSM projects related to construction, 
operations or maintenance, shall be accumulated using the borrower's 
work order procedure. An individual work order or work orders shall be 
used to record and control the costs of each DSM project. Daily time and 
material reports referenced to the DSM activity shall be kept to record 
labor and materials used as the activity(ies) is completed.
    (4) All other disbursements for DSM activities must be properly 
supported by invoices, contracts, or other forms of evidence required by 
RUS regulations. All such supporting material shall be available at the 
borrower's premises for review by the RUS Field Accountant, borrower's 
certified public accountant and other authorized parties as applicable. 
Costs of DSM activities related to operations and maintenance should be 
charged to expense in the month incurred. Departures from this 
prescribed accounting must be approved by RUS subject to the provisions 
of 7 CFR 1767.13.
    (c) Requirements on advance of funds for all insured electric loans 
are in 7 CFR part 1721, subpart B.



Sec. 1710.364  Loan limits.

    Cumulative loans DSM activities at the time of loan approval for, 
including energy conservation programs and off-grid renewable energy 
systems, shall not exceed the lesser of:
    (a) Twenty percent of the borrower's equity at the time of the loan 
or any time during amortization of the loan; or
    (b) An amount approved for such purposes in a final non-appealable 
order by the applicable regulatory body for inclusion in the borrower's 
rate base.



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

    Source: 60 FR 3731, Jan. 19, 1995, unless otherwise noted.



Sec. 1710.400  Initial contact.

    (a) Loan applicants that do not have outstanding loans from RUS 
should write to the Rural Utilities Service Administration, United 
States Department of Agriculture, Washington, DC 20250-1500. A field or 
headquarters staff representative may be assigned by RUS to visit the 
applicant and discuss its financial needs and eligibility. Borrowers 
that have outstanding loans should contact their assigned RUS general 
field representative (GFR) or, in the case of a power supply borrower, 
the Director, Power Supply Division. Borrowers may consult with RUS 
field representatives and headquarters staff, as necessary.
    (b) Before submitting an application for an insured loan the 
borrower shall

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ascertain from RUS the amount of supplemental financing required, as set 
forth in Sec. 1710.110. If the borrower is applying for either a 
municipal rate loan subject to the interest rate cap or a hardship rate 
loan, the application must provide a preliminary breakdown of 
residential consumers either by county or by census tract. Final data 
must be included with the application. See Sec. 1710.401(a)(8).



Sec. 1710.401  Loan application documents.

    (a) All borrowers. All applications for electric loans shall include 
the documents listed in this paragraph. The first page of the 
application shall be a list of the documents included in the 
application. The borrower may use RUS Form 726, Checklist for Electric 
Loan Application, or a computer generated equivalent as this list.
    (1) Transmittal letter. A letter signed by the borrower's manager 
indicating the actual corporate name and taxpayer identification number 
of the borrower and addressing the following items:
    (i) The need for flood hazard insurance;
    (ii) Breakdown of requested loan funds by state;
    (iii) A listing of the counties served by the borrower;
    (iv) A listing of threatened actions by third parties that could 
adversely affect the borrower's financial condition, including 
annexations or other actions affecting service territory, loads, or 
rates; and
    (v) A listing of pending regulatory proceedings pertaining to the 
borrower.
    (2) Board resolution. This document is the formal request by the 
borrower's board of directors for a loan from RUS. The board resolution 
shall include:
    (i) The requested loan amount, loan term, final maturity, and method 
of amortization (Sec. 1710.110(b));
    (ii) The sources and amounts of any supplemental or other financing;
    (iii) Authorization for RUS to release appropriate information to 
supplemental or other lender(s), and authorization for these lenders to 
release appropriate information to RUS; and
    (iv) For an insured loan, a statement of whether the application is 
for a municipal rate loan, with or without the interest rate cap, or a 
hardship loan. If the application is for a municipal rate loan, the 
board resolution must indicate whether the borrower intends to elect the 
prepayment option. See 7 CFR 1714.4(c).
    (3) RUS Form 740c, Cost Estimates and Loan Budget for Electric 
Borrowers. This form together with its attachments lists the 
construction, equipment, facilities and other cost estimates from the 
construction work plan or engineering and cost studies, and the sources 
of financing for each component. The date on page 1 of the form is the 
beginning date of the loan period and shall be the same as the date on 
the Financial and Statistical Report submitted with the application 
(paragraph (a)(5) of this section). Form 740c also includes the 
following information, exhibits, and attachments:
    (i) Description of funds and materials. This description details the 
availability of materials and equipment, any unadvanced funds from prior 
loans, and any general funds the borrower designates, to determine the 
amount of such materials and funds to be applied against the capital 
requirements estimated for the loan period.
    (ii) Useful life of facilities financed by the loan. Form 740c must 
include, as a note, either a statement certifying that at least 90 
percent of the loan funds are for facilities that have a useful life of 
33 years or longer, or a schedule showing the costs and useful life of 
those facilities with a useful life of less than 33 years. This 
statement or schedule will be used to determine the final maturity of 
the loan. See Sec. 1710.115.
    (iii) Reimbursement schedule. This schedule lists the date, amount, 
and identification number of each inventory of work orders and special 
equipment summary that form the basis for the borrower's request for 
reimbursement of general funds on the RUS Form 740c. See Sec. 1710.109. 
If the borrower is not requesting reimbursement, this schedule need not 
be submitted.
    (iv) Location of consumers. If the application is for a municipal 
rate loan subject to the interest rate cap, or for a loan at the 
hardship rate, and the average number of consumers per mile of the total 
electric system exceeds 17,

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Form 740c must include, as a note, a breakdown of funds included in the 
proposed loan to furnish or improve service to consumers located in an 
urban area. See 7 CFR 1714.7(c) and 1714.8(d). This breakdown must 
indicate the method used by the borrower for allocating loan funds 
between urban and non urban consumers.
    (4) RUS Form 740g, Application for Headquarters Facilities. This 
form lists the individual cost estimates from the construction work plan 
or other engineering study that support the need for RUS financing for 
any warehouse and service type facilities included, and funding 
requested for such facilities shown on RUS Form 740c. If no loan funds 
are requested for headquarters facilities, Form 740g need not be 
submitted.
    (5) Financial and statistical report. Distribution borrowers shall 
submit these data on RUS Form 7; power supply borrowers shall use RUS 
Form 12. The form shall contain the most recent data available, which 
shall not be more than 60 days old when received by RUS.
    (6) Pending litigation statement. A statement from the borrower's 
counsel listing any pending litigation, including levels of related 
insurance coverage and the potential effect on the borrower. This 
statement and the statements from counsel required by paragraphs (a)(7) 
and (15) of this section may be combined into a single document.
    (7) Mortgage information. A new mortgage will be required if this is 
a borrower's first application for a loan under the RE Act. A restated 
mortgage, or a mortgage supplement will be required if there has been a 
material change to the real property owned by the borrower since the 
most recent RUS loan, loan guarantee, or lien accommodation, if the 
requested loan would cause the borrower to exceed its previously 
authorized debt limit, or if RUS otherwise determines it necessary. If 
there has been no material change to the real property owned by the 
borrower since the most recent RUS loan or loan guarantee, the borrower 
must submit an opinion of its counsel to that effect. If a new or 
restated mortgage or a mortgage supplement is required, the borrower 
must provide the following:
    (i) Property schedule. For a new or restated mortgage or for a 
mortgage supplement, the following information shall be submitted in a 
form satisfactory to RUS:
    (A) A listing of the counties where the borrower's existing electric 
facilities and new facilities are or will be located;
    (B) A listing and description of all real property owned by the 
borrower; and
    (C) An opinion of the borrower's counsel certifying that the 
property schedule is complete and adequate for inclusion in a security 
instrument to be executed by the borrower to secure an RUS loan.
    (ii) Maximum debt limit. For a new mortgage, or if the proposed loan 
would result in the borrower's existing mortgage debt limit being 
exceeded, a resolution of the borrower's board of directors, and any 
other authorizations or certifications required by State law, certifying 
that a new debt limit has been legally established that is adequate to 
accommodate existing indebtedness and the proposed new financing, 
including any concurrent loans.
    (8) Rate disparity and consumer income data. If the borrower is 
applying under the rate disparity and consumer income tests for either a 
municipal rate loan subject to the interest rate cap or a hardship rate 
loan, the application must provide a breakdown of residential consumers 
either by county or by census tract. In addition, if the borrower serves 
in 2 or more states, the application must include a breakdown of all 
ultimate consumers by state. This breakdown may be a copy of Form EIA 
861 submitted by the Borrower to the Department of Energy or in a 
similar form. See 7 CFR 1714.7(b) and 1714.8(a). To expedite the 
processing of loan applications, RUS strongly encourages distribution 
borrowers to provide this information to the GFR prior to submitting the 
application.
    (9) Standard Form 100--Equal Employment Opportunity Employer Report 
EEO--1. This form, required by the Department of Labor, sets forth 
employment data for borrowers with 100 or more employees. A copy of this

[[Page 186]]

form, as submitted to the Department of Labor, is to be included in the 
application for an insured loan if the borrower has more than 100 
employees. See Sec. 1710.122.
    (10) Form AD-1047, Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transactions. This 
statement certifies that the borrower will comply with certain 
regulations on debarment and suspension required by Executive Order 
12549, Debarment and Suspension (3 CFR, 1986 Comp., p. 189). See 7 CFR 
part 3017 and Sec. 1710.123.
    (11) Uniform Relocation Act assurance statement. This assurance, 
which need not be resubmitted if previously submitted, provides that the 
borrower shall comply with 49 CFR part 24, which implements the Uniform 
Relocation Assistance and Real Property Acquisition Policy Act of 1970, 
as amended by the Uniform Relocation Act Amendments of 1987 and 1991. 
See Sec. 1710.124.
    (12) Lobbying. The following information on lobbying is required 
pursuant to 7 CFR part 3018 and Sec. 1710.125. Borrowers applying for 
both insured and guaranteed financing should consult RUS before 
submitting this information.
    (i) Certification regarding lobbying. This statement certifies that 
the borrower shall comply with certain requirements with respect to 
restrictions on lobbying activities.
    (ii) Standard Form LLL--Disclosure of Lobbying Activities. This 
disclosure form is required from those borrowers engaged in lobbying 
activities.
    (13) Federal debt delinquency requirements. See 1710.126. The 
following documents are required:
    (i) Report on Federal debt delinquency. This report indicates 
whether or not a borrower is delinquent on any Federal debt.
    (ii) Certification Regarding Federal Government Collection Options. 
This statement certifies that a borrower has been informed of the 
collection options the Federal Government may use to collect delinquent 
debt. The Federal Government is authorized by law to take any or all of 
the following actions in the event that a borrower's loan payments 
become delinquent or the borrower defaults on its loans:
    (A) Report the borrower's delinquent account to a credit bureau;
    (B) Assess additional interest and penalty charges for the period of 
time that payment is not made;
    (C) Assess charges to cover additional administrative costs incurred 
by the Government to service the borrower's account;
    (D) Offset amounts owed directly or indirectly to the borrower under 
other Federal programs;
    (E) Refer the borrower's debt to the Internal Revenue Service for 
offset against any amount owed to the borrower as an income tax refund;
    (F) Refer the borrower's account to a private collection agency to 
collect the amount due; and
    (G) Refer the borrower's account to the Department of Justice for 
collection.
    (14) Articles of incorporation and bylaws. The following are 
required if either document has been amended since the last loan 
application was submitted to RUS, or if this is a borrower's first 
application for a loan under the RE Act:
    (i) The borrower's articles of incorporation currently in effect, as 
filed with the appropriate state office, setting forth the borrower's 
corporate purpose; and
    (ii) The bylaws currently in effect, as adopted by the borrower's 
board of directors, setting forth the manner by which the borrower's 
organization will be governed and regulated.
    (15) State regulatory approvals. In states in which regulatory 
authorities have jurisdiction over the borrower's rates, the borrower 
must provide satisfactory evidence, pursuant to Secs. 1710.105 and 
1710.151(f), based on the information available, such as an opinion of 
counsel or of another qualified source, that the state regulatory 
authority will not exclude from the borrower's rate base any of the 
facilities included in the loan request, or otherwise prevent the 
borrower from charging rates sufficient to repay with interest the debt 
incurred for the facilities.
    (16) Seismic safety certifications. This certification shall be 
included, if required under 7 CFR part 1792.

[[Page 187]]

    (17) Rates. (i) A distribution borrower shall explain any recent or 
planned changes in retail rates, the status of any pending rate cases 
before a state regulatory authority, or other pertinent rate 
information.
    (ii) A power supply borrower shall submit a schedule of its 
wholesale rates currently in effect. Any changes in this schedule are 
subject to RUS approval.
    (18) Additional supporting data. Additional supporting data may be 
required by RUS depending on the individual application or conditions. 
Examples of such additional supporting data include information about 
acquisitions, headquarters facilities, generation or transmission 
facilities, large power loads or special loads.
    (b) Distribution borrowers. In addition to the items in paragraph 
(a) of this section, applications for loans submitted by distribution 
borrowers shall include the borrower's area coverage and line extension 
policies. If there have been any amendments to area coverage or line 
extension policies since the last loan application submitted to RUS, or 
if this is a borrower's first application for a loan under the RE Act, 
the borrower shall submit the board of directors' approved policies on 
area coverage and line extensions. See Secs. 1710.103 and 1710.151(a).
    (c) Primary support documents. In addition to the loan application, 
consisting of the documents required by paragraphs (a) and (b) of this 
section, all borrowers must also provide RUS with the following primary 
support documents pursuant to Sec. 1710.152:
    (1) Along with the loan application, the borrower shall submit to 
RUS a Long-Range Financial Forecast (LRFF), that meets the requirements 
of subpart G of this part. The forecast shall include any sensitivity 
analysis or analysis of alternative scenarios required by subpart G of 
this part, and shall be accompanied by a certified board resolution 
adopting, and indicating the board of directors' approval of, the LRFF, 
and directing management to take whatever steps may be necessary, 
including the filing for rate increases, to achieve the TIER goals set 
forth in the LRFF.
    (2) Prior to RUS's acceptance of the loan application, the borrower 
shall submit to RUS and receive approval of:
    (i) Power Requirements Study (PRS) that meets the requirements of 
subpart E of this part, and is accompanied by a certified board 
resolution adopting, and indicating the board of directors' approval of, 
the PRS.
    (ii) Construction Work Plan (CWP) and/or related engineering and 
cost studies that meets the requirements of subpart F of this part, and 
is accompanied by a certified board resolution adopting, and indicating 
the board of directors' approval of, the CWP and/or engineering and cost 
studies.
    (iii) Borrower's Environmental Report (BER), or other environmental 
information as required by 7 CFR part 1794.
    (iv) Demand Side Management Plan and/or Integrated Resource Plan, if 
required by subpart H of this part.
    (d) Submission of documents. (1) Generally, all information required 
by paragraphs (a), (b), and (c)(1) of this section is submitted to RUS 
in a single application package. The information required by paragraph 
(c)(2) of this section is generally submitted to, and approved by RUS 
before the application is submitted.
    (2) To facilitate loan review, RUS urges borrowers to ensure that 
their applications contain all of the information required by this 
section before submitting the application to RUS. Borrowers may consult 
with RUS field representatives and headquarters staff as necessary for 
assistance in preparing loan applications.
    (3) RUS may, in its discretion, return an application to the 
borrower if the application is not materially complete to the 
satisfaction of RUS within 10 months of receipt of any of the items 
listed in paragraph (a) or (b) of this section. RUS will generally 
advise the borrower in writing at least 2 months prior to returning the 
application as to the elements of the application that are not complete.
    (4) If an application is returned, an application for the same loan 
purposes will be accepted by RUS if satisfactory evidence is provided 
that all of the information required by this section will

[[Page 188]]

be submitted to RUS within a reasonable time. An application for loan 
purposes included in an application previously returned to the borrower 
will be treated as an entirely new application.
    (e) Complete applications. An application is complete when all 
information required by RUS to approve a loan is materially complete in 
form and substance satisfactory to RUS.
    (f) Change in borrower circumstances. A borrower shall, after 
submitting a loan application, promptly notify RUS of any changes in its 
circumstances that materially affect the information contained in the 
loan application or in the primary support documents.
    (g) Interest rate category. For pending loans, RUS will promptly 
notify the borrower if its eligibility for an interest rate category 
changes pursuant to new information from the Department of Energy or the 
Bureau of the Census. See 7 CFR part 1714.

(Approved by the Office of Management and Budget under control numbers 
0572-0017, 0572-0032 and 0572-1013.)
Secs. 1710.402--1710.403  [Reserved]



Sec. 1710.404  Additional requirements.

    Additional requirements for insured electric loans are set forth in 
7 CFR part 1714.



Sec. 1710.405  Supplemental financing documents.

    (a) The borrower is responsible for ensuring that the loan documents 
required for supplemental financing pursuant to Sec. 1710.110 are 
executed in a timely fashion. These documents are subject to RUS 
approval.
    (b) Security. Any security offered by the borrower to a supplemental 
lender is subject to RUS approval.



Sec. 1710.406  Loan approval.

    (a) A loan is approved when the Administrator signs the 
administrative findings.
    (b) If the loan is not approved, RUS will notify the borrower of the 
reason.



Sec. 1710.407  Loan documents.

    Following approval of a loan, RUS will forward the loan documents to 
the borrower for execution, delivery, recording, and filing, as directed 
by RUS.



PART 1714--PRE-LOAN POLICIES AND PROCEDURES FOR INSURED ELECTRIC LOANS--Table of Contents




                           Subpart A--General

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

                    Subpart B--Terms of Insured Loans

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

    Authority: 7 U.S.C. 901-950(b); Pub. L. 99-591, 100 Stat. 3341; Pub. 
L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

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



                           Subpart A--General

Sec. 1714.1  [Reserved]



Sec. 1714.2  Definitions.

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



Sec. 1714.3  Applicability of provisions.

    (a) Insured electric loans approved on or after November 1, 1993. On 
November 1, 1993, the Rural Electrification Loan Restructuring Act, Pub. 
L. 103-129, 107 Stat. 1356, (RELRA) amended the Rural Electrification 
Act of 1936, 7 U.S.C. 901 et seq., (RE Act) to establish a new interest 
rate structure for insured electric loans. Insured electric loans 
approved on or after this date, are either

[[Page 189]]

municipal rate loans or hardship rate loans. Borrowers meeting the 
criteria set forth in Sec. 1714.8 are eligible for 5 percent hardship 
rate loans. The interest rate on loans to other borrowers is the 
municipal interest rate, and borrowers meeting the criteria set forth in 
Sec. 1714.7 are eligible for the interest rate cap on their municipal 
rate loans. Interest rates for the initial interest rate term and 
rollover terms (Sec. 1714.6) will be determined pursuant to Sec. 1714.4. 
Provisions for prepayment are set forth in Sec. 1714.9. The provisions 
of this subpart apply to loans approved on or after November 1, 1993, 
unless otherwise stated.
    (b) Insured electric loans approved prior to November 1, 1993. These 
loans have a single interest rate applicable to the entire loan. The 
rate is generally 5 percent, but, in some cases, may be as low as 2 
percent. These loans have a single interest rate term and may be prepaid 
at face value at any time. Provisions for discounted prepayment of these 
loans are set forth in 7 CFR part 1786.



Sec. 1714.4  Interest rates.

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



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

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



Sec. 1714.6  Interest rate term.

    (a) Municipal rate loans. Selection of interest rate terms shall be 
made by the borrower for each advance of funds. The minimum interest 
rate term shall

[[Page 190]]

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.

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



Sec. 1714.7  Interest rate cap.

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

[[Page 191]]

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



Sec. 1714.8  Hardship rate loans.

    Except as provided in paragraph (d) of this section, the 
Administrator shall make an insured electric loan for eligible purposes 
at the 5 percent hardship rate to a borrower primarily engaged in 
providing retail electric service if the borrower meets, at the time of 
loan approval, both the rate disparity test for hardship and the 
consumer income test described in paragraph (a) of this section; or the 
extremely high rates test set forth in paragraph (b) of this section. A 
loan at the 5 percent hardship rate may also be made to any borrower 
pursuant to paragraph (c) of this section who, in the sole discretion of 
the Administrator, has experienced a severe hardship. The Administrator 
may not require a loan from a supplemental source in connection with a 
hardship rate loan.
    (a) (1) Rate disparity test for hardship. The borrower meets this 
test if its average revenue per kWh sold is not less than 120 percent of 
the average revenue per kWh sold by all electric utilities in the state 
in which the borrower provides service, and its average residential 
revenue per kWh is not less than 120 percent of the average residential 
revenue per kWh sold by all electric utilities in the state in which the 
borrower provides service. To determine whether a borrower meets this 
test, RUS will compare the borrower's average total revenue and average 
residential revenue with statewide data in the table of Average Revenue 
per Kilowatthour for Electric Utilities by Sector, Census Division and 
State, in

[[Page 192]]

the Electric Power Annual issued by the Energy Information 
Administration of the Department of Energy (DOE), or the successor to 
this table. The test will be based on the most recent calendar year for 
which full year DOE data are available at the time of loan approval and 
borrower data for the same year.
    (2) Consumer income test. The borrower meets this test if either the 
average per capita income of the residents receiving electric service 
from the borrower is less than the average per capita income of the 
residents of the state in which the borrower provides service or the 
median household income of the residents receiving electric service from 
the borrower is less than the median household income of the households 
in the state. RUS will determine whether the borrower qualifies under 
this test according to the procedure set forth in Sec. 1714.7(b)(2).
    (3) Borrowers serving 2 or more states. If a borrower serves 
consumers in 2 or more states, the rate disparity test and the consumer 
income tests will be determined on a weighted average based on the 
percentage of the borrower's total consumers that are served in each 
state.
    (b) Extremely high rates test. Except as provided in this paragraph, 
the Administrator shall make an insured electric loan at the 5 percent 
hardship rate to any borrower whose residential revenue exceeds 15.0 
cents per kWh sold. Residential revenue shall be calculated for the most 
recent full calendar year for which data are available and shall include 
sales to both seasonal and nonseasonal consumers. If, at the time of 
loan approval, the area to be served is an urbanized area 
(notwithstanding that the area must be deemed a rural area to qualify 
for a loan under this part (See the definition of ``rural area'' in 7 
CFR 1710.2)), then the borrower must satisfy the provisions of 
paragraphs (a) and (d) of this section to qualify to the 5 percent 
hardship interest rate. If at the time of loan approval, such area is 
outside an urbanized area, the loan shall not be subject to the 
conditions and limitations set forth in paragraphs (a) and (d) of this 
section.
    (c) Administrator's discretion. The Administrator may make a 
hardship rate loan if, in the sole discretion of the Administrator, the 
borrower has experienced a severe hardship. The Administrator shall 
consider, among other matters, whether factors beyond the control or 
substantial influence of the borrower have had severe adverse effect on 
the borrower's ability to provide service consistent with the purposes 
of the RE Act, and which prudent management could not reasonably 
anticipate and either prevent or insure against. Among the factors that 
may be considered are system damage due to unusual weather or other 
natural disasters or Acts of God, loss of substantial loads, extreme 
rate disparity compared to a contiguous utility, and other factors that 
cause severe financial hardship. The Administrator will also consider 
whether a hardship rate loan will provide significant relief to the 
borrower in dealing with the severe hardship.
    (d) High density test. Except as provided in paragraph (b) of this 
section, if the average number of consumers per mile of the borrower's 
total electric system exceeds 17, the 5 percent hardship rate will not 
apply to funds used for the purpose of furnishing or improving electric 
service to consumers located in an area that is an urban area at the 
time of loan approval, notwithstanding that the area must have been 
deemed a rural area for the purpose of qualifying for a loan under this 
part. (See the definition of ``rural area'' in 7 CFR 1710.2.) If the 
average number of consumers per mile of line of the borrower's total 
electric system exceeds 17, the borrower must include, as a note on RUS 
Form 740c, Cost Estimates and Loan Budget for Electric Borrowers, 
submitted as part of the loan application for a loan at the 5 percent 
hardship rate, a breakdown of funds included in the proposed loan to 
furnish or improve service to consumers located in urban areas. For such 
borrowers only funds for those facilities serving consumers located 
outside an urban area are eligible for the 5 percent hardship rate.


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

[[Page 193]]



Sec. 1714.9  Prepayment of insured loans.

    This section sets out provisions for prepayment of insured electric 
loans at face value. Provisions for discounted prepayment of RUS loans 
are set out in 7 CFR part 1786.
    (a) Municipal rate loans. Loan documents for municipal rate loans 
shall provide for the following:
    (1) Prepayment on a rollover maturity date. All, or a portion of, 
the outstanding balance on any advance from a municipal rate loan may be 
prepaid on any rollover maturity date pursuant to Sec. 1714.6(a)(4).
    (2) Prepayment on a date other than a rollover maturity date. A 
borrower may elect at the time of loan approval to include a prepayment 
option (call provision) that will allow the borrower to prepay all, or a 
portion of, the outstanding balance on any advance on a date other than 
a rollover maturity date. Interest rates on advances from loans with a 
prepayment provision will be increased as set forth in Sec. 1714.4(a).
    (b) Hardship rate loans. Loan documents for hardship loans shall 
provide that the loan may be prepaid at face value at any time without 
penalty.
Secs. 1714.10--1714.49  [Reserved]



                    Subpart B--Terms of Insured Loans

    Source: 60 FR 3734, Jan. 19, 1995, unless otherwise noted.
Secs. 1714.50--1714.54  [Reserved]



Sec. 1714.55  Advance of funds from insured loans.

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



Sec. 1714.56  Fund advance period.

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

[[Page 194]]

RUS may agree to an extension of the fund advance period even though the 
borrower has failed to meet the 120-day requirement of paragraph (c)(1) 
of this section.
    (3) If the Administrator approves a request for an extension, RUS 
will notify the borrower in writing of the extension and the terms and 
conditions thereof. An extension will be effective only if it is 
obtained in writing prior to the automatic termination date.
    (d) Advances of funds from loans approved before June 1, 1984, are 
generally made during the first 6 years of the note.
    (e) RUS will rescind the balance of any loan funds not advanced to a 
borrower as of the final date approved for advancing funds.

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

    Effective Date Note: At 61 FR 66871, Dec. 19, 1996, Sec. 1714.56 was 
amended by revising the introductory text of paragraph (c), effective 
Jan. 21, 1997. For the convenience of the user, the superseded text is 
set forth as follows:
Sec. 1714.56  Fund advance period.

                                * * * * *

    (c) The Administrator may agree to an extension of the fund advance 
period for loans approved on or after June 1, 1984, if the borrower 
demonstrates to the satisfaction of the Administrator that the loan 
funds continue to be needed for approved loan purposes (i.e., facilities 
included in an RUS-approved construction work plan).

                                * * * * *



Sec. 1714.57  Sequence of advances.

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



Sec. 1714.58  Amortization of principal.

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



Sec. 1714.59  Rescission of loans.

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



PART 1717--POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND GUARANTEED ELECTRIC LOANS--Table of Contents




                        Subparts A--C  [Reserved]

       Subpart D--Mergers and Consolidations of Electric Borrowers

Sec.

[[Page 195]]

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

                        Subparts E--F  [Reserved]

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

1717.300  Purpose.
1717.301  Policy.
1717.302  Definitions and rules of construction.
1717.303  Requirements of RUS Documents.
1717.304  State Regulatory Authority Rate Jurisdiction.
1717.305  Pre-emption.
1717.306  RUS Required rates.
1717.307  Distribution members' rates.
1717.308  RUS approval of nonconforming rates.
1717.309  Additional statutory pre-emption.
1717.310--1717.349  [Reserved]

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

1717.350  Purpose.
1717.351  Policy.
1717.352  Definitions and rules of construction.
1717.353  Requirements of RUS documents.
1717.354  Pre-emption.
1717.355  RUS required rates.
1717.356  Additional statutory pre-emption.

                        Subparts I--L  [Reserved]

                     Subpart M--Operational Controls

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

   Subpart N--Investments, Loans, and Guarantees by Electric Borrowers

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

                          Subpart O--[Reserved]

1717.700--1717.749  [Reserved]

                          Subpart P--[Reserved]

1717.750--1717.799  [Reserved]

                          Subpart Q--[Reserved]

1717.800-1717.849  [Reserved]

   Subpart R--Lien Accommodations and Subordinations for 100 Percent 
                            Private Financing

1717.850  General.
1717.851  Definitions.
1717.852  Financing purposes.
1717.853  Loan terms and conditions.
1717.854  Advance approval--100 percent private financing of 
          distribution, subtransmission and headquarters facilities, and 
          certain other community infrastructure.

[[Page 196]]

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

Subpart S--Lien Accommodations for Supplemental Financing Required by 7 
                              CFR 1710.110

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

    Authority: 7 U.S.C. 901-950b; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.), unless otherwise noted.

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



                        Subparts A--C  [Reserved]



       Subpart D--Mergers and Consolidations of Electric Borrowers

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

    Effective Date Note: At 61 FR 66871, Dec. 19, 1996, subpart D, 
consisting of Secs. 1717.150--1717.161, was added to part 1717, 
effective Jan. 21, 1997.



Sec. 1717.150  General.

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



Sec. 1717.151  Definitions.

    The definitions set forth in 7 CFR 1710.2 are applicable to this 
subpart unless otherwise stated. In addition, for the purpose of this 
subpart, the following terms shall have the following meanings:
    Active borrower means an electric borrower that has, on the 
effective date, an outstanding insured or guaranteed loan from RUS for 
rural electrification, and whose eligibility for future RUS financing is 
not restricted pursuant to 7 CFR part 1786.
    Active distribution borrower means an electric distribution borrower 
that has, on the effective date, an outstanding insured or guaranteed 
loan from RUS for rural electrification, and whose eligibility for 
future RUS financing is not restricted pursuant to 7 CFR part 1786.
    Consolidation. see Merger.
    Coverage ratios means collectively TIER, OTIER, DSC and ODSC, as 
these terms are defined in 7 CFR 1710.2.
    Effective date means the date a merger is effective pursuant to 
applicable state law.
    Former distribution borrower means any organization that

[[Page 197]]

    (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.



Sec. 1717.152  Required documentation for all mergers.

    In order for RUS to advance funds, send bills, and otherwise conduct 
business with a successor, the documents listed in this section must be 
submitted to RUS regardless of the need for RUS approval of the merger. 
Borrowers are responsible for ensuring that these documents are received 
by RUS in timely fashion. In cases of mergers that require RUS approval, 
or cases where borrowers must submit requests for transitional 
assistance, the documents listed in this section may be combined with 
the documents required by Secs. 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.

[[Page 198]]



Sec. 1717.153  Transitional assistance.

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



Sec. 1717.154  Transitional assistance in connection with new loans.

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

[[Page 199]]

    (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.



Sec. 1717.155  Transitional assistance affecting new and preexisting loans.

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



Sec. 1717.156  Transitional assistance affecting preexisting loans.

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



Sec. 1717.157  Requests for transitional assistance.

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

[[Page 200]]

Sec. Sec. 1717.155 and 171.156. Documents listed in this section may be 
combined with the documents required by Secs. 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 Secs. 1717.154-1717.156.



Sec. 1717.158  Mergers with borrowers who prepaid RUS loans.

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



Sec. 1717.159  Applications for RUS approvals of mergers.

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



Sec. 1717.160  Application contents.

    An application for RUS approval of a merger must include the 
documents listed in this section. Documents listed in this section may 
be combined with the documents required by Secs. 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

[[Page 201]]

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



Sec. 1717.161  Application process.

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

[[Page 202]]



                        Subparts E--F  [Reserved]



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



Sec. 1717.300  Purpose.

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



Sec. 1717.301  Policy.

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

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



Sec. 1717.302  Definitions and rules of construction.

    (a) Definitions. For the purpose of this subpart, the following 
terms shall have the following meanings:

[[Page 203]]

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

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



Sec. 1717.303  Requirements of RUS documents.

    (a) Pursuant to the terms of the RUS documents each power supply 
borrower shall establish and adjust rates for the sale of electric power 
and energy in such a manner as to assure that the borrower will be able 
to make required payments on secured loans.
    (b) Pursuant to the terms of the RUS wholesale power contract, the 
Board of Directors or Board of Trustees of the power supply borrower 
shall review rates not less frequently than once each calendar year and 
revise its rates as therein set forth.\1\ The RUS wholesale power 
contract further provides

[[Page 204]]

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.
---------------------------------------------------------------------------

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

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

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



Sec. 1717.304  State regulatory authority rate jurisdiction.

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



Sec. 1717.305  Pre-emption.

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

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



Sec. 1717.306  RUS required rates.

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

[[Page 205]]

the RUS documents and for the purposes of section 1129(a)(6) of the 
Bankruptcy Code of 1978, as amended (11 U.S.C. 1129(a)(6)).
    (c) If a borrower, which is subject to exclusive RUS rate 
jurisdiction, shall fail to establish rates in accordance with terms of 
the RUS wholesale power contract and other RUS documents in a timely 
fashion, RUS may proceed to exercise any and all rights and remedies 
available pursuant under the RUS documents or otherwise.
    (d) The jurisdiction of the state regulatory authority over the 
rates of the borrower shall continue to be pre-empted hereunder until 
the Administrator shall in writing approve the resumption of 
jurisdiction by the state regulatory authority and publish in the 
Federal Register a notice to such effect. The Administrator shall 
approve resumption only after determining that such jurisdiction shall 
be exercised in a manner consistent with Federal interests.

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



Sec. 1717.307  Distribution members' rates.

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



Sec. 1717.308  RUS approval of nonconforming rates.

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



Sec. 1717.309  Additional statutory pre-emption.

    This subpart addresses pre-emption of state law and state regulatory 
authority in only those specific circumstances herein described. Nothing 
in this subpart waives, limits, or otherwise affects the explicit pre-
emption or pre-emption, which is implicit and shall occur pursuant to 
the RE Act as a matter of law, of state law or action of a state 
regulatory authority where such state law or such action compromises 
Federal interests, including the ability of any borrower, including 
power supply borrowers, to repay loans made or guaranteed by RUS.
Secs. 1717.310--1717.349  [Reserved]



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

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



Sec. 1717.350  Purpose.

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

[[Page 206]]



Sec. 1717.351  Policy.

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



Sec. 1717.352  Definitions and rules of construction.

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

[[Page 207]]

regulate, or in any way, approve the electric rates charged by a 
borrower.
    (b) Rules of construction.
    Unless the context shall otherwise indicate, the terms defined in 
Sec. 1717.352(a) hereof include the plural as well as the singular, and 
the singular as well as the plural. The words ``herein,'' and 
``hereunder'', and words of similar import, refer to this subpart as a 
whole. ``Includes'' and ``including'' are not limiting and ``or'' is not 
exclusive.

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



Sec. 1717.353   Requirements of RUS documents.

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



Sec. 1717.354   Pre-emption.

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



Sec. 1717.355   RUS required rates.

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



Sec. 1717.356   Additional statutory pre-emption.

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



                        Subparts I--L  [Reserved]



                     Subpart M--Operational Controls

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



Sec. 1717.600  General.

    (a) General. The loan contract and mortgage between the Rural 
Utilities Service (RUS) and electric borrowers imposes certain 
restrictions and controls on the borrowers and gives RUS (and other co-
mortgagees in the case of the mortgage) the right to approve or 
disapprove certain actions contemplated by the borrowers. Certain of 
these controls and approval rights are referred to informally as 
``operational controls'' because they pertain to decisions or actions 
with respect to the operation of the borrowers' electric systems. The 
approval authority granted to RUS by the loan contract or mortgage 
regarding each decision or action subject to controls is often stated in

[[Page 208]]

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.



Sec. 1717.601  Applicability.

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



Sec. 1717.602  Definitions.

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

[[Page 209]]

    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.



Sec. 1717.603  RUS approval of extensions and additions.

    (a) Distribution borrowers. Prior written approval by RUS is 
required for a distribution borrower to extend or add to its electric 
system if the extension or addition will be financed by RUS. For 
extensions and additions that will not be financed by RUS, approval is 
hereby given to distribution borrowers to make such extensions and 
additions to their electric systems, including the use of (or commitment 
to use) general funds of the borrower, except for the following:
    (1) Construction, procurement, or leasing of generating facilities 
if the combined capacity of the facilities to be built, procured, or 
leased, including any future facilities included in the planned project, 
will exceed the lesser of 5 megawatts or 30 percent of the borrower's 
equity;
    (2) Acquisition or leasing of existing electric facilities or 
systems in service whose purchase price, or capitalized value in the 
case of a lease, exceeds 10 percent of the borrower's net utility plant; 
and
    (3) Construction, procurement, or leasing of electric facilities to 
serve a customer whose annual kWh purchases or maximum annual kW demand 
in the foreseeable future is projected to exceed 25 percent of the 
borrower's total kWh sales or maximum kW demand in the year immediately 
preceding the acquisition or start of construction.
    (b) Power supply borrowers. Prior written approval by RUS is 
required for a power supply borrower to extend or add to its electric 
system if the extension or addition will be financed by RUS. 
Requirements for RUS approval of extensions and additions that will not 
be financed by RUS are set forth in other RUS regulations.
    (c) Additional details. Additional details relating to RUS approval 
of extensions and additions of a borrower's electric system financed by 
RUS are set forth in other RUS regulations, e.g., in 7 CFR parts 1710 
and 1726.



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

    (a) All borrowers are required to maintain up-to-date long-range 
engineering plans and construction work

[[Page 210]]

plans (CWPs) in form and substance as set forth in 7 CFR part 1710, 
subpart F.
    (b) Applications for financing from RUS must be supported by a long-
range engineering plan and CWP approved by RUS.
    (c) RUS approval is not required for long-range engineering plans 
and CWPs if the borrower does not intend to seek RUS financing for any 
of the facilities, equipment or other purposes included in those plans. 
However, if requested by RUS, a borrower must provide an informational 
copy of such plans to RUS.



Sec. 1717.605  Design standards, plans and specifications, construction standards, and RUS accepted materials.

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



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

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



Sec. 1717.607  Contract bidding requirements.

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



Sec. 1717.608  RUS approval of contracts.

    (a) Construction contracts and architectural and engineering 
contracts. RUS approval of contracts for construction and procurement 
and for architectural and engineering services is required only when 
such construction, procurement or services are financed by RUS. Detailed 
requirements regarding RUS approval of such contracts are set forth in 7 
CFR part 1724 for architectural and engineering services, and in 7 CFR 
part 1726 for construction and procurement.
    (b) Large retail power contracts. RUS approval of contracts to sell 
electric power to retail customers is required only if the contract is 
for longer than 2 years and the kWh sales or kW demand for any year 
covered by the contract exceeds 25 percent of the borrower's total kWh 
sales or maximum kW demand for the year immediately preceding execution 
of the contract. This requirement applies regardless of the source of 
funding of any plant extensions, additions or improvements that may be 
involved in connection with the contract.
    (c) Power supply arrangements. (1) Power supply contracts (including 
but not limited to economy energy sales and emergency power and energy 
sales), interconnection agreements, interchange agreements, wheeling 
agreements, pooling agreements, and any other similar power supply 
arrangements subject to approval by RUS are deemed approved if they have 
a term of 2 years or less. Amendments to said power supply arrangements 
are also deemed approved provided that the amendment does not extend the 
term of the arrangement for more than 2 years beyond the date of the 
amendment.
    (2) Any amendment to a schedule or exhibit contained in any power 
supply arrangement subject to RUS approval, which merely has the effect 
of either altering a list of interconnection or delivery points or 
changing the value of a variable term (but not the formula itself) 
contained in a formulary rate or charge is deemed approved.

[[Page 211]]

    (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]



Sec. 1717.609  RUS approval of general manager.

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



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

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



Sec. 1717.611  RUS approval of expenditures for legal, accounting, engineering, and supervisory services.

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



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

    If a borrower's mortgage or loan contract gives RUS the authority to 
approve the bank or other depositories used by the borrower, such 
approval is hereby granted. However, without the prior written approval 
of RUS, a borrower shall not deposit funds from loans made or guaranteed 
by RUS in any bank or other depository that is not insured by the 
Federal Deposit Insurance Corporation or other Federal agency acceptable 
to RUS, or in any account not so insured.



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

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



Sec. 1717.614  Notification of rate changes.

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



Sec. 1717.615  Consolidations and mergers.

    A distribution or power supply borrower may without the prior 
approval

[[Page 212]]

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 1.50 and a pro forma DSC of 
not less than 1.25 for each of the two preceding calendar years; and
    (3) Net utility plant equal to or greater than 1.0 times its total 
long-term debt on a pro forma basis.



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

    A distribution borrower may without the prior approval of RUS sell, 
lease, or transfer any capital asset if the following conditions are 
met:
    (a) The borrower is not in default;
    (b) In the most recent year for which data are available, the 
borrower achieved a TIER of at least 1.5, DSC of at least 1.25, OTIER of 
at least 1.1, and ODSC of at least 1.1, in each case based on the 
average or the best 2 out of the 3 most recent years;
    (c) The sale, lease, or transfer of assets will not reduce the 
borrower's existing or future requirements for energy or capacity being 
furnished to the borrower under any wholesale power contract which has 
been pledged as security to the government;
    (d) Fair market value is obtained for the assets;
    (e) The aggregate value of assets sold, leased, or transferred in 
any 12-month period is less than 10 percent of the borrower's net 
utility plant prior to the transaction;
    (f) The proceeds of such sale, lease, or transfer, less ordinary and 
reasonable expenses incident to such transaction, are immediately:
    (1) Applied as a prepayment of all notes secured under the mortgage 
equally and ratably;
    (2) In the case of dispositions of equipment, materials or scrap, 
applied to the purchase of other property useful in the borrower's 
utility business; or
    (3) Applied to the acquisition of construction of utility plant.



Sec. 1717.617  Limitations on distributions.

    If a distribution or power supply borrower is required by its loan 
documents to obtain prior approval from RUS before declaring or paying 
any dividends, paying or determining to pay any patronage refunds, or 
retiring any patronage capital, or making any other cash distributions, 
such approval is hereby given if the following conditions are met:

[[Page 213]]

    (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.



   Subpart N--Investments, Loans, and Guarantees by Electric Borrowers

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

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



Sec. 1717.650  Purpose.

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



Sec. 1717.651  General.

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



Sec. 1717.652  Definitions.

    As used in this subpart:
    Borrower means any organization that has an outstanding loan made or 
guaranteed by RUS for rural electrification.
    Cash-construction fund-trustee account means the account described 
in the Uniform System of Accounts as one to which funds are deposited 
for financing the construction or purchase of electric facilities.
    Distribution borrower means a Distribution Borrower as defined in 7 
CFR 1710.2.
    Electric system means all of the borrower's interests in all 
electric production, transmission, distribution, conservation, load 
management, general plant and other related facilities, equipment or 
property and in any mine, well, pipeline, plant, structure or other 
facility for the development, production, manufacture, storage, 
fabrication or processing of fossil, nuclear, or other fuel or in any 
facility or rights with respect to the supply of water, in each case for 
use, in whole or in major part, in any of the borrower's generating 
plants, including any interest or participation of the borrower in any 
such facilities or any rights to the output or capacity thereof, 
together with all lands, easements, rights-of-way, other works, 
property, structures, contract rights and other tangible and intangible 
assets of the borrower in each

[[Page 214]]

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:
[GRAPHIC] [TIFF OMITTED] TR21SE95.001

                                                                  where:

    All amounts are for the same year and are based on the RUS system of 
accounts;

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

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

where:

    All amounts are for the same year and are based on the RUS system of 
accounts;

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

    Own funds means money belonging to the borrower other than funds on 
deposit in the cash-construction fund-trustee account.
    Power supply borrower means a Power Supply Borrower as defined in 7 
CFR 1710.2.
    Regulatory created assets means the sum of the amounts properly 
recordable in Account 182.2 Unrecovered Plant and Regulatory Study 
Costs, and

[[Page 215]]

Account 182.3 Other Regulatory Assets of the Uniform System of Accounts.
    RUS means the Rural Utilities Service, an agency of the U.S. 
Department of Agriculture established pursuant to Section 232 of the 
Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178, 7 U.S.C. 
6941 et seq.) and, for purposes of this subpart, includes its 
predecessor, the Rural Electrification Administration.
    RUS loan contract means the loan contract between the borrower and 
RUS.
    RUS mortgage means any and all instruments creating a lien on or 
security interest in the borrower's assets in connection with loans or 
guarantees under the RE Act.
    Solid waste disposal system means any system of community 
infrastructure that provides collection and/or disposal of solid waste 
and whose services are available by design to all or a substantial 
portion of the members of the community.
    Subsidiary means a company which is controlled by the borrower 
through ownership of voting stock, and is further defined in 7 CFR 
1767.10.
    Supplemental lender means a lender that has provided a supplemental 
source of financing that is secured by the RUS mortgage.
    Telecommunication and other electronic communication system means 
any community infrastructure that provides telecommunication or other 
electronic communication services and whose services are available by 
design to all or a substantial portion of the members of the community.
    Total assets means the total assets of the borrower as calculated 
according to the Uniform System of Accounts, less regulatory created 
assets.
    Total utility plant means the sum of the borrower's Electric Plant 
Accounts and Construction Work in Progress--Electric Accounts, as such 
terms are used in the Uniform System of Accounts.
    Uniform System of Accounts means the system of accounts prescribed 
for RUS borrowers in 7 CFR part 1767.
    Water and waste disposal system means any system of community 
infrastructure that supplies water and/or collects and treats waste 
water and whose services are available by design to all or a substantial 
portion of the members of the community.



Sec. 1717.653  Borrowers in default.

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



Sec. 1717.654  Transactions below the 15 percent level.

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

[[Page 216]]

interest on loans secured by the RUS mortgage remain subject to RUS 
controls on borrower investments, loans and guarantees.
    (b) RUS will not consider requests from borrowers to exclude 
investments, loans, or guarantees made below the 15 percent level. 
(Categorical exclusions are set forth in Sec. 1717.655.)



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

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

[[Page 217]]

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



Sec. 1717.656  Exemption of certain borrowers from controls.

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

[[Page 218]]

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



Sec. 1717.657  Investments above the 15 percent level by certain borrowers not exempt under Sec. 1717.656(a).

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

[[Page 219]]

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



Sec. 1717.658  Records, reports and audits.

    (a) Every borrower shall maintain accurate records concerning all 
investments, loans and guarantees made by it. Such records shall be kept 
in a manner that will enable RUS to readily determine:
    (1) The nature and source of all income, expenses and losses 
generated from the borrower's loans, guarantees and investments;

[[Page 220]]

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



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

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

[[Page 221]]



                          Subpart O--[Reserved]

Secs. 1717.700--1717.749  [Reserved]



                          Subpart P--[Reserved]

Secs. 1717.750--1717.799  [Reserved]



                          Subpart Q--[Reserved]

Secs. 1717.800--1717.849  [Reserved]



   Subpart R--Lien Accommodations and Subordinations for 100 Percent 
                            Private Financing

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



Sec. 1717.850  General.

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

[[Page 222]]

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

[[Page 223]]

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.

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



Sec. 1717.851  Definitions.

    Terms used in this subpart have the meanings set forth in 7 CFR 
1710.2. References to specific RUS forms and other RUS documents, and to 
specific sections or lines of such forms and documents, shall include 
the corresponding forms, documents, sections and lines in any subsequent 
revisions of these forms and documents. In addition

[[Page 224]]

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

[[Page 225]]

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.

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



Sec. 1717.852  Financing purposes.

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

[[Page 226]]

    (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 
Sec. 1717.858.
    (c) Lien subordination for electric utility investments. RUS will 
consider subordinating its lien on specific electric utility assets 
financed by the lender, when the assets can be split off without 
materially reducing the stability, safety, reliability, operational 
efficiency, or liquidation value of the rest of the system.

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



Sec. 1717.853  Loan terms and conditions.

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



Sec. 1717.854  Advance approval--100 percent private financing of distribution, subtransmission and headquarters facilities, and certain other community 
          infrastructure.

    (a) Policy. Requests for a lien accommodation or subordination from 
distribution borrowers for 100 percent private financing of 
distribution, subtransmission and headquarters facilities, and for 
community infrastructure listed in Sec. 1717.852(a)(3), qualify for 
advance approval by RUS if they meet the conditions of this section and 
all other applicable provisions of this subpart. Advance approval means 
RUS will approve these requests once RUS is satisfied that the 
conditions of this section and all other applicable provisions of this 
subpart have been met.
    (b) Eligible purposes. Lien accommodations or subordinations for the 
financing of distribution, subtransmission, and headquarters facilities 
and community infrastructure listed in Sec. 1717.852(a)(3) are eligible 
for advance approval, except those that involve the purchase of existing 
facilities and associated service territory.
    (c) Qualification criteria. To qualify for advance approval, the 
following requirements, as well as all other applicable requirements of 
this subpart, must be met:
    (1) The borrower has achieved a TIER of at least 1.5 and a DSC of at 
least 1.25 for each of 2 calendar years immediately preceding, or any 2 
consecutive

[[Page 227]]

12 month periods ending within 180 days immediately preceding, the 
issuance of the debt;
    (2) The ratio of the borrower's equity, less deferred expenses, to 
total assets, less deferred expenses, is not less than 27 percent, after 
adding the principal amount of the proposed loan to the total assets of 
the borrower;
    (3) The borrower's net utility plant as a ratio to its total 
outstanding long-term debt is not less than 1.0, after adding the 
principal amount of the proposed loan to the existing outstanding long-
term debt of the borrower;
    (4) There are no actions or proceedings against the borrower, 
pending or overtly threatened in writing before any court, governmental 
agency, or arbitrator that would materially adversely affect the 
borrower's operations and/or financial condition;
    (5) The borrower is current on all debt payments and all other 
financial obligations, and is not in default under the RUS mortgage, the 
RUS loan contract, the borrower's wholesale power contract, any debt 
restructuring agreement, or any other agreement with RUS;
    (6) The borrower has:
    (i) Submitted the annual auditor's report, report on compliance, 
report on internal controls, and management letter in accordance with 7 
CFR part 1773;
    (ii) Received an unqualified opinion in the most recent auditor's 
report;
    (iii) Resolved all material findings and recommendations made in the 
most recent Loan Fund and Accounting Review;
    (iv) Resolved all material findings and recommendations made in the 
most recent financial statement audit, including those material findings 
and recommendations made in the report on internal control, report on 
compliance, and management letter;
    (v) Resolved all outstanding material accounting issues with RUS; 
and
    (vi) Resolved any significant irregularities to RUS's satisfaction; 
and
    (7) If the borrower has a power supply contract with a power supply 
borrower, the power supply borrower is current on all debt payments and 
all other financial obligations, and is not in default under the RUS 
mortgage, the loan contract, any debt restructuring agreement, or any 
other agreement with RUS.
    (d) Right of normal review reserved. RUS reserves the right to 
review any request for lien accommodation or subordination under its 
normal review process rather than under advance approval procedures if 
RUS, in its sole discretion, determines there is reasonable doubt as to 
whether the requirements of paragraphs (b) and (c) of this section have 
been or will be met, or whether the borrower will be able to meet all of 
its present and future financial obligations.

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



Sec. 1717.855  Application contents: Advance approval--100 percent private financing of distribution, subtransmission and headquarters facilities, and certain 
          other community infrastructure.

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

[[Page 228]]

borrower that these documents need not be submitted;
    (f) Borrower's environmental report and/or other environmental 
documentation, if required by 7 CFR part 1794;
    (g) RUS Form 740c, Cost Estimates and Loan Budget for Electric 
Borrowers, and RUS Form 740g, Application for Headquarters Buildings;
    (h) A CWP or CWP amendment covering the proposed project, in 
accordance with 7 CFR part 1710, subpart F, and subject to RUS approval, 
and a resolution of the borrower's board of directors adopting the CWP;
    (i) The certification by the project architect for any buildings to 
be constructed, as required by Sec. 1717.850(i);
    (j) A certification by an authorized official of the borrower that 
flood hazard insurance will be obtained for the full value of any 
buildings, or other facilities susceptible to damage if flooded, that 
will be located in a flood hazard area;
    (k) Form AD-1047, Certification Regarding Debarment, Suspension, and 
Other Responsibility Matters--Primary Covered Transactions, as required 
by 7 CFR part 3017;
    (l) A report by the borrower stating whether or not it is delinquent 
on any Federal debt, and if delinquent, the amount and age of the 
delinquency and the reasons therefor; and a certification, if not 
previously provided, that the borrower has been informed of the 
Government's collection options;
    (m) The written acknowledgement from a registered engineer or 
architect regarding compliance with seismic provisions of applicable 
model codes for any buildings to be constructed, as required by 7 CFR 
1792.104; and
    (n) Other information that RUS may require to determine whether all 
of the applicable provisions of this subpart have been met.

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



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

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

[[Page 229]]

    (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, and a 
resolution of the borrower's board of directors adopting these 
documents. These documents must meet the requirements of 7 CFR part 
1710, subpart F and, as applicable, subpart G;
    (f) Unless the requirement has been waived in writing by RUS, a 
current, RUS-approved power requirements study, which must meet the 
requirements of 7 CFR part 1710, subpart E, to the same extent as if the 
loan were being made by RUS, and a resolution of the borrower's board of 
directors adopting the study; and
    (g) A discussion of the borrower's compliance with RUS requirements 
on accounting, financial reporting, record keeping, and irregularities 
(see Sec. 1717.854(c)(5)). RUS will review the case and determine the 
effect of any noncompliance on the feasibility and security of RUS's 
loans, and whether the requested lien accommodation or subordination can 
be approved.

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



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

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

[[Page 230]]

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

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



Sec. 1717.858  Lien subordination for rural development investments.

    (a) Policy. RUS encourages borrowers to consider investing in 
financially

[[Page 231]]

sound projects that are likely to have a positive effect on economic 
development and employment in rural areas. In addition to the guidance 
set forth in Sec. 1717.651, RUS recommends that such investments be made 
through a subsidiary of the borrower in order to clearly separate the 
financial risks and the revenues and costs of the rural development 
enterprise from those of the borrower's electric utility business. This 
should reduce credit risks to the borrower's primary business, and 
minimize the possibility of undisclosed cross subsidization of the rural 
development enterprise by electric rate payers.
    (b) Lien subordination. RUS will consider subordinating or releasing 
its lien on the stock held by a borrower in a subsidiary whose primary 
business directly contributes to or supports economic development and 
employment in rural areas, as defined in section 13 of the RE Act, when 
requested by a lender to the subsidiary, other than the borrower. To be 
eligible for said lien subordination or release:
    (1) The borrower must be current on all of its financial obligations 
and be in compliance with all provisions of its mortgage and loan 
agreement with RUS; and
    (2) In the judgment of RUS, the borrower must be able to repay all 
of its outstanding debt, and the security forall outstanding loans made 
to the borrower by RUS, including loans guaranteed by RUS, must be 
adequate, after taking into account the proposed subordination or 
release of lien.
    (c) Application contents. Applications for a lien subordination or 
release of lien for rural development investments must include the 
following information and documents:
    (1) A resolution of the borrower's board of directors requesting the 
lien subordination or release of lien;
    (2) A certification by an authorized official of the borrower that 
the borrower is current on all of its financial obligations and is in 
compliance with all provisions of its mortgage and loan agreement with 
RUS;
    (3) A description of the facilities or other purposes to be financed 
and the projected effects on economic development and employment in 
rural areas;
    (4) The borrower's financial and statistical report, the data in 
which shall not be more than 60 days old when the complete application 
is received by RUS;
    (5) If requested by RUS, a long-range financial forecast providing 
financial projections for at least 10 years, in form and substance 
satisfactory to RUS, which demonstrates that the borrower's system is 
economically viable and that the borrower will be able to repay all of 
its outstanding debt and meet all other financial obligations;
    (6) A discussion of the borrower's compliance with RUS requirements 
on accounting, financial reporting, record keeping, and irregularities 
(see Sec. 1717.854(c)(5)). RUS will review the case and determine the 
effect of any noncompliance on the feasibility and security of RUS's 
loans, and whether the requested lien subordination or release of lien 
can be approved;
    (7) If any buildings are to be constructed with the proceeds of the 
loan to be made to the subsidiary:
    (i) A certification by the project architect that the buildings will 
be designed and constructed in compliance with Section 504 of the 
Rehabilitation Act of 1973 as amended (29 U.S.C. 794), as applicable 
under that Act, and that the facilities will be readily accessible to 
and usable by persons with handicaps in accordance with the Uniform 
Federal Accessibility Standards; and
    (ii) A written acknowledgement from a registered engineer or 
architect regarding compliance with seismic provisions of applicable 
model codes, as required by 7 CFR 1792.104;
    (8) A certification by an authorized official of the borrower that 
flood hazard insurance will be obtained for the full value of any 
buildings, or other facilities susceptible to damage if flooded, that 
will be located in a flood hazard area;
    (9) Form AD-1047, Certification Regarding Debarment, Suspension, and 
Other Responsibility Matters--Primary Covered Transactions, as required 
by 7 CFR part 3017;
    (10) A report by the borrower stating whether or not it is 
delinquent on any Federal debt, and if delinquent, the amount and age of 
the delinquency and

[[Page 232]]

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.



Sec. 1717.859  Application process and timeframes.

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

[[Page 233]]

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

[[Page 234]]

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

[[Page 235]]

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.



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

    (a) General. Under section 306E of the RE Act, when requested by a 
private lender providing financing for capital investments by a borrower 
whose net worth exceeds 110 percent of the outstanding principal balance 
of all loans made or guaranteed to the borrower by RUS, the 
Administrator will, without delay, offer to share the government's lien 
on the borrower's system or subordinate the government's lien on the 
property financed by the private lender, provided that the security, 
including the assurance of repayment, for loans made or guaranteed by 
RUS will remain reasonably adequate. To qualify for a lien accommodation 
or subordination under this section, the investment must be an original 
capital investment, i.e., not a refinancing or refunding. (See 
Sec. 1717.851 for the definition of capital investment.)
    (b) Determination of net worth to RUS debt ratio. (1) In the case of 
applications for a lien accommodation, a borrower's net worth will be 
based on the borrower's most recent financial and statistical report, 
the data in which shall not be more than 60 days old at the time the 
application is received by RUS, and the outstanding debt owed to or 
guaranteed by RUS will be based on latest RUS records available. The 
financial and statistical reports (Form 7 for distribution borrowers and 
Form 12a for power supply borrowers) are subject to RUS review and 
revision, and they must comply with RUS's system of accounts and 
accounting principles set forth in 7 CFR part 1767. Since sinking fund 
depreciation is not approved under part 1767, net worth for borrowers 
using sinking fund depreciation will be calculated as if the borrower 
had been using straight line depreciation.
    (2) Net worth shall be calculated by taking total margins and 
equities (Line 33 of Part C of RUS Form 7 for distribution borrowers, or 
Line 34 of Section B of RUS Form 12a for power supply borrowers) and 
subtracting assets properly recordable in account 182.2, Unrecovered 
Plant and Regulatory Study Costs, and account 182.3, Other Regulatory 
Assets, as defined in 7 CFR part 1767.
    (c) Application requirements and process. (1) If a borrower's net 
worth to RUS debt ratio exceeds 110 percent, as determined by RUS, and 
the borrower is in compliance with all requirements of its mortgage, 
loan agreement with RUS, and any other agreement with RUS that have not 
been exempted in writing by RUS, if requested RUS will expeditiously 
approve a lien accommodation or subordination for 100 percent private 
financing of capital investments, provided that the security, including 
the assurance of repayment, for loans made or guaranteed by RUS will 
remain reasonably adequate. RUS's approval will be conditioned upon 
execution and delivery by the borrower of a security instrument 
satisfactory to RUS, if required, and such additional information, 
documents, and opinions of counsel as RUS may require.
    (2) The application must include the following:
    (i) A resolution of the borrower's board of directors requesting the 
lien accommodation and including the amount and maturity of the proposed 
loan, a general description of the facilities or other purposes to be 
financed, the name and address of the lender, and an attached term sheet 
summarizing the terms and conditions of the proposed loan;

[[Page 236]]

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

[[Page 237]]

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

[59 FR 3986, Jan. 28, 1994, as amended at 60 FR 3735, Jan. 19, 1995; 60 
FR 67410, Dec. 29, 1995]
Secs. 1717.861--1717.899  [Reserved]



Subpart S--Lien Accommodations for Supplemental Financing Required by 7 
                              CFR 1710.110

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



Sec. 1717.900  Qualification requirements.

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



Sec. 1717.901  Early approval.

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

[[Page 238]]

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



Sec. 1717.902  Other RUS requirements.

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



Sec. 1717.903  Liability.

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



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

    (a) General policy. If a borrower's net worth to RUS debt ratio 
exceeds 110 percent, as determined by RUS, and the borrower is in 
compliance with all requirements of its mortgage, loan agreement with 
RUS, and any other agreement with RUS that have not been exempted in 
writing by RUS, RUS will expeditiously approve a lien accommodation for 
a concurrent supplemental loan if requested in writing by the borrower, 
provided that the security, including assurance of repayment, of loans 
made or guaranteed by RUS will remain reasonably adequate. RUS's 
approval will be conditioned upon execution and delivery by the borrower 
of a security instrument satisfactory to RUS, if required, and such 
additional information, documents, and opinions of counsel as RUS may 
require.
    (b) Determination of net worth to RUS debt ratio. A borrower's ratio 
of net worth to RUS debt will be determined as set forth in 
Sec. 1717.860(b).
    (c) Requirements and controls exempted. The applicable requirements 
and controls exempted by 7 CFR 1710.7(c) are also exempted with respect 
to concurrent supplemental loans.
    (d) Requirements and controls not exempted. All requirements and 
controls applicable to concurrent supplemental financing set forth in 
this subpart and other RUS regulations that are not specifically 
exempted by 7 CFR 1710.7(c) are not exempted and shall continue to apply 
according to their terms. These include, but are not limited to:
    (1) The applicable requirements listed in 7 CFR 1710.7(d); and
    (2) The requirements set forth in Sec. 1717.901(a) when a borrower 
requests early approval of a lien accommodation.
    (e) Procedures. If a borrower meets the requirements of this 
section, upon receipt of a complete application RUS will promptly notify 
the borrower and lender in writing that the lien accommodation has been 
approved subject to the conditions set forth in paragraph (a) of this 
section.

[59 FR 3987, Jan. 28, 1994]
Secs. 1717.905--1717.949  [Reserved]



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




                           Subpart A--General

Sec.
1718.1--1718.49  [Reserved]

[[Page 239]]

             Subpart B--Mortgage for Distribution Borrowers

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

Appendix A to Subpart B of Part 1718--Model Form of Mortgage for 
          Electric Distribution Borrowers

          Subpart C--Loan Contracts With Distribution Borrowers

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

Appendix A to Subpart C of Part 1718--Model Form of Loan Contract for 
          Electric Distribution Borrowers

    Authority: 7 U.S.C. 901-950b; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.).



                           Subpart A--General

Secs. 1718.1--1718.49  [Reserved]



             Subpart B--Mortgage for Distribution Borrowers

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



Sec. 1718.50  Definitions.

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



Sec. 1718.51  Policy.

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



Sec. 1718.52  Existing mortgages.

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



Sec. 1718.53  Rights of other mortgagees.

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



Sec. 1718.54  Availability of model mortgage.

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

    Appendix A to Subpart B of Part 1718--Model Form of Mortgage for 
                     Electric Distribution Borrowers

      RESTATED MORTGAGE AND SECURITY AGREEMENT Made By And Between

_______________________________________________________________________
Mortgagor

                    and UNITED STATES OF AMERICA and

_______________________________________________________________________
MORTGAGEE

Dated as of_____________________________________________________________

[[Page 240]]

  THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A TRANSMITTING UTILITY

           THIS INSTRUMENT CONTAINS FUTURE ADVANCE PROVISIONS

       THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS

                            TABLE OF CONTENTS

                            GRANTING CLAUSES

FIRST
SECOND
THIRD
FOURTH
EXCEPTED PROPERTY

                                HABENDUM

    ARTICLE I--DEFINITIONS & OTHER PROVISIONS OF GENERAL APPLICATION

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

                               ARTICLE II

                            ADDITIONAL NOTES

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

           ARTICLE III--PARTICULAR COVENANTS OF THE MORTGAGOR

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

               ARTICLE IV--EVENTS OF DEFAULT AND REMEDIES

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

         ARTICLE V--POSSESSION UNTIL DEFAULT--DEFEASANCE CLAUSE

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

                        ARTICLE VI--MISCELLANEOUS

SECTION 6.01  Property Deemed Real Property
SECTION 6.02  Mortgage to Bind and Benefit Successors and Assigns
SECTION 6.03  Headings
SECTION 6.04  Severability Clause
SECTION 6.05  Mortgage Deemed Security Agreement
SECTION 6.06    Indemnification by Mortgagor of Mortgagees
Schedule A
Schedule B
Schedule C
Exhibit A--Manager's Certificate
Exhibit B--Form of Supplemental Mortgage
Supplemental Mortgage Schedule A--Maximum Debt Limit and Other 
          Information
Supplemental Mortgage Schedule B--Property Schedule
Supplemental Mortgage Schedule C--Excepted Property

    RESTATED MORTGAGE AND SECURITY AGREEMENT, dated as of __________ 
19____,

[[Page 241]]

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

                                RECITALS

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

                          GRANTING CLAUSE FIRST

    A. all of those fee and leasehold interests in real property set 
forth in Schedule ``B'' hereto, subject in each case to those matters 
set forth in such Schedule;
    B. all of the Mortgagor's interest in fixtures, easements, permits, 
licenses and rights-of-way comprising real property, and all other 
interests in real property, comprising any portion of the Utility System 
(as herein defined) located in the Counties listed in Schedule ``B'' 
hereto;
    C. all right, title and interest of the Mortgagor in and to those 
contracts of the Mortgagor (i) relating to the ownership, operation or 
maintenance of any generation, transmission or distribution facility 
owned, whether solely or jointly, by the Mortgagor, (ii) for the 
purchase of electric power and energy by the Mortgagor and having an 
original term in excess of 3 years, (iii) for the sale of electric power 
and energy by the Mortgagor and having an original term in excess of 3 
years, and (iv) for the transmission of electric power and energy by or 
on behalf of the Mortgagor and having an original term in excess of 3 
years, including in respect of any of the foregoing, any amendments, 
supplements and replacements thereto;
    D. all the property, rights, privileges, allowances and franchises 
particularly described in the annexed Schedule ``B'' are hereby made a 
part of, and deemed to be described in, this Granting Clause as fully as 
if set forth in this Granting Clause at length; and
    ALSO ALL OTHER PROPERTY, real estate, lands, easements, servitudes, 
licenses, permits, allowances, consents, franchises, privileges, rights 
of way and other rights in or relating to real estate or the occupancy 
of the same; all power sites, storage rights,

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water rights, water locations, water appropriations, ditches, flumes, 
reservoirs, reservoir sites, canals, raceways, waterways, dams, dam 
sites, aqueducts, and all other rights or means for appropriating, 
conveying, storing and supplying water; all rights of way and roads; all 
plants for the generation of electric and other forms of energy (whether 
now known or hereafter developed) by steam, water, sunlight, chemical 
processes and/or (without limitation) all other sources of power 
(whether now known or hereafter developed); all power houses, gas 
plants, street lighting systems, standards and other equipment 
incidental thereto; all telephone, radio, television and other 
communications, image and data transmission systems, air conditioning 
systems and equipment incidental thereto, water wheels, waterworks, 
water systems, steam and hot water plants, substations, lines, service 
and supply systems, bridges, culverts, tracks, ice or refrigeration 
plants and equipment, offices, buildings and other structures and the 
equipment thereto all machinery, engines, boilers, dynamos, turbines, 
electric, gas and other machines, prime movers, regulators, meters, 
transformers, generators (including, but not limited to, engine-driven 
generators and turbogenerator units), motors, electrical, gas and 
mechanical appliances, conduits, cables, water, steam, gas or other 
pipes, gas mains and pipes, service pipes, fittings, valves and 
connections, pole and transmission lines, towers, overhead conductors 
and devices, underground conduits, underground conductors and devices, 
wires, cables, tools, implements, apparatus, storage battery equipment, 
and all other fixtures and personalty; all municipal and other 
franchises, consents, certificates or permits; all emissions allowances; 
all lines for the transmission and distribution of electric current and 
other forms of energy, gas, steam, water or communications, images and 
data for any purpose including towers, poles, wires, cables, pipes, 
conduits, ducts and all apparatus for use in connection therewith, and 
(except as hereinbefore or hereinafter expressly excepted) all the 
right, title and interest of the Mortgagor in and to all other property 
of any kind or nature appertaining to and/or used and/or occupied and/or 
employed in connection with any property hereinbefore described, but in 
all circumstances excluding Excepted Property;

                         GRANTING CLAUSE SECOND

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

                          GRANTING CLAUSE THIRD

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

                         GRANTING CLAUSE FOURTH

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

                            EXCEPTED PROPERTY

    There is, however, expressly excepted and excluded from the lien and 
operation of this Mortgage the following described property of the 
Mortgagor, now owned or hereafter acquired (herein sometimes referred to 
as ``Excepted Property''):
    A. all shares of stock, securities or other interests of the 
Mortgagor in the National Rural Utilities Cooperative Finance 
Corporation, the National Bank for Cooperatives and the St. Paul Bank 
for Cooperatives other

[[Page 243]]

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

                                HABENDUM

    TO HAVE AND TO HOLD all said property, rights, privileges and 
franchises of every kind and description, real, personal or mixed, 
hereby and hereafter (by supplemental mortgage or otherwise) granted, 
bargained, sold, aliened, remised, released, conveyed, assigned, 
transferred, mortgaged, encumbered, hypothecated, pledged, setover, 
confirmed, or subjected to a continuing security interest and lien as 
aforesaid, together with all the appurtenances thereto appertaining 
(said properties, rights, privileges and franchises, including any cash 
and securities hereafter deposited with any Mortgagee ((other than any 
such cash, if any, which is specifically stated herein not to be deemed 
part of the Mortgaged Property)), being herein collectively called the 
``Mortgaged Property'') unto the Mortgagees and the respective assigns 
of the Mortgagees forever, to secure equally and ratably the payment of 
the principal of (and premium, if any) and interest on the Notes, 
according to their terms, without preference, priority or distinction as 
to interest or principal (except as otherwise specifically provided 
herein) or as to lien or otherwise of any Note over any other Note by 
reason of the priority in time of the execution, delivery or maturity 
thereof or of the assignment or negotiation thereof, or otherwise, and 
to secure the due performance of all of the covenants, agreements and 
provisions herein and in the Loan Agreements contained, and for the uses 
and purposes and upon the terms, conditions, provisos and agreements 
hereinafter expressed and declared.

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    SUBJECT, HOWEVER, to Permitted Encumbrances (as defined in Section 
1.01).

                                ARTICLE I

          DEFINITIONS & OTHER PROVISIONS OF GENERAL APPLICATION

    Section 1.01. Definitions. In addition to the terms defined 
elsewhere in this Mortgage, the terms defined in this Article I shall 
have the meanings specified herein and under the UCC, unless the context 
clearly requires otherwise. The terms defined herein include the plural 
as well as the singular and the singular as well as the plural.
    Accounting Requirements shall mean the requirements of any system of 
accounts prescribed by RUS so long as the Government is the holder, 
insurer or guarantor of any Notes, or, in the absence thereof, the 
requirements of generally accepted accounting principles applicable to 
businesses similar to that of the Mortgagor.
    Additional Notes shall mean any Notes issued by the Mortgagor to the 
Government or any other lender pursuant to Article II of this Mortgage 
including any refunding, renewal, or substitute Notes which may from 
time to time be executed and delivered by the Mortgagor pursuant to the 
terms of Article II.
    Board shall mean either the Board of Directors or the Board of 
Trustees, as the case may be, of the Mortgagor.
    Business Day shall mean any day that the Government is open for 
business.
    Debt Service Coverage Ratio (``DSC'') shall mean the ratio 
determined as follows: for each calendar year add (i) Patronage Capital 
or Margins of the Mortgagor, (ii) Interest Expense on Total Long Term 
Debt of the Mortgagor (as computed in accordance with the principles set 
forth in the definition of TIER) and (iii) Depreciation and Amortization 
Expense of the Mortgagor, and divide the total so obtained by an amount 
equal to the sum of all payments of principal and interest required to 
be made on account of Total Long-Term Debt during such calendar year 
increasing said sum by any addition to interest expense on account of 
Restricted Rentals as computed with respect to the Times Interest Earned 
Ratio herein.
    Depreciation and Amortization Expense shall mean an amount 
constituting the depreciation and amortization of the Mortgagor as 
computed pursuant to Accounting Requirements.
    Electric System shall mean, and shall be broadly construed to 
encompass and include, all of the Mortgagor's interests in all electric 
production, transmission, distribution, conservation, load management, 
general plant and other related facilities, equipment or property and in 
any mine, well, pipeline, plant, structure or other facility for the 
development, production, manufacture, storage, fabrication or processing 
of fossil, nuclear or other fuel of any kind or in any facility or 
rights with respect to the supply of water, in each case for use, in 
whole or in major part, in any of the Mortgagor's generating plants, now 
existing or hereafter acquired by lease, contract, purchase or otherwise 
or constructed by the Mortgagor, including any interest or participation 
of the Mortgagor in any such facilities or any rights to the output or 
capacity thereof, together with all additions, betterments, extensions 
and improvements to such Electric System or any part thereof hereafter 
made and together with all lands, easements and rights-of-way of the 
Mortgagor and all other works, property or structures of the Mortgagor 
and contract rights and other tangible and intangible assets of the 
Mortgagor used or useful in connection with or related to such Electric 
System, including without limitation a contract right or other 
contractual arrangement referred to in Granting Clause First, Subclause 
[(C)] but excluding any excepted property.
    Environmental Law and Environmental Laws shall mean all federal, 
state, and local laws, regulations, and requirements related to 
protection of human health or the environment, including but not limited 
to the Comprehensive Environmental Response, Compensation and Liability 
Act of 1980 (42 U.S.C. 9601 et seq.), the Resource Conservation and 
Recovery Act (42 U.S.C. 6901 et seq.), the Clean Water Act (33 U.S.C. 
1251 et seq.) and the Clean Air Act (42 U.S.C. 7401 et seq.), and any 
amendments and implementing regulations of such acts.
    Equity shall mean the total margins and equities and margins 
computed pursuant to Accounting Requirements, but excluding any 
Regulatory Created Assets.
    Event of Default shall have the meaning specified in Section [4.01] 
hereof.
    Excepted Property shall have the meaning stated in the Granting 
Clauses.
    Government shall mean the United States of America acting by and 
through the Administrator of RUS and shall include its successors and 
assigns.
    Government Notes shall mean the Original Notes, and any Additional 
Notes, issued by the Mortgagor to the Government, or guaranteed or 
insured as to payment by the Government.
    Independent shall mean when used with respect to any specified 
person or entity means such a person or entity who (1) is in fact 
independent, (2) does not have any direct financial interest or any 
material indirect financial interest in the Mortgagor or in any 
affiliate of the Mortgagor and (3) is not connected with the Mortgagor 
as an officer, employee, promoter, underwriter, trustee, partner, 
director or person performing similar functions.

[[Page 245]]

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

[[Page 246]]

    (6) easements and similar rights granted by the Mortgagor over or in 
respect of any Mortgaged Property, PROVIDED that in the opinion of the 
Board or a duly authorized officer of the Mortgagor such grant will not 
impair the usefulness of such property in the conduct of the Mortgagor's 
business and will not be prejudicial to the interests of the Mortgagees, 
and similar rights granted by any predecessor in title of the Mortgagor;
    (7) easements, leases, reservations or other rights of others in any 
property of the Mortgagor for streets, roads, bridges, pipes, pipe 
lines, railroads, electric transmission and distribution lines, 
telegraph and telephone lines, the removal of oil, gas, coal or other 
minerals and other similar purposes, flood rights, river control and 
development rights, sewage and drainage rights, restrictions against 
pollution and zoning laws and minor defects and irregularities in the 
record evidence of title, PROVIDED that such easements, leases, 
reservations, rights, restrictions, laws, defects and irregularities do 
not materially affect the marketability of title to such property and do 
not in the aggregate materially impair the use of the Mortgaged Property 
taken as a whole for the purposes for which it is held by the Mortgagor;
    (8) liens upon lands over which easements or rights of way are 
acquired by the Mortgagor for any of the purposes specified in Clause 
[(7)] of this definition, securing indebtedness neither created, assumed 
nor guaranteed by the Mortgagor nor on account of which it customarily 
pays interest, which liens do not materially impair the use of such 
easements or rights of way for the purposes for which they are held by 
the Mortgagor;
    (9) leases existing at the date of this instrument affecting 
property owned by the Mortgagor at said date which have been previously 
disclosed to the Mortgagees in writing and leases for a term of not more 
than two years (including any extensions or renewals) affecting property 
acquired by the Mortgagor after said date;
    (10) terminable or short term leases or permits for occupancy, which 
leases or permits expressly grant to the Mortgagor the right to 
terminate them at any time on not more than six months' notice and which 
occupancy does not interfere with the operation of the business of the 
Mortgagor;
    (11) any lien or privilege vested in any lessor, licensor or 
permittor for rent to become due or for other obligations or acts to be 
performed, the payment of which rent or performance of which other 
obligations or acts is required under leases, subleases, licenses or 
permits, so long as the payment of such rent or the performance of such 
other obligations or acts is not delinquent;
    (12) liens or privileges of any employees of the Mortgagor for 
salary or wages earned but not yet payable;
    (13) the burdens of any law or governmental regulation or permit 
requiring the Mortgagor to maintain certain facilities or perform 
certain acts as a condition of its occupancy of or interference with any 
public lands or any river or stream or navigable waters;
     (14) any irregularities in or deficiencies of title to any rights-
of-way for pipe lines, telephone lines, telegraph lines, power lines or 
appurtenances thereto, or other improvements thereon, and to any real 
estate used or to be used primarily for right-of-way purposes, PROVIDED 
that in the opinion of counsel for the Mortgagor, the Mortgagor shall 
have obtained from the apparent owner of the lands or estates therein 
covered by any such right-of-way a sufficient right, by the terms of the 
instrument granting such right-of-way, to the use thereof for the 
construction, operation or maintenance of the lines, appurtenances or 
improvements for which the same are used or are to be used, or PROVIDED 
that in the opinion of counsel for the Mortgagor, the Mortgagor has 
power under eminent domain, or similar statutes, to remove such 
irregularities or deficiencies;
     (15) rights reserved to, or vested in, any municipality or 
governmental or other public authority to control or regulate any 
property of the Mortgagor, or to use such property in any manner, which 
rights do not materially impair the use of such property, for the 
purposes for which it is held by the Mortgagor;
     (16) any obligations or duties, affecting the property of the 
Mortgagor, to any municipality or governmental or other public authority 
with respect to any franchise, grant, license or permit;
     (17) any right which any municipal or governmental authority may 
have by virtue of any franchise, license, contract or statute to 
purchase, or designate a purchaser of or order the sale of, any property 
of the Mortgagor upon payment of cash or reasonable compensation 
therefor or to terminate any franchise, license or other rights or to 
regulate the property and business of the Mortgagor; PROVIDED, HOWEVER, 
that nothing in this clause 17 is intended to waive any claim or rights 
that the Government may otherwise have under Federal laws;
     (18) as to properties of other operating electric companies 
acquired after the date of this Mortgage by the Mortgagor as permitted 
by Section [3.10] hereof, reservations and other matters as to which 
such properties may be subject as more fully set forth in such Section;
     (19) any lien required by law or governmental regulations as a 
condition to the transaction of any business or the exercise of any 
privilege or license, or to enable the Mortgagor to maintain self-
insurance or to participate in any fund established to cover any 
insurance risks or in connection with

[[Page 247]]

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

[[Page 248]]

    REA shall mean the Rural Electrification Administration of the 
United States Department of Agriculture, the predecessor of RUS.
    Regulatory Created Assets shall mean the sum of any amounts properly 
recordable as unrecovered plant and regulatory study costs or as other 
regulatory assets, pursuant to Accounting Requirements.
    Restricted Rentals shall mean all rentals required to be paid under 
finance leases and charged to income, exclusive of any amounts paid 
under any such lease (whether or not designated therein as rental or 
additional rental) for maintenance or repairs, insurance, taxes, 
assessments, water rates or similar charges. For the purpose of this 
definition the term ``finance lease'' shall mean any lease having a 
rental term (including the term for which such lease may be renewed or 
extended at the option of the lessee) in excess of 3 years and covering 
property having an initial cost in excess of $250,000 other than 
aircraft, ships, barges, automobiles, trucks, trailers, rolling stock 
and vehicles; office, garage and warehouse space; office equipment and 
computers.
    RUS shall mean the Rural Utilities Service, an agency of the United 
States Department of Agriculture, or if at any time after the execution 
of this Mortgage RUS is not existing and performing the duties of 
administering a program of rural electrification as currently assigned 
to it, then the entity performing such duties at such time.
    Security Interest shall mean any assignment, transfer, mortgage, 
hypothecation or pledge.
    Subordinated Indebtedness shall mean secured indebtedness of the 
Mortgagor, payment of which shall be subordinated to the prior payment 
of the Notes in accordance with the provisions of Section [3.08] hereof 
by subordination agreement in form and substance satisfactory to each 
Mortgagee which approval will not be unreasonably withheld.
    Supplemental Mortgage shall mean an instrument of the type described 
in Section [2.04].
    Times Interest Earned Ratio (``TIER'') shall mean the ratio 
determined as follows: for each calendar year: add (i) patronage capital 
or margins of the Mortgagor and (ii) Interest Expense on Total Long-Term 
Debt of the Mortgagor and divide the total so obtained by Interest 
Expense on Total Long-Term Debt of the Mortgagor, provided, however, 
that in computing Interest Expense on Total Long-Term Debt, there shall 
be added, to the extent not otherwise included, an amount equal to 33-1/
3% of the excess of Restricted Rentals paid by the Mortgagor over 2% of 
the Mortgagor's Equity.
    Title Evidence shall mean with respect to any real property:
    (1) an opinion of counsel to the effect that the Mortgagor has 
title, whether fairly deducible of record or based upon prescriptive 
rights (or, as to personal property, based on such evidence as counsel 
shall determine to be sufficient), as in the opinion of counsel is 
satisfactory for the use thereof in connection with the operations of 
the Mortgagor, and counsel in giving such opinion may disregard any 
irregularity or deficiency in the record evidence of title which, in the 
opinion of such counsel, can be cured by proceedings within the power of 
the Mortgagor or does not substantially impair the usefulness of such 
property for the purpose of the Mortgagor and may base such opinion upon 
counsel's own investigation or upon affidavits, certificates, abstracts 
of title, statements or investigations made by persons in whom such 
counsel has confidence or upon examination of a certificate or guaranty 
of title or policy of title insurance in which counsel has confidence; 
or
    (2) a mortgagee's policy of title insurance in the amount of the 
cost to the Mortgagor of the land included in Property Additions, as 
such cost is determined by the Mortgagor in accordance with the 
Accounting Requirements, issued in favor of the Mortgagees by an entity 
authorized to insure title in the states where the subject property is 
located, showing the Mortgagor as the owner of the subject property and 
insuring the lien of this Mortgage; and with respect to any personal 
property a certificate of the general manage or other duly authorized 
officer that the Mortgagor lawfully owns and is possessed of such 
property.
    Total Assets shall mean an amount constituting total assets of the 
Mortgagor as computed pursuant to Accounting Requirements, but excluding 
any Regulatory Created Assets.
    Total Long-Term Debt shall mean the total outstanding long-term debt 
of the Mortgagor as computed pursuant to Accounting Requirements.
    Total Utility Plant shall mean the total of all property properly 
recorded in the utility plant accounts of the Mortgagor, pursuant to 
Accounting Requirements.
    Uniform Commercial Code or UCC shall mean the UCC of the state 
referred to in Section [1.04], and if Mortgaged Property is located in a 
state other than that state, then as to such Mortgaged Property UCC 
refers to the UCC in effect in the state where such property is located.
    Utility System shall mean the Electric System and all of the 
Mortgagor's interest in community infrastructure located substantially 
within its electric service territory, namely water and waste systems, 
solid waste disposal facilities, telecommunications and other electronic 
communications systems, and natural gas distribution systems.
    SECTION 1.02. General Rules of Construction:
    a. Accounting terms not referred to above are used in this Mortgage 
in their ordinary

[[Page 249]]

sense and any computations relating to such terms shall be computed in 
accordance with the Accounting Requirements.
    b. Any reference to ``directors'' or ``board of directors'' shall be 
deemed to mean ``trustees'' or ``board of trustees,'' as the case may 
be.
    SECTION 1.03. Special Rules of Construction if RUS is a Mortgagee: 
During any period that RUS is a Mortgagee, the following additional 
provisions shall apply:
    a. In the case of any Notes that have been guaranteed or insured as 
to payment by RUS, as to such Notes RUS shall be considered to be the 
Noteholder, exclusively, regardless of whether such Notes are in the 
possession of RUS.
    b. In the case of any prior approval rights conferred upon RUS by 
Federal statutes, including (without limitation) Section 7 of the Rural 
Electrification Act of 1936, as amended, with respect to the sale or 
disposition of property, rights, or franchises of the Mortgagor, all 
such statutory rights are reserved except to the extent that they are 
expressly modified or waived in this Mortgage.
    SECTION 1.04. Governing Law: This Mortgage shall be construed in and 
governed by Federal law to the extent applicable, and otherwise by the 
laws of the State of ________.
    SECTION 1.05 Notices: All demands, notices, reports, approvals, 
designations, or directions required or permitted to be given hereunder 
shall be in writing and shall be deemed to be properly given if sent by 
registered or certified mail, postage prepaid, or delivered by hand, or 
sent by facsimile transmission, receipt confirmed, addressed to the 
proper party or parties at the following address:
    As to the Mortgagor:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
    As to the Mortgagee:

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

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

                               ARTICLE II

                            ADDITIONAL NOTES

    SECTION 2.01. Additional Notes: (a) Without the prior consent of any 
Mortgagee or any Noteholder, the Mortgagor may issue Additional Notes to 
the Government or to another lender or lenders for the purpose of 
acquiring, procuring or constructing new or replacement Eligible 
Property Additions which Notes will thereupon be secured equally and 
ratably with the Notes if each of the following requirements are 
satisfied:
    (1) As evidenced by a certificate of an Independent certified public 
accountant sent to each Mortgagee on or before the first advance of 
proceeds from such Additional Notes:
    (i) The Mortgagor shall have achieved for each of the two calendar 
years immediately preceding the issuance of such Additional Notes, a 
TIER of not less than 1.5 and a DSC of not less than 1.25;
    (ii) After taking into account the effect of such Additional Notes 
on the Total Long Term Debt of the Mortgagor, the ratio of the 
Mortgagor's Net Utility Plant to its Total Long Term Debt shall be 
greater than or equal to 1.0 on a pro forma basis;
    (iii) After taking into account the effect of such Additional Notes 
on the Total Assets of such Mortgagor, the Mortgagor shall have Equity 
greater than or equal to 27 percent of Total Assets on a pro forma 
basis; and
    (iv) The sum of the aggregate principal amount of such Additional 
Notes (if any) that are not related to the Electric System if added to 
the aggregate outstanding principal amount of all the existing Notes (if 
any) that are not related to the Electric System will not exceed 30% of 
the Mortgagor's Equity on a pro forma basis.
    (2) No Event of Default has occurred and is continuing hereunder, or 
any event which with the giving of notice or lapse of time or both would 
become an Event of Default has occurred and is continuing.
    (3) The Eligible Property Additions being constructed, acquired, 
procured or replaced are part of the Mortgagor's Utility System.
    (4) The Borrower's general manager or other duly authorized officer 
shall send to each of the Mortgagees a certificate in substantially the 
form attached hereto as [Exhibit A] on or before the date of the first 
advance of proceeds from such Additional Notes.
    (b) For purposes of this section:
    (1) ``Eligible Property Additions'' shall mean Property Additions 
acquired or whose construction was completed not more than 5 years prior 
to the issuance of the Additional Notes and Property Additions acquired 
or whose construction is started and/or completed not more than 4 years 
after issuance of the Additional Notes, but shall exclude any Property 
Additions financed by any

[[Page 250]]

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

           ARTICLE III--PARTICULAR COVENANTS OF THE MORTGAGOR

    SECTION 3.01. Payment of Debt Service on Notes: The Mortgagor will 
duly and punctually pay the principal, premium, if any, and interest on 
the Notes in accordance with the terms of the Notes, the Loan Contracts, 
this Mortgage and any Supplemental Mortgage authorizing such Notes.
    SECTION 3.02. Warranty of Title: (a) At the time of the execution 
and delivery of this instrument, the Mortgagor has good and marketable 
title in fee simple to the real property specifically described in 
Granting Clause First as owned in fee and good and marketable title to 
the interests in real property specifically described in Granting Clause 
[First], subject to no mortgage, lien, charge or encumbrance except as 
stated therein, and has full power and lawful authority to grant, 
bargain, sell, alien, remise, release, convey, assign, transfer, 
encumber, mortgage, pledge, set over and confirm said real property and 
interests in real property in the manner and form aforesaid.
    (b) At the time of the execution and delivery of this instrument, 
the Mortgagor lawfully owns and is possessed of the personal property 
specifically described in Granting Clauses [First and Second], subject 
to no mortgage, lien, charge or encumbrance except as stated therein, 
and has full power and lawful authority to mortgage, assign,

[[Page 251]]

transfer, deliver, pledge and grant a continuing security interest in 
said property and, including any proceeds thereof, in the manner and 
form aforesaid.
    (c) The Mortgagor hereby does and will forever warrant and defend 
the title to the property specifically described in Granting Clause 
First against the claims and demands of all persons whomsoever, except 
Permitted Encumbrances.
    SECTION 3.03. After-Acquired Property; Further Assurances; 
Recording: (a) All property of every kind, other than Excepted Property, 
acquired by the Mortgagor after the date hereof, shall, immediately upon 
the acquisition thereof by the Mortgagor, and without any further 
mortgage, conveyance or assignment, become subject to the lien of this 
Mortgage; SUBJECT, HOWEVER, to Permitted Encumbrances and the 
exceptions, if any, to which all of the Mortgagees consent. 
Nevertheless, the Mortgagor will do, execute, acknowledge and deliver 
all and every such further acts, conveyances, mortgages, financing 
statements and assurances as any Mortgagee shall require for 
accomplishing the purposes of this Mortgage.
    (b) The Mortgagor will cause this Mortgage and all Supplemental 
Mortgages and other instruments of further assurance, including all 
financing statements covering security interests in personal property, 
to be promptly recorded, registered and filed, and will execute and file 
such financing statements and cause to be issued and filed such 
continuation statements, all in such manner and in such places as may be 
required by law fully to preserve and protect the rights of all of the 
Mortgagees and Noteholders hereunder to all property comprising the 
Mortgaged Property. The Mortgagor will furnish to each Mortgagee:
    (1) promptly after the execution and delivery of this instrument and 
of each Supplemental Mortgage or other instrument of further assurance, 
an Opinion of Counsel stating that, in the opinion of such Counsel, this 
instrument and all such Supplemental Mortgages and other instruments of 
further assurance have been properly recorded, registered and filed to 
the extent necessary to make effective the lien intended to be created 
by this Mortgage, and reciting the details of such action or referring 
to prior Opinions of Counsel in which such details are given, and 
stating that all financing statements and continuation statements have 
been executed and filed that are necessary fully to preserve and protect 
the rights of all of the Mortgagees and Noteholders hereunder, or 
stating that, in the opinion of such Counsel, no such action is 
necessary to make the lien effective; and
    (2) within 30 days after __________ in each year beginning with the 
year ____, an Opinion of Counsel, dated as of such date, either stating 
that, in the opinion of such Counsel, such action has been taken with 
respect to the recording, registering, filing, re-recording, re-
registering and re-filing of this instrument and of all Supplemental 
Mortgages, financing statements, continuation statements or other 
instruments of further assurances as is necessary to maintain the lien 
of this Mortgage (including the lien on any property acquired by the 
Mortgagor after the execution and delivery of this instrument and owned 
by the Mortgagor at the end of preceding calendar year) and reciting the 
details of such action or referring to prior Opinions of Counsel in 
which such details are given, and stating that all financing statements 
and continuation statements have been executed and filed that are 
necessary to fully preserve and protect the rights of all of the 
Mortgagees and Noteholders hereunder, or stating that, in the opinion of 
such Counsel, no such action is necessary to maintain such lien.
    SECTION 3.04. Environmental Requirements and Indemnity: (a) The 
Mortgagor shall, with respect to all facilities which may be part of the 
Mortgaged Property, comply with all Environmental Laws.
    (b) The Mortgagor shall defend, indemnify, and hold harmless each 
Mortgagee, its successors and assigns, from and against any and all 
liabilities, losses, damages, costs, expenses (including but not limited 
to reasonable attorneys' fees and expenses), causes of actions, 
administrative proceedings, suits, claims, demands, or judgments of any 
nature arising out of or in connection with any matter related to the 
Mortgage Property and any Environmental Law, including but not limited 
to:
    (1) the past, present, or future presence of any hazardous 
substance, contaminant, pollutant, or hazardous waste on or related to 
the Mortgaged Property;
    (2) any failure at any time by the undersigned to comply with the 
terms of any order related to the Mortgaged Property and issued by any 
federal, state, or municipal department or agency (other than RUS) 
exercising its authority to enforce any Environmental Law; and
    (3) any lien or claim imposed under any Environmental Law related to 
clause (1).
    (c) Within 10 (ten) business days after receiving knowledge of any 
liability, losses, damages, costs, expenses (including but not limited 
to reasonable attorneys' fees and expenses), cause of action, 
administrative proceeding, suit, claim, demand, judgment, lien, 
reportable event including but not limited to the release of a hazardous 
substance, or potential or actual violation or non-compliance arising 
out of or in connection with the Mortgaged Property and any 
Environmental Law, the Mortgagor shall provide each Mortgagee with 
written notice of such matter. With respect to any matter upon which it 
has provided such notice, the Mortgagor

[[Page 252]]

shall immediately take any and all appropriate actions to remedy, cure, 
defend, or otherwise affirmatively respond to the matter.
    SECTION 3.05. Payment of Taxes: The Mortgagor will pay or cause to 
be paid as they become due and payable all taxes, assessments and other 
governmental charges lawfully levied or assessed or imposed upon the 
Mortgaged Property or any part thereof or upon any income therefrom, and 
also (to the extent that such payment will not be contrary to any 
applicable laws) all taxes, assessments and other governmental charges 
lawfully levied, assessed or imposed upon the lien or interest of the 
Noteholders or of the Mortgagees in the Mortgaged Property, so that (to 
the extent aforesaid) the lien of this Mortgage shall at all times be 
wholly preserved at the cost of the Mortgagor and without expense to the 
Mortgagees or the Noteholders; PROVIDED, HOWEVER, that the Mortgagor 
shall not be required to pay and discharge or cause to be paid and 
discharged any such tax, assessment or governmental charge to the extent 
that the amount, applicability or validity thereof shall currently be 
contested in good faith by appropriate proceedings and the Mortgagor 
shall have established and shall maintain adequate reserves on its books 
for the payment of the same.
    SECTION 3.06. Authority to Execute and Deliver Notes, Loan 
Agreements and Mortgage; All Action Taken; Enforceable Obligations: The 
Mortgagor is authorized under its articles of incorporation and bylaws 
[or code of regulations] and all applicable laws and by corporate action 
to execute and deliver the Notes, any Additional Notes, the Loan 
Agreements and this Mortgage. The Notes, the Loan Agreements and this 
Mortgage are, and any Additional Notes and Loan Agreements when executed 
and delivered will be, the valid and enforceable obligations of the 
Mortgagor in accordance with their respective terms.
    SECTION 3.07. Restrictions on Further Encumbrances on Property: 
Except to secure Additional Notes, the Mortgagor will not, without the 
prior written consent of each Mortgagee, create or incur or suffer or 
permit to be created or incurred or to exist any Lien, charge, 
assignment, pledge, mortgage on any of the Mortgaged Property inferior 
to, prior to, or on a parity with the Lien of this Mortgage except for 
the Permitted Encumbrances. Subject to the provisions of Section [3.08], 
or unless approved by each of the Mortgagees, the Mortgagor will 
purchase all materials, equipment and replacements to be incorporated in 
or used in connection with the Mortgaged Property outright and not 
subject to any conditional sales agreement, chattel mortgage, bailment, 
lease or other agreement reserving to the seller any right, title or 
Lien.
    SECTION 3.08. Restrictions On Additional Permitted Debt: The 
Mortgagor shall not incur, assume, guarantee or otherwise become liable 
in respect of any debt for borrowed money and Restricted Rentals 
(including Subordinated Debt) other than the following: (``Permitted 
Debt'')
    (1) Additional Notes issued in compliance with Article II hereof;
    (2) Purchase money indebtedness in non-Utility System property, in 
an amount not exceeding 10% of Net Utility Plant;
    (3) Restricted Rentals in an amount not to exceed 5% of Equity 
during any 12 consecutive calendar month period;
    (4) Unsecured lease obligations incurred in the ordinary course of 
business except Restricted Rentals;
    (5) Debt represented by dividends declared but not paid; and
    (6) Subordinated Indebtedness approved by each Mortgagee.
    PROVIDED, However, that the Mortgagor may incur Permitted Debt 
without the consent of the Mortgagee only so long as there exists no 
Event of Default hereunder and there has been no continuing occurrence 
which with the passage of time and giving of notice could become an 
Event of Default hereunder.
    PROVIDED, FURTHER, by executing this Mortgage any consent of RUS 
that the Mortgagor would otherwise be required to obtain under this 
Section is hereby deemed to be given or waived by RUS by operation of 
law to the extent, but only to the extent, that to impose such a 
requirement of RUS consent would clearly violate existing federal laws 
or government regulations.
    SECTION 3.09. Preservation of Corporate Existence and Franchises: 
The Mortgagor will, so long as any Outstanding Notes exist, take or 
cause to be taken all such action as from time to time may be necessary 
to preserve its corporate existence and to preserve and renew all 
franchises, rights of way, easements, permits, and licenses now or 
hereafter to be granted or upon it conferred the loss of which would 
have a material adverse affect on the Mortgagor's financial condition or 
business. The Mortgagor will comply with all laws, ordinances, 
regulations, orders, decrees and other legal requirements applicable to 
it or its property the violation of which could have a material adverse 
affect on the Mortgagor's financial condition or business.
    SECTION 3.10. Limitations on Consolidations and Mergers: The 
Mortgagor shall not, without the prior written approval of each 
Mortgagee, consolidate or merge with any other corporation or convey or 
transfer the Mortgaged Property substantially as an entirety unless: (1) 
such consolidation, merger, conveyance or transfer shall be on such 
terms as shall fully preserve the lien and security hereof and the 
rights and powers of the

[[Page 253]]

Mortgagees hereunder; (2) the entity formed by such consolidation or 
with which the Mortgagor is merged or the corporation which acquires by 
conveyance or transfer the Mortgaged Property substantially as an 
entirety shall execute and deliver to the Mortgagees a mortgage 
supplemental hereto in recordable form and containing an assumption by 
such successor entity of the due and punctual payment of the principal 
of and interest on all of the Outstanding Notes and the performance and 
observance of every covenant and condition of this Mortgage; (3) 
immediately after giving effect to such transaction, no default 
hereunder shall have occurred and be continuing; (4) the Mortgagor shall 
have delivered to the Mortgagees a certificate of its general manager or 
other officer, in form and substance satisfactory to each of the 
Mortgagees, which shall state that such consolidation, merger, 
conveyance or transfer and such supplemental mortgage comply with this 
subsection and that all conditions precedent herein provided for 
relating to such transaction have been complied with; (5) the Mortgagor 
shall have delivered to the Mortgagees an opinion of counsel in form and 
substance satisfactory to each of the Mortgagees; and (6) the entity 
formed by such consolidation or with which the Mortgagor is merged or 
the corporation which acquires by conveyance or transfer the Mortgaged 
Property substantially as an entirety shall be an entity--(A) having 
Equity equal to at least 27% of its Total Assets on a pro forma basis 
after giving effect to such transaction, (B) having a pro forma TIER of 
not less than 1.50 and a pro forma DSC of not less than 1.25 for each of 
the two preceding calendar years, and (C) having Net Utility Plant equal 
to or greater than 1.0 times its Total Long-Term Debt on a pro forma 
basis. Upon any consolidation or merger or any conveyance or transfer of 
the Mortgaged Property substantially as an entirety in accordance with 
this subsection, the successor entity formed by such consolidation or 
with which the Mortgagor is merged or to which such conveyance or 
transfer is made shall succeed to, and be substituted for, and may 
exercise every right and power of, the Mortgagor under this Mortgage 
with the same effect as if such successor entity had been named as the 
Mortgagor herein.
    SECTION 3.11. Limitations on Transfers of Property: The Mortgagor 
may not, except as provided in [Section 3.10] above, without the prior 
written approval of each Mortgagee, sell, lease or transfer any 
Mortgaged Property to any other person or entity (including any 
subsidiary or affiliate of the Mortgagor), unless (1) there exists no 
Event of Default or occurrence which with the passing of time and the 
giving of notice would be an Event of Default, (2) fair market value is 
obtained for such property, (3) the aggregate value of assets so sold, 
leased or transferred in any 12-month period is less than 10% of Net 
Utility Plant, and (4) the proceeds of such sale, lease or transfer, 
less ordinary and reasonable expenses incident to such transaction, are 
immediately (i) applied as a prepayment of all Notes equally and 
ratably, (ii) in the case of dispositions of equipment, materials or 
scrap, applied to the purchase of other property useful in the 
Mortgagor's utility business, not necessarily of the same kind as the 
property disposed of, which shall forthwith become subject to the Lien 
of the Mortgage, or (iii) applied to the acquisition or construction of 
utility plant.
    SECTION 3.12. Maintenance of Mortgaged Property: (a) So long as the 
Mortgagor holds title to the Mortgaged Property, the Mortgagor will at 
all times maintain and preserve the Mortgaged Property which is used or 
useful in the Mortgagor's business and each and every part and parcel 
thereof in good repair, working order and condition, ordinary wear and 
tear and acts of God excepted, and in compliance with Prudent Utility 
Practice and in compliance with all applicable laws, regulations and 
orders, and will from time to time make all needed and proper repairs, 
renewals and replacements, and useful and proper alterations, additions, 
betterments and improvements, and will, subject to contingencies beyond 
its reasonable control, at all times use all reasonable diligence to 
furnish the consumers served by it through the Mortgaged Property, or 
any part thereof, with an adequate supply of electric power and energy. 
If any substantial part of the Mortgaged Property is leased by the 
Mortgagor to any other party, the lease agreement between the Mortgagor 
and the lessee shall obligate the lessee to comply with the provisions 
of subsections (a) and (b) of this Section in respect of the leased 
facilities and to permit the Mortgagor to operate the leased facilities 
in the event of any failure by the lessee to so comply.
    (b) If in the sole judgement of any Mortgagee, the Mortgaged 
Property is not being maintained and repaired in accordance with 
paragraph (a) of this section, such Mortgagee may send to the Mortgagor 
a written report of needed improvements and the Mortgagor will upon 
receipt of such written report promptly undertake to accomplish such 
improvements.
    (c) The Mortgagor further agrees that upon reasonable written 
request of any Mortgagee, which request together with the requests of 
any other Mortgagees shall be made no more frequently than once every 
three years, the Mortgagor will supply promptly to each Mortgagee a 
certification (hereinafter called the ``Engineer's Certification''), in 
form satisfactory to the requestor, prepared by a professional engineer, 
who shall be satisfactory to the Mortgagees, as to the condition of the 
Mortgaged Property. If in the sole judgment of any Mortgagee the

[[Page 254]]

Engineer's Certification discloses the need for improvements to the 
condition of the Mortgaged Property or any other operations of the 
Mortgagor, such Mortgagee may send to the Mortgagor a written report of 
such improvements and the Mortgagor will upon receipt of such written 
report promptly undertake to accomplish such of these improvements as 
are required by such Mortgagee.
    SECTION 3.13. Insurance; Restoration of Damaged Mortgaged Property: 
(a) The Mortgagor will take out, as the respective risks are incurred, 
and maintain the classes and amounts of insurance in conformance with 
generally accepted utility industry standards for such classes and 
amounts of coverages of utilities of the size and character of the 
Mortgagor and consistent with Prudent Utility Practice.
    (b) The foregoing insurance coverage shall be obtained by means of 
bond and policy forms approved by regulatory authorities having 
jurisdiction, and, with respect to insurance upon any part of the 
Mortgaged Property, shall provide that the insurance shall be payable to 
the Mortgagees as their interests may appear by means of the standard 
mortgagee clause without contribution. Each policy or other contract for 
such insurance shall contain an agreement by the insurer that, 
notwithstanding any right of cancellation reserved to such insurer, such 
policy or contract shall continue in force for at least 30 days after 
written notice to each Mortgagee of cancellation.
    (c) In the event of damage to or the destruction or loss of any 
portion of the Mortgaged Property which is used or useful in the 
Mortgagor's business and which shall be covered by insurance, unless 
each Mortgagee shall otherwise agree, the Mortgagor shall replace or 
restore such damaged, destroyed or lost portion so that such Mortgaged 
Property shall be in substantially the same condition as it was in prior 
to such damage, destruction or loss, and shall apply the proceeds of the 
insurance for that purpose. The Mortgagor shall replace the lost portion 
of such Mortgaged Property or shall commence such restoration promptly 
after such damage, destruction or loss shall have occurred and shall 
complete such replacement or restoration as expeditiously as 
practicable, and shall pay or cause to be paid out of the proceeds of 
such insurance all costs and expenses in connection therewith.
    (d) Sums recovered under any policy or fidelity bond by the 
Mortgagor for a loss of funds advanced under the Notes or recovered by 
any Mortgagee or any Noteholder for any loss under such policy or bond 
shall, unless applied as provided in the preceding paragraph, be used to 
finance construction of utility plant secured or to be secured by this 
Mortgage, or unless otherwise directed by the Mortgagees, be applied to 
the prepayment of the Notes pro rata according to the unpaid principal 
amounts thereof (such prepayments to be applied to such Notes and 
installments thereof as may be designated by the respective Mortgagee at 
the time of any such prepayment), or be used to construct or acquire 
utility plant which will become part of the Mortgaged Property. At the 
request of any Mortgagee, the Mortgagor shall exercise such rights and 
remedies which they may have under such policy or fidelity bond and 
which may be designated by such Mortgagee, and the Mortgagor hereby 
irrevocably appoints each Mortgagee as its agent to exercise such rights 
and remedies under such policy or bond as such Mortgagee may choose, and 
the Mortgagor shall pay all costs and reasonable expenses incurred by 
the Mortgagee in connection with such exercise.
    SECTION 3.14. Mortgagee Right to Expend Money to Protect Mortgaged 
Property: The Mortgagor agrees that any Mortgagee from time to time 
hereunder may, in its sole discretion, after having given 5 Business 
days prior written notice to Mortgagor, but shall not be obligated to, 
advance funds on behalf of Mortgagor, in order to insure the Mortgagor's 
compliance with any covenant, warranty, representation or agreement of 
the Mortgagor made in or pursuant to this Mortgage or any of the Loan 
Agreements, to preserve or protect any right or interest of the 
Mortgagees in the Mortgaged Property or under or pursuant to this 
Mortgage or any of the Loan Agreements, including without limitation, 
the payment of any insurance premiums or taxes and the satisfaction or 
discharge of any judgment or any Lien upon the Mortgaged Property or 
other property or assets of Mortgagor; provided, however, that the 
making of any such advance by or through any Mortgagee shall not 
constitute a waiver by any Mortgagee of any Event of Default with 
respect to which such advance is made nor relieve the Mortgagor of any 
such Event of Default. The Mortgagor shall pay to a Mortgagee upon 
demand all such advances made by such Mortgagee with interest thereon at 
a rate equal to that on the Note having the highest interest rate but in 
no event shall such rate be in excess of the maximum rate permitted by 
applicable law. All such advances shall be included in the obligations 
and secured by the security interest granted hereunder.
    SECTION 3.15. Time Extensions for Payment of Notes: Any Mortgagee 
may, at any time or times in succession without notice to or the consent 
of the Mortgagor, or any other Mortgagee, and upon such terms as such 
Mortgagee may prescribe, grant to any person, firm or corporation who 
shall have become obligated to pay all or any part of the principal of 
(and premium, if any) or interest on any Note held by or indebtedness 
owed to such Mortgagee or who may be affected by the lien hereby 
created, an extension of the time

[[Page 255]]

for the payment of such principal, (and premium, if any) or interest, 
and after any such extension the Mortgagor will remain liable for the 
payment of such Note or indebtedness to the same extent as though it had 
at the time of such extension consented thereto in writing.
    SECTION 3.16. Application of Proceeds from Condemnation: (a) In the 
event that the Mortgaged Property or any part thereof, shall be taken 
under the power of eminent domain, all proceeds and avails therefrom may 
be used to finance construction of utility plant secured or to be 
secured by this Mortgage. Any proceeds not so used shall forthwith be 
applied by the Mortgagor: first, to the ratable payment of any 
indebtedness secured by this Mortgage other than principal of or 
interest on the Notes; second, to the ratable payment of interest which 
shall have accrued on the Notes and be unpaid; third, to the ratable 
payment of or on account of the unpaid principal of the Notes, to such 
installments thereof as may be designated by the respective Mortgagee at 
the time of any such payment; and fourth, the balance shall be paid to 
whomsoever shall be entitled thereto.
    (b) If any part of the Mortgaged Property shall be taken by eminent 
domain, each Mortgagee shall release the property so taken from the 
Mortgaged Property and shall be fully protected in so doing upon being 
furnished with:
    (1) A certificate of a duly authorized officer of the Mortgagor 
requesting such release, describing the property to be released and 
stating that such property has been taken by eminent domain and that all 
conditions precedent herein provided or relating to such release have 
been complied with; and
    (2) an opinion of counsel to the effect that such property has been 
lawfully taken by exercise of the right of eminent domain, that the 
award for such property so taken has become final and that all 
conditions precedent herein provided for relating to such release have 
been complied with.
    SECTION 3.17. Compliance with Loan Agreements; Notice of Amendments 
to and Defaults under Loan Agreements: The Mortgagor will observe and 
perform all of the material covenants, agreements, terms and conditions 
contained in any Loan Agreement entered into in connection with the 
issuance of any of the Notes, as from time to time amended. The 
Mortgagor will send promptly to each Mortgagee notice of any default by 
the Mortgagor under any Loan Agreement and notice of any amendment to 
any Loan Agreement. Upon request of any Mortgagee, the Mortgagor will 
furnish to such Mortgagee single copies of such Loan Agreements and 
amendments thereto as such Mortgagee may request.
    SECTION 3.18. Rights of Way, etc., Necessary in Business: The 
Mortgagor will use its best efforts to obtain all such rights of way, 
easements from landowners and releases from lienors as shall be 
necessary or advisable in the conduct of its business, and, if requested 
by any Mortgagee, deliver to such Mortgagee evidence satisfactory to 
such Mortgagee of the obtaining of such rights of way, easements or 
releases.
    SECTION 3.19. Limitations on Providing Free Electric Services. The 
Mortgagor will not furnish or supply or cause to be furnished or 
supplied any electric power, energy or capacity free of charge to any 
person, firm or corporation, public or private, and the Mortgagor will 
enforce the payment of any and all amounts owning to the Mortgagor by 
reason of the ownership and operation of the Utility System by 
discontinuing such use, output, capacity, or service, or by filing suit 
therefor within 90 days after any such accounts are due, or by both such 
discontinuance and by filing suit.
    SECTION 3.20. Keeping Books; Inspection by Mortgagee: The Mortgagor 
will keep proper books, records and accounts, in which full and correct 
entries shall be made of all dealings or transactions of or in relation 
to the Notes and the Utility Systems, properties, business and affairs 
of the Mortgagor in accordance with the Accounting Requirements. The 
Mortgagor will at any and all times, upon the written request of any 
Mortgagee and at the expense of the Mortgagor, permit such Mortgagee by 
its representatives to inspect the Utility Systems and properties and 
properties, books of account, records, reports and other papers of the 
Mortgagor and to take copies and extracts therefrom, and will afford and 
procure a reasonable opportunity to make any such inspection, and the 
Mortgagor will furnish to each Mortgagee any and all such information as 
such Mortgagee may request, with respect to the performance by the 
Mortgagor of its covenants under this Mortgage, the Notes and the Loan 
Agreements.

                               ARTICLE IV

                     EVENTS OF DEFAULT AND REMEDIES

    SECTION 4.01. Events of Default: Each of the following shall be an 
``Event of Default'' under this Mortgage:
    (a) default shall be made in the payment of any installment of or on 
account of interest on or principal of (or premium, if any associated 
with) any Note or Notes for more than five (5) Business Days after the 
same shall be required to be made;
    (b) default shall be made in the due observance or performance of 
any other of the covenants, conditions or agreements on the part of the 
Mortgagor, in any of the Notes, Loan Agreements or in this Mortgage, and 
such default shall continue for a period of thirty (30) days after 
written notice specifying such

[[Page 256]]

default and requiring the same to be remedied and stating that such 
notice is a ``Notice of Default'' hereunder shall have been given to the 
Mortgagor by any Mortgagee; PROVIDED, HOWEVER that in the case of a 
default on the terms of a Note or Loan Agreement of a particular 
Mortgagee, the ``Notice of Default'' required under this paragraph may 
only be given by that Mortgagee;
    (c) the Mortgagor shall file a petition in bankruptcy or be 
adjudicated a bankrupt or insolvent, or shall make an assignment for the 
benefit of its creditors, or shall consent to the appointment of a 
receiver of itself or of its property, or shall institute proceedings 
for its reorganization or proceedings instituted by others for its 
reorganization shall not be dismissed within sixty (60) days after the 
institution thereof;
    (d) a receiver or liquidator of the Mortgagor or of any substantial 
portion of its property shall be appointed and the order appointing such 
receiver or liquidator shall not be vacated within sixty (60) days after 
the entry thereof;
    (e) the Mortgagor shall forfeit or otherwise be deprived of its 
corporate charter or franchises, permits, easements, or licenses 
required to carry on any material portion of its business;
    (f) a final judgment for an amount of more than $__________ shall be 
entered against the Mortgagor and shall remain unsatisfied or without a 
stay in respect thereof for a period of sixty (60) days; or,
    (g) any material representation or warranty made by the Mortgagor 
herein, in the Loan Agreements or in any certificate or financial 
statement delivered hereunder or thereunder shall prove to be false or 
misleading in any material respect at the time made.
    SECTION 4.02. Acceleration of Maturity; Rescission and Annulment:
    (a) If an Event of Default described in Section [4.01(a)] has 
occurred and is continuing, any Mortgagee upon which such default has 
occurred may declare the principal of all its Notes secured hereunder to 
be due and payable immediately by a notice in writing to the Mortgagor 
and to the other Mortgagees (failure to provide said notice to any other 
Mortgagee shall not affect the validity of any acceleration of the Note 
or Notes by such Mortgagee), and upon such declaration, all unpaid 
principal (and premium, if any) and accrued interest so declared shall 
become due and payable immediately, anything contained herein or in any 
Note or Notes to the contrary notwithstanding.
    (b) If any other Event of Default shall have occurred and be 
continuing, any Mortgagee may declare the principal of all its Notes 
secured hereunder to be due and payable immediately by a notice in 
writing to the Mortgagor and to the other Mortgagees (failure to provide 
said notice to any other Mortgagee shall not affect the validity of any 
acceleration of the Note or Notes by such Mortgagee), and upon such 
declaration, all unpaid principal (and premium, if any) and accrued 
interest so declared shall become due and payable immediately, anything 
contained herein or in any Note or Notes to the contrary 
notwithstanding.
    (c) Upon receipt of actual knowledge of or any notice of 
acceleration by any Mortgagee, any other Mortgagee may declare the 
principal of all of its Notes to be due and payable immediately by a 
notice in writing to the Mortgagor and upon such declaration, all unpaid 
principal (and premium, if any) and accrued interest so declared shall 
become due and payable immediately, anything contained herein or in any 
Note or Notes or Loan Agreements to the contrary notwithstanding.
    (d) If after the unpaid principal of (and premium, if any) and 
accrued interest on any of the Notes shall have been so declared to be 
due and payable, all payments in respect of principal and interest which 
shall have become due and payable by the terms of such Note or Notes 
(other than amounts due as a result of the acceleration of the Notes) 
shall be paid to the respective Mortgagees, and (i) all other defaults 
under the Loan Agreements, the Notes and this Mortgage shall have been 
made good or cured to the satisfaction of the Mortgagees representing at 
least 80% of the aggregate unpaid principal balance of all of the Notes 
then Outstanding, (ii) proceedings to foreclose the lien of this 
Mortgage have not been commenced, and (iii) all reasonable expenses paid 
or incurred by the Mortgagees in connection with the acceleration shall 
have been paid to the respective Mortgagees, then in every such case 
such Mortgagees representing at least 80% of the aggregate unpaid 
principal balance of all of the Notes then Outstanding may by written 
notice to the Mortgagor, for purposes of this Mortgage, annul such 
declaration and waive such default and the consequences thereof, but no 
such waiver shall extend to or affect any subsequent default or impair 
any right consequent thereon.
    SECTION 4.03. Remedies of Mortgagees: If one or more of the Events 
of Default shall occur and be continuing, any Mortgagee personally or by 
attorney, in its or their discretion, may, in so far as not prohibited 
by law:
    (a) take immediate possession of the Mortgaged Property, collect and 
receive all credits, outstanding accounts and bills receivable of the 
Mortgagor and all rents, income, revenues, proceeds and profits 
pertaining to or arising from the Mortgaged Property, or any part 
thereof, whether then past due or accruing thereafter, and issue binding 
receipts therefor; and manage, control and operate the Mortgaged 
Property as fully as the Mortgagor might do if in possession thereof, 
including, without limitation, the making of

[[Page 257]]

all repairs or replacements deemed necessary or advisable by such 
Mortgagee in possession;
    (b) proceed to protect and enforce the rights of all of the 
Mortgagees by suits or actions in equity or at law in any court or 
courts of competent jurisdiction, whether for specific performance of 
any covenant or any agreement contained herein or in aid of the 
execution of any power herein granted or for the foreclosure hereof or 
hereunder or for the sale of the Mortgaged Property, or any part 
thereof, or to collect the debts hereby secured or for the enforcement 
of such other or additional appropriate legal or equitable remedies as 
may be deemed necessary or advisable to protect and enforce the rights 
and remedies herein granted or conferred, and in the event of the 
institution of any such action or suit the Mortgagee instituting such 
action or suit shall have the right to have appointed a receiver of the 
Mortgaged Property and of all proceeds, rents, income, revenues and 
profits pertaining thereto or arising therefrom, whether then past due 
or accruing after the appointment of such receiver, derived, received or 
had from the time of the commencement of such suit or action, and such 
receiver shall have all the usual powers and duties of receivers in like 
and similar cases, to the fullest extent permitted by law, and if 
application shall be made for the appointment of a receiver the 
Mortgagor hereby expressly consents that the court to which such 
application shall be made may make said appointment; and
    (c) sell or cause to be sold all and singular the Mortgaged Property 
or any part thereof, and all right, title, interest, claim and demand of 
the Mortgagor therein or thereto, at public auction at such place in any 
county (or its equivalent locality) in which the property to be sold, or 
any part thereof, is located, at such time and upon such terms as may be 
specified in a notice of sale, which shall state the time when and the 
place where the sale is to be held, shall contain a brief general 
description of the property to be sold, and shall be given by mailing a 
copy thereof to the Mortgagor at least fifteen (15) days prior to the 
date fixed for such sale and by publishing the same once in each week 
for two successive calendar weeks prior to the date of such sale in a 
newspaper of general circulation published in said locality or, if no 
such newspaper is published in such locality, in a newspaper of general 
circulation in such locality, the first such publication to be not less 
than fifteen (15) days nor more than thirty (30) days prior to the date 
fixed for such sale. Any sale to be made under this subparagraph (c) of 
this Section [4.03] may be adjourned from time to time by announcement 
at the time and place appointed for such sale or for such adjourned sale 
or sales, and without further notice or publication the sale may be had 
at the time and place to which the same shall be adjourned; provided, 
however, that in the event another or different notice of sale or 
another or different manner of conducting the same shall be required by 
law the notice of sale shall be given or the sale be conducted, as the 
case may be, in accordance with the applicable provisions of law. The 
expense incurred by any Mortgagee (including, but not limited to, 
receiver's fees, counsel fees, cost of advertisement and agents' 
compensation) in the exercise of any of the remedies provided in this 
Mortgage shall be secured by this Mortgage.
    (d) In the event that a Mortgagee proceeds to enforce remedies under 
this Section, any other Mortgagee may join in such proceedings. In the 
event that the Mortgagees are not in agreement with the method or manner 
of enforcement chosen by any other Mortgagee, the Mortgagees 
representing a majority of the aggregate unpaid principal balance on the 
then Outstanding Notes may direct the method and manner in which 
remedial action will proceed.
    SECTION 4.04. Application of Proceeds from Remedial Actions: Any 
proceeds or funds arising from the exercise of any rights or the 
enforcement of any remedies herein provided after the payment or 
provision for the payment of any and all costs and expenses in 
connection with the exercise of such rights or the enforcement of such 
remedies shall be applied first, to the ratable payment of indebtedness 
hereby secured other than the principal of or interest on the Notes; 
second, to the ratable payment of interest which shall have accrued on 
the Notes and which shall be unpaid; third, to the ratable payment of or 
on account of the unpaid principal of the Notes; and the balance, if 
any, shall be paid to whomsoever shall be entitled thereto.
    SECTION 4.05. Remedies Cumulative; No Election: Every right or 
remedy herein conferred upon or reserved to the Mortgagees or to the 
Noteholders shall be cumulative and shall be in addition to every other 
right and remedy given hereunder or now or hereafter existing at law, or 
in equity, or by statute. The pursuit of any right or remedy shall not 
be construed as an election.
    SECTION 4.06. Waiver of Appraisement Rights; Marshaling of Assets 
Not Required: The Mortgagor, for itself and all who may claim through or 
under it, covenants that it will not at any time insist upon or plead, 
or in any manner whatever claim, or take the benefit or advantage of, 
any appraisement, valuation, stay, extension or redemption laws now or 
hereafter in force in any locality where any of the Mortgaged Property 
may be situated, in order to prevent, delay or hinder the enforcement or 
foreclosure of this Mortgage, or the absolute sale of the Mortgaged 
Property, or any part thereof, or the final and absolute putting into 
possession thereof,

[[Page 258]]

immediately after such sale, of the purchaser or purchasers thereat, and 
the Mortgagor, for itself and all who may claim through or under it, 
hereby waives the benefit of all such laws unless such waiver shall be 
forbidden by law. Under no circumstances shall there be any marshalling 
of assets upon any foreclosure or to other enforcement of this Mortgage.
    SECTION 4.07. Notice of Default: The Mortgagor covenants that it 
will give immediate written notice to each Mortgagee of the occurrence 
of any Event of Default or in the event that any right or remedy 
described in Sections [4.02] and [4.03] hereof is exercised or enforced 
or any action is taken to exercise or enforce any such right or remedy.

          ARTICLE V--POSSESSION UNTIL DEFAULT-DEFEASANCE CLAUSE

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

                               ARTICLE VI

                              MISCELLANEOUS

    SECTION 6.01. Property Deemed Real Property: It is hereby declared 
to be the intention of the Mortgagor that any electric generating plant 
or plants and facilities and all electric transmission and distribution 
lines, or other Electric System or Utility System facilities, embraced 
in the Mortgaged Property, including (without limitation) all rights of 
way and easements granted or given to the Mortgagor or obtained by it to 
use real property in connection with the construction, operation or 
maintenance of such plant, lines, facilities or systems, and all other 
property physically attached to any of the foregoing, shall be deemed to 
be real property.
    SECTION 6.02. Mortgage to Bind and Benefit Successors and Assigns: 
All of the covenants, stipulations, promises, undertakings and 
agreements herein contained by or on behalf of the Mortgagor shall bind 
its successors and assigns, whether so specified or not, and all titles, 
rights and remedies hereby granted to or conferred upon the Mortgagees 
shall pass to and inure to the benefit of the successors and assigns of 
the Mortgagees and shall be deemed to be granted or conferred for the 
ratable benefit and security of all who shall from time to time be a 
Mortgagee. The Mortgagor hereby agrees to execute such consents, 
acknowledgements and other instruments as may be reasonably requested by 
any Mortgagee in connection with the assignment, transfer, mortgage, 
hypothecation or pledge of the rights or interests of such Mortgagee 
hereunder or under the Notes or in and to any of the Mortgaged Property.
    SECTION 6.03. Headings: The descriptive headings of the various 
articles and sections of this Mortgage and also the table of contents 
were formulated and inserted for convenience only and shall not be 
deemed to affect the meaning or construction of any of the provisions 
hereof.
    SECTION 6.04. Severability Clause: In case any provision of this 
Mortgage or in the

[[Page 259]]

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

(SEAL)

By:_____________________________________________________________________
President

Attest:_________________________________________________________________
Title:__________________________________________________________________

    Executed by the Mortgagor in the presence of:

_______________________________________________________________________
_______________________________________________________________________
Witnesses

                        UNITED STATES OF AMERICA

By: Director, of the __________ Rural Utilities Service

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

_______________________________________________________________________
_______________________________________________________________________
Witnesses

By:

(SEAL)

Attest:_________________________________________________________________
Title:__________________________________________________________________

    Executed by the above-named Mortgagee in the presence of:

_______________________________________________________________________
_______________________________________________________________________
Witnesses

                               Schedule A

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

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

                      Schedule B--Property Schedule

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

                      Schedule C--Excepted Property

STATE OF __________
COUNTY OF __________

    On this ______ day of __________, 19 ____, before me appeared 
__________ and __________ personally known, by me and having been duly 
sworn by me, did say that they are the President and Secretary, 
respectively, of ________________, a __________ corporation, and that 
the seal affixed to the foregoing instrument is the corporate seal of 
said corporation, and that said instrument was signed and sealed in 
behalf of said corporation by authority of its Board, and said 
__________

[[Page 260]]

and __________ acknowledged that the execution of said instrument was a 
free act and deed of said corporation.
    IN WITNESS whereof, I have hereunto set my hand and official seal 
the day and year last above written.
_______________________________________________________________________
Notary Public

(Notarial Seal)

    My commission expires:

DISTRICT OF COLUMBIA    )    SS
    The foregoing instrument was acknowledged before me this__________ 
day of 19______, by __________ Director, __________ Regional Division of 
the Rural Utilities Service, acknowledging an agency of the United 
States of America, on behalf of the Rural Utilities Service, United 
States of America.
_______________________________________________________________________
Notary Public

(Notarial Seal)

    My Commission expires:

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

(Notarial Seal)
    My commission expires:

                    Exhibit A--Manager's Certificate

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

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

                Exhibit B--Form of Supplemental Mortgage

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

                                Recitals

    Whereas, the Mortgagor, the Government and __________ are parties to 
that certain Restated Mortgage and Security Agreement, as supplemented, 
amended or restated (the

[[Page 261]]

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

[ACKNOWLEDGEMENTS]

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

    1. The Maximum Debt Limit is __________.
    2. The Original Mortgage as described in the first WHEREAS clause 
above is __________.
    3. The outstanding secured indebtedness described in the third 
WHEREAS clause above is __________.

           Supplemental Mortgage Schedule B--Property Schedule

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

           Supplemental Mortgage Schedule C--Excepted Property

[60 FR 36888, July 18, 1995, as amended at 60 FR 67410, Dec. 29, 1995]



          Subpart C--Loan Contracts With Distribution Borrowers

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

[[Page 262]]



Sec. 1718.100  General.

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



Sec. 1718.101  Applicability.

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



Sec. 1718.102  Definitions.

    For the purposes of this subpart:
    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.

[[Page 263]]



Sec. 1718.103  Loan contract provisions.

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

[[Page 264]]

    (q) Limitations of the transfer of mortgaged property by the 
borrower;
    (r) Limitations on dividends, patronage refunds, and cash 
distributions paid by the borrower;
    (s) Limitations on investments, loans, and guarantees made by the 
borrower;
    (t) Authority of RUS to approve a new general manager and to require 
that an existing general manager be replaced if the borrower is in 
default under its mortgage, loan contract, or any other agreements with 
RUS;
    (u) Description of events of default under the loan contract and the 
remedies available to RUS;
    (v) Applicability of state and federal laws;
    (w) Severability of the individual provisions of the loan documents;
    (x) Matters relating to the assignment of the loan contract;
    (y) Requirements relating to federal laws and regulations, including 
but not limited to the following matters: area coverage for electric 
service; civil rights and equal employment opportunity; access to 
buildings and other matters relating to the handicapped; design and 
construction standards relating to earthquakes; the National 
Environmental Policy Act of 1969 and other environmental laws and 
regulations; flood hazard insurance; debarment and suspension from 
federal assistance programs; and delinquency on federal debt; and
    (z) Special requirements applicable to individual loans, and such 
other provisions as RUS may require to ensure loan repayment and 
reasonably adequate loan security.



Sec. 1718.104  Availability of model loan contract.

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

 Appendix A to Subpart C of Part 1718--Model Form of Loan Contract for 
                     Electric Distribution Borrowers

LOAN CONTRACT
TABLE OF CONTENTS
RECITALS
ARTICLE I--DEFINITIONS
ARTICLE II--REPRESENTATIONS AND WARRANTIES
    Section 2.1. Representations and Warranties.
ARTICLE III--LOAN
    Section 3.1. Advances.
    Section 3.2. Interest Rate and Payment.
    Section 3.3. Prepayment.
ARTICLE IV--CONDITIONS OF LENDING
    Section 4.1. General Conditions.
    Section 4.2. Special Conditions.
ARTICLE V--AFFIRMATIVE COVENANTS
    Section 5.1. Generally.
    Section 5.2. Annual Certificates.
    Section 5.3. Simultaneous Prepayment of Contemporaneous Loans.
    Section 5.4. Rates to Provide Revenue Sufficient to Meet Coverage 
Ratios Requirements.
    Section 5.5. Depreciation Rates.
    Section 5.6. Property Maintenance.
    Section 5.7. Financial Books.
    Section 5.8. Rights of Inspection.
    Section 5.9. Area Coverage.
    Section 5.10. Real Property Acquisition.
    Section 5.11. ``Buy American'' Requirements.
    Section 5.12. Power Requirements Studies.
    Section 5.13. Long Range Engineering Plans and Construction Work 
Plans.
    Section 5.14. Design Standards, Construction Standards, and List of 
Materials.
    Section 5.15. Plans and Specifications.
    Section 5.16. Standard Forms of Construction Contracts, and 
Engineering and Architectural Services Contracts.
    Section 5.17. Contract Bidding Requirements.
    Section 5.18. Nondiscrimination.
    Section 5.19. Financial Reports.
    Section 5.20. Miscellaneous Reports and Notices.
    Section 5.21 Special Construction Account.
    Section 5.22. Additional Affirmative Covenants.
ARTICLE VI--NEGATIVE COVENANTS
    Section 6.1. General.
    Section 6.2. Limitations on System Extensions and Additions.
    Section 6.3. Limitations on Changing Principal Place of Business.
    Section 6.4. Limitations on Employment and Retention of Manager.
    Section 6.5. Limitations on Certain Types of Contracts.
    Section 6.6. Limitations on Mergers and Sale, Lease or Transfer of 
Capital Assets.
    Section 6.7. Limitations on Using non FDIC-insured Depositories.
    Section 6.8. Limitation on Distributions.
    Section 6.9. Limitations on Loans, Investments and Other 
Obligations.
    Section 6.10. Depreciation Rates.
    Section 6.11. Historic Preservation.

[[Page 265]]

    Section 6.12. Rate Reductions.
    Section 6.13. Limitations on Additional Indebtedness.
    Section 6.14. Limitations on Issuing Additional Indebtedness Secured 
Under the Mortgage.
    Section 6.15. Impairment of Contracts Pledged to RUS.
    Section 6.16. Additional Negative Covenants.
ARTICLE VII--DEFAULT
    Section 7.1. Events of Default.
ARTICLE VIII--REMEDIES
    Section 8.1. Generally.
    Section 8.2. Suspension of Advances.
ARTICLE IX--MISCELLANEOUS
    Section 9.1. Notices.
    Section 9.2. Expenses.
    Section 9.3. Late Payments.
    Section 9.4. Filing Fees.
    Section 9.5. No Waiver.
    Section 9.6. Governing Law.
    Section 9.7. Holiday Payments.
    Section 9.8. Rescission.
    Section 9.9. Successors and Assigns.
    Section 9.10. Complete Agreement; Amendments.
    Section 9.11. Headings.
    Section 9.12. Severability.
    Section 9.13. Right of Setoff.
    Section 9.14. Schedules and Exhibits.
    Section 9.15. Prior Loan Documents.
    Section 9.16. Authority of Representatives of RUS.
    Section 9.17. Term.
SCHEDULE 1
SCHEDULE 2--Existing Liens
SCHEDULE 3--Additional Contracts
EXHIBIT A--Form of Promissory Note
EXHIBIT B--Equal Opportunity Contract Provisions
EXHIBIT C-1--Manager's Certificate Required Under Loan Contract
    Section 6.14 for Additional Notes
Exhibit C-2--Manager's Certificate Required Under Loan Contract
    Section 6.14 for Refinancing Notes

                              Loan Contract

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

                                Recitals

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

                         Article I--Definitions

    Capitalized terms that are not defined herein shall have the 
meanings as set forth in the Mortgage. The terms defined herein include 
the plural as well as the singular and the singular as well as the 
plural.
    ``Act'' shall mean the Rural Electrification Act of 1936, as 
amended.
    ``Advance'' or ``Advances'' shall mean advances by RUS to Borrower 
pursuant to the terms and conditions of this Agreement.
    ``Agreement'' shall mean this Loan Contract together with all 
schedules and exhibits and also any subsequent supplements or 
amendments.
    ``Business Day'' shall mean any day that RUS is open for business.
    ``Contemporaneous Loan'' shall mean any loan which the Borrower has 
used to satisfy RUS Regulations or loan conditions requiring that 
supplemental financing be obtained in order to obtain a loan from RUS. 
Any loan used to refinance or refund a Contemporaneous Loan is also 
considered to be a Contemporaneous Loan.
    ``Coverage Ratios'' shall mean, collectively, the following 
financial ratios: (i) TIER of 1.5; (ii) Operating TIER of 1.1; (iii) DSC 
of 1.25; and Operating DSC of 1.1.
    ``Debt Service Coverage Ratio'' (``DSC'') shall have the meaning 
provided in the Mortgage.
    ``Distributions'' shall mean for the Borrower to, in any calendar 
year, declare or pay any dividends, or pay or determine to pay any 
patronage refunds, or retire any patronage capital or make any other 
Cash Distributions, to its members, stockholders or consumers; provided, 
however, that for the purposes of this Agreement a ``Cash Distribution'' 
shall be deemed to include any general cancellation or abatement of 
charges for electric energy or services furnished by the Borrower, but 
not the repayment of a membership fee upon termination of a membership 
or the rebate of an abatement of wholesale power costs previously 
incurred pursuant to an order of a state regulatory authority or a 
wholesale power cost adjustment clause or similar power pricing 
agreement between the Borrower and a power supplier.
    ``Electric System'' shall have the meaning as defined in the 
Mortgage.
    ``Equity'' shall mean the Borrower's total margins and equities 
computed pursuant to RUS Accounting Requirements but excluding any 
Regulatory Created Assets.
    ``Event of Default'' shall have the meaning as defined in Section 
[7.1].
    ``Independent'' when used with respect to any specified person or 
entity means such a

[[Page 266]]

person or entity who (1) is in fact independent, (2) does not have any 
direct financial interest or any material indirect financial interest in 
the Borrower or in any affiliate of the Borrower and (3) is not 
connected with the Borrower as an officer, employee, promoter, 
underwriter, trustee, partner, director or person performing similar 
functions.
    ``Interest Expense'' shall mean the interest expense of the Borrower 
computed pursuant to RUS Accounting Requirements.
    ``Loan'' shall mean the loan described in Article III which is being 
made pursuant to the RUS Commitment in furtherance of the objectives of 
the Act.
    ``Loan Documents'' shall mean, collectively, this Agreement, the 
Mortgage and the Note.
    ``Long-Term Debt'' shall mean the total of all amounts included in 
the long-term debt of the Borrower pursuant to RUS Accounting 
Requirements.
    ``Maturity Date'' shall have the meaning as defined in the Note.
    ``Monthly Payment Date'' shall have the meaning as defined in the 
Note.
    ``Mortgage'' shall have the meaning as described in Schedule 1 
hereto.
    ``Mortgaged Property'' shall have the meaning as defined in the 
Mortgage.
    ``Net Utility Plant'' shall mean the amount constituting the Total 
Utility Plant of the Borrower, less depreciation, computed in accordance 
with RUS Accounting Requirements.
    ``Note'' shall mean a promissory note executed by the Borrower in 
the form of exhibit A hereto, and any note executed and delivered to RUS 
to refund, or in substitution for such a note.
    ``Operating DSC'' or ``ODSC'' shall mean Operating Debt Service 
Coverage calculated as:
[GRAPHIC] [TIFF OMITTED] TR29DE95.004

Where:

    All amounts are for the same calendar year and are computed pursuant 
to RUS Accounting Requirements and RUS form 7;
    A=Depreciation and Amortization Expense of the Electric System;
    B=Interest Expense on Total Long-Term Debt of the Electric System, 
except that such Interest Expense shall be increased by \1/3\ of the 
amount, if any, by which the Restricted Rentals of the Electric System 
exceed 2 percent of the Mortgagor's Equity;
    C=Patronage capital & operating margins of the Electric System, 
(which equals operating revenue and patronage capital of Electric System 
operations, less total cost of electric service, including Interest 
Expense on Total Long-Term Debt of the Electric System) plus cash 
received from the retirement of patronage capital by suppliers of 
electric power and by lenders for credit extended for the Electric 
System; and
    D=Debt service billed which equals the sum of all payments of 
principal and interest required to be made on account of Total Long-Term 
Debt of the Electric System during the calendar year, plus \1/3\ of the 
amount, if any, by which Restricted Rentals of the Electric System 
exceed 2 percent of the Mortgagor's Equity.
    ``Operating TIER'' or ``OTIER'' shall mean Operating Times Interest 
Earned Ratio calculated as:
[GRAPHIC] [TIFF OMITTED] TR29DE95.005

Where:

    All amounts are for the same calendar year and are computed pursuant 
to RUS Accounting Requirements and RUS form 7;
    A=Interest Expense on Total Long-Term Debt of the Electric System, 
except that such Interest Expense shall be increased by 1/3 of the 
amount, if any, by which Restricted Rentals of the Electric System 
exceed 2 percent of the Mortgagor's Equity; and
    B=Patronage capital & operating margins of the Electric System, 
(which equals operating revenue and patronage capital of Electric System 
operations, less total cost of electric service, including Interest 
Expense on Total Long-Term Debt of the Electric System) plus cash 
received from the retirement of patronage capital by suppliers of 
electric power and by lenders for credit extended for the Electric 
System.
    ``Payment Notice'' shall mean a notice furnished by RUS to Borrower 
that indicates the precise amount of each payment of principal and 
interest and the total amount of each payment.
    ``Permitted Debt'' shall have the meaning as defined in section 
[6.13].
    ``Prior Loan Contracts'' shall have the meaning as defined in 
section 9.15.
    ``Regulatory Created Assets'' shall mean the sum of any amounts 
properly recordable as unrecovered plant and regulatory study costs or 
as other regulatory assets, computed pursuant to RUS Accounting 
Requirements.
    ``RUS Accounting Requirements'' shall mean any system of accounts 
prescribed by RUS Regulations as such RUS Accounting Requirements exist 
at the date of applicability thereof.
    ``RUS Commitment'' shall have the meaning as defined in schedule 1 
hereto.
    ``RUS Regulations'' shall mean regulations of general applicability 
published by RUS from time to time as they exist at the date

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of applicability thereof, and shall also include any regulations of 
other Federal entities which RUS is required by law to implement.
    ``Special Construction Account'' shall have the meaning as defined 
in section 5.21.
    ``Subsidiary'' shall mean a corporation that is a subsidiary of the 
Borrower and subject to the Borrower's control, as defined by RUS 
Accounting Requirements.
    ``Termination Date'' shall have the meaning as defined in the Note.
    ``Times Interest Earned Ratio'' (``TIER'') shall have the meaning 
provided in the Mortgage.
    ``Total Assets'' shall mean an amount constituting the total assets 
of the Borrower as computed pursuant to RUS Accounting Requirements, but 
excluding any Regulatory Created Assets.
    ``Total Utility Plant'' shall mean the amount constituting the total 
utility plant of the Borrower computed in accordance with RUS Accounting 
Requirements.
    ``Utility System'' shall have the meaning as defined in the 
Mortgage.

               Article II--Representations and Warranties

              Section 2.1. Representations and Warranties.

    To induce RUS to make the Loan, and recognizing that RUS is relying 
hereon, the Borrower represents and warrants as follows:
    (a) Organization; Power, Etc. The Borrower: (i) is duly organized, 
validly existing, and in good standing under the laws of its state of 
incorporation; (ii) is duly qualified to do business and is in good 
standing in each jurisdiction in which the transaction of its business 
makes such qualification necessary; (iii) has all requisite corporate 
and legal power to own and operate its assets and to carry on its 
business and to enter into and perform the Loan Documents; (iv) has duly 
and lawfully obtained and maintained all licenses, certificates, 
permits, authorizations, approvals, and the like which are material to 
the conduct of its business or which may be otherwise required by law; 
and (v) is eligible to borrow from RUS.
    (b) Authority. The execution, delivery and performance by the 
Borrower of this Agreement and the other Loan Documents and the 
performance of the transactions contemplated thereby have been duly 
authorized by all necessary corporate action and shall not violate any 
provision of law or of the Articles of Incorporation or By-Laws of the 
Borrower or result in a breach of, or constitute a default under, any 
agreement, indenture or other instrument to which the Borrower is a 
party or by which it may be bound.
    (c) Consents. No consent, permission, authorization, order, or 
license of any governmental authority is necessary in connection with 
the execution, delivery, performance, or enforcement of the Loan 
Documents, except (i) such as have been obtained and are in full force 
and effect and (ii) such as have been disclosed on Schedule 1 hereto.
    (d) Binding Agreement. Each of the Loan Documents is, or when 
executed and delivered shall be, the legal, valid, and binding 
obligation of the Borrower, enforceable in accordance with its terms, 
subject only to limitations on enforceability imposed by applicable 
bankruptcy, insolvency, reorganization, moratorium, or similar laws 
affecting creditors' rights generally.
    (e) Compliance With Laws. The Borrower is in compliance in all 
material respects with all federal, state, and local laws, rules, 
regulations, ordinances, codes, and orders (collectively, ``Laws''), the 
failure to comply with which could have a material adverse effect on the 
condition, financial or otherwise, operations, properties, or business 
of the Borrower, or on the ability of the Borrower to perform its 
obligations under the Loan Documents, except as the Borrower has 
disclosed on Schedule 1 attached hereto.
    (f) Litigation. There are no pending legal, arbitration, or 
governmental actions or proceedings to which the Borrower is a party or 
to which any of its property is subject which, if adversely determined, 
could have a material adverse effect on the condition, financial or 
otherwise, operations, properties, profits or business of the Borrower, 
or on the ability of the Borrower to perform its obligations under the 
Loan Documents, and to the best of the Borrower's knowledge, no such 
actions or proceedings are threatened or contemplated, except as the 
Borrower has disclosed to RUS in writing.
    (g) Title to Property. As to property which is presently included in 
the description of Mortgaged Property, the Borrower holds good and 
marketable title to all of its real property and owns all of its 
personal property free and clear of any Lien except the Liens 
specifically identified on Schedule 2 attached hereto (the ``Existing 
Liens''), and Permitted Encumbrances or Liens permitted under the 
Mortgage.
    (h) Financial Statements; No Material Adverse Change; Etc. All 
financial statements submitted to RUS in connection with the application 
for the Loan or in connection with this Agreement fairly and fully 
present the financial condition of the Borrower and the results of the 
Borrower's operations for the periods covered thereby and are prepared 
in accordance with RUS Accounting Requirements consistently applied. 
Since the dates thereof, there has been no material adverse change in 
the financial condition or operations of the Borrower. All budgets, 
projections, feasibility studies, and other documentation submitted by 
the Borrower to RUS are based upon assumptions that are reasonable and 
realistic, and as of the date

[[Page 268]]

hereof, no fact has come to light, and no event or transaction has 
occurred, which would cause any assumption made therein not to be 
reasonable or realistic.
    (i) Principal Place of Business; Records. The principal place of 
business and chief executive office of the Borrower is at the address of 
the Borrower shown on Schedule 1 attached hereto.
    (j) Location of Properties. All property owned by the Borrower is 
located in the counties identified in Schedule 1 hereto.
    (k) Subsidiaries. The Borrower has no subsidiary, except as the 
Borrower has disclosed to RUS in writing.
    (l) Defaults Under Other Agreements. The Borrower is not in default 
under any agreement or instrument to which it is a party or under which 
any of its properties are subject that is material to its financial 
condition, operations, properties, profits, or business.
    (m) Survival. All representations and warranties made by the 
Borrower herein or made in any certificate delivered pursuant hereto 
shall survive the making of the Advances and the execution and delivery 
to RUS of the Note.

                            Article III--Loan

                          Section 3.1. Advances

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

                 Section 3.2. Interest Rate and Payment

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

                         Section 3.3. Prepayment

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

                    Article IV--Conditions of Lending

                     Section 4.1. General Conditions

    The obligation of RUS to make any Advance hereunder is subject to 
satisfaction of each of the following conditions precedent on or before 
the date of such Advance:
    (a) Legal Matters. All legal matters incident to the consummation of 
the transactions hereby contemplated shall be satisfactory to counsel 
for RUS.
    (b) Loan Documents. That RUS receive duly executed originals of this 
Agreement and the other Loan Documents.
    (c) Authorization. That RUS receive evidence satisfactory to it that 
all corporate documents and proceedings of the Borrower necessary for 
duly authorizing the execution, delivery and performance of the Loan 
Documents have been obtained and are in full force and effect.
    (d) Approvals. That RUS receive evidence satisfactory to it that all 
consents and approvals (including without limitation the consents 
referred to in Section [2.1(c)] of this Agreement) which are necessary 
for, or required as a condition of, the validity and enforceability of 
each of the Loan Documents have been obtained and are in full force and 
effect.
    (e) Event of Default. That no Event of Default specified in Article 
VII and no event which, with the lapse of time or the notice and lapse 
of time specified in Article VII would become such an Event of Default, 
shall have occurred and be continuing, or shall have occurred after 
giving effect to the Advance on the books of the Borrower.
    (f) Continuing Representations and Warranties. That the 
representations and warranties of the Borrower contained in this 
Agreement be true and correct on and as of the date of such Advance as 
though made on and as of such date.
    (g) Opinion of Counsel. That RUS receive an opinion of counsel for 
the Borrower (who

[[Page 269]]

shall be acceptable to RUS) in form and content acceptable to RUS.
    (h) Mortgage Filing. The Mortgage shall have been duly recorded as a 
mortgage on real property, including after-acquired real property, and 
duly filed, recorded or indexed as a security interest in personal 
property, including after acquired personal property, wherever RUS shall 
have requested, all in accordance with applicable law, and the Borrower 
shall have caused satisfactory evidence thereof to be furnished to RUS.
    (i) Wholesale Power Contract. That the Borrower shall not be in 
default under the terms of, or contesting the validity of, any contract 
for sales for resale that has been pledged by any entity to RUS as 
security for the repayment of any loan made or guaranteed by RUS under 
the Act.
    (j) Material Adverse Change. That there has occurred no material 
adverse change in the business or condition, financial or otherwise, of 
the Borrower and nothing has occurred which in the opinion of RUS 
materially and adversely affects the Borrower's ability to meet its 
obligations hereunder.
    (k) Requisitions. That the Borrower shall requisition all Advances 
by submitting its requisition to RUS in form and substance satisfactory 
to RUS. Requisitions shall be made only for the purpose(s) set forth 
herein. The Borrower agrees to apply the proceeds of the Advances in 
accordance with its loan application with such modifications as may be 
mutually agreed.
    (l) Flood Insurance. That for any Advance used in whole or in part 
to finance the construction or acquisition of any building in any area 
identified by the Secretary of Housing and Urban Development pursuant to 
the Flood Disaster Protection Act of 1973 (the ``Flood Insurance Act'') 
or any rules, regulations or orders issued to implement the Flood 
Insurance Act (``Rules'') as any area having special flood hazards, or 
to finance any facilities or materials to be located in any such 
building, or in any building owned or occupied by the Borrower and 
located in such a flood hazard area, the Borrower has submitted 
evidence, in form and substance satisfactory to RUS, or RUS has 
otherwise determined, that (i) the community in which such area is 
located is then participating in the national flood insurance program, 
as required by the Flood Insurance Act and any Rules, and (ii) the 
Borrower has obtained flood insurance coverage with respect to such 
building and contents as may then be required pursuant to the Flood 
Insurance Act and any Rules.
    (m) Compliance With Loan Contract and Mortgage. That the Borrower is 
in material compliance with all provisions of this Agreement and the 
Mortgage.

                     Section 4.2. Special Conditions

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

                    Article V--Affirmative Covenants

                         Section 5.1. Generally

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

                    Section 5.2. Annual Certificates

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

      Section 5.3. Simultaneous Prepayment of Contemporaneous Loans

    If the Borrower shall at any time prepay in whole or in part the 
Contemporaneous Loan described on Schedule 1, the Borrower shall prepay 
the RUS Note correspondingly in order to maintain the ratio that the 
Contemporaneous Loan bears to the RUS Commitment. If the RUS Note calls 
for a prepayment penalty or premium, such amount shall be paid but shall 
not be used in computing the amount needed to be paid to RUS under this 
section to maintain such ratio. In the case of Contemporaneous Loans and 
RUS Notes existing prior to the date of this Agreement under previous 
agreements, prepayments shall be treated as if governed by this section. 
Provided, however, in all cases prepayments associated with refinancing 
or refunding a Contemporaneous Loan pursuant to Article II of the 
Mortgage are not considered to be prepayments for purposes of this 
Agreement if they satisfy each of the following requirements:
    (a) Principal. The principal amount of such refinancing or refunding 
loan is not less than the amount of loan principal being refinanced; and

[[Page 270]]

    (b) Weighted Average Life. The weighted average life of the 
refinancing or refunding loan is materially equal to the weighted 
average remaining life of the loan being refinanced.

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

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

TIER=1.5
DSC=1.25
OTIER=1.1
ODSC=1.1

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

                     Section 5.5. Depreciation Rates

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

                    Section 5.6. Property Maintenance

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

                      Section 5.7. Financial Books

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

                    Section 5.8. Rights of Inspection

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

                       Section 5.9. Area Coverage

    (a) The Borrower shall make diligent effort to extend electric 
service to all unserved persons within the service area of the Borrower 
who (i) desire such service and (ii) meet all reasonable requirements 
established by the Borrower as a condition of such service.
    (b) If economically feasible and reasonable considering the cost of 
providing such service and/or the effects on consumers' rates, such 
service shall be provided, to the maximum extent practicable, at the 
rates and minimum

[[Page 271]]

charges established in the Borrower's rate schedules, without the 
payment of such persons, other than seasonal or temporary consumers, of 
a contribution in aid of construction. A seasonal consumer is one that 
demands electric service only during certain seasons of the year. A 
temporary consumer is a seasonal or year-round consumer that demands 
electric service over a period of less than five years.
    (c) The Borrower may assess contributions in aid of construction 
provided such assessments are consistent with this section.

                 Section 5.10. Real Property Acquisition

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

               Section 5.11. ``Buy American'' Requirements

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

                Section 5.12. Power Requirements Studies

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

 Section 5.13. Long Range Engineering Plans and Construction Work Plans

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

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

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

                 Section 5.15. Plans and Specifications

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

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

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

               Section 5.17. Contract Bidding Requirements

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

                     Section 5.18. Nondiscrimination

    (a) Equal Opportunity Provisions in Construction Contracts. The 
Borrower shall incorporate or cause to be incorporated into any 
construction contract, as defined in Executive Order 11246 of September 
24, 1965 and implementing regulations, which is paid for in whole or in 
part with funds obtained from RUS or borrowed on the credit of the 
United States pursuant to a grant, contract, loan, insurance or 
guarantee, or undertaken pursuant to any RUS program involving such 
grant, contract, loan, insurance or guarantee, the equal opportunity 
provisions set

[[Page 272]]

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

                     Section 5.19. Financial Reports

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

             Section 5.20. Miscellaneous Reports and Notices

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

[[Page 273]]

the ability of the Borrower to perform its obligations under the Loan 
Documents.
    (g) Other Information. Such other information regarding the 
condition, financial or otherwise, or operations of the Borrower as RUS 
may, from time to time, reasonably request.

               Section 5.21. Special Construction Account

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

             Section 5.22. Additional Affirmative Covenants

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

                     Article VI--Negative Covenants

                          Section 6.1. General

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

       Section 6.2. Limitations on System Extensions and Additions

    (a) The Borrower shall not extend or add to its Electric System 
either by construction or acquisition without the prior written approval 
of RUS if the construction or acquisition is financed or will be 
financed, in whole or in part, by a RUS loan or loan guarantee.
    (b) The Borrower shall not extend or add to its Electric System with 
funds from other sources without prior written approval of RUS in the 
case of:
    (1) Generating facilities if the combined capacity of the facilities 
to be built, procured, or leased, including any future facilities 
included in the planned project, will exceed the lesser of 5 Megawatts 
or 30 percent of the Borrower's Equity;
    (2) Existing electric facilities or systems in service whose 
purchase price, or capitalized value in the case of a lease, exceeds ten 
percent of the Borrower's Net Utility Plant; and
    (3) Any project to serve a customer whose annual Kwh purchases or 
maximum annual Kw demand is projected to exceed 25 percent of the 
Borrower's total Kwh sales or maximum Kw demand in the year immediately 
preceding the acquisition or start of construction of facilities.

    Section 6.3. Limitations on Changing Principal Place of Business

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

     Section 6.4. Limitations on Employment and Retention of Manager

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

         Section 6.5. Limitations on Certain Types of Contracts

    Without the prior approval of RUS in writing, the Borrower shall not 
enter into any of the following contracts:
    (a) Construction Contracts. Any contract for construction or 
procurement or for architectural and engineering services in connection 
with its Electric System if the project is financed or will be financed, 
in whole or in part, by a RUS loan or loan guarantee;

[[Page 274]]

    (b) Large retail power contracts. Any contract to sell electric 
power and energy for periods exceeding two (2) years if the kWh sales or 
kW demand for any year covered by such contract shall exceed 25 percent 
of the Borrower's total kWh sales or maximum kW demand for the year 
immediately preceding the execution of such contract;
    (c) Wholesale power contracts. Any contract to sell electric power 
or energy for resale and any contract to purchase electric power or 
energy that, in either case, has a term exceeding two (2) years;
    (d) Power supply arrangements. Any interconnection agreement, 
interchange agreement, wheeling agreement, pooling agreement or similar 
power supply arrangement that has a term exceeding two (2) years;
    (e) System management and maintenance contracts. Any contract for 
the management and operation of all or substantially all of its Electric 
System; or
    (f) Other contracts. Any contracts of the type described on Schedule 
3.

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

    (a) The Borrower shall not consolidate with, or merge, or sell all 
or substantially all of its business or assets, to another entity or 
person except to the extent it is permitted to do so under the Mortgage. 
The exception contained in this paragraph (a) is subject to the 
additional limitation set forth in paragraph (b) of this section.
    (b) The Borrower shall not, without the written approval of the 
Administrator, voluntarily or involuntarily sell, convey or dispose of 
any portion of its business or assets (including, without limitation, 
any portion of its franchise or service territory) to another entity or 
person if such sale, conveyance or disposition could reasonably be 
expected to reduce the Borrower's existing or future requirements for 
energy or capacity being furnished to the Borrower under any wholesale 
power contract which has been pledged as security to RUS.

     Section 6.7. Limitations on Using non-FDIC Insured Depositories

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

                Section 6.8. Limitation on Distributions

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

  Section 6.9. Limitations on Loans, Investments and Other Obligations

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

                    Section 6.10. Depreciation Rates

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

                   Section 6.11. Historic Preservation

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

                      Section 6.12. Rate Reductions

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

          Section 6.13. Limitations on Additional Indebtedness

    Except as expressly permitted by Article II of the Mortgage and 
subject to the further limitations expressed in the next section, the 
Borrower shall not incur, assume, guarantee or otherwise become liable 
in respect of any

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debt for borrowed money and Restricted Rentals (including Subordinated 
Indebtedness) other than the following: (``Permitted Debt'')
    (a) Additional Notes issued in compliance with Article II of the 
Mortgage;
    (b) Purchase money indebtedness in non-Utility System property, in 
an amount not exceeding 10% of Net Utility Plant;
    (c) Restricted Rentals in an amount not to exceed 5% of Equity 
during any 12 consecutive calendar month period;
    (d) Unsecured lease obligations incurred in the ordinary course of 
business except Restricted Rentals;
    (e) Unsecured indebtedness for borrowed money, except when the 
aggregate amount of such indebtedness exceeds 15% of Net Utility Plant 
and after giving effect to such unsecured indebtedness the Borrower's 
Equity is less than 30% of its Total Assets;
    (f) Debt represented by dividends declared but not paid; and
    (g) Subordinated Indebtedness approved by RUS.
    PROVIDED, However, that the Borrower may incur Permitted Debt 
without the consent of RUS only so long as there exists no Event of 
Default hereunder and there has been no continuing occurrence which with 
the passage of time and giving of notice could become an Event of 
Default hereunder.
    PROVIDED, FURTHER, by executing this Agreement any consent of RUS 
that the Borrower would otherwise be required to obtain under this 
Section is hereby deemed to be given or waived by RUS by operation of 
law to the extent, but only to the extent, that to impose such a 
requirement of RUS consent would clearly violate federal laws or RUS 
Regulations.

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

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

          Section 6.15. Impairment of Contracts Pledged to RUS

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

               Section 6.16. Additional Negative Covenants

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

                          Article VII--Default

                     Section 7.1. Events of Default

    The following shall be Events of Default under this Agreement:
    (a) Representations and Warranties. Any representation or warranty 
made by the Borrower in Article II hereof or any certificate furnished 
to RUS hereunder or under the Mortgage shall prove to have been 
incorrect in any material respect at the time made and shall at the time 
in question be untrue or incorrect in any material respect and remain 
uncured;
    (b) Payment. Default shall be made in the payment of or on account 
of interest on or principal of the Note when and as the same shall be 
due and payable, whether by acceleration or otherwise, which shall 
remain unsatisfied for five (5) Business Days;
    (c) Borrowing Under the Mortgage in Violation of the Loan Contract. 
Default by the Borrower in the observance or performance of any covenant 
or agreement contained in Section 6.14 of this Agreement.
    (d) Other Covenants. Default by the Borrower in the observance or 
performance of any other covenant or agreement contained in any of the 
Loan Documents, which shall remain unremedied for 30 calendar days after 
written notice thereof shall have been given to the Borrower by RUS;

[[Page 276]]

    (e) Corporate Existence. The Borrower shall forfeit or otherwise be 
deprived of its corporate charter, franchises, permits, easements, 
consents or licenses required to carry on any material portion of its 
business;
    (f) Other Obligations. Default by the Borrower in the payment of any 
obligation, whether direct or contingent, for borrowed money or in the 
performance or observance of the terms of any instrument pursuant to 
which such obligation was created or securing such obligation;
    (g) Bankruptcy. A court having jurisdiction in the premises shall 
enter a decree or order for relief in respect of the Borrower in an 
involuntary case under any applicable bankruptcy, insolvency or other 
similar law now or hereafter in effect, or appointing a receiver, 
liquidator, assignee, custodian, trustee, sequestrator or similar 
official, or ordering the winding up or liquidation of its affairs, and 
such decree or order shall remain unstayed and in effect for a period of 
ninety (90) consecutive days or the Borrower shall commence a voluntary 
case under any applicable bankruptcy, insolvency or other similar law 
now or hereafter in effect, or under any such law, or consent to the 
appointment or taking possession by a receiver, liquidator, assignee, 
custodian or trustee, of a substantial part of its property, or make any 
general assignment for the benefit of creditors; and
    (h) Dissolution or Liquidation. Other than as provided in the 
immediately preceding subsection, the dissolution or liquidation of the 
Borrower, or failure by the Borrower promptly to forestall or remove any 
execution, garnishment or attachment of such consequence as shall impair 
its ability to continue its business or fulfill its obligations and such 
execution, garnishment or attachment shall not be vacated within 30 
days. The term ``dissolution or liquidation of the Borrower'', as used 
in this subsection, shall not be construed to include the cessation of 
the corporate existence of the Borrower resulting either from a merger 
or consolidation of the Borrower into or with another corporation 
following a transfer of all or substantially all its assets as an 
entirety, under the conditions permitting such actions.

                         Article VIII--Remedies

                         Section 8.1. Generally

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

                   Section 8.2. Suspension of Advances

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

                        Article IX--Miscellaneous

                          Section 9.1. Notices

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

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

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

                          Section 9.2. Expenses

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

[[Page 277]]

                       Section 9.3. Late Payments

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

                        Section 9.4. Filing Fees

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

                         Section 9.5. No Waiver

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

                       Section 9.6. Governing Law

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

                      Section 9.7. Holiday Payments

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

                         Section 9.8. Rescission

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

                   Section 9.9. Successors and Assigns

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

              Section 9.10. Complete Agreement; Amendments

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

                         Section 9.11. Headings

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

                       Section 9.12. Severability

    If any term, provision or condition, or any part thereof, of this 
Agreement or the Mortgage shall for any reason be found or held invalid 
or unenforceable by any governmental agency or court of competent 
jurisdiction, such invalidity or unenforceability shall not affect the 
remainder of such term, provision

[[Page 278]]

or condition nor any other term, provision or condition, and this 
Agreement, the Note, and the Mortgage shall survive and be construed as 
if such invalid or unenforceable term, provision or condition had not 
been contained therein.

                      Section 9.13. Right of Setoff

    Upon the occurrence and during the continuance of any Event of 
Default, RUS is hereby authorized at any time and from time to time, 
without prior notice to the Borrower, to exercise rights of setoff or 
recoupment and apply any and all amounts held or hereafter held, by RUS 
or owed to the Borrower or for the credit or account of the Borrower 
against any and all of the obligations of the Borrower now or hereafter 
existing hereunder or under the Note. RUS agrees to notify the Borrower 
promptly after any such setoff or recoupment and the application 
thereof, provided that the failure to give such notice shall not affect 
the validity of such setoff, recoupment or application. The rights of 
RUS under this section are in addition to any other rights and remedies 
(including other rights of setoff or recoupment) which RUS may have. 
Borrower waives all rights of setoff, deduction, recoupment or 
counterclaim.

                  Section 9.14. Schedules and Exhibits

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

                   Section 9.15. Prior Loan Contracts

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

            Section 9.16. Authority of Representatives of RUS

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

                           Section 9.17. Term

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

_______________________________________________________________________
(Name of Borrower)

(SEAL)

By______________________________________________________________________
President

Attest:_________________________________________________________________
Secretary

                         RURAL UTILITIES SERVICE

By______________________________________________________________________
Administrator

                               Schedule 1

[citations subject to change]

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

[[Page 279]]

    8. All of the property of the Borrower is located in the counties of 
____________________.
    9. The subsidiary (or subsidiaries) referred to in Section [2.1(k)] 
is (are): ____________________.
    10. The Contemporaneous Loan referred to in Section [5.3] is 
described as follows: ____________________.

Lender:_________________________________________________________________

Amount:_________________________________________________________________

Year of Final Maturity:_________________________________________________

    11. The RUS Commitment referred to in the definitions means a loan 
in the principal amount of $________________ which is being made by RUS 
to the Borrower at the ______ Hardship Rate ______ Municipal Rate (CHECK 
ONE) pursuant to the Rural Electrification Act and RUS Regulations.
    12. Amortization of Advance shall be based upon the method indicated 
below:

______ level principal

______ level debt service

______ other

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

                       Schedule 2--Existing Liens

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

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

                    Schedule 3--Additional Contracts

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

[INSERT LIST OF ANY ADDITIONAL CONTRACTS HERE]

                   Exhibit A--Form of Promissory Note

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

            Exhibit B--Equal Opportunity Contract Provisions

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

[[Page 280]]

with respect to any subcontract or purchase order as the administering 
agency may direct as a means of enforcing such provisions, including 
sanctions for noncompliance: Provided, however, that in the event a 
contractor becomes involved in, or is threatened with, litigation with a 
subcontractor or vendor as a result of such direction by the agency, the 
contractor may request the United States to enter into such litigation 
to protect the interests of the United States.

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

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

[Signed]________________________________________________________________

[Dated]_________________________________________________________________

[Name]__________________________________________________________________

[Title]_________________________________________________________________

[Name and Address of Borrower]__________________________________________

_______________________________________________________________________

_______________________________________________________________________

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

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

[Dated]_________________________________________________________________

[Name]__________________________________________________________________

[Title]_________________________________________________________________

[Name and Address of Borrower]__________________________________________

_______________________________________________________________________

_______________________________________________________________________



PART 1721--POST-LOAN POLICIES AND PROCEDURES FOR INSURED ELECTRIC LOANS--Table of Contents




    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Editorial Note: Nomenclature changes to part 1721 appear at 55 FR 
39397, Sept. 27, 1990.



                       Subpart A--Advance of Funds



Sec. 1721.1  Advances.

    (a) Purpose and amount. With the exception of minor construction, 
insured loan funds will be advanced only for projects which are included 
in an RUS approved Borrower's construction workplan or approved 
amendment and in an approved loan, as amended. Loan fund advances can be 
requested in an amount representing actual costs incurred but not to 
exceed 130 percent of the project cost estimate on the approved RUS Form 
740c, ``Costs Estimates and Loan Budget for Electric Borrowers,'' 
1 as amended. Minor construction is defined as a project 
costing $25,000 or less. Such projects qualify for advance of loan funds 
even though they may not have been included in an RUS-approved 
Borrower's construction workplan, amendment to such workplan 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

[[Page 281]]

contract between the Borrower and RUS.
---------------------------------------------------------------------------

    \1\ A copy of these forms and publications may be obtained by 
writing the Rural Utilities Service, Washington, DC 20250.
---------------------------------------------------------------------------

    (b) Certification. Pursuant to the applicable provisions of the RUS 
loan contract, Borrowers shall certify with each request for funds to be 
approved for advance that such funds are for projects in compliance with 
this section and shall also provide for those that cost in excess of 
$25,000 a contract or work order number as applicable and a workplan 
cross-reference identification.
    For a minor project not included in an RUS approved Borrower's 
construction workplan, the Borrower shall describe the project and do 
one of the following to satisfy RUS's environmental requirements (see 7 
CFR part 1794).
    (1) If applicable, state that the project is a categorical exclusion 
of a type described in 7 CFR 1794.31(b) which normally does not require 
preparation of a Borrower's Environmental Report (BER); or
    (2) If applicable, state that the project is a categorical exclusion 
of a type that normally requires a BER and then:
    (i) Submit the BER with the request for funds to be approved for 
advance, or
    (ii) If applicable, certify that it has analyzed the minor project 
with respect to a comprehensive service area environmental map and data 
base collected and used in preparing the BER for its RUS-approved 
Borrower's construction workplan, and that on the basis of that 
information the minor project will not be located in an environmentally 
sensitive area or location.
    (c) Noncompliance. Where insured loan funds are found to have been 
advanced in noncompliance with this rule, Borrowers will be required to 
return the appropriate amount of the over advance together with 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 returned to be 
requested subsequently by the Borrower for RUS approved projects, 
nothing herein contained shall be construed to preclude RUS from 
exercising any rights or remedies which RUS may have pursuant to the 
loan contract.

[50 FR 5368, Feb. 8, 1985. Redesignated at 55 FR 39395, Sept. 27, 1990]



                          Subpart B--[Reserved]



PART 1724--ELECTRIC SYSTEM PLANNING AND DESIGN POLICIES AND PROCEDURES--Table of Contents




                     Subpart A--General  [Reserved]

              Subpart B--Architectural Services  [Reserved]

               Subpart C--Engineering Services  [Reserved]

             Subpart D--Electric System Planning  [Reserved]

                    Subpart E--Electric System Design

Sec.
1724.41  Compliance with National Electrical Safety Code.
1724.42--1724.44  [Reserved]
1724.45  Permitted deviations from RUS construction standards.

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Editorial Note: Nomenclature change to part 1724 appears at 55 FR 
39397, Sept. 27, 1990.

[[Page 282]]



                     Subpart A--General  [Reserved]



              Subpart B--Architectural Services  [Reserved]



               Subpart C--Engineering Services  [Reserved]



             Subpart D--Electric System Planning  [Reserved]



                    Subpart E--Electric System Design



Sec. 1724.41  Compliance with National Electrical Safety Code.

    (a) All borrowers' new lines and substations shall be constructed 
and operated in accordance with the requirements of the National 
Electrical Safety Code (NESC). The applicable edition of the NESC to be 
followed shall be the latest edition which is effective in accordance 
with the provisions of that edition. Where local regulations or other 
RUS requirements are more stringent, those requirements shall govern.
    (b) The Administrator of RUS will consider specific requests to 
approve construction which is not in accordance with the NESC if the 
borrower provides evidence satisfactory to the Administrator that an 
exception is necessary or desirable and in the interests of the 
Government and the borrower.
    (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, C, and D. Overhead 
transmission circuits shall be constructed with not less than the Grade 
B strength requirements as described in NESC section 26.

[49 FR 11620, Mar. 27, 1984. Redesignated at 55 FR 39395, Sept. 27, 
1990]
Secs. 1724.42--1724.44  [Reserved]



Sec. 1724.45  Permitted deviations from RUS construction standards.

    (a) Structures for raptor protection. Standard distribution line 
structres may not have the extra measure of protection needed in areas 
frequented by eagles and other large birds (raptors) to protect such 
birds from electric shock due to physical contact with energized wires. 
Borrowers are allowed to deviate from RUS construction standards to 
provide for raptor protection in the design of overhead line structures 
in those cases where such protection is required by (1) RUS or (2) a 
Federal, state or local authority with permit or license authority over 
the proposed construction. Structures which are designed for raptor 
protection shall be in accordance with Suggested Practices for Raptor 
Protection on Powerlines--The State of the Art in 1981, published by the 
Raptor Research Foundation, Inc., provided, however, that such 
structures shall be in accordance with the National Electrical Safety 
Code unless a specific waiver has been granted by the RUS Administrator. 
Copies of this publication may be purchased from the Raptor Research 
Foundation, Inc., c/o Department of Veterinary Biology, University of 
Minnesota, St. Paul, Minnesota 55101. It is also available for 
inspection at the Office of the Federal Register Information Center, 800 
North Capitol Street, NW., suite 700, Washington, DC. This incorporation 
by reference has been approved by the Director of the Office of the 
Federal Register. Any deviation from the RUS construction standards for 
the purpose of raptor protection, which is not in accordance with the 
above report, must be approved by RUS prior to construction.
    (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 connections 
may be modified in accordance with Rule 97D2 of the National Electrical 
Safety Code.

[49 FR 11620, Mar. 27, 1984. Redesignated at 55 FR 39395, Sept. 27, 
1990, and amended at 55 FR 53487, Dec. 31, 1990]



PART 1726--ELECTRIC SYSTEM CONSTRUCTION POLICIES AND PROCEDURES--Table of Contents




                           Subpart A--General

Sec.
1726.1--1726.9  [Reserved]

[[Page 283]]

1726.10  Introduction.
1726.11  Purpose.
1726.12  Applicability.
1726.13  Waivers.
1726.14  Definitions.
1726.15  ``Buy American''.
1726.16  Debarment and suspension.
1726.17  Restrictions on lobbying.
1726.18  Preloan contracting.
1726.19  Use of competitive procurement.
1726.20  Standards and specifications.
1726.21  New materials.
1726.22  Methods of construction.
1726.23  Qualification of bidders.
1726.24  Written contracts.
1726.25  Subcontracts.
1726.26--1726.34  [Reserved]
1726.35  Submission of documents to RUS.
1726.36  Documents subject to RUS approval.
1726.37  OMB control number.
1726.38--1726.49  [Reserved]

                   Subpart B--Distribution Facilities

1726.50  Distribution line materials and equipment.
1726.51  Distribution line construction.
1726.52--1726.74  [Reserved]

            Subpart C--Substation and Transmission Facilities

1726.75  General.
1726.76  Substation and transmission line materials and equipment.
1726.77  Substation and transmission line construction.
1726.78--1726.124  [Reserved]

                    Subpart D--Generation Facilities

1726.125  Generating plant facilities.
1726.126--1726.149  [Reserved]

                          Subpart E--Buildings

1726.150  Headquarters buildings.
1726.151--1726.174  [Reserved]

                        Subpart F--General Plant

1726.175  General plant materials.
1726.176  Communications and control facilities.
1726.177--1726.199  [Reserved]

                    Subpart G--Procurement Procedures

1726.200  General requirements.
1726.201  Formal competitive bidding.
1726.202  Informal competitive bidding.
1726.203  Multiparty negotiation.
1726.204  Multiparty unit price quotations.
1726.205  Multiparty lump sum quotations.
1726.206--1726.249  [Reserved]

         Subpart H--Modifications to RUS Standard Contract Forms

1726.250  General.
1726.251  Prior approved contract modification related to price 
          escalation on transmission equipment, generation equipment, 
          and generation construction contracts.
1726.252  Prior approved contract modification related to liability for 
          special and consequential damages.
1726.253  Prior approved contract modification related to alternative 
          bid provision for payment to contractor for bulk purchase of 
          materials.
1726.254  Prior approved contract modifications related to RUS approval 
          of contracts and amendments and modified bidding requirements.
1726.255  Prior approved contract modifications related to 
          indemnification.
1726.256--1726.299  [Reserved]

                      Subpart I--RUS Standard Forms

1726.300  List of RUS standard contracting forms for electric systems.
1726.301  Use of printed forms.
1726.302  RUS approved forms of contract.
1726.303  Interest on overdue accounts.
1726.304--1726.309  [Reserved]
1726.310  Contractor's bond, RUS Form 168b.
1726.311  Contractor's bond, RUS Form 168c.
1726.312  Construction contract amendment, RUS Form 180.
1726.313  Certificate of completion, contract construction for 
          buildings, RUS Form 181.
1726.314  Certificate of completion, contract construction, RUS Form 
          187.
1726.315  Equipment contract, RUS Form 198.
1726.316--1726.319  [Reserved]
1726.320  Construction contract, generating, RUS Form 200.
1726.321  Right-of-way clearing contract, RUS Form 201.
1726.322  Transmission system right-of-way clearing contract, RUS Form 
          203.
1726.323  Certificate (Buy America), RUS Form 213.
1726.324  Waiver and release of lien, RUS Form 224.
1726.325  Certificate of contractor, RUS Form 231.
1726.326  Construction or equipment contract amendment, RUS Form 238.
1726.327  Material receipt, RUS Form 251.
1726.328  Construction inventory (for labor and material contract), RUS 
          Form 254.
1726.329  Contract to construction buildings, RUS Form 257.
1726.330  [Reserved]
1726.331  Bid bond, RUS Form 307.
1726.332--1726.339  [Reserved]
1726.340  Substation and switching station erection contract, RUS Form 
          764.

[[Page 284]]

1726.341  Electric system communications and control equipment contract, 
          RUS Form 786.
1726.342  Distribution line extension construction contract (labor and 
          materials), RUS Form 790.
1726.343  Distribution line extension construction contract (labor 
          only), RUS Form 792.
1726.344  [Reserved]
1726.345  Certificate of contractor and indemnity agreement (line 
          extensions), RUS Form 792b.
1726.346  Supplemental contract for additional project, RUS Form 792c.
1726.347--1726.350  [Reserved]
1726.351  Electric system construction contract (labor and materials), 
          RUS Form 830.
1726.352  Electric transmission construction contract (labor and 
          materials), RUS Form 831.
1726.353--1726.399  [Reserved]

                      Subpart J--Contract Closeout

1726.400  Final contract amendment.
1726.401  Material contract closeout.
1726.402  Equipment contract closeout.
1726.403  Project construction contract closeout.
1726.404  Non-site specific construction contract closeout.
1726.405  Inventory of work orders (RUS Form 219).

    Authority: 7 U.S.C. 901 et seq., 1921 et seq.; Pub. L. 103-354, 108 
Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 60 FR 10155, Feb. 23, 1995, unless otherwise noted.



                           Subpart A--General

Secs. 1726.1--1726.9  [Reserved]



Sec. 1726.10  Introduction.

    The policies, procedures and requirements included in this part are 
intended to implement provisions of the standard form of loan documents 
between the Rural Utilities Service (RUS) and its electric borrowers. 
Unless prior written approval is received from RUS, borrowers are 
required to comply with RUS policies and procedures as a condition to 
RUS providing loans, loan guarantees, or reimbursement of general funds 
for the construction and improvement of electric facilities. 
Requirements relating to RUS approval of plans and specifications, 
duties and responsibilities of the engineer and architect, and 
engineering and architectural services contracts, are contained in other 
RUS regulations. The terms ``RUS form'', ``RUS standard form'', ``RUS 
specification'', ``and RUS bulletin'' have the same meanings as the 
terms ``REA form'', ``REA standard form'', ``REA specification'', ``and 
REA bulletin'', respectively, unless otherwise noted.



Sec. 1726.11  Purpose.

    Each borrower is responsible for the planning, design, construction, 
operation and maintenance of its electric system. RUS, as a secured 
lender, has a legitimate interest in accomplishing RUS's programmatic 
objectives, and in assuring that the costs of construction, materials, 
and equipment are reasonable and economical and that the property 
securing the loans is constructed adequately to serve the purposes for 
which it is intended.



Sec. 1726.12  Applicability.

    The requirements of this part apply to the procurement of materials 
and equipment for use by electric borrowers in their electric systems 
and to the construction of their electric systems if such materials, 
equipment, and construction are financed, in whole or in part, with 
loans made or guaranteed by RUS, including reimbursable projects. In 
order for general fund expenditures for procurement or construction to 
be eligible for reimbursement from loan funds, the borrower must comply 
with the procedures required by this part. In the case of jointly owned 
projects, RUS will determine on a case by case basis the applicability 
of the requirements of this part.



Sec. 1726.13  Waivers.

    The Administrator may waive, for good cause on a case by case basis, 
certain requirements and procedures of this part. RUS reserves the 
right, as a condition of providing loans, loan guarantees, or other 
assistance, to require any borrower to make any specification, contract, 
or contract amendment subject to the approval of the Administrator.

[[Page 285]]



Sec. 1726.14  Definitions.

    Terms used in this part have the meanings set forth in 7 CFR 1710.2. 
References to specific RUS forms and other RUS documents, and to 
specific sections or lines of such forms and documents, shall include 
the corresponding forms, documents, sections and lines in any subsequent 
revisions of these forms and documents. In addition to the terms defined 
in 7 CFR 1710.2, the following terms have the following meanings for the 
purposes of this part:
    Approval of proposed construction means RUS approval of a 
construction work plan or other appropriate engineering study and RUS 
approval, for purposes of system financing, of the completion of all 
appropriate requirements of part 1794 of this chapter.
    Architect means a registered or licensed person employed by the 
borrower to provide architectural services for a project and duly 
authorized assistants and representatives.
    Bona fide bid means a bid which is submitted by a contractor on the 
borrower's list of qualified bidders for the specific contract, prior to 
bid opening.
    ``Buy American'' certificate means a certification that the 
contractor has complied with the ``Buy American'' requirement (see 
Sec. 1726.15).
    Competitive procurement means procurement of goods or services based 
on lowest evaluated bid for similar products or services when three or 
more bids are received.
    Construction unit means a specifically defined portion of a 
construction project containing materials, labor, or both, for purposes 
of bidding and payment.
    Contracting committee means the committee consisting of three to 
five members representing the borrower's management and board of 
directors and the engineer. The contracting committee represents the 
borrower during contract clarifying discussions or negotiations under 
informal competitive bidding or multiparty negotiation, respectively.
    Encumbrance means the process of approval for advance of loans funds 
by RUS.
    Engineer means a registered or licensed person, who may be a staff 
employee or an outside consultant, to provide engineering services and 
duly authorized assistants and representatives.
    Equipment means a major component of an electric system, e.g., a 
substation transformer, heat exchanger or a transmission structure.
    Force account construction means construction performed by the 
borrower's employees.
    Formal competitive bidding means the competitive procurement 
procedure wherein bidders submit sealed proposals for furnishing the 
goods or services stipulated in the specification. Bids are publicly 
opened and read at a predetermined time and place. If a contract is 
awarded, it must be to the lowest evaluated responsive bidder (see 
Sec. 1726.201).
    Goods or services means materials, equipment, or construction, or 
any combination thereof.
    Informal competitive bidding means the competitive procurement 
procedure which provides for private opening of bids and allows 
clarifying discussions between the contracting committee and the 
bidders. During the clarifying discussions any exceptions to the bid 
documents must be eliminated, or the bid rejected, so that the contract 
is awarded to the lowest evaluated responsive bidder (see 
Sec. 1726.202).
    Material means miscellaneous hardware which is combined with 
equipment to form an electric system, e.g., poles, insulators, or 
conductors.
    Minor error or irregularity means a defect or variation in a bid 
that is a matter of form and not of substance. Errors or irregularities 
are ``minor'' if they can be corrected or waived without being 
prejudicial to other bidders and when they do not affect the price, 
quantity, quality, or timeliness of construction. A minor error or 
irregularity is not an exception for purposes of determining whether a 
bid is responsive.
    Minor modification or improvement means a project where the cost is 
less than $50,000, exclusive of the cost of owner furnished materials.
    Multiparty lump sum quotations means the procurement of goods or 
services on a lump sum basis, based on the lowest evaluated offering, 
when three or more offers are received. (See Sec. 1726.205).

[[Page 286]]

    Multiparty negotiation means the procurement procedure where three 
or more bids are received and provides for negotiations between the 
contracting committee and each bidder to determine the bid which is in 
the borrower's best interest (see Sec. 1726.203).
    Multiparty unit price quotations means the procurement of goods or 
services on a unit price basis, based on the lowest evaluated offering, 
when three or more offers are received (See Sec. 1726.204).
    Net utility plant (NUP) means Part C, Line 5 of RUS Form 7 for 
distribution borrowers or Section B, Line 5 of RUS Form 12a for power 
supply borrowers for the immediately preceding calendar year.
    Procurement method means a procedure, including, but not limited to, 
those in subpart G of this part, that a borrower uses to obtain goods 
and services.
    Owner furnished materials means materials or equipment or both 
supplied by the borrower for installation by the contractor.
    Responsive bid means a bid with no exceptions or non-minor errors or 
irregularities on any technical requirement or in the contract terms and 
conditions.
    RUS approval means written approval by the Administrator or a 
representative with delegated authority. RUS approval must be in 
writing, except in emergency situations where RUS approval may be given 
over the telephone followed by a confirming letter.
    Unit prices means individual prices for specific construction units 
defined in accordance with RUS approved units specified in RUS standard 
contract forms.



Sec. 1726.15  ``Buy American''.

    The borrower must ensure that all materials and equipment financed 
with loans made or guaranteed by RUS complies with the ``Buy American'' 
provisions of the Rural Electrification Act of 1938 (7 U.S.C. 903 note), 
as amended by the North American Free Trade Agreement Implementation Act 
(107 Stat 2129). When a ``Buy American'' certificate is required by this 
part, this must be on RUS Form 213.



Sec. 1726.16  Debarment and suspension.

    Borrowers are required to comply with certain requirements on 
debarment and suspension in connection with procurement activities as 
set forth in part 3017 of this title, particularly with respect to lower 
tier transactions, e.g., procurement contracts for goods or services.



Sec. 1726.17  Restrictions on lobbying.

    Borrowers are required to comply with certain restrictions and 
requirements in connection with procurement activities as set forth in 
part 3018 of this title.



Sec. 1726.18  Preloan contracting.

    Borrowers must consult with RUS prior to entering into any contract 
for material, equipment, or construction if a construction work plan, 
general funds, loan or loan guarantee for the proposed work has not been 
approved. While the RUS staff will work with the borrower in such 
circumstances, nothing contained in this part is to be construed as 
authorizing borrowers to enter into any contract before the availability 
of funds has been ascertained by the borrower and all the requirements 
of part 1794 of this chapter, Environmental Policies and Procedures for 
Electric and Telephone Borrowers, have been fulfilled.



Sec. 1726.19  Use of competitive procurement.

    RUS borrowers' procurement is not subject to the provisions of the 
Federal Acquisition Regulation (48 CFR chapter 1); however, since 
borrowers receive the benefit of Federal financial assistance borrowers 
must use competitive procurement to the greatest extent practical. The 
borrower must use competitive procurement for obtaining all goods or 
services when a RUS loan or loan guarantee is involved except:
    (a) As specifically provided for in subparts B through F of this 
part; or
    (b) A waiver is granted.



Sec. 1726.20  Standards and specifications.

    All materials, equipment, and construction must meet the minimum 
requirements of all applicable RUS standards and specifications. (See 
Part

[[Page 287]]

1728, Electric Standards and Specifications for Materials and 
Construction, of this chapter, which is applicable regardless of the 
source of funding.)



Sec. 1726.21  New materials.

    The borrower shall purchase only new materials and equipment unless 
otherwise approved by RUS, on a case by case basis, prior to the 
purchase.



Sec. 1726.22  Methods of construction.

    The borrower is generally responsible for determining whether 
construction will be by contract or force account. If construction is by 
contract, the borrower must determine whether materials will be supplied 
by the contractor or will be furnished by the borrower. RUS reserves the 
right to require contract construction in lieu of force account 
construction on a case by case basis.



Sec. 1726.23  Qualification of bidders.

    (a) Qualified bidder list (QBL). The borrower shall (acting through 
its engineer, if applicable) review the qualifications of prospective 
bidders for contract construction and for material and equipment 
procurement, and select firms qualified for inclusion on the borrower's 
list of qualified bidders for each contract. (See also Sec. 1726.16 and 
Sec. 1726.17.) A bid may not be solicited from a prospective bidder or 
opened by the borrower unless that bidder has been determined to be a 
qualified bidder for the contract. When preparing the QBL, in addition 
to the actual experience of the borrower, if any, in dealing with a 
prospective bidder, the borrower may solicit information from that 
bidder or from other parties with firsthand experience regarding the 
firm's capabilities and experience. It is also important to consider the 
firm's performance record, safety record, and similar factors in 
determining whether to include that firm on the QBL, since the borrower 
may not evaluate these factors when evaluating a bid from a qualified 
and invited bidder.
    (b) Conflict of interest. If there is a relationship between the 
borrower or engineer and a prospective bidder which might cause the 
borrower or engineer to have or appear to have a conflict of interest, 
that prospective bidder shall not be included on the QBL unless the 
engineer discloses the nature of the relationship to the borrower. In 
the case of the borrower, if its employees or directors have a 
relationship with a prospective bidder, the prospective bidder shall not 
be included on the qualified bidders list unless the nature of the 
relationship is disclosed to the board of directors, and the board of 
directors specifically approves the inclusion of that bidder in light of 
the potential for a conflict of interest.



Sec. 1726.24  Written contracts.

    (a) General. Procurement of goods or services must be by written 
contract or written purchase order. The borrower shall use a RUS 
Approved Form of Contract for such contracts where required by subparts 
B through F of this part.
    (b) Amendments to contracts--(1) Contract forms. The borrower must 
use RUS Form 180, Construction Contract Amendment, for any change or 
addition in a distribution line construction contract. The borrower must 
use RUS Form 238, Construction or Equipment Contract Amendment, for any 
change or addition in any other contract for construction, or for 
materials 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

[[Page 288]]

RUS unless specifically requested by RUS on a case by case basis.



Sec. 1726.25  Subcontracts.

    The contractor or supplier may use RUS Form 282, Subcontract, for 
subcontracts on construction, material or equipment contracts. 
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.
Secs. 1726.26--1726.34  [Reserved]



Sec. 1726.35  Submission of documents to RUS.

    (a) Where to send documents. Documents required to be submitted to 
RUS under this part are to be sent to the office of the borrower's 
respective RUS Regional Director, the Power Supply Division Director, or 
such other office of RUS as designated by RUS (see part 1700 of this 
chapter.)
    (b) Borrower certification. When a borrower certification is 
required by this part, it must be made by the borrower's manager unless 
the board of directors specifically authorizes another person to make 
the required certification. In such case, a certified copy of the 
specific authorizing resolution must accompany the document or be on 
file with RUS.
    (c) Contracts requiring RUS approval. The borrower shall submit to 
RUS three copies of each contract that is subject to RUS approval under 
subparts B through F of this part. At least one copy of each contract 
must be an original signed in ink (i.e., no facsimile signature). Each 
contract submittal must be accompanied by:
    (1) A bid tabulation and evaluation and, if applicable, a written 
recommendation of the architect or engineer.
    (2) For awards made under the informal competitive bidding procedure 
or the multiparty negotiation procedure, a written recommendation of the 
contracting committee (See Secs. 1726.202 and 1726.203).
    (3) Three copies of an executed contractor's bond on RUS approved 
bond forms as required in the contract form (at least one copy of which 
must be an original signed in ink) and one copy of the bid bond or 
facsimile of the certified check.
    (4) A certification by the borrower or chairperson of the 
contracting committee, as applicable, that the appropriate bidding 
procedures were followed as required by this part.
    (5) A certified copy of the board resolution awarding the contract.
    (6) Evidence of clear title to the site for substations and 
headquarters construction contracts, if not previously submitted.
    (7) Documentation that all reasonable measures were taken to assure 
competition if fewer than three bids were received.
    (d) Contract amendments requiring RUS approval. The borrower must 
submit to RUS three copies of each contract amendment (at least one copy 
of which must be an original signed in ink) which is subject to RUS 
approval under Sec. 1726.24(b). Each contract amendment submittal to RUS 
must be accompanied by:
    (1) A certified copy of the board resolution approving the 
amendment; and
    (2) A bond extension, where necessary.
    (e) Encumbrance of loan or loan guarantee funds. (1) For contracts 
subject to RUS approval, the submittals required under paragraph (c) of 
this section will initiate RUS action to encumber loan or loan guarantee 
funds for such contracts.
    (2) For contracts not subject to RUS approval (except for generation 
projects), loan or loan guarantee funds will normally be encumbered 
using RUS Form 219, Inventory of Work Orders, after closeout of the 
contracts. In cases where the borrower can show good cause for a need 
for immediate cash, the borrower may request encumbrance of loan or loan 
guarantee funds based on submittal of a copy of the executed contract, 
provided it meets all applicable RUS requirements.
    (3) For generation project contracts not subject to RUS approval, 
the borrower must submit to RUS the following documentation:
    (i) A brief description of the scope of the contract, including 
contract identification (name, number, etc.);
    (ii) Contract date;
    (iii) Contractor's name;

[[Page 289]]

    (iv) Contract amount;
    (v) Bidding procedure used;
    (vi) Borrower certification that:
    (A) The board of directors approved the contract;
    (B) The bidding procedures and contract award for each contract were 
in conformance with the requirements of Part 1726, Electric System 
Construction Policies and Procedures;
    (C) If a RUS approved form of contract is required by this part, the 
terms and conditions of the RUS approved form of contract have not been 
altered;
    (D) If RUS has approved plans and specifications for the contract, 
the contract was awarded on the basis of those plans and specifications; 
and
    (E) No restriction has been placed on the borrower's right to assign 
the contract to RUS or its successors.
    (4) Contract amendments. (i) For amendments subject to RUS approval, 
the submittals required under paragraph (c) of this section will 
initiate RUS action to encumber loan or loan guarantee funds for 
contract amendments requiring RUS approval.
    (ii) For amendments not subject to RUS approval (except generation 
projects), loan or loan guarantee funds will normally be encumbered 
using RUS Form 219, Inventory of Work Orders, after closeout of the 
contracts. In cases where the borrower can justify a need for immediate 
cash, the borrower may request encumbrance of loan or loan guarantee 
funds based on submittal of a copy of the executed amendment, providing 
it meets all applicable RUS requirements.
    (iii) For each generation project contract amendment not subject to 
RUS approval, the borrower must submit to RUS the following information 
and documentation:
    (A) The contract name and number;
    (B) The amendment number;
    (C) The amendment date;
    (D) The dollar amount of the increase or the decrease of the 
amendment;
    (E) Borrower certification that:
    (1) The amendment was approved in accordance with the policy of the 
board of directors (the borrower must ensure that RUS has a certified 
copy of the board resolution establishing such policy);
    (2) If a RUS approved form of contract is required by this part, the 
terms and conditions of the RUS approved form of contract has not been 
altered; and
    (3) No restriction has been placed on the borrower's right to assign 
the contract to RUS or its successors.



Sec. 1726.36  Documents subject to RUS approval.

    Unless otherwise indicated, the borrower shall make all contracts 
and amendments that are subject to RUS approval effective only upon RUS 
approval.



Sec. 1726.37  OMB control number.

    The collection of information requirements in this part have been 
approved by the Office of Management and Budget and assigned OMB control 
number 0572-0107.
Secs. 1726.38--1726.49  [Reserved]



                   Subpart B--Distribution Facilities



Sec. 1726.50  Distribution line materials and equipment.

    (a) Contract forms. (1) The borrower shall use RUS Form 198, 
Equipment Contract, for purchases of equipment where the total cost of 
the contract is $500,000 or more.
    (2) The borrower may, in its discretion, use RUS Form 173, Materials 
Contract, RUS Form 198, Equipment Contract, or a written purchase order 
for purchases of equipment of less than $500,000 and for all materials.
    (b) Standards and specifications. Distribution line materials and 
equipment must meet the minimum requirements of RUS standards as 
determined in accordance with the provisions of part 1728 of this 
chapter, Electric Standards and Specifications for Materials and 
Construction. The borrower must obtain RUS approval prior to purchasing 
any unlisted distribution line material or equipment of the types listed 
in accordance with the provisions of part 1728 of this chapter.
    (c) Procurement procedures. It is the responsibility of each 
borrower to determine the procurement method that best meets its needs 
for the purchase of

[[Page 290]]

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.



Sec. 1726.51  Distribution line construction.

    (a) Contract forms. The borrower must use RUS Form 201, 790, 792, 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, Distribution Line Extension 
Construction Contract (Labor and Materials), or RUS Form 792, 
Distribution Line Extension Construction Contract (Labor only) 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 or 792 for contracts, 
up to a cumulative total of $250,000 or one percent of 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 (Labor and Materials), for all other distribution line 
construction. Where distribution lines are being constructed incidental 
to transmission line construction, the borrower must use RUS Form 831, 
Electric Transmission Construction Contract.
    (3) The borrower must use RUS Form 201, Right-of-Way Clearing 
Contract, for new distribution line construction right-of-way clearing 
when done separately from work performed under RUS Form 830.
    (b) Procurement procedures. (1) It is the responsibility of each 
borrower to determine the procurement method that best meets its needs 
to award contracts in amounts of up to a cumulative total of $250,000 or 
one percent of NUP, whichever is greater, per calendar year of 
distribution line construction (including minor modifications or 
improvements), exclusive of the cost of owner furnished materials and 
equipment.
    (2) In addition to the cumulative total stipulated in paragraph 
(b)(1) of this section, a borrower may use Multiparty Unit Price 
Quotations to award contracts in amounts of up to a cumulative total of 
$350,000 or 1.5 percent of NUP, whichever is greater, per calendar year 
of distribution line construction (including minor modifications or 
improvements), exclusive of the cost of owner furnished materials and 
equipment.
    (3) The borrower shall use formal competitive bidding for all other 
distribution line contract construction. The amount of contracts bid 
using the formal competitive bidding procedure do not apply to the 
cumulative total stipulated in paragraph (b)(1) of this section.
    (4) An amendment which increases the scope of the contract by adding 
a project is not considered competitively bid, therefore, the amount of 
that amendment does apply to the cumulative total stipulated in 
paragraph (b)(1) of this section.
    (c) Contract approval. Contracts for distribution line construction 
are not subject to RUS approval and need not be submitted to RUS unless 
specifically requested by RUS on a case by case basis.
Secs. 1726.52--1726.74  [Reserved]



            Subpart C--Substation and Transmission Facilities



Sec. 1726.75  General.

    As used in this part, ``substations'' includes substations, 
switching stations, metering points, and similar facilities.



Sec. 1726.76  Substation and transmission line materials and equipment.

    (a) Contract forms. (1) The borrower must use RUS Form 198, 
Equipment Contract, for purchases of equipment where the total cost of 
the contract is $500,000 or more.

[[Page 291]]

    (2) The borrower may, in its discretion, use RUS Form 173, Materials 
Contract, RUS Form 198, Equipment Contract, or a written purchase order 
for purchases of equipment of less than $500,000 and for all materials.
    (b) Standards and specifications. 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.



Sec. 1726.77  Substation and transmission line construction.

    (a) Contract forms. (1) The borrower must use RUS Form 764, 
Substation Erection Contract, for construction of substations, except 
for minor modifications or improvements. The borrower must use RUS Form 
831, Electric Transmission Construction Contract for projects where 
substations are incidental to transmission line construction and are to 
be constructed under the same contract.
    (2) The borrower must use RUS Form 831, Electric Transmission 
Construction Contract, for construction of transmission lines (except 
for minor modifications or improvements).
    (3) The borrower must use RUS Form 203, Transmission System Right-
of-Way Clearing Contract, for new transmission line construction right-
of-way clearing when right-of-way clearing is performed separately from 
work performed under RUS Form 831.
    (b) Procurement procedures. (1) It is the responsibility of each 
borrower to determine the procurement method that best meets its needs 
to award contracts not requiring RUS approval in amounts of up to a 
cumulative total of $250,000 or one percent of NUP (not to exceed 
$2,000,000), whichever is greater, per calendar year of substation and 
transmission line construction (including minor modifications or 
improvements), exclusive of the cost of owner furnished materials and 
equipment.
    (2) The borrower shall use formal competitive bidding for all other 
contract construction, including all contracts requiring RUS approval. 
The amount of contracts bid using the formal competitive bidding 
procedure do not apply to the cumulative total stipulated in paragraph 
(b)(1) of this section.
    (3) An amendment which increases the scope of the contract by adding 
a project is not considered competitively bid, therefore, the amount of 
that amendment does apply to the cumulative total stipulated in 
paragraph (b)(1) of this section.
    (c) Contract approval. Individual contracts in amounts of $250,000 
or more or one percent of NUP (not to exceed $500,000 for distribution 
borrowers or $1,500,000 for power supply borrowers), whichever is 
greater, exclusive of the cost of owner furnished materials and 
equipment, are subject to RUS approval.
Secs. 1726.78--1726.124  [Reserved]



                    Subpart D--Generation Facilities



Sec. 1726.125  Generating plant facilities.

    This section covers the construction of all portions of a generating 
plant, including plant buildings and the generator step-up transformer. 
Generally, the transmission switchyard will be covered under this 
section during initial construction of the plant. Subpart C of this part 
covers subsequent modifications to transmission switchyards. Warehouses 
and equipment service type buildings are covered under subpart E of this 
part.

[[Page 292]]

    (a) Contract forms. (1) The borrower must use RUS Form 198, 
Equipment Contract, for the purchase of generating plant equipment in 
the amount of $1,500,000 or more and for any generating plant equipment 
contract requiring RUS approval.
    (2) The borrower must use RUS Form 200, Construction Contract--
Generating, for generating project construction contracts in the amount 
of $1,500,000 or more and for any generating project construction 
contract requiring RUS approval.
    (3) The borrower may, in its discretion, use other contract or 
written purchase order forms for those contracts in amounts of less than 
$1,500,000 and that do not require RUS approval.
    (b) Plans and specifications. The borrower shall obtain RUS approval 
of the plans and specifications for generating plant equipment prior to 
issuing invitations to bid for any contract subject to RUS approval as 
determined under this subpart and for any contract for generating plant 
equipment or construction which will cost $1,500,000 or more. Plans and 
specifications for other equipment and construction contracts do not 
require RUS approval and need not be submitted to RUS unless 
specifically requested by RUS on a case by case basis.
    (c) 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 $1,500,000 each.
    (2) If the amount of the contract is $1,500,000 or more or if the 
contract requires RUS approval, the borrower must use formal or informal 
competitive bidding to award the contract.
    (3) Where formal or informal competitive bidding is not applicable, 
or does not result in a responsive bid, multiparty negotiation may be 
used only after RUS approval is obtained.
    (d) 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.
Secs. 1726.126--1726.149  [Reserved]



                          Subpart E--Buildings



Sec. 1726.150  Headquarters buildings.

    This section includes headquarters buildings such as warehouses and 
equipment service type buildings. Generating plant buildings are covered 
under subpart D of this part.
    (a) Contract forms. The borrower must use RUS Form 257, Contract to 
Construct Buildings, for all contracts for construction of new 
headquarters facilities, and additions to, or modifications of existing 
headquarters facilities (except for minor modifications or 
improvements).
    (b) Procurement procedures. A borrower may use Multiparty Lump Sum 
Quotations to award contracts in amounts of up to a cumulative total of 
$250,000 or one percent of NUP (not to

[[Page 293]]

exceed $1,000,000), whichever is greater, per calendar year of 
headquarters construction (including minor modifications or 
improvements.) The borrower must use formal competitive bidding for all 
other headquarters contract construction.
    (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.
Secs. 1726.151--1726.174  [Reserved]



                        Subpart F--General Plant



Sec. 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 173, Material Contract, 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.



Sec. 1726.176  Communications and control facilities.

    This section covers the purchase of microwave and power line carrier 
communications systems, load control, and supervisory control and data 
acquisition (SCADA) systems. Mobile radio systems are covered as general 
plant materials in Sec. 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 $250,000 or one percent of NUP (not to exceed 
$2,000,000), 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 $250,000 
or more or one percent of NUP (not to exceed $500,000 for distribution 
borrowers or $1,500,000 for power supply borrowers), whichever is 
greater, exclusive of the cost of owner furnished materials and 
equipment, are subject to RUS approval.
Secs. 1726.177--1726.199  [Reserved]



                    Subpart G--Procurement Procedures



Sec. 1726.200  General requirements.

    The borrower must use the procedures described in this subpart where

[[Page 294]]

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.



Sec. 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 
Sec. 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

[[Page 295]]

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.



Sec. 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 Sec. 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

[[Page 296]]

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.



Sec. 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,

[[Page 297]]

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 Sec. 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

[[Page 298]]

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.



Sec. 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.



Sec. 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.
Secs. 1726.206--1726.249  [Reserved]



         Subpart H--Modifications to RUS Standard Contract Forms



Sec. 1726.250  General.

    RUS provides standard contract forms for procurement of materials, 
equipment, and construction, for contract amendments and subcontracts, 
and various related forms for use by RUS borrowers. See Sec. 1726.300 
for a listing of these forms and how to obtain them. The standard 
contract forms 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.



Sec. 1726.251  Prior approved contract modification related to price escalation on transmission equipment, generation equipment, and generation construction 
          contracts.

    (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:

[[Page 299]]

    (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:

``Firm Price $________
Nonfirm Price $________''

    (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:

``Firm Price $________
Nonfirm Price $________''

[[Page 300]]



Sec. 1726.252  Prior approved contract modification related to liability for special and consequential damages.

    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 
Clauses 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 Seller's willful delay or refusal to perform the 
contract in accordance with its terms, the Seller'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:

``Price $ (Based on Liability Clause 1)________
Price $ (Based on Liability Clause 2)________''

    (c) Insert the following in the acceptance section of the standard 
contract form:

    ``This contract is based on Liability Clause Number________.''

    (d) In RUS Form 200, the word ``Bidder'' would replace the word 
``Seller'' in the Liability Clause in paragraph (a) of this section.



Sec. 1726.253  Prior approved contract modification related to alternative bid provision for payment to contractor for bulk purchase of materials.

    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.



Sec. 1726.254  Prior approved contract modifications related to RUS approval of contracts and amendments and modified bidding requirements.

    It will be necessary for borrowers to make certain modifications to 
various RUS contract forms to implement the provisions of this part. If 
a RUS approved form of contract is required to be used by this part and 
private bid opening is permitted by this part, the ``Notice and 
Instructions to Bidders'' of the contract form may be modified 
accordingly. Other modifications are needed to indicate that certain 
provisions related to RUS approval are not applicable under specified 
circumstances. These modifications are as follows:
    (a) RUS Form 173 Materials Contract. No modifications.
    (b) RUS Form 180 Construction Contract Amendment. No modifications.
    (c) RUS Form 198 Equipment Contract. For contracts NOT requiring 
approval of the Administrator (in accordance with subparts B through F 
of this part) the applicable modifications are as follows:
    (1) Change Section 5(e) of the ``Equipment Contract'' to read as 
follows:


[[Page 301]]


    ``(e) Each and all of the covenants and agreements herein contained 
shall extend to and be binding upon the successors and assigns of the 
parties hereto provided, however, the Seller shall not assign this 
contract or any part hereof without approval in writing of the 
Purchaser, and further the Seller shall not enter into any contract with 
any person, firm or corporation for the performance of the Seller's 
obligations hereunder, or any part thereof, without the approval in 
writing of the Purchaser.''

    (2) Delete Section 5(f) of the ``Equipment Contract.''
    (d) RUS Form 200 Construction Contract--Generating. For contracts 
Not requiring approval of the Administrator (in accordance with subparts 
B through F of this part) the applicable modifications are as follows:
    (1) Contractor's Proposal, Article II, Section 3(a), Sentence 2. 
Delete the words ``and the Administrator.''
    (2) Contractor's Proposal, Article II, Section 3(d), Sentence 2. 
Delete the words ``and approved by the Administrator \1\'' and the 
associated footnote.
    (3) Contractor's Proposal, Article VI, Section 7. Change to read as 
follows:

    ``Nonassignment of Contract. Except as provided in Section 8 of this 
Article, the Bidder will not assign this Contract, or any interest in 
any funds that may become due hereunder, or enter into any contract with 
any person, firm or corporation, for the performance of the Bidder's 
obligations hereunder, or any part hereof without the approval in 
writing of the Owner and the Surety or Sureties, if any.''

    (4) Contractor's Proposal, Article VI. Delete Section 10.
    (5) Acceptance. Delete the words ``Subject to the approval of the 
Administrator.''
    (e) RUS Form 201 Right-of-Way Clearing Contract. No modifications.
    (f) RUS Form 203 Transmission System Right-of-Way Clearing Contract. 
For contracts Not requiring approval of the Administrator (in accordance 
with subparts B through F of this part) the applicable modifications are 
as follows.
    (1) Notice and Instructions to Bidders, Section 8. Delete the words 
``and such acceptance has been approved by the Administrator.''
    (2) Contractor's Proposal, Article II, Section 1(a). Replace the 
word ``Administrator'' with the word ``Owner'' in two places in the 
referenced section.
    (3) Contractor's Proposal, Article II, Section 3(d), Sentence 1. 
Delete the words ``and with the approval of the Administrator\1\'' and 
the associated footnote.
    (4) Contractor's Proposal, Article II, Section 3(d), Sentence 3. 
Delete the words ``and approved by the Administrator\2\'' and the 
associated footnote.
    (5) Contractor's Proposal, Article III, Section 1. Delete the words 
``and the Administrator'' in five places in the referenced section.
    (6) Contractor's Proposal, Article III, Section 1(b). Replace the 
word ``Administrator'' with the word ``Owner.''
    (7) Contractor's Proposal, Article III, Section 1(e). Replace the 
word ``Administrator'' with the word ``Owner.''
    (8) Contractor's Proposal, Article VI, Section 1(d). Delete the 
words ``and the Administrator.''
    (9) Contractor's Proposal, Article VI. Delete Section 10.
    (10) Acceptance. Delete the words ``Subject to the approval of the 
Administrator.''
    (g) RUS Form 238 Construction or Equipment Contract Amendment. If 
the contract amendment does not require RUS approval, in accordance with 
Sec. 1726.24(b), the borrower may delete from RUS Form 238 the following 
sentence:

    ``(The Administrator of RUS is hereby authorized to approve this 
amendment either in whole or in part and to delete such items as do not 
meet his approval.)''

    (h) RUS Form 257 Contract to Construct Buildings. No modifications.
    (i) RUS Form 282 Subcontracts. The applicable modifications are as 
follows:
    (1) Section 6, line 3. Delete the words ``and the Administrator of 
the Rural Utilities Service (hereinafter called the Administrator).''
    (2) Section 7, line 2. Change Section 7, line 2 to read as follows:

``approved in writing by the Owner and the Surety, if any; provided, * * 
          *''

    (3) Section 7, line 3. Delete the words ``and the Administrator.''
    (j) RUS Form 764 Substation and Switching Station Erection Contract. 
For contracts NOT requiring approval of the Administrator (in accordance 
with subparts B through F of this part) the applicable modifications are 
as follows:

[[Page 302]]

    (1) Notice and Instructions to Bidders, Section 10. Delete the words 
``and such acceptance has been approved by the Administrator.''
    (2) Contractor's Proposal, Article II, Section 1.a. Replace the word 
``Administrator'' with the word ``Owner'' in two places in the 
referenced section.
    (3) Contractor's Proposal, Article II, Section 1.d, Sentence 1. 
Delete the words ``and with the approval of the Administrator \1\'' and 
the associated footnote.
    (4) Contractor's Proposal, Article II, Section 1.d, Sentence 2. 
Delete the words ``and approved by the Administrator \2\'' and the 
associated footnote.
    (5) Contractor's Proposal, Article III, Section 1. Delete the words 
``and the Administrator'' in five places in the referenced section.
    (6) Contractor's Proposal, Article III, Section 1.b. Replace the 
word ``Administrator'' with the word ``Owner.''
    (7) Contractor's Proposal, Article III, Section 1.e. Replace the 
word ``Administrator'' with the word ``Owner.''
    (8) Contractor's Proposal, Article VI, Section 1.e. Delete the words 
``and the Administrator.''
    (9) Contractor's Proposal, Article VI. Delete Section 10.
    (10) Acceptance. Delete the words ``Subject to the approval of the 
Administrator.''
    (k) RUS Form 786 Electric System Communications and Control 
Equipment Contract (including installation). For contracts NOT requiring 
approval of the Administrator (in accordance with subparts B through F 
of this part) the applicable modifications are as follows:
    (1) Article I, Section 2. Delete the words ``subject to the approval 
of the Administrator \1\'' and ``and approved by the Administrator \2\'' 
and the associated footnotes.
    (2) Article II, Section 1, Sentence 2. Replace the word 
``Administrator'' with ``Purchaser.''
    (3) Article II, Section 5. Delete the words ``subject to the 
approval of the Administrator \3\'' and ``subject to the approval of the 
Administrator \4\'' and the associated footnotes.
    (4) Article III, Section 2, Sentence 3. Replace the words ``if the 
Administrator shall so approve'' with the words ``if the Purchaser shall 
so approve.''
    (5) Article VI. Delete Section 7.
    (6) Acceptance. Delete the words ``Subject to the approval of the 
Administrator.''
    (l) RUS Form 790 Distribution Line Extension Construction Contract 
(Labor and Materials). No modifications.
    (m) RUS Form 792 Distribution Line Extension Construction Contract 
(Labor Only). No modifications.
    (n) RUS Form 830 Electric System Construction Contract. No 
modifications.
    (o) RUS Form 831 Electric Transmission Construction Contract. For 
contracts NOT requiring approval of the Administrator (in accordance 
with subparts B through F of this part) the applicable modifications are 
as follows:
    (1) Notice and Instructions to Bidders, Section 10. Delete the words 
``and such acceptance has been approved by the Administrator.''
    (2) Contractor's Proposal, Article II, Section 1.d. Delete the words 
``with the approval of the Administrator \1\'' and ``and approved by the 
Administrator \2\'' and the associated footnotes.
    (3) Contractor's Proposal, Article II, Section 4.a. Delete the words 
``and approved by the Administrator \3\'' and the associated footnote.
    (4) Contractor's Proposal, Article III, Section 1.a. Sentence 4. 
Delete the words ``and the Administrator.''
    (5) Contractor's Proposal, Article III, Section 1.b. Replace the 
word ``Administrator'' with the word ``Owner.''
    (6) Contractor's Proposal, Article III, Section 1.c. Delete the 
words ``and the Administrator'' in four places in the referenced 
section.
    (7) Contractor's Proposal, Article III, Section 1.e. Replace the 
word ``Administrator'' with the word ``Owner.''
    (8) Contractor's Proposal, Article VI, Section 1.e. Delete the words 
``and the Administrator.''
    (9) Contractor's Proposal, Article VI. Delete Section 11.
    (10) Acceptance. Delete the words ``Subject to the approval of the 
Administrator.''



Sec. 1726.255  Prior approved contract modifications related to indemnification.

    (a) As an alternative to the indemnification provision required in 
RUS standard construction contract forms in those jurisdictions 
requiring specific

[[Page 303]]

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 subsection (i) 
of the section indicated in the RUS standard construction contract forms 
as follows:

----------------------------------------------------------------------------------------------------------------
           RUS form No.                             Title                           Desiganted section          
----------------------------------------------------------------------------------------------------------------
200...............................  Construction Contract--Generating...  Article IV, Section 1(c).             
201...............................  Right-of-Way Clearing Contract......  Article IV, Section 1(e).             
203...............................  Transmission System Right-of-Way      Article IV, Section 1(f).             
                                     Clearing Contract.                                                         
257...............................  Contract to Construct Buildings.....  Article IV, Section 1(b).             
764...............................  Substation and Switching Station      Article IV, Section 1(f).             
                                     Erection Contract.                                                         
786...............................  Electric System Communications and    Article IV, Section 1(c).             
                                     Control Equipment Line.                                                    
790...............................  Distribution Line Extension           Article IV, Section 1(f).             
                                     Construction Contract (labor &                                             
                                     materials).                                                                
792...............................  Distribution Line Extension           Article IV, Section 1(f).             
                                     Construction Contract (labor only).                                        
830...............................  Electric System Construction          Article IV, Section 1(f).             
                                     Contract (labor & material).                                               
831...............................  Electric Transmission Construction    Article IV, Section 1(f).             
                                     Contract (labor & material).                                               
----------------------------------------------------------------------------------------------------------------

    (d) In RUS Forms 201, 790, and 792, the word ``Contractor'' would 
replace the word ``Bidder'' in the alternative indemnification clause in 
paragraph (a) or (b) of this section.
    (e) In RUS Form 786, the word ``Seller'' would replace the word 
``Bidder'' and the word ``Purchaser'' would replace the word ``Owner'' 
in the alternative indemnification clause in paragraph (a) or (b) of 
this section.
Secs. 1726.256--1726.299  [Reserved]



                      Subpart I--RUS Standard Forms



Sec. 1726.300  List of RUS standard contracting forms for electric systems.

    The following is a list of the current RUS standard contracting 
forms that RUS has prepared for use by electric borrowers when 
purchasing materials

[[Page 304]]

and equipment and constructing facilities with a RUS loan or loan 
guarantee. Copies of the contract forms are available from the sources 
indicated in the listing. A notice of any change in these contract forms 
will be published in the Federal Register.

[[Page 305]]



                                                      RUS Electric Program Standard Contract Forms                                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Issue                                                                                                           
             RUS form No.                date               Title                              Purpose                        Source of copies \1\      
--------------------------------------------------------------------------------------------------------------------------------------------------------
168b.................................     2-95  Contractor's bond............  Used in RUS Forms 200, 201, 203, 257,    In respective contract form.    
                                                                                764, 786, 790, 792, 830 & 831.                                          
168c.................................     2-95  Contractor's bond (less than   In lieu of RUS Form 168b, used when      RUS.                            
                                                 $1 million).                   contractor's surety has accepted a                                      
                                                                                Small Business.                                                         
172..................................     9-58  Certificate of Inspection      Administration guarantee--Used to        RUS.                            
                                                 Contract Construction.         notify RUS that construction is ready                                   
                                                                                for inspection.                                                         
173..................................     3-55  Materials contract...........  Used for distribution, transmission,     RUS.                            
                                                                                and general plant material purchases.                                   
180..................................     2-95  Construction Contract           Used to amend distribution line         RUS.                            
                                                 Amendment.                     construction contracts.                                                 
181..................................     2-95  Certificate of Completion      Used for the closeout of RUS Form 257..  RUS.                            
                                                 Contract Construction for                                                                              
                                                 Buildings.                                                                                             
187..................................     2-95  Certificate of Completion      Used in RUS Forms 200, 203, 764, 786,    In respective contract form.    
                                                 Contract Construction.         830, and 831.                                                           
198..................................     2-95  Equipment Contract             Used for equipment purchases...........  RUS.                            
                                                 Construction Contract--                                                                                
                                                 Generating.                                                                                            
200..................................     2-95  Construction Contract          Used for generating plant construction   RUS.                            
                                                 Generating.                    or for the furnishing and installation                                  
                                                                                of major items of equipment.                                            
201..................................     2-95  Right-of-Way Clearing          Used for distribution right-of-way       RUS.                            
                                                 Contract.                      clearing work which is to be performed                                  
                                                                                separate from line construction.                                        
203..................................     2-95  Transmission System Right-of-  Used for transmission line right-of-way  RUS.                            
                                                 Way Clearing Contract.         clearing work which is to be performed                                  
                                                                                separate from line construction.                                        
213..................................     2-95  Certificate (``Buy             Used to document compliance with the     RUS.                            
                                                 American'').                   ``Buy American'' requirement.                                           
219..................................    10-88  Inventory of Work Orders.....  Used to encumber funds.................  RUS.                            
224..................................     2-95  Waiver and Release of Lien...  Used in RUS Forms 200, 203, 764, 786,    In respective contract form.    
                                                                                830, and 831.                                                           
231..................................     2-95  Certificate of Contractor....  Used in RUS Forms 200, 203, 764, 786,    In respective contract form.    
                                                                                830, and 831.                                                           
238..................................     2-95  Construction or Equipment      Used to amend contracts except for       RUS.                            
                                                 Contract Amendment.            distribution line construction                                          
                                                                                contracts.                                                              
251..................................     2-95  Material Receipt.............  Used in RUS Forms 764, 830, and 831....  In respective contract form.    
254..................................     2-95  Construction Inventory.......  Used with the closeout of RUS Forms      RUS.                            
                                                                                203, 764, 830, and 831.                                                 
257..................................     2-95  Contract to Construct          Used to construct headquarters           GPO.\2\                         
                                                 Buildings.                     buildings and other structure                                           
                                                                                construction.                                                           
270..................................     7-70  Equal Opportunity Addendum...  Addendum to contracts not having         RUS                             
                                                                                current equal opportunity provisions.                                   
274..................................     6-81  Bidder's Qualifications......  Used to document Bidder's                RUS.                            
                                                                                Qualifications.                                                         
282..................................    11-53  Subcontract..................  Used for subcontracting................  RUS.                            
307..................................     2-95  Bid Bond.....................  Used In RUS Forms 200, 203, 257, 764,    In respective contract form.    
                                                                                830 and 831.                                                            
458..................................     3-55  Material Contract............  Used to obtain generating plant          RUS.                            
                                                                                material and equipment purchases over                                   
                                                                                $10,000, not requiring acceptance                                       
                                                                                tests at the project site.                                              
764..................................     2-95  Substation and Switching       Used to construct substations and        RUS.                            
                                                 Station Erection Contract.     switching stations.                                                     
786..................................     2-95  Electric System                Used for delivery and installation of    RUS.                            
                                                 Communications and Control     equipment for system communications.                                    
                                                 Equipment Contract.                                                                                    

[[Page 306]]

                                                                                                                                                        
790..................................     2-95  Distribution Line Extension    Used for limited distribution            GPO.\2\                         
                                                 Construction Contract (labor   construction accounted for under work                                   
                                                 & materials).                  order procedure.                                                        
792..................................     2-95  Distribution Line Extension    Used for limited distribution            GPO.\2\                         
                                                 Construction Contract (labor   construction accounted for under work                                   
                                                 only).                         order procedure.                                                        
792b.................................     2-95  Certificate of Construction    Used in RUS Forms 201, 790, and 792....  In respective contract form.    
                                                 and Indemnity Agreement.                                                                               
792c.................................     2-95  Supplemental Contract for      Used in RUS Forms 201, 790, and 792....  In respective contract form.    
                                                 Additional Project.                                                                                    
830..................................     2-95  Electric System Construction   Used for distribution and/or             GPO.\2\                         
                                                 Contract (labor & material).   transmission project construction.                                      
831..................................     2-95  Electric Transmission          Used for transmission project            GPO.\2\                         
                                                 Construction Contract (labor   construction.                                                           
                                                 & material).                                                                                           
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:                                                                                                                                                  
\1\ A single copy of the form will be furnished by RUS upon request. Additional copies may be duplicated or reproduced. Requests for copies should be   
  sent to: Director, Administrative Services Division, U.S. Department of Agriculture, Rural Utilities Service, Washington, DC 20250.                   
\2\ Requests for copies should be submitted to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Telephone orders 
  may also be placed, using Mastercard or Visa, by calling (202) 512-1800.                                                                              


[[Page 307]]



Sec. 1726.301  Use of printed forms.

    If a RUS contract form is required by this part, the borrower shall 
use the form in the format available from RUS or GPO (photocopying or 
other exact reproduction is acceptable.) The contract forms are not to 
be retyped, changed, modified or altered in any manner not specifically 
authorized in this part or approved by RUS in writing. Any modifications 
approved by RUS must be clearly shown so to indicate that such are 
different from the standard form. Electronic reproduction is acceptable 
for RUS Forms 251 and 254 only.



Sec. 1726.302  RUS approved forms of contract.

    If a specific RUS contract form is required by a particular section 
of this part, the borrower shall use that form without changes or 
modifications or alterations unless, prior to issuing the bid package to 
bidders, RUS has specifically approved any such changes to that form for 
that borrower, nor shall any change be made to the form by amendment of 
an executed contract without prior RUS approval. Any proposed changes 
shall not relieve the contractor or the borrower of the basic 
responsibilities required by the standard RUS contract form, and, shall 
not alter any terms and conditions required by law. Changes permitted or 
required by subpart H of this part or by part 1788, RUS Fidelity and 
Insurance Requirements for Electric and Telephone Borrowers, of this 
chapter are approved by RUS under the circumstances indicated.



Sec. 1726.303  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.
Secs. 1726.304--1726.309  [Reserved]



Sec. 1726.310  Contractor's bond, RUS Form 168b.

    The bond form in this section shall be used when a Contractor's Bond 
is required by RUS Forms 200, 201, 203, 257, 764, 786, 790, 792, 830, or 
831 unless the contractor's surety has accepted a Small Business 
Administration guarantee and the contract is for one million dollars or 
less.

                            Contractor's Bond

    1. Know all men that we, ________, as Principal, and ________, as 
Surety, are held and firmly bound unto ________ (hereinafter called the 
``Owner'') and unto the United States of America (hereinafter called the 
``Government'') and unto all persons, firms and corporations who or 
which may furnish materials for or perform labor on a Rural Utilities 
Service Project known as Project ________ and to their successors and 
assigns, in the penal sum of ________ dollars ($________), as 
hereinafter set forth and for the payment of which sum well and truly to 
be made we bind ourselves, our executors, administrators, successors and 
assigns jointly and severally by these presents. Said Project is 
described in a certain construction contract (hereinafter called the 
``Construction Contract'') between the Owner and the Principal, dated 
________, 19____, pursuant and subject to a certain loan contract 
(hereinafter called the ``Loan Contract'') between the Owner and the 
Government, acting through the Administrator of the Rural Utilities 
Service (hereinafter called the ``Administrator'').
    2. The condition of this obligation is such that if the Principal 
shall well and truly perform and fulfill all the undertakings, 
covenants, terms, conditions and agreements of the Construction Contract 
and any amendments thereto, whether such amendments are for additions, 
decreases, or changes in materials, their quantity, kind or price, labor 
costs, mileage, routing or any other purpose whatsoever, and whether 
such amendments are made with or without notice to the Surety, and shall 
fully indemnify and save harmless the Owner and the Government from all 
costs and damages which they, or either of them, shall suffer or incur 
by reason of any failure so to do, and shall fully reimburse and repay 
the Owner and the Government for all outlay and expense which they, or 
either of them shall incur in making good any such failure of 
performance on the part of the Principal, and shall promptly make 
payment to all persons working on or supplying labor or materials for 
use in the construction of the Project contemplated in

[[Page 308]]

the Construction Contract and any amendments thereto, in respect of such 
labor or materials furnished and used therein, to the full extent 
thereof, and in respect of such labor or materials furnished but not so 
used, to the extent of the quantities estimated in the Construction 
Contract and any amendments thereto to be required for the construction 
of the Project, and shall well and truly reimburse the Owner and the 
Government, as their respective interests may appear, for any excess in 
cost of construction of said Project over the cost of such construction 
as provided in the Construction Contract and any amendments thereto, 
occasioned by any default of the Principal under the Construction 
Contract and any amendments thereto, then this obligation shall be null 
and void, but otherwise shall remain in full force and effect.
    3. It is expressly agreed that this bond shall be deemed amended 
automatically and immediately, without formal and separate amendments 
hereto, upon any amendment to the Construction Contract, so as to bind 
the Principal and the Surety to the full and faithful performance of the 
Construction Contract as so amended, provided only that the total amount 
of all increases in the cost of construction shall not exceed 20 percent 
of the amount of the maximum price set forth in the Construction 
Contract. The term ``Amendment,'' wherever used in this bond, and 
whether referring to this bond, the Construction Contract or the Loan 
Contract shall include any alteration, addition, extension, 
modification, amendment, rescission, waiver, release or annulment, of 
any character whatsoever.
    4. It is expressly agreed that any amendment which may be made by 
agreement or otherwise between the Principal and the Owner in the terms, 
provisions, covenants and conditions of the Construction Contract, or in 
the terms, provisions, covenants and conditions of the Loan Contract 
(including, without limitation, the granting by the Administrator to the 
Owner of any extension of time for the performance of the obligations of 
the Owner under the Loan Contract or the granting by the Administrator 
or the Owner to the Principal of any extension of time for the 
performance of the obligations of the Principal under the Construction 
Contract, or the failure or refusal of the Administrator or the Owner to 
take any action, proceeding or step to enforce any remedy or exercise 
any right under either the Construction Contract or the Loan Contract, 
or the taking of any action, proceeding or step by the Administrator or 
the Owner, acting in good faith upon the belief that the same is 
permitted by the provisions of the Construction Contract or the Loan 
Contract) shall not in any way release the Principal and the Surety, or 
either of them or their respective executors, administrators, successors 
or assigns, from liability hereunder. The Surety hereby acknowledges 
receipt of notice of any amendment, indulgence or forbearance, made, 
granted or permitted.
    5. This bond is made for the benefit of all persons, firms and 
corporations who or which may furnish any materials or perform any labor 
for or on account of the construction to be performed under the 
Construction Contract and any amendments thereto, and they, and each of 
them, are hereby made obligees hereunder with the same force and effect 
as if their names were written herein as such, and they and each of them 
may sue hereon.
    In witness whereof, the undersigned have caused this instrument to 
be executed and their respective corporate seals to be affixed and 
attested by their duly authorized representatives this ________ day of 
________, 19____.

Principal ________ (Seal)
By ________
Attest: ________ Secretary
Surety________ (Seal)
By ________
Attest: ________ Secretary
________ Address of Surety's Home Office
By ________ Resident Agent of Surety

    Signatures: The Contractor's Bond must be signed with the full name 
of the Contractor. If the Contractor is a partnership the Contractor's 
Bond must be signed in the partnership name by a partner. If the 
Contractor is a corporation the Contractor's Bond must be signed in the 
corporate name by a duly authorized officer and the corporate seal 
affixed and attested by the Secretary of the corporation. A typewritten 
copy of all such names and signatures shall be appended.
    Power of Attorney: The Contractor's Bond must be accompanied by a 
power of attorney authorizing execution on behalf of the Surety and, in 
jurisdictions so requiring should be countersigned by a duly authorized 
resident agent of the Surety.

                             [End of clause]



Sec. 1726.311  Contractor's bond, RUS Form 168c.

    The bond form in this section shall be used when a Contractor's Bond 
is required by RUS Form 200, 201, 203, 257, 764, 786, 790, 792, 830, or 
831 and the contractor's surety has accepted a Small Business 
Administration guarantee and the contract is for one million dollars or 
less.

                            Contractor's Bond

(Use only when contract is less than $1 million and Surety has accepted 
an SBA (Small Business Administration) Guarantee)

[[Page 309]]

    1. Know all men that we, ________, as Principal, and ________, as 
Surety, are held and firmly bound unto ________ (hereinafter called the 
``Owner'') and unto the United States of America (hereinafter called the 
``Government'') and unto all persons, firms and corporations who or 
which may furnish materials for or perform labor on a Rural Utilities 
Service Project known as Project ________ and to their successors and 
assigns, in the penal sum of ________ dollars ($________), as 
hereinafter set forth and for the payment of which sum well and truly to 
be made we bind ourselves, our executors, administrators, successors and 
assigns jointly and severally by these presents. Said Project is 
described in a certain construction contract (hereinafter called the 
``Construction Contract'') between the Owner and the Principal, dated 
________, 19____, pursuant and subject to a certain loan contract 
(hereinafter called the ``Loan Contract'') between the Owner and the 
Government, acting through the Administrator of the Rural Utilities 
Service (hereinafter called the ``Administrator'').
    2. The condition of this obligation is such that if the Principal 
shall well and truly perform and fulfill all the undertakings, 
covenants, terms, conditions and agreements of the Construction Contract 
and any amendments thereto, whether such amendments are for additions, 
decreases, or changes in materials, their quantity, kind or price, labor 
costs, mileage, routing or any other purpose whatsoever, and whether 
such amendments are made with or without notice to the Surety, and shall 
fully indemnify and save harmless the Owner and the Government from all 
costs and damages which they, or either of them, shall suffer or incur 
by reason of any failure so to do, and shall fully reimburse and repay 
the Owner and the Government for all outlay and expense which they, or 
either of them shall incur in making good any such failure of 
performance on the part of the Principal, and shall promptly make 
payment to all persons working on or supplying labor or materials for 
use in the construction of the Project contemplated in the Construction 
Contract and any amendments thereto, in respect of such labor or 
materials furnished and used therein, to the full extent thereof, and in 
respect of such labor or materials furnished but not so used, to the 
extent of the quantities estimated in the Construction Contract and any 
amendments thereto to be required for the construction of the Project, 
and shall well and truly reimburse the Owner and the Government, as 
their respective interests may appear, for any excess in cost of 
construction of said Project over the cost of such construction as 
provided in the Construction Contract and any amendments thereto, 
occasioned by any default of the Principal under the Construction 
Contract and any amendments thereto, then this obligation shall be null 
and void, but otherwise shall remain in full force and effect.
    3. Provided, that the liability of the Principal and Surety 
hereunder to the Government shall be subject to the same limitations and 
defenses as may be available to them against a claim hereunder by the 
Owner, provided, however, that the Government may, at its option, 
perform any obligations of the Owner required by the contract.
    4. It is expressly agreed that this bond shall be deemed amended 
automatically and immediately, without formal and separate amendments 
hereto, upon any amendment to the Construction Contract, so as to bind 
the Principal and the Surety to the full and faithful performance of the 
Construction Contract as so amended, provided only that the total amount 
of all increases in the cost of construction shall not exceed 20 percent 
of the amount of the maximum price set forth in the Construction 
Contract. The term ``Amendment,'' wherever used in this bond, and 
whether referring to this bond, the Construction Contract or the Loan 
Contract shall include any alteration, addition, extension, 
modification, amendment, rescission, waiver, release or annulment, of 
any character whatsoever.
    5. It is expressly agreed that any amendment which may be made by 
agreement or otherwise between the Principal and the Owner in the terms, 
provisions, covenants and conditions of the Construction Contract, or in 
the terms, provisions, covenants and conditions of the Loan Contract 
(including, without limitation, the granting by the Administrator to the 
Owner of any extension of time for the performance of the obligations of 
the Owner under the Loan Contract or the granting by the Administrator 
or the Owner to the Principal of any extension of time for the 
performance of the obligations of the Principal under the Construction 
Contract, or the failure or refusal of the Administrator or the Owner to 
take any action, proceeding or step to enforce any remedy or exercise 
any right under either the Construction Contract or the Loan Contract, 
or the taking of any action, proceeding or step by the Administrator or 
the Owner, acting in good faith upon the belief that the same is 
permitted by the provisions of the Construction Contract or the Loan 
Contract) shall not in any way release the Principal and the Surety, or 
either of them or their respective executors, administrators, successors 
or assigns, from liability hereunder. The Surety hereby acknowledges 
receipt of notice of any amendment, indulgence or forbearance, made, 
granted or permitted.
    6. This bond is made for the benefit of all persons, firms and 
corporations who or which may furnish any materials or perform any labor 
for or on account of the construction to be performed under the 
Construction

[[Page 310]]

Contract and any amendments thereto. Provided, that beneficiaries or 
claimants hereunder shall be limited to the subcontractors, and persons, 
firms and corporations having a direct contract with the Principal or 
its subcontractors.
    7. Provided, further, that no suit or action shall be commenced 
hereunder by any person, firm, or corporation who performed work or 
labor or who furnished materials for the project: (a) Unless such 
person, firm, or corporation, other one having a direct contract with 
the Principal (or with the Government in the event the Government is 
performing the obligation of the Owner), shall have given detailed 
written notice of claim to: The Principal, and the Owner, within ninety 
(90) days after such person, firm, or corporation did or performed the 
last of the work or labor, or furnished the last of the materials for 
which such claim is made. (b) After the expiration of one (1) year 
following the date on which Principal ceased work on said contract, it 
being understood, however, that if any limitation embodied in the Bond 
is prohibited by any law controlling the construction hereof, such 
limitation shall be deemed to be amended so as to equal to the minimum 
period of limitation permitted by such law.
    In witness whereof, the undersigned have caused this instrument to 
be executed and their respective corporate seals to be affixed and 
attested by their duly authorized representatives this ________ day of 
________, 19____.

Principal ________ (Seal)
By ________
Attest: ________ Secretary
Surety ________ (Seal)
By ________
Attest: ________ Secretary
________ Address of Surety's Home Office
By ________ Resident Agent of Surety

    Signatures: The Contractor's Bond must be signed with the full name 
of the Contractor. If the Contractor is a partnership the Contractor's 
Bond must be signed in the partnership name by a partner. If the 
Contractor is a corporation the Contractor's Bond must be signed in the 
corporate name by a duly authorized officer and the corporate seal 
affixed and attested by the Secretary of the corporation. A typewritten 
copy of all such names and signatures shall be appended.
    Power of Attorney: The Contractor's Bond must be accompanied by a 
power of attorney authorizing execution on behalf of the Surety and, in 
jurisdictions so requiring should be countersigned by a duly authorized 
resident agent of the Surety.

                             [End of clause]



Sec. 1726.312  Construction contract amendment, RUS Form 180.

    The amendment form in this section shall be used when required by 
this part.

                     Construction Contract Amendment

    Instructions--Submit 3 copies of this form & 3 copies of all 
attachments to Administrator, Rural Utilities Service, U.S. Department 
of Agriculture, Washington, DC 20250.

1. Project Designation ________
2. Amendment No. ________
3. Date ________
4. Details of changes are tabulated on sheet ________ to ________ 
attached and are part of this amendment.
5. The following changes in Construction Contract Number ________ dated 
________, 19____ are hereby submitted for your approval.
6. Data pertinent to the original contract and amendments including this 
amendment are as follows (decrease to be preceded by (-) minus sign):

[[Page 311]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Consumers                                                  
                                                     Miles           --------------------------------------------------------            Price          
                                                                                Signed                     Potential                                    
--------------------------------------------------------------------------------------------------------------------------------------------------------
Original Contract                                                                                                                                       
Amendment No. 1                                                                                                                                         
Amendment No. 2                                                                                                                                         
Amendment No. 3                                                                                                                                         
Amendment No. 4                                                                                                                                         
Amendment No. 5                                                                                                                                         
Amendment No. 6                                                                                                                                         
                                         ---------------------------------------------------------------------------------------------------------------
      Total with this Amendment                                                                                                                         
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 312]]

7. Changes in materials furnished by Owner: This amendment provides for 
an increase/decrease of $________ in the amount of materials furnished 
by Owner. The details of changes in items, quantities, or prices are 
tabulated on sheet ________ to ________ attached and made a part hereof.
8. Bond extension attached ____ Yes ____ No
9. The construction period will be changed ________ days.
10. New counties (if any) ________
11. Description and reason for change: ________ This amendment providing 
for an increase/decrease of $________ in the amount of said construction 
contract is submitted pursuant to the provisions thereof and pursuant to 
the loan contract between the United States of America and the 
undersigned borrower. You are hereby authorized to approve this 
amendment either in whole or in part and to delete such items as do not 
meet with your approval. To the extent the items hereof are approved by 
you the construction contract shall be amended.

Accepted
________ Contractor
By ________ President-Owner-Partner (Strike out inapplicable title. If 
signed by other than above, power of attorney should be attached or on 
file with RUS.)
________ Date
________ Owner
By ________ President-Board of Directors
________ Date
Approved
________ Date
________ Engineer for the Borrower
Details of Contract Amendment
Item No. ________
Assembly Unit Designation ________
Quantity Previously Approved ________
Net Change Number Of Units ________
Contract Amended To Read (Show quantities and prices as revised by this 
          amendment):
    Number of Units ________
Unit Price:
    Labor ________
    Material ________
    Total ________
Total Price ________
Total Increase Price ________
Total Decrease ________
Totals ________
Net Total ________

                             [End of clause]



Sec. 1726.313  Certificate of completion, contract construction for buildings, RUS Form 181.

    The closeout form in this section shall be used when required by 
this part.

     Certificate of Completion; Contract Construction for Buildings

________ (Project Designation)

    I, the undersigned Architect of the above-designated Rural Utilities 
Service Project, hereby certify that:
    1. The construction provided for pursuant to Construction Contract 
No. ________ dated ________ 19____, including all approved amendments, 
(hereinafter called the ``Project'') between ________(``Owner'') and 
________ (``Contractor'') has been completed as of ________ 19____, and 
is in all respects in strict compliance with the provisions of the Loan 
Contract and the Construction Contract, including the Plans and 
Specifications and all modifications thereto.
    2. To the best of my knowledge, payment in full has been made to all 
persons who have furnished labor for the Project.
    3. The Contractor has, to the best of my knowledge, obtained valid 
releases of lien from all Manufacturers, materialmen, and subcontractors 
that furnished materials or services or both which were employed by the 
Contractor in the performance of the Construction Contract, and that 
such releases have been delivered to the Owner.
    4. All defects in workmanship and materials reported during the 
period of construction of the Project have been corrected.
    5. The final Contract Price of the Project as completed is ________ 
dollars ($________).

________Date
________Representative of Architect
________Title
Acceptance
________Date
________Representative of Contractor
________Title
________Date
________Name of Owner
________President, Board of Directors

                             [End of clause]



Sec. 1726.314  Certificate of completion, contract construction, RUS Form 187.

    The closeout form in this section shall be used when required by 
this part.

            Certificate of Completion; Contract Construction

To: Administrator
Rural Utilities Service
U.S. Department of Agriculture Washington, D.C. 20250
________ (Project Designation)
    I, the undersigned Engineer of the above-designated Rural Utilities 
Service Project do hereby certify that:
    1. The construction provided for pursuant to Construction Contract 
No. ________ dated

[[Page 313]]

________ 19____ including all approved amendments, (hereinafter 
called the ``Project'') between ________ (``Owner'') and ________ 
(``Contractor'') has been completed as of ________ 19____, and is in all 
respects in strict compliance with the provisions of the Loan Contract 
and the Construction Contract, including all Plans, specifications, 
maps, and drawings and all modifications thereto.
    2. Payment in full has been made to all persons who have furnished 
labor for the Project.
    3. The Contractor has obtained valid releases of lien from all 
persons, firms and/or corporations furnishing materials, supplies, and 
appliances which were employed by the Contractor in the performance of 
the Construction Contract, and that such releases have been delivered by 
the Contractor to the Owner.
    4. If applicable, the Final Inventory attached hereto and made a 
part hereof is a complete and accurate summary of all units of 
construction in the Project and of all work performed in accordance with 
the Construction Contract.
    5. If applicable, the staking sheets and tabulation of staking 
sheets upon which the Final Inventory is based show the accurate 
location, number, and kind of all units of construction of the project 
and show all work performed in accordance with the Construction 
Contract.
    6. All defects in workmanship and materials reported during the 
period of construction of the Project have been corrected.
    7. The total cost of the Project as completed is ________ dollars 
($________). The Project consists of facilities shown on the Statement 
of Construction which is true and correct and which is attached hereto 
and made a part hereof.

    Dated this ________ day of ________, 19____.
________ Name of Engineer
By ________
________ Title
________ Date
Approved as to Items 1 and 6 above:
________ RUS Field Engineer

    We, the undersigned Owner and Contractor, do hereby certify that:
    1. The Project has been completed in accordance with the provisions 
of the Construction Contract, dated ________ 19____, provided, however, 
that acceptance of the Project by the Owner shall not be deemed to 
relieve the Contractor of its obligations contained in the Construction 
Contract with respect to defective workmanship or, materials discovered 
within one year after the date of completion.
    2. If applicable, the Final Inventory attached hereto and made a 
part hereof is a complete and accurate summary of all units of 
construction in the Project and of work performed in accordance with the 
Construction Contract.

________ Owner
By ________ President
________ Date
________ Name of Contractor
By ________
________ Title
________ Date

                             [End of clause]



Sec. 1726.315  Equipment contract, RUS Form 198.

    The contract form in this section shall be used when required by 
this part.

                           Equipment Contract

                   Notice and Instructions to Bidders

    1. Sealed proposals for the furnishing and delivery f.o.b. ________ 
of equipment for the ________ (hereinafter called the ``Owner'') which 
is to be part of the project known as ________ will be received by the 
Owner on or before ________ o'clock, ____ M., ________ 19____, at 
________ at which time and place the proposals will be publicly opened 
and read. Any proposal received subsequent to the time specified will be 
promptly returned to the Bidder unopened.
    2. The Plans and Specifications, together with all necessary forms 
and other documents for bidders may be obtained from the Owner or from 
the Engineer, ________ at the latter's office at ________. The Plans and 
Specifications may be examined at the office of the Owner or at the 
office of the Engineer. A copy of the loan contract (if the Project is 
to be financed in whole or in part, pursuant to a loan contract) between 
the Owner and the United States of America acting through the 
Administrator of the Rural Utilities Service (hereinafter called the 
``Administrator'') and of the loan contract between the Owner and any 
other lender, may be examined at the office of the Owner.
    3. Proposals and all supporting instruments must be submitted on the 
forms furnished by the Owner and must be delivered in a sealed envelope 
addressed to the Owner. The name and address of the Bidder and the date 
and hour of the opening of bids must appear on the envelope in which the 
Proposal is submitted. Proposals must be filled in in ink or typewriter. 
No alterations or interlineations will be permitted, unless made before 
submission and initialed and dated.
    4. Prior to the submission of the Proposal, the Bidder shall make 
and shall be deemed to have made a careful examination of the Plans and 
Specifications and forms of Equipment Contract on file with the 
Secretary of the Owner and with the Engineer, and all

[[Page 314]]

other matters, including transportation facilities, that may affect the 
cost and the time of completion of the work.
    5. Proposals will be accepted only from those prequalified bidders 
invited by the Owner to submit a proposal.
    6. In estimating the lowest cost to the Owner as one of the factors 
in deciding the award of the Contract, the Owner will consider, in 
addition to the price quoted in the Proposals, the following: ________.
    7. The Contract, when executed, shall be deemed to include the 
entire agreement between the parties thereto, and the Bidder shall not 
claim any modification thereof resulting from any representation or 
promise made at any time by any officer, agent, or employee of the Owner 
or by any other person.
    8. The Owner reserves the right to waive minor irregularities or 
minor errors in any Proposal if it appears to the Owner that such 
irregularities or errors were made through inadvertence. Any such 
irregularities or errors so waived must be corrected on the Proposal in 
which they occur prior to the execution of any contract which may be 
awarded thereon.
    9. The Owner reserves the right to reject any or all Proposals.
________ Owner
By ________
________ Date

                                Proposal

    To: ________ (hereinafter called the ``Owner''.)
    1. The undersigned (hereinafter called the ``Bidder'') hereby 
proposes to furnish and deliver the equipment (hereinafter called the 
``Equipment'') described in the Plans and Specifications attached hereto 
and made a part hereof for the following prices: Item ________.
    2. The prices of Equipment set forth herein shall include the cost 
of delivery to ________. Such delivery shall be made within ________ 
days after the receipt of the written order of the Owner.
    3. This Proposal is made pursuant to the provisions of the Notice 
and Instructions to Bidders, if any shall be attached hereto, and the 
Bidder agrees to the terms and conditions thereof.
    4. The Bidder warrants the accuracy of all statements contained in 
the Bidder's Qualifications, if any shall be submitted, and agrees that 
the Owner shall rely upon such accuracy as a condition of the Contract 
in the event that this Proposal is accepted.
    5. The Bidder warrants that this Proposal is made in good faith and 
without collusion or connection with any other person or persons bidding 
for the same work.
    6. The Bidder agrees that, in the event this Proposal is accepted, 
it will execute a Contract in the form attached hereto.
    7. The Bidder warrants that the Equipment will conform to the 
performance data and guarantees which are attached hereto and by this 
reference made a part hereof.
    8. If, in submitting this Proposal, the Bidder has made any change 
in the form of Proposal or Contract furnished by the Owner, the Bidder 
understands that the Owner and the Administrator may evaluate the effect 
of such change as they see fit or they may exclude the Proposal from 
consideration in determining the award of the Contract.
    9. The Bidder represents that:
    It has ________, does not have ________, 100 or more employees, and 
if it has, that it has ________, has not ________, furnished the Equal 
Employment Opportunity-Employers Information Report EEO-1, Standard Form 
100, required of employers with 100 or more employees pursuant to 
Executive Order 11246 and Title VII of the Civil Rights Act of 1964.
    The Bidder agrees that it will obtain, prior to the award of any 
subcontract for more than $10,000 hereunder to a subcontractor with 100 
or more employees, a statement, signed by the proposed subcontractor, 
that the proposed subcontractor has filed a current report on Standard 
Form 100.
    The Bidder agrees that if it has 100 or more employees and has not 
submitted a report on Standard Form 100 for the current reporting year 
and that if this contract will amount to more than $10,000, the Bidder 
will file such report, as required by law, and notify the Owner in 
writing of such filing prior to the Owner's acceptance of this Proposal.
    10. The Bidder certifies that it does not maintain or provide for 
its employees any segregated facilities at any of its establishments, 
and that it does not permit its employees to perform their services at 
any location, under its control, where segregated facilities are 
maintained. The Bidder certifies further that it will not maintain or 
provide for its employees any segregated facilities at any of its 
establishments, and that it will not permit its employees to perform 
their services at any location, under its control, where segregated 
facilities are maintained. The Bidder agrees that a breach of this 
certification is a violation of the Equal Opportunity Clause in this 
contract. As used in this certification, the term ``segregated 
facilities'' means any waiting rooms, work areas, restrooms and 
washrooms, restaurants and other eating areas, timeclocks, locker rooms 
and other storage or dressing areas, parking lots, drinking fountains, 
recreation or entertainment areas, transportation, and housing 
facilities provided for employees which are segregated by explicit 
directive or are in fact segregated on the basis of race, color, 
religion, or national origin, because of habit, local custom, or 
otherwise. The Bidder agrees that (except where it has obtained 
identical certifications from proposed subcontractors for specific time 
periods) it will

[[Page 315]]

obtain identical certifications from proposed subcontractors prior to 
the award of subcontracts exceeding $10,000 which are not exempt from 
the provisions of the Equal Opportunity Clause, and that it will retain 
such certifications in its files.
________ Name of Bidder
________ Address of Bidder
By ________
________ Title of Officer
________ Date

                           Equipment Contract

    Agreement made ________ 19____, between ________ (hereinafter called 
the ``Purchaser'') and ________ (hereinafter called the ``Seller''), a 
corporation organized and existing under the laws of the State of 
________.
    Whereas, the Purchaser desires to purchase and the Seller desires to 
sell the equipment described herein for the project financed in part or 
whole by a loan to the Purchaser from the United States of America, 
acting through the Administrator of the Rural Utilities Service 
(hereinafter called the ``Administrator'') which project is designated 
________.
    Now therefore, in consideration of the mutual undertakings herein 
contained, the parties hereto agree as follows:

                    Section 1--Acceptance of Proposal

    (a) The Purchaser accepts the Proposal which is attached hereto and 
by this reference made a part hereof, and the parties hereto agree that 
the Seller shall sell and deliver to the Purchaser and the Purchaser 
shall purchase and receive from the Seller the equipment (hereinafter 
called the ``Equipment'') described in the Proposal upon the terms and 
conditions herein stated.
    (b) The prices set forth in the Proposal include the cost of 
delivery to ________.
    (c) The prices set forth in the Proposal do not include any sums 
which are or may be payable by the Seller on account of taxes imposed by 
any taxing authority upon the sale, purchase or use of the Equipment. If 
any such tax is applicable to the sale, purchase or use of the Equipment 
hereunder, the amount thereof shall be added to the purchase price and 
paid by the Purchaser.

                           Section 2--Delivery

    The Seller shall deliver the Equipment within ________ days after 
receipt of the written order or orders of the Purchaser. The time for 
delivery shall be extended for the period of any reasonable delay due 
exclusively to causes beyond the control and without the fault of the 
Seller, including, but not limited to, acts of God, fires, strikes, and 
floods.

                           Section 3--Payment

    Upon the shipment of any Equipment hereunder, the Seller shall 
submit to the Purchaser a detailed statement of the Equipment shipped. 
The Purchaser shall, upon receipt of the Equipment, pay the Seller 
ninety percent (90%) of the contract price of the Equipment. When the 
Equipment has been installed, placed in satisfactory operation, tested 
and accepted by the Purchaser, the Purchaser shall make final payments 
therefor to the Seller; provided, however, such final payment shall be 
made not later than one-hundred eighty (180) days after delivery of the 
Equipment, unless such acceptance by the Purchaser shall be withheld 
because of the fault of the Seller.

              Section 4--Defective Material and Workmanship

    (a) All Equipment furnished hereunder shall be subject to the 
inspection, tests, and approval of the Purchaser and the Administrator 
and the Seller shall furnish all information required concerning the 
nature of source of any Equipment and provide adequate facilities for 
testing and inspecting the Equipment at the plant of the Seller.
    (b) The Equipment furnished hereunder shall become the property of 
the Purchaser upon delivery, provided, however, that the Purchaser or 
the Administrator, within one year after delivery or within the period 
for which the Equipment is guaranteed, whichever is longer, may reject 
any Equipment which does not comply with the Specifications attached 
hereto and made a part hereof or with the guarantees, if any, of the 
Seller and the manufacturer. Upon any such rejection, the Seller shall 
repair or replace such defective Equipment within a reasonable time 
after notice in writing from the Purchaser and in the event of failure 
by the Seller so to do, the Purchaser may make such replacement and the 
cost and expense thereof shall be paid by and recoverable from the 
Seller.

                        Section 5--Miscellaneous

    (a) All manufacturers' guarantees of Equipment, if any, shall be 
transferred and assigned to the Purchaser upon delivery of any Equipment 
and before final payment is made for such Equipment. Such guarantees 
shall be in addition to those required of the Seller by other provisions 
of this Contract.
    (b) The Seller shall hold harmless and indemnify the Purchaser from 
any and all claims, suits, and proceedings for infringement of any 
patent or patents covering Equipment purchased hereunder.
    (c) In the performance of this contract there shall be furnished 
only such unmanufactured articles, materials, and supplies as have been 
mined or produced in the United States, Mexico, or Canada, and only such

[[Page 316]]

manufactured articles, materials, and supplies as have been manufactured 
in the United States substantially all from articles, materials, or 
supplies mined, produced or manufactured, as the case may be, in the 
United States, Mexico, or Canada; provided that other articles, 
materials, or supplies may be used in the event and to the extent that 
the Administrator shall expressly in writing authorize such use pursuant 
to the provisions of the Rural Electrification Act of 1938, being Title 
IV of Public Resolution No. 122, 75th Congress, approved June 21, 1938. 
The Seller agrees to submit to the Purchaser such certificates with 
respect to compliance with the foregoing provision as the Administrator 
from time to time may require.
    (d) During the performance of this contract, the Seller agrees as 
follows:
    (1) The Seller will not discriminate against any employee or 
applicant for employment because of race, color, religion, sex, or 
national origin. The Seller will take affirmative action to ensure that 
applicants are employed, and that employees are treated during 
employment without regard to their race, color, religion, sex, or 
national origin. Such action shall include, but not be limited to, the 
following: Employment, upgrading, demotion or transfer; recruitment or 
recruitment advertising; layoff or termination; rates of pay or other 
forms of compensation; and selection for training, including 
apprenticeship. The Seller agrees to post in conspicuous places, 
available to employees and applicants for employment, notices to be 
provided setting forth the provisions of this nondiscrimination clause.
    (2) The Seller will, in all solicitations or advertisements for 
employees placed by or on behalf of the Seller, state that all qualified 
applicants will receive consideration for employment without regard to 
race, color, religion, sex, or national origin.
    (3) The Seller will send to each labor union or representative of 
workers with which it has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or workers' representative of the Seller's commitments under 
this section, and shall post copies of the notice in conspicuous places 
available to employees and applicants for employment.
    (4) The Seller will comply with all provisions of Executive Order 
11246 of September 24, 1965, and of the rules, regulations and relevant 
orders of the Secretary of Labor.
    (5) The Seller will furnish all information and reports required by 
Executive Order 11246 of September 24, 1965, and by rules, regulations 
and orders of the Secretary of Labor, or pursuant thereto, and will 
permit access to its books, records and accounts by the administering 
agency and the Secretary of Labor for purposes of investigation to 
ascertain compliance with such rules, regulations and orders.
    (6) In the event of the Seller's noncompliance with the 
nondiscrimination clauses of this contract or with any of the said 
rules, regulations or orders, this contract may be cancelled, terminated 
or suspended in whole or in part and the Seller may be declared 
ineligible for further Government contracts or federally assisted 
construction contracts in accordance with procedures authorized in 
Executive Order 11246 of September 24, 1965, and such other sanctions 
may be imposed and remedies invoked as provided in the said Executive 
Order or by rule, regulation or order of the Secretary of Labor, or as 
otherwise provided by law.
    (7) The Seller will include the portion of the sentence immediately 
preceding paragraph (1) and the provisions of paragraphs (1) through (7) 
in every subcontract or purchase order unless exempted by rules, 
regulations or orders of the Secretary of Labor issued pursuant to 
Section 204 of Executive Order 11246 of September 24, 1965, so that such 
provisions will be binding upon each subcontractor or vendor. The Seller 
will take such action with respect to any subcontract or purchase order 
as the administering agency may direct as a means of enforcing such 
provisions, including sanctions for noncompliance: Provided, however, 
that in the event a Seller becomes involved in, or is threatened with, 
litigation with a subcontractor or vendor as a result of such direction 
by the administering agency, the Seller may request the United States to 
enter into such litigation to protect the interest of the United States.
    (e) Each and all of the covenants and agreements herein contained 
shall extend to and be binding upon the successors and assigns of the 
parties hereto provided, however, that the Seller shall not assign this 
contract or any part hereof without approval in writing of the Purchaser 
and the Administrator, and further that the Seller shall not enter into 
any contract with any person, firm or corporation for the performance of 
the Seller's obligations hereunder, or any part thereof, without the 
approval in writing of the Purchaser.
    (f) This contract shall become effective only upon approval by the 
Administrator. Neither this contract nor any provision thereof shall be 
modified, amended, rescinded, waived, or terminated without the approval 
in writing of the Administrator. Amendments executed on RUS Form 238 are 
not subject to approval of the Administrator, except that when a 
contract amendment along with all previous amendments to this contract 
cause the total amended contract price to exceed 120 percent of the 
original contract price, as stated in the Seller's proposal and accepted 
by the Owner, that amendment and all subsequent amendments

[[Page 317]]

to this contract shall be made subject to the approval of the 
Administrator.
    1 In Witness Whereof, the parties hereto have caused this 
contract to be signed in their respective corporate names by their 
presidents and their corporate seals to be hereunto affixed and attested 
by their secretaries, all as of the day and year first above written.

    \1\ When Seller is a corporation this section of agreement to be 
used.
---------------------------------------------------------------------------

________ Purchaser
By ________ President
Attest: ________ Secretary
________ Seller
By ________ President
Attest: ________ Secretary

    2 In Witness Whereof, the Purchaser has caused this 
contract to be signed in its corporate name by its President and its 
corporate seal to be hereunto affixed and attested by its Secretary, and 
the Seller has (have) set his (their) hand(s), all as of the day and 
year first above written.

    \2\ When Seller is an individual or partnership this section of 
agreement to be used. If a partnership--all partners shall sign.
---------------------------------------------------------------------------

________ Purchaser
By ________ President
Attest: ________ Secretary
________ Seller
________ Name
________ Title

                             [End of clause]

Secs. 1726.316--1726.319  [Reserved]



Sec. 1726.320  Construction contract, generating, RUS Form 200.

    The contract form in this section shall be used when required by 
this part.

                    Construction Contract--Generating

                   Notice and Instructions to Bidders

    1. Sealed proposals for the furnishing, delivery and installation of 
equipment and materials for the electric generating plant of ________ 
(hereinafter called the ``Owner'') which is to be part of the system 
known as ________ will be received by the Owner on or before ____ 
o'clock __.M.,____, 19__, at ____, at which time and place the proposals 
will be publicly opened and read. Any proposal received subsequent to 
the time specified will be promptly returned to the Bidder unopened.
    2. Obtaining Documents. The Plans and Specifications together with 
all necessary forms and other documents for bidders may be obtained from 
the Owner or from the Engineer, ________, at the latter's office at 
________ upon the payment of $________, all of which will be refunded to 
each bona fide bidder within ten days after the bid opening. The Plans 
and Specifications may be examined at the office of the Owner or at the 
office of the Engineer. A copy of the Loan Contract (if the Project is 
to be financed, in whole or in part, pursuant to a loan contract) 
between the Owner and the United States of America acting through The 
Administrator of the Rural Utilities Service (hereinafter called the 
``Administrator''), and of the Loan Contract between the Owner and any 
other lender may be examined at the office of the Owner. Each set of 
documents will have a serial number, given by the Engineer, and the 
number of each set with the name of the purchaser will be recorded by 
the Engineers. Bids will be accepted only from the original purchasers.
    3. Manner of Submitting Proposals. Proposals and all supporting 
instruments must be submitted on the forms furnished by the Owner and 
must be delivered in a sealed envelope addressed to the Owner. The name 
and address of the Bidder, its license number, if a license is required 
by the State, and the date and hour of the opening of bids must appear 
on the envelope in which the Proposal is submitted. Proposals must be 
filled in in ink or typewritten. No alterations of interlineations will 
be permitted, unless made before submission and initiated and dated.
    4. Familiarity with Conditions. Prior to the submission of the 
Proposal, the Bidder shall make and shall be deemed to have made a 
careful examination of the site of the Project and of the Plans and 
Specifications, Construction Drawings and forms of Contractor's Proposal 
and Acceptance, and Contractor's Bond on file with the Owner and with 
the Engineer, and shall become informed as to the location and nature of 
the proposed construction, the ecological and environmental criteria to 
be followed, the transportation facilities, the kind and character of 
soil and terrain to be encountered, the kind of facilities required 
before and during the construction of the Project, general local 
conditions and all other matters that may affect the cost and the time 
of completion of the Project. Bidders will be required to comply with 
all applicable statutes, regulations, etc., including those pertaining 
to the licensing of contractors, and the so-called ``Kick-Back'' Statute 
(48 Stat. 948) and regulations issued pursuant thereto.
    5. Proposals will be accepted only from those prequalified bidders 
invited by the Owner to submit a proposal.
    6. The Time for Completion of the Project shall be as specified by 
the Engineer in the Proposal.
    7. Bid Bond. Each Proposal must be accompanied by a Bid Bond in the 
form attached or a certified check on a bank that is a member

[[Page 318]]

of the Federal Deposit Insurance Corporation, payable to the order of 
the Owner, in an amount equal to ten percent (10%) of the maximum bid 
price. Each Bidder agrees, provided its Proposal is one of the three low 
Proposals, that, by filing its Proposal together with such Bid Bond or 
check in consideration of the Owner's receiving and considering such 
Proposal, said Proposal shall be firm and binding upon each such Bidder 
and such Bid Bond or check shall be held by the Owner until a Proposal 
is accepted and a satisfactory Contractor's Bond is furnished (where 
required) by the successful Bidder and such acceptance has been approved 
by the Administrator, or for a period not to exceed sixty (60) days from 
the date hereinbefore set for the opening of Proposals, whichever period 
shall be the shorter. If such Proposal is not one of the three low 
Proposals, the Bid Bond or check will be returned in each instance 
within a period of ten (10) days to the Bidder furnishing same.
    8. Contractor's Bond. The successful Bidder will be required to 
execute two additional counterparts of the Proposal and, for a Contract 
in excess of $100,000, to furnish a Contractor's Bond in triplicate in 
the form attached hereto with sureties listed by the United States 
Treasury Department as Acceptable Sureties in a penal sum not less than 
the Contract price.
    9. Failure to Furnish Contractor's Bond. Should the successful 
Bidder fail or refuse to execute such counterparts of the Proposal or to 
furnish a Contractor's Bond (where required) within ten (10) days after 
written notification of the acceptance of the Proposal by the Owner, the 
Bidder will be considered to have abandoned the Proposal. In such event, 
the Owner shall be entitled (a) to enforce the Bid Bond in accordance 
with its terms, or (b) if a certified check has been delivered with the 
Proposal, to retain from the proceeds of the certified check the 
difference (not exceeding the amount of the certified check) between the 
amount of the Proposal and such larger amount for which the Owner may in 
good faith contract with another party to construct the Project. The 
term ``successful Bidder'' shall be deemed to include any Bidder whose 
proposal is accepted after another Bidder has previously refused or has 
been unable to execute the counterparts of the proposal or to furnish a 
satisfactory Contractor's Bond (where required.)
    10. Factors in Deciding the Award of the Contract. In estimating the 
lowest cost to the Owner as one of the factors in deciding the award of 
the Contract, the Owner will consider, in addition to the prices quoted 
in the Proposals, the following: ________.
    11. Contract is Entire Agreement. The Contract to be effected by the 
acceptance of the Proposal shall be deemed to include the entire 
agreement between the parties thereto, and the Bidder shall not claim 
any modification thereof resulting from any representation or promise 
made at any time by any officer, agent or employee of the Owner or by 
any other person.
    12. Minor Irregularities. The Owner reserves the right to waive 
minor irregularities or minor errors in any Proposal, if it appears to 
the Owner that such irregularities or errors were made through 
inadvertence. Any such irregularities or errors so waived must be 
corrected on the Proposal prior to the acceptance thereof by the Owner.
    13. Bid Rejection. The Owner reserves the right to reject any or all 
Proposals.
    14. Definition of Terms. The terms ``Administrator'', ``Engineer'', 
``Supervisor'', ``Project'', ``Completion of Construction'' and 
``Completion of the Project,'' as used throughout this Contract, shall 
be as defined in Article VI, Section 1 of the Contractor's Proposal.
    15. The Owner Represents:
    (a) If by provisions of the Contractor's Proposal the Owner shall 
have undertaken to furnish any materials for the construction of the 
Project, such materials are on hand at locations specified or if such 
materials are not on hand they will be made available to the successful 
Bidder at the locations specified before the time such materials are 
required for construction.
    (b) All funds necessary for prompt payment for the construction of 
the Project will be available. If the Owner shall fail to comply with 
any of the undertakings contained in the foregoing representations or if 
any of such representations shall be incorrect, the Bidder will be 
entitled to an extension of time of completion for a period equal to the 
delay, if any, caused by the failure of the Owner to comply with such 
undertakings or by any such incorrect representations, provided the 
Bidder shall have promptly notified the Owner in writing of its desire 
to extend the time of completion, and provided, further, that such 
extension, if any, of the time of the completion shall be the sole 
remedy of the Bidder for the Owner's failure, because of conditions 
beyond the control and without the fault of the Owner, to furnish 
materials in accordance with subparagraph a, hereof.

________ Owner
By ________
____, 19__

                          Contractor's Proposal

To Furnish, Deliver and Install Equipment and Materials
To: ________ (hereinafter called the ``Owner'')

                           Article I--General

    Section 1. Offer to Furnish, Deliver and Install. The undersigned 
(hereinafter called the ``Bidder'') hereby proposes to furnish, deliver

[[Page 319]]

and install the materials, supplies and equipment (hereinafter called 
the ``Project'') described in the plans, specifications and drawings 
(hereinafter called the ``Specifications'') attached hereto and made a 
part hereof, financed in part or whole by a loan to the Owner by the 
United States of America, acting through the Administrator of the Rural 
Utilities Service (hereinafter called the ``Administrator'') and 
designated ________.
    Section 2. Familiarity with Conditions. The Bidder has made a 
careful examination of the site of the Project and of the Plans and 
Specifications, Construction Drawings, and form of Contractor's Bond 
attached hereto, and has become informed as to the location and nature 
of the proposed construction, the transportation facilities and the kind 
of facilities required before and during the construction of the 
Project, and has become acquainted with the labor conditions, the 
ecological and environmental criteria to be followed, state and local 
laws and regulations which would affect work on the proposed 
construction.
    Section 3. License. The Bidder warrants that a Contractor's License 
is ____, is not ____, required, and if required, it possesses 
Contractor's License No. ____ of the State of ____, in which the Project 
is located and said license expires on ____, 19__.
    Section 4. The Bidder warrants that this Proposal is made in good 
faith and without collusion or connection with any person or persons 
bidding for the same work.
    Section 5. The Bidder warrants that it possesses adequate financial 
resources and agrees that in the event this Proposal is accepted and a 
Contractor's Bond is required, it will furnish a Contractor's Bond in 
the form attached hereto, in a penal sum not less than the maximum 
Contract Price, with a surety or sureties listed by the United States 
Treasury Department as Acceptable Sureties.
    In the event that the surety or sureties on the performance bond 
delivered to the Owner contemporaneously with the execution of the 
Contract or on any bond or bonds delivered in substitution thereof or in 
addition thereto shall at any time become unsatisfactory to the Owner or 
the Administrator, the Bidder agrees to deliver to the Owner another or 
an additional bond.
    The Bidder understands, that, if in submitting this Proposal, the 
Bidder has made any change in the form of Proposal furnished by the 
Owner, that the Owner and the Administrator may evaluate the effect of 
such change as they see fit or they may exclude the Proposal from 
consideration in determining the award of the contract.

                        Article II--Construction

    Section 1. Bid Price. The Bidder will construct the Project for the 
following sum:

Base Bid ________ Dollars ($______)
Alternate No. 1 ________ Dollars ($______)
Alternate No. 2 ________ Dollars ($______)

    Section 2. Taxes. The price quoted herein includes all amounts which 
the Bidder estimates will be payable by the Bidder or the Owner on 
account of taxes imposed by any taxing authority upon the sale, purchase 
or use of materials, supplies or equipment or services or labor of 
installation to be incorporated in the Project. The Bidder will pay all 
such taxes and will furnish to appropriate taxing authorities any 
required information and reports pertaining thereto.
    Section 3. Time and Manner of Construction.
    (a) The time of Completion of Construction of the Project is of the 
essence of this Contract. The Bidder will commence the work within ____ 
calendar days after the Owner shall have given the Bidder written notice 
to commence construction, will prosecute diligently and complete such 
construction to the satisfaction of the Owner and the Administrator 
within ____ calendar days after giving of such notice.
    (b) The time of Completion of Construction shall be extended for the 
period of any reasonable delay due exclusively to causes beyond the 
control and without fault of the Bidder, including Acts of God, fires, 
strikes, floods, inability to obtain materials, changes in the 
Specifications as herein provided and acts or omissions of the Owner 
with respect to matters for which the Owner is solely responsible: 
Provided, however, that no such extension of time for completion shall 
be granted the Bidder unless within ten (10) days after the happening of 
any event relied upon by the Bidder for such an extension of time the 
Bidder shall have made a request therefor in writing to the Owner, and 
provided further that no delay in such time of completion or in the 
progress of the work which results from any of the above causes except 
acts or omissions of the Owner, shall result in any liability on the 
part of the Owner.
    (c) In the sequence of construction, the Owner, acting through the 
Engineer, shall have the right to direct the Bidder to perform any part 
or parts of the work which is to be performed at the site of the Project 
before any other part or parts, of such work and the Bidder agrees to 
comply with all such directions. The Bidder shall comply with all other 
reasonable directions of the Owner.
    (d) The Owner, acting through the Engineer, may from time to time 
during the progress of the construction of the Project make such 
changes, additions to or subtractions from the Plans and Specifications 
and sequence of construction provided for in the previous paragraph 
which are part of the Contractor's Proposal as conditions may warrant: 
Provided, however, that if any

[[Page 320]]

change in the construction to be done shall require an extension of 
time, a reasonable extension will be granted if the Bidder shall make a 
written request therefor to the Owner within ten (10) days after any 
such change is made. If the cost of the Project to the Bidder to make 
the change shall be increased or decreased, the contract price shall be 
amended by an amount equal to the reasonable cost hereof in accordance 
with a construction amendment signed by the Owner and the Bidder and 
approved by the Administrator \1\, but no claim for additional 
compensation for any such change or addition will be considered unless 
the Bidder shall have made a written request therefor to the Owner prior 
to the commencement of work in connection with such change or addition. 
The reasonable cost of any increase or decrease in the contract price 
covered by contract amendment as outlined above, in the absence of other 
mutual agreement, shall be computed on the basis of the direct cost of 
materials, f.o.b. the site of the Project, plus the direct cost of labor 
necessary to incorporate such materials into the Project (including 
actual cost of payroll taxes and insurance), plus ____ percent of the 
direct cost of materials and labor. Labor costs shall be limited to the 
direct costs for workmen and foremen. Costs for profit and overhead for 
subcontractors, if any, Bidder's main office overhead, job office 
overhead and superintendence shall not be included.
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    \1\ As long as the total price of this contract including all 
amendments is less than 120 percent of the original contract price as 
stated in the acceptance hereto, amendments executed on RUS Form 238 are 
not subject to the approval of the Administrator. Whenever an amendment 
to this contract causes the total amended contract to exceed 120 percent 
of the original contract price, that amendment and all subsequent 
amendments to this contract shall be made subject to the approval of the 
Administrator.
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    Section 4. The Bidder agrees that in the event this Proposal is 
accepted it will make available for use in connection with the proposed 
construction all necessary tools and equipment and qualified 
superintendents and foremen.
    Section 5. Supervision and Inspection.
    a. The Bidder will give sufficient supervision to the work, using 
its best skill and attention. The Bidder will carefully study and 
compare all drawings, specifications and other instructions and will at 
once report to the Owner any error, inconsistency or omission which it 
may discover. The Bidder shall cause the construction work on the 
Project to receive constant supervision by a competent superintendent 
(hereinafter called the ``Superintendent'') who shall be present at all 
times during working hours where construction is being carried on. The 
Bidder shall also employ, in connection with the construction of the 
Project, capable, experienced and reliable foremen and such skilled 
workmen as may be required for the various classes of work to be 
performed. Directions and instructions given to the Superintendent shall 
be binding upon the Bidder.
    b. The Owner reserves the right to require the removal from the 
Project of any employee of the Bidder if in the judgment of the Owner 
such removal shall be necessary in order to protect the interest of the 
Owner. The Owner or the Supervisor, if any, shall have the right to 
require the Bidder to increase the number of its employees and to 
increase or change the amount or kinds of tools and equipment if at any 
time the progress of the work shall be unsatisfactory to the Owner or 
Supervisor; but the failure of the Owner or Supervisor to give any such 
directions shall not relieve the Bidder of its obligations to complete 
the work within the time and in the manner specified in this Proposal.
    c. The manner of construction of the Project, and all materials and 
equipment used therein, shall be subject to the inspection, tests and 
approval of the Owner and the Administrator, and the Bidder shall 
furnish all information required by the Owner or by the Administrator 
concerning the nature or source of any materials incorporated or to be 
incorporated in the Project. The Owner and the Administrator shall have 
the right to inspect all payrolls, invoices of materials, and other data 
and records of the Bidder and of any subcontractor, relevant to the 
construction of the Project. The Bidder shall provide all reasonable 
facilities necessary for such inspection and tests and shall maintain an 
office at the site of the Project, with telephone service where 
obtainable and at least one office employee to whom directions and 
instructions of the Owner may be delivered. Delivery of such directions 
or instructions in writing to the employee of the Bidder at such office 
shall constitute delivery to the Bidder. The Bidder shall have an 
authorized agent accompany the Engineer when final inspection is made 
and, if requested by the Owner, when any other inspection is made.
    d. In the event that the Owner through its Engineer, or the 
Administrator, shall determine that the construction contains or may 
contain numerous defects, it shall be the duty of the Bidder and the 
Bidder's Surety or Sureties, if any, to have an inspection made by an 
engineer approved by the Owner and the Administrator for the purpose of 
determining the exact nature, extent and location of such defects.
    e. The Engineer may recommend to the Owner that the Bidder suspend 
the work wholly or in part for such period or periods as the Engineer 
may deem necessary due to unsuitable weather or such other conditions

[[Page 321]]

as are considered unfavorable for the satisfactory prosecution of the 
work or because of the failure of the Bidder to comply with any of the 
provisions of the Contract: Provided, however, that the Bidder shall not 
suspend work pursuant to this provision without written authority from 
the Owner to do so. The time of completion hereinabove set forth shall 
be increased by the number of days of any such suspension, except when 
such suspension is due to the failure of the Bidder to comply with any 
of the provisions of this Contract. In the event that work is suspended 
by the Bidder with the consent of the Owner, the Bidder before resuming 
work shall give the Owner at least twenty-four (24) hours notice thereof 
in writing.
    Section 6. Defective Materials and Workmanship.
    a. The acceptance of any materials, equipment or any workmanship by 
the Owner or the Engineer shall not preclude the subsequent rejection 
thereof if such materials, equipment, or workmanship shall be found to 
be defective after delivery or installation, and any such materials, 
equipment or workmanship found defective before final acceptance of the 
construction shall be replaced or remedied, as the case may be, 
including the installation and removal thereof, by and at the expense of 
the Bidder. Any such condemned material or equipment shall be 
immediately removed from the site of the Project by the Bidder at the 
Bidder's expense. The Bidder shall not be entitled to any payment 
hereunder so long as any defective materials, equipment, or workmanship 
in respect to the Project, of which the Bidder shall have had notice, 
shall not have been replaced or remedied, as the case may be.
    b. Notwithstanding the acceptance of workmanship, materials, 
supplies or equipment, or the giving of any certificate with respect to 
the completion of the work, if during the construction or within one 
year after such completion, or within such longer period as the Project 
or any part thereof may be guaranteed by other provisions of the 
Contract or the Specifications, the workmanship, materials, supplies or 
equipment shall be found to be defective or not in conformity with the 
requirements of the Specifications, the Bidder shall replace such 
defective materials or equipment or remedy any such defective 
workmanship within thirty (30) days after notice of the existence 
thereof shall have been given to the Bidder by the Owner. In event of 
failure by the Bidder to do so, the Owner may replace such defective 
materials or equipment or remedy such defective workmanship, as the case 
may be, and in such event the Bidder shall pay to the Owner the cost and 
expense thereof.

               Article III--Payments and Release of Liens

    Section 1. Payments to Bidder.
    a. Within the first fifteen (15) days of each calendar month, the 
Owner shall make partial payment to the Bidder for construction 
accomplished during the preceding calendar month on the basis of 
estimates thereof certified to by the Bidder, and approved by the 
Engineer and by the Owner solely for the purpose of payment: Provided, 
however, that such approval shall not be deemed approval of the 
workmanship or materials; and provided further, that in estimating the 
amount of construction accomplished, consideration shall be given only 
to equipment and materials incorporated into the Project and equipment 
and materials delivered to the site in accordance with approved shipping 
schedule. Only ninety percent (90%) of each such estimate approved 
during the construction of the Project shall be paid by the Owner to the 
Bidder prior to Completion of the Project. Upon completion by the Bidder 
of the construction of the Project, the Engineer shall inspect the work 
performed hereunder and if he shall find the work acceptable and all 
provisions hereunder fully performed, he shall so certify to the Owner 
and shall certify the balance found to be due the Bidder.
    The Certificate of Completion, Contract Construction, RUS Form 187, 
a copy of which is attached hereto, after it has been signed by the 
Engineer and certified to by the Owner and the Bidder shall thereupon be 
submitted to the Administrator for his approval and when such approval 
has been given, the Owner shall make payment to the Bidder of all unpaid 
amounts to which the Bidder shall be entitled hereunder unless withheld 
because of the fault of the Bidder.
    b. Interest at the rate of ______ percent 2 (____%) per 
annum shall be paid by the Owner to the Bidder on all unpaid balances 
due the Bidder commencing fifteen (15) days after the due date: Provided 
that the delay in payment beyond the due date is not caused by any 
condition within the control of the Bidder. The due date for purposes of 
such monthly payment shall be the fifteenth day of each calendar month 
provided (1) the Bidder on or before the fifth day of such month shall 
have submitted its certification of construction completed during the 
preceding month, and (2) the Owner on or before the fifteenth day of 
such month shall have approved such certification. If, for any reasons 
not due to the Bidder's fault, such approval shall not have been given 
on or before the fifteenth day of such month, the due date for purposes 
of this subsection ``b'' shall be

[[Page 322]]

the fifteenth day of such month notwithstanding the absence of the 
approval of the certification.
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    \2\ The Owner shall insert a 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.
---------------------------------------------------------------------------

    c. No payments shall be due while the Bidder is in default in 
respect of any of the provisions of this Proposal and the Owner may 
withhold from the Bidder the amount of any claim by a third party 
against either the Bidder or the Owner based upon an alleged failure of 
the Bidder to perform the work hereunder in accordance with the 
provisions of this Proposal.
    Section 2. Release of Liens and Certificate of Contractor. (See 
Sample RUS Form 224, Waiver and Release of Lien, and sample RUS Form 
231, Certificate of Contractor.) Upon the completion by the Bidder of 
the construction of the Project but prior to the payment to the Bidder 
of any amount in excess of ninety percent (90%) of the total cost of 
construction, the Bidder shall deliver to the Owner, in duplicate, 
releases of all liens and of rights to claim any lien, in the form 
attached hereto, from all manufacturers, materialmen, and subcontractors 
furnishing services or materials for the Project and a certificate in 
the form attached hereto to the effect that all labor used on or for the 
project has been paid and that all such releases have been submitted to 
the Owner for approval.
    Section 3. Payments to Materialmen and Subcontractors. The Bidder 
shall pay each materialman, and each subcontractor, if any, within five 
(5) days after receipt of any payment from the Owner, the amount thereof 
allowed the Bidder for and on account of materials furnished or 
construction performed by each materialman or each subcontractor.

            Article IV--Particular Undertakings of the Bidder

    Section 1. Protection to Persons and Property. The Bidder shall at 
all times exercise reasonable precautions for the safety of employees on 
the work and of the public, and shall comply with all applicable 
provisions of Federal, State and Municipal safety laws and building and 
construction codes. All machinery and equipment and other physical 
hazards shall be guarded in accordance with the ``Manual of Accident 
Prevention in Construction'' of the Associated General Contractors of 
America, unless such instructions are incompatible with Federal, State 
or Municipal laws or regulations.
    The following provisions shall not limit the generality of the above 
requirements:
    (a) The Bidder shall at all times keep the premises free from 
accumulations of waste materials or rubbish caused by his employees or 
work, and at the completion of the work he shall remove all rubbish from 
and about the Project and all his tools, scaffolding and surplus 
materials and shall leave his work ``broom clean''. The Bidder shall 
dispose of waste material by burying it on the work site or in a manner 
approved by local authorities, but shall not dispose of any waste 
materials or rubbish by open burning. The Bidder shall provide chemical 
sanitary facilities which may be required in compliance with applicable 
local, State and Federal laws or regulations.
    (b) The Bidder will perform the work in such a manner as to maximize 
preservation of aesthetics and conservation of natural resources, and 
minimize marring and scarring of the landscape, erosion of soils and oil 
spillage. There will be no depositing of trash in streams or waterways. 
Herbicides, other chemicals or their containers will not be deposited in 
or near streams or waterways.
    (c) The Project, from the commencement of work to completion, or to 
such earlier date or dates when the Owner may take possession and 
control, in whole or in part as hereinafter provided, shall be under the 
charge and control of the Bidder and during such period of control by 
the Bidder all risks in connection therewith and the materials, supplies 
and equipment to be used therein shall be borne by the Bidder, except 
risk of loss or of damage to materials or equipment furnished for or 
used in connection with the Project by the Owner, Bidder or any 
subcontractor, caused by fire, lightning, wind damage, explosion, riot 
or civil commotion, aircraft and other vehicles, and smoke damage 
(against which perils the Owner will maintain insurance, hereinafter 
called ``Builder's Risk Insurance''). The Bidder will make good and 
fully repair all injuries and damages to the Project, or any portion 
thereof under the control of the Bidder by reason of any act of God, or 
any other casualty or cause whether or not the same shall have occurred 
by reason of the Bidder's negligence, except damage covered by the 
Owner's Builder's Risk Insurance.
    (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.
    (ii) To the maximum extent permitted by law, Bidder shall defend, 
indemnify, and hold harmless Owner and Owner's directors, officers, and 
employees from all liens and claims

[[Page 323]]

filed or asserted against Owner, its directors, officers, and employees, 
or Owner's property or facilities, for services performed or materials 
or equipment furnished by Bidder, its subcontractors and suppliers of 
any tier, and from all losses, demands, and causes of action arising out 
of any such lien or claim. Bidder shall promptly discharge or remove any 
such lien or claim by bonding, payment, or otherwise and shall notify 
Owner promptly when it has done so. If Bidder does not cause such lien 
or claim to be discharged or released by payment, bonding, or otherwise, 
Owner shall have the right (but shall not be obligated) to pay all sums 
necessary to obtain any such discharge or release and to deduct all 
amounts so paid from the amount due Bidder.
    (iii) Bidder shall provide to Owner's satisfaction evidence of 
Bidder's ability to comply with the indemnification provisions of 
subparagraphs i and ii above, which evidence may include but may not be 
limited to a bond or liability insurance policy obtained for this 
purpose through a licensed surety or insurance company.
    (d) The Bidder shall submit to the Owner monthly reports in 
duplicate of all accidents giving such data as may be prescribed by the 
Engineer.
    (e) Upon violation by the Bidder of any of the provisions of this 
section, after written notice of such violation given to the Bidder by 
the Engineer or the Owner, the Bidder shall immediately correct such 
violation. Upon failure of the Bidder so to do the Owner may correct 
such violation at the Bidder's expense: Provided, however, that the 
Owner may, if it deems it necessary or advisable, correct such violation 
at the Bidder's expense without such prior notice to the Bidder.
    Section 2. Insurance. The Bidder shall take out and maintain 
throughout the contract period insurance of the following types and 
minimum amounts:
    (a) Workers' compensation and employers' liability insurance, as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to the workers' 
compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    (b) Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    (c) Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, nonowned, or hired, shall 
have limits for bodily injury or death of not less than $1 million per 
person and $1 million per occurrence, and property damage limits of $1 
million for each occurrence. This required insurance may be in a policy 
or policies of insurance, primary and excess including the umbrella or 
catastrophe form.
    The Owner shall have the right at any time to require public 
liability insurance and property damage liability insurance greater than 
those required in subsections ``b'' and ``c'' of this Section. In any 
such event, the additional premium or premiums payable solely as the 
result of such additional insurance shall be added to the Contract 
price.
    The Owner shall be named as Additional Insured on all policies of 
insurance required in subsections ``b'' and ``c'' of this Section.
    The policies of insurance shall be in such form and issued by such 
insurer as shall be satisfactory to the Owner. The Bidder shall furnish 
the Owner a certificate evidencing compliance with the foregoing 
requirements which shall provide not less than (30) days prior written 
notice to the Owner of any cancellation or material change in the 
insurance.
    Section 3. Assignment of Guarantees. All guarantees of materials and 
workmanship running in favor of the Bidder shall be transferred and 
assigned to the Owner prior to the time the Bidder receives final 
payment.
    Section 4. Delivery of Possession and Control to Owner. Upon written 
request of the Owner, the Bidder shall deliver to the Owner full 
possession and control of any portion of the Project provided the Bidder 
shall have been paid at least ninety percent (90%) of the cost of 
construction of such portion. Upon such delivery of the possession and 
control of any portion of the Project to the Owner, the risks and 
obligations of the Bidder as set forth in Article IV, Section 1 c hereof 
with respect to such portion so delivered to the Owner shall be 
terminated; Provided, however, that nothing herein contained shall 
relieve the Bidder of any liability with respect to defective materials 
and workmanship as contained in Article II, Section 6 hereof.

                           Article V--Remedies

    Section 1. Completion on Bidder's Default. If default shall be made 
by the Bidder or by any subcontractor in the performance of any of the 
terms of this Proposal, the Owner, without in any manner limiting its 
legal and equitable remedies in the circumstances, may serve upon the 
Bidder and the Surety or Sureties, if any, upon the Contractor's Bond

[[Page 324]]

or Bonds a written notice requiring the Bidder to cause such default to 
be corrected forthwith. Unless within twenty (20) days after the service 
of such notice upon the Bidder such default shall be corrected or 
arrangements for the correction thereof satisfactory to both the Owner 
and the Administrator shall be made by the Bidder or its Surety or 
Sureties, if any, the Owner may take over the construction of the 
Project and prosecute the same to completion by Contract or otherwise 
for the account and at the expense of the Bidder, and the Bidder and its 
Surety or Sureties, if any, shall be liable to the Owner for any cost or 
expense in excess of the Contract price occasioned thereby. In such 
event the Owner may take possession of and utilize, in completing the 
construction of the Project, any materials, tools, supplies, equipment, 
appliances, and plant belonging to the Bidder or any of its 
subcontractors, which may be situated at the site of the Project. The 
Owner in such contingency may exercise any rights, claims or demands 
which the Bidder may have against third parties in connection with this 
Contract and for such purpose the Bidder does hereby assign, transfer 
and set over unto the Owner all such rights, claims and demands.
    Section 2. Enforcement of Remedies by Administrator. The 
Administrator may on behalf of the Owner exercise any right or enforce 
any remedy which the Owner may exercise hereunder.
    Section 3. Cumulative Remedies. Every right or remedy herein 
conferred upon or reserved to the Owner or the Administrator shall be 
cumulative and shall be in addition to every right and remedy now or 
hereafter existing at law or in equity or by statute and the pursuit of 
any right or remedy shall not be construed as an election.

                        Article VI--Miscellaneous

    Section 1. Definitions.
    a. The term ``Administrator'' shall mean the Administrator of the 
Rural Utilities Service of the United States of America and his duly 
authorized representatives or any other person in whom or authority in 
which may be vested the duties and functions which the Administrator is 
now authorized by law to perform.
    b. The term ``Engineer'' shall mean the engineer employed by the 
Owner, with the approval of the Administrator, to provide engineering 
services for the Project, and said Engineer's duly authorized assistants 
and representatives.
    c. The term ``Supervisor'' shall mean the person, if any, appointed 
by the Administrator as the representative of the Government under the 
provisions of the Loan Contract providing for such appointment in 
special cases. The term is limited to such special representative of the 
Government, if any, who is responsible exclusively to the Administrator 
and does not refer to the Manager or any other person employed by the 
Owner and responsible to it.
    d. The term ``Completion of Construction'' shall mean full 
performance by the Bidder of the Bidder's obligations under the Contract 
and all amendments and revisions thereof except the Bidder's obligations 
in respect of Releases of Liens and Certificate of Contractor under 
Article III, Section 2 hereof. The term ``Completion of the Project'' 
shall mean full performance by the Bidder of the Bidder's obligations 
under the Contract and all amendments and revisions thereof. The 
Certificate of Completion, signed by the Engineer and approved in 
writing by the Owner and the Administrator, shall be the sole and 
conclusive evidence as to the date of Completion of Construction and as 
to the fact of Completion of the Project.
    Section 2. Purchase of Materials. The Bidder shall purchase all 
materials, supplies, and equipment outright and not subject to any 
conditional sales agreements, bailment lease or other agreement 
reserving unto the seller any right, title or interest therein. All 
materials, supplies and equipment shall be new and shall become the 
property of the Owner when erected in place, or when the Owner shall 
have made any payment to the Bidder in respect of such materials; 
whichever shall occur first.
    Section 3. Materials and Supplies. In the performance of this 
contract there shall be furnished only such unmanufactured articles, 
materials, and supplies as have been mined or produced in the United 
States, Mexico, or Canada, and only such manufactured articles, 
materials, and supplies as have been manufactured in the United States 
substantially all from articles, materials, or supplies mined, produced 
or manufactured, as the case may be, in the United States, Mexico, or 
Canada; provided that other articles, materials, or supplies may be used 
in the event and to the extent that the Administrator shall expressly in 
writing authorize such use pursuant to the provisions of the Rural 
Electrification Act of 1938, being Title IV of Public Resolution No. 
122, 75th Congress, approved June 21, 1938. The Bidder agrees to submit 
to the Purchaser such certificates with respect to compliance with the 
foregoing provision as the Administrator from time to time may require.
    Section 4. Patent Infringement. The Bidder shall save harmless and 
indemnify the Owner from any and all claims, suits and proceedings for 
the infringement of any patent or patents covering any materials or 
equipment used in construction of the Project.
    Section 5. Compliance with Statutes and Regulations. The Bidder 
shall comply with all applicable statutes, ordinances, rules, and 
regulations pertaining to the work. The Bidder acknowledges that it is 
familiar with the

[[Page 325]]

Rural Electrification Act of 1936, as amended, the so-called ``Kick-
Back'' Statute (48 Stat. 948), and regulations issued pursuant thereto, 
and 18 U.S.C. Section 287 and 1001, as amended. The Bidder understands 
that the obligations of the parties hereunder are subject to the 
applicable regulations and orders of Governmental Agencies having 
jurisdiction in the premises.
    Section 6. Equal Opportunity Provisions.
    (a) Bidder's Representations.
    The Bidder represents that:
    It has ____, does not have ____, 100 or more employees, and if it 
has, that it has ____, has not ____ furnished the Equal Employment 
Opportunity-Employers Information Report EEO-1, Standard Form 100, 
required of employers with 100 or more employees pursuant to Executive 
Order 11246 and Title VII of the Civil Rights Act of 1964.
    The Bidder agrees that it will obtain, prior to the award of any 
subcontract for more than $10,000 hereunder to a subcontractor with 100 
or more employees, a statement, signed by the proposed subcontractor, 
that the proposed subcontractor has filed a current report on Standard 
Form 100.
    The Bidder agrees that if it has 100 or more employees and has not 
submitted a report on Standard Form 100 for the current reporting year 
and that if this Contract will amount to more than $10,000, the Bidder 
will file such report, as required by law, and notify the owner in 
writing of such filing prior to the Owner's acceptance of this Proposal.
    (b) Equal Opportunity Clause. During the performance of this 
Contract, the Bidder agrees as follows:
    (1) The Bidder will not discriminate against any employee or 
applicant for employment because of race, color, religion, sex or 
national origin. The Bidder will take affirmative action to ensure that 
applicants are employed, and that employees are treated during 
employment without regard to their race, color, religion, sex or 
national origin. Such action shall include, but not be limited to, the 
following: Employment, upgrading, demotions or transfer; recruitment or 
recruitment advertising; layoff or termination; rates of pay or other 
forms of compensation; and selection of training, including 
apprenticeship. The Bidder agrees to post in conspicuous places, 
available to employees and applicants for employment, notices to be 
provided setting forth the provisions of this Equal Opportunity Clause.
    (2) The Bidder will, in all solicitations or advertisements for 
employees placed by or on behalf of the Bidder, state that all qualified 
applicants will receive consideration for employment without regard to 
race, color, religion, sex or national origin.
    (3) The Bidder will send to each labor union or representative of 
workers, with which it has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or workers' representative of the Bidder's commitments under 
this section, and shall post copies of the notice in conspicuous places 
available to employees and applicants for employment.
    (4) The Bidder will comply with all provisions of Executive Order 
11246 of September 24, 1965, and the rules, regulations and relevant 
orders of the Secretary of Labor.
    (5) The Bidder will furnish all information and reports required by 
Executive Order 11246 of September 24, 1965, and by rules, regulations, 
and orders of the Secretary of Labor, or pursuant thereto, and will 
permit access to its books, records, and accounts by the administering 
agency and the Secretary of Labor for purposes of investigation to 
ascertain compliance with such rules, regulations, and orders.
    (6) In the event of the Bidder's noncompliance with the Equal 
Opportunity Clause of this Contract or with any of the said rules, 
regulations, or orders, this Contract may be canceled, terminated, or 
suspended in whole or in part, and the Bidder may be declared ineligible 
for further Government contracts or federally assisted construction 
contracts in accordance with procedures authorized in Executive Order 
11246 of September 24, 1965, and such other sanctions may be imposed and 
remedies invoked as provided in Executive Order 11246 of September 24, 
1965, or by rule, regulation, or order of the Secretary of Labor, or as 
provided by law.
    (7) The Bidder will include this Equal Opportunity Clause in every 
subcontract or purchase order unless exempted by the rules, regulations, 
or order of the Secretary of Labor issued pursuant to Section 204 of 
Executive Order 11246 of September 24, 1965, so that such provisions 
will be binding upon each subcontractor or vendor. The Bidder will take 
such action with respect to any subcontract or purchase order as the 
administering agency may direct as a means of enforcing such provisions, 
including sanctions for noncompliance; Provided, however, that in the 
event Bidder becomes involved in, or is threatened with, litigation with 
a subcontractor or vendor as a result of such direction by the 
administering agency, the Bidder may request the United States to enter 
into such litigation to protect the interests of the United States.
    (c) Certificate of Nonsegregated Facilities. The Bidder certifies 
that it does not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it does not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Bidder certifies further 
that it will not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it will not permit its 
employees to perform

[[Page 326]]

their services at any location, under its control, where segregated 
facilities are maintained. The Bidder agrees that a breach of this 
certification is a violation of the Equal Opportunity Clause in this 
Contract. As used in this certification, the term ``segregated 
facilities'' means any waiting rooms, work areas, restrooms and 
washrooms, restaurants and other eating areas, timeclocks, locker rooms 
and other storage or dressing areas, parking lots, drinking fountains, 
recreation or entertainment areas, transportation, and housing 
facilities provided for employees which are segregated by explicit 
directive or are in fact segregated on the basis of race, color, 
religion, or national origin, because of habit, local custom, or 
otherwise. The Bidder agrees that (except where it has obtained 
identical certifications from proposed subcontractors for specific time 
periods) it will obtain identical certifications from proposed 
subcontractors prior to the award of subcontracts exceeding $10,000 
which are not exempt from the provisions of the Equal Opportunity 
Clause, and that it will retain such certifications in its files.
    Section 7. Nonassignment of Contract. Except as provided in Section 
8 of this Article, the Bidder will not assign this Contract, or any 
interest in any funds that may become due hereunder, or enter into any 
contract with any person, firm or corporation, for the performance of 
the Bidder's obligations hereunder, or any part hereof without the 
approval in writing of the Owner, the Surety or Sureties, if any, and 
the Administrator.
    Section 8. Subcontracts. The Bidder shall not enter into any 
subcontract or subcontracts with any person, firm or corporation for the 
performance of the Bidder's obligation hereunder in any aggregate amount 
in excess of 40% of The Bidder's obligations (to be calculated on the 
basis of the total contract price) nor shall the Bidder enter into any 
subcontract in excess of $20,000, without the approval in writing of the 
Owner and of the Surety or Sureties, if any, on any bond furnished by 
the Bidder for the faithful performance of the Bidder's obligations 
hereunder. If the Bidder shall enter into a subcontract with any 
subcontractor for the performance of any part of this Contract, the 
Bidder shall be as fully responsible to the Owner and the Administrator 
for the acts and omissions of such subcontractor and of persons employed 
by such subcontractor as the Bidder would be for its own acts and 
omissions and those of persons directly employed by it.
    Section 9. Contractor. Upon acceptance of this Proposal, the 
successful Bidder shall be the Contractor and all references in the 
Proposal to the Bidder shall apply to the Contractor.
    Section 10. Approval of the Administrator. The acceptance of this 
Proposal by the Owner shall not create a contract unless such acceptance 
shall be approved in writing by the Administrator within sixty (60) days 
after the date set for the opening of proposals.

________ (Bidder)
By ________ (President)
________ (Title)
__________ (Address)
Attest:
__________ (Secretary)
Date __________

    The Proposal must be signed with the full name of the Bidder. If the 
Bidder is a partnership, the Proposal must be signed in the partnership 
name by a partner. If the Bidder is a corporation, the Proposal must be 
signed in the corporate name by a duly authorized officer and the 
corporate seal affixed and attested by the Secretary of the Corporation.

                               Acceptance

    Subject to the approval of the Administrator, the Owner, __________, 
hereby accepts the Proposal of the above-named Bidder for the 
construction of the Project therein described for the Base Bid of $ 
________ and

Alternate No. 1 $________
Alternate No. 2 $________
The total contract price is $________
________ (Owner)
By __________ President
Attest:
__________ (Secretary)
__________ Date of Contract

                             [End of clause]



Sec. 1726.321  Right-of-way clearing contract, RUS Form 201.

    The contract form in this section shall be used when required by 
this part. This form refers to guide drawings, which do not contain 
requirements, and, hence, are not included in this part. The guide 
drawings are included in the printed form available from RUS (see 
Sec. 1726.300.).
Right-of-Way Clearing Contract

                          Contractor's Proposal

(Proposal shall be submitted in ink or typewritten)
To: __________ (Hereinafter called the ``Owner'')

                           Article I--General

    Section 1. Offer to Clear. The undersigned (hereinafter called the 
``Contractor'') hereby proposes to furnish all materials, equipment, 
machinery, tools, labor, transportation and other means required to 
clear rights-of-way for the rural electric system bearing the RUS 
Designation __________ in strict accordance with the Specifications and 
Drawings

[[Page 327]]

therefor, attached hereto and made a part hereof, for the prices 
hereinafter stated.
    Section 2. Description of Project. The Project will consist of 
approximately ________ miles of right-of-way clearing. The Project is 
located in __________ counties in the State of __________.
    Section 3. Description of Contract. The Description of Units, 
Specifications, Drawings and Plans attached hereto and made a part 
hereof, together with the Proposal and Acceptance constitute the 
Contract. The Plans consisting of maps and plan and profile sheets if 
transmission clearing is included, showing the number and types of 
right-of-way units that are to be cleared, along with other special 
drawings are identified as follows:
    Section 4. Familiarity with Conditions. The Contractor warrants that 
it has made careful examination of the site of the Project and of the 
Specifications, Drawings, and form of Contractors' Bond attached hereto, 
and has become informed as to the location and nature of the proposed 
work, the transportation facilities, the kind and character of soil and 
terrain to be encountered, and the kind of facilities required for 
undertaking and completing the Project, and has become acquainted with 
the labor conditions, state and local laws and regulations which would 
affect the proposed work.
    Section 5. License. The Contractor warrants that a Contractor's 
License is ____, is not ____, required, and if required, it possesses 
Contractor's license number ____ for the State of __________ in which 
the Project is located and said license expires on __________, 19____.
    Section 6. Contractor's Bond. If the estimated cost of the clearing 
of a Section shall exceed $100,000, the Contractor agrees to furnish, 
prior to the commencement of work on such Section, a bond in the penal 
sum of not less than the estimated cost of the Section in the form 
attached hereto with a Surety or Sureties listed by the United States 
Treasury Department as acceptable sureties. In the event that the Surety 
or Sureties on the performance bond delivered to the Owner shall at any 
time become unsatisfactory to the Owner, the Contractor agrees to 
deliver to the Owner another or an additional bond.
    Section 7. Taxes. The unit prices for Right-of-Way Clearing Units in 
this Proposal include any sums which are or may be payable by the 
Contractor on account of taxes imposed by any taxing authority on 
payments for materials furnished or services performed by the Contractor 
under the terms of this Contract.

                        Article II--Construction

    Section 1. Time and Manner of Work.
    (a) The Contractor agrees to commence work on the Project on a date 
(hereinafter called the ``Commencement Date'') which shall be determined 
by the Owner after its acceptance of this Proposal, but in no event will 
the Commencement Date be later than ____ calendar days after date of 
acceptance of this Proposal. The Contractor further agrees to prosecute 
diligently and to complete clearing in strict accordance with the 
Specifications and Drawings within ____ (____) calendar days (excluding 
Sundays) after Commencement Date.
    (b) The time for Completion of Clearing shall be extended for the 
period of any reasonable delay which is due exclusively to causes beyond 
the control and without the fault of the Contractor, including acts of 
God, fires, floods, inability to obtain materials and acts or omissions 
of the Owner with respect to matters for which the Owner is solely 
responsible: Provided, however, that no such extension of time for 
completion shall be granted the Contractor unless within ten (10) days 
after the happening of any event relied upon by the Contractor for such 
an extension of time the Contractor shall have made a request therefor 
in writing to the Owner, and provided further that no delay in such time 
of completion or in the progress of the work which results from any of 
the above causes except acts or omissions of the Owner, shall result in 
any liability on the part of the Owner.
    (c) The sequence of construction shall be as set forth below, the 
numbers or names being the designations of extensions or areas 
(hereinafter called the ``Sections'') corresponding to the numbers or 
names shown on the maps attached hereto, or if no Sections are set forth 
below, the sequence of construction shall be as determined by the 
Contractor subject to the approval of the Owner.
    (d) The Owner may from time to time during the progress of the work 
on the Project make such changes in, additions to or subtractions from 
the Specifications, Drawings and sequence of work provided for in the 
previous paragraph which are part of the Contractor's Proposal as 
conditions may warrant: Provided, however, that if any change in the 
work to be done shall require an extension of time, a reasonable 
extension will be granted if the Contractor shall make a written request 
therefor to the Owner within ten (10) days after any such change is 
made. And provided further, that if the cost to the Contractor of 
completion of the Project shall be materially increased by any such 
change or addition, the Owner shall pay the Contractor for the 
reasonable cost thereof in accordance with a Contract Amendment signed 
by the Owner and the Contractor, but no claim for additional 
compensation for any such change or addition will be considered unless 
the Contractor shall have made a written request therefor to the Owner 
prior to the commencement of work in connection with such change or 
addition.

[[Page 328]]

    (e) The Contractor will not perform any work hereunder on Sundays 
unless there is urgent need for such Sunday work and the Owner consents 
thereto in writing. The time for completion specified in subsection (a) 
of this Section 1 shall not be affected in any way by inclusion of this 
subsection by the Owner's consent or lack of consent to Sunday work 
hereunder.
    Section 2. Environmental Protection. The Contractor shall perform 
work in such a manner as to maximize preservation of beauty, 
conservation of natural resources, and minimize marring and scarring of 
the landscape and silting of streams. The Contractor shall not deposit 
trash in streams or waterways, and shall not deposit herbicides or other 
chemicals or their containers in or near streams, waterways or pastures. 
The Contractor shall follow, under the general direction of the 
Engineer, the criteria relating to environmental protection as specified 
herein by the Engineer.
    Section 3. Supervision and Inspection.
    (a) The Contractor shall cause the work on the Project to receive 
constant supervision by a competent superintendent (hereinafter called 
the ``Superintendent'') who shall be present at all times during working 
hours where work is being carried on. The Contractor shall also employ 
in connection with the Project, capable, experienced and reliable 
foremen and such skilled workmen as may be required for the various 
classes of work to be performed. Directions and instructions given to 
the Superintendent shall be binding upon the Contractor.
    (b) The Owner reserves the right to require the removal from the 
Project of any employee of the Contractor if in the judgment of the 
Owner such removal shall be necessary in order to protect the interest 
of the Owner. The Owner shall have the right to require the Contractor 
to increase the number of its employees and to increase or change the 
amount or kind of tools and equipment if at any time the progress of the 
work shall be unsatisfactory to the Owner; but the failure of the Owner 
to give any such directions shall not relieve the Contractor of its 
obligations to complete the work within the time and in the manner 
specified in this Proposal.
    (c) The manner of performance of the work, and all equipment used 
therein, shall be subject to the inspection and approval of the Owner. 
The Owner shall have the right to inspect all payrolls and other data 
and records of the Contractor relevant to the work. The Contractor will 
provide all reasonable facilities necessary for such inspection. The 
Contractor shall have an authorized agent accompany the inspector when 
final inspection is made and, if requested by the Owner, when any other 
inspection is made.
    (d) In the event that the Owner shall determine that the work 
contains or may contain numerous defects, it shall be the duty of the 
Contractor and the Contractor's Surety or Sureties to have an inspection 
made by an engineer approved by the Owner for the purpose of determining 
the exact nature, extent and location of such defects.
    (e) The Engineer may recommend to the Owner that the Contractor 
suspend the work wholly or in part for such period or periods as the 
Engineer may deem necessary due to unsuitable weather or such other 
conditions as are considered unfavorable for the satisfactory 
prosecution of the work or because of the failure of the Contractor to 
comply with any of the provisions of the Contract: Provided, however, 
that the Contractor shall not suspend work pursuant to this provision 
without written authority from the Owner so to do. The time of 
completion hereinabove set forth shall be increased by the number of 
days of any such suspension, except when such suspension is due to the 
failure of the Contractor to comply with any of the provisions of this 
Contract. In the event that work is suspended by the Contractor with the 
consent of the Owner, the Contractor before resuming work shall give the 
Owner at least twenty-four (24) hours' notice thereof in writing.
    Section 4. Unsuitable Workmanship. The acceptance of any workmanship 
by the Owner or the Engineer shall not preclude the subsequent rejection 
thereof if such workmanship shall be found to be unsuitable. Workmanship 
found unsuitable before final acceptance of the work shall be remedied, 
by and at the expense of the Contractor. The Contractor shall not be 
entitled to any payment hereunder so long as any unsuitable workmanship 
in respect to the Project, of which the Contractor shall have had 
notice, shall not have been remedied.

                          Article III--Payment

    Section 1. Payments to Contractor.
    (a) Within the first fifteen (15) days of each calendar month, the 
Owner shall make partial payment to the Contractor for work accomplished 
during the preceding calendar month on the basis of a statement of 
completed clearing units furnished and certified to by the Contractor 
and approved by the Owner solely for the purposes of payment: Provided, 
however, that such approval by the Owner shall not be deemed approval of 
the workmanship or materials. Only ninety percent (90%) of each such 
statement approved during the clearing of a Section shall be paid by the 
Owner to the Contractor prior to completion of the Section. Upon 
completion by the Contractor of the clearing of a Section, the 
Contractor shall prepare a Final Inventory of the Section showing the 
total number and character of clearing units and shall deliver to the 
Owner a Certificate of Contractor and Indemnity Agreement in the form 
attached hereto, showing the total cost of the work performed and 
stating (1) that

[[Page 329]]

all persons who have furnished labor in connection with the Project and 
subcontractors who have furnished services for the Project have been 
paid in full and (2) that the Contractor shall hold the Owner harmless 
against any liens arising out of the Contractor's performance hereunder 
which may have been or may be filed against the Owner. Upon the approval 
of such certificate, the Owner shall make payment to the Contractor of 
all amounts to which the Contractor shall be entitled thereunder which 
shall not have been paid.
    (b) The Contractor shall be paid on the basis of the number of 
clearing units actually completed at the direction of the Owner shown by 
the Final Inventory: Provided, however, that the total cost shall not 
exceed the total contract price for the Project as set forth in the 
Acceptance, unless such excess shall have been approved in writing by 
the Owner.
    (c) No payment shall be due while the Contractor is in default in 
respect of any of the provisions of this Contract and the Owner may 
withhold from the Contractor the amount of any claim by a third party 
against either the Contractor or the Owner based upon an alleged failure 
of the Contractor to perform the work hereunder in accordance with the 
provisions of the Contract.
    (d) If no Sections are designated in Article II, Section 1 (c) the 
term ``Section'' shall mean for purposes of this subsection (a) and 
Article IV, Section 3 (b) only, a part of the Project as designated by 
the Owner which represents at least twenty-five percent (25%) of the 
total contract price as stated in the Acceptance.
    (e) Interest at the rate of ____ percent \1\ (____%) per annum shall 
be paid by the Owner to the Contractor on all unpaid balances due on 
monthly statements, commencing fifteen (15) days after the due date; 
provided the delay in payment beyond the due date is not caused by any 
condition within the control of the Contractor. The due date for 
purposes of such monthly payment shall be the fifteenth day of each 
calendar month provided (1) the Contractor on or before the fifth day of 
such month shall have submitted its certification of right-of-way 
clearing units completed during the preceding month and (2) the Owner on 
or before the fifteenth day of such month shall have approved such 
certification. If for reasons not due to the Contractor's fault, such 
approval shall not have been given on or before the fifteenth day of 
such month, the due date for purposes of this subsection (e) shall be 
the fifteenth day of such month notwithstanding the absence of the 
approval of the certification.
---------------------------------------------------------------------------

    \1\ The Owner shall insert a 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.
---------------------------------------------------------------------------

    (f) Interest at the rate of ____ percent \2\ (____%) per annum shall 
be paid by the Owner to the Contractor on the final payment for the 
Project or any completed Section thereof, commencing fifteen (15) days 
after the due date. The due date for purposes of such final payment 
shall be the date of approval by the Owner of the Final Inventory and 
receipt of the Certificate of Contractor and Indemnity Agreement as 
conditions precedent to the making of final payment.
---------------------------------------------------------------------------

    \2\ See Footnote 1.
---------------------------------------------------------------------------

    Section 2. Payments to Subcontractors. The Contractor shall pay each 
subcontractor, if any, within five (5) days after receipt of any payment 
from the Owner, the amount thereof allowed the Contractor for and on 
account of services performed by each subcontractor.

          Article IV--Particular Undertakings of the Contractor

    Section 1. Protection to Persons and Property. The Contractor shall 
at all times take all reasonable precautions for the safety of employees 
on the work and of the public, and shall comply with all applicable 
provisions of Federal, state, and municipal safety laws and building and 
construction codes, as well as the safety rules and regulations of the 
Owner. All machinery and equipment and other physical hazards shall be 
guarded in accordance with the ``Manual of Accident Prevention in 
Construction'' of the Associated General Contractors of America unless 
such instructions are incompatible with Federal, state, or municipal 
laws or regulations.
    The following provisions shall not limit the generality of the above 
requirements:
    (a) The Contractor shall so conduct work on the Project as to cause 
the least possible obstruction of public highways.
    (b) The Contractor shall provide and maintain all such guard lights 
and other protection for the public as may be required by applicable 
statutes, ordinances, and regulations or by local conditions.
    (c) The Contractor shall do all things necessary or expedient to 
properly protect any and all parallel, converging, and intersecting 
lines, joint line poles, highways, and any and all property of others 
from damage, and in the event that any such parallel, converging and 
intersecting lines, joint line poles, highways, or other property are 
damaged in the course of work on the Project the Contractor shall at its 
own expense restore any or all of such damaged property immediately to 
as good a state as before such damage occurred.
    (d) Where the right-of-way of the Project traverses cultivated 
lands, the Contractor shall limit the movement of his crews and 
equipment so as to cause as little damage as

[[Page 330]]

possible to crops, orchards, or property and shall endeavor to avoid 
marring the lands. All fences which are necessarily opened or moved 
during work on the project shall be replaced in as good condition as 
they were found and precautions shall be taken to prevent the escape of 
livestock. The Contractor shall not be responsible for loss of or damage 
to crops, orchards, or property (other than livestock) on the right-of-
way necessarily incident to work on the Project and not caused by 
negligence or inefficient operation of the Contractor. The Contractor 
shall be responsible for all other loss of or damage to crops, orchards, 
or property, whether on or off the right-of-way, and for all loss of or 
damage to livestock caused by work on the Project. The right-of-way for 
purposes of this said section shall consist of an area extending ____ 
feet on both sides of the center line of the poles along the route of 
the Project lines, plus such area reasonably required by the Contractor 
for access to the route of the Project lines from public roads to carry 
on the work.
    (e) The Project, from the commencement of work to completion, or to 
such earlier date or dates when the Owner may take possession and 
control in whole or in part as hereinafter provided, shall be under the 
charge and control of the Contractor and during such period of control 
by the Contractor all risks in connection with the work on the Project 
and the materials to be used therein shall be borne by the Contractor. 
The Contractor shall make good and fully repair all injuries and damages 
to the Project or any portion thereof under the control of the 
Contractor by reason of an act of God or other casualty or cause whether 
or not the same shall have occurred by reason of the Contractor's 
negligence.
    (i) To the maximum extent permitted by law, Contractor 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 Contractor'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 
Contractor's property) in any manner arising out of or connected with 
the Contract, or the materials or equipment supplied or services 
performed by Contractor, its subcontractors and suppliers of any tier. 
But nothing herein shall be construed as making Contractor liable for 
any injury, death, loss, damage, or destruction caused by the sole 
negligence of Owner.
    (ii) To the maximum extent permitted by law, Contractor shall 
defend, indemnify, and hold harmless Owner and Owner's directors, 
officers, and employees from all liens and claims filed or asserted 
against Owner, its directors, officers, and employees, or Owner's 
property or facilities, for services performed or materials or equipment 
furnished by Contractor, its subcontractors and suppliers of any tier, 
and from all losses, demands, and causes of action arising out of any 
such lien or claim. Contractor shall promptly discharge or remove any 
such lien or claim by bonding, payment, or otherwise and shall notify 
Owner promptly when it has done so. If Contractor does not cause such 
lien or claim to be discharged or released by payment, bonding, or 
otherwise, Owner shall have the right (but shall not be obligated) to 
pay all sums necessary to obtain any such discharge or release and to 
deduct all amounts so paid from the amount due Contractor.
    (iii) Contractor shall provide to Owner's satisfaction evidence of 
Contractor's ability to comply with the indemnification provisions of 
subparagraphs i and ii above, which evidence may include but may not be 
limited to a bond or liability insurance policy obtained for this 
purpose through a licensed surety or insurance company.
    (f) Any and all excess earth, rock, debris, underbrush, and other 
useless material shall be removed by the Contractor from the site of the 
Project as rapidly as practicable as the work progresses. The Contractor 
shall not deposit trash in streams or waterways, and shall not deposit 
herbicides or other chemicals or their containers in or near streams, 
waterways or pastures.
    (g) Upon violation by the Contractor of any provisions of this 
section, after written notice of such violation given to the Contractor 
by the Owner, the Contractor shall immediately correct such violation. 
Upon failure of the Contractor so to do the Owner may correct such 
violation at the Contractor's expense.
    (h) The Contractor shall submit to the Owner monthly reports in 
duplicate of all accidents, giving such data as may be prescribed by the 
Owner.
    (i) The Contractor shall not proceed with the cutting of trees or 
clearing of right-of-way without written notification from the Owner 
that proper authorization has been received from the owner of the 
property and the Contractor shall promptly notify the Owner whenever any 
landowner objects to the trimming or felling of any trees or the 
performance of any other work on his land in connection with the Project 
and shall obtain the consent in writing of the Owner before proceeding 
in any such case.
    Section 2. Insurance. The Contractor shall take out and maintain 
throughout the period of this Agreement the following minimum amounts of 
insurance:
    (a) Worker's compensation and employer's liability insurance, as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to workers'

[[Page 331]]

compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    (b) Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    (c) Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, nonowned, or hired, shall 
have limits for bodily injury or death of not less than $1 million per 
person and $1 million each occurrence, and property damage limits of $1 
million for each occurrence. This required insurance may be in a policy 
or policies of insurance, primary and excess including the umbrella or 
catastrophe form.
    The Owner shall have the right at any time to require public 
liability insurance and property damage liability insurance greater than 
those required in subsection ``b'' and ``c'' of this Section. In any 
such event, the additional premium or premiums payable solely as the 
result of such additional insurance shall be added to the Contract 
price.
    The Owner shall be named as Additional Insured on all policies of 
insurance required in subsections ``b'' and ``c'' of this Section.
    The policies of insurance shall be in such form and issued by such 
insurer as shall be satisfactory to the Owner. The Bidder shall furnish 
the Owner a certificate evidencing compliance with the foregoing 
requirements which shall provide not less than (30) days prior written 
notice to the Owner of any cancellation or material change in the 
insurance.
    Section 3. Delivery of Possession and Control to the Owner.
    (a) Upon written request of the Owner, the Contractor shall deliver 
to the Owner full possession and control of any portion of the Project 
provided the Contractor shall have been paid at least ninety percent 
(90%) of the cost of the work of such portion. Upon such delivery of 
possession and control to the Owner, the risks and obligations of the 
Contractor as set forth in Section 1(e) of this Article IV with respect 
to such portion so delivered to the Owner, shall be terminated: 
Provided, however, that nothing herein contained shall relieve the 
Contractor of any liability with respect to unsuitable workmanship as 
specified in Article II, Section 4.
    (b) Where the construction of a Section as hereinbefore defined in 
Article II, Section 1 (c) and Article III, Section 1 (d) shall have been 
completed by the Contractor, the Owner agrees, after receipt of a 
written request from the Contractor, to accept delivery of possession 
and control of such Section upon having inspected the Section and having 
found the work acceptable. Upon such delivery of the possession and 
control of any such Section to the Owner, the risk and obligations of 
the Contractor as set forth in Article IV, Section 1 (e) hereof with 
respect to such Section so delivered to the Owner shall be terminated: 
Provided, however, that nothing herein contained shall relieve the 
Contractor of any liability with respect to unsuitable workmanship as 
specified in Article II, Section 4 hereof.
    Section 4. Assignment of Guarantees. All guarantees of materials and 
workmanship running in favor of the Contractor shall be transferred and 
assigned to the Owner prior to the time the Contractor receives final 
payment for any Section.

                           Article V--Remedies

    Section 1. Completion on Contractor's Default. If default shall be 
made by the Contractor or by any subcontractor in the performance of any 
of the terms of this Proposal, the Owner, without in any manner limiting 
its legal and equitable remedies in the circumstances, may serve upon 
the Contractor and the Surety, if any, a written notice requiring the 
Contractor to cause such default to be corrected forthwith.
    Unless within twenty (20) days after the service of such notice upon 
the Contractor and the Surety, if any, such default shall be corrected 
or arrangements for the correction thereof satisfactory to the Owner 
shall be made, the Owner may take over the work on the Project and 
prosecute the same to completion by contract or otherwise for the 
account and at the expense of the Contractor, and the Contractor shall 
be liable to the Owner for any cost or expense in excess of the contract 
price occasioned thereby. In such event the Owner may take possession of 
and utilize, in completing the Project, any materials, tools, supplies, 
equipment, appliance, and plant belonging to the Contractor or any of 
its subcontractors, which may be situated at the site of the Project. 
The Owner in such contingency may exercise any rights, claims, or 
demands which the Contractor may have against third persons in 
connection with this Proposal and for such purpose the Contractor does 
hereby assign, transfer, and set over unto the Owner all such rights, 
claims, and demands.
    Section 2. Liquidated Damages. The time of the Completion of 
Clearing is of the essence of the Contract. Should the Contractor 
neglect, refuse or fail to complete the clearing within the time herein 
agreed upon, after

[[Page 332]]

giving effect to extensions of time, if any, herein provided, then, in 
that event and in view of the difficulty of estimating with exactness 
damages caused by such delay, the Owner shall have the right to deduct 
from and retain out of such monies which may be then due, or which may 
become due and payable to the Contractor the sum of ____ dollars (____) 
per day for each and every day that such work is delayed in its 
completion beyond the specified time, as liquidated damages and not as a 
penalty; if the amount due and to become due from the Owner to the 
Contractor is insufficient to pay in full any such liquidated damages, 
the Contractor shall pay to the Owner the amount necessary to effect 
such payment in full: Provided, however, that the Owner shall promptly 
notify the Contractor in writing of the manner in which the amount 
retained, deducted or claimed as liquidated damages was computed.
    Section 3. Cumulative Remedies. Every right or remedy herein 
conferred upon or reserved to the Owner shall be cumulative, shall be in 
addition to every right and remedy now or hereafter existing at law or 
in equity or by statute and the pursuit of any right or remedy shall not 
be construed as an election: Provided, however, that the provision of 
Section 2 of this Article shall be the exclusive measure of damages for 
failure by the Contractor to complete the clearing within the time 
herein agreed upon.

                        Article VI--Miscellaneous

    Section 1. Definitions.
    (a) The term ``Engineer'' shall mean the engineer employed by the 
Owner to provide engineering services for the Project and said 
Engineer's duly authorized assistants and representatives. The term 
``Engineer'' will mean ``Owner'' if no engineer is employed by the Owner 
to provide engineering services.
    (b) The term ``Completion of Clearing'' shall mean full performance 
by the Contractor of the Contractor's obligations under the Contract and 
all amendments and revisions thereof except the Contractor's obligations 
in respect of furnishing (1) the ``Certificate of Contractor and 
Indemnity Agreement'' and (2) the Final Inventory both referred to in 
Article III, Section 1 hereof.
    (c) The term ``Completion'' shall mean full performance by the 
Contractor of the Contractor's obligations under the Contract and all 
amendments and revisions thereof relating to any Section of the Project 
or to the Project.
    Section 2. Patent Infringement. The Contractor shall save harmless 
and indemnify the owner from any and all claims, suits and proceedings 
for the infringement of any patent or patents covering any materials or 
equipment used in construction of the Project.
    Section 3. Permits for Explosives. All permits necessary for the 
handling or use of dynamite or other explosives in connection with the 
construction of the Project shall be obtained by and at the expense of 
the Contractor.
    Section 4. Compliance with Statutes and Regulations. The Contractor 
will comply with all applicable statutes, ordinances, rules, and 
regulations pertaining to the work. The Contractor acknowledges that it 
is familiar with the Rural Electrification Act of 1936, as amended, the 
so-called ``Kick-Back'' Statute (48 Stat. 948), and regulations issued 
pursuant thereto, and 18 U.S.C. Secs. 286, 287, 1001, as amended. The 
Contractor understands that the obligations of the parties hereunder are 
subject to the applicable regulations and orders of governmental 
agencies having jurisdiction in the premises.
    Section 5. Equal Opportunity Provisions.
    (a) Contractor's Representations.
    The Contractor represents that:
    It has __, does not have __, 100 or more employees, and if it has, 
that it has __, has not __, furnished the Equal Employment Opportunity--
-Employers Information Report EEO-1, Standard Form 100, required of 
employers with 100 or more employees pursuant to Executive Order 11246 
and Title VII of the Civil Rights Act of 1964.
    The Contractor agrees that it will obtain, prior to the award of any 
subcontractor for more than $10,000 hereunder to a subcontractor with 
100 or more employees, a statement, signed by the proposed 
subcontractor, that the proposed subcontractor has filed a current 
report on Standard Form 100. The Contractor agrees that if it has 100 or 
more employees and has not submitted a report on Standard Form 100 for 
the current reporting year and that if this Contract will amount to more 
than $10,000, the Contractor will file such report, as required by law, 
and notify, the Owner in writing of such filing prior to the Owner's 
acceptance of this Proposal.
    (b) Equal Opportunity Clause. During the performance of this 
Contract, the Contractor agrees as follows:
    (1) The Contractor will not discriminate against any employee or 
applicant for employment because of race, color, religion, sex, or 
national origin. The Contractor will take affirmative action to ensure 
that applicants are employed, and that employees are treated during 
employment without regard to their race, color, religion, sex, or 
national origin. Such action shall include, but not be limited to the 
following: Employment, upgrading, demotion or transfer; recruitment or 
recruitment advertising; layoff or termination; rates of pay or other 
forms of compensation; and selection for training, including 
apprenticeship. The Contractor agrees to

[[Page 333]]

post in conspicuous places, available to employees and applicants for 
employment, notices to be provided setting forth the provisions of this 
Equal Opportunity Clause.
    (2) The Contractor will, in all solicitations or advertisements for 
employees placed by or on behalf of the Contractor, state that all 
qualified applicants will receive consideration for employment without 
regard to race, color, religion, sex, or national origin.
    (3) The Contractor will send to each labor union or representative 
of workers with which it has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or worker's representatives of the Contractor's commitments 
under this section, and shall post copies of the notice in conspicuous 
places available to employees and applicants for employment.
    (4) The Contractor will comply with all provisions of Executive 
Order 11246 of September 24, 1965, and of the rules, regulations and 
relevant orders of the Secretary of Labor.
    (5) The Contractor will furnish all information and reports required 
by Executive Order 11246 of September 24, 1965, and by rules, 
regulations and orders of the Secretary of Labor, or pursuant thereto, 
and will permit access to its books, records and accounts by the 
administering agency and the Secretary of Labor for purposes of 
investigation to ascertain compliance with such rules, regulations and 
orders.
    (6) In the event of the Contractor's noncompliance with the Equal 
Opportunity Clause of this Contract or with any of the said rules, 
regulations or orders, this Contract may be cancelled, terminated or 
suspended in whole or in part and the Contractor may be declared 
ineligible for further Government contracts or federally-assisted 
construction contracts in accordance with procedures authorized in 
Executive Order 11246 of September 24, 1965, and such other sanctions 
may be imposed and remedies invoked as provided in the said Executive 
Order or by rule, regulation or order of the Secretary of Labor, or as 
otherwise provided by law.
    (7) The Contractor will include this Equal Opportunity Clause in 
every subcontract or purchase order unless exempted by rules, 
regulations or orders of the Secretary of Labor issued pursuant to 
Section 204 of Executive Order 11246 of September 24, 1965, so that such 
provisions will be binding upon each subcontractor or vendor. The 
Contractor will take such action with respect to any subcontract or 
purchase order as the administering agency may direct as a means of 
enforcing such provisions, including sanctions for noncompliance: 
Provided, however, that in the event a Contractor becomes involved in, 
or is threatened with, litigation with a subcontractor or vendor as a 
result of such direction by the administering agency, the Contractor may 
request the United States to enter into such litigation to protect the 
interests of the United States.
    (c) Certificate of Nonsegregated Facilities. The Contractor 
certifies that it does not maintain or provide for its employees any 
segregated facilities at any of its establishments, and that it does not 
permit its employees to perform their services at any location, under 
its control, where segregated facilities are maintained. The Contractor 
certifies further that it will not maintain or provide for its employees 
any segregated facilities at any of its establishments, and that it will 
not permit its employees to perform their services at any location, 
under its control, where segregated facilities are maintained. The 
Contractor agrees that a breach of this certification is a violation of 
the Equal Opportunity Clause in this Contract. As used in this 
certification, the term ``segregated facilities'' means any waiting 
rooms, work areas, restrooms and washrooms, restaurants and other eating 
areas, timeclocks, locker rooms and other storage or dressing areas, 
parking lots, drinking fountains, recreation or entertainment areas, 
transportation, and housing facilities provided for employees which are 
segregated by explicit directive or are in fact segregated on the basis 
of race, color, religion, or national origin, because of habit, local 
custom, or otherwise. The Contractor agrees that (except where it has 
obtained identical certifications from proposed subcontractors for 
specific time periods) it will obtain identical certifications from 
proposed subcontractors prior to the award of subcontracts exceeding 
$10,000 which are not exempt from the provisions of the Equal 
Opportunity Clause, and that it will retain such certifications in its 
files.
    Section 6. Franchises and Rights-of-way. The Contractor will be 
under no obligation to obtain or assist in obtaining any franchises, 
authorizations, permits, or approvals required to be obtained by the 
Owner from Federal, state, county, municipal or other authority; any 
rights-of-way over private lands; or any agreements between the Owner 
and third parties with respect to the construction and operation of the 
Project.
    Section 7. Nonassignment of Contract. The Contractor shall not 
assign the Contract effected by an acceptance of this Proposal or any 
part thereof or enter into any contract with any person, firm or 
corporation for the performance of the Contractor's obligations 
thereunder, or any part thereof, without the approval in writing of the 
Owner.
    Section 8. Extension to Successors and Assigns. Each and all of the 
covenants and agreements contained in the Contract effected by the 
acceptance of the Proposal shall extend to and be binding upon the 
successors and assigns of the parties thereto.


[[Page 334]]


________ (Contractor)
By ________ (President)
________ (Address)
Attest: ________ (Secretary)
Date of Proposal ________

    This Proposal must be signed with the full name of the Contractor. 
If the Contractor is a partnership, the Proposal must be signed in the 
partnership name by a partner. If the Contractor is a corporation, the 
Proposal must be signed in the corporate name by a duly authorized 
officer and the corporate seal affixed and attested by the Secretary of 
the Corporation.

                          Description of Units

    Right-of-Way Clearing Units:
    R1-10. The unit is 1,000 feet in length and 10 feet in width (to be 
measured on one side of the pole line) of actual clearing of right-of-
way. This includes clearing of underbrush, tree removal, and such tree 
trimming as is required so that the right-of-way, except for tree stumps 
which shall not exceed ________ in height, shall be clear from the 
ground up of the width specified on one side of the line of poles 
carrying primary conductors. This unit does not include clearing or 
trimming associated with secondaries or services which is included with 
conductor units. The length of actual clearing shall be measured in a 
straight line parallel to the horizontal line between stakes and across 
the maximum dimension of foliage cleared projected to the ground line. 
All trees and underbrush across the width of the right-of-way, as 
designated by the Engineer shall be considered to be grouped together as 
a single length in measuring the total length of clearing. Spaces along 
the right-of-way in which no trees are to be removed or trimmed or 
underbrush cleared shall be omitted from the total measurement. All 
length thus arrived at, added together and divided by 1,000, shall give 
the number of 1,000-foot R1-10 units of clearing. This unit includes the 
removal or topping, at the option of the Contractor; of danger trees 
outside of the right-of-way when so designated by the Engineer. (Danger 
trees are defined as dead or leaning trees which, in falling, will 
affect the operation of the line.) The Contractor shall not remove or 
trim shade, fruit or ornamental trees unless so directed by the 
Engineer.
    R1-20. This unit is identical with R1-10 except that width is 20 
feet (to be measured 10 feet on each side of the pole line).
    R1-30. This unit is identical with R1-10 except that width is 30 
feet (to be measured 15 feet on each side of the pole line).
    R1-40. This unit is identical with R1-10 except that width is 40 
feet (to be measured 20 feet on each side of the pole line).
    RC1-10, RC1-20, RC1-30, RC1-40. These units are identical to the 
respective R1 units except that chemical treatment of stumps is required 
in addition to the clearing of underbrush, tree removal and tree 
trimming.
    TM-12. The unit is 1,000 feet in length and ____ (____) feet in 
width (to be measured ____ (____) feet on one side of pole line or 
centerline of structures) of actual clearing of right-of-way. This 
includes clearing of underbrush, tree removal, and such tree trimming as 
is required so that the right-of-way, except for tree stumps which shall 
not exceed ____ in height, shall be clear from the ground up on one side 
of the line poles carrying conductors. (See Detail A, Drawing TM-12-2A). 
The length of actual clearing shall be measured in a straight line 
parallel to the horizontal line between poles or centerline of 
structures and across the maximum dimension of foliage cleared projected 
to the ground line (See Detail B, Drawing TM-12-2A). All trees and 
underbrush across the width of the right-of-way shall be considered to 
be grouped together as a single length in measuring the total length of 
clearing (See Detail C, Drawing TM-12-2A). Spaces along the right-of-way 
in which no trees are to be removed or trimmed or underbrush cleared 
shall be omitted from the total measurement. All length thus arrived at, 
added together and divided by 1,000 shall give the number of TM-12 units 
of clearing. The Contractor shall not remove or trim shade, fruit or 
ornamental trees unless so directed by the Engineer in writing.
    TM-12 (1). This unit is identical with TM-12, except the full width 
of the right-of-way to be cleared shall be ____ (____) feet wide (to be 
measured ____ (____) feet on each side of the pole line or centerline of 
structures) (See Detail D, Drawing TM-12-2A.)
    TMC-12, TMC-12(1). These units are identical to the respective TM 
units except that chemical treatment of stumps is required in addition 
to the clearing of underbrush, tree removal and tree trimming.
    TM-13. The unit, for purpose of quoting, is 1,000 feet in length of 
clearing off the right-of-way. The Engineer will select those trees of 
the right-of-way that he deems to be a hazard to the line and will 
designate them to the Contractor in writing as danger trees. When so 
designated, the Contractor shall remove or top such trees at his option 
except that the Contractor shall trim and not remove shade, fruit or 
ornamental trees unless otherwise directed by the Engineer in writing 
(See Drawings TM-12-2A and TM-13 for examples of danger trees).
    The measurement of length of right-of-way to be cleared shall be 
considered as a straight line parallel to the horizontal line between 
poles or centerline of structures, such measurement of length to be 
based on maximum dimension of foliage (not trunk) projected to the 
ground line (See Details E, F, G, and H, Drawing TM-12-2A). Dead trees 
having no foliage shall be measured across the maximum dimension and 
multiplied by

[[Page 335]]

two. (See Detail F, Drawing TM-12-2A). Each tree so removed shall be 
added together to determine the total length of clearing. All length 
thus arrived at, added together and divided by 1,000 shall give the 
number of TM-13 units (Example: Details E, F, G, and H, Drawing TM-12-
2A, total .1 of a TM-13 unit).
    TM-14. The unit is 1,000 feet in length and ____ (____) feet in 
width (to be measured ____ (____) feet on one side of right-of-way 
center line) of actual clearing of right-of-way. Trees and underbrush 
should be cleared from the ground up within 10 feet of any structure 
location. The Engineer will mark the trees and brush to be cleared to 
provide ``undulating'' boundaries. Low growing trees and brush are to be 
left in the right-of-way to the extent it will not be hazardous to the 
line or will not interfere with the access road. The length of actual 
clearing shall be measured in a straight line parallel to the horizontal 
line between poles or center line of structures and across the maximum 
dimension of foliage cleared projected to the ground line (See Detail B, 
Drawing TM-12-2A). All trees and underbrush cleared across the right-of-
way shall be considered to be grouped together as a single length in 
measuring the total length of clearing (See Detail C, Drawing TM-12-2A). 
Spaces along the right-of-way in which no trees are to be removed or 
trimmed or underbrush cleared shall be omitted from the total 
measurement.
    TM-14 (1). This unit is identical with TM-14 except the full width 
of the right-of-way to be cleared shall be ____ (____) feet wide (See 
Detail D, Drawing TM-12-2A).
    TM-15. The unit is 1,000 feet in length and ____ (____) feet in 
width (to be measured ____ (____) feet on one side of the right-of-way 
center line) of actual clearing of the right-of-way. Trees and 
underbrush should be cleared from ground up within 10 feet of any 
structure location. The Engineer will mark the trees and brush to be 
cleared to provide a ``feathered'' appearance in the right-of-way. Low 
growing trees and brush are to be left in the right-of-way to the extent 
it will not be hazardous to the line or will not interfere with the 
access road.
    The length of actual clearing shall be measured in a straight line 
parallel to the horizontal line between poles or center line of 
structures and across the maximum dimension of foliage cleared projected 
to ground line. (See Detail B, Drawing TM-12-2A). All trees and 
underbrush cleared across the right-of-way shall be considered to be 
grouped together as a single length in measuring the total length of 
clearing (See Detail C, Drawing TM-12-2A). Spaces along the right-of-
way, in which no trees are to be removed or trimmed or underbrush 
cleared shall be omitted from the total measurement.
    TM-15 (1). This unit is identical to TM-15 except the full width of 
the right-of-way to be cleared shall be ____ (____) feet wide (See 
Detail D, Drawing TM-12-2A).
    Additional Requirements. (When specifying units denote type of 
disposal A or B).
    A. Trees, brush, branches and refuse shall, without delay be 
disposed of by such of the following methods as the Engineer will direct 
(Engineer to strike out methods not to be used).
    1. Burned
    2. Piled on one side of right-of-way
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (Describe)
    B. Trees that are felled shall be cut to commercial wood lengths, 
stacked neatly, and left on the right-of-way for the landowner. 
Commercial wood length means the length designated by the Engineer but 
in no case shall it be required to be less than ____ (____) feet. Brush, 
branches and refuse shall, without delay, be disposed of by such of the 
following methods as the Engineer will direct (Engineer to strike out 
methods not to be used).
    1. Burned
    2. Piled on one side of right-of-way
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (Describe)

                             Specifications

    In preparing the right-of-way, trees shall be removed, underbrush 
cleared, and trees trimmed so that the right-of-way shall be clear from 
the ground up or as specified. Trees fronting each side of the right-of-
way shall be trimmed symmetrically unless otherwise directed by the 
Engineer. Dead trees beyond the right-of-way which would strike the line 
in falling shall be removed. Leaning trees beyond the right-of-way which 
would strike the line in falling and which would require topping if not 
removed may be removed or topped at the direction of the Engineer.
    Where RC or TMC units are specified, the right-of-way shall be 
cleared in accordance with the instructions in the preceding paragraph 
and in addition, all stumps one-half inch in diameter and larger shall 
be sprayed as specified by the Engineer.

                           Right-of-Way Units

                       Distribution Clearing Units                      
------------------------------------------------------------------------
                                                               Extended 
            Unit No.              No. of units   Unit price     price   
------------------------------------------------------------------------
  ..............................                                        
------------------------------------------------------------------------

Total

[[Page 336]]

________________________________________________________________________

                                           Transmission Clearing Units                                          
----------------------------------------------------------------------------------------------------------------
              Unit  No.                     No. of  units             Unit  price            Extended  price    
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------

Total___________________________________________________________________
Total Distribution and Transmission ________

                               Acceptance

    The Owner hereby accepts the foregoing Proposal of the Contractor, 
________ for the following:

Total Distribution Clearing: $________
Total Transmission Clearing: $________
The total contract price is $________
________ Owner..........................................................
By ________ President
________ Secretary
________ Date of Contract

                             [End of clause]



Sec. 1726.322  Transmission system right-of-way clearing contract, RUS Form 203.

    The contract form in this section shall be used when required by 
this part. This form refers to guide drawings, which do not contain 
requirements, and, hence, are not included in this part. The guide 
drawings are included in the printed form available from RUS (See 
Sec. 1726.300.).

           Transmission System Right-of-Way Clearing Contract

                   Notice and Instructions to Bidders

    1. Sealed proposals for the clearing of underbrush and trees from 
right-of-way, including the supply of necessary labor and equipment, of 
a rural electric system of ____ (hereinafter called the ``Owner'') 
bearing the RUS Designation ____ will be received by the Owner on or 
before ____ o'clock __M., ____ 19____, at its office at ____ at which 
time and place the proposals will be publicly opened and read. Any 
proposal received subsequent to the time specified will be promptly 
returned to the Bidder unopened.
    2. Description of Project. The Project will consist of 
approximately: ____ miles of right-of-way clearing. The Project is 
located in ____ Counties in the State of ____.
    3. Obtaining Documents. All necessary forms and other documents for 
bidders may be obtained from the Owner, or from the Engineer ____ at the 
latter's office at ____. A copy of the Loan Contract (if the Project is 
to be financed in whole or in part, pursuant to a Loan Contract) between 
the Owner and the United States of America acting through the 
Administrator of the Rural Utilities Service (hereinafter called the 
Administrator), and any other lender's contract may be examined at the 
office of the Owner. Each set of documents will have a serial number, 
given by the Engineer, and the number of each set with the name of the 
recipient will be recorded by the Engineer. Bids will be accepted only 
from the original recipient.
    4. Manner of Submitting Proposals. Proposals and all supporting 
instruments must be submitted on the forms furnished by the Owner and 
must be delivered in a sealed envelope addressed to the Owner. The name 
and address of the Bidder, its license number if a license is required 
by the State, and the date and hour of the opening of bids must appear 
on the envelope in which the Proposal is submitted. Proposals must be 
filled in in ink or typewritten. No alterations or interlineations will 
be permitted, unless made before submission, and initialed and dated.
    5. Familiarity with Conditions. Prior to the submission of the 
Proposal the Bidder shall make and shall be deemed to have made a 
careful examination of the site of the Project and of the 
Specifications, Drawings, and forms of Contractor's Proposal and 
Contractor's Bond on file with the Secretary of the Owner and with the 
Engineer, and shall become informed as to the location and nature of the 
proposed work, the transportation facilities, the kind and character of 
soil and terrain to be encountered, the kind of facilities required 
before and during the construction of the Project. Bidders will be 
required to comply with all applicable statutes, regulations, etc., 
including those pertaining to the licensing of contractors, and the so-
called ``Kick-back Statute'' (48 Stat. 948) and regulations issued 
pursuant thereto.
    6. Proposals will be accepted only from those prequalified bidders 
invited by the Owner to submit a proposal.
    7. The time for Completion of the Project shall be as specified by 
the Engineer in the Proposal.
    8. Bid Bond. Each Proposal must be accompanied by a bid bond in the 
form attached or a certified check on a bank that is a member of the 
Federal Deposit Insurance Corporation, payable to the order of the 
Owner, in an amount equal to ten percent (10%) of the maximum bid price. 
Each Bidder agrees, provided its Proposal is one of the three low 
Proposals, that, by filing its Proposal together with such bid bond or 
check in consideration of the Owner's receiving and considering such 
Proposals, said Proposal shall be firm and binding upon each such Bidder 
and such bid bond or check shall be held by the Owner until a Proposal 
is accepted and a satisfactory Contractor's Bond is furnished (where 
required) by the successful Bidder and such acceptance has been approved 
by the Administrator, or for a period not to exceed sixty (60) days from 
the date hereinbefore set

[[Page 337]]

for the opening of Proposals, whichever period shall be the shorter. If 
such Proposals is not one of the three low Proposals, the bid bond or 
check will be returned in each instance within a period of ten (10) days 
to the Bidder furnishing same.
    9. Contractor's Bond. The successful Bidder will be required to 
execute two additional counterparts of the Proposal and, for a Contract 
in excess of $100,000, to furnish a Contractor's Bond in triplicate in 
the form attached hereto with sureties listed by the United States 
Treasury Department as Acceptable Sureties, in a penal sum not less than 
the contract price.
    10. Failure to Furnish Contractor's Bond. Should the successful 
Bidder fail or refuse to execute such counterparts or to furnish a 
Contractor's Bond (where required) within ten (10) days after written 
notification of the acceptance of the Proposal by the Owner, the Bidder 
will be considered to have abandoned the Proposal. In such event, the 
Owner shall be entitled (a) to enforce the bid bond in accordance with 
its terms, or (b) if a certified check has been delivered with the 
Proposal, to retain from the proceeds of the certified check, the 
difference (not exceeding the amount of the certified check) between the 
amount of the Proposal and such larger amount for which the Owner may in 
good faith contract with another party to construct the Project. The 
term ``successful Bidder'' shall be deemed to include any Bidder whose 
Proposal is accepted after another Bidder has previously refused or has 
been unable to execute the counterparts or to furnish a satisfactory 
Contractor's Bond (where required.)
    11. Contract is Entire Agreement. The Contract to be effected by the 
acceptance of the Proposal shall be deemed to include the entire 
agreement between the parties thereto, and the Bidder shall not claim 
any modification thereof resulting from any representation or promise 
made at any time by any officer, agent or employee of the Owner or by 
any other person.
    12. Minor Irregularities. The Owner reserves the right to waive 
minor irregularities or minor errors in any Proposal, if it appears to 
the Owner that such irregularities or errors were made through 
inadvertence. Any such irregularities or errors so waived must be 
corrected on the Proposal in which they occur prior to the acceptance 
thereof by the Owner.
    13. Bid Rejection. The Owner reserves the right to reject any or all 
Proposals.
    14. Definition of Terms. The terms ``Administrator,'' ``Engineer,'' 
``Supervisor,'' ``Project,'' ``Completion of Construction'' and 
``Completion of the Project'' as used throughout this Contract shall be 
as defined in Article VI, Section 1, of the Contractor's Proposal.
    15. The Owner represents:
    a. All easements and rights-of-way, except as shown on maps included 
in the Specifications, have been obtained from the Owners of the 
properties across which the project is to be carried out (including 
tenants who may reasonably be expected to object to such clearing). The 
remaining easements and rights-of-way, if any, will be obtained as 
required to avoid delay in construction.
    b. Prompt payment for the work to be done will be made with funds 
pursuant to the Loan Contract, or with funds otherwise available to the 
Owner.
    If the Owner shall fail to comply with any of the undertakings 
contained in the foregoing representations or if any such 
representations shall be incorrect, the Bidder will be entitled to 
extension of time of completion for a period equal to the delay, if any, 
caused by the failure of the Owner to comply with such undertakings or 
by any such incorrect representation; provided the Bidder shall have 
promptly notified the Owner in writing of its desire to extend the time 
of completion in accordance with the foregoing.

________ Owner
By ________
________, 19____
Contractor's Proposal
(Proposal shall be submitted in ink or typewritten)
To: ________ (Hereinafter called the ``Owner'')

                           Article I--General

    Section 1. Offer to Clear. The undersigned (hereinafter called the 
``Bidder'') hereby proposes to furnish all materials, equipment, 
machinery, tools, labor, transportation and other means required to 
clear rights-of-way for rural electric system bearing the RUS 
Designation ____ in strict accordance with the Specifications and 
Drawings therefore, attached hereto and made a part hereof, for the 
prices hereinafter stated.
    Section 2. Description of Contract. The Notice and Instructions to 
Bidders and Specifications attached hereto and made a part hereof, 
together with the Proposal and Acceptance constitute the contract. The 
Specifications consisting of maps, plan and profile sheets showing the 
number and types of right-of-way units that are to be cleared for each 
parcel, along with other special drawings are identified as follows: 
____.
    Section 3. Familiarity with Conditions. The Bidder has made a 
careful examination of the site of the Project and of the 
Specifications, Drawings, and form of Contractor's Bond attached hereto, 
and has become informed as to the location and nature of the proposed 
work, the transportation facilities, the kind and character of soil and 
terrain to be encountered, and the kind of facilities required for 
undertaking and completing the Project, and has become acquainted with 
the

[[Page 338]]

labor conditions, state and local laws and regulations which would 
affect the proposed work.
    Section 4. License. The Bidder warrants that a Contractor's License 
is ____, is not ____, required, and if required, it possesses 
Contractor's license number ________ for the State of ________ in which 
the Project is located and said license expires on ________, 19____.
    Section 5. The Bidder warrants that this Proposal is made in good 
faith and without collusion or connection with any person or persons 
bidding for the same work.
    Section 6. The Bidder warrants that it possesses adequate financial 
resources and agrees that in the event this Proposal is accepted and a 
Contractor's Bond is required, it will furnish a Contractor's Bond in 
the form attached hereto, in a penal sum not less than the maximum 
Contractor price, with a surety or sureties listed by the United States 
Treasury Department as Acceptable Sureties.
    In the event that the surety or sureties on the performance bond 
delivered to the Owner contemporaneously with the execution of the 
Contract or on any bond or bonds delivered in substitution therefore or 
in addition thereto shall at any time become unsatisfactory to the Owner 
or the Administrator, the Bidder agrees to deliver to the Owner another 
or an additional bond.

                        Article II--Construction

    Section 1. Time and Manner of Work.
    (a) Bidder agrees to commence work on the Project on a date 
(hereinafter called the ``Commencement Date'') which shall be determined 
by the Engineer after notice in writing of approval of the Contract by 
the Administrator, but in no event will the Commencement Date be later 
than ________ calendar days after date of approval of the Contract by 
the Administrator. The Bidder further agrees to prosecute diligently and 
to complete construction in strict accordance with the Specifications 
and Drawings within ______ (______) calendar days (excluding Sundays) 
after Commencement Date.
    (b) The time for Completion of Clearing shall be extended for the 
period of any reasonable delay which is due exclusively to causes beyond 
the control and without the fault of the Bidder, including Acts of God, 
fires, floods, inability to obtain materials and acts or omissions of 
the Owner with respect to matters for which the Owner is solely 
responsible: Provided however, that no such extension of time for 
completion shall be granted the Bidder unless within ten (10) days after 
the happening of any event relied upon by the Bidder for such an 
extension of time the Bidder shall have made a request therefore in 
writing to the Owner, and provided further that no delay in such time of 
completion or in the progress of the work which results from any of the 
above causes except acts or omission of the Owner, shall result in any 
liability on the part of the Owner.
    (c) The sequence of construction shall be as set forth below, the 
numbers or names being the designations of extensions or areas 
(hereinafter called the ``Sections'') corresponding to the numbers or 
names shown on the maps attached hereto, or if no Sections are set forth 
below, the sequence of construction shall be as determined by the 
Bidder, subject to the approval of the Engineer ______.
    (d) The Owner, acting through the Engineer and with the approval of 
the Administrator 1, may from time to time during the 
progress of the work on the Project make such changes in additions to or 
subtractions from the Specifications, Drawings, and sequence of 
construction provided for in the previous paragraph which are part of 
the Contractor's Proposal as conditions may warrant: Provided, however, 
that if any change in the construction to be done shall require an 
extension of time, a reasonable extension will be granted if the Bidder 
shall make a written request therefore to the Owner within ten (10) days 
after any such change is made. And provided further, that if the cost to 
the Bidder of construction of the Project shall be materially increase 
by any such change or addition, the Owner shall pay the Bidder for the 
reasonable cost thereof in accordance with a Contract Amendment signed 
by the Owner and the Bidder and approved by the Administrator 
2, but no claim for additional compensation for any such 
change or addition will be considered unless the Bidder shall have made 
a written request therefore to the Owner prior to the commencement of 
work in connection with such change or addition.
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    \1\ As long as the total price of this contract including all 
amendments is less than 120 percent of the original contract price as 
stated in the acceptance hereto, amendments executed on RUS Form 238 are 
not subject to the approval of the Administrator. Whenever an amendment 
to this contract causes the total amended contract to exceed 120 percent 
of the original contract price, that amendment and all subsequent 
amendments to this contract shall be made subject to the approval of the 
Administrator.
    \2\ See Footnote 1.
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    (e) The Bidder will not perform any work hereunder on Sundays unless 
there is urgent need for such Sunday work and the Owner consents thereto 
in writing. The time for completion specified in subsection (a) of this 
Section 1 shall not be affected in any way by inclusion of this 
subsection nor by the Owner's consent or lack of consent to Sunday work 
hereunder.

[[Page 339]]

    Section 2. Environmental Protection. The Bidder shall perform work 
in such a manner as to maximize preservation of beauty, conservation of 
natural resources, and minimize marring and scarring of the landscape 
and silting of streams. There should be no deposition of trash in 
streams or waterways. Herbicides, other chemicals or their containers 
should not be deposited in or near streams, waterways or pastures. The 
Bidder will be required to follow, under the general direction of the 
engineer, the criteria relating to environmental protection as specified 
herein by the engineer.
    Section 3. Supervision and Inspection.
    (a) The Bidder shall cause the work on the Project to receive 
constant supervision by a competent superintendent (hereinafter called 
the ``Superintendent'') who shall be present at all times during working 
hours where work is being carried on. The Bidder shall also employ in 
connection with the Project, capable, experienced and reliable foremen 
and such skilled workmen as may be required for the various classes of 
work to be performed. Directions and instructions given to the 
Superintendent shall be binding upon the Bidder.
    (b) The Owner reserves the right to require the removal from the 
Project of any employee of the Bidder if in the judgment of the Owner 
such removal shall be necessary in order to protect the interest of the 
Owner. The Owner or the Supervisor, if any, shall have the right to 
require the Bidder to increase the number of its employees and to 
increase or change the amount or kind of tools and equipment if at any 
time the progress of the work shall be unsatisfactory to the Owner or 
Supervisor; but the failure of the Owner or Supervisor to give any such 
directions shall not relieve the Bidder of its obligations to complete 
the work within the time and in the manner specified in this proposal.
    (c) The manner of carrying out the Project, and all materials and 
equipment used therein, shall be subject to the inspection, tests and 
approval of the Owner and the Administrator, and the Bidder shall 
furnish all information required by the Owner or by the Administrator 
concerning the nature or source of any materials incorporated or to be 
incorporated in the Project. The Owner and the Administrator shall have 
the right to inspect all payrolls, invoices of materials, and other data 
and records of the Bidder and of any subcontractor, relevant to the 
Project. The Bidder shall provide all reasonable facilities necessary 
for such inspection and tests and shall maintain an office at the site 
of the Project, with telephone service where obtainable and at least one 
office employee to whom directions and instructions of the Owner may be 
delivered. Delivery of such directions or instructions in writing to the 
employee of the Bidder at such office shall constitute delivery to the 
Bidder. The Bidder shall have an authorized agent accompany the Engineer 
when final inspection is made and, if requested by the Owner, when any 
other inspection is made.
    (d) In the event that the Owner, or the Administrator, shall 
determine that the work contains or may contain numerous defects, it 
shall be the duty of the Bidder and the Bidder's Surety or Sureties, if 
any, to have an inspection made by an engineer approved by the Owner and 
the Administrator for the purpose of determining the exact nature, 
extent and location of such defects.
    (e) The Engineer may recommend to the Owner that the Bidder suspend 
the work wholly or in part for such period or periods as the Engineer 
may deem necessary due to unsuitable weather or such other conditions as 
are considered unfavorable for the satisfactory prosecution of the work 
or because of the failure of the Bidder to comply with any of the 
provisions of the Contract: Provided, however, that the Bidder shall not 
suspend work pursuant to this provision without written authority from 
the Owner to do so. The time of completion hereinabove set forth shall 
be increased by the number of days of any such suspension, except when 
such suspension is due to the failure of the Bidder to comply with any 
of the provisions of this Contract. In the event that work is suspended 
by the Bidder with the consent of the Owner, the Bidder before resuming 
work shall give the Owner at least twenty-four (24) hours notice thereof 
in writing
    Section 4. Unsuitable Workmanship. The acceptance of any workmanship 
by the Owner or the Engineer shall not preclude the subsequent rejection 
thereof if such workmanship shall be found to be unsuitable. Workmanship 
found unsuitable before final acceptance of the work shall be remedied, 
by and at the expense of the Bidder. The Bidder shall not be entitled to 
any payment hereunder so long as any unsuitable workmanship in respect 
to the Project, of which the Bidder shall have had notice, shall not 
have been remedied.

               Article III--Payments and Release of Liens

    Section 1. Payments to Bidder.
    (a) Within the first fifteen (15) days of each calendar month, the 
Owner shall make partial payment to the Bidder for work accomplished 
during the preceding calendar month on the basis of completed rights-of-
way clearing units furnished and certified to by the Bidder, recommended 
by the Engineer and approved by the Owner solely for the purposes of 
payment: Provided, however, that such approval shall not be deemed 
approval of the workmanship or materials. Only ninety percent (90%) of 
each such estimate shall be paid by the Owner to the Bidder prior to 
Completion of the Project: Provided, however, that at any time after 
work,

[[Page 340]]

which, in the sole determination of the Engineer, amounts to fifty 
percent (50%) of the maximum contract price has been completed, the 
Owner may elect, in lieu of paying ninety percent (90%) of each such 
subsequent estimate, to pay each such subsequent estimate in full. Upon 
completion by the Bidder of the Project, the Engineer will prepare a 
Final Inventory of the Project showing the total number and character of 
rights-of-way clearing units and, after checking such inventory with the 
Bidder, will certify it to the Owner, together with a certificate of the 
total cost of the construction performed. Upon the approval of such 
certificates by the Owner and the Administrator, the Owner shall make 
payment to the Bidder of all amounts to which the Bidder shall be 
entitled thereunder which shall not have been paid: Provided, however, 
that such final payments shall be made not later than ninety (90) days 
after the date of Completion of Construction of the Project, as 
specified in the Certificate of Completion, unless withheld because of 
the fault of the Bidder.
    (b) The Bidder shall be paid on the basis of the number of rights-
of-way clearing units actually completed at the direction of the Owner 
shown by the inventory based on the staking sheets or structure lists; 
Provided, however, that the total cost shall not exceed the maximum 
contract price for the construction of the Project as set forth in the 
Acceptance, unless such excess shall have been approved in writing by 
the Administrator.
    (c) Notwithstanding the provisions of Section 1 (a) above, the 
Bidder may, by giving written notice thereof to the Owner elect to 
receive payment in full for any Section of the Project upon:
    (1) completion of such Section as certified by the Engineer and 
approved by the Owner and the Administrator;
    (2) submission to the Owner and the Administrator of the releases of 
lien and the certificate referred to in Section 2 hereof;
    (3) approval by the Owner and the Administrator of the inventory in 
respect of such Section; and
    (4) submission to the Owner and the Administrator of the consent in 
writing by the Surety or Sureties, if any, on the Contractor's Bond to 
payment in full for such Section prior to Completion of Project.
    If no Sections are designated in Article II, Section 1 (c), the term 
``Section'' shall mean for purposes of this subsection (a) and Article 
IV, Section 3 (b) only, a part of the Project as designated by the Owner 
which represents at least twenty-five percent (25%) of the maximum 
Contract price as stated in Article III, Section 1.
    (d) Interest at the rate of ____ percent 3 (____%) per 
annum shall be paid by the Owner to the Bidder on all unpaid balances 
due on monthly estimates, commencing fifteen (15) days after the due 
date; provided the delay in payment beyond the due date is not caused by 
any condition within the control of the Bidder. The due date for 
purposes of such monthly payment shall be the fifteenth day of each 
calendar month provided (1) the Bidder on or before the fifth day of 
such month shall have submitted its certification of rights-of-way 
clearing units completed during the preceding month and (2) the Owner on 
or before the fifteenth day of such month shall have approved such 
certification. If, for reasons not due to the Bidder's fault, such 
approval shall not have been given on or before the fifteenth day of 
such month, the due date for purposes of this subsection (d) shall be 
the fifteenth day of such month notwithstanding the absence of the 
approval of the certification.
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    \3\ The Owner shall insert a 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.
---------------------------------------------------------------------------

    (e) Interest at the rate of ____ percent 4 (____%) per 
annum shall be paid by the Owner to the Bidder on the final payment for 
the Project or any completed Section thereof, commencing fifteen (15) 
days after the due date. The due date for purposes of such final payment 
shall be the date of approval by the Administrator of all of the 
documents requiring such approval, as a condition precedent to the 
making of final payment, or ninety (90) days after the date of 
Completion of Construction of the Project, as specified in the 
Certificate of Completion, whichever date is earlier.
---------------------------------------------------------------------------

    \4\ See Footnote 3.
---------------------------------------------------------------------------

    (f) No payment shall be due while the Bidder is in default in 
respect of any of the provisions of this Contract and the Owner may 
withhold from the Bidder the amount of any claim by a third party 
against either the Bidder or the Owner based upon an alleged failure of 
the Bidder to perform the work hereunder in accordance with the 
provisions of this Contract.
    Section 2. Release of Liens and Certificate of Contractor. (See 
sample RUS Form 224, Waiver and Release of Lien and sample RUS Form 231, 
Certificate of Contractor.) Upon the Completion of Clearing by the 
Bidder (or any Section thereof if the Bidder shall elect to receive 
payment in full for any section when completed as provided above) but 
prior to final payment to the Bidder the Bidder shall deliver to the 
Owner, in duplicate, releases of all liens and of rights to claim any 
lien, in the form attached hereto from all manufacturers, materialmen, 
and subcontractors furnishing services or materials

[[Page 341]]

for the Project or such Section and a certificate in the form attached 
hereto to the effect that all labor used on or for the Project or such 
Section has been paid and that all such releases have been submitted to 
the Owner for approval.
    Section 3. Payments to Subcontractors. The Bidder shall pay each 
subcontractor, if any, within five (5) days after receipt of any payment 
from the Owner, the amount thereof allowed the Bidder for and on account 
of work performed by each subcontractor.

            Article IV--Particular Undertakings of the Bidder

    Section 1. Protection to Persons and Property. The Bidder shall at 
all times take all reasonable precautions for the safety of employees on 
the work and of the public, and shall comply with all applicable 
provisions of Federal, State, and Municipal safety laws and building and 
construction codes, as well as the safety rules and regulations of the 
Owner. All machinery and equipment and other physical hazards shall be 
guarded in accordance with the ``Manual of Accident Prevention in 
Construction'' of the Associated General Contractors of America unless 
such instructions are incompatible with Federal, State, or Municipal 
laws or regulations.
    The following provisions shall not limit the generality of the above 
requirements:
    (a) The Bidder shall at no time and under no circumstances cause or 
permit any employee of the Bidder to perform any work upon energized 
lines, or upon poles carrying energized lines, unless otherwise 
specified in the Notice and Instructions to Bidders.
    (b) The Bidder shall so conduct the construction of the Project as 
to cause the least possible obstruction of Public highways.
    (c) The Bidder shall provide and maintain all such guard lights and 
other protection for the public as may be required by applicable 
statutes, ordinances and regulations or by local conditions.
    (d) The Bidder shall do all things necessary or expedient to 
properly protect any and all parallel, converging and intersecting 
lines, joint line poles, highways and any and all property of others 
from damage, and in the event that any such parallel, converging and 
intersecting lines, joint line poles, highways or other property are 
damaged in the course of the construction of the Project, the Bidder 
shall at its own expense restore any or all of such damaged property 
immediately to as good a state as before such damage occurred.
    (e) Where the right-of-way of the Project traverses cultivated 
lands, the Bidder shall limit the movement of its crews and equipment so 
as to cause as little damage as possible to crops, orchards or property 
and shall endeavor to avoid marring the lands. All fences which are 
necessarily opened or moved during the construction of the Project shall 
be replaced in as good condition as they were found and precautions 
shall be taken to prevent the escape of livestock. The Bidder shall not 
be responsible for loss of or damage to crops, orchards or property 
(other than livestock) on the right-of-way necessarily incident to the 
construction of the Project and not caused by negligence or inefficient 
operation of the Bidder. The Bidder shall be responsible for all other 
loss of or damage to crops, orchards, or property, whether on or off the 
right-of-way, and for all loss of or damage to livestock caused by the 
construction of the Project. The right-of-way for purposes of this said 
section shall consist of area extending ________ feet on both sides of 
the center line of the poles along the route of the Project lines, plus 
such area reasonably required by the Bidder for access to the route of 
the Project lines from Public roads to carry on construction activities.
    (f) The Project, from the commencement of work to completion, or to 
such earlier date or dates when the Owner may take possession and 
control in whole or in part as hereinafter provided shall be under the 
charge and control in whole or in part as hereinafter provided shall be 
under the charge and control of the Bidder and during such period of 
control by the Bidder all risks in connection with the construction of 
the Project and the materials to be used therein shall be borne by the 
Bidder. The Bidder shall make good and fully repair all injuries and 
damages to the Project or any portion thereof under the control of the 
Bidder by reason of any Act of God or other casualty or cause whether or 
not the same shall have occurred by reason of the Bidder's negligence.
    (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.
    (ii) To the maximum extent permitted by law, Bidder shall defend, 
indemnify, and hold harmless Owner and Owner's directors, officers, and 
employees from all liens and claims filed or asserted against Owner, its 
directors, officers, and employees, or Owner's property or facilities, 
for services performed or materials or equipment furnished by Bidder, 
its subcontractors and suppliers of any tier, and

[[Page 342]]

from all losses, demands, and causes of action arising out of any such 
lien or claim. Bidder shall promptly discharge or remove any such lien 
or claim by bonding, payment, or otherwise and shall notify Owner 
promptly when it has done so. If Bidder does not cause such lien or 
claim to be discharged or released by payment, bonding, or otherwise, 
Owner shall have the right (but shall not be obligated) to pay all sums 
necessary to obtain any such discharge or release and to deduct all 
amounts so paid from the amount due Bidder.
    (iii) Bidder shall provide to Owner's satisfaction evidence of 
Bidder's ability to comply with the indemnification provisions of 
subparagraphs i and ii above, which evidence may include but may not be 
limited to a bond or liability insurance policy obtained for this 
purpose through a licensed surety or insurance company.
    (g) Any and all excess earth, rock, debris, underbrush and other 
useless material shall be removed by the Bidder from the site of the 
Project as rapidly as practicable as the work progresses. There should 
no disposition of trash in streams or waterways. Herbicides, other 
chemicals or their containers should not be deposited in or near 
streams, waterways or pastures.
    (h) Upon violation by the Bidder of any of the provisions of this 
section, after written notice of such violation given to the Bidder by 
the Engineer or the Owner, the Bidder shall immediately correct such 
violation. Upon failure of the Bidder so to do the Owner may correct 
such violation at the Bidder's expense: Provided, however, that the 
Owner may, if it deems it necessary or advisable, correct such violation 
at the Bidder's expense without such prior notice to the Bidder.
    (i) The Bidder shall submit to the Owner monthly reports in 
duplicate of all accidents, giving such data as may be prescribed by the 
Owner.
    (j) The Bidder shall not proceed with the cutting of trees or 
clearing of right-of-way without written notification from the Owner 
that proper authorization has been received from the owner of the 
property, and the Bidder shall promptly notify the Owner whenever any 
landowner objects to the trimming or felling of any trees or the 
performance of any other work on its land in connection with the Project 
and shall obtain the consent in writing of the Owner before proceeding 
in any such case.
    Section 2. Insurance. The Bidder shall take out and maintain 
throughout the contract period insurance of the following types and 
minimum amounts:
    (a) Workers' compensation and employers' liability insurance, as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to the workers' 
compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    (b) Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    (c) Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, nonowned, or hired, shall 
have limits for bodily injury or death of not less than $1 million per 
person and $1 million per occurrence, and property damage limits of $1 
million for each occurrence. This required insurance may be in a policy 
or policies of insurance, primary and excess including the umbrella or 
catastrophe form.
    The Owner shall have the right at any time to require public 
liability insurance and property damage liability insurance greater than 
those required in subsection ``b'' and ``c'' of this Section. In any 
such event, the additional premium or premiums payable solely as the 
result of such additional insurance shall be added to the Contract 
price.
    The Owner shall be named as Additional Insured on all policies of 
insurance required in subsections ``b'' and ``c'' of this Section.
    The policies of insurance shall be in such form and issued by such 
insurer as shall be satisfactory to the Owner. The Bidder shall furnish 
the Owner a certificate evidencing compliance with the foregoing 
requirements which shall provide not less than (30) days prior written 
notice to the Owner of any cancellation or material change in the 
insurance.
    Section 3. Delivery of Possession and Control to Owner.
    (a) Upon written request of the Owner the Bidder shall deliver to 
the Owner full possession and control of any portion of the Project 
provided the Bidder shall have been paid at least ninety percent (90%) 
of the cost of construction of such portion. Upon such delivery of the 
possession and control of any portion of the Project to the Owner, the 
risk and obligations of the Bidder as set forth in Article IV, Section 
1(f) hereof with respect to such portion of the Project so delivered to 
the Owner shall be terminated: Provided, however, that nothing herein 
contained shall

[[Page 343]]

relieve the Bidder of any liability with respect to defective materials 
and workmanship as contained in Article II, Section 4 hereof.
    (b) Where the construction of a Section as hereinbefore defined in 
Article II, Section 1 (c) and Article III, Section 1(c) shall have been 
completed by the Bidder, the Owner agrees, after receipt of a written 
request from the Bidder, to accept delivery of possession and control of 
such Section upon the issuance by the Engineer of a written statement 
that the Section has been inspected and found acceptable by the 
Engineer. Upon such delivery of the possession and control of any such 
Section to the Owner, the risk and obligations of the Bidder as set 
forth in Article IV, Section 1(f) hereof with respect to such Section so 
delivered to the Owner shall be terminated; Provided, however, that 
nothing herein contained shall relieve the Bidder of any liability with 
respect to defective materials or workmanship as contained in Article 
II, Section 4 hereof. Section 4. Assignment of Guarantees. All 
guarantees of materials and workmanship running in favor of the Bidder 
shall be transferred and assigned to the Owner prior to the time the 
Bidder receives final payment.

                           Article V--Remedies

    Section 1. Completion of Bidder's Default. If default shall be made 
by the Bidder or by any subcontractor in the performance of any of the 
terms of this Proposal, the Owner, without in any manner limiting its 
legal and equitable remedies in the circumstances, may serve upon the 
Bidder and the Surety or Sureties, if any, upon the Contractor's Bond or 
Bonds a written notice requiring the Bidder to cause such default to be 
corrected forthwith. Unless within twenty (20) days after the service of 
such notice upon the Bidder such default shall be corrected or 
arrangements for the correction thereof satisfactory to both the Owner 
and the Administrator shall be made by the Bidder or its Surety or 
Sureties if any, the Owner may take over the Project and prosecute the 
same to completion by contract or otherwise for the account and at the 
expense of the Bidder, and the Bidder and its Surety or Sureties if any, 
shall be liable to the Owner for any cost or expense in excess of the 
contract price occasioned thereby. In such event the Owner may take 
possession of and utilize, in completing the construction of the 
Project, any materials, tools, supplies, equipment, appliances, and 
plant belonging to the Bidder or any of its subcontractors, which may be 
situated at the site of the Project. The Owner in such contingency may 
exercise any rights, claims or demands which the Bidder may have against 
third persons in connection with this contract and for such purpose the 
Bidder does hereby assign, transfer and set over unto the Owner all such 
rights, claims and demands.
    Section 2. Liquidated Damages. The time of the Completion of the 
Project is of the essence of the Contract. Should the Bidder neglect, 
refuse or fail to complete the Project within the time herein agreed 
upon, after giving effect to extensions of time, if any, herein 
provided, then, in that event and in view of the difficulty of 
estimating with exactness damages caused by such delay, the Owner shall 
have the right to deduct from and retain out of such moneys which may be 
then due, or which may become due and payable to the Bidder the sum of 
________ dollars (________) per day for each and every day that such 
construction is delayed in its completion beyond the specified time, as 
liquidated damages and not as a penalty; if the amount due and to become 
due from the Owner to the Bidder is insufficient to pay in full any such 
liquidated damages, the Bidder shall pay to the Owner the amount 
necessary to effect such payment in full; Provided, however, that the 
Owner shall promptly notify the Bidder in writing of the manner in which 
the amount retained, deducted or claimed as liquidated damages was 
computed.
    Section 3. Cumulative Remedies. Every right or remedy herein 
conferred upon or reserved to the Owner or the Government or the 
Administrator shall be cumulative, shall be in addition to every right 
and remedy now or hereafter existing at law or in equity or by statute 
and the pursuit of any right or remedy shall not be construed as an 
election: Provided, however, that the provision of Section 2 of this 
Article shall be the exclusive measure of damages for failure by the 
Bidder to complete the Project within the time herein agreed upon.

                        Article VI--Miscellaneous

    Section 1. Definitions.
    (a) The term ``Administrator'' shall mean the Administrator of the 
Rural Utilities Service of the United States of America and his duly 
authorized representatives or any other person in whom or authority in 
which may be vested the duties and functions which the Administrator is 
now authorized by law to perform.
    (b) The term ``Engineer'' shall mean the engineer employed by the 
Owner with the approval of the Administrator, to provide engineering 
services for the Project and said Engineer's duly authorized assistants 
and representatives.
    (c) The term ``Supervisor'' shall mean the person, if any, appointed 
by the Administrator as the representative of the Government under the 
provisions of the Loan Contract providing for such appointment in 
special cases. The term is limited to such special representative of the 
Government, if any, who is responsible exclusively to the

[[Page 344]]

Administrator and does not refer to the Manager or any other person 
employed by the Owner and responsible to it.
    (d) The term ``Completion of Clearing'' shall mean full performance 
by the Bidder of the Bidder's obligations under the Contract and all 
amendments and revisions thereof except the Bidder's obligations in 
respect of (1) Releases of liens and Certificate of Contractor under 
Article III, Section 2 hereof, (2) the inventory referred to in Article 
III, Section 1 hereof, and (3) other final documents. The term 
``Completion of the Project'' shall mean full performance by the Bidder 
of the Bidder's obligations under the Contract and all amendments and 
revisions thereof. The Certificate of Completion signed by the Engineer 
and approved in writing by the Owner and the Administrator, shall be the 
sole and conclusive evidence as to the date of Completion of Clearing.
    Section 2. Patent Infringement. The Bidder shall save harmless and 
indemnity the Owner from any and all claims, suits and proceedings for 
the infringement of any patent or patents covering any materials or 
equipment used in construction of the Project.
    Section 3. Permits for Explosives. All permits necessary for the 
handling or use of dynamite or other explosives in connection with the 
construction of the Project shall be obtained by and at the expense of 
the Bidder.
    Section 4. Compliance with Statutes and Regulations. The Bidder 
shall comply with all applicable statutes, ordinances, rules, and 
regulations pertaining to the work. The Bidder acknowledges that it is 
familiar with the Rural Electrification Act of 1936, as amended, the so-
called ``Kick-Back'' Statute (48 Stat. 948), and regulations issued 
pursuant thereto, and 18 U.S.C. Sections 286, 287 and 1001 as amended. 
The Bidder understands that the obligations of the parties hereunder are 
subject to the applicable regulations and orders of Governmental 
Agencies leaving jurisdiction in the premises.
    Section 5. Equal Opportunity Provisions.
    (a) Bidder's Representations.
    The Bidder represents that:
    It has ______, does not have ______, 100 or more employees, and if 
it has, that it has ______, has not ______, furnished the Equal 
Employment Opportunity-Employers Information Report EEO-1, Standard Form 
100, required of employers with 100 or more employees pursuant to 
Executive Order 11246 and Title VII of the Civil Rights Act of 1964.
    The Bidder agrees that it will obtain, prior to the award of any 
subcontract for more than $10,000 hereunder to a subcontractor with 100 
or more employees, a statement, signed by the proposed subcontractor, 
that the proposed subcontractor has filed a current report on Form 100. 
The Bidder agrees that if it has 100 or more employees and has not 
submitted a report on Standard Form 100 for the current reporting year 
and that if this contract will amount to more than $10,000, the Bidder 
will file such report, as required by law, and notify the Owner in 
writing of such filing prior to the Owner's acceptance of this Proposal.
    (b) Equal Opportunity Clause. During the performance of this 
contract, the Bidder agrees as follows:
    (1) The Bidder will not discriminate against any employee or 
applicant for employment because of race, color, religion, sex, or 
national origin. The Bidder will take affirmative action to ensure that 
applicants are employed, and that employees are treated during 
employment without regard to their race, color, religion, sex, or 
national origin. Such action shall include, but not be limited to, the 
following: Employment, upgrading, demotions or transfer; recruitment or 
recruitment advertising; layoff or termination; rates of pay or other 
forms of compensation; and selection for training, including 
apprenticeship. The Bidder agrees to post in conspicuous places, 
available to employees and applicants for employment, notices to be 
provided setting forth the provisions of this Equal Opportunity Clause.
    (2) The Bidder will, in all solicitations or advertisements for 
employees placed by or on behalf of the Bidder, state that all qualified 
applicants will receive consideration for employment without regard to 
race, color, religion, sex, or national origin.
    (3) The Bidder will send to each labor union or representative of 
workers, with which it has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or worker's representatives of the Bidder's commitments 
under this section, and shall post copies of the notice in conspicuous 
places available to employees and applicants for employment.
    (4) The Bidder will comply with all provisions of Executive Order 
11246 of September 24, 1965, and of the rules, regulations, and relevant 
orders of the Secretary of Labor.
    (5) The Bidder will furnish all information and reports required by 
Executive Order 11246 of September 24, 1965, and by rules, regulations, 
and orders of the Secretary of Labor, or pursuant thereto, and will 
permit access to its books, records, and accounts by the administering 
agency and the Secretary of Labor for purposes of investigation to 
ascertain compliance with such rules, regulations, and orders.
    (6) In the event of the Bidder's noncompliance with the Equal 
Opportunity Clause of this Contract or with any of the said rules, 
regulations, or orders, this Contract may be cancelled, terminated, or 
suspended in whole or in part, and the Bidder may be declared ineligible 
for further Government contracts of federally assisted construction 
contracts in accordance with procedures authorized in

[[Page 345]]

Executive Order 11246 of September 24, 1965, and such other sanctions 
may be imposed and remedies invoked as provided in Executive Order 11246 
of September 24, 1965, or by rule, regulation, or order of the Secretary 
of Labor, or as provided by law.
    (7) The Bidder will include this Equal Opportunity Clause in every 
subcontract or purchase order unless exempted by the rules, regulations, 
or order of the Secretary of Labor issued pursuant to Section 204 of 
Executive Order 11246 of September 24, 1965, so that such provisions 
will be binding upon each subcontractor or vendor. The Bidder will take 
such action with respect to any subcontract or purchase order as the 
administering agency may direct as a means of enforcing such provisions 
including sanctions for noncompliance: Provided, however, that in the 
event a Bidder becomes involved in, or is threatened with, litigation 
with a subcontractor or vendor as a result of such direction by the 
administering agency, the Bidder may request the United States to enter 
into such litigation to protect the interests of the United States.
    (c) Certificate of Nonsegregated Facilities. The Bidder certifies 
that it does not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it does not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Bidder certifies further 
that it will not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it will not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Bidder agrees that a 
breach of this certification is a violation of the Equal Opportunity 
Clause in this contract. As used in this certification, the term 
``segregated facilities'' means any waiting rooms, work areas, restrooms 
and washrooms, restaurants and other eating areas, timeclocks, locker 
rooms and other storage or dressing areas, parking lots, drinking 
fountains recreation or entertainment areas, transportation, and housing 
facilities provided for employees which are segregated by explicit 
directive or are in fact segregated on the basis of race, color, 
religion, or national origin, because of habit, local custom, or 
otherwise. The Bidder agrees that (except where it has obtained 
identical certifications from proposed subcontractors for specific time 
periods) it will obtain identical certifications from proposed 
subcontractors prior to the award of subcontracts exceeding $10,000 
which are not exempt from the provisions of the Equal Opportunity 
Clause, and that it will retain such certifications in its files.
    Section 6. Franchises and Rights-of-Way. The Bidder shall be under 
no obligation to obtain or assist in obtaining: Any franchises, 
authorizations, permits or approvals required to be obtained by the 
Owner from Federal, State, County, Municipal or other authorities; any 
rights-of-way over private lands; or any agreements between the Owner 
and third parties with respect to the construction and operation of the 
Project.
    Section 7. Nonassignment of Contract. The Bidder shall perform 
directly and without subcontracting not less than twenty-five per centum 
(25%) of the construction of the Project, to be calculated on the basis 
of the total contract price. The Bidder shall not assign the contract 
effected by an acceptance of this proposal or any interest in any funds 
that may be due or become due hereunder or enter into contract with any 
person, firm or corporation for the performance of the Bidder's 
obligations hereunder or any part thereof, without the approval in 
writing of the Owner and of the Surety or Sureties, if any, on any bond 
furnished by the Bidder for the faithful performance of the Bidder's 
obligation hereunder. If the Bidder, with the consent of the Owner and 
any Surety or Sureties, if any, on the Contractor's Bond or Bonds, shall 
enter into a subcontract with any subcontractor for the performance of 
any part of this contract, the Bidder shall be as fully responsible to 
the Owner and the Government for the acts and omissions of such 
subcontractor and of persons employed by such subcontractor as the 
Bidder would be for its own acts and omissions and those of persons 
directly employed by it.
    Section 8. Extension to Successors and Assigns. Each and all of the 
covenants and Agreements herein contained shall extend to and be binding 
upon the successors and assigns of the parties hereto.
    Section 9. Contractor. Upon acceptance of this Proposal, the 
successful Bidder shall be the Contractor and all references in the 
Proposal to the Bidder shall apply to the Contractor.
    Section 10. Approval by the Administrator. No acceptance of this 
Proposal shall become effective until approval in writing of the 
Administrator; Provided, however that no obligations shall arise 
hereunder unless such approval is given within sixty (60) days from the 
date of acceptance by the Owner.

________ (Bidder)
By ________ (President)
 ________ (Address)
Attest: ________ (Secretary)
Date ________

    The Proposal must be signed with the full name of the Bidder. If the 
Bidder is a partnership, the Proposal must be signed in the partnership 
name by a partner. If the Bidder is a corporation, the Proposal must be 
signed in the Corporate name by a duly authorized officer and the 
corporate seal affixed and attested by the Secretary of the Corporation.

[[Page 346]]

                          Description of Units

    TM-12. The unit is 1,000 feet in length and ________ (________) feet 
in width (to be measured ________ (________) feet on one side of pole 
line or centerline of structures) of actual clearing of right-of-way. 
This includes clearing of underbrush, tree removal, and such tree 
trimming as is required so that the right-of-way, except for tree stumps 
which shall not exceed ________ in height, shall be clear from the 
ground up on one side of the line of poles carrying conductors (See 
Detail A, Drawing TM-12-2A.) The length of actual clearing shall be 
measured in a straight line parallel to the horizontal line between 
poles or centerline of structures and across the maximum dimension of 
foliage cleared projected to the ground line (See Detail B, Drawing TM-
12-2A.) All trees and underbrush across the width of the right-of-way 
shall be considered to be grouped together as a single length in 
measuring the total length of clearing (See Detail C, Drawing TM-12-2A.) 
Spaces along the right-of-way in which no trees are to be removed or 
trimmed or underbrush cleared shall be omitted from the total 
measurement. All lengths thus arrived at, added together and divided by 
1,000 shall give the number of TM-12 units of clearing. The Bidder shall 
not remove or trim shade, fruit, or ornamental trees unless so directed 
by the Engineer in writing.
    TM-12 (1). This unit is identical with TM-12, except the full width 
of the right-of-way to be cleared shall be ________ feet wide (to be 
measured ________ (________) feet on each side of the pole line or 
centerline of structures) (See Detail D, Drawing TM-12-2A.)
    TM-13. The unit, for purpose of quoting, is 1,000 feet in length of 
clearing off the right-of-way. The Engineer will select those trees off 
the right-of-way that he deems to be a hazard to the line and will 
designate them to the Bidder in writing as danger trees. When so 
designated, the Bidder shall remove or top such trees at his option 
except that the Bidder shall trim and not remove shade, fruit or 
ornamental trees unless otherwise directed by the Engineer in writing 
(See Drawings TM-12-2A and TM-13 for examples of danger trees.)
    The measurement of length of right-of-way to be cleared shall be 
considered as a straight line parallel to the horizontal line between 
poles or centerline of structures, such measurement of length to be 
based on maximum dimension of foliage (not trunk) projected to the 
ground line (See Details E, F, G and H, Drawing TM-12-2A.) Dead trees 
having no foliage shall be measured across the maximum dimension and 
multiplied by two. (See Detail F, Drawing TM-12-2A.) Each tree so 
removed shall be added together to determine the total length of 
clearing. All lengths thus arrived at, added together and divided by 
1,000 shall give the number of TM-13 units (Example: Details E, F, G and 
H, Drawing TM-12-2A, total 0.10 of a TM-13 unit.)
    TMC-12, TMC-12 (1). These units are identical to the respective TM 
units except that chemical treatment of stumps is required in addition 
to the clearing of underbrush, tree removal and tree trimming.
    TM-14. The unit is 1,000 feet in length and ________ (________) feet 
in width (to be measured ________ (________) feet on one side of right-
of-way center line) of actual clearing of right-of-way. Trees and 
underbrush should be cleared from the ground up within 10 feet of any 
structure location. The Engineer will mark the trees and brush to be 
cleared to provide ``undulating'' boundaries. Low growing trees and 
brush are to be left in the right-of-way to the extent it will not be 
hazardous to the line or will not interfere with the service road. The 
length of actual clearing shall be measured in a straight line parallel 
to the horizontal line between poles or center line of structures and 
across the maximum dimension of foliage cleared projected to the ground 
line (See Detail B, Drawing TM-12-2A.) All trees and underbrush cleared 
across the right-of-way shall be considered to be grouped together as a 
single length in measuring the total length of clearing (See Detail C, 
Drawing TM-12-2A.) Spaces along the right-of-way in which no trees are 
to be removed or trimmed or underbrush cleared shall be omitted from the 
total measurement.
    TM-14 (1). This unit is identical with TM-14 except the full width 
of the right-of-way to be cleared shall be ________ (________) feet wide 
(See Detail D, Drawing TM-12-2A.)
    TM-15. The unit is 1,000 feet in length and ________ (________) feet 
in width (to be measured ________ (________) feet on one side of the 
right-of way center line) of actual clearing of the right-of-way. Trees 
and underbrush should be cleared from ground up within 10 feet of any 
structure location. The Engineer will mark the trees and brush to be 
cleared to provide a ``feathered'' appearance in the right-of-way. Low 
growing trees and brush are to be left in the right-of-way to the extent 
it will not be hazardous to the line or will not interfere with the 
service road.
    The length of actual clearing shall be measured in a straight line 
parallel to the horizontal line between poles or center line of 
structures and across the maximum dimension of foliage cleared projected 
to ground line (See Detail B, Drawing TM-12-2A). All trees and 
underbrush cleared across the right-of-way shall be considered to be 
grouped together as a single length in measuring the total length of 
clearing (See Detail C, Drawing TM-12-2A). Spaces along the right-of-way 
in which no trees are to be removed or trimmed or underbrush cleared 
shall be omitted from the total measurement.

[[Page 347]]

    TM-15 (1). This unit is identical to TM-15 except the full width of 
the right-of-way to be cleared shall be ________ (________) feet wide 
(See Detail D, Drawing TM-12-2A).
    Additional Requirements. (When Specifying TM units denote type of 
disposal A or B).
    A. Trees, brush, branches and refuse shall, without delay, be 
disposed of by such of the following methods as an Engineer will direct 
(Engineer to strike out methods not to be used).
    1. Burned
    2. Piled on one side of right-of-way
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (Describe) ________
    B. Trees that are felled shall be cut to commercial wood lengths, 
stacked neatly, and left on the right-of-way for the landowner. 
Commercial wood length means the length designated by the Engineer but 
in no case shall it be required to be less than ________ (________) 
feet. Brush, branches and refuse shall, without delay, be disposed of by 
such of the following methods as the Engineer will direct (Engineer to 
strike out methods not to be used).
    1. Burned
    2. Piled on one side of right-of-way
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (Describe) ________

                     Transmission Right-of-Way Units

------------------------------------------------------------------------
     Unit No.         No. of units       Unit price      Extended price 
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------

Total___________________________________________________________________

                               Acceptance

    Subject to the approval of the Administrator, the Owner hereby 
accepts the foregoing Proposal of the Bidder, ________ for the 
construction of the following:

The total contract price is $________
________ Owner
By ________ President
________ Secretary
________ Date of Contract

                             Specifications

    In preparing the right-of-way, trees shall be removed, underbrush 
cleared, and trees trimmed so that the right-of-way shall be clear from 
the ground up as specified in the Proposal. Trees fronting each side of 
the right-of-way shall be trimmed symmetrically unless otherwise 
directed by the Engineer. Dead trees beyond the right-of-way which would 
strike the line in falling shall be removed. Leaning trees beyond the 
right-of-way which would strike the line in falling and which would 
require topping if not removed may be removed or topped at the direction 
of the Engineer.
    Where TMC-12, TMC-12-(1) units are specified, the right-of-way shall 
be cleared in accordance with the instructions in the preceding 
paragraph and in addition, all stumps one-half inch in diameter and 
larger shall be sprayed as specified by the Engineer.

                             [End of clause]



Sec. 1726.323  Certificate (Buy America), RUS Form 213.

    The closeout form in this section shall be used when required by 
this part.

                               Certificate

    With respect to compliance with the second paragraph of the Rural 
Electrification Act of 1938, being Title IV of the Work Relief and 
Public Works Appropriation Act of 1938 (Public Resolution No. 122, 75th 
Congress, approved June 21, 1938).
    Rural Utilities Service Project ________.
    The undersigned, being, the ________ 1, in a certain 
contract No. ________ dated ________, 19 ____, between the undersigned 
and ________ 2, does hereby certify that in the performance 
of the said contract there have been used or furnished no unmanufactured 
articles, materials or supplies which have not been mined or produced in 
the United States, Mexico, or Canada and no manufactured articles, 
materials or supplies which have not been manufactured in the United 
States, Mexico, or Canada substantially all from articles, materials or 
supplies mined, produced or manufactured, as the case may be in the 
United States, Mexico, or Canada, except to the extent that compliance 
with the second paragraph of the Rural Electrification Act of 1938, 
being Title IV of the Work Relief and Public Works Appropriation Act of 
938 (Public Resolution No. 122, 75th Congress, approved June 22, 1938) 
has been waived by the Administrator of the Rural Utilities Service.

    \1\ Insert ``Contractor.'' ``Subcontractor.'' ``Seller'' Or 
``Materialman.'' as the case may be.
    \2\ Insert the name of the RUS Borrower.
---------------------------------------------------------------------------

________
By ________
Date ________, 19____

                             [End of clause]



Sec. 1726.324  Waiver and release of lien, RUS Form 224.

    The closeout form in this section shall be used when required by 
this part.

[[Page 348]]

                       Waiver and Release of Lien

    Whereas the undersigned, ________ (name of manufacturer, materialman 
or subcontractor) has furnished to ________ (name of contractor) the 
following: ________ (kind of material and services furnished) for use in 
the construction of a Project belonging to ________ (name of borrower) 
and designated by the Rural Utilities Service as ________ (RUS project 
designation.)
    Now, Therefore, the undersigned, ________ (name of manufacturer, 
materialman or subcontractor) for and in consideration of $________ and 
other good and valuable consideration, the receipt whereof is hereby 
acknowledged, do(es) hereby waive and release any and all liens, or 
right to or claim of lien, on the above described project and premises, 
under any law, common or statutory, on account of labor or materials, or 
both, heretofore or hereafter furnished by the undersigned to or for the 
account of said ________ (name of contractor) for said project.
    Given under my(our) hand(s) and seal(s) this ________ day of 
________, 19____. ________ Name of manufacturer, materialman or 
subcontractor
    By ________ President, vice president, partner or owner, or, if 
signed by other than one of foregoing, accompanied by power of attorney 
signed by one of the foregoing in favor of the signer. (use designation 
applicable)

                             [End of clause]



Sec. 1726.325  Certificate of contractor, RUS Form 231.

    The closeout form in this section shall be used when required by 
this part.

                        Certificate of Contractor

    ________, certifies that he is the ________ (Title of Office) of 
________ (Name of Contractor), the Contractor, in a Construction 
Contract No. ________ dated ________, 19____, entered into between the 
Contractor and ________ (Name of Borrower) the Owner, for the 
construction of a Project, which bears the Rural Utilities Service 
Project Designation ________ and that he is authorized to and does make 
this certification on behalf of said Contractor in order to induce the 
Owner to make payment to the Contractor, in accordance with the 
provisions of said Construction Contract.
    Undersigned further says that all persons who have furnished labor 
in connection with said construction have been paid in full, that the 
names of manufacturers, materialmen and subcontractors that furnished 
material or services or both in connection with such construction and 
the kind or kinds of material or services or both so furnished are:

Name ________
Kind of material and service ________
and that the releases of liens executed by all such manufacturers, 
          materialmen and subcontractors have been furnished the Owner.
Date ________
Signature ________

                             [End of clause]



Sec. 1726.326  Construction or equipment contract amendment, RUS Form 238.

    The amendment form in this section shall be used when required by 
this part.

              Construction Or Equipment Contract Amendment

Project Designation ________
Date ________
Amendment No. ________
Contract No. ________
Bond extension attached ____ Yes ____ No
Delivery or Completion Date: Original ________ As Amended ________

    Instructions: 1. The Architect-Engineer shall submit three (3) 
copies of this form for each contract which has been approved by RUS, to 
the Owner. 2. The Owner will submit the three (3) copies of this form to 
RUS for approval.
    Reasons for, and details and description of the amendment ________
    (If additional space is needed, use reverse or separate sheet)
    A summary of the original contract price and amendments thereto, 
including this amendment, follows:
    (Amendments which decreased the price are preceded by a (-) minus 
sign).

Original Contract Price $________
Amendment Number 1 $________
Amendment Number 2 $________
Amendment Number 3 $________
Amendment Number 4 $________
Amendment Number 5 $________
Amendment Number 6 $________
Amendment Number 7 $________
Amendment Number 8 $________
Amended Contract Price $________

    This amendment, providing for an increase of $________ / decrease of 
$________ in the contract price is submitted pursuant to the provisions 
of said contract. (The Administrator of RUS is hereby authorized to 
approve this amendment either in whole or in part and to delete such 
items as do not meet his approval).
    To the extent the items hereof are approved the contract shall be 
amended.

Accepted
________ Contractor

[[Page 349]]

By ________ President-Owner-Partner (Strike out inapplicable title. If 
          signed by other than above, power of attorney should be 
          attached or on file with RUS.)
________ Date
 ________ Owner
By ________ President-Board of Directors
________ Date
Approved
________ Architect-engineer
________ Date

----------------------------------------------------------------------------------------------------------------
                             Reasons for and description of contract      Labor or       Material or            
          Item No.                      amendment No. ____            installation\1\   equipment\1\     Total  
----------------------------------------------------------------------------------------------------------------
                                                                                                                
    Net total..............                                                                                     
----------------------------------------------------------------------------------------------------------------
\1\ Changes in Cost (decrease preceded by (-) minus sign.) To be filled in when applicable.                     

                             [End of clause]



Sec. 1726.327  Material receipt, RUS Form 251.

    The receipt form in this section shall be used when a Material 
Receipt is required by RUS Form 764, 830, or 831.

                            Materials Receipt

    Instructions: Prepare three (3) copies. Forward original to Owner, 
one copy to Contractor and one copy to Engineer.

Date ________

----------------------------------------------------------------------------------------------------------------
                                                          Description of  Manufacturer and     Unit     Extended
                   Item\1\                      Quantity       item          catalog No.      price      price  
----------------------------------------------------------------------------------------------------------------
                                                                                                                
    Total....................................                                                                   
----------------------------------------------------------------------------------------------------------------
Notes: 1. Item corresponds with item in list of materials in construction drawings.                             

Received by ________
For:
________ Contractor
________ Owner

                             [End of clause]



Sec. 1726.328  Construction inventory (for labor and material contract), RUS Form 254.

    The closeout form in this section shall be used when required by 
this part.

        Construction Inventory (For Labor and Material Contract)

Date ________
Project Designation ________
Borrower ________
Engineer ________
Contractor ________

                      Amount Payable to Contractor

    A. Total Cost of Standard, New And Conversion Assembly Units 
Installed (Total No. 6, RUS Form 254a) $________
    B. Cost To Remove ``I'' Units (Total No. 7, RUS Form 254a) $________
    C. Amount To Be Credited To Contractor For Materials Removed From 
Existing Facilities And Returned (Total No. 14, RUS Form 254b) $________

Subtotal $________
Deduct:

    D. Amount Chargeable To Contractor For Materials In Assembly Units 
Removed (Total No. 9, RUS Form 254a) $________
    E. Net Amount Of Owner-furnished Materials (Total No. 24 RUS Form 
254c) $________
    F. Net Amount Due Contractor (In making final payment to Contractor, 
the net amount due the Contractor, as shown by this Certification, will 
be reduced by the sums, if any, due the Owner for liquidated damages, 
payment made to date, or other sums which the Owner has the right to 
retain under the terms of the Contract, and signature by all parties 
does not preclude the retention by the Owner of such amounts.) $________

                         Certificate of Engineer

    I certify that to the best of my knowledge and belief the attached 
final inventory correctly shows the total number and character of 
assembly units installed and removed by the Contractor and that the net 
amount of $________ due the Contractor, as shown above, is true and 
correct.

Engineer ________
By ________
Date ________

                           Acceptance by Owner

Owner ________
By ________ President
Date ________

[[Page 350]]

                        Acceptance by Contractor

Firm ________
By ________
Date ________

                              Instructions

    (See RUS Bulletin 1767B-3, Preparation and Use of RUS Form 254, for 
additional instructions.)
    The Engineer will prepare 5 copies of RUS Form 254 and 254a, also 5 
copies of Forms 254b and 254c when applicable. Original and 1 copy to be 
forwarded to RUS, 1 copy to Contractor, 1 copy to Owner, and 1 copy to 
be retained by Engineer.
    Calculation of amount payable to Contractor will employ data taken 
from Nos. 1 through 25, RUS Forms 254, 254a, 254b, 254c. The amounts to 
be inserted opposite Items A, B, C, D, and E on RUS Form 254 are 
indicated in the texts of those items.
    Nos. 1 through 17, Forms 254a and 254b: (Form 254b is required only 
when ``I'' removal units are included in the Contract.)

                       No.--Source of Information

1 and 2--From tabulation of staking sheets.1
---------------------------------------------------------------------------

    \1\ Standard units will be listed first, followed by new units and 
conversion units, in that order, with all ``I'' removal units being 
listed last.
---------------------------------------------------------------------------

3 and 4--From Contract.
5--No. 3 plus No. 4.
6--No. 1 multiplied by No. 5.
7--No. 1 multiplied by No. 3 (for ``I'' units only).
8--From Table C of Contract.
9--No. 1 multiplied by No. 8 for ``I'' removal units only. (Table C 
          relates solely to ``I'' units.)
10, 11, and 12--From Engineer's and Owner's records.
13--From Table D in Contract.
14--No. 12 multiplied by No. 13.
15--From Engineer's records. (Quantities shall be listed opposite the 
          appropriate material items described in No. 11.)
16--From individual stock record card for each material item listed.
17--No. 15 multiplied by No. 16.

    Data shown on Form 254c to be presented under the following 
headings, as appropriate:

   Part I Material Items Included in Lists Set Forth in Construction 
                                Contract

             Part II Other Material Items Furnished by Owner

    Nos. 18 through 25: (Form 254c is required only when there are 
owner-furnished materials.)

                       No.--Source of Information

18 and 19--From Contract and Material Receipts.
20--From charge-out and credit tickets covering materials issued to and 
          returned by the Contractor.2
---------------------------------------------------------------------------

    \2\ The quantities shown in No. 20 should agree with Materials 
Receipts (RUS Form 251) prepared in connection with the contact. The 
types of items of material and the quantity of any item of material 
listed under Part I of the tabulation should be limited to the type of 
items and should not exceed the quantity of any item of material 
specified in the construction contract in the ``List of Owner's 
Materials on Hand'' or the ``List of Materials Ordered by Owner But Not 
Delivered.'' Any additional items of material or excess quantities over 
the items specified in such lists are to be shown under Part II of the 
tabulation.
---------------------------------------------------------------------------

21--From average unit costs on charge-out and credit tickets relating to 
          this construction, such costs in turn being taken from the 
          average unit costs reflected by the stock record cards for the 
          applicable period.
22--No. 20 multiplied by No. 21.
23--For Part I, from the unit prices specified in the Contract in the 
          ``List of Owner's Materials on Hand'' or the ``List of 
          Materials Ordered by Owner But Not Delivered.''

    For Part II, from the actual unit costs to Owner--the same as used 
in No. 21.

24--No. 20 multiplied by No. 23.
25--No. 24 minus No. 22. (if a minus quantity, enter in parentheses.)

    See 7 CFR 1726, Electric System Construction Policies and 
Procedures, for instructions regarding distribution of the completed 
form.
    Reference should be made to RUS Bulletin 1767B-3, Preparation and 
Use of RUS Form 254, for instruction in accounting for all contract 
costs, including the retirement of units removed by the Contractor and 
the unitization by record units of costs of construction assemblies 
installed by the Contractor.

                              RUS Form 254a

                             Assembly Units

1. Quantity ________
2. Standard (N--New, H--Conversion, I--Removal) ________

      Due to Contractor for Units Installed, Converted, and Removed

3. Labor (Unit Price) ________
4. Material Unit Price (Except I Units) ________
5. Total Unit Price (No. 3 + No. 4) (Except I Units) ________

[[Page 351]]

6. Cost of Construction (No. 1 x No. 5) (Except I Units) ________
7. Cost to Remove ``I'' Units (No. 1 x No. 3) ________

   Amount Chargeable to Contractor for Materials in Assemblies Removed

8. Unit Values (Table C in Contract) ________
9. Total (No. 1 x No. 8) ________
Total (No. 6) ________
Total (No. 7) ________
Total (No. 9) ________

                              RUS Form 254b

Summary and Classification Of Materials Returned to Owner by Contractor 
                        from ``I'' Removal Units

       Amounts to be Credited to Contractor for Materials Returned

10. Item Designation ________
11. Description of Material ________
12. Quantity ________
13. Item Value--Table D in Contract ________
14. Total Credit to Contractor (No. 12 x No. 13) ________

            Returned Materials Declared Reusable by Engineer

15. Quantity of Items ________
16. Stock Card Item Price ________
17. Salvage Value (No. 15 x No. 16) ________
Total (No. 14) ________
Total (No. 17) ________

                              RUS Form 254c

        Tabulation of Net Amount of Materials Furnished by Owner

18. Item Designation ________
19. Description of Material ________
20. Quantity ________

                          Actual Cost to Owner

21. Unit Cost ________
22. Extended Cost (No. 20 x No. 21) ________

            Amount Chargeable to Contractor at Contract Price

23. Unit Cost ________
24. Extended Cost (No. 20 x No. 23) ________
25. Excess of No. 24 over No. 22 ________
Total (No. 22) ________
Total (No. 24) ________
Total (No. 25) ________

                             [End of clause]



Sec. 1726.329  Contract to construction buildings, RUS Form 257.

    The contract form in this section shall be used when required by 
this part.

                     Contract to Construct Buildings

                   Notice and Instructions to Bidders

    1. Proposals: Sealed proposals for the construction, including the 
furnishing of all materials, machinery, labor and equipment, water, 
heat, utilities, transportation, and other means necessary for 
construction of the building(s) listed below (hereinafter called the 
``Project'') to be financed ________ not to be financed ________ 
pursuant to a loan contract between ________ (hereinafter called the 
``Owner'') and the United States of America, by the Administrator of the 
Rural Utilities Service (hereinafter called the ``Administrator'') and 
designated as Project ________ will be received by the Owner on or 
before ________ o'clock ____ M ________ Time, ________, 19____, at its 
office located at ________ at which time and place the proposals will be 
publicly opened and read. The Rural Telephone Bank may also be a party 
to the loan contract.

Name or Kind of Building ________
Location ________

    2. Obtaining Documents: The Plans and Specifications together with 
all other necessary forms and documents for bidders may be secured from 
________ at ________ upon payment of ________ Dollars ($________) which 
payment will be refunded to each bona fide bidder within ten (10) days 
after the bid opening. Additional sets of Plans and Specifications may 
be obtained upon payment of ________ Dollars ($________) which payment 
will not be subject to refund. The Plans and Specifications may be 
examined at the office of ________. A copy of the loan contract may also 
be examined at the office of the Owner.
    3. Manner of Submitting Proposals: Proposals and all supporting 
documents required to be attached thereto must be submitted on the forms 
furnished by the Owner and must be delivered in a sealed envelope, 
addressed to the Owner. The name and address of the Bidder, its license 
number, if a license is required by the State, and the date and hour of 
the opening of bids must appear on the envelope in which the proposal is 
submitted. Proposals must be filled in in ink or typewritten. No 
alterations or interlineations will be permitted, unless made before 
submission, and initialed and dated.
    4. Familiarity with Conditions: Prior to the submission of the 
Proposal, the Bidder shall make and shall be deemed to have made a 
careful examination of the site of the Project and of the Plans and 
Specifications, forms of Construction Proposal and Acceptance, and 
Contractor's Bond on file with Secretary of the Owner and shall become 
informed as to the location and nature of the proposed construction, the 
transportation facilities, the kind and character of the soil

[[Page 352]]

and terrain to be encountered, the kind of facilities required before 
and during the construction of the Project, general local conditions, 
and all other matters that may affect the cost and the time of 
completion of the Project. Bidders will be required to comply with all 
applicable statutes, regulations, etc., including those pertaining to 
the licensing of contractors and the so called ``Kick-Back'' Statute (48 
Stat. 948) and regulations issued pursuant thereto.
    5. Proposals will be accepted only from those prequalified bidders 
invited by the Owner to submit a proposal.
    6. Time of Completion of Construction: The time of completion of 
construction of the Project shall be as specified by the Architect in 
the Proposal.
    7. Bid Bond: Each proposal must be accompanied by a bid bond in the 
form attached or a certified check on a bank that is a member of the 
Federal Deposit Insurance Corporation, payable to the order of the 
Owner, in an amount equal to ten percent (10%) of the maximum bid price. 
Each Bidder shall agree, provided its proposal is one of the three low 
proposals, that by filing its proposal together with such bid bond or 
check in consideration of the Owner's receiving and considering such 
proposal, said proposal shall be firm and binding upon each such Bidder 
and such bid bond or check shall be held by the Owner until a Proposal 
is accepted and a satisfactory Contractor's Bond (or Builder's Risk 
Policy) is furnished by the successful Bidder and such acceptance has 
been approved by the Administrator, or for a period not to exceed sixty 
(60) days from the date hereinbefore set for the opening of proposals, 
whichever period shall be the shorter. If such proposal is not one of 
the three low proposals, the bid bond or check will be returned in each 
instance within a period of ten (10) days to the respective Bidder.
    8. Contractor's Bond or Builder's Risk Policy: The successful Bidder 
will be required to execute two additional counterparts of the Proposal 
and to furnish.
    (a) For contracts in amounts in excess of $100,000, a Contractor's 
Bond in the form attached to the Proposal with sureties listed by the 
United States Treasury Department as Acceptable Sureties, in a penal sum 
not less than the contract price.
    (b) For contracts in amounts of $100,000 or less, either a 
Contractor's Bond or a Builder's Risk Policy, whichever the Owner has 
specified below: (Check One)

________ Contractor's Bond
________ Builder's Risk Policy

    9. Failure to Furnish Contractor's Bond or Builders Risk Policy: 
Should the successful Bidder fail or refuse to furnish a Contractor's 
Bond (or Builder's Risk Policy) satisfactory to the Owner within fifteen 
(15) days after written notification of the acceptance of the Proposal 
by the Owner, the Bidder will be considered to have abandoned the 
Proposal. In such event, the Owner shall be entitled: (a) To enforce the 
Bid Bond in accordance with its terms, or (b) if a certified check has 
been delivered with the Proposal, to retain from the proceeds of the 
certified check the difference between the amount of the Proposal and 
such larger amounts for which the Owner may in good faith contract with 
another party to construct the Project. The term ``successful Bidder'' 
shall be deemed to include any Bidder whose proposal is accepted after 
another Bidder has previously refused or has failed to furnish a 
satisfactory Contractor's Bond (or Builder's Risk Policy).
    10. Contract is Entire Agreement: The contract, effected by 
acceptance of the Proposal, shall be deemed to include the entire 
agreement between the parties thereto, and the Bidder shall not claim 
any modification thereof resulting from any representation or promise 
made at any time by any officer, agent or employee of the Owner or by 
any other person.
    11. Minor Irregularities: The Owner reserves the right to waive 
minor irregularities or minor errors in the Proposal, if it appears to 
the Owner that such irregularities or errors were made through 
inadvertence.
    Any such irregularities or errors so waived must be corrected on the 
Proposal prior to its acceptance by the Owner.
    12. Rejection of Proposals: The Owner reserves the right to reject 
any or all proposals.
    13. Discrepancies: Where a discrepancy appears between the sum of 
the Base Bids of each building and the Total Base Bid, the correct 
addition of the Base Bid price for each building shall control.
    14. The Owner Represents:
    (a) If by provisions of the Proposal, the Owner shall have 
undertaken to furnish any materials for the construction of the Project, 
such materials are on hand at locations which may be determined by the 
bidders' inquiry of the Architect, or if such materials are not on hand, 
they will be made available by the Owner to the successful Bidder before 
the time such materials are required for incorporation into the Project.
    (b) Title to the property on which the Project is to be constructed 
has been obtained.
    (c) All funds necessary for prompt payment of the construction of 
the Project will be available. If the owner should fail to comply with 
any of the undertakings contained in the foregoing representations or if 
any such representations shall be incorrect, the Bidder will be entitled 
to an extension of the time of completion of Construction for a period 
equal to the delay, if any, caused by the

[[Page 353]]

failure of the Owner to comply with such undertakings or by any such 
incorrect representations; provided the Bidder shall have promptly 
notified the Owner in writing of its desire to extend the time of 
completion in accordance with the foregoing, and provided further that 
such extension, if any, of the time of completion shall be the sole 
remedy of the Bidder for the Owner's failure to comply with any of the 
foregoing representations.

________ Owner
By ________
Dated ________

                                Proposal

    To: ________ (hereinafter called the ``Owner''). The undesigned 
(hereinafter called the ``Bidder'') proposes to construct the 
buildings(s) listed in Section 1 of Article I (hereinafter called the 
``Project''), financed ________, not to be financed ________, in whole 
or in part by a loan to the Owner by the United States of America, by 
the Administrator of the Rural Utilities Service (hereinafter called the 
``Administrator''), or by loans to the Owner by the United States of 
America and by the Rural Telephone Bank, designated ________ and to 
receive and install such materials and equipment as may hereinafter be 
specified to be furnished by the Owner, and to furnish all other 
materials, machinery, and equipment, water, heat, utilities, 
transportation and other means required to construct the Project in 
accordance with the plans and specifications (hereinafter called the 
``Plans and Specifications''), prepared by ________ (hereinafter called 
the ``Architect'') and dated ________, 19____, and approved by the Rural 
Utilities Service on ________, 19____, and by this reference made a part 
hereof. The Bidder has made a careful examination of the site(s) on 
which the Project to be constructed, has become informed as to the kind 
of facilities required before and during the construction of the Project 
and has become acquainted with the labor conditions which would affect 
the work.
    The Bidder agrees that if his bid is accepted, the following terms 
shall govern.

                      Article I--Amount of Proposal

    Section 1. Bid Price: The Bidder will construct the Project for the 
following sum:

Name or Kind and Location of Building ________
Base Bid ________
Total of Bid $________
Alternate Bid No. 1 (add) (deduct) $________
Alternate Bid No. 2 (add) (deduct) $________
Alternate Bid No. 3 (add) (deduct) $________
Alternate Bid No. 4 (add) (deduct) $________

    Section 2. Taxes: The price quoted herein includes all amounts which 
the Bidder estimates will be payable by the Bidder or the Owner on 
account of taxes imposed by any taxing authority upon the sale, purchase 
or use of materials, supplies or equipment or services or labor of 
installation to be incorporated in the Project.
    The Bidder will pay all such taxes and will furnish to appropriate 
taxing authorities any required information and reports pertaining 
thereto.

                        Article II--Construction

    Section 1. Time of Construction:
    (a) The Bidder, after notification in writing of approval of the 
Construction Contract by the Administrator, if approval of the 
Administrator is required, will commence construction of the Project 
within ________ (________) calendar days after the Owner shall have 
given the Bidder written notice to commence construction which notice 
shall be given:
    (1) Not later than ________ (________) calendar days after approval 
of the Construction Contract by the Administrator, if approval of the 
Administrator is required.
    (2) On a date to be determined by the Owner.
    (The Architect will cross out the inapplicable statement (1) or (2) 
above before requesting bids.)
    (b) The Bidder will prosecute diligently and complete construction 
of the Project in strict accordance with the Plans and Specifications 
and directions of the Architect within ________ (________) calendar days 
after the expiration of the time specified to commence construction.
    (c) The time for Completion of Construction herein set forth shall 
be extended for the period of any reasonable delay which is due 
exclusively to causes beyond the control and without the fault of the 
Bidder, including acts of God, fires, floods, direction by the Architect 
to cease construction during periods when in the judgment of the 
Architect it is impractical to perform any operation of construction and 
acts or omissions of the Owner with respect to matters for which the 
Owner is solely responsible, provided, however, that no such extension 
of time for completion shall be granted the Bidder unless within ten 
(10) days after the happening of any event relied upon by the Bidder for 
such an extension of time the Bidder shall have made a request therefor 
in writing to the Owner and provided further that no delay in such time 
of completion or in the progress of the work which results from any of 
the above causes or from any changes in construction which may be made 
pursuant to Subsection (d) of this Section shall result in any liability 
on the part of the Owner.
    (d) The Owner, acting through the Architect and with the approval of 
the Administrator, if approval of the Administrator is required, may 
from time to time during the progress of construction make revisions in

[[Page 354]]

the Project. If the revision is such as to require on extension in the 
time of construction, a reasonable extension shall be granted if the 
Bidder shall make a written request therefor to the Owner prior to the 
commencement of work in connection with such revision. If the cost of 
the Project to the Bidder to make revision shall be increased or 
decreased, the contract price shall be amended by an amount equivalent 
to the reasonable cost thereof by a Construction Contract Amendment 
signed by the Owner and the Bidder, and approved by the Administrator, 
if approval of the Administrator is required; but no claim for 
additional compensation for any revision will be considered unless the 
Bidder shall have made a written request therefore to the Owner prior to 
the commencement of work in connection with such revision. The 
reasonable cost of any increase or decrease in the contract amendment as 
outline above, in the absence of any other mutual agreement, shall be 
computed on the basis of the direct cost of materials, F.O.B. the site 
of the Project, plus the direct cost of labor necessary to incorporate 
such materials into the Project (including actual cost of payroll taxes 
and insurance) plus twenty-five percent (25%) of the direct cost of 
materials and labor. Labor cost shall be limited to the direct costs for 
workmen and foremen. Costs for Bidder's main office overhead, job office 
overhead and superintendence shall not be included.
    Section 2. Supervision: The Bidder will give sufficient supervision 
to the work, using his best skill and attention. He will carefully study 
and compare all drawings, specifications and other instructions, and 
report at once to the architect any error, inconsistency or omission 
which he may discover. The Bidder will make available during 
construction a competent superintendent and any necessary assistants, 
all satisfactory to the architect. The superintendent shall not be 
changed except with the consent of the Architect unless the 
superintendent proves to be unsatisfactory to the Bidder and ceases to 
be his employ. The superintendent shall represent the Bidder in his 
absence and all directions given to him shall be as binding as if given 
to the Bidder. When requested, such directions shall be confirmed in 
writing.
    Section 3. Shop Drawings: The Bidder, after reviewing, will submit 
to the Architect, with such promptness as to cause no delay in the work 
two copies of all shop or setting drawings and schedules required for 
the work of the various trades, and the Architect shall pass on them 
with reasonable promptness, requesting corrections required thereto to 
be made. The Bidder will make any corrections required and file with the 
Architect three corrected copies and furnish such other copies as may be 
needed. The Architect's approval of such drawings or schedules shall not 
relieve the Bidder of responsibility for deviations from the Plans and 
Specifications. The Bidder will keep one copy of the contract documents 
on the site, in good order, available to the Architect. All drawings and 
specifications will be returned to the Architect upon completion of 
construction.
    Section 4. Samples: The Bidder will furnish for approval, all 
samples as directed by the Architect, and will perform the work in 
accordance with such approved samples.
    Section 5. Inspection and Tests: The manner of construction of the 
Project and all materials and equipment used or to be used therein shall 
be subject to the inspection, tests and approval of the Architect and 
the Administrator, and the Bidder will furnish all information required 
by the Architect or the Administrator concerning the nature or source of 
materials. The Owner and the Administrator shall have the right to 
inspect all records of the Bidder and of any subcontractor relevant to 
the work. The Bidder will make available at the site of the Project, 
telephone service where obtainable, the payroll, invoices of material 
and other data and records of the Bidder relevant to the work. The 
Bidder will provide all reasonable facilities necessary for such 
inspection and tests. If the specifications, the Architect's 
instructions, laws, ordinances or any public authorities require any 
work to be specially tested or approved, the Bidder will give the 
Architect timely notice of its readiness for observation by the 
Architect or inspection by an authority other than the Architect, and if 
the inspection is by such other authority, of the date fixed for such 
inspection, testing or approval. The Bidder will bear all costs of such 
inspections, tests and approvals unless otherwise provided, obtain 
required certificates and deliver them to the Architect. Observations by 
the Architect shall be promptly made, and where practicable at the 
source of supply. If any work should be covered without approval or 
consent of the Architect, it must, if required by the Architect, be 
uncovered for examination at the Bidder's expense.
    Re-examination of questioned work may be ordered by the Architect 
and if so ordered the work must be uncovered by the Bidder. If such work 
be found in accordance with the contract documents the Owner shall pay 
the cost of re-examination and replacement. If such work be found not in 
accordance with the contract documents the Bidder will pay such cost.
    Section 6. Employees: The Bidder will at all times enforce strict 
discipline and good order among his employees and shall not employ any 
unfit person or anyone not skilled in the task assigned him. The 
Architect and the Owner shall have the right to require the removal from 
the Project of any employee of

[[Page 355]]

the Bidder or subcontractor if in their judgment such removal shall be 
necessary to protect the interest of the Owner.
    Section 7. Defective Workmanship and Materials: Notwithstanding the 
acceptance of workmanship, materials (except owner-furnished materials) 
or equipment or the giving of any certificate with respect to the 
Completion of Construction, if during the construction or within one 
year after such completion, or within such longer period as the Project 
or any part thereof may be guaranteed by other provisions of this 
Proposal, the workmanship, materials or equipment shall be found to be 
defective or not in conformity with the requirements of the Plans and 
Specifications, the Bidder will remedy or replace such workmanship, 
materials or equipment within thirty (30) days after written notice of 
the failure of the Bidder to conform with the applicable provisions of 
the contract documents shall have been given to the Bidder by the Owner.

               Article III--Payment and Releases of Liens

    Section 1. Payments to Bidder:
    (a) On or before the fifth (5) day of each Calendar Month, the 
Bidder will make application for payment, and the Owner, on or before 
the fifteenth (15) day of such month, shall make partial payment to the 
Bidder for construction accomplished during the preceding Calendar Month 
and partial payment for materials not incorporated in the Project. The 
payment shall be made on the basis of a schedule of values and receipts 
or other vouchers, submitted by the Bidder to, and approved by, the 
Architect, showing payments for labor and materials, payments to 
subcontractors, and such other evidence of the Bidder's right to payment 
for construction accomplished, and bills of sale or such other procedure 
as will establish the Owner's title to materials not incorporated in the 
Project but delivered and suitably stored on the site or at any other 
location agreed upon in writing by the Owner. Approval by the Architect 
of the application for payment is solely for the purposes of payment and 
shall not be deemed approval of the workmanship or materials. Only 
ninety percent (90%) of each such estimate of the cost for construction 
accomplished and approved and fifty percent (50%) of the cost of 
materials not incorporated in the Project shall be paid by the Owner to 
the Bidder prior to Completion of Construction.
    The Bidder will, before the first application, submit to the 
Architect, a schedule of values of the various parts of the work, 
including quantities, aggregating the total contract price, divided so 
as to assist in determining the accuracy of payments to subcontractors 
and of the applications for payment.
    (b) Upon Completion of Construction, the Architect shall inspect the 
Project, and if he shall find the work acceptable and all provisions 
hereunder fully performed, he shall furnish the Owner two copies of a 
Certificate of Completion, on forms satisfactory to the Administrator, 
and shall certify thereon the final Contract Price. The Certificate of 
Completion shall show thereon the Acceptance of the Contractor. Upon 
acceptance of the Certificate of Completion by the Owner, the Owner 
shall make final payment to the Bidder of all unpaid amounts to which 
the Bidder shall be entitled hereunder, except that, for contracts 
requiring approval of the Administrator, the Owner shall submit one copy 
of the Certificate of Completion to the Administrator for approval. Upon 
notice of approval by the Administrator, the Owner shall make final 
payment to the Bidder.
    (c) Interest at the rate of ____ percent 1 (____%) per 
annum shall be paid by the Owner to the Bidder on all unpaid balances 
due on monthly estimates, commencing fifteen (15) days after the due 
date, provided the delay in payment beyond the due date is not caused by 
any condition within control of the Bidder. The due date for purposes of 
such monthly payment shall be the fifteenth (15th) day of each Calendar 
Month provided (1) The Bidder on or before the fifth (5th) day of such 
month shall have submitted its certified estimate of construction 
completed during the preceding month and (2) the Architect on or before 
the fifteenth (15th) day of such month shall have approved such 
certification. If, for reasons not due to the Bidder's fault, such 
approval of the Architect shall not have been given on or before the 
fifteenth (15th) day of such month, the due date for purposes of this 
Subsection shall be the fifteenth (15th) day of such month 
notwithstanding the absence of the Architect's approval of the 
certification.
---------------------------------------------------------------------------

    \1\ The Owner shall insert a 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.
---------------------------------------------------------------------------

    (d) Interest at the rate of ____ percent 2 (____%) shall 
be paid by the Owner to the Bidder on the final payment commencing 
fifteen (15) days after the due date. The due date for the purposes of 
such final payment shall be sixty (60) days after the date of 
certification by the Architect in the Certificate of Completion or the 
date of approval by the Administrator of the Certificate of Completion 
when approval thereof is required by the Administrator.
---------------------------------------------------------------------------

    \2\ See footnote 1.
---------------------------------------------------------------------------

    (e) No payments shall be due while the Bidder is in default in 
respect of any of the provisions of this Proposal, and the Owner may 
withhold from the Bidder the amount of any claim by a third party 
against either the Bidder or the Owner based upon an alleged failure of 
the Bidder to perform the work

[[Page 356]]

hereunder in accordance with the provisions of this Proposal.
    Section 2. Release of Liens: Upon Completion of Construction of the 
Project, but prior to the payment to the Bidder of any amount withheld 
in accordance with Section 1, (a) of Article III, the Bidder shall 
furnish the Owner, on forms satisfactory to the Administrator releases 
of all liens, and of all rights to claim any lien from manufacturers, 
materialmen and subcontractors who have furnished materials or services 
for the construction of the Project, and a Certificate of Contractor on 
a form satisfactory to the Administrator, to the effect that all labor 
used on or for the Project has been paid and that all such releases have 
been submitted to the Owner.

            Article IV--Particular Undertakings of the Bidder

    Section 1. Protection to Persons and Property: The Bidder will, at 
all times, take all reasonable precautions for the safety of employees 
on the Project, and of the public and all other persons who may be 
affected thereby, and will comply with all applicable provisions of 
Federal, State and Municipal safety laws and building and construction 
codes.
    The Bidder will protect from loss or damage all materials and 
equipment to be incorporated in the Project, whether in storage on or 
off the site, and other property at the site or adjacent thereto, 
including trees, shrubs, lawns, walks, paved surfaces, structures and 
utilities not designated for removal, relocation or replacement in the 
course of construction. The Bidder will provide and maintain guard 
lights, watchman or other protection for persons and property, and 
physical hazards shall be guarded in accordance with the ``Manual of 
Accident Prevention in Construction'' of the Associated General 
Contractors of America, unless such instructions are incompatible with 
or less strict than those of any public authority having jurisdiction 
thereon, or instructions of the Architect.
    The following provisions shall not limit the generality of the above 
requirements:
    (a) The Bidder will at all times, keep the premises free from 
accumulation of waste material or rubbish caused by his employees or 
work, and at the completion of construction he will remove all rubbish 
from and about the Project, and all his tools, scaffolding and surplus 
materials and will leave his work ``broom clean.''
    (b) The Project from its commencement to completion, or to such 
earlier date or dates when the Owner may take possession and control in 
whole or in part as hereinafter provided, will be under the charge and 
control of the Bidder and during such period of control by the Bidder 
all risks in connection therewith and the materials to be used therein 
will be borne by the Bidder. The Bidder will make good and fully repair 
all injuries and damages to the Project or any portion thereof under the 
control of the Bidder, by reason of any act of God or other casualty or 
cause, whether or not the same shall have occurred by reason of the 
Bidder's negligence.
    (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.
    (ii) To the maximum extent permitted by law, Bidder shall defend, 
indemnify, and hold harmless Owner and Owner's directors, officers, and 
employees from all liens and claims filed or asserted against Owner, its 
directors, officers, and employees, or Owner's property or facilities, 
for services performed or materials or equipment furnished by Bidder, 
its subcontractors and suppliers of any tier, and from all losses, 
demands, and causes of action arising out of any such lien or claim. 
Bidder shall promptly discharge or remove any such lien or claim by 
bonding, payment, or otherwise and shall notify Owner promptly when it 
has done so. If Bidder does not cause such lien or claim to be 
discharged or released by payment, bonding, or otherwise, Owner shall 
have the right (but shall not be obligated) to pay all sums necessary to 
obtain any such discharge or release and to deduct all amounts so paid 
from the amount due Bidder.
    (iii) Bidder shall provide to Owner's satisfaction evidence of 
Bidder's ability to comply with the indemnification provisions of 
subparagraphs i and ii above, which evidence may include but may not be 
limited to a bond or liability insurance policy obtained for this 
purpose through a licensed surety or insurance company.
    (c) The Bidder will confine his apparatus, the storage of materials 
and the operations of his workmen to limits indicated by law, 
ordinances, permits, or directions of the Architect, and shall not 
unreasonably encumber the premises with his materials.
    (d) The Bidder will not load or permit any of the structure to be 
loaded with a weight that will endanger its safety.

[[Page 357]]

    (e) The Bidder will submit to the Owner, monthly reports in 
duplicate of all accidents giving such data as may be prescribed by the 
Architect.
    (f) Upon violation by the Bidder of any of the provisions of this 
section, the Bidder will, after written notice of such violation given 
to the Bidder by the Architect or the Owner, immediately correct such 
violation. Upon failure of the Bidder so to do, the Owner may correct 
such violation at the Bidder's expense; provided, however, that the 
Owner may, if it deems necessary or advisable, correct such violation at 
the Bidder's expense without such prior notices to the Bidder.
    (g) The Bidder will be responsible for all construction means, 
methods, techniques, sequences, and procedures and for coordinating all 
portions of the construction of the Project.
    Section 2. Insurance. The Bidder shall take out and maintain 
throughout the contract period insurance of the following types and 
minimum amounts:
    (a) Workers' compensation and employers' liability insurance, as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to the workers' 
compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    (b) Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    (c) Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, nonowned, or hired, shall 
have limits for bodily injury or death of not less than $1 million per 
person and $1 million per occurrence, and property damage limits of $1 
million for each occurrence. This required insurance may be in a policy 
or policies of insurance, primary and excess including the umbrella or 
catastrophe form.
    The Owner shall have the right at any time to require public 
liability insurance and property damage liability insurance greater than 
those required in subsection ``b'' and ``c'' of this Section. In any 
such event, the additional premium or premiums payable solely as the 
result of such additional insurance shall be added to the Contract 
price.
    The Owner shall be named as Additional Insured on all policies of 
insurance required in subsections ``b'' and ``c'' of this Section.
    The policies of insurance shall be in such form and issued by such 
insurer as shall be satisfactory to the Owner. The Bidder shall furnish 
the Owner a certificate evidencing compliance with the foregoing 
requirements which shall provide not less than (30) days prior written 
notice to the Owner of any cancellation or material change in the 
insurance.
    Section 3. Purchase of Materials: The Bidder will purchase all 
materials (except owner-furnished materials) and supplies outright and 
not subject to any conditional sales agreements, bailment lease or other 
agreement reserving unto the seller any right, title or interest 
therein. All materials and supplies shall become the property of the 
Owner when erected in place or at such earlier time as the parties may 
agree pursuant to Section 1(a) of Article III. Unless otherwise 
specified, all materials shall be new.
    Section 4. Assignment of Guarantees: The Bidder will obtain from 
manufacturers, materialmen, and subcontractors and furnish to the Owner 
all guarantees and will transfer or assign to the Owner such guarantees 
as run in favor of the Bidder, prior to the time the Bidder receives 
final payment. The guarantees shall be in addition to and not limited by 
any other provisions of the contract documents, guarantee or remedy 
required by law.
    Section 5. Royalties and Patent Infringement: The Bidder will pay 
all royalties and license fees, and will hold harmless and indemnify the 
Owner from any and all claims, suits, and proceedings for the 
infringement of any patent or patents covering any equipment, materials, 
supplies or construction methods used in the work.
    Section 6. Compliance with Statues and Regulations: The Bidder will 
comply with all applicable statues, ordinances, rules and regulations 
pertaining to the work. The Bidder acknowledges that it is familiar with 
The Rural Electrification Act of 1936, as amended, the so-called ``Kick-
Back'' Statute (48 Stat. 948), and all regulations issued pursuant 
thereto, and 18 U.S.C. Secs. 287, 1001 as amended. The Bidder 
understands that the obligations of the parties hereunder are subject to 
the applicable regulations and orders of Governmental agencies having 
jurisdiction in the premises.
    Section 7. Delivery of Possession and Control to Owner: Upon written 
request of the Owner, the Bidder shall deliver to the Owner full 
possession and control of any portion of the Project provided the Bidder 
shall have been paid at least 90 percent (90%) of the cost of 
construction of such portion. Upon such delivery of the possession and 
control of such portion of the Project to the Owner, the

[[Page 358]]

risks and obligations of the Bidder as set forth in Section 1(b), 
Article IV hereof with respect to such portion so delivered to the Owner 
shall be terminated; provided, however, that nothing herein contained 
shall relieve the Bidder of any liability with respect to defective 
workmanship or materials as provided in Section 7, Article II.
    Section 8. Occupancy Before Completion: Exception as provided in 
Section 7, the Owner shall not occupy any portion of the Project prior 
to the time of completion without the written approval of the Bidder. It 
is agreed that such occupancy of any such portion of the Project will 
not constitute acceptance of workmanship or materials used in 
construction of the Project as provided in Section 7, Article II, and 
that such occupancy will not relieve the Bidder from his obligation to 
complete any part of the Project in compliance with the contract. The 
Owner agrees to permit the Bidder to fulfill the requirements of the 
contract in accordance with instructions issued to the Bidder by the 
Architect upon occupancy by the Owner.

                           Article V--Remedies

    Section 1. Liquidated Damages: The time of Completion of 
Construction of the Project is of the essence of this Contract. Should 
the Bidder neglect, refuse or fail to complete construction within the 
time herein agreed upon, after giving effect to extensions of time, if 
any herein provided for, then, in that event and in view of the 
difficulty of estimating with exactness damages caused by such delay, 
the Owner shall have the right to deduct from and retain out of such 
moneys which may be then due or which may become due and payable to the 
Bidder, the sum of ________ Dollars ($________) per day of each and 
every day that such construction is delayed in its completion beyond the 
specified time, as liquidated damages and not as a penalty. If the 
amount due and to become due from the Owner to the Bidder is 
insufficient to pay in full any such liquidated damages, the Bidder 
shall pay to the Owner the amount necessary to effect such payment in 
full; provided, however, that the Owner shall promptly notify the Bidder 
in writing of the manner in which the amount retained, deduced or 
claimed as liquidated damages was computed.
    Section 2. Completion on Bidder's Default: If default shall be made 
by the Bidder or by any subcontractor in the performance of any of the 
terms of this Proposal, the Owner, without in any manner limiting its 
legal and equitable remedies in the circumstances, may serve upon the 
Bidder and the surety or sureties upon the Contractor's Bond or Bonds a 
written notice requiring the Bidder to cause such default to be 
corrected forthwith. Unless within twenty (20) days after the service of 
such notice upon the Bidder, such default shall be corrected or 
arrangements for the correction thereof, satisfactory to both the Owner 
and the Administrator, shall be made by the Bidder or its Surety or 
Sureties, the Owner may take over the construction of the Project and 
prosecute the same to completion by contract or otherwise for the 
account and at the expense of the Bidder and the Bidder and its Surety 
or Sureties shall be liable to the Owner for any cost or expense in 
excess of the contract price occasioned thereby. Sureties shall be 
liable to the Owner for any cost or expense in excess of the contract 
price occasioned thereby. In such event the Owner may take possession of 
and utilize, in completing the construction of the Project, any 
materials, tools, supplies, equipment, appliances, and plant belonging 
to the Bidder or any of its subcontractors, which may be situated at the 
site of the Project. The Owner in such contingency may exercise any 
rights, claims or demands which the Bidder may have against third 
persons in connection with this Proposal and for such purpose the Bidder 
does hereby assign, transfer and set over unto the Owner all such 
rights, claims and demands.
    Section 3. Cumulative Remedies: Every right or remedy herein 
conferred upon or reserved to the Owner or the Government or the 
Administrator shall be cumulative, shall be in addition to every right 
and remedy now or hereafter existing at law or in equity or by statute 
and the pursuit of any right or remedy shall not be construed as an 
election; provided, however, that the provisions of Section 1 of this 
Article V shall be the exclusive measure of damages for failure by the 
Bidder to complete the construction of the Project within the time 
herein agreed upon.

                        Article VI--Miscellaneous

    Section 1. Definitions: (a) The term ``Administrator'' shall mean 
the Administrator of the Rural Utilities Service of the United States of 
America and his duly authorized representatives or any other person in 
whom or authority in which may be vested in the duties and functions 
which the Administrator is now authorized by law to perform.
    (b) The term ``Architect'' shall mean the person or organization 
employed by the Owner to provide architectural services for the Project, 
and the Architect's duly authorized assistants and representatives. If 
an Architect is not employed, the term shall apply to the duly 
authorized agent of the Owner.
    (c) The term ``Completion of Construction'' shall mean full 
performance by the Bidder of the Bidder's obligations under the Contract 
and all amendments and revisions thereof except the Bidder's obligations 
in respect of (1) Releases of Liens and Certificate of Contractor under 
Article III, Section 2 hereof, and

[[Page 359]]

(2) other final documents. The term ``Completion of the Project'' shall 
mean full performance by the Bidder of the Bidder's obligations under 
the Contract and all amendments and revisions thereof. The date of 
signature by the Architect of the Certificate of Completion shall be the 
sole and conclusive evidence as to the date of Completion of 
Construction and as to the fact of Completion of the Project.
    Section 2. Materials and Supplies. In the performance of this 
contract there shall be furnished only such unmanufactured articles, 
materials, and supplies as have been mined or produced in the United 
States, Mexico, or Canada, and only such manufactured articles, 
materials, and supplies as have been manufactured in the United States 
substantially all from articles, materials, or supplies mined, produced 
or manufactured, as the case may be, in the United States, Mexico, or 
Canada; provided that other articles, materials, or supplies may be used 
in the event and to the extent that the Administrator shall expressly in 
writing authorize such use pursuant to the provisions of the Rural 
Electrification Act of 1938, being Title IV of Public Resolution No. 
122, 75th Congress, approved June 21, 1938. The Bidder agrees to submit 
to the Purchaser such certificates with respect to compliance with the 
foregoing provision as the Administrator from time to time may require.
    Section 3. Bond or Builder's Risk Policy: (a) The Bidder will 
furnish to the Owner, for a contract in an amount in excess of $100,000, 
a bond in a penal sum not less than the Total Contract Price and in the 
form attached hereto and with a Surety or Sureties listed by the United 
States Treasury Department as Acceptable Sureties.
    (b) The Bidder will furnish to the Owner for a contract in an amount 
of $100,000 or less, a Builder's Risk Policy or a bond like that 
required in the preceding paragraph, whichever the Owner has specified 
under Paragraph 8 of the Notice and Instructions to Bidders. The 
Builder's Risk Policy shall be on a completed value form, effective from 
the date equipment or materials is first delivered to the building site, 
and shall name both the Owner and the Contractor as insureds. The policy 
shall insure against loss by fire or lightning and the named perils in 
the extended coverage endorsement. The amount of coverage shall not be 
less than the replacement value of the property constructed, including 
all materials to be used in the construction and stored at the site or 
at any other location whether furnished by the Owner or the Contractor. 
When directed, the Bidder shall furnish evidence of compliance with 
these requirements. The evidence shall be in the form of a certificate 
of insurance by the insurance company and shall include a provision that 
no change in or cancellation of the policy shall be made without prior 
written notice to the Owner and the Administrator.
    Section 4. Subcontracts and Nonassignment: (a) Within ten (10) days 
after acceptance of the Proposal by the Owner and before awarding any 
subcontracts, the Bidder will notify the Architect, Owner and Surety in 
writing, of the names of the subcontractors proposed for the principal 
parts of the work, and will not enter into any subcontract for such work 
if written objection thereto is received from the Architect, Owner, 
Surety or Sureties within fifteen (15) days after receipt of such 
notice. The Bidder will be as fully responsible to the Owner and the 
Administrator for the acts and omissions of each subcontractor and of 
persons employed by such subcontractor as the Bidder would be for its 
own acts and omissions and those of persons directly employed by it. The 
Bidder will not subcontract on aggregate amount in excess of sixty-five 
percent (65%) of its obligations, (to be calculated on the basis of the 
Total Contract Price) without approval of the Architect, Owner, and 
Surety or Sureties on any bond furnished by the Bidder for the faithful 
performance of the Bidder's obligations hereunder. Nothing contained in 
the Construction Contract shall create any contractual relation between 
any subcontractor and the Owner.
    (b) The Bidder will not assign the contract effected by the 
acceptance of this Proposal or any part thereof without approval in 
writing of the Owner, Surety or Sureties, and the Administrator if the 
Construction Contract was approved by the Administrator.
    Section 5. Equal Opportunity Provisions: (a) Bidder's 
Representations.
    The Bidder represents that:
    It has ____, does not have____, 100 or more employees, and if it 
has, that it has ____, has not____, furnished the Equal Employment 
Opportunity-Employers Information Report EEO-1, Standard Form 100, 
required of employers with 100 or more employees pursuant to Executive 
Order 11246 and Title VII of the Civil Rights Act of 1964.
    The Bidder agrees that it will obtain, prior to the award of any 
subcontract for more than $10,000 hereunder to a subcontractor with 100 
or more employees, a statement, signed by the proposed subcontractor, 
that the proposed subcontractor has filed a current report on Standard 
Form 100.
    The Bidder agrees that if it has 100 or more employees and has not 
submitted a report on Standard Form 100 for the current reporting year 
and that if this Contract will amount to more than $10,000, the Bidder 
will file such report, as required by law, and notify the Owner in 
writing of such filing prior to the Owner's acceptance of this Proposal.
    (b) Equal Opportunity Clause, During the performance of this 
Contract, the Bidder agrees as follows: (1) The Bidder will not 
discriminate against any employee or applicant

[[Page 360]]

for employment because of race, color, religion, sex or national origin. 
The Bidder will take affirmative action to ensure that applicants are 
employed, and that employees are treated during employment without 
regard to their race, color, religion, sex or national origin. Such 
actions shall include, but not be limited to, the following: Employment, 
upgrading, demotions or transfer; recruitment or recruitment 
advertising, layoff or termination; rates of pay or other forms of 
compensation; and selection of training, including apprenticeship. The 
Bidder agrees to post in conspicuous places, available to employees and 
applicants for employment, notices to be provided setting forth the 
provisions of this Equal Opportunity Clause.
    (2) The Bidder will, in all solicitations or advertisements for 
employees placed by or on behalf of the Bidder, state that all qualified 
applicants will receive consideration for employment without regard to 
race, color, religion, sex or national origin.
    (3) The Bidder will send to each labor union or representative of 
workers, with which it has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or worker's representative of the Bidder's commitments under 
this section, and shall post copies of the notice in conspicuous places 
available to employees and applicants for employment.
    (4) The Bidder will comply with all provisions of Executive Order 
11246 of September 24, 1965, and rules, regulations, and relevant orders 
of the Secretary of Labor.
    (5) The Bidder will furnish all information and reports required by 
Executive Order 11246 of September 24, 1965, and by rules, regulations, 
and orders of the Secretary of Labor, or pursuant thereto, and will 
permit access to its books, records and accounts by the administering 
agency and the Secretary of Labor for purposes of investigation to 
ascertain compliance with such rules, regulations, and orders.
    (6) In the event of the Bidder's noncompliance with the Equal 
Opportunity Clause of this Contract or with any of the said rules, 
regulations, or orders, this Contract may be cancelled, terminated, or 
suspended in whole or in part, and the Bidder may be declared ineligible 
for further Government contracts or federally assisted construction 
contracts in accordance with procedures authorized in Executive Order 
11246 of September 24, 1965, and such other sanctions may be imposed and 
remedies invoked as provided in Executive Order 11246 of September 24, 
1965, or by rule, regulations, or order of the Secretary of Labor, or as 
provided by law.
    (7) The Bidder will include this Equal Opportunity Clause in every 
subcontract or purchase order unless exempted by the rules, regulations, 
or order of the Secretary of Labor issued pursuant to Section 204 of 
Executive Order 11246 of September 24, 1965, so that such provisions 
will be binding upon each subcontract or vendor. The Bidder will take 
such action with respect to any subcontract or purchase order as the 
administering agency may direct as a means of enforcing such provisions, 
including sanctions for noncompliance. Provided, however, that in the 
event Bidder becomes involved in, or is threatened with, litigation with 
a subcontractor or vendor as a result of such direction by the 
administering agency, the Bidder may request the United States to enter 
into such litigation to protect the interests of the United States.
    (c) Certificate of Nonsegregated Facilities. The Bidder certifies 
that it does not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it does not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities at any of its establishments, and that it 
will not permit its employees to perform their services at any location, 
under its control, where segregated facilities are maintained. The 
Bidder agrees that a breach of this certification is a violation of the 
Equal Opportunity Clause in this Contract. As used in this 
certification, the term ``segregated facilities'' means any waiting 
rooms, work areas, restrooms and washrooms, restaurants and other eating 
areas, timeclocks, locker rooms, and other storage or dressing areas, 
parking lots, drinking fountains, recreation or entertainment areas, 
transportation, and housing facilities provided for employees which are 
segregated by explicit directive or are in fact segregated on the basis 
of race, color, religion, or national origin, because of habit, local 
custom, or otherwise. The Bidder agrees that (except where it has 
obtained identical certifications from proposed subcontractors for 
specific time periods) it will obtain identical certifications from 
proposed subcontractors prior to the award of subcontracts exceeding 
$10,000 which are not exempt from the provisions of the Equal 
Opportunity Clause, and that it will retain such certifications in its 
files.
    Section 6. License: The Bidder warrants that a Contractor's License 
is ____, is not ____, required, and if required, it possesses 
Contractor's License No. ________ for the State of ________ in which the 
Project is located, and said license expires on ________, 19____.
    Section 7. Extension to Successors and Assigns: Each and all of the 
covenants and agreements contained in the contract effected by the 
Acceptance of this Proposal shall extend to and be binding upon the 
successors and assigns of the parties thereto.
    Section 8. Description of Contract: The Notice and Instructions to 
Bidders, the Proposal, the Acceptance, the Contractor's Bond

[[Page 361]]

or Builder's Risk Policy, the Plans and Specifications and all 
amendments or revisions thereto constitute the Construction Contract.
    Section 9. Contractor: Upon acceptance of this Proposal the 
successful Bidder shall be the Contractor and all references in the 
Proposal to the Bidder shall apply to the Contractor.
    Section 10. Approval by the Administrator: No acceptance of a 
Proposal for a contract upon which approval of the Administrator is 
required shall become effective until the contract has been approved by 
the Administrator; provided that no obligation shall arise hereunder 
unless such approval is given within sixty (60) days after the date set 
for the opening of the proposals. The acceptance of a Proposal for a 
contract upon which approval of the Administrator is not required shall 
become effective the date of acceptance by the Owner.

________ Bidder
By ________ President
________ Address
Attest: ________ Secretary
Date ________

    The Proposal must be signed with the full name of the Bidder. If the 
Bidder is a partnership, the Proposal must be signed in partnership name 
by a partner. If the Bidder is a corporation, the Proposal must be 
signed in the corporate name by a duly authorized officer and the 
corporate seal affixed and attested by the Secretary of the Corporation.

                               Acceptance

    Subject to the approval of the Administrator, if approval of the 
Administrator is required, the Owner hereby accepts the Proposal of 
________ for the construction of the Project therein described for the:
    Base Bid of ________ and alternate bids as follows (Show plus or 
minus):

Alternate bid No. ________, $________.
Alternate bid No. ________, $________.
Alternate bid No. ________, $________.
Alternate bid No. ________, $________.
Alternate bid No. ________, $________.
Alternate bid No. ________, $________.
Alternate bid No. ________, $________.
The Total Contract Price is $________
________ Owner
By ________ President
Attest: ________ Secretary
Dated ________

                             [End of clause]

Sec. 1726.330  [Reserved]



Sec. 1726.331  Bid bond, RUS Form 307.

    The bond form in this section shall be used when a Bid Bond is 
required by RUS Form 200, 203, 257, 764, 830, or 831.

                                Bid Bond

    1. KNOW ALL MEN that we, ________, as Principal, and ________, as 
Surety, are held and firmly bound unto ________ (hereafter called the 
``Owner'') in the penal sum of ten percent (10%) of the amount of the 
bid referred to in paragraph 2 below, but not to exceed ________ dollars 
($________), as hereinafter set forth and for the payment of which sum 
well and truly to be made we bind ourselves, our executors, 
administrators, successors and assigns, jointly and severally, by these 
presents;
    2. WHEREAS, the Principal has submitted a bid to the Owner for the 
construction of the Rural Utilities Service Project known as Project 
________.
    3. NOW, THEREFORE, the condition of this obligation is such that if 
the Owner shall accept the bid of the Principal, and
    (a) The Principal shall execute such contract documents, if any, as 
may be required by the terms of the bid and give such Contractor's Bond 
or Bonds for the performance of the contract and for the prompt payment 
of labor and material furnished for the Project as may be specified in 
the bid, or
    (b) In the event of the failure of the Principal to execute such 
contract documents, if any, and give such Contractor's Bond or Bonds, if 
the Principal shall pay to the Owner the difference, not to exceed the 
penal sum hereof, between the amount specified in the bid and such 
larger amount for which the Owner may in good faith contract with 
another party to construct the Project, then this obligation shall be 
void, otherwise to remain in full force and effect.
    IN WITNESS WHEREOF, the undersigned have caused this instrument to 
be executed and their respective corporate seals to be affixed and 
attested by their duly authorized representatives this ________ day 
of________, 19____

Principal ________ (Seal)
By ________
Title ________
Attest: ________ (Secretary)
Surety ________ (Seal)
By ________
Title ________
Attest: ________ (Secretary)

                             [End of clause]

Secs. 1726.332--1726.339  [Reserved]



Sec. 1726.340  Substation and switching station erection contract, RUS Form 764.

    The contract form in this section shall be used when required by 
this part.

[[Page 362]]

           Substation and Switching Station Erection Contract

                   Notice and Instructions to Bidders

    1. Sealed proposals for the construction, including the supply of 
necessary labor, materials and equipment, of a rural electric project of 
________ (hereinafter called the ``Owner'') to be known as Project 
________ will be received by the Owner on or before ________ o'clock 
____ M., 19____, at its office at ________ at which time and place the 
proposals will be publicly opened and read. Any proposal received 
subsequent to the time specified will be promptly returned to the Bidder 
unopened.
    2. Description of Project: The Project will consist of the following 
Substations and other Major Facilities:

Name ________ KVA ____ Voltage ________
Name ________ KVA ____ Voltage ________
Name ________ KVA ____ Voltage ________

    The Project is located in ________ Counties, in the State of 
________ all as more fully described in the Plans, Specifications for 
Construction, Construction Drawings and Contractor's Proposal therefore 
hereinafter referred to.
    3. Owner Furnished Materials. The unit prices in the Contractor's 
Proposal should include provisions for Owner Furnished Materials since 
as stated in Article I, Section 3 of the Contractor's Proposal, the 
value of the Owner Furnished Materials, if any, will be deducted from 
payments to the Bidder for completed Construction Units.
    4. Obtaining Documents. The Plans, Specifications for Construction 
and Construction Drawings together with all necessary forms and other 
documents for bidders may be obtained from the Owner, or from the 
Engineer ________ at the latter's office at ________ upon payment of 
$________, which payment will not be subject to refund. The Plans, 
Specifications for Construction and Construction Drawings may be 
examined at the office of the Owner or at the office of the Engineer. A 
copy of the Loan Contract (if the Project is to be financed in whole or 
in part, pursuant to a Loan Contract) between the Owner and the United 
States of America acting through the Administrator of the Rural 
Utilities Service (hereinafter called the ``Administrator'') and of the 
loan contract between the Owner and any other lender may be examined at 
the office of the Owner. Each set of Plans, Specifications for 
Construction and Construction Drawings will have a serial number, given 
by the Engineer, and the number of each set with the name of the 
Purchaser will be recorded by the Engineer. Bids will be accepted only 
from the original purchasers.
    5. Manner of Submitting Proposals. Proposals and all supporting 
instruments must be submitted on the forms furnished by the Owner and 
must be delivered in a sealed envelope addressed to the Owner. The name 
and address of the Bidder, its license number if a license is required 
by the State, and the date and hour of the opening of bids must appear 
on the envelope in which the Proposal is submitted, Proposals must be 
filled in in ink or typewritten. No alterations or interlineations will 
be permitted, unless made before submission, and initialed and dated.
    6. Familiarity with Conditions. Prior to the submission of the 
Proposal the Bidder shall make and shall be deemed to have made a 
careful examination of the site of the Project and of the Plans, 
Specifications for Construction, Construction Drawings, and forms of 
Contractor's Proposal and Contractor's Bond on file with the Secretary 
of the Owner and with the Engineer, and shall become informed as to the 
location and nature of the proposed construction, the transportation 
facilities, the kind and character of soil and terrain to be 
encountered, the kind of facilities required before and during the 
construction of the Project, general local conditions and all other 
matters that may affect the cost and the time of completion of the 
Project. Bidders will be required to comply with all applicable 
statutes, regulations, etc., including those pertaining to the licensing 
of contractors, and the so-called ``Kickback Statute'' (48 Stat. 948) 
and regulations issued pursuant thereto.
    7. Proposals will be accepted only from those prequalified bidders 
invited by the Owner to submit a proposal.
    8. Alternate Designs. The Owner reserves the right to confine its 
consideration of the several bids to one type of design regardless of 
alternate types of design which may be specified in the Plans and 
Specifications for Construction and offered in the Proposals.
    9. The time for Completion of Construction of the Project shall be 
as specified by the Engineer in the Proposal.
    10. Bid Bond. Each Proposal must be accompanied by a Bid Bond in the 
form attached or a certified check on a bank that is a member of the 
Federal Deposit Insurance Corporation, payable to the order of the 
Owner, in an amount equal to ten percent (10%) of the maximum bid price. 
Each Bidder agrees, provided its Proposal is one of the three low 
Proposals, that, by filing its Proposal together with such Bid Bond or 
check in consideration of the Owner's receiving and considering such 
Proposal, said Proposal shall be firm and binding upon each such Bidder 
and such Bid Bond or check shall be held by the Owner until a Proposal 
is accepted and a satisfactory Contractor's Bond is furnished (where 
required) by the successful Bidder and such acceptance has been approved 
by the Administrator, or for a period not to exceed sixty (60) days from 
the date hereinbefore set for the opening of Proposals, whichever period 
shall be the shorter. If such

[[Page 363]]

Proposal is not one of the three low Proposals, the Bid Bond or check 
will be returned in each instance within a period of ten (10) days to 
the Bidder furnishing same.
    11. Contractor's Bond. The successful Bidder will be required to 
execute two additional counterparts of the Proposal and, for a Contract 
in excess of $100,000, to furnish a Contractor's Bond in triplicate in 
the form attached hereto with sureties listed by the United States 
Treasury Department as Acceptable Sureties, in a penal sum not less than 
the contract price.
    12. Failure to Furnish Contractor's Bond. Should the successful 
Bidder fail or refuse to execute such counterparts or to furnish a 
Contractor's Bond (where required) within ten (10) days after written 
notification of the acceptance of the Proposal by the Owner, the Bidder 
will be considered to have abandoned the Proposal. In such event, the 
Owner shall be entitled (a) to enforce the bid bond in accordance with 
its terms, or (b) if a certified check has been delivered with the 
Proposal, to retain from the proceeds of the certified check the 
difference (not exceeding the amount of the certified check) between the 
amount of the Proposal and such larger amount for which the Owner may in 
good faith contract with another party to construct the Project. The 
term ``successful Bidder'' shall be deemed to include any Bidder whose 
Proposal is accepted after another Bidder has previously refused or has 
been unable to execute the counterparts or to furnish a satisfactory 
Contractor's Bond (where required.)
    13. Contract is Entire Agreement. The Contract to be effected by the 
acceptance of the Proposal shall be deemed to include the entire 
agreement between the parties thereto, and the Bidder shall not claim 
any modification thereof resulting from any representation or promise 
made at any time by any officer, agent or employee of the Owner or by 
any other person.
    14. Minor Irregularities. The Owner reserves the right to waive 
minor irregularities or minor errors in any Propose, if it appears to 
the Owner that such irregularities or errors were made through 
inadvertence. Any such irregularities or errors so waived must be 
corrected on the Proposal in which they occur prior to the acceptance 
thereof by the Owner.
    15. Rejection of Bids. The Owner reserves the right to reject any or 
all Proposals. The attention of Bidders is specially called to the 
desirability of a proper balance between prices for labor and materials 
and between the total prices for the respective Construction Units. Lack 
of such balance may be considered as a reason for rejecting a Proposal.
    16. Discrepancy in Unit Prices. Where the unit prices in the 
Contractor's Proposal are separated into three columns designated as 
``Labor,'' ``Materials'' and ``Labor and Materials,'' and where a 
discrepancy appears between the sum shown in the ``Labor and Materials'' 
column and the correct addition of the sums appearing in the ``Labor'' 
column and the ``Materials'' column, the correct addition of the sums 
appearing in the ``Labor'' column and the ``Materials'' column shall 
control.
    17. Bidding and Acceptance. If the Project includes more than one 
substation, bidders may bid on one or more substations. The Owner may 
award (1) a contract for all of the substations on the basis of the low 
total bid or, (2) separate contracts for one or more substations based 
on the low bids for the respective substations.
    18. Definition of Terms. The terms ``Administrator,'' ``Engineer,'' 
``Supervisor,'' ``Project,'' ``Completion of Construction'' and 
``Completion of the Project'' as used throughout this Contract shall be 
as defined in Article VI, Section 1, of the Contractor's Proposal.
    19. The Owner represents:
    a. If by provisions of the Contractor's Proposal the Owner shall 
have undertaken to furnish any materials for the construction of the 
Project, such materials are on hand at locations specified or if such 
materials are not on hand they will be made available by the Owner to 
the successful Bidder at the locations specified before the time such 
materials are required for construction.
    b. Title to the property on which the Project is to be constructed 
has been obtained.
    c. All funds necessary for prompt payment for the construction of 
the Project will be available.
    If the Owner shall fail to comply with any of the undertakings 
contained in the foregoing representations or if any of such 
representations shall be incorrect, the Bidder will be entitled to an 
extension of time of completion for a period equal to the delay, if any, 
caused by the failure of the Owner to comply with such undertakings or 
by any such incorrect representation; provided the Bidder shall have 
promptly notified the Owner in writing of its desire to extend the time 
of completion in accordance with the foregoing, and provided further 
that such extension, if any, of the time of completion shall be the sole 
remedy of the Bidder for the Owner's failure, because of conditions 
beyond the control and without the fault of the Owner, to furnish 
materials in accordance with subparagraph a. hereof.

________ Owner
By ________
________, 19____

                          Contractor's Proposal

    (Proposal shall be submitted in ink or typewritten)

[[Page 364]]

    To: ________ (Hereinafter called the ``Owner'')

                           Article I--General

    Section 1. Offer to Construct. The undersigned (hereinafter called 
the ``Bidder'') hereby proposes to receive and install such materials 
and equipment as may hereinafter be specified to be furnished by the 
Owner, and to furnish all other materials and equipment, all machinery, 
tools, labor transportation and other means required to construct the 
rural electric project ________ in strict accordance with the Plans, 
Specifications for Construction and Construction Drawings for the prices 
hereinafter stated.
    Section 2. Materials and Equipment. The Bidder agrees to furnish and 
use in the construction of the Project under this Proposal, in the event 
the Proposal is accepted, only such materials and equipment as are 
included in the current ``List of Materials Acceptable for Use on 
Systems of RUS Electrification Borrowers,'' including revisions adopted 
prior to the Bid Opening.
    Section 3. Owner-Furnished Materials. The Bidder understands and 
agrees that, if this Proposal is accepted, the Owner will furnish to the 
Bidder the material set forth in the attached ``List of Owner's 
Materials on Hand'' (see page 10) and the Bidder will give a receipt 
(see page 12) therefore in writing to the Owner. The Bidder, further, 
will on behalf of the Owner accept delivery of such of the materials set 
forth in the attached ``List of Materials Ordered by Owner but Not 
Delivered'' (see page 11) as may be subsequently delivered and will 
promptly forward to the Owner for payment the supplier's invoice, 
together with the Bidder's receipt in writing for such materials. The 
materials referred to are on hand at, or will be delivered to, the 
locations specified in the Lists and the Bidder will use such materials 
in constructing the Project.
    The value of the completed Construction Units certified by the 
Bidder each month pursuant to Article III, Section 1.a of this Proposal 
shall be reduced by an amount equal to the value of the materials 
installed by the Bidder during the preceding month which have been 
furnished by the Owner or the delivery of which has been accepted by the 
Bidder on behalf of the Owner. Only ninety percent (90%) of the 
remainder shall be paid prior to the Completion of the Project. The 
value of such materials shall be computed on the basis of the unit 
prices stated in the Lists. Materials, if any, not required for the 
Project, which have been furnished to the Bidder by the Owner or 
delivery of which has been accepted by the Bidder on behalf of the 
Owner, shall be returned to the Owner by the Bidder upon Completion of 
Construction of the Project. The value of all materials not installed in 
the Project nor returned to the Owner shall be deducted from the final 
payment to the Bidder.
    The Owner shall not be obligated to furnish materials in excess of 
the quantities, size, kind and type set forth in the attached Lists. If 
the Owner furnishes, and the Bidder accepts, materials in excess 
thereof, the values of such excess materials shall be their actual cost 
as stated by the Owner.
    Information on the shipping schedules of materials on the ``List of 
Materials Ordered by Owner But Not Delivered'' will be furnished to the 
Bidder as necessary during progress of the work.
    Upon delivery the Bidder shall promptly receive, unload, transport 
and handle all materials and equipment on the ``List of Materials 
Ordered by Owner But Not Delivered'' at its expense and shall be 
responsible for demurrage, if any.
    Section 4. Purchase of Materials Not Furnished by Owner. The Bidder 
will purchase all materials and equipment (other than owner-furnished 
materials) outright and not subject to any conditional sales agreements, 
bailment, lease or other agreement reserving unto the seller any right, 
title or interest therein. All such materials and equipment shall become 
the property of the Owner when erected in place.
    Section 5. Proposal on Unit Basis. The Bidder understands and agrees 
that the various Construction Units on which bids are made are defined 
by symbols and descriptions in this Proposal, that all said bids are on 
a unit basis, and that the Owner may specify any number or combination 
of Construction Units that the Owner may deem necessary for the 
construction of the Project. Separate Construction Units are designated 
for each different arrangement which may be used in the construction of 
the Project. This Proposal is based on a consideration of each unit in 
place and includes only the materials listed on the corresponding 
Construction Drawings or description of unit where no drawing exists.
    Section 6. Familiarity with Conditions. The Bidder has made a 
careful examination of the site of the Project to be constructed and of 
the Plans, Specifications for Construction, Construction Drawings, and 
form of Contractor's Bond attached hereto, and has become informed as to 
the location and nature of the proposed construction, the transportation 
facilities, the kind and character of soil and terrain to be 
encountered, and the kind of facilities required before and during the 
construction of the Project, and has become acquainted with the labor 
conditions, state and local laws and regulations which would affect work 
on the proposed construction.
    Section 7. License. The Bidder warrants that a Contractor's License 
is ____, is not ____, required, and if required, it possesses 
Contractor's License No. ________ for the

[[Page 365]]

State of ________ in which the Project is located and said license 
expires on ________, 19____.
    Section 8. The Bidder warrants that this Proposal is made in good 
faith and without collusion or connection with any person or persons 
bidding for the same work.
    Section 9. The Bidder warrants that it possesses adequate financial 
resources and agrees that in the event this Proposal is accepted and a 
Contractor's Bond is required, it will furnish a Contractor's Bond in 
the form attached hereto, in a penal sum not less than the maximum 
Contract price, with a surety or sureties listed by the United States 
Treasury Department as Acceptable Sureties.
    In the event that the surety or sureties on the performance bond 
delivered to the Owner contemporaneously with the execution of the 
Contractor on any bond or bonds delivered in substitution therefor or in 
addition thereto shall at any time become unsatisfactory to the Owner or 
the Administrator, the Bidder agrees to deliver to the Owner another or 
an additional bond.
    Section 10. Taxes. The unit prices for Construction Units in this 
Proposal include provisions for the payment of all monies which will be 
payable by the Bidder or the Owner in connection with the construction 
of the Project on account of taxes imposed by any taxing authority upon 
the sale, purchase or use of materials, supplies and equipment, or 
services or labor of installation thereof, to be incorporated in the 
Project as part of such Construction Units. The Bidder agrees to pay all 
such taxes, except taxes upon the sale, purchase or use of owner-
furnished materials and it is understood that, as to owner-furnished 
materials, the values stated in the attached ``List of Owner's Materials 
on Hand'' and ``List of Materials Ordered by Owner But Not Delivered'' 
include taxes upon the sale, purchase or use of owner-furnished 
materials, if applicable. The Bidder will furnish to the appropriate 
taxing authorities all required information and reports pertaining to 
the Project, except as to the owner-furnished materials.
    Section 11. Changes in Quantities. The Bidder understands and agrees 
that the quantities called for in this Proposal are approximate, and 
that the total number of units upon which payment shall be made shall be 
as set forth in the inventory. If the Owner changes the quantity of any 
unit or units specified in this Proposal by more than 15%, and the 
materials cost to the Bidder is increased thereby to an extent which 
would not be adequately compensated by application of the unit prices in 
this Proposal to the revised quantity of such unit or units, such 
change, to the extent of the quantities of such units in excess of such 
15%, shall be regarded as a change in the construction within the 
meaning of Article II, Section 1(d) of this Proposal.

                                        List of Owner's Materials on Hand                                       
----------------------------------------------------------------------------------------------------------------
                                   Description of                                                               
            Item \1\                  material         Catalog No.     Quantity     Unit price    Extended price
----------------------------------------------------------------------------------------------------------------
      Total....................                                                                                 
Above Materials are Located at:                                                                                 
                                                                                                                
----------------------------------------------------------------------------------------------------------------
\1\ Item corresponds with item in list of materials in construction drawings. Under Article I, Section 3, the   
  value of these materials will be deducted from payments to the Bidder for completed Construction Units.       


                                                  List of Materials Ordered by Owner But Not Delivered                                                  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Scheduled                                                                     
                        Item \1\                          Supplier name    delivery   Description of  Catalog No.    Quantity    Unit price    Extended 
                                                           and address       date        material                                               price   
--------------------------------------------------------------------------------------------------------------------------------------------------------
      Total............................................                                                                                                 
Above Material to be Delivered to:                                                                                                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Item corresponds with item in list of materials in construction drawings. Under Article I, Section 3, the value of these materials will be deducted 
  from payments to the Bidder for completed Construction Units.                                                                                         

                        Article II--Construction

    Section 1. Time and Manner of Construction.
    a. The Bidder agrees to commence construction of the Project on a 
date (hereinafter called the ``Commencement Date'') which shall be 
determined by the Engineer after notice in writing of approval of the 
Contract by the Administrator and notice in writing from the Bidder that 
the Bidder has sufficient materials to warrant commencement and 
continuation of construction, but in no event will the Commencement Date 
be later than ________ calendar days after date of approval of the 
Contract by the Administrator. The Bidder further agrees to prosecute 
diligently and to complete construction in strict accordance with the 
Plans,

[[Page 366]]

Specifications for Construction and Construction Drawings within 
________ (________) calendar days (excluding Sundays) after Commencement 
Date: Provided, however, that the Bidder will not be required to perform 
any construction on such days when in the judgment of the Engineer snow, 
rain, or wind, or the results of snow, rain, or frost make it 
impracticable to perform any operation of construction and to the extent 
of the time lost due to the conditions described herein and approved in 
writing by the Engineer, the time of completion set out above will be 
extended if the Bidder makes a written request therefor to the Owner as 
provided in subsection b of this Section 1.
    b. The time for Completion of Construction shall be extended for the 
period of any reasonable delay which is due exclusively to causes beyond 
the control and without the fault of the Bidder, including acts of God, 
fires, floods, inability to obtain materials and acts or omissions of 
the Owner with respect to matters for which the Owner is solely 
responsible: Provided, however, that no such extension of time for 
completion shall be granted the Bidder unless within ten (10) days after 
the happening of any event relied upon by the Bidder for such an 
extension of time the Bidder shall have made a request therefore in 
writing to the Owner, and provided further that no delay in such time of 
completion or in the progress of the work which results from any of the 
above causes, except acts or omissions of the Owner, shall result in any 
liability on the part of the Owner.
    c. The sequence of construction shall be as set forth below, the 
numbers or names being the designations of substations or other major 
facilities (hereinafter called the ``Stations'') corresponding to the 
numbers or names shown on the maps attached hereto, or if no Stations 
are set forth below, the sequence of construction shall be as determined 
by the Bidder, subject to the approval of the Engineer. ________
    d. The Owner, acting through the Engineer and with the approval of 
the Administrator,1 may from time to time during the progress 
of the construction of the Project make such changes, additions to or 
subtractions from the Plans, Specifications for Construction, 
Construction Drawings, List of Materials and sequence of construction 
provided for in the previous paragraph which are part of the 
Contractor's Proposal as conditions may warrant: Provided, however, that 
if any change in the construction to be done shall require an extension 
of time, a reasonable extension will be granted if the Bidder shall make 
a written request therefor to the Owner within ten (10) days after any 
such change is made. And provided further, that if the cost to the 
Bidder of construction of the Project shall be materially increased by 
any such change or addition, the Owner shall pay the Bidder for the 
reasonable cost thereof in accordance with a Construction Contract 
Amendment signed by the Owner and the Bidder and approved by the 
Administrator,2 but no claim for additional compensation for 
any such change or addition will be considered unless the Bidder shall 
have made a written request therefor to the Owner prior to the 
commencement of work in connection with such change or addition.
---------------------------------------------------------------------------

    \1\ As long as the total price of this contract including all 
amendments is less than 120 percent of the original contract price as 
stated in the acceptance hereto, amendments executed on RUS Form 238 are 
not subject to the approval of the Administrator. Whenever an amendment 
to this contract causes the total amended contract to exceed 120 percent 
of the original contract price, that amendment and all subsequent 
amendments to this contract shall be made subject to the approval of the 
Administrator.
    \2\  See Footnote 1.
---------------------------------------------------------------------------

    e. The Bidder will not perform any work hereunder on Sundays unless 
there is urgent need for such Sunday work and the Owner consents thereto 
in writing. The time for completion specified in subsection a of this 
Section 1 shall not be affected in any way by inclusion of this 
subsection nor by the Owner's consent or lack of consent to Sunday work 
hereunder.
    Section 2. Environmental Protection. The Bidder shall perform work 
in such a manner as to maximize preservation beauty, conservation of 
natural resources and minimize marring and scarring of the landscape and 
silting of streams. The Bidder shall not deposit trash in streams or 
waterways, and shall not deposit herbicides or other chemicals or their 
containers in or near streams, waterways or pastures. The Bidder shall 
follow, under the general direction of the Engineer, the criteria 
relating to environmental protection as specified herein by the 
Engineer.
    Section 3. The Bidder agrees that in the event this Proposal is 
accepted it will make available for use in connection with the proposed 
construction all necessary tools and equipment and qualified 
superintendents and foremen.
    Section 4. Changes in Construction. The Bidder agrees to make 
changes in construction previously installed in the Project by the 
Bidder as required by the Owner. The compensation for such changes shall 
be as agreed upon in writing by the Bidder and the Owner prior to 
commencement of work in connection with such changes.
    No payment shall be made to the Bidder for materials or labor 
involved in correcting errors or omissions on the part of the Bidder

[[Page 367]]

which result in construction not in accordance with the Plans and 
Specifications for Construction.
    Section 5. Construction Not in Proposal. The Bidder also agrees that 
when it is necessary to construct units not shown in the Proposal it 
will construct such units for a price arrived at as follows:
    a. The cost of materials shall be determined by the invoices.
    b. The cost of labor shall be the reasonable cost thereof, as agreed 
upon by the Owner and Bidder prior to the commencement of work.
    Section 6. Supervision and Inspection.
    a. The Bidder shall cause the construction work on the Project to 
receive constant supervision by a competent superintendent (hereinafter 
called the ``Superintendent'') who shall be present at all times during 
working hours where construction is being carried on. The Bidder shall 
also employ, in connection with the construction of the Project, 
capable, experienced and reliable foremen and such skilled workmen as 
may be required for the various classes of work to be performed. 
Directions and instructions given to the Superintendent shall be binding 
upon the Bidder.
    b. The Owner reserves the right to require the removal from the 
Project of any employee of the Bidder if in the judgment of the Owner 
such removal shall be necessary in order to protect the interest of the 
Owner. The Owner or the Supervisor, if any, shall have the right to 
require the Bidder to increase the number of its employees and to 
increase or change the amount or kind of tools and equipment if at any 
time the progress of the work shall be unsatisfactory to the Owner or 
Supervisor; but the failure of the Owner or Supervisor to give any such 
directions shall not relieve the Bidder of its obligations to complete 
the work within the time and in the manner specified in this Proposal.
    c. The manner of construction of the Project, and all materials and 
equipment used therein, shall be subject to the inspection, tests and 
approval of the Owner and the Administrator, and the Bidder shall 
furnish all information required by the Owner or by the Administrator 
concerning the nature or source of any materials incorporated or to be 
incorporated in the Project. The Owner and the Administrator shall have 
the right to inspect all payrolls, invoices of materials, and other data 
and records of the Bidder and of any subcontractor, relevant to the 
construction of the Project. The Bidder shall provide all reasonable 
facilities necessary for such inspection and tests. The Bidder shall 
have an authorized agent accompany the Engineer when final inspection is 
made and, if requested by the owner, when any other inspection is made.
    d. In the event that the Owner, or the Administrator, shall 
determine that the construction contains or may contain numerous 
defects, it shall be the duty of the Bidder and the Bidder's Surety or 
Sureties, if any, to have an inspection made by an engineer approved by 
the Owner and the Administrator for the purpose of determining the exact 
nature, extent and location of such defects.
    e. The Engineer may recommend to the Owner that the Bidder suspend 
the work wholly or in part for such period or periods as the Engineer 
may deem necessary due to unsuitable weather or such other conditions as 
are considered unfavorable for the satisfactory prosecution of the work 
or because of the failure of the Bidder to comply with any of the 
provisions of the Contract: Provided, however, that the Bidder shall not 
suspend work pursuant to this provision without written authority from 
the Owner so to do. The time of completion hereinabove set forth shall 
be increased by the number of days of any such suspension, except when 
such suspension is due to the failure of the Bidder to comply with any 
of the provisions of this Contract. In the event that work is suspended 
by the Bidder with the consent of the Owner, the Bidder before resuming 
work shall give the Owner at least twenty-four (24) hours notice thereof 
in writing.
    Section 7. Defective Materials and Workmanship.
    a. The acceptance of any materials, equipment (except owner-
furnished materials) or any workmanship by the Owner or the Engineer 
shall not preclude the subsequent rejection thereof if such materials, 
equipment, or workmanship shall be found to be defective after delivery 
or installation, and any such materials, equipment or workmanship found 
defective before final acceptance of the construction shall be replaced 
or remedied, as the case may be, by and at the expense of the Bidder. 
Any such condemned material or equipment shall be immediately removed 
from the site of the Project by the Bidder at the Bidder's expense. The 
Bidder shall not be entitled to any payment hereunder so long as any 
defective materials, equipment or workmanship in respect to the Project, 
of which the Bidder shall have had notice, shall not have been replaced 
or remedied, as the case may be.
    b. Notwithstanding any certificate which may have been given by the 
Owner or the Engineer, if any materials, equipment (except owner-
furnished materials) or any workmanship which does not comply with the 
requirements of this Contract shall be discovered within one (1) year 
after Completion of Construction of the Project, the Bidder shall 
replace such defective materials or equipment or remedy any such 
defective workmanship within thirty (30) days after notice in writing of 
the existence thereof shall have been given by the Owner. If the

[[Page 368]]

Bidder shall be called upon to replace any defective materials or 
equipment or to remedy defective workmanship as herein provided, the 
Owner, if so requested by the Bidder shall deenergize that portion of 
the Project involved in such work. In the event of failure by the Bidder 
so to do, the Owner may replace such defective materials or equipment or 
remedy such defective workmanship, as the case maybe, and in such event 
the Bidder shall pay to the Owner the cost and expense thereof.

               Article III--Payments and Release of Liens

    Section 1. Payments to Bidder.
    a. Within the first fifteen (15) days of each calendar month, the 
Owner shall make partial payment to the Bidder for construction 
accomplished during the preceding calendar month on the basis of 
completed Construction Units furnished and certified to by the Bidder, 
recommended by the Engineer, and approved by the Owner solely for the 
purposes of payment: Provided, however, that such approval shall not be 
deemed approval of the workmanship or materials. Only ninety percent 
(90%) of each such estimate approved during the construction of the 
Project shall be paid by the Owner to the Bidder prior to Completion of 
the Project: Provided, however, that at any time after work, which, in 
the sole determination of the Engineer, amounts to fifty percent (50%) 
of the maximum Contract price has been completed, the Owner may elect, 
in lieu of paying ninety percent (90%) of each such subsequent estimate, 
to pay each such subsequent estimate in full. Upon completion by the 
Bidder of the construction of the Project, the Engineer will prepare an 
inventory of the Project showing the total number and character of 
Construction Units and, after checking such inventory with the Bidder, 
will certify it to the Owner together with a certificate of the total 
cost of the construction performed. Upon the approval of such 
certificates by the Owner and the Administrator, the Owner shall make 
payment to the Bidder of all amounts to which the Bidder shall be 
entitled thereunder which shall not have been paid, provided, however, 
that such final payment shall be made not later than ninety (90) days 
after the date of Completion of Construction of the Project as specified 
in the Certificate of Completion, unless withheld because of the fault 
of the Bidder.
    b. The Bidder shall be paid on the basis of the number of 
Construction Units actually installed at the direction of the Owner 
shown by the inventory: Provided, however, that the total cost shall not 
exceed the maximum Contract price for the construction of the Project as 
set forth in the Acceptance, unless such excess shall have been approved 
in writing by the Administrator.
    c. Notwithstanding the provisions of Section la above, the Bidder 
may, by giving written notice thereof to the Owner, elect to receive 
payment in full for any Station of the Project upon:
    (1) completion of construction of such Station as certified by the 
Engineer and approved by the Owner and the Administrator;
    (2) submission to the Owner and the Administrator of the releases of 
lien and the certificate referred to in Section 2 hereof;
    (3) approval by the Owner and the Administrator of the inventory in 
respect of such Station; and
    (4) submission to the Owner and the Administrator of the consent in 
writing by the Surety or Sureties, if any, on the Contractor's Bond to 
payment in full for such Station prior to Completion of the Project.
    d. Interest at the rate of ________ percent 3 (________%) 
per annum shall be paid by the Owner to the Bidder on all unpaid 
balances due on monthly estimates, commencing fifteen (15) days after 
the due date; provided the delay in payment beyond the due date is not 
caused by any condition within the control of the Bidder. The due date 
for purposes of such monthly payment shall be the fifteenth day of each 
calendar month provided (1) the Bidder on or before the fifth day of 
such month shall have submitted its certification of Construction Units 
completed during the preceding month and (2) the Owner on or before the 
fifteenth day of such month shall have approved such certification. If, 
for reasons not due to the Bidder's fault, such approval shall not have 
been given on or before the fifteenth day of such month, the due date 
for purposes of this subsection d shall be the fifteenth day of such 
month notwithstanding the absence of the approval of the certification.
---------------------------------------------------------------------------

    \3\ The Owner shall insert a 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.
---------------------------------------------------------------------------

    e. Interest at the rate of ------ percent 4 (------%) per 
annum shall be paid by the Owner to the Bidder on the final payment for 
the Project or any completed Station thereof, commencing fifteen (15) 
days after the due date. The due date for purposes of such final payment 
shall be the date of approval by the Administrator of all of the 
documents requiring such approval, as a condition precedent to the 
making of final payment, or ninety (90) days after the date of 
Completion of Construction of the Project, as specified in the 
Certificate of Completion, whichever date is earlier.
---------------------------------------------------------------------------

    \4\ See Footnote 3.
---------------------------------------------------------------------------

    f. No payment shall be due while the Bidder is in default in respect 
of any of the provisions of this Contract and the Owner may withhold 
from the Bidder the amount of any claim by a third party against either 
the Bidder or the Owner based upon an alleged

[[Page 369]]

failure of the Bidder to perform the work hereunder in accordance with 
the provisions of this Contract.
    Section 2. Release of Liens and Certificate of Contractor. (See 
sample RUS Form 224, Waiver and Release of Lien and sample RUS Form 231, 
Certificate of Contractor.) Upon the completion by the Bidder of the 
construction of the Project (or any Station thereof if the Bidder shall 
elect to receive payment in full for any Station when completed as 
provided above) but prior to final payment to the Bidder, the Bidder 
shall deliver to the Owner, in duplicate, releases of all liens and of 
rights to claim any lien, in the form attached hereto from all 
manufacturers, materialmen, and subcontractors furnishing services or 
materials for the Project or such Station and a certificate in the form 
attached hereto to the effect that all labor used on or for the Project 
or such Station has been paid and that all such releases have been 
submitted to the Owner for approval.
    Section 3. Payments to Materialmen and Subcontractors. The Bidder 
shall pay each materialman and each subcontractor, if any, within five 
(5) days after receipt of any payment from the Owner, the amount thereof 
allowed the Bidder for and on account of materials furnished or 
construction performed by each materialman or each subcontractor.

            Article IV--Particular Undertakings of the Bidder

    Section 1. Protection to Persons and Property. The Bidder shall at 
all times take all reasonable precautions for the safety of employees on 
the work and of the public, and shall comply with all applicable 
provisions of Federal, State, and Municipal safety laws and building and 
construction codes, as well as the safety rules and regulations of the 
Owner. All machinery and equipment and other physical hazards shall be 
guarded in accordance with the ``Manual of Accident Prevention in 
Construction'' of the Associated General Contractors of America unless 
such instructions are incompatible with Federal, State, or Municipal 
laws or regulations.
    The following provisions shall not limit the generality of the above 
requirements:
    a. The Bidder shall at no time and under no circumstances cause or 
permit any employee of the Bidder to perform any work upon energized 
lines, or upon poles carrying energized lines, unless otherwise 
specified in the Notice and Instructions to Bidders.
    b. The Bidder shall so conduct the construction of the Project as to 
cause the least possible obstruction of public highways.
    c. The Bidder shall provide and maintain all such guard lights and 
other protection for the public as may be required by applicable 
statutes, ordinances and regulations or by local conditions.
    d. Temporary water, light, power and other utility service shall be 
arranged for by the Bidder for construction purposes at its own expense.
    e. The Bidder shall do all things necessary or expedient to properly 
protect any and all adjacent lines, highways and any and all property of 
others from damage, and in the event that any such lines, highways or 
other property are damaged in the course of construction of the Project, 
the Bidder shall at its own expense restore any or all of such damaged 
property immediately to as good a state as before such damage occurred.
    f. The Project, from the commencement of work to completion, or to 
such earlier date or dates when the Owner may take possession and 
control in whole or in part as hereinafter provided shall be under the 
charge and control of the Bidder and during such period of control by 
the Bidder all risks in connection with the construction of the Project 
and the materials to be used therein shall be borne by the Bidder. The 
Bidder shall make good and fully repair all injuries and damages to the 
Project or any portion thereof under the control of the Bidder by reason 
of any act of God or other casualty or cause whether or not the same 
shall have occurred by reason of the Bidder's negligence.
    (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.
    (ii) To the maximum extent permitted by law, Bidder shall defend, 
indemnify, and hold harmless Owner and Owner's directors, officers, and 
employees from all liens and claims filed or asserted against Owner, its 
directors, officers, and employees, or Owner's property or facilities, 
for services performed or materials or equipment furnished by Bidder, 
its subcontractors and suppliers of any tier, and from all losses, 
demands, and causes of action arising out of any such lien or claim. 
Bidder shall promptly discharge or remove any such lien or claim by 
bonding, payment, or otherwise and shall notify Owner promptly when it 
has done so. If Bidder does not cause such lien or claim to be 
discharged or released by payment, bonding, or otherwise, Owner shall 
have the right (but shall not be

[[Page 370]]

obligated) to pay all sums necessary to obtain any such discharge or 
release and to deduct all amounts so paid from the amount due Bidder.
    (iii) Bidder shall provide to Owner's satisfaction evidence of 
Bidder's ability to comply with the indemnification provisions of 
subparagraphs i and ii above, which evidence may include but may not be 
limited to a bond or liability insurance policy obtained for this 
purpose through a licensed surety or insurance company.
    g. Any and all excess earth, rock, debris, underbrush and other 
useless material shall be removed by the Bidder from the site of the 
Project as rapidly as practicable as the work progresses.
    h. Upon violation by the Bidder of any of the provisions of this 
Section, after written notice of such violation given to the Bidder by 
the Engineer or the Owner, the Bidder shall immediately correct such 
violation. Upon failure of the Bidder so to do the Owner may correct 
such violation at the Bidder's expense: Provided, however, that the 
Owner may, if it deems it necessary or advisable, correct such violation 
at the Bidder's expense without such prior notice to the Bidder.
    i. The Bidder shall submit to the Owner monthly reports in duplicate 
of all accidents, giving such data as may be prescribed by the Owner.
    Section 2. Insurance. The Bidder shall take out and maintain 
throughout the contract period insurance of the following types and 
minimum amounts:
    (a) Workers' compensation and employers' liability insurance, as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to the workers' 
compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    (b) Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    (c) Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, nonowned, or hired, shall 
have limits for bodily injury or death of not less than $1 million per 
person and $1 million per occurrence, and property damage limits of $1 
million for each occurrence. This required insurance may be in a policy 
or policies of insurance, primary and excess including the umbrella or 
catastrophe form.
    The Owner shall have the right at any time to require public 
liability insurance and property damage liability insurance greater than 
those required in subsection ``b'' and ``c'' of this Section. In any 
such event, the additional premium or premiums payable solely as the 
result of such additional insurance shall be added to the Contract 
price.
    The Owner shall be named as Additional Insured on all policies of 
insurance required in subsections ``b'' and ``c'' of this Section.
    The policies of insurance shall be in such form and issued by such 
insurer as shall be satisfactory to the Owner. The Bidder shall furnish 
the Owner a certificate evidencing compliance with the foregoing 
requirements which shall provide not less than (30) days prior written 
notice to the Owner of any cancellation or material change in the 
insurance.
    Section 3. Delivery of Possession and Control to Owner.
    a. Upon written request of the Owner the Bidder shall deliver to the 
Owner full possession and control of any portion of the Project provided 
the Bidder shall have been paid at least ninety percent (90%) of the 
cost of construction of such portion. Upon such delivery of the 
possession and control of any portion of the Project to the Owner, the 
risk and obligations of the Bidder as set forth in Article IV, Section 
1f hereof with respect to such portion of the Project so delivered to 
the Owner shall be terminated: Provided, however, that nothing herein 
contained shall relieve the Bidder of any liability with respect to 
defective materials and workmanship as contained in Article II, Section 
6 hereof.
    b. Where the construction of a Station as hereinbefore defined in 
Article II, Section lc and Article III, Section 1c shall have been 
completed by the Bidder, the Owner agrees, after receipt of a written 
request from the Bidder, to accept delivery of possession and control of 
such Station upon the issuance by the Engineer of a written statement 
that the Station has been inspected and found acceptable by the 
Engineer. Upon such delivery of the possession and control of any such 
Station to the Owner, the risk and obligations of the Bidder as set 
forth in Article IV, Section 1f hereof with respect to such Station so 
delivered to the Owner shall be terminated: Provided, however, that 
nothing herein contained shall relieve the Bidder of any liability with 
respect to defective materials or workmanship as contained in Article 
II, Section 6 hereof.
    Section 4. Assignment of Guarantees. All guarantees of materials and 
workmanship

[[Page 371]]

running in favor of the Bidder shall be transferred and assigned to the 
Owner prior to the time the Bidder receives final payment.

                           Article V--Remedies

    Section 1. Completion on Bidder's Default. If default shall be made 
by the Bidder or by any subcontractor in the performance of any of the 
terms of this Proposal, the Owner, without in any manner limiting its 
legal and equitable remedies in the circumstances, may serve upon the 
Bidder and the Surety or Sureties, if any, upon the Contractor's Bond or 
Bonds a written notice requiring the Bidder to cause such default to be 
corrected forthwith. Unless within twenty (20) days after the service of 
such notice upon the Bidder such default shall be corrected or 
arrangements for the correction thereof satisfactory, to both the Owner 
and the Administrator shall be made by the Bidder or its Surety or 
Sureties, if any, the Owner may take over the construction of the 
Project and prosecute the same to completion by Contract or otherwise 
for the account and at the expense of the Bidder, and the Bidder and its 
Surety or Sureties, if any, shall be liable to the Owner for any cost or 
expense in excess of the Contract price occasioned thereby. In such 
event the Owner may take possession of and utilize, in completing the 
construction of the Project, any materials, tools, supplies, equipment, 
appliances, and plant belonging to the Bidder or any of its 
subcontractors, which may be situated at the site of the Project. The 
Owner in such contingency may exercise any rights, claims or demands 
which the Bidder may have against third persons in connection with this 
Contract and for such purpose the Bidder does hereby assign, transfer 
and set over unto the Owner all such rights, claims and demands.
    Section 2. Liquidated Damages. The time of the Completion of 
Construction of the Project is of the essence of the Contract. Should 
the bidder neglect, refuse or fail to complete the construction within 
the time herein agreed upon, after giving effect to extensions of time, 
if any, herein provided, then, in that event and in view of the 
difficulty of estimating with exactness damages caused by such delay, 
the Owner shall have the right to deduct from and retain out of such 
moneys which may be then due, or which may become due and payable to the 
Bidder the sum of ________ dollars (________) per day for each and every 
day that such construction is delayed on its completion beyond the 
specified time, as liquidated damages and not as a penalty; if the 
amount due and to become due from the Owner to the Bidder is 
insufficient to pay in full any such liquidated damages, the Bidder, 
shall pay to the Owner the amount necessary to effect such payment in 
full: Provided, however, that the owner shall promptly notify the Bidder 
in writing of the manner in which the amount retained, deducted or 
claimed as liquidated damages was computed.
    Section 3. Cumulative Remedies. Every right or remedy herein 
conferred upon or reserved to the Owner or the Government or the 
Administrator shall be cumulative, shall be in addition to every right 
and remedy now or hereafter existing at law or in equity or by statute 
and the pursuit of any right or remedy shall not be construed as an 
election: Provided, however, that the provisions of Section 2 of this 
Article shall be the exclusive measure of damages for failure by the 
Bidder to complete the construction of the Project within the time 
herein agreed upon.

                        Article VI--Miscellaneous

    Section 1. Definitions.
    a. The term ``Administrator'' shall mean the Administrator of the 
Rural Utilities Service of the United States of America and his duly 
authorized representatives or any other person in whom or authority in 
which may be vested the duties and functions which the Administrator is 
now authorized by law to perform.
    b. The term ``Engineer'' shall mean the engineer employed by the 
Owner, with the approval of the Administrator, to provide engineering 
services for the Project, and said Engineer's duly authorized assistants 
and representatives.
    c. The term ``Supervisor'' shall mean the person, if any, appointed 
by the Administrator as the representative of the Government under the 
provisions of the Loan Contract providing for such appointment in 
special cases. The term is limited to such special representative of the 
Government, if any, who is responsible exclusively to the Administrator 
and does not refer to the Manager or any other person employed by the 
Owner and responsible to it.
    d. The term ``Project'' shall mean the substations or other major 
facilities described in the Plans, Specifications for Construction, and 
Construction Drawings.
    e. The term ``Completion of Construction'' shall mean full 
performance by the Bidder of the Bidder's obligations under the Contract 
and all amendments and revisions thereof except the Bidder's obligations 
in respect of (1) Releases of Liens and Certificate of Contractor under 
Article III, Section 2 hereof, (2) the inventory referred to in Article 
III, Section I hereof, and (3) other final documents. The term 
``Completion of the Project'' shall mean full performance by the Bidder 
of the Bidder's obligations under the Contract and all amendments and 
revisions thereof. The Certificate of Completion, signed by the Engineer 
and approved in writing by the Owner and the Administrator, shall be the 
sole and

[[Page 372]]

conclusive evidence as to the date of Completion of Construction and as 
to the fact of Completion of the Project.
    Section 2. Materials and Supplies. In the performance of this 
contract there shall be furnished only such unmanufactured articles, 
materials, and supplies as have been mined or produced in the United 
States, Mexico, or Canada, and only such manufactured articles, 
materials, and supplies as have been manufactured in the United States 
substantially all from articles, materials, or supplies mined, produced 
or manufactured, as the case may be, in the United States, Mexico, or 
Canada; provided that other articles, materials, or supplies may be used 
in the event and to the extent that the Administrator shall expressly in 
writing authorize such use pursuant to the provisions of the Rural 
Electrification Act of 1938, being Title IV of Public Resolution No. 
122, 75th Congress, approved June 21, 1938. The Seller agrees to submit 
to the Purchaser such certificates with respect to compliance with the 
foregoing provision as the Administrator from time to time may require.
    Section 3. Patent Infringement. The Bidder shall save harmless and 
indemnify the Owner from any and all claims, suits and proceedings for 
the infringement of any patent or patents covering any materials or 
equipment used in construction of the Project.
    Section 4. Permits for Explosives. All permits necessary for the 
handling or use of dynamite or other explosives in connection with the 
construction of the Project shall be obtained by and at the expense of 
the Bidder.
    Section 5. Compliance with Statutes and Regulations. The Bidder 
shall comply with all applicable statutes, ordinances, rules, and 
regulations pertaining to the work. The Bidder acknowledges that it is 
familiar with the Rural Electrification Act of 1936, as amended, the so-
called ``Kick-Back'' Statute (48 Stat. 948), and regulations issued 
pursuant thereto, and 18 U.S.C. Secs. 287, 1001, as amended. The Bidder 
understands that the obligations of the parties hereunder are subject to 
the applicable regulations and orders of Governmental Agencies having 
jurisdiction in the premises.
    Section 6. Equal Opportunity Provisions.
    a. Bidder's Representations.
    The Bidder represents that:
    It has ____, does not have ____, 100 or more employees, and if it 
has, that it has ____, has not ____, furnished the Equal Employment 
Opportunity-Employers Information Report EEO-1, Standard Form 100, 
required of employers with 100 or more employees pursuant to Executive 
Order 11246 and Title VII of the Civil Rights Act of 1964.
    The Bidder agrees that it will obtain, prior to the award of any 
subcontract for more than $10,000 hereunder to a subcontractor with 100 
or more employees, a statement, signed by the proposed subcontractor, 
that the proposed subcontractor has filed a current report on Standard 
Form 100.
    The Bidder agrees that if it has 100 or more employees and has not 
submitted a report on Standard Form 100 for the current reporting year 
and that if this Contract will amount to more than $10,000, the Bidder 
will file such report, as required by law, and notify the Owner in 
writing of such filing prior to the Owner's acceptance of this Proposal.
    b. Equal Opportunity Clause. During the performance of this 
Contract, the Bidder agrees as follows:
    (1) The Bidder will not discriminate against any employee or 
applicant for employment because of race, color, religion, sex or 
national origin. The Bidder will take affirmative action to ensure that 
applicants are employed, and that employees are treated during 
employment without regard to their race, color, religion, sex or 
national origin. Such action shall include, but not be limited to, the 
following: Employment, upgrading, demotion or transfer; recruitment or 
recruitment advertising; layoff or termination; rates of pay or other 
forms of compensation; and selection for training, including 
apprenticeship. The Bidder agrees to post in conspicuous places, 
available to employees and applicants for employment, notices to be 
provided setting forth the provisions of this Equal Opportunity Clause.
    (2) The Bidder will, in all solicitations or advertisements for 
employees placed by or on behalf of the Bidder, state that all qualified 
applicants will receive consideration for employment without regard to 
race, color, religion, sex or national origin.
    (3) The Bidder will send to each labor union or representative of 
workers with which it has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or workers' representatives of the Bidder's commitments 
under this section, and shall post copies of the notice in conspicuous 
places available to employees and applicants for employment.
    (4) The Bidder will comply with all provisions of Executive Order 
11246 of September 24, 1965, and of the rules, regulations and relevant 
orders of the Secretary of Labor.
    (5) The Bidder will furnish all information and reports required by 
Executive Order 11246 of September 24, 1965, and by rules, regulations 
and orders of the Secretary of Labor, or pursuant thereto, and will 
permit access to its books, records and accounts by the administering 
agency and the Secretary of Labor for purposes of investigation to 
ascertain compliance with such rules, regulations and orders.
    (6) In the event of the Bidder's noncompliance with the Equal 
Opportunity Clause of this Contract or with any of the said rules, 
regulations or orders, this Contract may be cancelled, terminated or 
suspended in whole

[[Page 373]]

or in part and the Bidder may be declared ineligible for further 
Government contracts or federally assisted construction contracts in 
accordance with procedures authorized in Executive Order 11246 of 
September 24, 1965, and such other sanctions may be imposed and remedies 
invoked as provided in Executive Order 11246 of September 24, 1965, or 
by rule, regulation or order of the Secretary of Labor, or as otherwise 
provided by law.
    (7) The Bidder will include this Equal Opportunity Clause in every 
subcontract or purchase order unless exempted by the rules, regulations 
or orders of the Secretary of Labor issued pursuant to Section 204 of 
Executive Order 11246 of September 24, 1965, so that such provisions 
will be binding upon each subcontractor or vendor. The Bidder will take 
such action with respect to any subcontractor purchase order as the 
administering agency may direct as a means of enforcing such provisions, 
including sanctions for noncompliance: Provided, however, That in the 
event a Bidder becomes involved in, or is threatened with, litigation 
with a subcontractor or vendor as a result of such direction by the 
administering agency, the Bidder may request the United States to enter 
into such litigation to protect the interests of the United States.
    c. Certificate of Nonsegregated Facilities. The Bidder certifies 
that it does not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it does not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Bidder certifies further 
that it will not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it will not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Bidder agrees that a 
breach of this certification is a violation of the Equal Opportunity 
Clause in this Contract. As used in this certification, the term 
``segregated facilities'' means any waiting room, work areas, restrooms 
and washrooms, restaurants and other eating areas, timeclocks, locker 
rooms and other storage or dressing areas, parking lots, drinking 
fountains, recreation or entertainment areas, transportation, and 
housing facilities provided for employees which are segregated by 
explicit directive or are in fact segregated on the basis of race, 
color, religion, or national origin, because of habit, local custom, or 
otherwise. The Bidder agrees that (except where it has obtained 
identical certifications from proposed subcontractors for specific time 
periods) it will obtain identical certifications from proposed 
subcontractors prior to the award of subcontracts exceeding $10,000 
which are not exempt from the provisions of the Equal Opportunity 
Clause, and that it will retain such certifications in its files.
    Section 7. Franchises. The Bidder shall be under no obligation to 
obtain or assist in obtaining: Any franchises, authorizations, permits 
or approvals required to be obtained by the Owner from Federal, State, 
County, Municipal or other authorities; or any agreements between the 
Owner and third parties with respect to any matters incident to the 
construction and operation of the Project.
    Section 8. Nonassignment of Contract. The Bidder shall perform 
directly and without subcontracting not less than twenty-five per centum 
(25%) of the construction of the Project, to be calculated on the basis 
of the total Contract price. The Bidder shall not assign the Contract 
effected by an acceptance of this Proposal or any interest in any funds 
that may be due or become due hereunder or enter into any contract with 
any person, firm or corporation for the performance of the Bidder's 
obligations hereunder or any part thereof, without the approval in 
writing of the Owner and of the Surety and Sureties, if any, on any bond 
furnished by the Bidder for the faithful performance of the Bidder's 
obligations hereunder. If the Bidder, with the consent of the Owner and 
any Surety or Sureties on the Contractor's Bond or Bonds, shall enter 
into a subcontract with any subcontractor for the performance of any 
part of this Contract, the Bidder shall be as fully responsible to the 
Owner and the Government for the acts and omissions of such 
subcontractor and of persons employed by such subcontractor as the 
Bidder would be for its own acts and omissions and those of persons 
directly employed by it.
    Section 9. Extension to Successors and Assigns. Each and all of the 
covenants and agreements herein contained shall extend to and be binding 
upon the successors and assigns of the parties hereto.
    Section 10. Contractor. Upon acceptance of this Proposal, the 
successful Bidder shall be the Contractor and all references in the 
Proposal to the Bidder shall apply to the Contractor.
    Section 11. Approval by the Administrator. No acceptance of this 
Proposal shall become effective until approved in writing by the 
Administrator: Provided, however, that no obligations shall arise 
hereunder unless such approval is given within forty-five (45) days from 
the date of acceptance by the Owner.

________ (Bidder)
By ________ (President)
________ (Address)
Attest: ________ (Secretary)
Date ________

    The Proposal must be signed with the full name of the Bidder. If the 
Bidder is a partnership, the Proposal must be signed in the partnership 
name by a partner. If the Bidder is a corporation, the Proposal must be 
signed

[[Page 374]]

in the corporate name by a duly authorized officer and the corporate 
seal affixed and attested by the Secretary of the Corporation.

                     Specifications for Construction

    Section 1. Scope of Work. The work covered by this Proposal embraces 
the complete construction of one or more substations or other major 
facilities as specified in the Acceptance, any omissions or 
discrepancies notwithstanding. All material furnished by the Bidder 
shall be new and in conformance with the Specifications for 
Construction. All construction work shall be done in a thorough and 
workmanlike manner in accordance with the Plans, Specifications for 
Construction and Construction Drawings. Deviations from the Plans, 
Specifications for Construction, and Construction Drawings shall not be 
permitted except upon the written permission of the Owner given with the 
approval of the Administrator.
    This contract does not include ________ which is to be done by 
others.
    Section 2. Materials. It is the intent of these specifications that 
insofar as materials required are included in the Rural Utilities 
Service ``List of Materials Acceptable for use on Systems of RUS 
Electrification Borrowers,'' such materials only shall be used. In the 
event that any materials are required beyond the scope of the ``List of 
Materials Acceptable for use on Systems of RUS Electrification 
Borrowers,'' specifications for such materials will be included on the 
drawings or in a supplement to these specifications.
    Section 3. Drawings. The Drawings and Specifications collectively, 
show the specifications of the material and equipment shown thereon, and 
include schedules of conduit, cable and other items not readily 
ascertained from the picture drawings. Such schedules show the 
quantities, sizes, types and other pertinent information; method of 
installation, and construction details are indicated clearly. The 
drawings and specifications in the attached List of Drawings are made a 
part of these contract Specifications.
    Section 4. Description of Construction Units. Each Construction Unit 
consists of a complete installation of the designated portion of a 
substation or switching station as specified on the drawings, together 
with connections to associated equipment. Each Construction Unit 
represents all labor and material including necessary accessories 
completely installed and tested in satisfactory operation. Full 
identification of each Construction Unit and all necessary 
specifications of the installation shall be shown on the drawings. Items 
of material in each Construction Unit shall be of the designated size, 
rating, type, voltage, or other specification in accordance With the 
drawings. The bill of material drawing for each station should contain 
adequate identification of the Construction Units under which the 
material is to be installed and should show what items of material may 
be partly or entirely found in the lists of owner-furnished materials. 
All items of equipment, unless otherwise specified, are mounted on a 
structure which shall be a Construction Unit of Group A.
    Each Construction Unit shall be designated by the letter of the 
Group to which it belongs and an identifying number. The same item of 
equipment shall carry the same Construction Unit designation in all the 
stations. Items of equipment designated by the same Construction Unit in 
one station shall be of only one kind as to voltage, type and other 
specifications. The bid sheet for each station shall be prepared 
separately from other stations and shall contain all unit prices for 
Construction Units contained in the station. It is intended that in all 
cases the ``Name and Description of Construction Unit'' column of the 
Bid Sheets shall contain sufficient information to identify the 
Construction Unit.
    Additional description to one or more of the Groups may be provided 
by the Engineer if deemed necessary to clarify the intent of these 
Specifications for Construction.
    Group A. Structures. A Construction Unit consists of a structure, or 
structures, with bus supports including insulators and fittings, buses, 
conductors and overhead ground wires to adjacent structures within the 
station, grounding material to connect equipment with the ground bus, 
and associated material including mounting brackets, supports for 
equipment, clamps and connectors, all as specified in the drawings.
    Group B. Three-Pole Group Operated Air Break Switches. A 
Construction Unit consists of one 3-pole group operated air break switch 
with all accessories and operating mechanisms as specified in the 
drawings.
    Group C. Lightning Arresters. A Construction Unit consists of one 
single-phase lightning arrester.
    Group D. Single Pole Disconnecting Switches. A Construction Unit 
consists of one single pole disconnecting or by-pass switch as specified 
in the drawings. If a fuse disconnect switch is specified, the fuse is 
included with the switch.
    Group E. Oil Circuit Breakers. A Construction Unit consists of one 
complete three-phase power circuit breaker complete with supporting 
frame and control cabinet, unless shown otherwise in the drawings, 
mounted as specified in the drawings.
    Group F. Oil Circuit Reclosers. A Construction Unit consists of a 
complete single-phase or three-phase oil circuit recloser as specified 
in the drawings.
    Group G. Meters, Relays and Instrument Transformers. A Construction 
Unit consists of one meter, relay, potential transformer or current 
transformer.

[[Page 375]]

    Group H. Transformers. A Construction Unit consists of one power 
transformer or one station service transformer either single-phase or 
three-phase as specified in the drawings.
    Group I. Voltage Regulators. A Construction Unit consists of one 
single-phase or three-phase voltage regulator as specified in the 
drawings.
    Group J. Communications and Supervisory Control Equipment. A 
Construction Unit consists of carrier current equipment, microwave, or 
other types of communications and supervisory control equipment as 
specified in the drawings.
    Group K. Conduit and Cable. A Construction Unit consists of the 
wire, cable, conduit and accessories necessary to complete the 
installation of equipment in accordance with the specifications and 
drawings, where such installation has not been included in other Groups.
    Group L. Foundations. A Construction Unit consists of concrete 
footings and foundations except for the fence, as specified in the 
drawings.
    Group M. Site Preparation. A Construction Unit consists of clearing, 
grading, drainage work, and surfacing, as specified in the drawings.
    Group N. Fence. A Construction Unit consists of the complete 
installation of the fence, gates, etc., as specified in the drawings.
    Group O. Station Grounding. A Construction Unit consists of the 
complete ground bus including ground rods, grounding mats or platforms, 
except as otherwise provided in other Groups, with connections to 
structures, equipment, and fence as specified in the drawings.
    Group P. Building. A Construction Unit consists of a control 
building or cabinet, on a foundation of Group L and the facilities and 
equipment installed therein as specified in the drawings, except as 
otherwise provided in other Groups.
    Other Groups. The Engineer shall specify such additional Groups as 
may be necessary for the completion of the Project. Description of these 
Groups shall be provided by an addition to this Section of the 
Specifications for Construction.

________ Station construction Units
Unit No. ________
Name and Description of Construction Unit ________
No. of Units ________
Unit Prices
Labor ________
Materials ________
Labor and Materials ________
Extended Price--Labor and Materials ________
Total Price ________

                               Acceptance

    Subject to the approval of the Administrator, the Owner hereby 
accepts the foregoing Proposal of the Bidder, ________ for the 
construction of the following substations or other major facilities:

________ Substation, $________
________     $________
The total contract price is $________
________ Owner
By ________ President
________ Secretary
________ Date of Contract

[End of clause]



Sec. 1726.341  Electric system communications and control equipment contract, RUS Form 786.

    The contract form in this section shall be used when required by 
this part.

Electric System Communications and Control Equipment Contract (Including 
                              Installation)

    Proposal to Furnish, Deliver, and Install Equipment and Materials

To:________ (hereinafter called the ``Purchaser'')

    The undersigned (hereinafter called the ``Seller'') hereby proposes 
to furnish, deliver, install, align and test the equipment and 
materials, (hereinafter called the ``Equipment'') described in the 
plans, specifications and drawings (hereinafter called the 
``Specifications'') attached hereto identified as ________ and made a 
part hereof, and other Attachments identified as ________ and made a 
part hereof, for the electric system designated ________, financed in 
whole or in part by a loan to the Purchaser by the United States of 
America, acting through the Administrator of the Rural Utilities Service 
(hereinafter called the ``Administrator'').
    The Seller has become informed as to the location and 
characteristics of the proposed Equipment and the facilities over which 
the Equipment is to perform, has become informed as to the kind of 
facilities required before and during the delivery and installation of 
the Equipment and has become acquainted with the labor conditions which 
would affect the work as well as the ecological and environmental 
criteria to be followed. The Seller agrees that if its Proposal is 
accepted the following terms and conditions shall govern.
    If, in submitting this Proposal, the Seller has made any change in 
the form of Proposal furnished by the Purchaser, the Seller understands 
that the Purchaser and the Administrator may evaluate the effect of such 
change as they see fit or they may exclude the Proposal from 
consideration.

[[Page 376]]

                                Article I

    Section 1. Proposal Price. The Seller will furnish, deliver, 
install, align and test the Equipment described in the Specifications 
for the following sum:

Total Contract Price $________
Delivery time is ________ calendar days.
Completion time is ________ calendar days.

    A detailed price breakdown by locations, showing equipment pricing 
and installation pricing, is given in the Attachment identified as 
________ and made a part hereof.
    Section 2. Changes. The Purchaser, subject to the approval of the 
Administrator,\1\ may from time to time during the performance of the 
work make such changes, additions to or subtractions from the 
Specification's which are part of the Proposal as conditions may 
warrant; provided, however, that, if any change in the work shall 
require an extension of time, a reasonable extension will be granted if 
the Seller shall make a written request therefor to the purchaser within 
ten (10) days after any such change is made and, provided further, that, 
if the cost to the Seller shall be increased or decreased by any such 
change or addition, the contract price shall be increased or decreased 
by the reasonable cost thereof, in accordance with a contract amendment 
signed by the Purchaser and the Seller and approved by the 
Administrator,\2\ but no claim for additional compensation for any such 
change or addition will be considered unless the Seller shall have made 
a written request therefor to the Purchaser prior to the commencement of 
work in connection with such change or addition.
---------------------------------------------------------------------------

    \1\ As long as the total price of this contract including all 
amendments is less than 120 percent of the original contract price as 
stated in the acceptance hereto, amendments executed on RUS Form 238 are 
not subject to the approval of the Administrator. Whenever an amendment 
to this contract causes the total amended contract to exceed 120 percent 
of the original contract price, that amendment and all subsequent 
amendments to this contract shall be made subject to the approval of the 
Administrator.
    \2\ See Footnote 1.
---------------------------------------------------------------------------

    Section 3. Taxes. The prices herein set forth do not include any 
sums which are or may be payable by the Seller or the Purchaser on 
account of taxes imposed by any taxing authority upon the sale, purchase 
or use of the Equipment or labor of installation. If any such tax is 
applicable, the amount thereof shall be stated separately and added to 
the Proposal price and paid by the Purchaser.

                  Article II--Delivery and Installation

    Section 1. Time of Completion. The time of delivery of the Equipment 
and of completion of the work is of the essence of this Contract. The 
seller will deliver the Equipment within the number of calendar days 
specified in Article I, Section 1, after the Administrator shall have 
approved this contract in writing and will prosecute diligently and 
complete the work within the number of calendar days specified in 
Article I, Section 1, after such approval. The time for such delivery 
and completion shall be extended for the period of any reasonable delay 
due exclusively to causes beyond the control and without the fault of 
the Seller, including, but not limited to, acts of God, fires, strikes, 
floods, changes in the Specifications as herein provided, and acts or 
omissions of the Purchaser with respect to matters for which the 
Purchaser is solely responsible; provided, however, that no delay in 
such time for delivery or completion of the work or in the progress of 
the work shall result in any liability on the part of the Purchaser, and 
provided further that any claim for extension of time shall be adjusted 
at the time any such delay occurs or any such change is made.
    Section 2. Supervision and Inspection. The Seller will give adequate 
supervision to the work. He will carefully study and compare all 
drawings, specifications, and other instructions and will at once report 
to the Purchaser any error, inconsistency or omission which he may 
discover. The Seller will keep on his work during its progress a 
competent superintendent and any necessary assistants, all satisfactory 
to the Purchaser. The Superintendent shall represent the Seller in his 
absence and all directions given to him shall be as binding as if given 
to the Seller. When requested, such directions shall be confirmed in 
writing.
    Section 3. The Purchaser will make available during installation a 
competent representative to coordinate installation activities with the 
Seller.
    Section 4. Alignment, Inspection and Tests. The Seller shall adjust 
and align the Equipment to perform in accordance with the Specifications 
and furnish in writing to the Purchaser data to show the state of 
adjustment of the Equipment. Immediately upon completion of the 
installation and alignment of the Equipment the Seller shall provide the 
necessary test equipment and perform the inspections and tests specified 
in the Specifications under the direct supervision of the Purchaser or 
its Engineer. A competent representative of the Purchaser or his 
Engineer will be available to supervise and witness these tests 
immediately upon completion of installation and alignment by the Seller 
and to determine for the purchaser that the performance of the equipment

[[Page 377]]

meets the Specifications. Such determination, however, shall not 
preclude subsequent rejection pursuant to Section 7 of this Article II. 
The Seller shall furnish in writing to the Purchaser the results of all 
tests. All Equipment furnished hereunder shall be subject to the 
inspection, tests, and approval of the Purchaser and the Administrator. 
The Purchaser and the Administrator shall have the right to inspect all 
records of the Seller and of any subcontractor relevant to the 
installation work. The Seller shall provide all reasonable facilities 
necessary for such inspection and tests.
    Section 5. If as a result of the tests and measurements set forth in 
Section 4 above, the Performance Specifications of the Equipment cannot 
be met due to inaccuracies, or inadequacies in the system data provided 
in the Specifications, the Purchaser and Seller shall determine what 
corrective measures are necessary and whether these corrections shall be 
made by the Purchaser or the Seller.
    If it is determined that the Seller shall make the corrections, the 
Purchaser will reimburse the Seller pursuant to a contract amendment, 
subject to the approval of the Administrator,3 for such 
reasonable additional expenses for the corrections, realignment and 
retesting the Seller is required to perform pursuant to this amendment.
---------------------------------------------------------------------------

    \3\ See Footnote 1.
---------------------------------------------------------------------------

    Where it is determined that the Purchaser will make the corrections, 
the Purchaser will reimburse the Seller pursuant to a contract 
amendment, subject to the approval of the Administrator,4 for 
such reasonable additional expenses for realignment and retesting the 
Seller is required to perform pursuant to this amendment, including, if 
necessary, the added expense of returning to the project, where 
necessary, for reperforming alignment and testing.
---------------------------------------------------------------------------

    \4\ See Footnote 1.
---------------------------------------------------------------------------

    Section 6. Employees. The Purchaser shall have the right to require 
the removal from the work of any employee of the Seller if in the 
judgment of the Purchaser such removal shall be necessary in order to 
protect the interest of the Purchaser.
    Section 7. Defective Workmanship and Materials. Notwithstanding the 
acceptance of workmanship, materials or equipment or the giving of any 
certificate with respect to the Completion of the Work, if during 
performance hereunder or within one year after completion or within such 
longer period as the Equipment or any part thereof may be guaranteed by 
the Seller and Manufacturer, the workmanship, materials or equipment, 
except as may be otherwise provided in the Specifications, shall be 
found to be defective or not in conformity with the Specifications, the 
Seller shall remedy or replace at its expense such workmanship, 
materials or equipment within thirty (30) days after notice of the 
existence thereof shall have been given to the Seller by the Purchaser.

               Article III--Payments and Releases of Liens

    Section 1. Payment to Seller.
    (a) The Purchaser shall pay the Seller upon the basis of estimates 
by the Seller recommended by the supervising engineer, if any, and 
approved by the Purchaser of the work completed, the following 
percentages of the price of the equipment for each location set forth in 
Article I, Section 1, as and if revised: 45% when 50% of the equipment 
for each location has been delivered at the site of the Project; 90% 
when all the equipment for each location has been delivered at the site 
of the Project.
    (b) Upon completion of installation of the equipment for each 
location, the Purchaser shall pay the Seller 90% of the Total price for 
such location.
    (c) Upon Completion of the Installation of the Equipment, but prior 
to the payment to the Seller of any amount in excess of ninety percent 
(90%) of the Total Contract Price, the supervising engineer, if any, of 
the Purchaser or the Purchaser shall inspect the work performed 
hereunder and if the work shall be found acceptable and all provisions 
hereunder fully performed, the supervising engineer, if any, of the 
Purchaser shall certify as to that fact and as to the amount of the 
balance found to be due to the Seller. Upon acceptance by the Purchaser, 
the Purchaser shall pay to the Seller all unpaid amounts to which the 
Seller shall be entitled hereunder; provided, however, such final 
payments shall be made not later than 120 days after completion of the 
work, unless such acceptance by the Purchaser shall be withheld because 
of the fault of the Seller.
    Section 2. Release of Liens. Upon the Completion of the Installation 
of the Equipment by the Seller, but prior to the payment to the Seller 
of any amount in excess of ninety percent (90%) of the Total Contract 
Price, the Seller will deliver to the Purchaser, in duplicate, releases 
of all liens and of rights to claim any lien from manufacturers, 
materialmen and subcontractors who have furnished materials or services 
for the work and a certificate by the Seller in a form approved by the 
Administrator, to the effect that all labor has been paid and that all 
such releases have been submitted to the Purchaser for approval.
    In lieu of releases of liens, and if the Administrator shall so 
approve, the Seller may deliver to the Purchaser, in duplicate, (1) a 
certificate, in a form approved by the Administrator, that all 
manufacturers, materialmen and subcontractors who have furnished 
materials or services for the Project have been paid in full, and (2) an 
agreement to hold the Purchaser harmless against any liens arising out 
of the Seller's

[[Page 378]]

performance hereunder which may have been or may be filed against the 
Purchaser.

            Article IV--Particular Undertakings of the Seller

    Section 1. Protection to Persons and Property. At all times when 
Equipment is being delivered and installed the Seller will exercise 
reasonable precautions for the safety of employees on the work and of 
the public, and will comply with all applicable provisions of Federal, 
State and Municipal safety laws and building and construction codes. All 
machine and equipment and other physical hazards shall be guarded in 
accordance with the ``Manual of Accident Prevention in Construction'' of 
the Associated General Contractors of America, unless such instructions 
are incompatible with Federal, State, or Municipal laws or regulations.
    The following provisions shall not limit the generality of the above 
requirements:
    (a) The Seller will at all times keep the premises free from 
accumulations of waste material or rubbish caused by his employees or 
work, and at the completion of the work he will remove all rubbish and 
all his tools, scaffolding and surplus materials and will leave his work 
``broom clean.''
    (b) The Seller will perform work in such manner as to maximize 
preservation of aesthetics and conservation of natural resources, and 
minimize marring and scarring of the landscape and silting of streams. 
There will be no depositing of trash in streams or waterways. 
Herbicides, other chemicals or their containers will not be deposited in 
or near streams, waterways or pastures. The Seller will follow, under 
the general direction of the Purchaser, the criteria relating to 
environmental protection as specified herein by the Purchaser.
    (c) The work, from its commencement to completion, or to such 
earlier date or dates when the Purchaser may take possession and 
control, shall be under the charge and control of the Seller and during 
such period of control by the Seller all risks in connection therewith 
and the materials to be used therein, whether owned by the Seller or 
Purchaser, shall be borne by the Seller. The Seller will make good and 
fully repair all injuries and damages to the work or any portion thereof 
under the control of the Seller by reasons of any act of God, or any 
other casualty or cause whether or not the same shall have occurred by 
reason of the Seller's negligence.
    (i) To the maximum extent permitted by law, Seller shall defend, 
indemnify, and hold harmless Purchaser and Purchaser'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 
Seller's employees) and loss, damage to or destruction of Purchaser's 
property or the property of any other person or entity (including but 
not limited to Seller's property) in any manner arising out of or 
connected with the Contract, or the materials or equipment supplied or 
services performed by Seller, its subcontractors and suppliers of any 
tier. But nothing herein shall be construed as making Seller liable for 
any injury, death, loss, damage, or destruction caused by the sole 
negligence of Purchaser.
    (ii) To the maximum extent permitted by law, Seller shall defend, 
indemnify, and hold harmless Purchaser and Purchaser's directors, 
officers, and employees from all liens and claims filed or asserted 
against Purchaser, its directors, officers, and employees, or 
Purchaser's property or facilities, for services performed or materials 
or equipment furnished by Seller, its subcontractors and suppliers of 
any tier, and from all losses, demands, and causes of action arising out 
of any such lien or claim. Seller shall promptly discharge or remove any 
such lien or claim by bonding, payment, or otherwise and shall notify 
Purchaser promptly when it has done so. If Seller does not cause such 
lien or claim to be discharged or released by payment, bonding, or 
otherwise, Purchaser shall have the right (but shall not be obligated) 
to pay all sums necessary to obtain any such discharge or release and to 
deduct all amounts so paid from the amount due Seller.
    (iii) Seller shall provide to Purchaser's satisfaction evidence of 
Seller's ability to comply with the indemnification provisions of 
subparagraphs i and ii above, which evidence may include but may not be 
limited to a bond or liability insurance policy obtained for this 
purpose through a licensed surety or insurance company.
    (d) Monthly reports of all accidents will be promptly submitted by 
the Seller, giving such data as may be prescribed by the Purchaser.
    Section 2. Delivery of Possession and Control to Purchaser. Upon 
written request of the Purchaser, the Seller shall deliver to the 
Purchaser full possession and control of any completed location included 
in the work, provided the Seller shall have been paid at least 90% of 
such Total Location Price. Upon such delivery of the possession and 
control of any such location to the Purchaser, the risks and obligations 
of the Seller, as set forth in Article IV, Section 1(b) hereof, with 
respect to such location shall be terminated; provided however, that 
nothing herein contained shall relieve the Seller of any liability with 
respect to defective workmanship or materials as specified in Article 
II, Section 7, hereof.
    Section 3. Insurance. The Seller shall take out and maintain 
throughout the contract period insurance of the following types and 
minimum amounts:

[[Page 379]]

    (a) Workers' compensation and employers' liability insurance, as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to the workers' 
compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    (b) Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    (c) Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, nonowned, or hired, shall 
have limits for bodily injury or death of not less than $1 million per 
person and $1 million per occurrence, and property damage limits of $1 
million for each occurrence. This required insurance may be in a policy 
or policies of insurance, primary and excess including the umbrella or 
catastrophe form.
    The Purchaser shall have the right at any time to require public 
liability insurance and property damage liability insurance greater than 
those required in subsection ``b'' and ``c'' of this Section. In any 
such event, the additional premium or premiums payable solely as the 
result of such additional insurance shall be added to the Contract 
price.
    The Purchaser shall be named as Additional Insured on all policies 
of insurance required in subsections ``b'' and ``c'' of this Section.
    The policies of insurance shall be in such form and issued by such 
insurer as shall be satisfactory to the Purchaser. The Seller shall 
furnish the Purchaser a certificate evidencing compliance with the 
foregoing requirements which shall provide not less than (30) days prior 
written notice to the Purchaser of any cancellation or material change 
in the insurance.
    Section 4. Purchase of Materials. The Seller shall purchase all 
materials and supplies outright and not subject to any conditional sales 
agreements, bailment lease or other agreement reserving unto the Seller 
any right, title or interest therein. Materials and Supplies shall 
become the property of the Purchaser as the Purchaser makes payments 
therefor to the Seller in accordance with Article III, Section 1(a). 
Unless otherwise specified, all materials shall be new.
    Section 5. Assignment of Guarantees. All guaranties of materials and 
workmanship running in favor of the Seller shall be transferred and 
assigned to the Purchaser on completion of the work and at such time as 
the Seller receives final payment.
    Section 6. Patent Infringement. The Seller shall hold harmless and 
indemnify the Purchaser from any and all claims, suits, and proceedings 
for the infringement of any patent or patents covering any, equipment, 
materials, supplies, or installation methods used in the work. The 
Seller shall, at its own cost (and Purchaser agrees to permit Seller to 
do so) defend any suits which may be instituted by any, party against 
the Seller for alleged infringement of patents relating to the Seller's 
performance hereunder.
    Section 7. Compliance with Statutes and Regulations. The Seller 
shall comply with all applicable statutes, ordinances, rules and 
regulations pertaining to the work. The Seller acknowledges that it is 
familiar with the Rural Electrification Act of 1936, as amended, the so-
called ``Kick-Back'' Statutes (48 Stat. 948), and all regulations issued 
pursuant thereto, and 18 U.S.C. Secs. 287,1001 as amended and the Seller 
agrees to comply with the provisions of all of such statutes and 
regulations.

                           Article V--Remedies

    Section 1. Completion on Seller's Default. If default shall be made 
by the Seller or by any subcontractor in the performance of any of the 
work hereunder, the Purchaser, without in any manner limiting its legal 
and equitable remedies in the circumstances, may serve upon the Seller 
and the surety or sureties upon the Seller's Bond or Bonds, if any, a 
written notice requiring the Seller to cause such default to be 
corrected forthwith. Unless within twenty (20) days after the service of 
such notice upon the Seller such default shall be corrected or 
arrangements for the correction thereof, satisfactory to both the 
Purchaser and the Administrator, shall be made by the Seller or its 
surety or sureties, the Purchaser may take over the performance of the 
Seller's obligations hereunder and prosecute the same to completion by 
contract or otherwise for the account and at the expense of the Seller, 
and the Seller and its surely or sureties shall be liable to the 
Purchaser for any cost or expense in excess of the contract price 
occasioned thereby. In such event, the purchaser may take possession of 
and utilize, in completing the work, any tools, supplies, equipment, 
appliances and plant belonging to the Seller which may be situated at 
the site of the installation work. The Purchaser, in such contingency, 
may exercise any rights, claims or demands which the Seller may have 
against third persons in connection herewith and for such

[[Page 380]]

purpose the Seller does hereby assign, transfer and set over unto the 
Purchaser all such rights, claims and demands.
    Section 2. Enforcement of Remedies by Administrator. The 
Administrator may on behalf of the Purchaser exercise any right or 
enforce any remedy which the Purchaser may exercise or enforce 
hereunder.
    Section 3. Cumulative Remedies. Every right or remedy herein 
conferred upon or reserved to the Purchaser or the Administrator shall 
be cumulative and shall be in addition to every right and remedy now or 
hereafter existing at law or in equity or by statute and the pursuit of 
any right or remedy shall not be construed as an election.

                        Article VI--Miscellaneous

    Section 1. Definitions. (a) The contract documents shall consist of 
the Proposal and Acceptance, the Contractor's Bond and the 
Specifications.
    (b) The term ``Completion of Installation'' shall mean full 
performance by the Seller of the Seller's obligations under the Contract 
and all amendments and revisions thereof, except that it shall not 
include the final acceptance tests nor performance of the Seller's 
obligations in respect of (i) releases of liens and Certificate of 
Seller under Article III, Section 2 hereof, (ii) other final documents. 
The term ``Completion of the Work'' shall mean full performance by the 
Seller of the Seller's obligations under the Contract and all amendments 
and revisions thereof. The Certificate of Completion signed by the 
supervising engineer and approved by the Purchaser or signed by the 
Purchaser, if the Purchaser shall not employ an Engineer, and approved 
in writing by the Administrator within a reasonable time after 
completion shall be conclusive evidence as to the fact of completion and 
the date thereof.
    Section 2. Materials and Supplies. In the performance of this 
contract there shall be furnished only such unmanufactured articles, 
materials, and supplies as have been mined or produced in the United 
States, Mexico, or Canada, and only such manufactured articles, 
materials, and supplies as have been manufactured in the United States 
substantially all from articles, materials, or supplies mined, produced 
or manufactured, as the case may be, in the United States, Mexico, or 
Canada; provided that other articles, materials, or supplies may be used 
in the event and to the extent that the Administrator shall expressly in 
writing authorize such use pursuant to the provisions of the Rural 
Electrification Act of 1938, being Title IV of Public Resolution No. 
122, 75th Congress, approved June 21, 1938. The Seller agrees to submit 
to the Purchaser such certificates with respect to compliance with the 
foregoing provision as the Administrator from time to time may require.
    Section 3. Equal Opportunity Provisions. (a) Seller's 
Representations.
    The Seller represents that:
    It has ____, does not have ____, 100 or more employees, and if it 
has, that it has ____, has not ____, furnished the Equal Employment 
Opportunity--Employers Information Report EEO-1, Standard Form 100, 
required of employers with 100 or more employees pursuant to Executive 
Order 11246 and Title VII of the Civil Rights Act of 1964.
    The Seller agrees that it will obtain, prior to the award of any 
subcontract for more than $10,000 hereunder to a subcontractor with 100 
or more employees, a statement, signed by the proposed subcontractor, 
that the proposed subcontractor has filed a current report on Standard 
Form 100.
    The Seller agrees that if it has 100 or more employees and has not 
submitted a report on Standard Form 100 for the current reporting year 
and that if this Contract will amount to more than $10,000 the Seller 
will file such report, as required by law, and notify the Purchaser in 
writing of such filing prior to the Purchaser's acceptance of this 
Proposal.
    (b) Equal Opportunity Clause. During the performance of this 
Contract, the Seller agrees as follows:
    (1) The Seller will not discriminate against any employee or 
applicant for employment because of race, color, religion, sex or 
national origin. The Seller will take affirmative action to ensure that 
applicants are employed, and that employees are treated during 
employment without regard to their race, color, religion, sex or 
national origin. Such action shall include, but not be limited, to the 
following: Employment, upgrading, demotion or transfer; recruitment or 
recruitment advertising; layoff or termination, rates of pay or other 
forms of compensation; and selection for training, including 
apprenticeship. The Seller agrees to post in conspicuous places, 
available to employees and applicants for employment, notices to be 
provided setting forth the provisions of this Equal Opportunity Clause.
    (2) The Seller will, in all solicitations or advertisements for 
employees placed by or on behalf of the Seller, state that all qualified 
applicants will receive consideration for employment without regard to 
race, color, religion, sex or national origin.
    (3) The Seller will send to each labor union or representative of 
workers, with which it has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or workers' representative of the Seller's commitments under 
this section, and shall post copies of the notice in conspicuous places 
available to employees and applicants for employment.
    (4) The Seller will comply with all provisions of Executive Order 
11246 of September

[[Page 381]]

24, 1965, and of the rules, regulations, and relevant orders of the 
Secretary of Labor.
    (5) The Seller will furnish all information and reports required by 
Executive Order 11246 of September 21, 1965, and by rules, regulations, 
and orders of the Secretary of Labor, or pursuant thereto, and will 
permit access to its books, records, and accounts by the administering 
agency and the Secretary of Labor for purposes of investigation to 
ascertain compliance with such rules, regulations, and orders.
    (6) In the event of the Seller's noncompliance with the Equal 
Opportunity Clause of this Contract or with any of the said rules, 
regulations or orders, this Contract may be cancelled, terminated or 
suspended in whole or in part, and the Seller may be declared ineligible 
for further Government contracts or federally-assisted construction 
contracts in accordance with procedures authorized in Executive Order 
11246 of September 24, 1965, and such other sanctions may be imposed and 
remedies invoked as provided in Executive Order 11246 of September 24, 
1965, or by rule, regulation or order of the Secretary of Labor, or as 
otherwise provided by law.
    (7) The Seller will include this Equal Opportunity Clause in every 
subcontract or purchase order unless exempted by the rules, regulations, 
or orders of the Secretary of Labor issued pursuant to Section 204 of 
Executive Order 11246 of September 24, 1965, so that such provisions 
will be binding upon each subcontractor or vendor. The Seller will take 
such action with respect to any subcontract or purchase order as the 
administering agency may direct as a means of enforcing such provisions, 
including sanctions for noncompliance: Provided, however, That in the 
event a Seller becomes involved in, or is threatened with, litigation 
with a subcontractor or vendor as a result of such direction by the 
administering agency, the Seller may request the United States to enter 
into such litigation to protect the interests of the United States.
    (c) Certificate of Nonsegregated Facilities. The Seller certifies 
that it does not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it does not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Seller certifies further 
that it will not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it will not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Seller agrees that a 
breach of this certification is a violation of the Equal Opportunity 
Clause in this Contract. As used in this certification, the term 
``segregated facilities'' means any waiting room, work areas, restrooms 
and washrooms, restaurants and other eating areas, timeclocks, locker 
rooms and other storage or dressing areas, parking lots, drinking 
fountains, recreation or entertainment areas, transportation, and 
housing facilities provided for employees which are segregated by 
explicit directive or are in fact segregated on the basis of race, 
color, religion, or national origin, because of habit, local custom, or 
otherwise. The Seller agrees that (except where it has obtained 
identical certificates from proposed subcontractors for specific time 
periods) it will obtain identical certifications from proposed 
subcontractors prior to the award of subcontracts exceeding $10,000 
which are not exempt from the provisions of the Equal Opportunity 
Clause, and that it will retain such certifications in its files.
    Section 4. Bond. The Seller will furnish to the Purchaser, for a 
contract in excess of $100,000 a bond in a penal sum not less than the 
Proposal price and in the form attached hereto and with a Surety or 
Sureties listed by the United States Treasury Department as acceptable 
Sureties.
    Section 5. License. The Seller shall comply with all applicable 
construction codes.
    (a) The Seller warrants that he possesses contractor's license 
number ____ issued to him by the State of ____ in which the work is 
located, and said license expires on ____, 19____.
    (b) The Seller warrants that no license is required in the State in 
which the work is located.

(Cross out that subsection which does not apply.)

    Section 6. Nonassignment of Contract. The Seller will not assign the 
Contract effected by acceptance of this Proposal, or any part thereof, 
or enter into any contract with any person, firm or corporation, for the 
performance of the Seller's obligations hereunder or any part hereof, 
without the approval in writing of the Purchaser and the Surety or 
Sureties on the Contractor's Bond or Bonds, if any; provided, however, 
the Seller may subcontract the whole or any part of the installation 
work to be performed at the installation site (as distinguished from 
furnishing and delivery of equipment and materials). If the Seller, with 
the consent of the Purchaser and the Surety or Sureties on the 
Contractor's Bond or Bonds, if any, shall enter into any subcontract 
with any subcontractor for the Performance of any part of the 
installation work to be performed at the installation site, the Seller 
shall be as fully responsible to the Purchaser and the United States of 
America for the acts and omissions of such subcontractor and of persons 
employed by such subcontractor as the Seller would be for its own acts 
and omissions and those of persons directly employed by it.

[[Page 382]]

    Section 7. Approval of the Administrator. The acceptance of this 
Proposal by the Purchaser shall not create a contract unless such 
acceptance shall be approved in writing by the Administrator within 
ninety (90) days after the date of the Proposal.

________ Seller
By ________
________ Title
Date of Proposal ________

(If executed by one other than President, Vice-President, a partner or 
the individual owner, a power of attorney authorizing execution should 
accompany this proposal.)

                               Acceptance

Subject to the approval of the Administrator, the Purchaser hereby 
          accepts the Proposal of ________ (Dated ________) for the 
          Equipment herein described for the Total Base Price of 
          $________ and the following options for:
Spare Parts $________
Maintenance Tools $________
Test Equipment $________
Other Options: (Describe) $________
Total Contract Price $________
________ Purchaser
By ________ President
Attest ________ Secretary
Date of Acceptance ________

                             [End of clause]



Sec. 1726.342  Distribution line extension construction contract (labor and materials), RUS Form 790.

    The contract form in this section shall be used when required by 
this part.

 Distribution Line Extension Construction Contract (Labor and Materials)

                                Proposal

To: ________ (hereinafter called the ``Owner'').

                           Article I--General

    Section 1--Offer to Construct. The undersigned (hereinafter called 
the ``Contractor'') hereby proposes to furnish labor, materials, and 
equipment for, and construct for the prices hereinafter stated, the 
rural electric project ____--19____ Line Extensions (hereinafter called 
``Project'') in strict accordance with the Plans, Specifications, and 
Construction Drawings hereinafter referred to. The Contractor 
understands and agrees that the Project will consist of line extensions 
and additions and line changes or similar work usually associated with 
overhead or underground distribution system improvement or extension 
work all located within the area served or ultimately to be served by 
the Owner and that the exact location and scope of individual sections 
of the Project (hereinafter called ``Sections'') will be made known to 
the Contractor from time to time as provided in Article II, Section 1 
hereof; and provided, however, that the Contractor shall not be 
obligated to start construction of any Section unless the cost of 
construction of the Section computed on the unit prices of this Proposal 
shall amount to at least ____ dollars ($____) and provided further that 
the Owner shall be obligated to release to the Contractor for 
construction at least one Section pursuant to the provisions of this 
Proposal.
    Section 2--Additional Projects. From time to time the owner and the 
Contractor may enter into negotiations for the performance of work at 
prices which may differ from those in the Proposal (such work being 
hereinafter called ``Additional Projects''). Except as may otherwise be 
agreed upon in writing by the Owner and the Contractor at the time the 
supplemental contract for the Additional Project is negotiated, the 
provisions of the Contract for the Project shall apply.
    Section 3--Proposal on Unit Basis. The Contractor understands and 
agrees that the various Construction Units considered in this Proposal 
are defined by symbols and descriptions in this Proposal, that the 
Proposal is made on a unit basis, and that the Owner may specify, as 
provided in Article II, Section 1 hereof, any number or combination of 
Construction Units which the Owner, may deem necessary for the 
construction of the Project. If kinds of Construction Units for which 
prices are not established in this Proposal are necessary for the 
construction of the Project, the prices of such additional Units shall 
be as agreed upon in writing by the Owner and the Contractor prior to 
the time of installation. The unit labor prices herein set forth are 
applicable to work performed on unenergized lines. Such unit labor 
prices shall be increased by ____ (____) percent for all units installed 
on energized lines in accordance with instructions of the Owner, as 
provided in Article II, Section 1g.
    Section 4--Description of Contract. The Specifications and 
Construction Drawings set forth in: RUS Form 804, Specifications and 
Drawings for 7.2/12.5 kV Line Construction; RUS Form 803, Specifications 
and Drawings for 14.4/24.9 kV Line Construction; RUS Form 806, 
Specifications and Drawings for Underground Electric Distribution; as 
applicable, which by this reference are incorporated herein, together 
with the Plans, Proposal and Acceptance constitute the Contract. The 
Plans, consisting of maps and special drawings, and approved 
modifications in standard specifications are attached hereto and 
identified as follows: ----------.
    Section 5--Familiarity with Conditions. The Contractor acknowledges 
that it has made a careful examination of the site of the Project and of 
the Plans, Specifications and

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Construction Drawings, and has become informed as to the location and 
nature of the proposed construction, the transportation facilities, the 
kind and character of soil and terrain to be encountered, the kind of 
equipment, tools, and other facilities required before and during the 
construction of the Project and has become acquainted with the 
availability status of materials and with the labor conditions which 
would effect work on the Project.
    Section 6--License. The Contractor warrants that a Contractor's 
license is ____ is not ____ required, and if required, it possesses 
Contractor's License No. ____ for the State of ____ in which the Project 
is located, and said license expires on ____, 19____.
    Section 7--Contractor's Resources. The Contractor warrants that it 
possesses adequate financial resources for the performance of the work 
covered by this Proposal and that it will provide necessary tools and 
equipment and a qualified superintendent and other employees.
    Section 8--Changes in Construction. The Contractor agrees to make 
such changes in construction previously installed in the Project by the 
Contractor as required by the Owner on the following basis: The cost of 
labor shall be the reasonable cost thereof as agreed upon by the 
Contractor and the Owner but in no event shall it exceed two (2) times 
the labor price quoted in the Proposal for the installation of the unit 
to be changed. Such compensation shall be in lieu of any other payment 
for the installation and removal of the original unit but shall not 
include the cost of the installation, if any, of a new or replacing 
unit, payment for which shall be made at the unit price as quoted in the 
Proposal.
    No payment shall be made to the contractor for correcting errors or 
omissions on the part of the Contractor which result in construction not 
in accordance with the Plans and Specifications.
    Section 9--Materials and Equipment. The Contractor agrees to furnish 
and use in the construction of the Project under this Proposal, only 
such materials and equipment as are included on the current ``List of 
Materials Acceptable for Use on Systems of RUS Electrification 
Borrowers,'' including revisions adopted prior to construction.
    The Contractor further agrees to furnish and use guy wire with ASTM 
Class ____ (Owner to insert A or B) zinc coating.
    All leads on equipment such as transformers, reclosers, etc., shall 
be of #6 minimum copper conductivity using ____ (Owner to insert 
stranded soft drawn copper or aluminum alloy) conductor. All conductor 
ties on insulators shall be of the materials and methods shown in the 
following Type Guide Drawings: ____ (Owner to insert appropriate drawing 
numbers.)
    Ground rods and butt-type grounding plates shall be ____.(Owner to 
insert galvanized steel or copper.)
    Underground primary cables shall have ____ coated copper neutral 
(Owner to insert round or flat.)
    The Contractor further agrees to furnish poles, crossarms, and other 
timber products, of which the physical characteristics, method of 
treatment, type of preservative, instructions on inspection and general 
procedure shall be in accordance with RUS standards and requirements.
    Crossarms shall be ____ (Owner to insert Douglas Fir or Southern 
Yellow Pine), treated with ____ (Owner to insert type of preservative.)
    The Contractor agrees that the prices for poles, crossarms, and 
other timber products set forth herein shall include the cost of 
preservative treatment and inspection or insured warranty. The 
Contractor further agrees to obtain from the supplier inspection and 
treatment reports or insured warranties, for checking against the 
delivery timber, and to submit such reports or warranties to the Owner 
as one of the prerequisites to monthly and final payments.
    Section 10--Owner-Furnished Materials. a. The Contractor understands 
and agrees that the Owner may, with approval of the Contractor, furnish 
to the Contractor some of the materials and equipment required for 
construction of the Project, (hereinafter called ``Owner-Furnished 
Materials''). The quantity, type, and value of Owner-Furnished Materials 
for each Section shall be as agreed upon by the Contractor and Owner 
prior to the start of construction of each Section of the Project. The 
Owner shall make such materials and equipment available to the 
Contractor as provided in Article II, Section 1, b, and the Contractor 
will give to the Owner a receipt in such form as the Owner shall 
approve.
    b. The value of the completed Construction Units certified to by the 
Contractor each month pursuant to Article III, Section 1, a, of this 
Proposal shall be reduced by an amount equal to the value of the Owner-
Furnished Materials installed by the Contractor during the preceding 
month. Only ninety percent (90%) of the remainder shall be paid prior to 
the Completion of the Section. Owner-Furnished Materials, if any, not 
required for the Section, shall be returned to the Owner by the 
Contractor upon Completion of Construction of the Section. The value of 
all Owner-Furnished Materials not installed in the Section of the 
Project or returned to the Owner shall be deducted from the final 
payment to the Contractor for the Section.
    Section 11--References to Materials. The references in this Proposal 
to ``Materials'',

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except in Article IV, Section 1.f, shall be understood to mean only 
materials to be furnished by the Contractor.
    Section 12--Taxes. The unit prices for Construction Units in this 
Proposal include provisions for the payment of all monies which will be 
payable by the Contractor or the Owner in connection with construction 
of the Project on account of taxes imposed by any taxing authority upon 
the sale, purchase or use of materials, supplies or equipment to be 
incorporated in the Project as part of such Construction Units. The 
Contractor agrees to pay all such taxes except on Owner-Furnished 
Materials and it is understood that, as to Owner-Furnished Materials, 
the values as agreed to by the Owner and Contractor for such materials 
include such taxes, if applicable. The Contractor will furnish to the 
appropriate taxing authorities all required information and reports 
pertaining to materials used on construction of the Project except as to 
Owner-Furnished Materials.

                        Article II--Construction

    Section 1--Time and Manner of Work. The Contractor agrees to be 
prepared to commence the construction of the Project within fifteen (15) 
calendar days after written notice by the Owner of the acceptance of the 
Proposal. The Contractor agrees to commence construction of a Section 
within ____ (____) days after receipt in writing from the Owner of the 
following:
    a. Location and number of the various Construction Units required 
for construction of the Section (hereinafter called the ``Staking 
Sheets'').
    b. Itemized list including appropriate Unit prices, of the Owner-
Furnished Materials to be used in the construction of the Section and an 
authorization by the Owner for the Contractor to obtain such materials 
from the Owner's warehouse located at ____.
    c. A schedule showing the rate at which construction of the Section 
shall proceed and the total number of calendar days (excluding Sundays) 
to be allowed for completion; provided, however, that the required 
completion time for any Section shall not be less than ____ (____) days 
or ____ (____) days per mile of line, whichever is the greater, which 
days shall be calendar days (excluding Sundays). The time of the 
completion of the Section is of the essence of the contract to be 
effected by acceptance of this Proposal.
    d. A statement that all required easements and rights-of-way have 
been obtained from the owners of the properties across which the Section 
is to be constructed (including tenants who may reasonably be expected 
to object to such construction).
    e. A statement that all necessary staking has been completed.
    f. A statement that all necessary funds for prompt payment for the 
construction of the Section will be available.
    g. Specific instruction as to location and extent of work to be 
performed on energized lines, if any. The Contractor will not be 
required to dig holes, set poles, install anchors, install underground 
conduit, perform any plowing for the installation of underground cable, 
or dig trenches if there are more than six (6) inches of frost in the 
ground nor to perform any construction on such days when in the judgment 
of the Owner snow, rain, or wind, or the results of snow, rain, or frost 
make it impracticable to perform any operation of construction; provided 
further that the Contractor will not perform any plowing for the 
installation of underground cable on public roads or highways if there 
are more than two (2) inches of frost in the ground. To the extent of 
the time lost due to the conditions described herein and approved in 
writing by the Owner, the time of completion set out above will be 
extended. The time for completion shall be extended for a period of any 
reasonable delay (other than a delay resulting from the failure of the 
Contractor to secure sufficient labor) which is due exclusively to 
causes beyond the control and without the fault of the Contractor 
including acts of God, fires, floods, inability to obtain materials, 
direction of the Owner to cease construction as herein provided, and 
acts or omissions of the Owner with respect to matters for which the 
Owner is solely responsible; Provided, however, that no such extension 
of time for completion shall be granted the Contractor unless within ten 
(10) days after the happening of any event relied upon by the Contractor 
for such an extension of time the Contractor shall have made a request 
therefor in writing to the Owner, and provided further that no delay in 
such time of completion or in the progress of the work which results 
from any of the above causes except acts or omissions of the Owner, 
shall result in any liability on the part of the Owner.
    Section 2--Changes in Plans, Specifications and Drawings. The Owner 
may, from time to time during the progress of the construction of the 
Project, make such changes in, additions to, or subtractions from the 
Plans, Specifications, and Construction Drawings as conditions may 
warrant: Provided, however, that if the cost to the Contractor shall be 
materially increased by any such change or addition, the Owner shall pay 
the Contractor for the reasonable cost thereof in accordance with a 
construction contract amendment signed by the Owner and the Contractor, 
but no claim for additional compensation for any such change or addition 
will be considered unless the Contractor shall have made a written 
request therefor to the Owner prior to the commencement of

[[Page 385]]

work in connection with such change or addition.
    Section 3--Supervision and Inspection. a. The Contractor shall cause 
the construction work on the Project to receive constant supervision by 
a competent superintendent (hereinafter called the ``Superintendent'') 
who shall be present at all times during working hours where 
construction is being carried on. The Contractor shall also employ, in 
connection with the construction of the Project, capable, experienced, 
and reliable foremen and such skilled workmen as may be required for the 
various classes of work to be performed. Directions and instructions 
given to the Superintendent by the Owner shall be binding upon the 
Contractor.
    b. The Owner reserves the right to require the removal from the 
Project of any employee of the Contractor if in the judgment of the 
Owner such removal shall be necessary in order to protect the interest 
of the Owner. The Owner shall have the right to require the Contractor 
to increase the number of his employees and to increase or change the 
amount or kinds of tools and equipment if at any time the progress of 
the work shall be unsatisfactory to the Owner; but the failure of the 
Owner to give any such directions shall not relieve the Contractor of 
his obligations to complete the work within the time and in the manner 
specified in this Proposal.
    c. The manner of construction of the Project and all materials and 
equipment used therein, shall be subject to the inspection, tests, and 
approval of the Owner. The Owner shall have the right to inspect all 
payrolls and other data and records of the Contractor relevant to the 
work. The Contractor will provide all reasonable facilities necessary 
for such inspection and tests. The Contractor shall have an authorized 
agent accompany the inspector when final inspection is made and, if 
requested by the Owner, when any other inspection is made.
    d. In the event that the Owner shall determine that the construction 
contains or may contain numerous defects, it shall be the duty of the 
Contractor, if requested by the Owner, to have an inspection made by an 
engineer approved by the Owner for the purpose of determining the exact 
nature, extent, and location of such defects.
    Section 4--Defective Materials and Workmanship. a. The acceptance of 
any materials, equipment (except owner-furnished materials) or any 
workmanship by the Owner shall not preclude the subsequent rejection 
thereof if such materials, equipment, or workmanship shall be found to 
be defective after delivery or installation, and any such materials, 
equipment or workmanship found defective before final acceptance of the 
construction shall be replaced or remedied, as the case may be, by and 
at the expense of the Contractor. Any such condemned material or 
equipment shall be immediately removed from the site of the Project by 
the Contractor at the Contractor's expense. The Contractor shall not be 
entitled to any payment hereunder so long as any defective materials, 
equipment or workmanship in respect to the Project, of which the 
Contractor shall have had notice, shall not have been replaced or 
remedied, as the case may be.
    b. Notwithstanding any certificate which may have been given by the 
Owner, if any materials, equipment (except owner-furnished materials) or 
any workmanship which does not comply with the requirements of this 
Contract shall be discovered within one (1) year after Completion of 
Construction of the Project, the Contractor shall replace such defective 
materials or equipment or remedy any such defective workmanship within 
thirty (30) days after notice in writing of the existence thereof shall 
have been given by the Owner. If the Contractor shall be called upon to 
replace any defective materials or equipment or to remedy defective 
workmanship as herein provided, the Owner, if so requested by the 
Contractor shall deenergize that section of the Project involved in such 
work. In the event of failure by the Contractor to do so, the Owner may 
replace such defective materials or equipment or remedy such defective 
workmanship, as the case may be, and in such event the Contractor shall 
pay to the Owner the cost and expense thereof.
    Section 5--Materials Removed. The Contractor will return to the 
Owner or reuse in the construction of other assembly units all materials 
removed from the lines under Section H--Conversion Assembly Units and 
Section I--Removal Assembly Units. Upon completion of each Section of 
the Project the Contractor will return to the Owner all materials, 
including usable materials as well as scrap, furnished by the Owner in 
excess of those required for the construction of the Section as 
determined from the Final Inventory approved by the Owner. The 
Contractor will reimburse the Owner at the current invoice cost to the 
Owner for loss and for breakage through Contractor's negligence of 
materials furnished by the Owner to the Contractor and for materials 
removed from the lines by the Contractor.
    Section 6--Term of Contract. It is understood and agreed that, 
notwithstanding any other provisions of this Contract, the Contractor 
will not be required to commence any construction after the expiration 
of one year ____, two years ____ following acceptance of this Proposal 
by the Owner.

                          Article III--Payment

    Section 1--Payments to Contractor. a. Within the first fifteen (15), 
days of each calendar month, the Owner shall make partial payment to the 
Contractor for construction accomplished during the preceding calendar

[[Page 386]]

month on the basis of completed Construction Units furnished and 
certified to by the Contractor and approved by the Owner solely for the 
purpose of payment: Provided, however, that such approval by the Owner 
shall not be deemed approval of the workmanship or materials. Only 
ninety percent (90%) of each such estimate approved during the 
construction of a Section shall be paid by the Owner to the Contractor 
prior to completion of the Section. Upon completion by the Contractor of 
the construction of a Section, the Contractor will prepare a Final 
Inventory of the Section showing the total number and character of 
Construction Units and, will certify it to the Owner together with a 
certificate of the total cost of the construction performed. Upon the 
approval of such certificates, the Owner shall make payment to the 
Contractor of all amounts to which the Contractor shall be entitled 
thereunder which shall not have been paid.
    b. The Contractor shall be paid on the basis of the number of 
Construction Units actually installed at the direction of the Owner, as 
shown by the Inventory based on the Staking Sheets: Provided, however, 
that the total cost shall not exceed the maximum Contract price for the 
construction of the Project, unless such excess shall have been approved 
in writing by the Owner. It is understood and agreed that this maximum 
Contract price is ____ dollars ($____). It is also agreed that the 
Contractor shall not be entitled to any claim for damages on account of 
any reasonable additions to or subtractions from the Project, or of any 
delay occasioned thereby, or of any changes in the routing of the lines.
    c. No payment shall be due while the Contractor is in default in 
respect of any of the provisions of this Contract and the Owner may 
withhold from the Contractor the amount of any claim by a third party 
against either the Contractor the Owner based upon an alleged failure of 
the Contractor to perform the work hereunder in accordance with the 
provisions of this Contract.
    Section 2--Certificate of Contractor and Indemnity Agreement--Line 
Extensions. Upon the completion of Construction of any Section of the 
Project but prior to payment to the Contractor of any amount in excess 
of 90 percent (90%) of the total cost of all Construction Units 
comprising the completed Section, the Contractor shall deliver to the 
Owner in the form attached hereto, (1) a certificate that all persons 
who have furnished labor in connection with the Project and all 
manufacturers, materialmen, and subcontractors who have furnished 
materials or services for the Project have been paid in full, and (2) an 
agreement to hold the Owner harmless against any liens arising out of 
the Contractor's performance hereunder which may have been or may be 
filed against the Owner.

          Article IV--Particular Undertakings of the Contractor

    Section 1--Protection to Persons and Property. The Contractor shall 
at all times take all reasonable precautions for the safety of employees 
on the work and of the public, and shall comply with all applicable 
provisions of Federal, State, and Municipal safety laws and building and 
construction codes, as well as the safety rules and regulations of the 
Owner. All machinery and equipment and other physical hazards shall be 
guarded in accordance with the ``Manual of Accident Prevention in 
Construction'' of the Associated General Contractors of America unless 
such instructions are incompatible with Federal, State, or Municipal 
laws or regulations.
    The following provisions shall not limit the generality of the above 
requirements:
    a. The Contractor shall at no time and under no circumstances cause 
or permit any employee of the Contractor to perform any work upon 
energized lines, or upon poles carrying energized lines, unless 
otherwise specified in accordance with Article II, Section 1, subsection 
g.
    b. The Contractor shall so conduct the construction of the Project 
as to cause the least possible obstruction of public highways.
    c. The Contractor shall provide and maintain all such guard lights 
and other protection for the public as may be required by applicable 
statutes, ordinances, and regulations or by local conditions.
    d. The Contractor shall do all things necessary or expedient to 
protect properly any and all parallel, converging, and intersecting 
lines, joint line poles, highways, and any and all property of others 
from damage, and in the event that any such parallel, converging and 
intersecting lines, joint line poles, highways, or other property are 
damaged in the course of the construction of the Project, the Contractor 
shall at its own expense restore any or all of such damaged property 
immediately to as good a state as before such damage occurred.
    e. Where the right-of-way of the Project traverses cultivated lands, 
the Contractor shall limit the movement of his crews and equipment so as 
to cause as little damage as possible to crops, orchards, or property 
and shall endeavor to avoid marring the lands. All fences which are 
necessarily opened or moved during the construction of the Project shall 
be replaced in as good condition as they were found and precautions 
shall be taken to prevent the escape of livestock. Except as otherwise 
provided in the descriptions of underground plowing and trenching 
assembly units, the Contractor shall not be responsible for loss of or 
damage to crops, orchards, or property (other than livestock) on the 
right-of-way necessarily incident to the construction of the Project and 
not caused by negligence or inefficient operation of the

[[Page 387]]

Contractor. The Contractor shall be responsible for all other loss of or 
damage to crops, orchards, or property, whether on or off the right-of-
way, and for all loss of or damage to livestock caused by the 
construction of the Project.
    f. The Project, from the commencement of work to completion, or to 
such earlier date or dates when the Owner may take possession and 
control in whole or in part as hereinafter provided shall be under the 
charge and control of the Contractor and during such period of control 
by the Contractor all risks in connection with the construction of the 
Project and the materials to be used therein shall be borne by the 
Contractor. The Contractor shall make good and fully repair all injuries 
and damages to the Project or any portion thereof under the control of 
the Contractor by reason of any Act of God or other casualty or cause 
whether or not the same shall have occurred by reason of the 
Contractor's negligence.
    (i) To the maximum extent permitted by law, Contractor 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 Contractor'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 
Contractor's property) in any manner arising out of or connected with 
the Contract, or the materials or equipment supplied or services 
performed by Contractor, its subcontractors and suppliers of any tier. 
But nothing herein shall be construed as making Contractor liable for 
any injury, death, loss, damage, or destruction caused by the sole 
negligence of Owner.
    (ii) To the maximum extent permitted by law, Contractor shall 
defend, indemnify, and hold harmless Owner and Owner's directors, 
officers, and employees from all liens and claims filed or asserted 
against Owner, its directors, officers, and employees, or Owner's 
property or facilities, for services performed or materials or equipment 
furnished by Contractor, its subcontractors and suppliers of any tier, 
and from all losses, demands, and causes of action arising out of any 
such lien or claim. Contractor shall promptly discharge or remove any 
such lien or claim by bonding, payment, or otherwise and shall notify 
Owner promptly when it has done so. If Contractor does not cause such 
lien or claim to be discharged or released by payment, bonding, or 
otherwise, Owner shall have the right (but shall not be obligated) to 
pay all sums necessary to obtain any such discharge or release and to 
deduct all amounts so paid from the amount due Contractor.
    (iii) Contractor shall provide to Owner's satisfaction evidence of 
Contractor's ability to comply with the indemnification provisions of 
subparagraphs i and ii above, which evidence may include but may not be 
limited to a bond or liability insurance policy obtained for this 
purpose through a licensed surety or insurance company.
    g. Any and all excess earth, rock, debris, underbrush, and other 
useless material shall be removed by the Contractor from the site of the 
Project as rapidly as practicable as the work progresses.
    h. Upon violation by the Contractor of any provisions of this 
section, after written notice of such violation given to the Contractor 
by the Owner, the Contractor shall immediately correct such violation. 
Upon failure of the Contractor to do so the Owner may correct such 
violation at the Contractor's expense.
    i. The Contractor shall submit to the Owner monthly reports in 
duplicate of all accidents, giving such data as may be prescribed by the 
Owner.
    j. The Contractor shall not proceed with the cutting of trees or 
clearing of right-of-way without written notification from the Owner 
that proper authorization has been received from the owner of the 
property, and the Contractor shall promptly notify the Owner whenever 
any landowner objects to the trimming or felling of any trees or the 
performance of any other work on his land in connection with the Project 
and shall obtain the consent in writing of the Owner before proceeding 
in any such case.
    Section 2--Insurance. The Bidder shall take out and maintain 
throughout the period of this Agreement the following types and minimum 
amounts of insurance:
    a. Workers' compensation and employer's liability insurance, as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employee or employee is not subject to workers' 
compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    b. Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    c. Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, nonowned, or hired, shall 
have limits for bodily injury or

[[Page 388]]

death of not less than $1 million each occurrence, and property damage 
limits of $1 million for each occurrence. This required insurance may be 
in a policy of policies of insurance, primary and excess including the 
umbrella or catastrophe form. The Owner shall have the right at any time 
to require public liability insurance and property damage liability 
insurance greater than those required in subsection ``b'' and ``c'' of 
this Section. In any such event, the additional premium or premiums 
payable solely as the result of such additional insurance shall be added 
to the Contract price.
    The Owner shall be named as Additional Insured on all policies of 
insurance required in subsections ``b'' and ``c'' of this Section.
    The policies of insurance shall be in such form and issued by such 
insurer as shall be satisfactory to the Owner. The Bidder shall furnish 
the Owner a certificate evidencing compliance with the foregoing 
requirements which shall provide not less than (30) days prior written 
notice to the Owner of any cancellation or material change in the 
insurance.
    Section 3--Bond. If the estimated cost of the construction of a 
Section shall exceed $100,000, the Contractor agrees to furnish prior to 
the commencement of such construction, a bond in the penal sum not less 
than the estimated cost of such section in the form attached hereto with 
a Surety or Sureties listed by the United States Treasury Department as 
acceptable sureties. In the event that the Surety or Sureties on the 
performance bond delivered to the Owner shall at any time become 
unsatisfactory to the Owner, the Contractor agrees to deliver to the 
Owner another or an additional bond.
    Section 4--Delivery of Possession and Control to the Owner. Upon 
written request of the Owner, the Contractor will deliver to the Owner 
full possession and control of any portion of the Project provided the 
Contractor shall have been paid at least ninety percent (90%) of the 
cost of construction of such portion. Upon such delivery of possession 
and control to the Owner, the risks and obligations of the Contractor as 
set forth in Section 1f of this Article IV with respect to such portion 
so delivered to the Owner, shall be terminated; Provided, however, that 
nothing herein contained shall relieve the Contractor of any liability 
with respect to defective workmanship as specified in Article II, 
Section 4.
    Section 5--Purchase of Materials. The Contractor shall purchase all 
materials and supplies outright and not subject to any conditional sales 
agreement, bailment lease, or other agreement reserving to the seller 
any right, title, or interest therein. All materials and supplies shall 
become the property of the Owner when erected in place.
    Section 6--Assignment of Guarantees. All guarantees of materials and 
workmanship running in favor of the Contractor shall be transferred and 
assigned to the Owner on Completion of Construction and at such times as 
the Contractor receives final payment.

                           Article V--Remedies

    Section 1--Completion on Contractor's Default. If default shall be 
made by the Contractor or by any subcontractor in the performance of any 
of the terms of this Proposal, the Owner, without in any manner limiting 
its legal and equitable remedies in the circumstances, may serve upon 
the Contractor and the Surety, if any, a written notice requiring the 
Contractor to cause such default to be corrected forthwith. Unless 
within twenty (20) days after the service of such notice upon the 
Contractor and the Surety, if any, such default shall be corrected or 
arrangements for the correction thereof satisfactory to the Owner shall 
be made, the Owner may take over the construction of the Project and 
prosecute the same to completion by contract or otherwise for the 
account and at the expense of the Contractor, and the Contractor shall 
be liable to the Owner for any cost or expense in excess of the Contract 
price occasioned thereby. In such event the Owner may take possession of 
and utilize, in completing the construction of the Project, any 
materials, tools, supplies, equipment, appliance, and plant belonging to 
the Contractor or any of its subcontractors, which may be situated at 
the site of the Project. The Owner in such contingency may exercise any 
rights, claims, or demands which the Contractor may have against third 
persons in connection with this Proposal and for such purpose the 
Contractor does hereby assign, transfer, and set over unto the Owner all 
such rights, claims, and demands.

                        Article VI--Miscellaneous

    Section 1--Patent Infringement. The Contractor will save harmless 
and indemnify the Owner from any and all claims, suits, and proceedings 
for the infringement of any patent or patents covering any equipment 
used in the work.
    Section 2--Materials and Supplies. In the performance of this 
contract there shall be furnished only such unmanufactured articles, 
materials, and supplies as have been mined or produced in the United 
States, Mexico, or Canada, and only such manufactured articles, 
materials, and supplies as have been manufactured in the United States 
substantially all from articles, materials, or supplies mined, produced 
or manufactured, as the case may be, in the United States, Mexico, or 
Canada; provided that other articles, materials, or supplies may be used 
in the event and to the extent that the Administrator shall expressly in 
writing authorize

[[Page 389]]

such use pursuant to the provisions of the Rural Electrification Act of 
1938, being Title IV of Public Resolution No. 122, 75th Congress, 
approved June 21, 1938. The Contractor agrees to submit to the Purchaser 
such certificates with respect to compliance with the foregoing 
provision as the Administrator from time to time may require.
    Section 3--Permits for Explosives. All permits necessary for the 
handling or use of dynamite or other explosives in connection with the 
construction of the Project shall be obtained by and at the expense of 
the Contractor.
    Section 4--Compliance with Statutes and Regulations. The Contractor 
will comply with all applicable statutes, ordinances, rules, and 
regulations pertaining to the work. The Contractor acknowledges that it 
is familiar with the Rural Electrification Act of 1936, as amended, the 
so-called ``Kick-Back'' Statute (48 Stat. 948), and regulations issued 
pursuant thereto, and 18 U.S.C. Secs. 287, 1001, as amended. The 
Contractor understands that the obligations of the parties hereunder are 
subject to the applicable regulations and orders of Governmental 
agencies having jurisdiction in the premises.
    Section 5--Equal Opportunity Provisions. a. Contractor's 
Representations.
    The Contractor represents that:
    It has ____, does not have ____, 100 or more employees, and if it 
has, that it has ____, has not ____, furnished the Equal Employment 
Opportunity--Employers Information Report EEO-1, Standard Form 100, 
required of employers with 100 or more employees pursuant to Executive 
Order 11246 and Title VII of the Civil Rights Act of 1964. The 
Contractor agrees that it will obtain, prior to the award of any 
subcontract for more than $10,000 hereunder to a subcontractor with 100 
or more employees, a statement, signed by the proposed subcontractor, 
that the proposed subcontractor has filed a current report on Standard 
Form 100.
    The Contractor agrees that if it has 100 or more employees and has 
not submitted a report on Standard Form 100 for the current reporting 
year and that if this Contract will amount to more than $10,000, the 
Contractor will file such report, as required by law, and notify the 
Owner in writing of such filing prior to the Owner's acceptance of this 
Proposal.
    b. Equal Opportunity Clause. During the performance of this 
Contract, the Contractor agrees as follows: (1) The Contractor will not 
discriminate against any employee or applicant for employment because of 
race, color, religion, sex, or national origin. The Contractor will take 
affirmative action to ensure that applicants are employed, and that 
employees are treated during employment without regard to their race, 
color, religion, sex, or national origin. Such action shall include, but 
not be limited to, the following: Employment, upgrading, demotion or 
transfer; recruitment or recruitment advertising; layoff or termination; 
rates of pay or other forms of compensation; and selection for training, 
including apprenticeship. The Contractor agrees to post in conspicuous 
places, available to employees and applicants for employment, notices to 
be provided setting forth the provisions of this Equal Opportunity 
Clause.
    (2) The Contractor will, in all solicitations or advertisements for 
employees placed by or on behalf of the Contractor, state that all 
qualified applicants will receive consideration for employment without 
regard to race, color, religion, sex, or national origin.
    (3) The Contractor will send to each labor union or representative 
of workers, with which it has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or workers' representatives of the Contractor's commitments 
under this section, and shall post copies of the notice in conspicuous 
places available to employees and applicants for employment.
    (4) The Contractor will comply with all provisions of Executive 
Order 11246 of September 24, 1965, and of the rules, regulations, and 
relevant orders of the Secretary of Labor.
    (5) The Contractor will furnish all information and reports required 
by Executive Order 11246 of September 24, 1965, and by rules, 
regulations, and orders of the Secretary of Labor, or pursuant thereto, 
and will permit access to its books, records, and accounts by the 
administering agency and the Secretary of Labor for purposes of 
investigation to ascertain compliance with such rules, regulations, and 
orders.
    (6) In the event of the Contractor's noncompliance with the Equal 
Opportunity Clause of this Contract or with any of the said rules, 
regulations, or orders, this Contract may be cancelled, terminated, or 
suspended in whole or in part, and the Contractor may be declared 
ineligible for further Government contracts or federally assisted 
construction contracts in accordance with procedures authorized in 
Executive Order 11246 of September 24, 1965, and such other sanctions 
may be imposed and remedies invoked as provided in Executive Order 11246 
of September 24, 1965, or by rule, regulation, or order of the Secretary 
of Labor, or as provided by law.
    (7) The Contractor will include this Equal Opportunity Clause in 
every subcontract or purchase order unless exempted by the rules, 
regulations, or order of the Secretary of Labor issued pursuant to 
Section 204 of Executive Order 11246 of September 24, 1965, so that such 
provisions will be binding upon each subcontractor or vendor. The 
Contractor will take such action with respect to any

[[Page 390]]

subcontract or purchase order as the administering agency may direct as 
a means of enforcing such provisions, including sanctions for 
noncompliance: Provided, however, that in the event a Contractor becomes 
involved in, or is threatened with, litigation with a subcontractor or 
vendor as a result of such direction by the administering agency, the 
Contractor may request the United States to enter into such litigation 
to protect the interests of the United States.
    c. Certificate of Nonsegregated Facilities. The Contractor certifies 
that it does not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it does not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Contractor certifies 
further that it will not maintain or provide for its employees any 
segregated facilities at any of its establishments, and that it will not 
permit its employees to perform their services at any location, under 
its control, where segregated facilities are maintained. The Contractor 
agrees that a breach of this certification is a violation of the Equal 
Opportunity Clause in this Contract. As used in this certification, the 
term ``segregated facilities'' means any waiting rooms, work areas, 
restrooms and washrooms, restaurants and other eating areas, timeclocks, 
locker rooms and other storage or dressing areas, parking lots, drinking 
fountains, recreation or entertainment areas, transportation, and 
housing facilities provided for employees which are segregated by 
explicit directive or are in fact segregated on the basis of race, 
color, religion. or national origin, because of habit, local custom, or 
otherwise. The Contractor agrees that (except where it has obtained 
identical certifications from proposed subcontractors for specific time 
periods) it will obtain identical certifications from proposed 
subcontractors prior to the award of subcontracts exceeding $10,000 
which are not exempt from the provisions of the Equal Opportunity 
Clause, and that it will retain such certifications in its files.
    Section 6--Franchises and Rights-of-way. The Contractor will be 
under no obligation to obtain or assist in obtaining any franchises, 
authorizations, permits, or approvals required to be obtained by the 
Owner from Federal, State, County, municipal or other authority; any 
rights-of-way over private lands or any agreements between the Owner and 
third parties with respect to the joint use of poles, crossings or any 
other matter incident to the construction and operation of the Project.
    Section 7--Nonassignment of Contract. The Contractor will not assign 
the Contract effected by an acceptance of this Proposal or any part 
thereof or enter into any contract with any person, firm or corporation 
for the performance of the Contractor's obligations thereunder, or any 
part thereof, without the approval in writing of the Owner.
    Section 8--Definitions. a. The term ``Owner'' shall also include an 
engineer employed by the Owner, or a firm or engineer retained by the 
Owner, and designated by the Owner to act in that capacity. The 
Contractor will be notified in writing by the Owner of those designated 
to act for the Owner at the time of acceptance of this Proposal.
    b. The term ``Completion of Construction'' shall mean full 
performance by the Contractor of the Contractor's obligations under the 
contract and all amendments and revisions thereof relating to any 
Section of the Project or to the Project except the Contractor's 
obligations in respect of (i) Certificate of Contractor and Indemnity 
Agreement--Line Extensions under Article III, Section 2 hereof and (ii) 
the Final Inventory referred to in Article III, Section 1a hereof.
    c. The term ``Completion'' shall mean full performance by the 
Contractor of the Contractor's obligations under the Contract and all 
amendments and revisions thereof relating to any Section of the Project 
or to the Project.
    Section 9--Extension to Successors and Assigns. Each and all of the 
covenants and agreements contained in the Contract effected by the 
acceptance of the Proposal shall extend to and be binding upon the 
successors and assigns of the parties thereto.

________ (Contractor)
By ________ (President)
________ (Address)
Attest: ________ (Secretary)
________ Date of Proposal

    This Proposal must be signed with the full name of the Contractor. 
If the Contractor is a partnership, the Proposal must be signed in the 
partnership name by a partner. If the Contractor is a corporation, the 
Proposal must be signed in the corporate name by a duly authorized 
officer and the corporate seal affixed and attested by the Secretary of 
the Corporation.

                  Construction Units--New Construction

                          Section 1--Pole Units

    A pole unit consists of one pole in place. It does not include pole-
top assembly unit or other parts attached to the pole. The first two 
digits indicate the length of the pole; the third digit shows the 
classification per A.S.A. (Example: 25-6 means a pole 25 feet long, 
class 6.)

Species of Timber: ________
Kind of Preservative: (Check one)
1. Creosote ________; 2. Pentachlorophenol ________; 3. Copper 
          Naphthenate ________; 4. Waterborne preservative--CCA ________ 
          ACZA ________
Method of Treatment: (Check one)

[[Page 391]]

1. Pressure ________; 2. Thermal process: ________
Pole Plan Under Which the Poles are to be Furnished: (Check one)
1. Insured Warranted ________; 2. Independently Inspected ________; 3. 
          Quality Assured ________; 4. Either Insured
Warranted, Independently Inspected, or Quality Assured ________

(Owner to complete above)

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             Section A--Single Phase Pole Top Assembpy Units

               Section B--V Phase Pole Top Assembly Units

    A pole top assembly unit consists of the hardware, crossarms, and 
their appurtenances, insulators, etc., except tie wire, required to 
support the primary conductors. It does not include the pole. Crossarm 
pins include 2x2x1/8 inch washer, nut, and locknut.

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A                                                                                                               
B                                                                                                               
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             Section C--Three Phase Pole Top Assembly Units

    A pole top assembly unit consists of the hardware, crossarms, and 
their appurtenances, insulators, etc., except tie wire, required to 
support the primary conductors. It does not include the pole. Crossarm 
pins include 2x2x1/8 inch washer, nut, and locknut.

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               Unit No.               --------------------------------------------------------------------------
                                                Labor                  Materials            Labor & materials   
----------------------------------------------------------------------------------------------------------------
C                                                                                                               
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                   Section D--Conductor Assembly Units

    A conductor assembly unit consists of 1,000 feet of conductor or 
cable for primaries, secondaries or services, and includes tie wires, 
sleeves for splicing, connectors, and armor rods with clips or armor 
wire where necessary. Tree trimming necessary for installing services 
and secondaries on poles not carrying primary line is included with the 
conductor assembly unit and shall be performed in accordance with the 
directions of the Owner. The service shall be connected to the secondary 
or transformer and 2 feet of conductor or cable shall be left for 
connecting to the consumer's service entrance. In computing the 
compensation to the Contractor for conductor assembly units only the 
horizontal distance between conductor supports or pole stakes shall be 
used. The conductor or cable sizes and types listed are the 
manufacturer's designation.

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               Unit No.               --------------------------------------------------------------------------
                                                Labor                  Materials            Labor & materials   
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D                                                                                                               
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                      Section E--Guy Assembly Units

    A guy assembly unit consists of the hardware and wire, and guy 
insulator where necessary. An overhead guy assembly consists of an 
overhead guy, a pole, and a down guy, each of which is listed 
separately. Guy guards are designated separately.

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               Unit No.               --------------------------------------------------------------------------
                                                Labor                  Materials            Labor & materials   
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E                                                                                                               
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                    Section F--Anchor Assembly Units

    An anchor assembly unit consists of the anchor with rod complete, 
ready for attaching the guy wire.

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                                          Unit price                    
      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
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F                                                                       
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                  Section G--Transformer Assembly Units

    A transformer assembly unit consists of the transformer, its 
protective equipment, and its hardware and leads with their connectors 
and supporting insulators and pins. This unit does not include the pole 
top, secondary, service, or grounding assemblies.

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                                          Unit price                    
      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
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G                                                                       
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                   Section J--Secondary Assembly Units

    A secondary assembly unit consists of the hardware, insulators, 
etc., to support the secondary conductors or cable. It does not include 
the secondary conductor or cable, or any hardware, insulators, etc., 
required to support service conductors or cable.

[[Page 392]]



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      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
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J                                                                       
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                    Section K--Service Assembly Units

    A service assembly unit consists of the hardware, insulators, etc., 
required to support the service conductors or cable. It does not include 
the service conductor or cable, or any hardware, insulators, etc., 
required to support secondary conductors or cable.

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                                          Unit price                    
      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
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K                                                                       
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                 Section M--Miscellaneous Assembly Units

    A miscellaneous assembly unit consists of an additional unit needed 
in the Project for new line construction but not otherwise listed in the 
Proposal. This section includes grounding assemblies consisting of the 
conductor, ground rod, grounding plate, connectors and clamps as shown 
on the respec tive drawings for the various types. It also includes fuse 
cutouts, reclosers, sectionalizers, switches, capacitors, regulators, 
metering and other assembly units.

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                                          Unit price                    
      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
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M                                                                       
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                 Section R--Right-of-Way Clearing Units

    R1-10. The unit is 1,000 feet in length and 10 feet in width (to be 
measured on one side of the pole line) of actual clearing of right-of-
way. This includes clearing of underbrush, tree removal, and such tree 
trimming as is required so that the right-of-way, except for tree stumps 
which shall not exceed ____ in height, shall be clear from the ground up 
on one side of the line of poles carrying primary conductors of the 
width specified. This unit does not include clearing or trimming 
associated with secondaries or services which is included with conductor 
units. The length of actual clearing shall be measured in a straight 
line parallel to the horizontal line between stakes and across the 
maximum dimension of foliage cleared projected to the ground line. All 
trees and underbrush across the width of the right-of-way, as designated 
by the Owner, shall be considered to be grouped together as a single 
length in measuring the total length of clearing. Spaces along the 
right-of-way in which no trees are to be removed or trimmed or 
underbrush cleared shall be omitted from the total measurement. All 
length thus arrived at, added together and divided by 1,000, shall give 
the number of 1,000-foot R1-10 units of clearing. This unit includes the 
removal or topping, at the option of the Contractor, of danger trees 
outside of the right-of-way when so designated by the Owner. (Danger 
trees are defined as dead or leaning trees which, in falling, will 
affect the operation of the line.)
    The Contractor shall not remove or trim shade, fruit, or ornamental 
trees unless so directed by the Owner.
    R1-20. This unit is identical with R1-10 except that width is 20 
feet (to be measured 10 feet on each side of the pole line).
    R1-30. This unit is identical with R1-10 except that width is 30 
feet (to be measured 15 feet on each side of the pole line).
    R1-40. This unit is identical with R1-10 except that width is 40 
feet (to be measured 20 feet on each side of the pole line).
    RC1-10, RC1-20, RC1-30, RC1-40. These units are identical to the 
respective R1 units except that chemical treatment of stumps is required 
in addition to the clearing of underbrush, tree removal and tree 
trimming.
    Additional Requirements (When specifying R1 units denote type of 
disposal (A or B).)
    A. Trees, brush, branches and refuse shall, without delay, be 
disposed of by such of the following methods as the Owner will direct 
(Owner to strike out methods not to be used):
    1. Burned.
    2. Piled on one side of right-of-way.
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (describe) ____.
    B. Trees that are felled shall be cut to commercial wood lengths, 
stacked neatly, and left on the right-of-way for the landowner. 
Commercial wood length means the length designated by the Owner but in 
no case shall it be required to be less than ____ (____) feet. Brush, 
branches, and refuse shall, without delay, be disposed of by such of the 
following methods as the Owner will direct (Owner to strike out methods 
not to be used):
    1. Burned.
    2. Piled on one side of right-of-way.
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (describe) ____.

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                                          Unit price                    
      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
------------------------------------------------------------------------
R                                                                       
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[[Page 393]]

                  Section S--Substation Assembly Units

    A substation assembly unit consists of the complete substation ready 
for connection of the line conductors, as shown on the substation 
drawings attached.

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                                          Unit price                    
      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
------------------------------------------------------------------------
S                                                                       
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              Section UD--Underground Cable Assembly Units

    An underground cable assembly unit consists of 1,000 feet of cable 
for underground primaries, secondaries or services. It does not include 
the conduit, plowing, trenching and backfilling, or the termination of 
the primary cable which are provided for in other assembly units. It 
includes the termination, connection and sealing of secondary and 
service cables and conductors as shown in the specifications and 
construction drawings, and all primary, secondary and service cable 
splices (buried cable may be spliced only when and where permitted by 
the Owner).1,2 In computing the compensation to 
the Contractor for underground cable assembly units, only the distance 
between stakes, paralleling the cable shall be used. The number of units 
so computed will include all cable installed in place in all specified 
trenches, risers, conduits, crossings, manholes, transformers, terminal 
housings and meter boxes.3) The conductor or cables listed 
are the manufacturer's designation of types, size, voltage rating and 
material. The Contractor and the Owner shall jointly perform cable 
acceptance tests on installed cable in accordance with the 
specifications using test equipment furnished by the ____. (Owner to 
insert Owner or Contractor.)
---------------------------------------------------------------------------

    \1\ ____ Owner check here if primary splices are permitted;
    \2\ ____ Owner check here if secondary and service splices are 
permitted.
    \3\ ____ Owner check here if 12 feet of service conductor is to be 
left as a coil three feet from the building with ends capped instead of 
connection to meter box.

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                                          Unit price                    
      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
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UD                                                                      
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           Section UG--Underground Transformer Assembly Units

    An underground transformer assembly unit consists of the 
transformer, its housing, warning sign, switches, over-current 
protective devices, grounding loop, and hardware and leads with their 
connectors and supporting insulators installed in place. This unit 
includes the cable terminations but does not include lightning 
arresters, fault indicators, ground rods or trenching. For submersible 
transformers, it includes the cable terminations, the enclosure and 
cover, drainable material (when specified 4), and the 
excavation when required. For pad-mount transformers, it does not 
include the pad, site preparation, drainable material, backfilling or 
compaction which are included in the pad assembly units.
---------------------------------------------------------------------------

    \4\ ____ Owner check here if drainable material is specified.

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                                          Unit price                    
      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
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UG                                                                      
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      Section UK--Underground Secondary and Service Assembly Units

    An underground secondary and service assembly unit consists of 
secondary or service cable terminal housing mounted in place. It 
includes the power pedestal, stake (when required), mounting hardware, 
warning sign, directional marker, housing identification marking, and 
the cable identification tags. It does not include the cable 
terminations, ground rod, or pad, when required.

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                                          Unit price                    
      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
------------------------------------------------------------------------
UK                                                                      
------------------------------------------------------------------------

          Section UM--Miscellaneous Underground Assembly Units

    A miscellaneous underground assembly unit consists of an additional 
unit needed in the Project for new construction but not otherwise listed 
in the Proposal. This section includes the miscellaneous assembly units 
as shown on the respective underground construction drawings. Where 
miscellaneous units consist of or include a primary cable termination, 
the unit includes the preparation of the cable to accommodate the 
termination, the stress cone and the connection of the cable to the 
terminal equipment. Pad assembly units are in this section and include 
the site preparation, bedding, drainable material when specified, cable 
slot, backfilling, tamping and the pad in place.

[[Page 394]]



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                                          Unit price                    
      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
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UM                                                                      
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            Section UR--Underground Excavation Assembly Units

    UR1-S (D) Plowing Assembly Unit, Soil--Consists of one (1) lineal 
foot of plowing in soil, measured parallel to the surface of the ground, 
to a specified depth (D), in inches, including the compacting, except as 
specifically provided for in other units. This unit includes all 
material and labor required in the repair and/or replacement of streets, 
roads, drives, fences, lawns, shrubbery, watermains, pipes, pipelines 
and contents, underground power and telephone facilities, buried 
sewerage and drainage facilities, and any other property damaged during 
the plowing of the cable, except as specifically provided for in other 
units. This unit does not include underground cable facilities installed 
in the slot.

    Note: Where in the judgment of the Owner greater than normal 
difficulty will be involved in plowing because of the presence of 
underground facilities of other utilities, this unit will be suffixed by 
the letter ``T''. This will be applicable only in those areas 
predesignated by the Owner on the detail maps herein. All plowing 
outside of the predesignated area on the map, regardless of the 
difficulty in placement actually experi- enced, will be inventoried as 
the regular UR1-S (D) units. If field conditions show the existence of 
rock to prevent the placing of the cable in soil to the depth required 
in the specifications the Owner may specify UR2-R units. Where more than 
one cable is to be installed in the slot, the UR1-S unit designation 
should be modified by a suffix corresponding to the number of cables 
installed. For example, UR1-S (D)3c for 3 cables plowed at one time.

    UR2-S (D&W) Trenching Assembly Unit, Soil--Consists of one (1) 
lineal foot of trenching in soil, measure parallel to the surface of the 
ground, to a specified depth (D) and width (W), in inches, including the 
excavation, and backfilling and compacting. This unit includes all 
material and labor required in the repair and/or replacement of streets, 
roads, drives, fences, lawns, shrubbery, watermains, pipes, pipelines 
and contents, underground power and telephone facilities, buried 
sewerage and drainage facilities, and any other property damaged by the 
trenching, except as specifically provided for in other units. This unit 
does not include underground cable facilities installed in the trench or 
cable bedding assembly units, when required.

    Note: Where in the judgment of the Owner greater than normal 
difficulty will be involved in trenching because of the presence of 
underground facilities of other utilities, this unit will be suffixed by 
the letter ``T''. This will be applicable only in those areas 
predesignated by the Owner on the detail maps herein. Where more than 
one cable is to be installed in the trench, the regular UR2-S unit 
designation should be modified by a suffix corresponding to the 
construction drawing for the type of cable placement desired.

    UR2-R (D&W) Trenching Assembly Unit, Rock--Consists of one (1) 
lineal foot of trenching in rock, measured parallel to the surface of 
the ground, to specified depth (D) and width (W), in inches, including 
the excavation, and backfilling and compacting to place cable to the 
depth specified in the Specifications. This unit will be specified by 
the Owner only when field conditions at the site show the existence of 
rock at a depth preventing the placing of the cable in soil to the 
depths required in the Specifications. This unit includes all material 
and labor required in the repair and/or replacement of streets, roads, 
drives fences, lawns, shrubbery, watermains, pipes, pipelines and 
contents, underground power and telephone facilities, buried sewerage 
and drainage facilities, and any other property damaged by the 
trenching, except as specifically provided for in other units. This unit 
does not include underground cable facilities installed in the trench or 
cable bedding assembly units, when required.
    UR-3  Cable Bedding Assembly Unit--Consists of one (1) lineal foot 
of a two-inch bed of clean and or soil placed in the trench under the 
cable and a four-inch layer of clean sand or soil backfill over the 
cable to the width of the trench.

    Note: The exact location and number of units shall be determined by 
the Owner after the trenches are open in those areas where rock or other 
conditions make special bedding necessary.

    UR-4a  Pavement Assembly Unit, Asphalt--Consists of the labor and 
material necessary to remove and restore one (1) lineal foot of asphalt 
pavement, measured along the route of the cable, including any trenching 
necessary to place the cable at the required depth. All work shall be 
performed in accordance with the requirements of state or local 
authorities.
    UR-4c  Pavement Assembly Unit, Concrete--Consists of the labor and 
material necessary to remove and restore one (1) lineal foot of concrete 
pavement, measured along the route of the cable, including any trenching 
necessary to place the cable at the required depth. All work shall be 
performed in accordance with the requirements of state or local 
authorities.

[[Page 395]]

    UR-5  ( ) Underground Pipe Crossing Assembly Unit--Consists of one 
(1) lineal foot of steel pipe, of the inside diameter, in inches, 
specified in the last digit of the assembly unit designation, installed 
in place. This unit includes the pushing of pipe and any excavation, 
backfilling and tamping necessary for the installation of the pipe. The 
pipe will be installed at the depth specified by the Owner. Underground 
cable installed in the pipe is not included in this unit.
    UR-6  Underground Nonpipe Crossing Assembly Unit--Consists of the 
labor in providing a hole in soil one (1) foot in length of a diameter 
sufficient to accommodate the cable to be installed therein. The depth 
of the hole below the surface of the ground shall be specified by the 
Owner. This unit includes any excavation, backfilling and tamping 
necessary for the installation. This unit may be used where the 
permanent installation of a steel pipe under the UR-5 unit is not 
required. Underground cable installed in the hole is not included in 
this unit.

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                                          Unit price                    
      Unit No.      ----------------------------------------------------
                      Labor        Materials         Labor &  materials 
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UR                                                                      
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                    Construction Units--Line Changes

    The general heading of Line Changes applies to the changing of 
existing lines or portions thereof from their existing phasing, wire 
size, and type to new phasing, wire size, and type and the removal of 
existing lines or portions thereof and replacing with new lines in close 
proximity thereto. In general line changes involve three types of 
assembly units as follows:
    Section H--Conversion assembly units;
    Section I--Removal assembly units;
    Section N--New construction assembly units on existing lines or in 
replacing lines.
    The assembly units that are included in Sections H, I, and N are 
defined by symbols and descriptions which follow together with the 
applicable descriptions included under New Construction. Where the 
descriptions are not correct or sufficiently explicit, or when special 
units are not covered by Construction Drawings, descriptions have been 
provided by the Owner in the respective sections.
    Work included in these sections shall be performed under a schedule 
of deenergization and operating procedures as set forth by the Owner at 
the time of release of any Section involving work on existing lines. The 
Contractor will so plan and perform its work that it will be possible to 
safely reenergize all lines involved at the expiration of the time 
limits set up in the schedule to resume service to all consumers being 
served prior to deenergization. Prior to commencement of work each day 
on lines to be deenergized, and upon completion of work each day on such 
lines, the Contractor will notify the Owner thereof in writing or in 
such other manner as the circumstances permit.

                  Section H--Conversion Assembly Units

    Conversion assembly units are pole-top assemblies and cover the 
furnishing of all labor and additional materials for changing an 
existing assembly unit to a new assembly unit, utilizing certain items 
of materials of the existing assembly unit on poles to be left in place. 
Any materials removed from the existing assembly units which are not 
required in the construction of the conversion assembly unit are to be 
reused by the Contractor in the construction of other assembly units, or 
returned to Owner's warehouse, as directed by the Owner.
    Conversion assembly units are specified by the prefix H with the new 
construction assembly unit designation shown first and the existing 
assembly unit designation shown last. For example, an H B1-A1 signifies 
the conversion of an existing A1 assembly unit to a B1 assembly unit (as 
was defined in the description of construction assembly units). In this 
instance the Contractor utilizes the existing pin-type insulator, single 
upset bolt and neutral spool and furnishes the additional crossarm, 
crossarm pins, braces, machine bolt, carriage bolts, lag screw, and 
insulator required for the new unit. The Contractor transports the pole-
top pin and two machine bolts to the warehouse or uses them on the 
Project as directed by the Owner.
    The Conversion assembly units also include the furnishing of all 
labor and materials in the transferring, resagging and retying of 
conductors from one position on the pole to a different position on the 
pole where such transfers are required. Where replacement of conductor 
is required, the existing conductor will be removed under Section I and 
the new conductor installed under Section N.
    Where replacement of a pole is required, the existing pole and pole-
top assembly will be removed under Section I and the new pole and pole-
top assembly will be installed according to Section N and no H units 
will be involved.
    Conversion assemblies are listed in three subsections for converting 
pole-top assemblies from single to V phase, single to three phase, and V 
to three phase. The following descriptions apply to only those 
conversion units not sufficiently explicit:

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                 Unit                             Description           
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[[Page 396]]

                 Subsection H (B-A)--1 Phase to V Phase

------------------------------------------------------------------------
                                                    Unit price          
                                        --------------------------------
                Unit No.                                        Labor & 
                                           Labor    Materials  materials
------------------------------------------------------------------------
H                                                                       
------------------------------------------------------------------------

                 Subsection H (C-A)--1 Phase to 3 Phase

------------------------------------------------------------------------
                                                    Unit price          
                                        --------------------------------
                Unit No.                                        Labor & 
                                           Labor    Materials  materials
------------------------------------------------------------------------
H                                                                       
------------------------------------------------------------------------

                 Subsection H (C-B)--V Phase to 3 Phase

------------------------------------------------------------------------
                                                    Unit price          
                                        --------------------------------
                Unit No.                                        Labor & 
                                           Labor    Materials  materials
------------------------------------------------------------------------
H                                                                       
------------------------------------------------------------------------

                    Section I--Removal Assembly Units

    Removal assembly units cover the furnishing of all labor for the 
removal of existing units of construction from existing lines, 
disassembling into material items, and all labor and transportation for 
the returning of all materials to the warehouse of the Owner in an 
orderly manner or transporting elsewhere to the site of the Project for 
reuse in the prosecution of this Contract as directed by the Owner. All 
materials removed remain the property of the Owner. The provisions for 
Owner-Furnished materials in the Proposal shall apply if such materials 
are reused for construction of the Project.
    The unit removal prices shall include all materials and labor 
required to reinstall in accordance with specifications any conductors 
temporarily detached. The Contractor will reinstall at his own expense 
any other units removed by him for his own convenience.
    The removal units are specified by the prefix I and followed by the 
assembly unit designation of existing assembly unit to be removed. For 
example, an I-A1 signifies the removal of an A1 assembly unit. The 
following special notes apply to specific removal units:
    a. Poles. All poles of the same height, regardless of pole class, 
are designated by the same unit. Thus an I-30-foot pole signifies the 
removal of a 30-foot pole of any class. The Contractor is not required 
under this unit to remove from the pole any ground wire or pole 
numbering attached to the pole. This unit includes the refilling and 
tamping of holes in a workmanlike manner unless they are to be reused.
    b. Pole-top Assemblies. The unit of removal of pole-top assemblies 
includes, in addition to the removal of the assembly itself, any 
necessary handling, resagging, and retying of conductors in those cases 
where an existing pole-top assembly will be removed and replaced by a 
new pole-top assembly and where any existing conductor is to be reused.
    The unit of removal of pole-top assemblies also includes any holding 
or handling of mainline or tap conductors at tap lines, angles, and 
deadends where such is involved, and the reinstalling of such conductor 
in accordance with the specifications; for example, an I-A5-4 will 
include the disconnection of the tap conductors, snubbing off the tap 
line at the nearest practical point and the reconnection and resagging 
of these tap conductors if necessary to the new tap assembly when 
installed. The new unit of construction, however, will be specified 
separately in Section N.
    c. Conductor. The conductor removal unit covers the removal of 1,000 
feet of conductor or cable and reeling or coiling it in a workmanlike 
manner in such a way that it can be reused by the Contractor or the 
Owner. The Owner will furnish to the Contractor reels if it is to be 
returned to the Owner's warehouse on reels. The removal unit for each 
size of conductor or cable is shown by the prefix I followed by D and 
the conductor or cable type; thus an I-D 6ACWC signifies the removal 
unit for 1,000 feet of 6 A Copperweld-copper conductor.
    d. Guys. All guys regardless of length, type of attachment, or size 
of guy strand are specified by the same unit; thus an I-E signifies the 
removal of any guy.
    e. Anchors. Only anchor rods are to be removed by the Contractor in 
anchor removal units. The anchors will be left in the ground; thus an I-
F signifies the removal of any anchor rod. If the rod cannot be 
unscrewed, the end of the rod shall either be cut off or bent down so 
that the rod will be at least 18 inches below ground.
    f. Transformers. The unit for removal of transformer assembly units 
is divided into two sections, (1) Conventional Transformer Assembly, and 
(2) Self-protected Transformer Assembly. Only one unit is specified for 
each type, and all sizes of transformers from 1 to 15 kVA within each 
group will be covered by the same unit. ``Self-protected'' refers to 
transformers where all protective equipment is mounted on or within the 
transformer. ``Conventional'' refers to transformers where protective 
equipment is mounted separately from the transformer. The unit is 
designated by the prefix I followed by the description of the unit to be 
removed; thus I-G Conventional signifies the removal of a conventional 
transformer assembly for any size transformer from 1 to 15 kVA.
    g. Secondary Units. The unit for removal of secondary assemblies 
includes, in addition to the removal of the assembly itself, all

[[Page 397]]

necessary handling such as untying, resagging, and retying of secondary 
conductor or cables where existing secondary conductor or cable is to be 
reused. In addition, the unit for removal of the secondary assembly 
includes the handling or holding of any conductor at tap lines where 
such is involved, and the reinstalling of such tap conductor in 
accordance with the specifications.
    h. Service Unit. The unit for removal of service assemblies 
includes, in addition to the removal of the assembly itself, all 
necessary handling such as untying, resagging, and retying of service 
conductor or cable where existing service conductor or cable is to be 
reused.
    The following descriptions apply only to those removal units not 
sufficiently explicit:

------------------------------------------------------------------------
                 Unit                             Description           
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                              Unit labor
                          Unit No.                               price  
------------------------------------------------------------------------
I                                                                       
------------------------------------------------------------------------

                      Section N--New Assembly Units

    The purpose of this section is to list complete new units of 
construction where such units are to be added to existing lines or 
installed in replacing lines.
    The units as covered by this section are the same as the units 
described in Construction Units--New Construction, except that these 
units are prefixed by the letter N.
    For example, an N40-6 unit covers the furnishing of all material and 
labor for the installation of a 40-6 pole either in an existing 
distribution line being operated by the Owner or in a new line being 
constructed to replace an existing distribution line being operated by 
the Owner.
    The following descriptions apply only to those new units not 
sufficiently explicit:

------------------------------------------------------------------------
                 Unit                             Description           
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                    Unit price          
                                        --------------------------------
                Unit No.                                        Labor & 
                                           Labor    Materials  materials
------------------------------------------------------------------------
N                                                                       
------------------------------------------------------------------------

                               Acceptance

    The undersigned hereby accepts the foregoing Proposal of ________, 
dated ________, to construct the rural electric Project ________ 19____ 
Line Extensions.

________ (Owner)
By ________ (President)
________ Secretary
________ Date of Contract

                             [End of clause]



Sec. 1726.343  Distribution line extension construction contract (labor only), RUS Form 792.

    The contract form in this section shall be used when required by 
this part.

     Distribution Line Extension Construction Contract (Labor Only)

                                Proposal

To: ________ (hereinafter called the ``Owner'').

                           Article I--General

    Section 1--Offer to Construct. The undersigned (hereinafter called 
the ``Contractor'') hereby proposes to construct for the prices 
hereinafter stated, with materials furnished by the Owner, the rural 
electric project ________, 19____ Line Extensions (hereinafter called 
``Project'') in strict accordance with the Plans, Specifications, and 
Construction Drawings hereinafter referred to. The Contractor 
understands and agrees that the Project will consist of line extensions 
and additions and line changes or similar work usually associated with 
overhead or underground distribution system improvement or extension 
work all located within the area served or ultimately to be served by 
the Owner and that the exact location and scope of individual sections 
of the Project (hereinafter called ``Sections'') will be made known to 
the Contractor from time to time as provided in Article II, Section 1 
hereof; and provided, however, that the Contractor shall not be 
obligated to start construction of any Section unless the cost of 
construction of the Section computed on the unit prices of this Proposal 
shall amount to at least ________ dollars ($________) and provided 
further that the Owner shall be obligated to release to the Contractor 
for construction at least one Section pursuant to the provisions of this 
Proposal.
    Section 2--Additional Projects. From time to time the Owner and the 
Contractor may enter into negotiations for the performance of work at 
labor prices which may differ from those in the Proposal (such work 
being hereinafter called ``Additional Projects''). Except as may 
otherwise be agreed upon in writing by the Owner and the Contractor at 
the time the supplemental contract for the Additional Project is 
negotiated, the provisions of the Contract for the Project shall apply.
    Section 3--Proposal on Unit Basis. The Contractor understands and 
agrees that the various Construction Units considered in this Proposal 
are defined by symbols and descriptions in this Proposal, that the 
Proposal is made on a unit basis, and that the Owner

[[Page 398]]

may specify, as provided in Article II, Section 1 hereof, any number or 
combination of Construction Units which the Owner, may deem necessary 
for the construction of the Project. If kinds of Construction Units for 
which prices are not established in this Proposal are necessary for the 
construction of the Project, the prices of such additional Units shall 
be as agreed upon in writing by the Owner and the Contractor prior to 
the time of installation. The unit prices herein set forth are 
applicable to work performed on unenergized lines. Such unit prices 
shall be increased by ________ (________) percent for all units 
installed on energized lines in accordance with instructions of the 
Owner, as provided in Article II, Section 1g.
    Section 4--Description of Contract. The Specifications and 
Construction Drawings set forth in: RUS Form 804, Specifications and 
Drawings for 7.2/12.5 kV Line Construction; RUS Form 803, Specifications 
and Drawings for 14.4/24.9 kV Line Construction; RUS Form 806, 
Specifications and Drawings for Underground Electric Distribution; as 
applicable, which by this reference are incorporated herein, together 
with the Plans, Proposal and Acceptance constitute the Contract. The 
Plans, consisting of maps and special drawings, and approved 
modifications in standard specifications are attached hereto and 
identified as follows: ________
    Section 5--Familiarity with Conditions. The Contractor acknowledges 
that it has made a careful examination of the site of the Project and of 
the Plans, Specifications and Construction Drawings, and has become 
informed as to the location and nature of the proposed construction, the 
transportation facilities, the kind and character of soil and terrain to 
be encountered, the kind of equipment, tools, and other facilities 
required before and during the construction of the Project and has 
become acquainted with the availability status of materials to be 
furnished by the Owner and with the labor conditions which would affect 
work on the Project.
    Section 6--License. The Contractor warrants that a Contractor's 
license is ____ is not ____ required, and if required, it possesses 
Contractor's License No. ________ for the State of ________ in which the 
Project is located, and said license expires on ________, 19____.
    Section 7--Contractor's Resources. The Contractor warrants that it 
possesses adequate financial resources for the performance of the work 
covered by this Proposal and that it will provide necessary tools and 
equipment and a qualified superintendent and other employees.
    Section 8--Changes in Construction. The Contractor agrees to make 
such changes in construction previously installed in the Project by the 
Contractor as required by the Owner on the following basis: The cost of 
labor shall be the reasonable cost thereof as agreed upon by the 
Contractor and the Owner but in no event shall it exceed two (2) times 
the labor price quoted in the Proposal for the installation of the unit 
to be changed. Such compensation shall be in lieu of any other payment 
for the installation and removal of the original unit but shall not 
include the cost of the installation, if any, of a new or replacing 
unit, payment for which shall be made at the unit price as quoted in the 
Proposal. No payment shall be made to the Contractor for correcting 
errors or omissions on the part of the Contractor which result in 
construction not in accordance with the Plans and Specifications.

                        Article II--Construction

    Section 1--Time and Manner of Work. The Contractor agrees to be 
prepared to commence the construction of the Project within fifteen (15) 
calendar days after written notice by the Owner of acceptance of the 
Proposal. The Contractor agrees to commence construction of a Section 
within ________ (________) days after receipt in writing from the Owner 
of the following:
    a. Location and number of the various Construction Units required 
for construction of the Section (hereinafter called the ``Staking 
Sheets'').
    b. Itemized list of the materials required for the construction of 
the Section and an authorization by the Owner for the Contractor to 
obtain such materials from the Owner's warehouse located at ____.
    c. A schedule showing the rate at which construction of the Section 
shall proceed and the total number of calendar days (excluding Sundays) 
to be allowed for completion; provided, however, that the required 
completion time for any Section shall not be less than ________ 
(________) days or ________ (________) days per mile of line, whichever 
is the greater, which days shall be calendar days (excluding Sundays). 
The time of the completion of the Section is of the essence of the 
contract to be effected by acceptance of this Proposal.
    d. A statement that all required easements and rights-of-way have 
been obtained from the owners of the properties across which the Section 
is to be constructed (including tenants who may reasonably be expected 
to object to such construction).
    e. A statement that all necessary staking has been completed.
    f. A statement that all necessary funds for prompt payment for the 
construction of the Section will be available.
    g. Specific instruction as to location and extent of work to be 
performed on energized lines, if any. The Contractor will not be 
required to dig holes, set poles, install anchors, install underground 
conduit, perform any plowing for the installation of underground cable, 
or dig trenches if there are more than

[[Page 399]]

six (6) inches of frost in the ground nor to perform any construction on 
such days when in the judgment of the Owner snow, rain, or wind or the 
results of snow, rain, or frost make it impracticable to perform any 
operations of construction; provided further that the contractor will 
not perform any plowing for the installation of underground cable on 
public roads or highways if there are more than two (2) inches of frost 
in the ground. To the extent of the time lost due to the conditions 
described herein and approved in writing by the Owner, the time of 
completion set out above will be extended. The time for completion shall 
be extended for a period of any reasonable delay (other than a delay 
resulting from the failure of the Contractor to secure sufficient labor) 
which is due exclusively to causes beyond the control and without the 
fault of the Contractor including acts of God, fires, floods, inability 
to obtain materials, direction of the Owner to cease construction as 
herein provided, and acts or omissions of the Owner with respect to 
matters for which the Owner is solely responsible: Provided, however, 
that no such extension of time for completion shall be granted the 
Contractor unless within ten (10) days after the happening of any event 
relied upon by the Contractor for such an extension of time the 
Contractor shall have made a written request therefor in writing to the 
Owner, and provided further that no delay in such time of completion or 
in the progress of the work which results from any of the above causes, 
except acts or omissions of the Owner, shall result in any liability on 
the part of the Owner.
    Section 2--Changes in Plans, Specifications and Drawings. The Owner 
may, from time to time during the progress of the construction of the 
Project, make such changes in, additions to, or subtractions from the 
Plans, Specifications, and Construction Drawings as conditions may 
warrant: Provided, however, that if the cost to the Contractor shall be 
materially increased by any such change or addition, the Owner shall pay 
the Contractor for the reasonable cost thereof in accordance with a 
construction contract amendment signed by the Owner and the Contractor, 
but no claim for additional compensation for any such change or addition 
will be considered unless the Contractor shall have made a written 
request therefor to the Owner prior to the commencement of work in 
connection with such change or addition.
    Section 3--Supervision and Inspection. a. The Contractor shall cause 
the construction work on the Project to receive constant supervision by 
a competent superintendent (hereinafter called the ``Superintendent'') 
who shall be present at all times during working hours where 
construction is being carried on. The Contractor shall also employ, in 
connection with the construction of the Project, capable, experienced, 
and reliable foremen and such skilled workmen as may be required for the 
various classes of work to be performed. Directions and instructions 
given to the Superintendent by the Owner shall be binding upon the 
Contractor.
    b. The Owner reserves the right to require the removal from the 
Project of any employee of the Contractor if in the judgment of the 
Owner such removal shall be necessary in order to protect the interest 
of the Owner. The Owner shall have the right to require the Contractor 
to increase the number of his employees and to increase or change the 
amount or kind of tools and equipment if at any time the progress of the 
work shall be unsatisfactory to the Owner; but the failure of the Owner 
to give any such directions shall not relieve the Contractor of his 
obligations to complete the work within the time and in the manner 
specified in this Proposal.
    c. The manner of performance of the work, and all equipment used 
therein, shall be subject to the inspection, tests, and approval of the 
Owner. The Owner shall have the right to inspect all payrolls and other 
data and records of the Contractor relevant to the work. The Contractor 
will provide all reasonable facilities necessary for such inspection and 
tests. The Contractor shall have an authorized agent accompany the 
inspector when final inspection is made and, if requested by the Owner, 
when any other inspection is made.
    d. In the event that the Owner shall determine that the construction 
contains or may contain numerous defects, it shall be the duty of the 
Contractor, if requested by the Owner, to have an inspection made by an 
engineer approved by the Owner for the purpose of determining the exact 
nature, extent, and location of such defects.
    Section 4--Defective Workmanship. The acceptance of any workmanship 
by the Owner shall not preclude the subsequent rejection thereof if such 
workmanship shall be found to be defective after installation, and any 
such workmanship found defective before final acceptance of the work or 
within one (1) year after completion shall be remedied or replaced, as 
the case may be, by and at the expense of the Contractor. In the event 
of failure by the Contractor so to do, the Owner may remedy such 
defective workmanship and in such event the Contractor shall pay to the 
Owner the cost and expense thereof. The Contractor shall not be entitled 
to any payment hereunder so long as any defective workmanship, in 
respect of the Project, of which the Contractor shall have had notice, 
shall not have been remedied or replaced, as the case may be.
    Section 5--Materials. At or prior to the commencement of 
construction of each Section, the Owner shall make available to the 
Contractor all materials for such Section

[[Page 400]]

which the Owner has on hand, and from time to time as such additional 
deliveries of materials, if any, are received by the Owner, the Owner 
shall make such materials available to the Contractor: Provided, 
however, that the Contractor or his authorized representative will give 
to the Owner a receipt in such form as the Owner shall approve for all 
materials furnished by the Owner to the Contractor. The Contractor will 
return to the Owner or reuse in the construction of other assembly units 
all materials removed from the lines under Section H--Conversion 
Assembly Units and Section I--Removal Assembly Units. Upon completion of 
each Section of the Project the Contractor will return to the Owner all 
materials, including usable materials as well as scrap, furnished by the 
Owner in excess of those required for the construction of the Section as 
determined from the Final Inventory approved by the Owner. The 
Contractor will reimburse the Owner at the current invoice cost to the 
Owner for loss and for breakage through Contractor's negligence of 
materials furnished by the Owner to the Contractor and for materials 
removed from the lines by the Contractor.
    Section 6--Term of Contract. It is understood and agreed that, 
notwithstanding any other provisions of this Contract, the Contractor 
will not be required to commence any construction after the expiration 
of 1 year ________, 2 years ________ following acceptance of this 
Proposal by the Owner.

                          Article III--Payment

    Section 1--Payments to Contractor. a. Within the first fifteen (15) 
days of each calendar month, the Owner shall make partial payment to the 
Contractor for construction accomplished during the preceding calendar 
month on the basis of completed Construction Units furnished and 
certified to by the Contractor and approved by the Owner solely for the 
purpose of payment: Provided, however, that such approval by the Owner 
shall not be deemed approval of the workmanship or materials. Only 
ninety percent (90%) of each such estimate approved during the 
construction of a Section shall be paid by the Owner to the Contractor 
prior to completion of the Section. Upon completion by the Contractor of 
the construction of a Section, the Contractor will prepare a Final 
Inventory of the Section showing the total number and character of 
Construction Units and, will certify it to the Owner together with a 
certificate of the total cost of the construction performed. Upon the 
approval of such certificates, the Owner shall make payment to the 
Contractor of all amounts to which the Contractor shall be entitled 
thereunder which shall not have been paid.
    b. The Contractor shall be paid on the basis of the number of 
Construction Units actually installed at the direction of the Owner, as 
shown by the Inventory based on the Staking Sheets: Provided, however, 
that the total cost shall not exceed the maximum Contract price for the 
construction of the Project, unless such excess shall have been approved 
in writing by the Owner. It is understood and agreed that this maximum 
Contract price is ________ dollars ($________). It is also agreed that 
the Contractor shall not be entitled to any claim for damages on account 
of any reasonable additions to or subtractions from the Project, or of 
any delay occasioned thereby, or of any changes in the routing of the 
lines.
    c. No payment shall be due while the Contractor is in default in 
respect of any of the provisions of this Contract and the Owner may 
withhold from the Contractor the amount of any claim by a third party 
against either the Contractor or the Owner based upon an alleged failure 
of the Contractor to perform the work hereunder in accordance with the 
provisions of this Contract.
    Section 2--Certificate of Contractor and Indemnity Agreement--Line 
Extensions. Upon the Completion of Construction of any Section of the 
Project but prior to payment to the Contractor of any amount in excess 
of ninety percent (90%) of the total cost of all Construction Units 
comprising the completed Section, the Contractor shall deliver to the 
Owner in the form attached hereto, (1) a certificate that all persons 
who have furnished labor in connection with the Project and 
subcontractors who have furnished services for the Project have been 
paid in full, and (2) an agreement to hold the Owner harmless against 
any liens arising out of the Contractor's performance hereunder which 
may have been or may be filed against the Owner.

          Article IV--Particular Undertakings of the Contractor

    Section 1--Protection to Persons and Property. The Contractor shall 
at all times take all reasonable precautions for the safety of employees 
on the work and of the public, and shall comply with all applicable 
provisions of Federal, State, and Municipal safety laws and building and 
construction codes, as well as the safety rules and regulations of the 
Owner. All machinery and equipment and other physical hazards shall be 
guarded in accordance with the ``Manual of Accident Prevention in 
Construction'' of the Associated General Contractors of America unless 
such instructions are incompatible with Federal, State, or Municipal 
laws or regulations.
    The following provisions shall not limit the generality of the above 
requirements:
    a. The Contractor shall at no time and under no circumstances cause 
or permit any employee of the Contractor to perform any

[[Page 401]]

work upon energized lines, or upon poles carrying energized lines, 
unless otherwise specified in accordance with Article II, Section 1, 
subsection g.
    b. The Contractor shall so conduct the construction of the Project 
as to cause the least possible obstruction of public highways.
    c. The Contractor shall provide and maintain all such guard lights 
and other protection for the public as may be required by applicable 
statutes, ordinances, and regulations or by local conditions.
    d. The Contractor shall do all things necessary or expedient to 
protect properly any and all parallel, converging, and intersecting 
lines, joint line poles, highways, and any and all property of others 
from damage, and in the event that any such parallel, converging and 
intersecting lines, joint line poles, highways, or other property are 
damaged in the course of the construction of the Project the Contractor 
shall at its own expense restore any or all of such damaged property 
immediately to as good a state as before such damage occurred.
    e. Where the right-of-way of the Project traverses cultivated lands, 
the Contractor shall limit the movement of his crews and equipment so as 
to cause as little damage as possible to crops, orchards, or property 
and shall endeavor to avoid marring the lands. All fences which are 
necessarily opened or moved during the construction of the Project shall 
be replaced in as good condition as they were found and precautions 
shall be taken to prevent the escape of livestock. Except as otherwise 
provided in the descriptions of underground plowing and trenching 
assembly units, the Contractor shall not be responsible for loss of or 
damage to crops, orchards, or property (other than livestock) on the 
right-of-way necessarily incident to the construction of the Project and 
not caused by negligence or inefficient operation of the Contractor. The 
Contractor shall be responsible for all other loss of or damage to 
crops, orchards, or property, whether on or off the right-of-way, and 
for all loss of or damage to livestock caused by the construction of the 
Project.
    f. The Project, from the commencement of work to completion, or to 
such earlier date or dates when the Owner may take possession and 
control in whole or in part as hereinafter provided shall be under the 
charge and control of the Contractor and during such period of control 
by the Contractor all risks in connection with the construction of the 
Project and the materials to be used therein shall be borne by the 
Contractor. The Contractor shall make good and fully repair all injuries 
and damages to the Project or any portion thereof under the control of 
the Contractor by reason of any act of God or other casualty or cause 
whether or not the same shall have occurred by reason of the 
Contractor's negligence.
    (i) To the maximum extent permitted by law, Contractor 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 Contractor'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 
Contractor's property) in any manner arising out of or connected with 
the Contract, or the materials or equipment supplied or services 
performed by Contractor, its subcontractors and suppliers of any tier. 
But nothing herein shall be construed as making Contractor liable for 
any injury, death, loss, damage, or destruction caused by the sole 
negligence of Owner.
    (ii) To the maximum extent permitted by law, Contractor shall 
defend, indemnify, and hold harmless Owner and Owner's directors, 
officers, and employees from all liens and claims filed or asserted 
against Owner, its directors, officers, and employees, or Owner's 
property or facilities, for services performed or materials or equipment 
furnished by Contractor, its subcontractors and suppliers of any tier, 
and from all losses, demands, and causes of action arising out of any 
such lien or claim. Contractor shall promptly discharge or remove any 
such lien or claim by bonding, payment, or otherwise and shall notify 
Owner promptly when it has done so. If Contractor does not cause such 
lien or claim to be discharged or released by payment, bonding, or 
otherwise, Owner shall have the right (but shall not be obligated) to 
pay all sums necessary to obtain any such discharge or release and to 
deduct all amounts so paid from the amount due Contractor.
    (iii) Contractor shall provide to Owner's satisfaction evidence of 
Contractor's ability to comply with the indemnification provisions of 
subparagraphs i and ii above, which evidence may include but may not be 
limited to a bond or liability insurance policy obtained for this 
purpose through a licensed surety or insurance company.
    g. Any and all excess earth, rock, debris, underbrush, and other 
useless material shall be removed by the Contractor from the site of the 
Project as rapidly as practicable as the work progresses.
    h. Upon violation by the Contractor of any provisions of this 
section, after written notice of such violation given to the Contractor 
by the Owner, the Contractor shall immediately correct such violation. 
Upon failure of the Contractor so to do the Owner may correct such 
violation at the Contractor's expense.
    i. The Contractor shall submit to the Owner monthly reports in 
duplicate of all accidents, giving such data as may be prescribed by the 
Owner.

[[Page 402]]

    j. The Contractor shall not proceed with the cutting of trees or 
clearing of right-of-way without written notification from the Owner 
that proper authorization has been received from the owner of the 
property, and the Contractor shall promptly notify the Owner whenever 
any landowner objects to the trimming or felling of any trees or the 
performance of any other work on his land in connection with the Project 
and shall obtain the consent in writing of the Owner before proceeding 
in any such case.
    Section 2--Insurance. The Bidder shall take out and maintain 
throughout the period of this Agreement the following types and minimum 
amounts of insurance:
    a. Workers' compensation and employer's liability insurance, as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to workers' 
compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    b. Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    c. Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, nonowned, or hired, shall 
have limits for bodily injury or death of not less than $1 million each 
occurrence, and property damage limits of $1 million for each 
occurrence. This required insurance may be in a policy or policies or 
insurance, primary and excess including the umbrella or catastrophe 
form. The Owner shall have the right at any time to require public 
liability insurance and property damage liability insurance greater than 
those required in subsection ``b'' and ``c'' of this Section. In any 
such event, the additional premium or premiums payable solely as the 
result of such additional insurance shall be added to the Contract 
price.
     The Owner shall be named as Additional Insured on all policies of 
insurance required in subsections ``b'' and ``c'' of this Section.
    The policies of insurance shall be in such form and issued by such 
insurer as shall be satisfactory to the Owner. The Bidder shall furnish 
the Owner a certificate evidencing compliance with the foregoing 
requirements which shall provide not less than (30) days prior written 
notice to the Owner of any cancellation or material change in the 
insurance.
    Section 3--Bond. If the estimated cost of the construction of a 
Section shall exceed $100,000, the Contractor agrees to furnish prior to 
the commencement of such construction, a bond in the penal sum not less 
than the estimated cost of such Section in the form attached hereto with 
a Surety or Sureties listed by the United States Treasury Department as 
acceptable sureties. In the event that the Surety or Sureties on the 
performance bond delivered to the Owner shall at any time become 
unsatisfactory to the Owner, the Contractor agrees to deliver to the 
Owner another or an additional bond.
    Section 4--Delivery of Possession and Control to the Owner. Upon 
written request of the Owner, the Contractor will deliver to the Owner 
full possession and control of any portion of the Project provided the 
Contractor shall have been paid at least ninety percent (90%) of the 
cost of construction of such portion. Upon such delivery of possession 
and control to the Owner, the risks and obligations of the Contractor as 
set forth in Section 1f of this Article IV with respect to such portion 
so delivered to the Owner, shall be terminated; Provided, however, that 
nothing herein contained shall relieve the Contractor of any liability 
with respect to defective workmanship as specified in Article 11, 
Section 4.

                           Article V--Remedies

    Section 1--Completion on Contractor's Default. If default shall be 
made by the Contractor or by any subcontractor in the performance of any 
of the terms of this Proposal, the Owner, without in any manner limiting 
its legal and equitable remedies in the circumstances, may serve upon 
the Contractor and the Surety, if any, a written notice requiring the 
Contractor to cause such default to be corrected forthwith. Unless 
within twenty (20) days after the service of such notice upon the 
Contractor and the Surety, If any, such default shall be corrected or 
arrangements for the correction thereof satisfactory to the Owner shall 
be made, the Owner may take over the construction of the Project and 
prosecute the same to completion by contract or otherwise for the 
account and at the expense of the Contractor, and the Contractor shall 
be liable to the Owner for any cost or expense in excess of the Contract 
price occasioned thereby. In such event the Owner may take possession of 
and utilize, in completing the construction of the Project, any 
materials, tools, supplies, equipment, appliance, and plant belonging to 
the Contractor or any of its subcontractors, which may be situated at 
the site of the Project. The Owner in such contingency may exercise any 
rights, claims,

[[Page 403]]

or demands which the Contractor may have against third persons in 
connection with this Proposal and for such purpose the Contractor does 
hereby assign, transfer, and set over unto the Owner all such rights, 
claims, and demands.

                        Article VI--Miscellaneous

    Section 1--Patent Infringement. The Contractor will save harmless 
and indemnify the Owner from any and all claims, suits, and proceedings 
for the infringement of any patent or patents covering any equipment 
used in the work.
    Section 2--Permits for Explosives. All permits necessary for the 
handling or use of dynamite or other explosives in connection with the 
construction of the Project shall be obtained by and at the expense of 
the Contractor.
    Section 3--Compliance with Statutes and Regulations. The Contractor 
will comply with all applicable statutes, ordinances, rules, and 
regulations pertaining to the work. The Contractor acknowledges that it 
is familiar with the Rural Electrification Act of 1936, as amended, the 
so-called ``Kick-Back'' Statute (48 Stat. 948), and regulations issued 
pursuant thereto, and 18 U.S.C. Secs. 287,1001, as amended. The 
Contractor understands that the obligations of the parties hereunder are 
subject to the applicable regulations and orders of Governmental 
agencies having jurisdiction in the premises.
    Section 4--Equal Opportunity Provisions. a. Contractor's 
Representations.
    The Contractor represents that:
    It has ____, does not have ____, 100 or more employees, and if it 
has, that it has ____, has not ____, furnished the Equal Employment 
Opportunity--Employers Information Report EEO-1, Standard Form 100, 
required of employers with 100 or more employees pursuant to Executive 
Order 11246 and Title VII of the Civil Rights Act of 1964.
    The Contractor agrees that it will obtain, prior to the award of any 
subcontract for more than $10,000 hereunder to a subcontractor with 100 
or more employees, a statement, signed by the proposed subcontractor, 
that the proposed subcontractor has filed a current report on Standard 
Form 100. The Contractor agrees that if it has 100 or more employees and 
has not submitted a report on Standard Form 100 for the current 
reporting year and that if this Contract will amount to more than 
$10,000, the Contractor will file such report, as required by law, and 
notify the Owner in writing of such filing prior to the Owner's 
acceptance of this Proposal.
    b. Equal Opportunity Clause. During the performance of this 
Contract, the Contractor agrees as follows:
    (1) The Contractor will not discriminate against any employee or 
applicant for employment because of race, color, religion, sex, or 
national origin. The Contractor will take affirmative action to ensure 
that applicants are employed, and that employees are treated during 
employment without regard to their race, color, religion, sex, or 
national origin. Such action shall include, but not be limited to, the 
following: Employment, upgrading, demotion or transfer; recruitment or 
recruitment advertising; layoff or termination; rates of pay or other 
forms of compensation; and selection for training, including 
apprenticeship. The Contractor agrees to post in conspicuous places, 
available to employees and applicants for employment, notices to be 
provided setting forth the provisions of this Equal Opportunity Clause.
    (2) The Contractor will, in all solicitations or advertisements for 
employees placed by or on behalf of the Contractor, state that all 
qualified applicants will receive consideration for employment without 
regard to race, color, religion, sex, or national origin.
    (3) The Contractor will send to each labor union or representative 
of workers, with which it has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or workers' representatives of the Contractor's commitments 
under this section, and shall post copies of the notice in conspicuous 
places available to employees and applicants for employment.
    (4) The Contractor will comply with all provisions of Executive 
Order 11246 of September 24, 1965, and of the rules, regulations, and 
relevant orders of the Secretary of Labor.
    (5) The Contractor will furnish all information and reports required 
by Executive Order 11246 of September 24, 1965, and by rules, 
regulations, and orders of the Secretary of Labor, or pursuant thereto, 
and will permit access to its books, records, and accounts by the 
administering agency and the Secretary of Labor for purposes of 
investigation to ascertain compliance with such rules, regulations, and 
orders.
    (6) In the event of the Contractor's noncompliance with the Equal 
Opportunity Clause of this Contract or with any of the said rules, 
regulations, or orders, this Contract may be cancelled, terminated, or 
suspended in whole or in part, and the Contractor may be declared 
ineligible for further Government contracts or federally assisted 
construction contracts in accordance with procedures authorized in 
Executive Order 11246 of September 24, 1965, and such other sanctions 
may be imposed and remedies invoked as provided in Executive Order 11246 
of September 24, 1965, or by rule, regulation, or order of the Secretary 
of Labor, or as provided by law.
    (7) The Contractor will include this Equal Opportunity Clause in 
every subcontract or purchase order unless exempted by the rules, 
regulations, or order of the Secretary of

[[Page 404]]

Labor issued pursuant to Section 204 of Executive Order 11246 of 
September 24, 1965, so that such provisions will be binding upon each 
subcontractor or vendor. The Contractor will take such action with 
respect to any subcontract or purchase order as the administering agency 
may direct as a means of enforcing such provisions, including sanctions 
for noncompliance: Provided, however, That in the event a Contractor 
becomes involved in, or is threatened with, litigation with a 
subcontractor or vendor as a result of such direction by the 
administering agency, the Contractor may request the United States to 
enter into such litigation to protect the interests of the United 
States.
    c. Certificate of Nonsegregated Facilities. The Contractor certifies 
that it does not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it does not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Contractor certifies 
further that it will not maintain or provide for its employees any 
segregated facilities at any of its establishments, and that it will not 
permit its employees to perform their services at any location, under 
its control, where segregated facilities are maintained. The Contractor 
agrees that a breach of this certification is a violation of the Equal 
Opportunity Clause in this Contract. As used in this certification, the 
term ``segregated facilities'' means any waiting rooms, work areas, 
restrooms and washrooms, restaurants and other eating areas, timeclocks, 
locker rooms and other storage or dressing areas, parking lots, drinking 
fountains, recreation or entertainment areas, transportation, and 
housing facilities provided for employees which are segregated by 
explicit directive or are in fact segregated on the basis of race, 
color, religion, or national origin, because of habit, local custom, or 
otherwise. The Contractor agrees that (except where it has obtained 
identical certifications from proposed subcontractors for specific time 
periods) it will obtain identical certifications from proposed 
subcontractors prior to the award of subcontracts exceeding $10,000 
which are not exempt from the provisions of the Equal Opportunity 
Clause, and that it will retain such certifications in its files.
    Section 5--Franchises and Rights-of-way. The Contractor will be 
under no obligation to obtain or assist in obtaining any franchises, 
authorizations, permits, or approvals required to be obtained by the 
Owner from Federal, State, County, Municipal or other authority; any 
rights-of-way over private lands or any agreements between the Owner and 
third parties with respect to the joint use of poles, crossing or any 
other matter incident to the construction and operation of the Project.
    Section 6--Nonassignment of Contract. The Contractor will not assign 
the Contract effected by an acceptance of this Proposal or any part 
thereof or enter into any contract with any person, firm or corporation 
for the performance of the Contractor's obligations thereunder, or any 
part thereof, without the approval in writing of the Owner.
    Section 7--Definitions.
    a. The term ``Owner'' shall also include an engineer employed by the 
Owner, or a firm or engineer retained by the Owner, and designated by 
the Owner to act in that capacity. The Contractor will be notified in 
writing by the Owner of those designated to act for the Owner at the 
time of acceptance of this Proposal.
    b. The term ``Completion of Construction'' shall mean full 
performance by the Contractor of the Contractor's obligations under the 
contract and all amendments and revisions thereof relating to any 
Section of the Project or to the Project except the Contractor's 
obligations in respect of (i) Certificate of Contractor and Indemnity 
Agreement--Line Extensions under Article III, Section 2 hereof and (ii) 
the Final Inventory referred to in Article III, Section 1a hereof.
    c. The term ``Completion'' shall mean full performance by the 
Contractor of the Contractor's obligations under the Contract and all 
amendments and revisions thereof relating to any Section of the Project 
or to the Project.
    Section 8--Extension to Successors and Assigns. Each and all of the 
covenants and agreements contained in the Contract effected by the 
acceptance of the Proposal shall extend to and be binding upon the 
successors and assigns of the parties thereto.

________ (Contractor)
By ________ (President)
________ (Address)
Attest: ________ (Secretary)
________ Date of Proposal

    This Proposal must be signed with the full name of the Contractor. 
If the Contractor is a partnership, the Proposal must be signed in the 
partnership name by a partner. If the Contractor is a corporation, the 
Proposal must be signed in the corporate name by a duly authorized 
officer and the corporate seal affixed and attested by the Secretary of 
the Corporation.

                  Construction Units--New Construction

                          Section 1--Pole Units

    A pole unit consists of the installation of one pole. The first two 
digits indicate the length of the pole; the third digit shows the 
classification per A.S.A. (Example: 25-6 means a pole 25 feet long, 
class 6.)

[[Page 405]]



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                         Pole Top Assembly Units

    A pole top assembly unit consists of the installation of the 
hardware, crossarms and their appurtenances, insulators, etc., except 
tie wire, required to support the primary conductors.

                           Section A--1 Phase

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                           Section B--V Phase

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                           Section C--3 Phase

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                          Section D--Conductor

    A conductor assembly unit consists of the installation of 1,000 feet 
of conductor or cable for primaries, secondaries or services. Tree 
trimming necessary for installing services and secondaries on poles not 
carrying primary line is included with the conductor assembly unit and 
shall be performed in accordance with the directions of the Owner. The 
service shall be connected to the secondary or transformer and 2 feet of 
conductor or cable shall be left for connecting to the consumer's 
service entrance. In computing the compensation to the Contractor for 
conductor assembly units only the horizontal distance between conductor 
supports or pole stales shall be used. The conductor or cable sizes and 
types listed are the manufacturer's designation.

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                      Section E--Guy Assembly Units

    A guy assembly unit consists of the installation of the hardware and 
wire, and guy insulator where necessary. An overhead guy assembly unit 
does not include the associated pole and down guy, each of which is 
listed separately. Guy guards are designated separately.

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                    Section F--Anchor Assembly Units

    An anchor assembly unit consists of the installation of an anchor 
with rod complete, ready for attaching the guy wire.

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                  Section G--Transformer Assembly Units

    A transformer assembly unit consists of the installation of the 
transformer, its protective equipment and its hardware and leads with 
their connectors and supporting insulators and pins. This unit does not 
include the installation of the pole top, secondary, service, or 
grounding assemblies.

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                   Section J--Secondary Assembly Units

    A secondary assembly unit consists of the installation of the 
hardware, insulators, etc., to support the secondary conductor or cable. 
It does not include the installation of the secondary conductor or 
cable, or of any hardware, insulators, etc., required to support service 
conductors or cable.

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                    Section K--Service Assembly Units

    A service assembly unit consists of the installation of the 
hardware, insulators, etc. to support the service conductors or cable. 
It does not include the installation of the service conductor or cable, 
or of any hardware, insulators etc. required to support secondary 
conductors or cable.

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                 Section M--Miscellaneous Assembly Units

    A miscellaneous assembly unit consists of the installation of an 
additional unit needed in the Project for new line construction but not 
otherwise listed in the Proposal. This section includes the installation 
of grounding assemblies, fuse cutouts, reclosers, sectionalizers, 
switches, capacitors, regulators, metering and other assembly units.

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                 Section R--Right-of-Way Clearing Units

    R1-10. The unit is 1,000 feet in length and 10 feet in width (to be 
measured on one side of

[[Page 406]]

the pole line) of actual clearing of right-of-way. This includes 
clearing of underbrush, tree removal, and such tree trimming as is 
required so that the right-of-way, except for tree stumps which shall 
not exceed ____ in height, shall be clear from the ground up on one side 
of the line of poles carrying primary conductors.
    This unit does not include clearing or trimming associated with 
secondaries or services which is included with conductor units. The 
length of actual clearing shall be measured in a straight line parallel 
to the horizontal line between stakes and across the maximum dimension 
of foliage cleared projected to the ground line. All trees and 
underbrush across the width of the right-of-ways as designated by the 
Owner shall be considered to be grouped together as a single length in 
measuring the total length of clearing. Spaces along the right-of-way in 
which no trees are to be removed or trimmed or underbrush cleared shall 
be omitted from the total measurement. All length thus arrived at, added 
together and divided by 1,000, shall give the number of 1,000-foot R1-10 
units of clearing. This unit includes the removal or topping, at the 
option of the Contractor, of danger trees outside of the right-of-way 
when so designated by the Owner. (Danger trees are defined as dead or 
leaning trees which, in falling, will affect the operation of the line.)
    The Contractor shall not remove or trim shade, fruit, or ornamental 
trees unless so directed by the Owner.
    R1-20. This unit is identical with R1-10 except that width is 20 
feet (to be measured 10 feet on each side of the pole line).
    R1-30. This unit is identical with R1-10 except that width is 30 
feet (to be measured 15 feet on each side of the pole line).
    R1-40. This unit is identical with R1-10 except that width is 40 
feet (to be measured 20 feet on each side of the pole line).
    RC1-10, RC1-20, RC1-30, RC1-40. These units are identical to the 
respective R1 units except that chemical treatment of stumps is required 
in addition to the clearing of underbrush, tree removal and tree 
trimming.
    Additional Requirements (When specifying R1 units denote type of 
disposal (A or B).)
    A. Trees, brush, branches and refuse shall, without delay, be 
disposed of by such of the following methods as the Owner will direct 
(Owner to strike out methods not to be used):
    1. Burned.
    2. Piled on one side of right-of-way.
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (describe) ____.
    B. Trees that are felled shall be cut to commercial wood lengths, 
stacked neatly, and left on the right-of-way for the landowner. 
Commercial wood length means the length designated by the Owner but in 
no case shall it be required to be less than ____ (____) feet. Brush, 
branches, and refuse shall, without delay, be disposed of by such of the 
following methods as the Owner will direct (Owner to strike out methods 
not to be used):
    1. Burned.
    2. Piled on one side of right-of-way.
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (describe)____.

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                  Section S--Substation Assembly Units

    A substation assembly unit consists of the complete substation ready 
for connection of the line conductors, as shown on the substation 
drawings attached.

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              Section UD--Underground Cable Assembly Units

    An underground cable assembly unit consists of the installation of 
1,000 feet of cable for underground primaries, secondaries or services. 
It does not include the plowing, trenching and backfilling, or the 
termination of the primary cable which are provided for in other 
assembly units. It includes the labor for the termination, connection 
and sealing of secondary and service cables and conductors as shown in 
the specifications and construction drawings, and the labor for making 
all primary, secondary and service cable splices (buried cable may be 
spliced only when and where permitted by the Owner 
1,2.) In computing the compensation to the 
Contractor for underground cable assembly units, only the distance 
between stakes, paralleling the cable shall be used. The number of units 
so computed includes all installation of cable in all specified 
trenches, risers, conduits, crossings, manholes, transformers, terminal 
housings and meter boxes 3. The conductor or cables listed 
are the manufacturer's designation of types, size, voltage rating and 
material. The Contractor and the Owner shall jointly perform cable 
acceptance tests on installed cable in

[[Page 407]]

accordance with the specifications using test equipment furnished by the 
____ (Owner to insert Owner or Contractor).
---------------------------------------------------------------------------

    \1\  ____ Owner check here if primary splices are permitted.
    2  ____ Owner check here if secondary and service splices 
are permitted.
    \3\  ____ Owner check here if 12 feet of service conductor is to be 
left as a coil 3 feet from the building with ends capped instead of 
connection to meter box.

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           Section UG--Underground Transformer Assembly Units

    An underground transformer assembly unit consists of the 
installation of the transformer, its housing, warning sign, switches, 
over-current protective devices, grounding loop, and its hardware and 
leads with their connectors and supporting insulators. This unit also 
includes the installation of primary cable terminations but not of 
lightning arresters, fault indicators or ground rods, nor does it 
include any trenching. For pad-mount transformers, it does not include 
installation of the pad, drainable material, backfilling, compaction, or 
site preparation which are included in the pad assembly units. For 
submersible transformers it includes the installation of cable 
terminations, of the enclosure and cover, of drainable material (when 
specified 4) and the excavation.
---------------------------------------------------------------------------

    \4\ ____ Owner check here if drainable material is specified.

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      Section UK--Underground Secondary and Service Assembly Units

    An underground secondary and service assembly unit consists of the 
installation of the secondary or service cable terminal housing. It 
includes the installation of the power pedestal, stake (when required), 
mounting hardware, warning sign, directional marker, housing 
identification marking, and the cable identification tags. It does not 
include the installation of the cable terminations, ground rod, or pad, 
when required.

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          Section UM--Miscellaneous Underground Assembly Units

    A miscellaneous underground assembly unit consists of the 
installation of an additional unit needed in the Project for new 
construction, but not otherwise listed in the Proposal. This section 
includes the installation of the miscellaneous assembly units as shown 
on the respective underground construction drawings. Where miscellaneous 
units consist of or include the installation of a primary cable 
termination, the unit includes the preparation of the cable to 
accommodate the termination, the installation of the stress cone, and 
the connection of the cable to the terminal equipment. Pad assembly 
units are in this section and include the installation of the bedding, 
drainable material (when specified), cable slot, and site preparation, 
backfilling and tamping.

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            Section UR--Underground Excavation Assembly Units

    UR1-S  (D) Plowing Assembly Unit, Soil--Consists of one (1) lineal 
foot of plowing in soil, measured parallel to the surface of the ground, 
to a specified depth (D), in inches, including the compacting, except as 
specifically provided for in other units. This unit includes all labor 
required in the repair and/or replacement of streets, roads, drives, 
fences, lawns, shrubbery, watermains, pipes, pipelines and contents, 
underground power and telephone facilities, buried sewerage and drainage 
facilities, and any other property damaged during the plowing of the 
cable, except as specifically provided for in other units.

    Note: Where in the judgment of the Owner greater than normal 
difficulty will be involved in plowing because of the presence of 
underground facilities of other utilities, this unit will be suffixed by 
the letter ``T''. This will be applicable only in those areas 
predesignated by the Owner on the detail maps herein. All plowing 
outside of the predesignated area on the map, regardless of the 
difficulty in placement actually experienced, will be inventoried as the 
regular UR1-S (D) units. If field conditions show the existence of rock 
to prevent the placing of the cable in soil to the depth required in the 
specifications the Owner may specify UR2-R units. Where more than one 
cable is to be installed in the slot, the UR1-S unit designation should 
be modified by a suffix corresponding to the number of cables installed. 
For example, UR1-S (D) 3c for 3 cables plowed at one time.

    UR2-S  (D&W) Trenching Assembly Unit, Soil--Consists of one (1) 
lineal foot of trenching in soil, measured parallel to the surface of 
the ground, to a specified depth (D) and width (W), in inches, including 
the excavation, and backfilling and compacting. This unit includes all 
labor required in the repair and/or replacement of streets, roads, 
drives, fences, lawns, shrubbery, watermains, pipes, pipelines and 
contents, underground power and telephone facilities, buried sewerage 
and drainage facilities, and any other property damaged by the 
trenching, except as specifically provided for in other units.


[[Page 408]]


    Note: Where in the judgment of the Owner greater than normal 
difficulty will be involved in trenching because of the presence of 
underground facilities of other utilities, this unit will be suffixed by 
the letter ``T''. This will be applicable only in those areas 
predesignated by the Owner on the detail maps herein. Where more than 
one cable is to be installed in the trench, the regular UR2-S unit 
designation should be modified by a suffix corresponding to the 
construction drawing for the type of cable placement desired.

    UR2-R  (D&W) Trenching Assembly Unit, Rock--Consists of one (1) 
lineal foot of trenching in rock, measured parallel to the surface of 
the ground, to specified depth (D) and width (W), in inches, including 
the excavation, and backfilling and compacting to place cable to the 
depth specified in the Specifications. This unit will be specified by 
the Owner only when field conditions at the site show the existence of 
rock at a depth preventing the placing of the cable in soil to the 
depths required in the Specifications. This unit includes all labor 
required in the repair and/or replacement of streets, roads, drives, 
fences, lawns, shrubbery, watermains, pipes, pipelines and contents, 
underground power and telephone facilities, buried sewerage and drainage 
facilities, and any other property damaged by the trenching, except as 
specifically provided for in other units. This unit does not include 
underground cable facilities installed in the trench or cable bedding 
assembly units, when required.
    UR-3  Cable Bedding Assembly Unit--Consists of the installation of 
one (1) lineal foot of a 2-inch bed of clean sand or soil placed in the 
trench under the cable and a 4-inch layer of clean sand or soil backfill 
over the cable to the width of the trench.

    Note: The exact location and number of units shall be determined by 
the Owner after the trenches are open in those areas where rock or other 
conditions make special bedding necessary.

    UR-4a  Pavement Assembly Unit, Asphalt--Consists of the labor 
necessary to remove and restore one (1) lineal foot of asphalt pavement, 
measured along the route of the cable, including any trenching necessary 
to place the cable at the required depth. All work shall be performed in 
accordance with the requirements of State or local authorities.
    UR-4c  Pavement Assembly Unit, Concrete--Consists of the labor 
necessary to remove and restore one (1) lineal foot of concrete 
pavement, measured along the route of the cable, including any trenching 
necessary to place the cable at the required depth. All work shall be 
performed in accordance with the requirements of State or local 
authorities.
    UR-5  ( ) Underground Pipe Crossing Assembly Unit--Consists of the 
installation of one (1) lineal foot of steel pipe, of the inside 
diameter, in inches, specified in the last digit of the assembly unit 
designation, installed in place. This unit includes the pushing of pipe 
and any excavation, backfilling and tamping necessary for the 
installation of the pipe. The pipe will be installed at the depth 
specified by the Owner. The installation of underground cable in the 
pipe is not included in this unit.
    UR6  Underground Nonpipe Crossing Assembly Unit--Consists of the 
labor in providing a hole in soil one (1) foot in length of a diameter 
sufficient to accommodate the cable to be installed therein. The depth 
of the hole below the surface of the ground shall be specified by the 
Owner. This unit includes any excavation, backfilling and tamping 
necessary for the installation. This unit may be used where the 
permanent installation of a steel pipe under the UR-5 unit is not 
required. The installation of underground cable in the pipe is not 
included in this unit.

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                    Construction Units--Line Changes

    The general heading of Line Changes applies to the changing of 
existing lines or portions thereof from their existing phasing, wire 
size, and type to new phasing, wire size, and type and the removal of 
existing lines or portions thereof and replacing with new lines in close 
proximity thereto. In general line changes involve three types of 
assembly units as follows:
    Section H--Conversion assembly units;
    Section I--Removal assembly units;
    Section N--New construction assembly units on existing lines or in 
replacing lines.
    The assembly units that are included in Sections H, I, and N are 
defined by symbols and descriptions which follow together with the 
applicable descriptions included under New Construction. Where the 
descriptions are not correct or sufficiently explicit, or when special 
units are not covered by Construction Drawings, descriptions have been 
provided by the Owner in the respective sections.
    Work included in these sections shall be performed under a schedule 
of deenergization and operating procedures as set forth by the Owner at 
the time of release of any Section involving work on existing lines.
    The Contractor will so plan and perform its work that it will be 
possible to safely reenergize all lines involved at the expiration of 
the time limits set up in the schedule to resume service to all 
consumers being served

[[Page 409]]

prior to deenergization. Prior to commencement of work each day on lines 
to be deenergized, and upon completion of work each day on such lines, 
the Contractor will notify the Owner thereof in writing or in such other 
manner as the circumstances permit.

                  Section H--Conversion Assembly Units

    Conversion assembly units are pole-top assemblies and cover the 
furnishing of all labor for changing an existing assembly unit to a new 
assembly unit, utilizing certain items of materials of the existing 
assembly unit on poles to be left in place. Any materials removed from 
the existing assembly units which are not required in the construction 
of the conversion assembly unit are to be reused by the Contractor in 
the construction of other assembly units, or returned to Owner's 
warehouse, as directed by the Owner. Conversion assembly units are 
specified by the prefix H with the new construction assembly unit 
designation shown first and the existing assembly unit designation shown 
last. For example, an H B1-A1 signifies the conversion of an existing A1 
assembly unit to a B1 assembly unit (as was defined in the description 
of construction assembly units). In this instance the Contractor 
utilizes the existing pin-type insulator, single upset bolt and neutral 
spool and installs the additional crossarm, crossarm pins, braces, 
machine bolt, carriage bolts, lag screw, and insulator supplied by the 
Owner required for the new unit. The Contractor transports the pole-top 
pin and two machine bolts to the warehouse or uses them on the Project 
as directed by the Owner.
    The Conversion assembly units also include the furnishing of all 
labor in the transferring, resagging and retying of conductors from one 
position on the pole to a different position on the pole where such 
transfers are required. Where replacement of conductor is required, the 
existing conductor will be removed under Section I and the new conductor 
installed under Section N.
    Where replacement of a pole is required, the existing pole and pole-
top assembly will be removed under Section I and the new pole and pole-
top assembly will be installed according to Section N and no H units 
will be involved.
    Conversion assemblies are listed in three subsections for converting 
pole-top assemblies from single to V phase, single to three phase, and V 
to three phase. The following descriptions apply to only those 
conversion units not sufficiently explicit:

------------------------------------------------------------------------
                 Unit                             Description           
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------

                 Subsection H (B-A)--1 Phase to V Phase

------------------------------------------------------------------------
               Unit No.                         Unit labor price        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------

                 Subsection H (C-A)--1 Phase to 3 Phase

------------------------------------------------------------------------
               Unit No.                         Unit labor price        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------

                 Subsection H (C-B)--V Phase to 3 Phase

------------------------------------------------------------------------
               Unit No.                         Unit labor price        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------

                    Section I--Removal Assembly Units

    Removal assembly units cover the furnishing of all labor for the 
removal of existing units of construction from existing lines, 
disassembling into material items, and all labor and transportation for 
the returning of all materials to the warehouse of the Owner in an 
orderly manner or transporting elsewhere to the site of the Project for 
reuse in the prosecution of this Contract as directed by the Owner.
    The unit removal prices shall include all labor required to 
reinstall in accordance with specifications any conductors temporarily 
detached. The Contractor will reinstall at his own expense any other 
units removed by him for his own convenience.
    The removal units are specified by the prefix I and followed by the 
assembly unit designation of existing assembly unit to be removed. For 
example, an I-A1 signifies the removal of an A1 assembly unit. The 
following special notes apply to specific removal units:
    a. Poles. All poles of the same height, regardless of pole class, 
are designated by the same unit. Thus an I-30-foot pole signifies the 
removal of a 30-foot pole of any class. The Contractor is not required 
under this unit to remove from the pole any ground wire or pole 
numbering attached to the pole. This unit includes the refilling and 
tamping of holes in a workmanlike manner unless they are to be reused.
    b. Pole-top Assemblies. The unit of removal of pole-top assemblies 
includes, in addition to the removal of the assembly itself, any 
necessary handling, resagging, and retying of conductors in those cases 
where an existing pole-top assembly will be removed and replaced by a 
new pole-top assembly and where any existing conductor is to be reused.
    The unit of removal of pole-top assemblies also includes any holding 
or handling of mainline or tap conductors at tap lines, angles, and 
deadends where such is involved, and the reinstalling of such conductor 
in accordance with the Specifications; for example, an I-A5-4 will 
include the disconnection

[[Page 410]]

of the tap conductors, snubbing off the tap line at the nearest 
practical point and the reconnection and resagging of these tap 
conductors if necessary to the new tap assembly when installed. The new 
unit of construction, however, will be specified separately in Section 
N.
    c. Conductor. The conductor removal unit covers the removal of 1,000 
feet of conductor or cable and reeling or coiling it in a workmanlike 
manner in such a way that it can be reused by the Contractor or the 
Owner. The Owner will furnish to the Contractor reels if it is to be 
returned to the Owner's warehouse on reels. The removal unit for each 
size of conductor or cable is shown by the prefix I followed by D and 
the conductor or cable type; thus an I-D 6ACWC signifies the removal 
unit for 1,000 feet of 6 A Copperweld-copper conductor.
    d. Guys. All guys regardless of length, type of attachment, or size 
of guy strand are specified by the same unit; thus an I-E signifies the 
removal of any guy.
    e. Anchors. Only anchor rods are to be removed by the Contractor in 
anchor removal units. The anchors will be left in the ground; thus an I-
F signifies the removal of any anchor rod. If the rod cannot be 
unscrewed, the end of the rod shall either be cut off or bent down so 
that the rod will be at least 18 inches below ground.
    f. Transformers. The unit for removal of transformer assembly units 
is divided into two sections, (1) Conventional Transformer Assembly, and 
(2) Self-protected Transformer Assembly. Only one unit is specified for 
each type, and all sizes of transformers from 1 to 15 kVA within each 
group will be covered by the same unit. ``Self-protected'' refers to 
transformers where all protective equipment is mounted on or within the 
transformer. ``Conventional'' refers to transformers where protective 
equipment is mounted separately from the transformer. The unit is 
designated by the prefix I followed by the description of the unit to be 
removed; thus, I-G Conventional signifies the removal of a conventional 
transformer assembly for any size transformer from 1 to 15 kVA.
    g. Secondary Units. The unit for removal of secondary assemblies 
includes, in addition to the removal of the assembly itself, all 
necessary handling such as untying, resagging, and retying of secondary 
conductor or cables where existing secondary conductor or cable is to be 
reused.
    In addition, the unit for removal of the secondary assembly includes 
the handling or holding of any conductor at tap lines where such is 
involved, and the reinstalling of such tap conductor in accordance with 
the Specifications.
    h. Service Unit. The unit for removal of service assemblies 
includes, in addition to the removal of the assembly itself, all 
necessary handling such as untying, resagging, and retying of service 
conductor or cable where existing service conductor or cable is to be 
reused.
    The following descriptions apply only to those removal units not 
sufficiently explicit:

------------------------------------------------------------------------
                 Unit                             Description           
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------


------------------------------------------------------------------------
               Unit No.                         Unit labor price        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------

                      Section N--New Assembly Units

    The purpose of this section is to list complete new units of 
construction where such units are to be added to existing lines or 
installed in replacing lines.
    The units as covered by this section are the same as the units 
described in Construction Units--New Construction, except that these 
units are prefixed by the letter N.
    For example, an N40-6 unit covers the furnishing of all labor for 
the installation of a 40-6 pole either in an existing distribution line 
being operated by the Owner or in a new line being constructed to 
replace an existing distribution line being operated by the Owner.
    The following descriptions apply only to those new units not 
sufficiently explicit:

------------------------------------------------------------------------
                 Unit                             Description           
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------


------------------------------------------------------------------------
               Unit No.                         Unit labor price        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------

                               Acceptance

    The undersigned hereby accepts the foregoing Proposal of ____, dated 
____, to construct the rural electric Project ____19____ Line 
Extensions.

____ (Owner)
By ____ President
____ Secretary
____ Date of Contract

                             [End of clause]

Sec. 1726.344  [Reserved]



Sec. 1726.345  Certificate of contractor and indemnity agreement (line extensions), RUS Form 792b.

    The closeout form in this section shall be used when required by 
this part.

[[Page 411]]

   Certificate of Contractor and Indemnity Agreement (Line Extensions)

    ____, certifies that he is the ____ (title or designation), of ____ 
(name of contractor), the Contractor, in a contract dated ____ 19____ 
entered into between the Contractor and ____ (name of RUS Borrower) 
____, the Owner, for the construction of a rural electric Project 
(hereinafter referred to as Project), which bears the Project 
Designation ____ 19____ Line Extensions, and that he is authorized to 
and does make this Certificate and Indemnity Agreement on behalf of said 
Contractor in order to induce the Owner to make payment to the 
Contractor, in accordance with the provisions of the said contract.
    Undersigned further says that all persons who have furnished labor 
in connection with the Section of the Project represented by the Final 
Inventory dated ____, in the amount of $____, have been paid in full; 
that all manufacturers, materialmen and subcontractors which furnished 
any materials or services, or both, for the said Section of the Project 
have been paid in full; that no lien has been filed against the Project 
and no person has any right to claim any lien against the Project.
    Undersigned further says that if the Owner pays the Contractor the 
contract price for the said Section of the Project the Contractor will 
indemnify and hold harmless and does hereby undertake and agree to 
indemnity and hold harmless the Owner from any claim or lien arising out 
of the negligence or other fault of the Contractor in respect of the 
performance of the contract which may have been or may be filed against 
the Owner.
    ____ Signature of Contractor (President, Vice-President, Partner or 
Owner, or, if signed by other than one of foregoing, Power of Attorney 
signed by one of the foregoing should be attached. Indicate applicable 
designation.)

                             [End of clause]



Sec. 1726.346  Supplemental contract for additional project, RUS Form 792c.

    The form in this section shall be used when required by RUS Form 
201, 790, or 792.

              Supplemental Contract For Additional Project

Date ____
To: ____ Contractor
    Pursuant to Article I, Section 2 of the Contractor's Proposal dated 
____, for the rural electric Project ____, we request that you construct 
Additional Project No. ____, consisting of approximately the following 
system improvement and line extension work: ____.
    The Additional Project is to be constructed in accordance with all 
of the provisions of the Contractor's Proposal, except:
    1. The time for completion of the Additional Project shall be ____
    2. The prices for Construction Units for the Additional Project are 
attached.
    Please indicate your acceptance of the foregoing by signing below, 
return two signed copies and retain one copy.
Sincerely,
____ Owner
By ____ President, Vice President (strike out inapplicable designation.)

                               Acceptance:

____ Contractor
By ____ President, Vice President, Partner (strike out inapplicable 
          designation.)
Date ____

                             [End of clause]

Secs. 1726.347--1726.350  [Reserved]



Sec. 1726.351  Electric system construction contract (labor and materials), RUS Form 830.

    The contract form in this section shall be used when required by 
this part. This form refers to guide drawings, which do not contain 
requirements, and, hence, are not included in this part. The guide 
drawings are included in the printed form available from GPO (See 
Sec. 1726.300.).

       Electric System Construction Contract (Labor and Materials)

                   Notice And Instructions To Bidders

    1. Sealed proposals for the construction, including the supply of 
necessary labor, materials and equipment, of a rural electric project of 
____ (hereinafter called the ``Owner'') to be known as ____ Project will 
be received by the Owner on or before ____ o'clock ____ M., ____, 
19____, at its office at ____ at which time and place the proposals will 
be publicly opened and read. Any proposals received subsequent to the 
time specified will be promptly returned to the Bidder unopened.
    2. Description of Project: The Project will consist of 
approximately:

                 Overhead Distribution Line Construction

____ miles of ____ kV Single Phase Lines
____ miles of ____ kV V-Phase Lines
____ miles of ____ kV Three-Phase Lines
____ miles of secondary on secondary poles
____ miles of services for ____ consumers

[[Page 412]]

                   Underground Distribution Facilities

____ miles of ____ kV Single-Phase Construction
____ miles of ____ kV V-Phase Construction
____ miles of ____ kV Three-Phase Construction
____ miles of ____ Volt Secondary and Service
Construction for ____ Consumers.

           Distribution Line Changes, Conversion, and Removal

____ miles of ____

                     Transmission Line Construction

____ miles ____ kV; ____ miles ____ kV
____ miles ____ kV underbuild

                 Substations and Other Major Facilities

____ kVA ____ Voltage ____ Name

    This Project is located in ____ Counties, in the State(s) of ____ 
all as more fully described in the Plans, Specifications, Construction 
Drawings, and Contractor's Proposal therefore hereinafter referred to.
    3. Work on Energized Lines. Unless stated below all construction 
work including attachments to existing poles and line changes, is to be 
done with the line deenergized. The hours during which existing lines 
will be deenergized are shown in the Contractor's Proposal. 
Approximately ____ miles of the line changes are to be made with the 
lines energized and such lines are in the following locations or areas: 
____ and are more fully described in the Plans, Specifications, and 
Contractor's Proposal. For work in these locations the Bidder must 
provide personnel capable of working on energized lines. All such work 
shall be performed to meet at least the safety rules and regulations 
prescribed by the Owner for its own employees including the use of 
rubber gloves, hot sticks and associated protective equipment, a copy of 
which rules and regulations may be examined at the office of the Owner.
    4. Owner-Furnished Materials. The unit prices in the Contractor's 
Proposal should include provisions for Owner-Furnished Materials since 
as stated in Article I, Section 3 of the Contractor's Proposal, the 
value of the Owner-Furnished Materials, if any, will be deducted from 
payments to the Bidder for completed Construction Units.
    5. Obtaining Documents. The Plans, Specifications and Construction 
Drawings, together with all necessary forms and other documents for 
bidders may be obtained from the Owner, or from the Engineer ____ at the 
latter's office at ____ upon the payment of $____, which payment will 
not be subject to refund. The Plans, Specifications, and Construction 
Drawings may be examined at the office of the Owner or at the office of 
the Engineer. A copy of the Loan Contract (if the Project is to be 
financed, in whole or in part, pursuant to a loan contract) between the 
Owner and the United States of America acting through the Administrator 
of the Rural Utilities Service and of the loan contract between the 
Owner and any other lender may be examined at the office of the Owner. 
Each set of Plans, Specifications and Construction Drawings will have a 
serial number, given by the Engineer, and the number of each set with 
the name of the purchaser will be recorded by the Engineer. Bids will be 
accepted only from the original purchaser.
    6. Manner of Submitting Proposals. Proposals and all supporting 
instruments must be submitted on the forms furnished by the Owner and 
must be delivered in a sealed envelope addressed to the Owner. The name 
and address of the Bidder, its license number if a license is required 
by the State, and the date and hour of the opening of bids must appear 
on the envelope in which the Proposal is submitted. Proposals must be 
filled in in ink or typewritten. No alterations or interlineations will 
be permitted, unless made before submission, and initialed and dated.
    7. Familiarity with Conditions. Prior to the submission of the 
Proposal the Bidder shall make and shall be deemed to have made a 
careful examination of the site of the Project and of the Plans, 
Specifications, Construction Drawings, and forms of Contractor's 
Proposal and Contractor's Bond on file with the Secretary of the Owner 
and with the Engineer, and shall become informed as to the location and 
nature of the proposed construction, the transportation facilities, the 
kind and character of soil and terrain to be encountered, the kind of 
facilities required before and during the construction of the Project, 
general local conditions and all other matters that may affect the cost 
and time of completion of the Project. Bidders will be required to 
comply with all applicable statutes, regulations, etc., including those 
pertaining to the licensing of contractors, and the so-called ``Kick-
Back Statute'' (48 State. 948) and regulations issued pursuant thereto.
    8. Proposals will be accepted only from those prequalified bidders 
invited by the Owner to submit a proposal.
    9. Alternate Designs. The Owner reserves the right to confine its 
consideration of the several bids to one type of design regardless of 
alternate types of design which may be specified in the Plans and 
Specifications and offered in the Proposals.
    10. Proposals for Distribution and Transmission Facilities. If the 
Project includes both distribution and transmission facilities, bidders 
shall bid on both of the facilities and the Owner will evaluate the 
Proposals on the basis of low total bid for both facilities.
    11. The Time for Completion of Construction of the Project shall be 
as specified by the Engineer in the Proposal.

[[Page 413]]

    12. Bid Bond. Each Proposal must be accompanied by a Bid Bond in the 
form attached or a certified check on a bank that is a member of the 
Federal Deposit Insurance Corporation, payable to the order of the 
Owner, in an amount equal to ten percent (10%) of the maximum bid price. 
Each Bidder agrees, provided its Proposal is one of the three low 
Proposals, that, by filing its Proposal together with such Bid Bond or 
check in consideration of the Owner's receiving and considering such 
Proposals, said Proposal shall be firm and binding upon each such Bidder 
and such Bid Bond or check shall be held by the Owner until a Proposal 
is accepted and a satisfactory Contractor's Bond is furnished (where 
required) by the successful Bidder and such acceptance has been approved 
by the Administrator, or for a period not to exceed sixty (60) days from 
the date hereinbefore set for the opening of Proposals, whichever period 
shall be the shorter. If such Proposal is not one of the three low 
Proposals, the Bid Bond or check will be returned in each instance 
within a period of ten (10) days to the Bidder furnishing same.
    13. Contractor's Bond. The successful Bidder will be required to 
execute two additional counterparts of the Proposal and, for a Contract 
in excess of $100,000, to furnish a Contractor's Bond in triplicate in 
the form attached hereto with sureties listed by the United States 
Treasury Department as Acceptable Sureties, in a penal sum not less than 
the contract price.
    14. Failure to Furnish Contractor's Bond. Should the successful 
Bidder fail or refuse to execute such counterparts or to furnish a 
Contractor's Bond (where required) within ten (10) days after written 
notification of the acceptance of the Proposal by the Owner, the Bidder 
will be considered to have abandoned the Proposal. In such event, the 
Owner shall be entitled (a) to enforce the Bid Bond in accordance with 
its terms, or (b) if a certified check has been delivered with the 
Proposal, to retain from the proceeds of the certified check, the 
difference (not exceeding the amount of the certified check) between the 
amount of the Proposal and such larger amount for which the Owner may in 
good faith contract with another party to construct the Project. The 
term ``Successful Bidder'' shall be deemed to include any Bidder whose 
Proposal is accepted after another Bidder has previously refused or has 
been unable to execute the counterparts or to furnish a satisfactory 
Contractor's Bond (where required.)
    15. Contract is Entire Agreement. The Contract to be effected by the 
acceptance of the Proposal shall be deemed to include the entire 
agreement between the parties thereto, and the Bidder shall not claim 
any modifications thereof resulting from any representation or promise 
made at any time by any officer, agent or employee of the Owner or by 
any other person.
    16. Minor Irregularities. The Owner reserves the right to waive 
minor irregularities or minor errors in any Proposal, if it appears to 
the Owner that such irregularities or errors were made through 
inadvertence. Any such irregularities or errors so waived must be 
corrected on the Proposal in which they occur prior to the acceptance 
thereof by the Owner.
    17. Balanced Bid. The Owner reserves the right to reject any or all 
Proposals. The attention of Bidders is specially called to the 
desirability of a proper balance between prices for labor and materials 
and between the total prices for the respective Construction Units. Lack 
of such balance may be considered as a reason for rejecting a Proposal.
    18. Discrepancy in Unit Prices. Where the unit prices in the 
Contractor's Proposal are separated into three columns designated as 
``Labor,'' ``Materials,'' and ``Labor and Materials,'' and where a 
discrepancy appears between the sum shown in the ``Labor and Materials'' 
column and the correct addition of the sums appearing in the ``Labor'' 
column and the ``Materials'' column, the correct addition of the sums 
appearing in the ``Labor'' column and the ``Materials'' column shall 
control.
    19. Definition of Terms. The terms ``Administrator,'' ``Engineer,'' 
``Supervisor,'' ``Project,'' ``Completion of Construction,'' and 
``Completion of the Project'' as used throughout this Contract shall be 
as defined in Article VI, Section 1, of the Contractor's Proposal.
    20. The Owner Represents: a. If by provisions of the Contractor's 
Proposal the Owner shall have undertaken to furnish any materials for 
the construction of the Project, such materials are on hand at locations 
specified or if such materials are not on hand they will be made 
available by the Owner to the successful Bidder at the locations 
specified before the time such materials are required for construction.
    b. All easements and rights-of-way, except as shown on maps included 
in the Plans and Specifications, have been obtained from the owners of 
the properties across which the Project is to be constructed (including 
tenants who may reasonably be expected to object to such construction). 
The remaining easements and rights-of-way, if any, will be obtained as 
required to avoid delay in construction.
    c. All staking, except as shown on the maps included in the Plans 
and Specifications, has been completed and sufficient staking crews will 
be available to maintain stakes at all times in advance of construction.
    d. Where underground distribution construction is required, 
permission has been obtained from state and local highway and

[[Page 414]]

road authorities to install underground distribution power facilities 
and set pedestals, if any, on the highway and road right-of-way in the 
Project area. Notwithstanding such permission granted to the Owner, each 
Bidder is responsible for ascertaining that the equipment, methods of 
construction, and repair proposed to be used on the Project will meet 
all requirements of public authorities having jurisdiction over highway 
and road right-of-way. The successful Bidder will be required to furnish 
proof satisfactory to the Owner of compliance with this requirement. If 
required by highway or road authorities, the successful Bidder will 
furnish to such authorities a bond or meet other guaranty requirements 
to assure the prompt repair of all damages to highways and roads and 
their associated rights-of-way caused by the Bidder during construction 
of the Project. This requirement is in addition to and independent of 
the Contractor's Bond required under this Contract. The acceptance of a 
bid from any Bidder is not to be construed as approval of the Bidder's 
equipment or proposed construction methods by or on behalf of the 
highway and road authorities. Bidders may obtain information concerning 
the requirements of highway and road authorities by communicating with 
the following ____.
    e. All funds necessary for prompt payment for the construction of 
the Project will be available. If the Owner shall fail to comply with 
any of the undertakings contained in the foregoing representation or if 
any of such representations shall be incorrect, the Bidder will be 
entitled to an extension of time of completion for a period equal to the 
delay, if any, caused by the failure of the Owner to comply with such 
undertakings or by any such incorrect representation; provided the 
Bidder shall have promptly notified the Owner in writing of its desire 
to extend the time of completion in accordance with the foregoing; 
provided, however, that such extension, if any, of the time of 
completion shall be the sole remedy of the Bidder for the Owner's 
failure, because of conditions beyond the control and without the fault 
of the Owner, to furnish materials in accordance with subparagraph a. 
above.

Owner ____
By ____
____. 19____

                          Contractor's Proposal

(Proposal shall be submitted in ink or typewritten)

To: ____ (hereinafter called the ``Owner'')

                           Article I--General

    Section 1. Offer to Construct. The undersigned (hereinafter called 
the ``Bidder'') hereby proposes to receive and install such materials 
and equipment as may hereinafter be specified to be furnished by the 
Owner, and to furnish all other materials and equipment, all machinery, 
tools, labor, transportation and other means required to construct the 
rural electric project ____ in strict accordance with the Plans, 
Specifications and Construction Drawings for the prices hereinafter 
stated.
    The total length of the project lines shall be determined by taking 
the sum of all straight horizontal span distances between pole stakes or 
from center to center of poles, or centerline of structures, carrying 
conductors, plus the length of service drops, if any, measured 
horizontally from center of last pole to the point of attachment to the 
consumer's building.
    Section 2. Materials and Equipment. The Bidder agrees to furnish and 
use in the construction of the Project under this Proposal, in the event 
the Proposal is accepted, only such ``fully listed'' and ``conditionally 
listed'' materials and equipment as are included in the current ``List 
of Materials Acceptable for Use on Systems of RUS Electrification 
Borrowers,'' including revisions adopted prior to the Bid Opening. The 
use of ``conditionally listed'' materials and equipment requires prior 
consent by the Owner or Engineer. For distribution lines, the Bidder 
further agrees to furnish and use guy wire with ASTM Class ____ 
(Engineer to insert A or B) zinc coating.
    All leads on equipment such as transformers, reclosers, etc., shall 
be of #6 minimum copper conductivity using ____ (Engineer to insert 
standard soft drawn copper or aluminum alloy) conductor. All conductor 
ties on insulators shall be of the materials and methods shown in the 
following Tying Guide Drawings: ____ (Engineer to insert appropriate 
drawing numbers).
    Ground rods and butt-type pole grounding plates shall be ____ 
(Engineer to insert galvanized steel or copper).
    Underground primary cable shall have ____ coated copper neutral 
(Engineer to insert round or flat).
    For transmission lines, the Bidder further agrees to furnish and use 
guy wire, overhead ground wire, and pole ground wire with ASTM Class 
____ (Engineer to insert A, B, or C) zinc coating. Guy wire shall be the 
same size and grade as the overhead ground wire. Where overhead ground 
wire is not specified, the guy wire shall be ____ size, ____ grade.
    The Bidder further agrees to furnish and use poles, crossarms, and 
other timber products, of which the physical characteristics, method of 
treatment, type of preservative, instructions on inspection and general 
procedure shall be in accordance with RUS standards and requirements.
    Crossarms shall be ____ (Engineer to insert Douglas fir or Southern 
Yellow Pine), treated with ____ (Engineer to insert type of 
preservative.)

[[Page 415]]

    The Bidder agrees that the prices for poles, crossarms, and other 
timber products set forth herein shall include the cost of preservative 
treatment and inspection, insured warranty, or quality assurance. The 
Bidder further agrees to obtain from the supplier inspection and 
treatment reports or insured warranties, for checking against the 
delivered timber, and to submit such reports or warranties to the Owner 
as one of the prerequisites to monthly and final payments.
    Section 3. Owner-Furnished Materials. The Bidder understands and 
agrees that, if this Proposal is accepted, the Owner will furnish to the 
Bidder the material set forth in the attached ``List of Owner's 
Materials on Hand'' (see page ____) and the Bidder will give a receipt 
(see page ____) therefore in writing to the Owner. The Bidder, further, 
will on behalf of the Owner accept delivery of such of the materials set 
forth in the attached ``List of Materials Ordered by Owner but Not 
Delivered'' (see page ____) as may be subsequently delivered and will 
promptly forward to the Owner for payment the supplier's invoice, 
together with the Bidder's receipt in writing for such materials. The 
materials referred to are on hand at, or will be delivered to, the 
locations specified in the List and the Bidder will use such materials 
in constructing the Project.
    The value of the completed Construction Units certified by the 
Bidder each month pursuant to Article III, Section 1.a of the Proposal 
shall be reduced by an amount equal to the value of the materials 
installed by the Bidder during the preceding month which have been 
furnished by the Owner or the delivery of which has been accepted by the 
Bidder on behalf of the Owner. Only ninety percent (90%) of the 
remainder shall be paid prior to the Completion of the Project. The 
value of such materials shall be computed on the basis of the unit 
prices stated in the Lists. Materials, if any, not required for the 
Project, which have been furnished to the Bidder by the Owner or 
delivery of which has been accepted by the Bidder on behalf of the 
Owner, shall be returned to the Owner by the Bidder upon completion of 
construction of the Project. The value of all materials not installed in 
the Project nor returned to the Owner shall be deducted from the final 
payment to the Bidder.
    The Owner shall not be obligated to furnish materials in excess of 
the quantities, size, kind and type set forth in the attached Lists. If 
the Owner furnishes, and the Bidder accepts, materials in excess 
thereof, the values of such excess materials shall be their actual cost 
as stated by the Owner.
    Information on the shipping schedules of materials on the ``List of 
Materials Ordered by Owner But Not Delivered'' will be furnished to the 
Bidder as necessary during progress of the work. Upon delivery the 
Bidder shall promptly receive, unload, transport and handle all 
materials and equipment on the ``List of Materials Ordered by Owner But 
Not Delivered'' at its expense and shall be responsible for demurrage, 
if any.
    Section 4. Purchase of Materials Not Furnished By Owner. The Bidder 
will purchase all materials and equipment (other than Owner-furnished 
materials) outright and not subject to any conditional sales agreements, 
bailment, lease or other agreement reserving unto the seller any right, 
title or interest therein.
    Section 5. Proposal on Unit Basis. The Bidder understands and agrees 
that the various Construction Units on which bids are made are defined 
by symbols and descriptions in this Proposal, that all said bids are on 
a unit basis, and that the Owner may specify any number or combination 
of Construction Units that the Owner may deem necessary for the 
construction of the Project. Separate Construction Units are designated 
for each different arrangement which may be used in the construction of 
the Project. This Proposal is based on a consideration of each unit in 
place and includes only the materials listed on the corresponding 
Construction Drawings or description of unit where no drawing exists.
    Section 6. Description of Contract. The Notice and Instructions to 
Bidders and Plans attached hereto and made a part hereof, and the 
Specifications and Construction Drawings set forth in:
    RUS Bulletin 50-3, Specifications and Drawings for 12.5/7.2 kV Line 
Construction;
    RUS Form 803, Specifications and Drawings for 14.4/24.9 kV Line 
Construction;
    RUS Form 806, Specifications and Drawings for Underground Electric 
Distribution;
    RUS Bulletin 50-2, RUS Specifications T-805A, Electric Transmission 
Specifications and Drawings, 34.5 kV through 69 kV;
    RUS Bulletin 50-1, RUS Specification T-805B, Electric Transmission 
Specifications and Drawings for 115 kV through 230 kV; as applicable, 
which by this reference are incorporated herein, together with the 
Proposal and Acceptance constitute the Contract. The Plans, consisting 
of maps and special drawings, and approved modifications in standard 
specifications are attached hereto and identified as follows: --------
--.
    Section 7. Familiarity with Conditions. The Bidder has made a 
careful examination of the site of the Project to be constructed and of 
the Plans, Specifications, Construction Drawings, and form of 
Contractor's Bond attached hereto, and has become informed as to the 
location and nature of the proposed construction, the transportation 
facilities, the kind and character of soil and terrain to be 
encountered, and the kind of facilities required before and during the 
construction of the Project, and has become acquainted with the labor 
conditions, state and

[[Page 416]]

local laws, and regulations which would affect work on the proposed 
construction.
    Section 8. License. The Bidder warrants that a Contractor's License 
is ____ is not ____ required, and if required it posses Contractor's 
License No. ____ for the State of ____ in which the Project is located 
and said license expires on ____, 19____.
    Section 9. Warranty of Good Faith. The Bidder warrants that this 
Proposal is made in good faith and without collusion or connection with 
any person or persons bidding for the same work.
    Section 10. Warranty of Financial Resources. The Bidder warrants 
that it possesses adequate financial resources and agrees that in the 
event this Proposal is accepted and a Contractor's Bond is required, it 
will furnish a Contractor's Bond in the form attached hereto, in a penal 
sum not less than the maximum Contract price, with a surety or sureties 
listed by the United States Department of Treasury as Acceptance 
Sureties.
    In the event that the surety or sureties on the performance bond 
delivered to the Owner contemporaneously with the execution of the 
Contract or on any bond or bonds delivered in substitution thereof or in 
addition thereto shall at any time become unsatisfactory to the Owner or 
the Administrator, the Bidder agrees to deliver to the Owner another or 
an additional bond.
    Section 11. Taxes. The unit prices for Construction Units in this 
Proposal include provisions for the payment of all monies which will be 
payable by the Bidder or the Owner in connection with the construction 
of the Project on account of taxes imposed by any taxing authority upon 
the sale, purchase or use of materials, supplies and equipment, or 
services or labor of installation thereof, to be incorporated in the 
Project as part of such Construction Units. The Bidder agrees to pay all 
such taxes, except taxes upon the sale, purchase or use of owner-
furnished materials and it is understood that, as to owner-furnished 
materials, the values stated in the attached ``List of Owner's Materials 
on Hand'' and ``List of Materials Ordered by Owner But Not Delivered'' 
include taxes upon the sale, purchase or use of owner-furnished 
materials, if applicable. The Bidder will furnish to the appropriate 
taxing authorities all required information and reports pertaining to 
the Project, except as to the Owner-furnished materials.
    Section 12. Changes in Quantities. The Bidder understands and agrees 
that the quantities called for in this Proposal are approximate, and 
that the total number of units upon which payment shall be made shall be 
as set forth in the inventory. If the Owner changes the quantity of any 
unit or units specified in this Proposal by more than fifteen percent 
(15%) and the materials cost to the Bidder is increased thereby to an 
extent which would not be adequately compensated by application of the 
unit prices in this Proposal to the revised quantity of such unit or 
units, such change, to the extent of the quantities of such units in 
excess of such fifteen percent (15%) shall be regarded as a change in 
the construction within the meaning of Article II, Section 1(d) of this 
proposal.

                                        List of Owner's Materials on Hand                                       
----------------------------------------------------------------------------------------------------------------
                                                 Description                                           Extended 
                    Item \1\                     of material  Catalog No.    Quantity    Unit price     price   
----------------------------------------------------------------------------------------------------------------
                                                                                                                
    Total:                                                                                                      
Above Materials are Located at:                                                                                 
----------------------------------------------------------------------------------------------------------------
Notes: 1. Item corresponds with item in list of materials in construction drawings. Under Article I, Section 3, 
  the value of these materials will be deducted from payments to the Bidder for completed Construction Units.   


                              List of Materials Ordered by Owner But Not Delivered                              
----------------------------------------------------------------------------------------------------------------
                         Supplier    Scheduled                                                                  
       Item \1\          name and     delivery   Description  Catalog No.    Quantity    Unit price    Extended 
                         address        date     of material                                            price   
----------------------------------------------------------------------------------------------------------------
                                                                                                                
    Total:                                                                                                      
Above Material to be                                                                                            
 Delivered to:                                                                                                  
----------------------------------------------------------------------------------------------------------------
Notes: 1. Item corresponds with item in list of materials in construction drawings. Under Article I, Section 3, 
  the value of these materials will be deducted from payments to the Bidder for completed Construction Units.   

                        Article II--Construction

    Section 1. Time and Manner of Construction.
    a. The Bidder agrees to commence construction of the Project on a 
date (hereinafter called the ``Commencement Date'') which shall be 
determined by the Engineer

[[Page 417]]

after notice in writing from the Bidder that the Bidder has sufficient 
materials to warrant commencement and continuation of construction, but 
in no event will the Commencement Date be later than ________ calendar 
days after date of approval of the Contract by the Administrator. The 
Bidder further agrees to prosecute diligently and to complete 
construction in strict accordance with the Plans, Specifications and 
Construction Drawings within ________ (________) calendar days 
(excluding Sundays) after Commencement Date: Provided, however, that the 
Bidder will not be required to dig holes, set poles, install anchors, 
install underground conduit, perform any plowing for the installation of 
underground cable, or dig trenches if there are more than six (6) inches 
of frost on the ground nor to perform any construction on such days when 
in the judgment of the Engineer snow, rain, or wind, or the results of 
snow, rain, or frost make it impracticable to perform any operation of 
construction; provided further that the Bidder will not be required to 
perform any plowing for the installation of underground cable on public 
roads or highways if there are more than two (2) inches of frost in the 
ground. To the extent of the time lost due to the conditions described 
herein and approved in writing by the Engineer, the time of completion 
set out above will be extended if the Bidder makes a written request 
therefore to the Owner as provided in subsection b of this Section 1.
    b. The time for Completion of Construction shall be extended for the 
period of any reasonable delay which is due exclusively to causes beyond 
the control and without the fault of the Bidder, including Acts of God, 
fires, floods, inability to obtain materials and acts or omissions of 
the Owner with respect to matters for which the Owner is solely 
responsible: Provided, however that no such extension of time for 
completion shall be granted the Bidder unless within ten (10) days after 
the happening of any event relied upon by the Bidder for such an 
extension of time the Bidder shall have made a request therefore in 
writing to the Owner, and provided further that no delay in such time of 
completion or in the progress of the work which results from any of the 
above causes except acts or omissions of the Owner, shall result in any 
liability on the part of the Owner.
    c. The sequence of construction shall be as set forth below, the 
number or names being the designations of extensions or areas 
(hereinafter called the ``Sections'') corresponding to the numbers or 
names shown on the maps attached hereto, or if no Sections are set forth 
below, the sequence of construction shall be as determined by the 
Bidder, subject to the approval of the Engineer. ________
    d. The Owner, acting through the Engineer may from time to time 
during the progress of the construction of the Project make such 
changes, additions or subtractions from the Plans, Specifications, 
Construction Drawings, List of Materials and sequence of construction 
provided for in the previous paragraph which are part of the 
Contractor's Proposal as conditions may warrant: Provided, however, that 
if any change in the construction to be done shall require an extension 
of time, a reasonable extension will be granted if the Bidder shall make 
a written request therefore to the Owner within (10) days after any such 
change is made. And provided further, that if the cost to the Bidder of 
construction of the project shall be materially increased by any such 
change or addition, the Owner shall pay the Bidder for the reasonable 
cost thereof in accordance with a Construction Contract Amendment signed 
by the Owner and the Bidder, but no claim for additional compensation 
for any such change or addition will be considered unless the Bidder 
shall have made a written request therefore to the Owner prior to the 
commencement of work in connection with such change or addition.
    e. The Bidder will not perform any work hereunder on Sundays unless 
there is urgent need for such Sunday work and the Owner consents thereto 
in writing. The time for completion specified in subsection a of this 
Section 1 shall not be affected in any way by inclusion of this 
subsection nor by the Owner's consent or lack of consent to Sunday work 
hereunder.
    Section 2. Environmental Protection. The Bidder shall perform work 
in such a manner as to maximize preservation of beauty, consideration of 
natural resources and minimize marring and scarring of the landscape and 
silting of streams. The Bidder shall not deposit trash in streams or 
waterways, and shall not deposit herbicides or other chemicals or their 
containers in or near streams, waterways or pastures. The Bidder shall 
follow the criteria relating to environmental protection as specified 
herein by the Engineer.
    Section 3. Tools, Equipment, and Qualified Personnel. The Bidder 
agrees that in the event this Proposal is accepted it will make 
available for use in connection with the proposed construction all 
necessary tools and equipment and qualified superintendents and foremen.
    Section 4. Changes in Construction. The Bidder agrees to make such 
changes in construction previously erected in the Project by the Bidder 
as required by the Owner for prices arrived at as follows:
    a. For substations and other units where only a portion of the 
complete unit is affected by the change, the compensation for such 
change shall be as agreed upon in writing by the Bidder and the Owner 
prior to the commencement of work in connection with such change.

[[Page 418]]

    b. For all other units, the compensation for such change shall be 
the reasonable cost thereof as agreed upon by the Bidder and the Owner, 
but in no event shall it exceed two (2) times the labor price quoted in 
the Proposal for the installation of the unit to be changed. Such 
compensation shall be in lieu of any other payment for the installation 
and removal of the original unit. (If a new or replacing unit is 
installed, payment for such new or replacing unit shall be made as shown 
in the final inventory.)
    No payment shall be made to the Bidder for materials or labor 
involved in correcting errors or omissions on the part of the Bidder 
which result in construction not in accordance with the Plans and 
Specifications.
    Section 5. Construction Not in Proposal. The Bidder also agrees that 
when it is necessary to construct units not shown in the Proposal it 
will construct such units for a price arrived at as follows:
    a. The cost of materials shall be determined by the invoices.
    b. The cost of labor shall be the reasonable cost thereof, but in no 
event shall it exceed an amount determined by calculating the ratio of 
the total labor costs to the total material costs in the section of the 
Proposal involved, and multiplying the cost of materials for the unit in 
question by this ratio: Provided, however, that in respect of sections 
H, M, and N, the ratio shall be calculated for only those units of the 
section which are similar to the new unit for which a price is to be 
determined.
    Section 6. Supervision and Inspection.
    a. The Bidder shall cause the construction work on the Project to 
receive constant supervision by a competent superintendent (hereinafter 
called the ``Superintendent'') who shall be present at all times during 
working hours where construction is being carried on. The Bidder shall 
also employ, in connection with the construction of the Project, 
capable, experienced and reliable foremen and such skilled workmen as 
may be required for the various classes of work to be performed. 
Directions and instructions given to the Superintendent shall be binding 
upon the Bidder.
    b. The Owner reserves the right to require the removal from the 
Project of any employee of the Bidder if in the judgment of the Owner 
such removal shall be necessary in order to protect the interest of the 
Owner. The Owner or the Supervisor, if any, shall have the right to 
require the Bidder to increase the number of its employees and to 
increase or change the amount or kind of tools and equipment if at any 
time the progress of the work shall be unsatisfactory to the Owner or 
Supervisor; but the failure of the Owner or Supervisor to give any such 
directions shall not relieve the Bidder of its obligations to complete 
the work within the time and in the manner specified in this Proposal.
    c. The construction of the Project and all materials and equipment 
used therein, shall be subject to the inspection, tests, and acceptance 
by the Owner and the Administrator and the Bidder shall furnish all 
information required by the Owner or by the Administrator concerning the 
nature or source of any materials incorporated or to be incorporated in 
the Project. The Owner and the Administrator shall have the right to 
inspect all payrolls, invoices of materials, and other data and records 
of the Bidder and of any subcontractor, relevant to the construction of 
the Project. The Bidder shall provide all reasonable facilities 
necessary for such inspection and tests and shall maintain an office at 
the site of the Project, with telephone service where obtainable and at 
least one office employee to whom directions and instructions of the 
Owner may be delivered. Delivery of such directions or instructions in 
writing to the employee of the Bidder at such office shall constitute 
delivery to the Bidder. The Bidder shall have an authorized agent 
accompany the Engineer when final inspection is made and, if requested 
by the Owner, when any other inspection is made.
    d. In the event that the Owner, or the Administrator, shall 
determine that the construction contains or may contain numerous 
defects, it shall be the duty of the Bidder and the Bidder's Surety or 
Sureties, if any, to have an inspection made by an engineer approved by 
the Owner for the purpose of determining the exact nature, extent and 
location of such defects.
    e. The Engineer may recommend to the Owner that the Bidder suspend 
the work wholly or in part for such period or periods as the Engineer 
may deem necessary due to unsuitable weather or such other conditions as 
are considered unfavorable for satisfactory prosecution of the work or 
because of the failure of the Bidder to comply with any of the 
provisions of the Contract: Provided, however, that the Bidder shall not 
suspend work pursuant to this provision without written authority from 
the Owner so to do. The time of completion hereinabove set forth shall 
be increased by the number of days of any such suspension, except when 
such suspension is due to the failure of the Bidder to comply with any 
of the provisions of this Contract. In the event that work is suspended 
by the Bidder with the consent of the Owner, the Bidder before resuming 
work shall give the Owner at least twenty-four (24) hours notice thereof 
in writing.
    Section 7. Defective Materials and Workmanship.
    a. The acceptance of any materials, equipment (except Owner-
furnished materials) or any workmanship by the Owner or the Engineer 
shall not preclude the subsequent rejection thereof if such materials, 
equipment, or

[[Page 419]]

workmanship shall be found to be defective after delivery or 
installation, and any such materials, equipment or workmanship found 
defective before final acceptance of the construction shall be replaced 
or remedied, as the case may be, by and at the expense of the Bidder. 
Any such condemned material or equipment shall be immediately removed 
from the site of the Project by the Bidder at the Bidder's expense. The 
Bidder shall not be entitled to any payment hereunder so long as any 
defective materials, equipment or workmanship in respect to the Project, 
of which the Bidder shall have had notice, shall not have been replaced 
or remedied, as the case may be.
    b. Notwithstanding any certificate which may have been given by the 
Owner or the Engineer, if any materials, equipment (except Owner-
furnished materials) or any workmanship which does not comply with the 
requirements of this Contract shall be discovered within one (1) year 
after Completion of Construction of the Project, the Bidder shall 
replace such defective materials or equipment or remedy any such 
defective workmanship within thirty (30) days after notice in writing of 
the existence thereof shall have been given by the Owner. If the Bidder 
shall be called upon to replace any defective materials or equipment or 
to remedy defective workmanship as herein provided, the Owner, if so 
requested by the Bidder shall deenergize that section of the Project 
involved in such work. In the event of failure by the Bidder so to do, 
the Owner may replace such defective materials or equipment or remedy 
such defective workmanship, as the case may be, and in such event the 
Bidder shall pay to the Owner the cost and expense thereof.

               Article III--Payments and Release of Liens

    Section 1. Payments to Bidder
    a. Within the first fifteen (15) days of each calendar month, the 
Owner shall make partial payment to the Bidder for construction 
accomplished during the preceding calendar month on the basis of 
completed Construction Units furnished and certified to by the Bidder, 
recommended by the Engineer and approved by the Owner solely for the 
purposes of payment: Provided, however, that such approval shall not be 
deemed approval of the workmanship or materials. Only ninety percent 
(90%) of each such estimate approved during the construction of the 
Project shall be paid by the Owner to the Bidder prior to Completion of 
the Project: Provided, however, that at any time after work, which, in 
the sole determination of the Engineer, amounts to fifty percent (50%) 
of the maximum Contract price has been completed, the Owner may elect, 
in lieu of paying ninety percent (90%) of each such subsequent estimate, 
to pay each such subsequent estimate in full. Upon completion by the 
Bidder of the construction of the Project, the Engineer will prepare an 
inventory of the Project showing the total number and character of 
Construction Units and, after checking such inventory with the Bidder, 
will certify it to the Owner. Upon the approval by the Owner and the 
Administrator of a Certificate of Completion--Contract Construction, RUS 
Form 187, showing the total cost of the construction performed, the 
Owner shall make payment to the Bidder of all amounts to which the 
Bidder shall be entitled thereunder which shall not have been paid: 
Provided, however, that such final payment shall be made not later than 
ninety (90) days after the date of Completion of Construction of the 
Project, as specified in the Certificate of Completion, unless withheld 
because of the fault of the Bidder.
    b. The Bidder shall be paid on the basis of the number of 
Construction Units actually installed at the direction of the Owner 
shown by the inventory based on the staking sheets or structure lists; 
Provided, however, that the total cost shall not exceed the maximum 
Contract price for the construction of the Project as set forth in the 
Acceptance plus the costs of any additional change orders, unless such 
excess shall have been approved in writing by the Owner.
    c. Notwithstanding the provisions of Section 1.a above, the Bidder 
may, by giving written notice thereof to the Owner, elect to receive 
payment in full for any Section of the Project upon:
    (1) completion of such Section as certified by the Engineer and 
approved by the Owner;
    (2) submission to the Owner of the releases of lien and the 
certificate referred to in Section 2 hereof;
    (3) approval by the Owner of the inventory in respect of such 
Section; and
    (4) submission to the Owner and the Administrator of the consent in 
writing by the Surety or Sureties, if any, on the Contractor's Bond to 
payment in full for such Section prior to Completion of the Project. If 
no Sections are designated in Article II, Section 1c, the term 
``Section'' shall mean for purposes of this subsection c and Article IV, 
Section 3b only, a part of the Project as designated by the Owner which 
represents at least twenty-five percent (25%) of the maximum Contract 
price as stated in Article III, Section 1, and which is capable of being 
energized and operated by the Owner.
    d. Interest at the rate of ____ percent \1\ (____%) per annum shall 
be paid by the Owner to the Bidder on all unpaid balances

[[Page 420]]

due on monthly estimates, commencing fifteen (15) days after the due 
date; provided the delay in payment beyond the due date is not caused by 
any condition within the control of the Bidder. The due date for 
purposes of such monthly payment or interest on all unpaid balances 
shall be the fifteenth (15) day of each calendar month provided (1) the 
Bidder on or before the fifth (5) day of such month shall have submitted 
its certification of Construction Units completed during the preceding 
month and (2) the Owner on or before the fifteenth (15) day of such 
month shall have approved such certification. If, for reasons not due to 
the Bidder's fault, such approval shall not have been given on or before 
the fifteenth (15) day of such month, the due date for purposes of this 
subsection d shall be the fifteenth (15) day of such month 
notwithstanding the absence of the approval of the certification.
---------------------------------------------------------------------------

    \1\ The Owner shall insert a 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.
---------------------------------------------------------------------------

    e. Interest at the rate of ____ percent \2\ (____%) per annum shall 
be paid by the Owner to the Bidder on the final payment for the Project 
or any completed Section thereof, commencing fifteen (15) days after the 
due date. The due date for purposes of such final payment or interest on 
all unpaid balances shall be the date of approval by the Owner of all of 
the documents requiring such approval, as a condition precedent to the 
making of final payment, or ninety (90) days after the date of 
Completion of Construction of the Project, as specified in the 
Certificate of Completion, whichever date is earlier.
---------------------------------------------------------------------------

    \2\ See Footnote 1.
---------------------------------------------------------------------------

    f. No payment shall be due while the Bidder is in default in respect 
of any of the provisions of this Contract and the Owner may withhold 
from the Bidder the amount of any claim by a third party against either 
the Bidder or the Owner based upon an alleged failure of the Bidder to 
perform the work hereunder in accordance with the provisions of this 
Contract.
    Section 2. Release of Liens and Certificate of Contractor. (See RUS 
Form 224, Waiver and Release of Lien and RUS Form 231, Certificate of 
Contractor). Upon the completion by the Bidder of the construction of 
the Project (or any Section thereof if the Bidder shall elect to receive 
payment in full for any Section when completed as provided above) but 
prior to final payment to the Bidder, the Bidder shall deliver to the 
Owner, in duplicate, releases of all liens and of rights to claim any 
lien, in the form attached hereto from all manufacturers, material 
suppliers, and subcontractors furnishing services or materials for the 
Project or such Section and a certificate in the form attached hereto to 
the effect that all labor used on or for the Project or such Section has 
been paid and that all such releases have been submitted to the Owner.
    Section 3. Payments to Material Suppliers and Subcontractors. The 
Bidder shall pay each material supplier, if any, within five (5) days 
after receipt of any payment from the Owner, the amount thereof allowed 
the Bidder for and on account of materials furnished or construction 
performed by each material supplier or each subcontractor.

            Article IV--Particular Undertakings of the Bidder

    Section 1. Protection to Persons and Property. The Bidder shall at 
all times take all reasonable precautions for the safety of employees on 
the work and of the public, and shall comply with all applicable 
provisions of Federal, State, and Municipal safety laws and building and 
construction codes, as well as the safety rules and regulations of the 
Owner. All machinery and equipment and other physical hazards shall be 
guarded in accordance with the ``Manual of Accident Prevention in 
Construction'' of the Associated General Contractors of America unless 
such instructions are incompatible with Federal, State, or Municipal 
laws or regulations.
    The following provisions shall not limit the generality of the above 
requirements:
    a. The Bidder shall at no time and under no circumstances cause or 
permit any employee of the Bidder to perform any work upon energized 
lines, or upon poles carrying energized lines, unless otherwise 
specified in the Notice and Instructions to Bidders.
    b. The Bidder shall so conduct the construction of the Project as to 
cause the least possible obstruction of public highways.
    c. The Bidder shall provide and maintain all such guard lights and 
other protection for the public as may be required by applicable 
statutes, ordinances and regulations or by local conditions.
    d. The Bidder shall do all things necessary or expedient to properly 
protect any and all parallel, converging and intersecting lines, joint 
line poles, highways and any and all property of others from damage, and 
in the event that any such parallel, converging and intersecting lines, 
joint line poles, highways or other property are damaged in the course 
of the construction of the Project the Bidder shall at its own expense 
restore any or all of such damaged property immediately to as good a 
state as before such damage occurred.
    e. Where the right-of-way of the Project traverses cultivated lands, 
the Bidder shall limit the movement of its crews and equipment so as to 
cause as little damage as possible to crops, orchards or property and 
shall endeavor to avoid marring the lands. All fences which are 
necessarily opened or moved during the construction of the Project shall 
be replaced in as good condition as they were found and precautions 
shall be taken to prevent the escape of livestock. Except as otherwise 
provided in the descriptions of underground plowing and trenching 
assembly

[[Page 421]]

units, the Bidder shall not be responsible for loss of or damage to 
crops, orchards or property (other than livestock) on the right-of-way 
necessarily incident to the construction of the Project and not caused 
by negligence or inefficient operation of the Bidder. The Bidder shall 
be responsible for all other loss of or damage to crops, orchards, or 
property, whether on or off the right-of-way, and for all loss of or 
damage to livestock caused by the construction of the Project. The 
right-of-way for purposes of this said section shall consist of an area 
extending ____ feet on both sides of the center line of the poles along 
the route of the Project lines, plus such area reasonably required by 
the Bidder for access to the route of the Project lines from Public 
roads to carry on construction activities.
    f. The Project, from the commencement of work to completion, or to 
such earlier date or dates when the Owner may take possession and 
control in whole or in part as hereinafter provided shall be under the 
charge and control of the Bidder and during such period of control by 
the Bidder all risks in connection with the construction of the Project 
and the materials to be used therein shall be borne by the Bidder. The 
Bidder shall make good and fully repair all injuries and damages to the 
Project or any portion thereof under the control of the Bidder by reason 
of any act of God or other casualty or cause whether or not the same 
shall have occurred by reason of the Bidder's negligence.
    (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.
    (ii) To the maximum extent permitted by law, Bidder shall defend, 
indemnify, and hold harmless Owner and Owner's directors, officers, and 
employees from all liens and claims filed or asserted against Owner, its 
directors, officers, and employees, or Owner's property or facilities, 
for services performed or materials or equipment furnished by Bidder, 
its subcontractors and suppliers of any tier, and from all losses, 
demands, and causes of action arising out of any such lien or claim. 
Bidder shall promptly discharge or remove any such lien or claim by 
bonding, payment, or otherwise and shall notify Owner promptly when it 
has done so. If Bidder does not cause such lien or claim to be 
discharged or released by payment, bonding, or otherwise, Owner shall 
have the right (but shall not be obligated) to pay all sums necessary to 
obtain any such discharge or release and to deduct all amounts so paid 
from the amount due Bidder.
    (iii) Bidder shall provide to Owner's satisfaction evidence of 
Bidder's ability to comply with the indemnification provisions of 
subparagraphs i and ii above, which evidence may include but may not be 
limited to a bond or liability insurance policy obtained for this 
purpose through a licensed surety or insurance company.
    g. Any and all excess earth, rock, debris, underbrush and other 
useless materials shall be removed by the Bidder from the site of the 
Project as rapidly as practicable as the work progresses.
    h. Upon violation by the Bidder of any of the provisions of this 
section, after written notice of such violation given to the Bidder by 
the Engineer or the Owner, the Bidder shall immediately correct such 
violation. Upon failure of the Bidder so to do the Owner may correct 
such violation at the Bidder's expense: Provided, however, that the 
Owner may, if it deems it necessary or advisable, correct such violation 
at the Bidder's expense without such prior notice to the Bidder.
    i. The Bidder shall submit to the Owner monthly reports in duplicate 
of all accidents, giving such data as may be prescribed by the Owner.
    j. The Bidder shall not proceed with the cutting of trees or 
clearing of right-of-way without written notification from the Owner 
that proper authorization has been received from the owner of the 
property, and the Bidder shall promptly notify the Owner whenever any 
landowner objects to the trimming or felling of any trees or the 
performance of any other work on its land in connection with the Project 
and shall obtain the consent in writing of the Owner before proceeding 
in any such case.
    k. The Bidder will furnish, prior to the commencement of underground 
distribution construction, proof, satisfactory to the Owner, of 
compliance with requirements of highway and road authorities having 
jurisdiction, including without limitation, the furnishing of a bond or 
other guaranty, and approval by such authorities of the equipment and 
methods of construction and repair to be used by the Bidder.
    Section 2. Insurance. The Bidder shall take out and maintain 
throughout the period of this Agreement the following types and minimum 
amounts of insurance:
    a. Workers' compensation and employers' liability insurance, as 
required by law, covering all their employees who perform any of

[[Page 422]]

the obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to the workers' 
compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    b. Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    c. Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, nonowned, or hired, shall 
have limits for bodily injury or death of not less than $1 million per 
person and $1 million each occurrence, and property damage limits of $1 
million for each occurrence. This required insurance may be in a policy 
or policies of insurance, primary and excess including the umbrella or 
catastrophe form.
    The Owner shall have the right at any time to require public 
liability insurance and property damage liability insurance greater than 
those required in subsection ``b'' and ``c'' of this Section. In any 
such event, the additional premium or premiums payable solely as the 
result of such additional insurance shall be added to the Contract 
price.
    The Owner shall be named as Additional Insured on all policies of 
insurance required in subsections ``b'' and ``c'' of this Section.
    The policies of insurance shall be in such form and issued by such 
insurer as shall be satisfactory to the Owner. The Bidder shall furnish 
the Owner a certificate evidencing compliance with the foregoing 
requirements which shall provide not less than (30) days prior written 
notice to the Owner of any cancellation or material change in the 
insurance.
    Section 3. Delivery of Possession and Control to Owner.
    a. Upon written request of the Owner the Bidder shall deliver to the 
Owner full possession and control of any portion of the Project provided 
the Bidder shall have been paid at least ninety percent (90%) of the 
cost of construction of such portion. Upon such delivery of the 
possession and control of any portion of the Project to the Owner, the 
risk and obligations of the Bidder as set forth in Article IV, Section 
1f hereof with respect to such portion of the Project so delivered to 
the Owner shall be terminated; Provided, however, that nothing herein 
contained shall relieve the Bidder of any liability with respect to 
defective materials and workmanship as contained in Article II, Section 
6 hereof.
    b. Where the construction of a Section as hereinbefore defined in 
Article II, Section 1c and Article III, Section 1c shall have been 
completed by the Bidder, the Owner agrees, after receipt of a written 
request from the Bidder, to accept delivery of possession and control of 
such Section upon the issuance by the Engineer of a written statement 
that the Section has been inspected and found acceptable by the 
Engineer. Upon such delivery of the possession and control of any such 
Section to the Owner, the risk and obligations of the Bidder as set 
forth in Article IV, Section 1f hereof with respect to such Section so 
delivered to the Owner shall be terminated: Provided, however, that 
nothing herein contained shall relieve the Bidder of any liability with 
respect to defective materials or workmanship as contained in Article 
II, Section 6 hereof.
    Section 4. Energizing the Project.
    a. Prior to Completion of the Project the Owner, upon written notice 
to the Bidder, may test the construction thereof by temporarily 
energizing any portion or portions thereof. During the period of such 
test the portion or portions of the Project so energized shall be 
considered as within the possession and control of the Owner and 
governed by the provisions of Section 3 of this Article. Upon written 
notice to the Bidder by the Owner of the completion of such test and 
upon deenergizing the lines involved therein said portion or portions of 
the Project shall be considered as returned to the possession and 
control of the Bidder unless the Owner shall elect to continue 
possession and control in the manner provided in Section 3 of this 
Article.
    b. The Owner shall have the right to energize permanently any 
portion or portions of the Project delivered to its possession and 
control pursuant to the provisions of Section 3 of this Article.
    Section 5. Assignment of Guarantees. All guarantees of materials and 
workmanship running in favor of the Bidder shall be transferred and 
assigned to the Owner prior to the time the Bidder receives final 
payment.

                           Article V--Remedies

    Section 1. Completion on Bidder's Default. If default shall be made 
by the Bidder or by any subcontractor in the performance of any of the 
terms of this Proposal, the Owner, without in any manner limiting its 
legal and equitable remedies in the circumstances, may serve upon the 
Bidder and the Surety or Sureties, if any, upon the Contractor's Bond or 
Bonds a written notice requiring the Bidder to cause such default to be 
corrected forthwith. Unless within twenty (20) days

[[Page 423]]

after the service of such notice upon the Bidder such default shall be 
corrected or arrangements for the correction thereof satisfactory to 
both the Owner and the Administrator shall be made by the Bidder or its 
Surety or Sureties, if any, the Owner may take over the construction of 
the Project and prosecute the same to completion by Contract or 
otherwise for the account and at the expense of the Bidder, and the 
Bidder and its Surety or Sureties, if any, shall be liable to the Owner 
for any cost or expense in excess of the Contract price occasioned 
thereby. In such event the Owner may take possession of and utilize, in 
completing the construction of the Project, any materials, tools, 
supplies, equipment, appliances, and plant belonging to the Bidder or 
any of its subcontractors, which may be situated at the site of the 
Project. The Owner in such contingency may exercise any rights, claims 
or demands which the Bidder may have against third persons in connection 
with this Contract and for such purpose the Bidder does hereby assign, 
transfer and set over unto the Owner all such rights, claims and 
demands.
    Section 2. Liquidated Damages. The time of the Completion of 
Construction of the Project is of the essence of the Contract. Should 
the Bidder neglect, refuse or fail to complete the construction within 
the time herein agreed upon, after giving effect to extensions of time 
if any, herein provided, then, in that event and in view of the 
difficulty of estimating with exactness damages caused by such delay, 
the Owner shall have the right to deduct from and retain out of such 
moneys which may be then due, or which may become due and payable to the 
Bidder the sum of ________ dollars (________) per day for each and every 
day that such construction is delayed in its completion beyond the 
specified time, as liquidated damages and not as a penalty; if the 
amount due and to become due from the Owner to the Bidder is 
insufficient to pay in full any such liquidated damages, the Bidder 
shall pay to the Owner the amount necessary to effect such payment in 
full: Provided, however, that the Owner shall promptly notify the Bidder 
in writing of the manner in which the amount retained, deducted or 
claimed as liquidated damages was computed.
    Section 3. Cumulative Remedies. Every right or remedy herein 
conferred upon or reserved to the Owner or the Government or the 
Administrator shall be cumulative, shall be in addition to every right 
and remedy now or hereafter existing at law or in equity or by statute 
and the pursuit of any right or remedy shall not be construed as an 
election: Provided, however, that the provisions of Section 2 of this 
Article shall be the exclusive measure of damages for failure by the 
Bidder to complete the construction of the Project within the time 
herein agreed upon.

                        Article VI--Miscellaneous

    Section 1. Definitions.
    a. The term ``Administrator'' shall mean the Administrator of the 
Rural Utilities Service of the United States of America and his duly 
authorized representative or any other person in whom or authority in 
which may be vested the duties and functions which the Administrator is 
now authorized by law to perform.
    b. The term ``Engineer'' shall mean the Engineer employed by the 
Owner, to provide engineering services for the Project and said 
Engineer's duly authorized assistants and representatives.
    c. The term ``Supervisor'' shall mean the person, if any, appointed 
by the Administrator as the representative of the Government under the 
provisions of the Loan Contract providing for such appointment in 
special cases. The term is limited to such special representative of the 
Government, if any, who is responsible exclusively to the Administrator 
and does not refer to the Manager or any other person employed by the 
Owner and responsible to it.
    d. The term ``Project'' shall mean the rural electric system, or 
portion thereof, described in the Plans and Specifications, Construction 
Drawings.
    e. The term ``Completion of Construction'' shall mean full 
performance by the Bidder's obligations under the Contract and all 
amendments and revisions thereof except the Bidder's obligations in 
respect of (1) Releases of Liens and Certificate of Contractor under 
Article III, Section 2 hereof, (2) the inventory referred to in Article 
III, Section 1 hereof, and (3) other final documents. The term 
``Completion of the Project'' shall mean full performance by the Bidder 
of the Bidder's obligations under the Contract and all amendments and 
revisions thereof. The Certificate of Completion, signed by the Engineer 
and approved in writing by the Owner, shall be the sole and conclusive 
evidence as to the date of Completion of Construction and as to the fact 
of Completion of the Project.
    Section 2. Materials and Supplies. In the performance of this 
contract there shall be furnished only such unmanufactured articles, 
materials, and supplies as have been mined or produced in the United 
States, Mexico, or Canada, and only such manufactured articles, 
materials, and supplies as have been manufactured in the United States 
substantially all from articles, materials, or supplies mined, produced 
or manufactured, as the case may be, in the United States, Mexico, or 
Canada; provided that other articles, materials, or supplies may be used 
in the event and to the extent that the Administrator shall expressly in 
writing authorize such use pursuant to the provisions of the Rural 
Electrification Act of 1938, being Title

[[Page 424]]

IV of Public Resolution No. 122, 75th Congress, approved June 21, 1938. 
The Seller agrees to submit to the Purchaser such certificates with 
respect to compliance with the foregoing provision as the Administrator 
from time to time may require.
    Section 3. Patent Infringement. The Bidder shall hold harmless and 
indemnify the Owner from any and all claims, suits and proceedings for 
the infringement of any patent or patents covering any materials or 
equipment used in construction of the Project.
    Section 4. Permits for Explosives. All permits necessary for the 
handling or use of dynamite or other explosives in connection with the 
construction of the Project shall be obtained by and at the expense of 
the Bidder.
    Section 5. Compliance with Statutes and Regulations. The Bidder 
shall comply with all applicable statutes, ordinances, rules, and 
regulations pertaining to the work. The Bidder acknowledges that it is 
familiar with the Rural Electrification Act of 1936, as amended, the so-
called ``Kick-Back'' Statute (48 Stat. 948), and regulations issued 
pursuant thereto, and 18 U.S.C. Secs. 287, 1001, as amended. The Bidder 
understands that the obligations of the parties hereunder are subject to 
the applicable regulations and orders of Governmental Agencies having 
jurisdiction in the premises.
    Section 6. Equal Opportunity Provisions.
    (a) Bidder's Representations.
    The Bidder represents that:
    It has ____, does not have ____, 100 or more employees, and if it 
has, that it has ____, has not ____ furnished the Equal Employment 
Opportunity-Employers Information Report EEO-1, Standard Form 100, 
required of employers with 100 or more employees pursuant to Executive 
Order 11246 and Title VII of the Civil Rights Act of 1964.
    The Bidder agrees that it will obtain, prior to the award of any 
subcontract for more than $10,000 hereunder to a subcontractor with 100 
or more employees, a statement, signed by the proposed subcontractor, 
that the proposed subcontractor has filed a current report on Standard 
Form 100.
    The Bidder agrees that if it has 100 or more employees and has not 
submitted a report on Standard Form 100 for the current reporting year 
and that if this Contract will amount to more than $10,000, the Bidder 
will file such report, as required by law, and notify the owner in 
writing of such filing prior to the Owner's acceptance of this Proposal.
    (b) Equal Opportunity Clause. During the performance of this 
Contract, the Bidder agrees as follows:
    (1) The Bidder will not discriminate against any employee or 
applicant for employment because of race, color, religion, sex or 
national origin. The Bidder will take affirmative action to ensure that 
applicants are employed, and that employees are treated during 
employment without regard to their race, color, religion, sex or 
national origin. Such action shall include, but not be limited to, the 
following: Employment, upgrading, demotions or transfer; recruitment or 
recruitment advertising; layoff or termination; rates of pay or other 
forms of compensation; and selection of training, including 
apprenticeship. The Bidder agrees to post in conspicuous places, 
available to employees and applicants for employment, notices to be 
provided setting forth the provisions of this Equal Opportunity Clause.
    (2) The Bidder will, in all solicitations or advertisements for 
employees placed by or on behalf of the Bidder, state that all qualified 
applicants will receive consideration for employment without regard to 
race, color, religion, sex or national origin.
    (3) The Bidder will send to each labor union or representative of 
workers, with which it has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or workers' representative of the Bidder's commitments under 
this section, and shall post copies of the notice in conspicuous places 
available to employees and applicants for employment.
    (4) The Bidder will comply with all provisions of Executive Order 
11246 of September 24, 1965, and the rules, regulations and relevant 
orders of the Secretary of Labor.
    (5) The Bidder will furnish all information and reports required by 
Executive Order 11246 of September 24, 1965, and by rules, regulations, 
and orders of the Secretary of Labor, or pursuant thereto, and will 
permit access to its books, records, and accounts by the administering 
agency and the Secretary of Labor for purposes of investigation to 
ascertain compliance with such rules, regulations, and orders.
    (6) In the event of the Bidder's noncompliance with the Equal 
Opportunity Clause of this Contract or with any of the said rules, 
regulations, or orders, this Contract may be canceled, terminated, or 
suspended in whole or in part, and the Bidder may be declared ineligible 
for further Government contracts or federally assisted construction 
contracts in accordance with procedures authorized in Executive Order 
11246 of September 24, 1965, and such other sanctions may be imposed and 
remedies invoked as provided in Executive Order 11246 of September 24, 
1965, or by rule, regulation, or order of the Secretary of Labor, or as 
provided by law.
    (7) The Bidder will include this Equal Opportunity Clause in every 
subcontract or purchase order unless exempted by the rules, regulations, 
or order of the Secretary of Labor issued pursuant to Section 204 of 
Executive Order 11246 of September 24, 1965, so that such provisions 
will be binding upon each subcontractor or vendor. The Bidder will take 
such action with respect to any

[[Page 425]]

subcontract or purchase order as the administering agency may direct as 
a means of enforcing such provisions, including sanctions for 
noncompliance; Provided, however, that in the event Bidder becomes 
involved in, or is threatened with, litigation with a subcontractor or 
vendor as a result of such direction by the administering agency, the 
Bidder may request the United States to enter into such litigation to 
protect the interests of the United States.
    (c) Certificate of Nonsegregated Facilities. The Bidder certifies 
that it does not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it does not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Bidder certifies further 
that it will not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it will not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Bidder agrees that a 
breach of this certification is a violation of the Equal Opportunity 
Clause in this Contract. As used in this certification, the term 
``segregated facilities'' means any waiting rooms, work areas, restrooms 
and washrooms, restaurants and other eating areas, timeclocks, locker 
rooms and other storage or dressing areas, parking lots, drinking 
fountains, recreation or entertainment areas, transportation, and 
housing facilities provided for employees which are segregated by 
explicit directive or are in fact segregated on the basis of race, 
color, religion, or national origin, because of habit, local custom, or 
otherwise. The Bidder agrees that (except where it has obtained 
identical certifications from proposed subcontractors for specific time 
periods) it will obtain identical certifications from proposed 
subcontractors prior to the award of subcontracts exceeding $10,000 
which are not exempt from the provisions of the Equal Opportunity 
Clause, and that it will retain such certifications in its files.
    Section 7. Franchises and Rights-of-Way. The Bidder shall be under 
no obligation to obtain or assist in obtaining: Any franchises, 
authorizations, permits or approvals required to be obtained by the 
Owner from Federal, State, County, Municipal or other authorities; any 
rights-of-way over private lands; or any agreements between the Owner 
and third parties with respect to the joint use of poles, crossings, or 
other matter incident to the construction and operation of the Project.
    Section 8. Nonassignment of Contract. The Bidder shall perform 
directly and without subcontracting not less than twenty-five percent 
(25%) of the construction of the Project, to be calculated on the basis 
of the total Contract price. The Bidder shall not assign the Contract 
effected by an acceptance of this Proposal or any interest in any funds 
that may be due or become due hereunder or enter into any contract with 
any person, firm or corporation for the performance of the Bidder's 
obligations hereunder or any part thereof, without the approval in 
writing of the Owner and of the Surety or Sureties, if any, on any bond 
furnished by the Bidder for the faithful performance of the Bidder's 
obligations hereunder. If the Bidder, with the consent of the Owner and 
any Surety or Sureties on the Contractor's Bond or Bonds, shall enter 
into a subcontract with any subcontractor for the performance of any 
part of this Contract, the Bidder shall be as fully responsible to the 
Owner and the Government for the acts and omissions of such 
subcontractor and of persons employed by such subcontractor as the 
Bidder would be for its own acts and omissions and those of persons 
directly employed by it.
    Section 9. Extension to Successors and Assigns. Each and all of the 
covenants and agreements herein contained shall extend to and be binding 
upon the successors and assigns of the parties hereto.
    Section 10. Contractor. Upon acceptance of this Proposal, the 
successful Bidder shall be the Contractor and all references in the 
Proposal to the Bidder shall apply to the Contractor.

________ (Bidder)
By ________ (President)
________ (Address)
Attest: ________ (Secretary)
Date ________

    The Proposal must be signed with the full name of the Bidder. If the 
Bidder is a partnership, the Proposal must be signed in the partnership 
name by a partner. If the Bidder is a corporation, the Proposal must be 
signed in the corporate name by a duly authorized officer and the 
corporate seal affixed and attested by the Secretary of the Corporation.

            Distribution Construction Units--New Construction

                          Section 1--Pole Units

    A pole unit consists of one pole in place. It does not include pole-
top assembly unit or other parts attached to the pole. The first two 
digits indicate the length of the pole; the third digit shows the 
classification per ANSI (Example: 35-5 means a pole 35 feet long, class 
5.)

Species of Timber: ________
    Kind of Preservative: (Check one)

1. Creosote ____; 2. Pentachlorophenol ____; 3. Copper Naphthenate ____; 
          4. Waterborne preservative--CCA ____ ACZA ____
    Method of Treatment: (Check one)

1. Pressure ____; 2. Thermal Process ____


[[Page 426]]


    Pole Plan Under Which the Poles are to be Furnished: (Check one)

1. Insured Warranted ____; 2. Independently Inspected ____; 3. Quality 
          Assured ____; 4. Either Insured Warranted, Independently 
          Inspected, or Quality Assured ____

(Engineer to complete above)

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------

Total, Section 1--____________

             Section A--Single Phase Pole Top Assembly Units

    A pole top assembly unit consists of the hardware, crossarms, and 
their appurtenances, insulators, etc., except tie wire, required to 
support the primary conductors. It does not include the pole. Crossarm 
pins include washer, nut, and locknut.

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
                                                                                                                
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Total, Section A--____________

               Section B--V Phase Pole Top Assembly Units

    A pole top assembly units consists of the hardware, crossarms, and 
their appurtenances, insulators, etc., except tie wire, required to 
support the primary conductors. It does not include the pole. Crossarm 
pins include washer, nut, and locknut.

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------

Total, Section B--____________

             Section C--Three Phase Pole Top Assembly Units

    A pole top assembly unit consists of the hardware, crossarms, and 
their appurtenances, insulators, etc., except tie wire, required to 
support the primary conductors. It does not include the pole. Crossarm 
pins include washer, nut, and locknut.

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
                                                                                                                
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Total, Section C--____________

                   Section D--Conductor Assembly Units

    A conductor assembly unit consists of 1,000 feet of conductor or 
cable for primaries, secondaries or services, and includes tie wires, 
sleeves for splicing, connectors, and armor rods with clips or armor 
wire where necessary.
    Tree trimming necessary for installing services and secondaries on 
poles not carrying primary line is included with the conductor assembly 
unit and shall be performed in accordance with the directions of the 
Engineer. The service shall be connected to the

[[Page 427]]

secondary or transformer and 2 feet of conductor or cable shall be left 
for connecting to the consumer's service entrance. In computing the 
compensation to the Bidder for conductor assembly units only the 
horizontal distance between conductor supports or pole stakes shall be 
used. The conductor or cable sizes and types listed are the 
manufacturer's designation.

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
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Total, Section D--____________

                      Section E--Guy Assembly Units

    A guy assembly unit consists of the hardware and wire, and guy 
insulator where necessary. An overhead guy assembly consists of an 
overhead guy, a pole, and a down guy, each of which is listed 
separately. Guy markers are designated separately.

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
E                                                                                                               
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Total, Section E--____________

                    Section F--Anchor Assembly Units

    An anchor assembly unit consists of the anchor with rod complete, 
ready for attaching the guy wire.

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
F                                                                                                               
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Total, Section F--____________

                  Section G--Transformer Assembly Units

    A transformer assembly units consists of the transformer, its 
protective equipment, and its hardware and leads with their connectors 
and supporting insulators and pins. this units does not include the pole 
top, secondary, service, or grounding assemblies.

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
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Total, Section G--____________

                   Section J--Secondary Assembly Units

    A secondary assembly unit consists of the hardware, insulators, 
etc., to support the secondary conductors or cable. It does not include 
the secondary conductor or cable, or any hardware, insulators, etc. 
required to support service conductors or cable.

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
J                                                                                                               
----------------------------------------------------------------------------------------------------------------


[[Page 428]]

Total, Section J--____________

                    Section K--Service Assembly Units

    A service assembly unit consists of the hardware, insulators, etc., 
required to support the service conductors or cable. It does not include 
the service conductor or cable, or any hardware, insulators, etc., 
required to support secondary conductors or cable.

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
K                                                                                                               
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Total, Section K--____________

                 Section M--Miscellaneous Assembly Units

    A miscellaneous assembly unit consists of an additional unit needed 
in the Project for new line construction but not otherwise listed in the 
Proposal. This section includes grounding assemblies consisting of the 
conductor, ground rod, grounding plate, connectors and clamps as shown 
on the respective drawings for the various types. It also includes fuse 
cutouts, reclosers, sectionalizers, switches, capacitors, regulators, 
metering and other assembly units.

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
M                                                                                                               
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Total, Section M--____________

                 Section R--Right-of-Way Clearing Units

    R1-10. The unit is 1,000 feet in length and 10 feet in width (to be 
measured on one side of the pole line) of actual clearing of right-of-
way. This includes clearing of underbrush, tree removal, and such tree 
trimming as is required so that the right-of-way, except for tree stumps 
which shall not exceed ________ in height, shall be clear from the 
ground up on one side of the line of poles carrying primary conductors 
of the width specified. This unit does not include clearing or trimming 
associated with secondaries or services which is included with conductor 
units. The segmental length of actual clearing shall be measured in a 
straight line parallel to the transmission centerline using the maximum 
dimension of foliage cleared and projected to the ground line. All trees 
and underbrush across this width of the right-of-way shall be considered 
to be grouped together as a single length in measuring the total length 
of clearing. Spaces along the right-of-way in which no trees are to be 
removed or trimmed or underbrush cleared shall be omitted from the total 
measurement. All length thus arrived at, added together and divided by 
1,000, shall give the number of 1,000-foot R1-10 units of clearing. This 
unit includes the removal or topping, at the option of the Bidder, of 
danger trees outside of the right-of-way when so designated by the 
Engineer. (Danger trees are defined as dead or leaning trees which, in 
falling, will affect the operation of the line.) The Bidder shall not 
remove or trim shade, fruit, or ornamental trees unless so directed by 
the Engineer.
    R1-20. This unit is identical with R1-10 except that the width is 20 
feet (to be measured 10 feet on each side of the pole line).
    R1-30. This unit is identical with R1-10 except that the width is 30 
feet (to be measured 15 feet on each side of the pole line).
    R1-40. This unit is identical with R1-10 except that width is 40 
feet (to be measured 20 feet on each side of the pole line).
    RC1-10, RC1-20, RC1-30, RC1-40. These units are identical to the 
respective R1 units except that chemical treatment of stumps is required 
in addition to the clearing of underbrush, tree removal and tree 
trimming.
    Additional Requirements (When specifying R1 units denote type of 
disposal (A or B).)
    A. Trees, brush, branches and refuse shall, without delay, be 
disposed of by one of the following methods as the Engineer will direct 
(Engineer to strike out methods not to be used):
    1. Burned
    2. Piled on one side of right-of-way
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (describe) ________
    B. Trees that are felled shall be cut to commercial wood lengths, 
stacked neatly, and left on the right-of-way for the landowner. 
Commercial wood length means the length designated by the Engineer but 
in no case shall it be required to be less than ____ (____) feet. Brush, 
branches, and refuse shall, without delay, be disposed of by such of the

[[Page 429]]

following methods as the Engineer will direct (Engineer to strike out 
methods not to be used):
    1. Burned
    2. Piled on one side of right-of-way
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (describe) ________

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                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
R                                                                                                               
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Total, Section R--____________

              Section UD--Underground Cable Assembly Units

    An underground cable assembly unit consists of 1,000 feet of cable 
for underground primaries, secondaries or services. It does not include 
the conduit, plowing, trenching and backfilling, or the termination of 
the primary cable which are provided for in other assembly units. It 
includes the termination, connection and sealing of secondary and 
service cables and conductors as shown in the specifications and 
construction drawings, and all primary, secondary and service cable 
splices (buried cable may be spliced only when and where permitted by 
the Owner 3, 4.) In computing the compensation to 
the Bidder for underground cable assembly units, only the distance 
between stakes, paralleling the cable shall be used. The number of units 
so computed will include all cable installed in place in all specified 
trenches, risers, conduits, crossings, manholes, transformers, terminal 
housings and meter boxes.5 The conductor or cables listed are 
the manufacturer's designation of types, size, voltage rating and 
material. The Bidder and the Owner shall jointly perform cable 
acceptance tests on installed cable in accordance with the 
specifications using test equipment furnished by the ________. (Engineer 
to insert Owner or Bidder).
---------------------------------------------------------------------------

    \3\ ____ Engineer check here if primary splices are permitted.
    \4\ ____ Engineer check here if secondary and service splices are 
permitted.
    \5\ ____ Engineer check here if 12 feet of service conductor is to 
be left as a coil 3 feet from the building with ends capped instead of 
connection to meter box.

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
UD                                                                                                              
----------------------------------------------------------------------------------------------------------------

Total, Section UD____________

           Section UG--Underground Transformer Assembly Units

    An underground transformer assembly unit consists of the 
transformer, its housing, warning sign, switches, over-current 
protective devices, grounding loop, and hardware and leads with their 
connectors and supporting insulators installed in place. This unit 
includes the cable terminations but does not include lightning 
arresters, fault indicators, ground rods or trenching. For submersible 
transformers, it includes the cable terminations, the enclosure and 
cover, drainable material (when specified 6), and the 
excavation when required. For pad-mount transformers, it does not 
include the pad, site preparation, drainable material, backfilling or 
compaction which are included in the pad assembly units.
---------------------------------------------------------------------------

    \6\ ____ Engineer check here if drainable material is specified.

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
UG                                                                                                              
----------------------------------------------------------------------------------------------------------------


[[Page 430]]

Total, Section UG--____________

      Section UK--Underground Secondary and Service Assembly Units

    An underground secondary and service assembly unit consists of 
secondary or service cable terminal housing mounted in place. It 
includes the power pedestal, stake (when required), mounting hardware, 
warning sign, directional marker, housing identification marking and the 
cable identification tags. It does not include the cable terminations, 
ground rod, or pad, when required.

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
UK                                                                                                              
----------------------------------------------------------------------------------------------------------------

Total, Section UK ____________

          Section UM--Miscellaneous Underground Assembly Units

    A miscellaneous underground assembly unit consists of an additional 
unit needed in the Project for new construction but not otherwise listed 
in the Proposal. This section includes the miscellaneous assembly units 
as shown on the respective underground construction drawings. Where 
miscellaneous units consist of or include a primary cable termination, 
the unit includes the preparation of the cable to accommodate the 
termination, the stress cone and the connection of the cable to the 
terminal equipment. Pad assembly units are in this section and include 
the site preparation, bedding, drainable material when specified, cable 
slot, backfilling, tamping and the pad in place.

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
UM                                                                                                              
----------------------------------------------------------------------------------------------------------------

Total, Section UM--____________

            Section UR--Underground Excavation Assembly Units

    UR 1-S(d) Plowing Assembly Unit, Soil--Consists of one (1) lineal 
foot of plowing in soil, measured parallel to the surface of the ground, 
to a specified depth (D), in inches, including the compacting, except as 
specifically provided for in other units. This unit includes all 
material and labor required in the repair and/or replacement of streets, 
roads, drives, fences, lawns, shrubbery, watermains, pipes, pipelines 
and contents, underground power and telephone facilities, buried 
sewerage and drainage facilities, and any other property damaged during 
the plowing of the cable, except as specifically provided for in other 
units. This unit does not include underground cable facilities installed 
in the slot.

    Note: Where in the judgment of the Owner greater than normal 
difficulty will be involved in plowing because of the presence of 
underground facilities of other utilities, this unit will be suffixed by 
the letter ``T''. This will be applicable only in those areas 
predesignated by the Owner on the detail maps herein. All plowing 
outside of the predesignated area on the map, regardless of the 
difficulty in placement actually experienced, will be inventoried as the 
regular UR 1-S(D) units. If field conditions show the existence of rock 
to prevent the placing of the cable in soil to the depth required in the 
specifications, the Owner may specify UR 2-R units. Where more than one 
cable is to be installed in the slot, the UR1-S unit designation should 
be modified by a suffix corresponding to the number of cables installed. 
Example: UR1-S(D) 3c for 3 cables plowed at one time.

    UR 2-S(D&W) Trenching Assembly Unit, Soil--Consists of one (1) 
lineal foot of trenching in soil, measured parallel to the surface of 
the ground, to a specified depth (D) and width (W), in inches, including 
the excavation, and backfilling and compacting. This unit includes all 
material and labor required in the repair and/or replacement of streets, 
roads, drives, fences, lawns, shrubbery, watermains, pipes, pipelines 
and contents, under-ground power and telephone facilities, buried 
sewerage and drainage facilities, and any other property damaged by the 
trenching, except as specifically provided for in other units. This unit 
does not include underground cable facilities installed in the trench or 
cable bedding assembly units, when required.

    Note: Where in the judgment of the Owner greater than normal 
difficulty will be involved in trenching because of the presence of 
underground facilities of other utilities,

[[Page 431]]

this unit will be suffixed by the letter ``T''. This will be applicable 
only in those areas predesignated by the Owner on the detail maps 
herein. Where more than one cable is to be installed in the trench, the 
regular UR 2-S unit designation should be modified by a suffix 
corresponding to the construction drawing for the type of cable 
placement desired.

    UR 2-R (D&W) Trenching Assembly Unit, Rock--Consists of one (1) 
lineal foot of trenching in rock, measured parallel to the surface of 
the ground, to specified depth (D) and width(W), in inches, including 
the excavation, and backfilling and compacting to place cable to the 
depth specified in the Specifications. This unit will be specified by 
the Owner only when field conditions at the site show the existence of 
rock at a depth preventing the placing of the cable in soil to the 
depths required in the Specifications. This unit includes all material 
and labor required in the repair and/or replacement of streets, roads, 
drives, fences, lawns, shrubbery, watermains, pipes, pipelines and 
contents, underground power and telephone facilities, buried sewerage 
and drainage facilities, and any other property damaged by the 
trenching, except as specifically provided for in other units. This unit 
does not include underground cable facilities installed in the trench or 
cable bedding assembly units, when required.
    UR-3 Cable Bedding Assembly Unit--Consists of one (1) lineal foot of 
a 2-inch bed of clean sand or soil placed in the trench under the cable 
and a 4-inch layer of clean sand or soil backfill over the cable to the 
width of the trench.

    Note: The exact location and number of units shall be determined by 
the Owner after the trenches are open in those areas where rock or other 
conditions make special bedding necessary.

    UR-4a Pavement Assembly Unit, Asphalt--Consists of the labor and 
material necessary to remove and restore one (1) lineal foot of asphalt 
pavement, measured along the route of the cable. All work shall be 
performed in accordance with the requirements of state or local 
authorities. Any trenching which may be necessary is included in this 
unit.
    UR-4c Pavement Assembly Unit, Concrete--Consists of the labor and 
material necessary to remove and restore one (1) lineal foot of concrete 
pavement, measured along the route of the cable. All work shall be 
performed in accordance with the requirements of state or local 
authorities. Any trenching which may be necessary is included in this 
unit.
    UR-5( ) Underground Pipe Crossing Assembly Unit--Consists of one (1) 
lineal foot of steel pipe, of the inside diameter, in inches, specified 
in the last digit of the assembly unit designation, installed in place. 
This unit includes the pushing of pipe and any excavation, backfilling 
and tamping necessary for the installation of the pipe. The pipe will be 
installed at the depth specified by the Owner. Underground cable 
installed in the pipe is not included in this unit.
    UR-6 Underground Nonpipe Crossing Assembly Unit--Consists of the 
labor in providing a hole in soil one (1) foot in length of a diameter 
sufficient to accommodate the cable to be installed therein. The depth 
of the hole below the surface of the ground shall be specified by the 
Owner. This unit includes any excavation, backfilling and tamping 
necessary for the installation. This unit may be used where the 
permanent installation of a steel pipe under the UR-5 unit is not 
required. Underground cable installed in the hole is not included in 
this unit.

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
UR                                                                                                              
----------------------------------------------------------------------------------------------------------------

Total, Section UR--____________

              Distribution Construction Units--Line Changes

    The general heading of Line Changes applies to the changing of 
existing lines or portion thereof from their existing phasing, wire 
size, and type to new phasing, wire size, and type and the removal of 
existing lines or portion thereof and replacing with new lines in close 
proximity thereto. In general line changes involve three types of 
assembly units as follows:

Section H--Conversion assembly units;
Section I--Removal assembly units;
Section N--New construction assembly units on existing lines or in 
replacing lines.

    The assembly units that are included in Section H, I, and N are 
defined by symbols and descriptions which follow together with the 
applicable descriptions included under New construction. Where the 
descriptions are not correct or sufficiently explicit, or when special 
units are not covered by Construction Drawings, descriptions have been 
provided by the Engineer in the respective sections.

[[Page 432]]

    Work included in these sections shall be performed under the 
schedule as set forth below: ________.

  Schedule of Deenergization of Existing Distribution Lines Under Which 
           Work Under Sections H, I, and N Shall be Performed           
------------------------------------------------------------------------
 Line section (To be designated by    Hours and days of week when lines 
   point to point description on      will be deenergized to permit line
            detail map)                            changes              
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------

    The Bidder will so plan and perform its work on the above lines that 
it will be possible for the Owner to safely reenergize all lines 
involved at the expiration of the time limits set up in the above 
schedule to resume service to all consumers being served prior to 
deenergization. Prior to commencement of work each day on lines to be 
deenergized, the Bidder will notify the Owner in writing thereof, 
designating the lines to be deenergized and upon receipt of such notice, 
the Owner will deenergize such lines. Upon completion of work each day 
on such deenergized lines, the Bidder will notify the Owner thereof in 
writing or in such other manner as the circumstances permit designating 
the lines to be reenergized and stating that such lines may be safely 
reenergized and upon receipt of such notice, the Owner will reenergize 
such lines.

                  Section H--Conversion Assembly Units

    Conversion assembly units are pole-top assemblies and cover the 
furnishing of all labor and additional materials for changing an 
existing assembly unit to a new assembly unit, utilizing certain items 
of materials of the existing assembly unit on poles to be left in place. 
The unit prices for materials should include only additional material 
that is required to complete the new unit, less suitable allowance for 
material removed. Any materials removed from the existing assembly units 
which are not required in the construction of the conversion assembly 
unit become the property of the Bidder and may, with the permission of 
the Engineer, be reused by the Bidder in the construction of other 
assembly units called for in the Construction Contract. Conversion 
assembly units are specified by the prefix H with the new construction 
assembly unit designation shown first and the existing assembly unit 
designation shown last. For example, a H B1-A1 signifies the conversion 
of an existing A1 assembly unit to a B1 assembly unit (as was defined in 
the description of construction assembly units). In this instance the 
Bidder utilizes the existing pin-type insulator, single upset bolt and 
neutral spool in the construction of the new assembly unit. The Bidder 
furnishes the additional crossarm, crossarm pins, braces, machine bolt, 
carriage bolts, lag screw, and insulator required for the new unit. The 
Bidder takes possession of the pole-top pin and two machine bolts and 
with the permission of the Engineer may reuse these elsewhere in the 
construction of the Project. The Bidder will not be held accountable to 
the Owner for the materials he so acquires.
    The Conversion assembly units also include the furnishing of all 
labor and materials in the transferring, resagging and retying of 
conductors from one position on the pole to a different position on the 
pole where such transfers are required. Where replacement of conductor 
is required, the existing conductor will be removed under Section I and 
the new conductor installed under Section N.
    Where replacement of a pole is required, the existing pole and pole-
top assembly will be removed under Section I and the new pole and pole-
top assembly will be installed according to Section N and no H units 
will be involved.
    Conversion assemblies are listed in three subsections for converting 
pole-top assemblies from single to V phase, single to three phase, and V 
to three phase. The following descriptions apply to only those units not 
sufficiently explicit.

------------------------------------------------------------------------
              Unit                             Description              
------------------------------------------------------------------------
H                                                                       
------------------------------------------------------------------------

                  Section H--Conversion Assembly Units

                  Subsection H (B-A) 1 Phase to V Phase

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
H                                                                                                               
----------------------------------------------------------------------------------------------------------------

Total, Section H (B-A)--____________

                  Section H--Conversion Assembly Units

                  Subsection H (C-A) 1 Phase to 3 Phase

[[Page 433]]



----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
H                                                                                                               
----------------------------------------------------------------------------------------------------------------

Total, Subsection H (C-A)----____________-------------------------------


                  Section H--Conversion Assembly Units

                  Subsection H (C-B) V Phase to 3 Phase

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
H                                                                                                               
----------------------------------------------------------------------------------------------------------------

Total, Subsection H (C-B)--____________
Total, Subsection H (B-A)--____________
Total, Subsection H (C-A)--____________
Total, Section H--____________

                    Section I--Removal Assembly Units

    Removal assembly units cover the furnishing of all labor for the 
removal of existing units of construction from existing lines, 
disassembling into material items, and all labor and transportation for 
the returning of all materials to the warehouse of the Owner in an 
orderly manner or transporting elsewhere to the site of the Project for 
reuse in the prosecution of this Contract as approved by the Engineer.
    The Bidder will be charged by the Owner for the full value of all 
materials removed under this section at the value shown in Table C. Such 
charges will be placed against the Bidder as units are removed and the 
value will be deducted from the total value of installed assembly units 
for determination of the work accomplished for purposes of monthly 
progress payments to the Bidder.
    Of the materials listed in Table C to be removed from existing 
lines, certain materials will be reused in the construction of the 
Project. Such materials to be reused are listed in Table C-1. Materials 
other than those listed in Table C-1 shall, if not damaged in handling, 
be returned to the Owner for full credit at the values shown in Table D. 
The Bidder will be allowed full credit for all material items, other 
than those listed in Table C-1, returned to the Owner which, in the 
opinion of the Engineer, were not damaged by the Bidder in removal and 
handling even though the materials may not be reusable for reasons of 
obsolescence or deterioration. Such credits shall be allowed the Bidder 
as materials are returned to the Owner's warehouse and shall be added to 
the total value of installed assembly units for determination of the 
work accomplished for purposes of monthly progress payments to the 
Bidder.
    The unit removal prices shall include all material and labor 
required to reinstall in accordance with specifications any conductors 
temporarily detached. The Bidder will reinstall at his own expense any 
other units removed by him for his own convenience.
    The removal units are specified by the prefix I and followed by the 
assembly unit designation of existing assembly unit to be removed. For 
example, an I-A1 signifies the removal of an A1 assembly unit. The 
following special notes apply to specific removal units: ________.
    a. Poles. All poles of the same height, regardless of pole class, 
are designated by the same unit. Thus an I-30-foot pole signifies the 
removal of a 30-foot pole of any class. The Bidder is not required under 
this unit to remove from the pole any ground wire or pole numbering 
attached to the pole. This unit includes the refilling and tamping of 
holes in a workmanlike manner unless they are to be reused.
    b. Pole-Top Assemblies. The unit of removal of pole-top assemblies 
includes, in addition to the removal of the assembly itself, any 
necessary handling, resagging, and retying of conductors in those cases 
where an existing pole-top assembly will be removed and replaced by a 
new pole-top assembly and where any existing conductor is to be reused.
    The unit of removal of pole-top assemblies also includes any holding 
or handling of mainline or tap conductors at tap lines, angles, and 
deadends where such is involved, and reinstalling of such conductor in 
accordance with the specifications; for example, an I-A5-4 will include 
the disconnection of the tap conductors, snubbing off the tap line at 
the nearest practical point and the reconnection and resagging of these 
tap conductors if

[[Page 434]]

necessary to the new tap assembly when installed. The new unit of 
construction, however, will be specified separately in Section N.
    c. Conductor. The conductor removal unit covers the removal of 1,000 
feet of conductor or cable and reeling or coiling it in a workmanlike 
manner in such a way that it can be reused by the Bidder or the Owner. 
The Owner will furnish to the Bidder reels if it is to be returned to 
the Owner's warehouse on reels. The Bidder will retain possession of all 
jumpers, tie wire, armor rods, connectors, and other conductor 
accessories removed. These items will not be returned to the Owner. The 
removal unit for each size of conductor or cable is shown by the prefix 
I followed by D and the conductor or cable type; thus an I-D-6ACWC 
signifies the removal unit for 1,000 feet of 6A Copperweld-copper 
conductor.
    d. Guys. All guys regardless of length, type of attachment, or size 
of guy strand are specified by the same unit; thus an I-E signifies the 
removal of any guy.
    e. Anchors. Only anchor rods are to be removed by the Bidder in 
anchor removal units. The anchor will be left in the ground; thus an I-F 
signifies the removal of any anchor rod. If the rod cannot be unscrewed, 
the end of the rod shall either be cut off or bent down so that the rod 
will be at least 18 inches below ground.
    f. Transformers. The unit for removal of transformer assembly units 
is divided into two sections, (1) Conventional Transformer Assembly, and 
(2) Self-Protected Transformer Assembly. Only one unit is specified for 
each type, and all sizes of transformers from 1 to 25 kVA within each 
group will be covered by the same unit. ``Self-protected'' refers to 
transformers where all protective equipment is mounted on or within the 
transformer. ``Conventional'' refers to transformers where protective 
equipment is mounted separately from the transformer. The unit is 
designated by the prefix I followed by the description of the unit to be 
removed; thus IG Conventional signifies the removal of a conventional 
transformer assembly for any size transformer from 1 to 25 kVA.
    g. Secondary Units. The unit for removal of secondary assemblies 
includes, in addition to the removal of the assembly itself, all 
necessary handling such as untying, resagging, and retying of secondary 
conductor or cables where existing secondary conductor or cable is to be 
reused.
    In addition, the unit for removal of the secondary assembly includes 
the handling or holding of any conductor at tap lines where such is 
involved, and the reinstalling of such tap conductor in accordance with 
the specifications.
    h. Service Unit. The unit for removal of service assemblies 
includes, in addition to the removal of the assembly itself, all 
necessary handling such as untying, resagging, and retying of service 
conductor or cable where existing service conductor or cable is to be 
reused.
    The following descriptions apply only to those removal units not 
sufficiently explicit:

------------------------------------------------------------------------
                Unit                             Description            
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                   Labor                
    Unit No.       No. of units  ---------------------------------------
                                    Unit price        Extended price    
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------

Total, Section I--____________

                                                                        
     Table C.--Unit Material Values of I Units Chargeable to Bidder     
------------------------------------------------------------------------
                                                          Extended value
    Unit No.       No. of units    Unit material value 1                
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Notes: 1. Unit values are based on item values from Table D.            


                 Table C-1--Material Items To Be Reused                 
------------------------------------------------------------------------
      RUS Item letter        Description of material                    
      designation \1\                  item               No. of items  
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Notes: 1. See ``List of Materials Acceptable for Use on Systems of RUS  
  Electrification Borrowers''.                                          


         Table D. Values of Material Items Creditable to Bidder         
------------------------------------------------------------------------
      RUS Item letter        Description of material                    
      designation \1\                  item                Item value   
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Notes: 1. See ``List of Materials Acceptable for Use on Systems of RUS  
  Electrification Borrowers''.                                          

                      Section N--New Assembly Units

    The purpose of this section is to list complete new units of 
construction where such units are to be added to existing lines or 
installed in replacing lines.
    The units as covered by this section are the same as the units 
described in Distribution Construction Units--New Construction, except 
that these units are prefixed by the letter N.
    For example, an N40-6 unit covers the furnishing of all material and 
labor for the installation of a 40-6 pole either in an existing 
distribution line being operated by the Owner or in a new line being 
constructed to replace an existing distribution line being operated by 
the Owner.
    The following descriptions apply only to those new units not 
sufficiently explicit:

[[Page 435]]



------------------------------------------------------------------------
                Unit                             Description            
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------

                      Section N--New Assembly Units

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                              Labor &   labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
N                                                                                                               
----------------------------------------------------------------------------------------------------------------

Total, Section N--____________

                            Proposal Summary

                       Recapitulation of Sections

                            New Construction

                                Overhead

Section--1 ________ $________
Section--A ________ ________
Section--B ________ ________
Section--C ________ ________
Section--D ________ ________
Section--E ________ ________
Section--F ________ ________
Section--G ________ ________
Section--J ________ ________
Section--K ________ ________
Section--M ________ ________
Section--R ________ ________
Total Overhead ________

                               Underground

Section--UD ________ $________
Section--UG ________ ________
Section--UK ________ ________
Section--UM ________ ________
Section--UR ________ ________
Total Underground ________
Total New Construction $________

                              Line Changes

Section--H ________ $________
Section--I ________ ________
Section--N ________ ________
Total Line Changes $________
Total Distribution Line Construction $________

                     Transmission Construction Units

                          Section 1--Pole Units

    A pole unit consists of one pole in place. It does not include pole-
top assembly unit or other parts attached to the pole. The first two 
digits indicate the length of the pole; the third digit shows the 
classification per ANSI (Example: 60-3 means a pole 60 feet long, class 
3.)

                       Species of Timber: ________

                    Kind of Preservative: (Check one)

    1. Creosote ____; 2. Pentachlorophenol ____; 3. Copper Naphthenate 
____; 4. Waterborne preservative--CCA ____ ACZA ____

                    Method of Treatment: (Check one)

    1. Pressure ________; 2. Thermal Process ________

    Pole Plan Under Which the Poles are to be Furnished: (Check one)

    1. Insured Warranted ____; 2. Independently Inspected ____; 3. 
Quality Assured ____; 4. Either Insured Warranted, Independently 
Inspected, or Quality Assured ____
(Engineer to complete above)

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                             Labor and  labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
                                                                                                                
      Total, Section 1--                                                                                        
----------------------------------------------------------------------------------------------------------------

                   Section 2--Pole Top Assembly Units

    A pole top assembly unit consists of the hardware, crossarms and 
their appurtenances, insulators, etc., except tie wire, required to 
support the power conductors and overhead ground wire. It does not 
include the pole, the downlead, and butt coil, which are separate units.

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                             Labor and  labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
TH                                                                                                              

[[Page 436]]

                                                                                                                
TP                                                                                                              
TS                                                                                                              
TSS                                                                                                             
TSZ                                                                                                             
    Total, Section 2--                                                                                          
----------------------------------------------------------------------------------------------------------------

                   Section 3--Conductor Assembly Units

    A conductor assembly unit consists of 1,000 feet of a single 
conductor or overhead ground wire, and includes tie wire, sleeves for 
splicing, and armor rods with clips or armor wire where necessary. The 
length of conductor or overhead ground wire shall be determined by 
taking the sum of all straight horizontal span distances between pole 
stakes or from center to center of the poles carrying the conductors. 
The conductor sizes and types listed are the manufacturer's designation.

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                             Labor and  labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
                                                                                                                
    Total, Section 3--                                                                                          
----------------------------------------------------------------------------------------------------------------

    As provided for in the specifications, prior to beginning of work 
the Bidder will furnish the Engineer the following data on tension 
equipment:

Diameter Bull Wheel ________ in.
Diameter Groove ________ in.
Conductor Bending Radius ________ in.
Thickness of Neoprene at Bottom of Groove ________ in.
Stringing Sheave Diameter; Tangent ________ in., Large Angle ________ 
          in.

                Section 4--Guy Assembly Units (TG Units)

    A guy assembly unit consists of the hardware and wire. Guy guards 
are designated separately.

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                             Labor and  labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
TG-1                                                                                                            
TG-2                                                                                                            
TG-3                                                                                                            
TG-4                                                                                                            
TG-5                                                                                                            
    Total, Section 4--                                                                                          
----------------------------------------------------------------------------------------------------------------

                    Section 5--Anchor Assembly Units

    An anchor assembly unit consists of the anchor with rod or rods, 
complete, ready for attaching the guy wire.

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                             Labor and  labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
TA-1-5                                                                                                          
TA-1-8                                                                                                          
TA-3                                                                                                            
    Total, Section 5--                                                                                          
----------------------------------------------------------------------------------------------------------------


[[Page 437]]

                 Section 6--Miscellaneous Assembly Units

    A miscellaneous assembly unit consists of an additional unit needed 
in the Project for line construction but not otherwise listed in the 
Proposal.

----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                             Labor and  labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
TM                                                                                                              
    Total, Section 6--                                                                                          
----------------------------------------------------------------------------------------------------------------

                 Section 7--Right-of-Way Clearing Units

    TM-12. The unit is 1,000 feet in length and ______ (______) feet in 
width (to be measured ______ (______) feet on one side of pole line or 
centerline of structures) of actual clearing of right-of-way. This 
includes clearing of underbrush, tree removal, and such tree trimming as 
is required so that the right-of-way, except for tree stumps which shall 
not exceed ______ in height, shall be clear from the ground up on one 
side of the line of poles carrying conductors. (See Detail A, Drawing 
TM-12-2A.) The length of actual clearing shall be measured in a straight 
line parallel to the horizontal line between poles or centerline of 
structures and across the maximum dimension of foliage cleared projected 
to the ground line. (See Detail B, Drawing TM-12-2A.) All trees and 
underbrush across the width of the right-of-way shall be considered to 
be grouped together as a single length in measuring the total length of 
clearing. (See Detail C, Drawing TM-12-2A.) Spaces along the right-of-
way in which no trees are to be removed or trimmed or underbrush cleared 
shall be omitted from the total measurement. All length thus arrived at, 
added together and divided by 1,000 shall give the number of 1,000-foot 
TM-12 units of clearing. The Bidder shall not remove or trim shade, 
fruit, or ornamental trees unless so directed by the Engineer in 
writing.
    TM-12 (1). This unit is identical with TM-12, except the full width 
of the right-of-way to be cleared shall be ______ (______) feet wide (to 
be measured ______ (______) feet on each side of the pole line or 
centerline of structures). (See Detail D, Drawing TM-12-2A.) TMC-12, 
TMC-12 (1). These units are identical to the respective TM units except 
that chemical treatment of stumps is required in addition to the 
clearing of underbrush, tree removal and tree trimming.
    TM-13. The unit, for purpose of quoting, is 1,000 feet in length of 
clearing off the right-of-way. The Engineer will select those trees off 
the right-of-way that he deems to be a hazard to the line and will 
designate them to the Bidder in writing as danger trees. When so 
designated, the Bidder shall remove or top such trees at his option 
except that the Bidder shall trim and not remove shade, fruit, or 
ornamental trees unless otherwise directed by the Engineer in writing. 
(See Drawings TM-12-2A and TM-13 for examples of danger trees.)
    The measurement of the length of clearing off the right-of-way shall 
be considered as a straight line parallel to the horizontal line between 
poles or centerline of structures, such measurement of length to be 
based on maximum dimension of foliage (not trunk) projected to the 
ground line. (See Details E, F, G, and H, Drawing TM-12-2A.) Dead trees 
having no foliage shall be measured across the maximum dimension and 
multiplied by two. (See Detail F, Drawing TM-12-2A.) Each tree so 
removed shall be added together to determine the total length of 
clearing. All length thus arrived at, added together and divided by 
1,000, shall give the number of TM-13 units. (Example: Details E, F, G, 
and H, Drawing TM-12-2A, total .1 of a TM-13 unit.)
    TM-14. The unit is 1,000 feet in length and ______ (______) feet in 
width (to be measured ______ (______) feet on one side of right-of-way 
centerline) of actual clearing of right-of-way. Trees and underbrush 
should be cleared from the ground up within 10 feet of any structure 
location. The Engineer will mark the trees and brush to be cleared to 
provide ``undulating'' boundaries. Low growing trees and brush are to be 
left in the right-of-way to the extent it will not be hazardous to the 
line or will not interfere with the access road. The length of actual 
clearing shall be measured in a straight line parallel to the horizontal 
line between poles or centerline of structures and across the maximum 
dimension of foliage cleared projected to the ground line (See Detail B, 
Drawing TM-12-2A.) All trees and underbrush cleared across the right-of-
way shall be considered to be grouped together as a single length in 
measuring the total length of clearing (See Detail C, Drawing TM-12-2A.) 
Spaces along the right-of-way in which no trees are to be removed or 
trimmed or underbrush cleared shall be omitted from the total 
measurement.
    TM-14 (1). This unit is identical with TM-14 except the full width 
of the right-of-way to be cleared shall be ______ (______) feet in width 
(to be measured ______ (______) feet wide (See Detail D, Drawing TM-12-
2A.)

[[Page 438]]

    TM-15. The unit is 1,000 feet in length and ______ (______) feet in 
width (to be measured ______ (______) feet on one side of the right-of-
way centerline) of actual clearing of the right-of-way. Trees and 
underbrush should be cleared from ground up within 10 feet of any 
structure location. The Engineer will mark the trees and brush to be 
cleared to provide a ``feathered'' appearance in the right-of-way. Low 
growing trees and brush are to be left in the right-of-way to the extent 
it will not be hazardous to the line or will not interfere with the 
access road.
    The length of actual clearing shall be measured in a straight line 
parallel to the horizontal line between poles or centerline of 
structures and across the maximum dimension of foliage cleared projected 
to ground line (See Detail B, Drawing TM-12-2A). All trees and 
underbrush cleared across the right-of-way shall be considered to be 
grouped together as a single length in measuring the total length of 
clearing (See Detail C, Drawing TM-12-2A). Spaces along the right-of-way 
which no trees are to be removed or trimmed or underbrush cleared shall 
be omitted from the total measurement.
    TM-15 (1). This unit is identical to TM-15 except the full width of 
the right-of-way to be cleared shall be ______ (______) feet wide (See 
Detail D, Drawing TM-12-2A).
    Additional Requirements (When specifying TM units denote type of 
disposal (A or B).)
    A. Trees, brush, branches and refuse shall, without delay, be 
disposed of by such of the following methods as the Engineer will direct 
(Engineer to strike out methods not to be used):

    1. Burned
    2. Piled on one side of right-of-way
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (describe) ______

    B. Trees that are felled shall be cut to commercial wood lengths, 
stacked neatly, and left on the right-of-way for the landowner. 
Commercial wood length means the length designated by the Engineer but 
in no case shall it be required to be less than ______ (______) feet. 
Brush, branches, and refuse shall, without delay, be disposed of by such 
of the following methods as the Engineer will direct (Engineer to strike 
out methods not to be used):

    1. Burned
    2. Piled on one side of right-of-way
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (describe) ______


----------------------------------------------------------------------------------------------------------------
                                                                       Unit price                               
                                                 No. of   ------------------------------------  Extended price--
                   Unit No.                       units                             Labor and  labor & materials
                                                              Labor     Materials   materials                   
----------------------------------------------------------------------------------------------------------------
                                                                                                                
    Total, Section 6--                                                                                          
----------------------------------------------------------------------------------------------------------------

                            Proposal Summary

                       Recapitulation of Sections:

Section--1 ______ $______
Section--2 ______ ______
Section--3 ______ ______
Section--4 ______ ______
Section--5 ______ ______
Section--6 ______ ______
Section--7 ______ ______
Total Transmission Line Construction ______

                  Section 8--Substation Assembly Units

    Description of Construction Units. Each Construction Unit consists 
of a complete installation of the designated portion of a substation as 
specified on the drawings, together with connections to associated 
equipment. Each Construction Unit represents all labor and material 
including necessary accessories completely installed and tested in 
satisfactory operation. Full identification of each Construction Unit 
and all necessary specifications of the installation is shown on the 
drawings.
    Items of material in each Construction Unit shall be of the 
designated size, rating, type, voltage, or other specification in 
accordance with the drawings. The bill of material drawing for each 
substation shows the identification of the Construction Units under 
which the material is to be installed and shows which items of material 
may be partly or entirely found on the lists of Owner-furnished 
materials. All items of equipment, unless otherwise specified, are 
mounted on a structure which shall be a Construction Unit of Group A.
    Each Construction Unit is designated by the letter of the Group to 
which it belongs and an identifying number. The same item of equipment 
carries the same Construction Unit designation in all the substations. 
Items of equipment designated by the same Construction Unit in one 
substation are of only one kind as to voltage, type and other 
specifications. The tabulation of Construction units for each substation 
is separate and contains all units necessary for construction of that 
substation.

[[Page 439]]

    Group A. Structures. A Construction Unit consists of a structure, or 
structures, with bus supports including insulators and fittings, buses, 
conductors and overhead ground wires to adjacent structures within the 
substation, grounding material to connect equipment with the ground bus, 
and associated material including mounting brackets, supports for 
equipment, clamps and connectors, all as specified in the drawings.
    Group B. Three-Pole Group Operated Air Break Switches. A 
Construction Unit consists of one 3-pole group operated air break switch 
with all accessories and operating mechanisms as specified in the 
drawings.
    Group C. Lightning Arresters. A Construction Unit consists of one 
single arrester.
    Group D. Single Pole Disconnecting Switches. A Construction Unit 
consists of one single pole disconnecting or by-pass switch as specified 
in the drawings. If a fuse disconnect switch is specified, the fuse is 
included with the switch.
    Group E. Oil Circuit Breakers. A Construction Unit consists of one 
complete three-phase power circuit breaker complete with supporting 
frame and control cabinet, unless shown otherwise in the drawings, 
mounted as specified in the drawings.
    Group F. Oil Circuit Reclosers. A Construction Unit consists of a 
complete single-phase or three phase oil circuit recloser as specified 
in the drawings.
    Group G. Meters, Relays and Instrument Transformers. A Construction 
Unit consists of one meter, relay potential transformer or current 
transformer.
    Group H. Transformers. A Construction Unit consists of one power 
transformer or one station service transformer either single-phase or 
three-phase as specified in the drawings.
    Group I. Voltage Regulators. A Construction Unit consists of one 
single-phase or three-phase voltage regulator as specified in the 
drawings.
    Group J. Communications and Supervisory Control Equipment. A 
Construction Unit consists of carrier current equipment, microwave, or 
other types of communications and supervisory control equipment as 
specified in the drawings.
    Group K. Conduit and Cable. A Construction Unit consists of the 
wire, cable, conduit and accessories necessary to complete the 
installation of equipment in accordance with the specifications and 
drawings, where such installation has not been included in other Groups.
    Group L. Foundations. A Construction Unit consists of concrete 
footings and foundations except for the fence, as specified in the 
drawings.
    Group M. Site Preparation. A Construction Unit consists of clearing, 
grading, drainage work, and surfacing, as specified in the drawings.
    Group N. Fence. A Construction Unit consists of the complete 
installation of the fence, gates, etc., as specified in the drawings.
    Group O. Station Grounding. A Construction Unit consists of the 
complete ground bus including ground rods, grounding mats or platforms, 
except as otherwise provided in other Groups, with connections to 
structures, equipment, and fence as specified in the drawings.
    Group P. Building. A Construction Unit consists of a control 
building or cabinet, on a foundation of Group L and the facilities and 
equipment installed therein as specified in the drawings, except as 
otherwise provided in other Groups.
    Other Groups. The Engineer shall specify such additional Groups as 
may be necessary for the completion of the Project. Description of these 
Groups shall be provided by an addition to this Section of the 
Specifications for Construction.

                   ________ Station Construction Units

Unit No. ________
Name and Description of Construction Unit ________
No. of Units ________
Unit Prices
Labor ________
Materials ________
Labor and Materials ________
Extended Price--Labor and Materials ________

    Total Price ________

                            Proposal Summary

________ Substation $________
________ Substation ________
________ Substation ________
________ Switching Station ________
________ Switching Station ________

    Total Station Construction $________

                         Proposed Recapitulation

Distribution line construction $________
Transmission line construction ________
Substation and Switching Station Construction ________

    Total $________

                               Acceptance

    The Owner hereby accepts the foregoing Proposal of the Bidder, 
________ for the construction of the following:

Distribution Construction Units: Sections: ________
Transmission Construction Units: Sections: ________
Substation and Switching Station Construction: Stations (name): ________
________ Owner
By ________ President

[[Page 440]]

________ Secretary
________ Date of Contract

                             [End of clause]



Sec. 1726.352  Electric transmission construction contract (labor and materials), RUS Form 831.

    The contract form in this section shall be used when required by 
this part. This form refers to guide drawings, which do not contain 
requirements, and, hence, are not included in this part. The guide 
drawings are included in the printed form available from GPO (See 
Sec. 1726.300.).

    Electric Transmission Construction Contract (Labor and Materials)

                   Notice and Instructions to Bidders

    1. Sealed proposals for the construction, including the supply of 
necessary labor, materials and equipment, of a rural electric project of 
________ (hereinafter called the ``Owner'') to be known as Project will 
be received by the Owner on or before ________ o'clock ________ M., 
________, 19________ at its office at ________ at which time and place 
the proposals will be publicly opened and read. Any proposal received 
subsequent to the time specified will be promptly returned to the Bidder 
unopened.
    2. Description of Project: The Project will consist of 
approximately:

                     Transmission Line Construction

________ miles ________ kV; ________ miles ________ kV
________ miles ________ kV underbuild

                 Substations and Other Major Facilities

________ kVA ________ Voltage ________ Name

    The Project is located in ________ Counties, in the State of 
________ all as more fully described in the Plans, Specifications, 
Construction Drawings and Contractor's Proposal therefore hereinafter 
referred to.
    3. Owner Furnished Materials. The unit prices in the Contractor's 
Proposal shall include provisions for Owner Furnished Materials since as 
stated in Article 1, Section 3 of the Contractor's Proposal, the value 
of the Owner Furnished Materials, if any, will be deducted from payments 
to the Bidder for completed Construction Units.
    4. Obtaining Documents. The Plans, Specifications and Construction 
Drawings together with all necessary forms and other documents for 
bidders may be obtained from the Owner, or from the Engineer, ________ 
at the latter's office at ________ upon the payment of $________, which 
payment will not be subject to refund. The Plans, Specifications and 
Construction Drawings may be examined at the office of the Owner or at 
the office of the Engineer. A copy of the Loan Contract (if the Project 
is to be financed, in whole or in part, pursuant to a loan contract) 
between the Owner and the United States of America acting through the 
Administrator of the Rural Utilities Service (hereinafter called the 
Administrator) and of the loan contract between the Owner and any other 
lender may be examined at the office of the Owner. Each set of Plans, 
Specifications and Construction Drawings will have a serial number, 
given by the Engineer, and the number of each set with the name of the 
Purchaser will be recorded by the Engineer. Bids will be accepted only 
from the original purchaser.
    5. Manner of Submitting Proposals. Proposals and all supporting 
instruments must be submitted on the forms furnished by the Owner and 
must be delivered in a sealed envelope addressed to the Owner. The name 
and address of the Bidder, its license number if a license is required 
by the State, and the date and hour of the opening of bids must appear 
on the envelope in which the Proposal is submitted. Proposals must be 
filled in in ink or typewritten. No alterations or interlineations will 
be permitted, unless made before submission, and initialed and dated.
    6. Familiarity with Conditions. Prior to the submission of the 
Proposal the Bidder shall make and shall be deemed to have made a 
careful examination of the site of the Project and of the Plans, 
Specifications, Construction Drawings, and forms of Contractor's 
Proposal and Contractor's Bond on file with the Secretary of the Owner 
and with the Engineer, and shall become informed as to the location and 
nature of the proposed construction, the transportation facilities, the 
kind and character of soil and terrain to be encountered, the kind of 
facilities required before and during the construction of the Project, 
general local conditions and all other matters that may affect the cost 
and the time of completion of the Project. Bidders will be required to 
comply with all applicable statutes, regulations, etc., including those 
pertaining to the licensing of contractors, and the so-called ``Kick-
back Statute'' (48 Stat. 948) and regulations issued pursuant thereto.
    7. Proposals will be accepted only from those prequalified bidders 
invited by the Owner to submit a proposal.
    8. Alternate Designs. The Owner reserves the right to confine its 
consideration of the several bids to one type of design regardless of 
alternate types of design which may be specified in the Plans and 
Specifications and offered in the Proposals.
    9. The Time for Completion of Construction of the Project shall be 
as specified by the Engineer in the Proposal.
    10. Bid Bond. Each Proposal must be accompanied by a Bid Bond in the 
form attached or a certified check on a bank that is

[[Page 441]]

a member of the Federal Deposit Insurance Corporation, payable to the 
order of the Owner, in an amount equal to ten percent (10%) of the 
maximum bid price. Each Bidder agrees, provided its Proposal is one of 
the three low Proposals, that, by filing its Proposal together with such 
Bid Bond or check in consideration of the owner's receiving and 
considering such Proposals, said Proposal shall be firm and binding upon 
each such Bidder and such Bid Bond or check shall be held by the Owner 
until a Proposal is accepted and a satisfactory Contractor's Bond is 
furnished (where required) by the successful Bidder and such acceptance 
has been approved by the Administrator, or for a period not to exceed 
sixty (60) days from the date hereinbefore set for the opening of 
Proposals, whichever period shall be the shorter. If such Proposal is 
not one of the three low Proposals, the Bid Bond or check will be 
returned in each instance within a period of ten (10) days to the Bidder 
furnishing same.
    11. Contractor's Bond. The successful Bidder will be required to 
execute two additional counterparts of the Proposal and, for a Contract 
in excess of $100,000, to furnish a Contractor's Bond in triplicate in 
the form attached hereto with sureties listed by the United States 
Treasury Department as Acceptable Sureties, in a penal sum not less than 
the contract price.
    12. Failure to Furnish Contractor's Bond. Should the successful 
Bidder fail or refuse to execute such counterparts or to furnish a 
Contractor's Bond (where required) within ten (10) days after written 
notification of the acceptance of the Proposal by the Owner, the Bidder 
will be considered to have abandoned the Proposal. In such event, the 
Owner shall be entitled (a) To enforce the Bid Bond in accordance with 
its terms, or (b) if a certified check has been delivered with the 
Proposal, to retain from the proceeds of the certified check, the 
difference (not exceeding the amount of the certified check) between the 
amount of the Proposal and such larger amount for which the Owner may in 
good faith contract with another party to construct the Project. The 
term ``Successful Bidder'' shall be deemed to include any Bidder whose 
Proposal is accepted after another Bidder has previously refused or has 
been unable to execute the counterparts or to furnish a satisfactory 
Contractor's Bond (where required.)
    13. Contract is Entire Agreement. The Contract to be effected by the 
acceptance of the Proposal shall be deemed to include the entire 
agreement between the parties thereto, and the Bidder shall not claim 
any modification thereof resulting from any representation or promise 
made at any time by any officer, agent or employee of the Owner or by 
any other person.
    14. Minor Irregularities. The Owner reserves the right to waive 
minor irregularities or minor errors in any Proposal, if it appears to 
the Owner that such irregularities or errors were made through 
inadvertence. Any such irregularities or errors so waived must be 
corrected on the Proposal in which they occur prior to the acceptance 
thereof by the Owner.
    15. Balanced Bid. The Owner reserves the right to reject any or all 
Proposals. The attention of Bidders is specially called to the 
desirability of a proper balance between prices for labor and materials 
and between the total prices for the respective Construction Units. Lack 
of such balance may be considered as a reason for rejecting a Proposal.
    16. Discrepancy in Unit Prices. Where the unit prices in the 
Contractor's Proposal are separated into three columns designated as 
``Labor,'' ``Materials'' and ``Labor and Materials,'' and where a 
discrepancy appears between the sum shown in the ``Labor and Materials'' 
column and the correct addition of the sums appearing in the ``Labor'' 
column and the ``Materials'' column, the correct addition of the sums 
appearing in the ``Labor'' column and the ``Materials'' column shall 
control.
    17. Definition of Terms. The terms ``Administrator,'' ``Engineer,'' 
``Supervisor,'' ``Project,'' ``Completion of Construction'' and 
``Completion of the Project'' as used throughout this Contract shall be 
as defined in Article VI, Section 1, of the Contractor's Proposal.
    18. The Owner Represents:
    a. If by provisions of the Contractor's Proposal the Owner shall 
have undertaken to furnish any materials for the construction of the 
Project, such materials are on hand at locations specified or if such 
materials are not on hand they will be made available by the Owner to 
the successful Bidder at the locations specified before the time such 
materials are required for construction.
    b. All easements and rights-of-way, except as shown on maps included 
in the Plans and Specifications, have been obtained from the owners of 
the properties across which the Project is to be constructed (including 
tenants who may reasonably be expected to object to such construction). 
The remaining easements and rights-of-way, if any, will be obtained as 
required to avoid delay in construction.
    c. All staking, except as shown on the maps included in the Plans 
and Specifications, has been completed and sufficient staking crews will 
be available to maintain stakes at all times in advance of construction.
    d. Prompt payment for the construction of the Project will be made 
with funds pursuant to the Loan Contract, or with funds otherwise 
available to the Owner.

[[Page 442]]

    If the Owner shall fail to comply with any of the undertakings 
contained in the foregoing representations or if any of such 
representations shall be incorrect, the Bidder will be entitled to an 
extension of time of completion for a period equal to the delay, if any, 
caused by the failure of the Owner to comply with such undertakings or 
by any such incorrect representation; provided the Bidder shall have 
promptly notified the Owner in writing of its desire to extend the time 
of completion in accordance with the foregoing; provided, however, that 
such extension, if any, of the time and completion shall be the sole 
remedy of the Bidder for the Owner's failure, because of conditions 
beyond the control and without the fault of the Owner, to furnish 
materials in accordance with subparagraph a hereof.

________ Owner
By ________
________, 19____

                          Contractor's Proposal

(Proposal shall be submitted in ink or typewritten)
To: ________ (Hereinafter called the ``Owner'')

                           Article I--General

    Section 1. Offer to Construct. The undersigned (hereinafter called 
the ``Bidder'') hereby proposes to receive and install such materials 
and equipment as may hereinafter be specified to be furnished by the 
Owner, and to furnish all other materials and equipment, all machinery, 
tools, labor, transportation and other means required to construct the 
rural electric project ________ in strict accordance with the Plans, 
Specifications and Construction Drawings therefor, attached hereto and 
made a part hereof, for the prices hereinafter stated. The total length 
of the project lines shall be determined by taking the sum of all 
straight horizontal span distances between pole stakes or from center to 
center of poles, or centerline of structures, carrying conductors.
    Section 2. Materials and Equipment. The Bidder agrees to furnish and 
use in the construction of the Project under this Proposal, in the event 
the Proposal is accepted, only such materials and equipment as are 
included in the current ``List of Materials Acceptable for Use on 
Systems of RUS Electrification Borrowers,'' including revisions adopted 
prior to the Bid Opening.
    The Bidder further agrees to furnish:

------------------------------------------------------------------------
                               Type   Size        Galvanizing class     
------------------------------------------------------------------------
Overhead ground wire                                                    
Guy wire                                                                
Structure ground wire                                                   
------------------------------------------------------------------------

(Engineer to insert Type, Size and Galvanizing Class as appropriate)

    The Bidder further agrees to furnish and use poles, crossarms, and 
other timber products, of which the physical characteristics, method of 
treatment, type of preservative, instructions on inspection and general 
procedure shall be in accordance with RUS standards and requirements.
    Crossarms shall be ________ (Engineer to insert Douglas Fir or 
Southern Yellow Pine), treated with ________

(Engineer to insert type of preservative.)

    Section 3. Owner-Furnished Materials. The Bidder understands and 
agrees that, if this Proposal is accepted, the Owner will furnish to the 
Bidder the material set forth in the attached ``List of Owner's 
Materials on Hand'' (see page ____) and the Bidder will give a receipt 
(see page ____) therefor in writing to the Owner. The Bidder, further, 
will on behalf of the Owner accept delivery of such of the materials set 
forth in the attached ``List of Materials Ordered by Owner but Not 
Delivered'' (see page ____) as may be subsequently delivered and will 
promptly forward to the Owner for payment the supplier's invoice, 
together with the Bidder's receipt in writing for such materials. The 
materials referred to are on hand at, or will be delivered to, the 
locations specified in the Lists and the Bidder will use such materials 
in constructing the Project.
    The value of the completed Construction Units certified by the 
Bidder each month pursuant to Article III, Section 1(a) of this Proposal 
shall be reduced by an amount equal to the value of the materials 
installed by the Bidder during the preceding month which have been 
furnished by the Owner or the delivery of which has been accepted by the 
Bidder on behalf of the Owner. Only ninety percent (90%) of the 
remainder shall be paid prior to the Completion of the Project. The 
value of such materials shall be computed on the basis of the unit 
prices stated in the Lists, Materials, if any, not required for the 
Project, which have been furnished to the Bidder by the Owner or 
delivery of which has been accepted by the Bidder on behalf of the 
Owner, shall be returned to the Owner by the Bidder upon completion of 
construction of the Project. The value of all materials not installed in 
the Project nor returned to the Owner shall be deducted from the final 
payment to the Bidder.
    The Owner shall not be obligated to furnish materials in excess of 
the quantities, size, kind and type set forth in the attached Lists. If 
the Owner furnished, and the Bidder accepts, materials in excess 
therefor, the values of such excess materials shall be their actual cost 
as stated by the Owner.
    Information on the shipping schedules of materials on the ``List of 
Materials Ordered by Owner But Not Delivered'' will be furnished to the 
Bidder as necessary during progress of the work.

[[Page 443]]

    Upon delivery the Bidder shall promptly receive, unload, transport 
and handle all materials and equipment on the ``List of Materials 
Ordered by Owner But Not Delivered'' at its expense and shall be 
responsible for demurrage, if any.
    Section 4. Purchase of Materials Not Furnished by Owner. The Bidder 
will purchase all materials and equipment (other than owner-furnished 
materials) outright and not subject to any conditional sales agreements, 
bailment, lease or other agreement reserving unto the seller any right, 
title or interest therein. All such materials and equipment shall become 
the property of the Owner when erected in place.
    Section 5. Proposal on Unit Basis. The Bidder understands and agrees 
that the various Construction Units on which bids are made are defined 
by symbols and descriptions in this Proposal, that all said bids are on 
a unit basis, and that the Owner may specify any number or combination 
of Construction Units that the Owner may deem necessary for the 
construction of the Project. Separate Construction Units are designated 
for each different arrangement which may be used in the construction of 
the Project. This Proposal is based on a consideration of each unit in 
place and includes only the materials listed on the corresponding 
Construction Drawings or description of unit where no drawing exists.
    Section 6. Description of Contract. The Notice and Instructions to 
Bidders and Plans attached hereto and made a part hereof, and the 
Specifications and Construction Drawings set forth in the Electric 
Transmission Specifications & Drawings, RUS Form 805, as applicable, 
together with the Proposal and Acceptance constitute the Contract. The 
plans, consisting of maps and special drawings, are identified as 
follows: ________.
    Section 7. Familiarity with Conditions. The Bidder has made a 
careful examination of the site of the Project to be constructed and of 
the Plans, Specifications, Construction Drawings, and form of 
Contractor's Bond attached hereto, and has become informed as to the 
location and nature of the proposed construction, the transportation 
facilities, the kind and character of soil and terrain to be 
encountered, and the kind of facilities required before and during the 
construction of the Project, and has become acquainted with the labor 
conditions, state and local laws and regulations which would affect work 
on the proposed construction.
    Section 8. License. The Bidder warrants that a Contractor's License 
is ____ is not ____ required, and if required it possesses Contractor's 
License No. ________ for the State of ________ in which the Project is 
located and said license expires on ________, 19____.
    Section 9. The Bidder warrants that this Proposal is made in good 
faith and without collusion or connection with any person or persons 
bidding for the same work.
    Section 10. The Bidder warrants that it possesses adequate financial 
resources and agrees that in the event this Proposal is accepted and a 
Contractor's Bond is required, it will furnish a Contractor's Bond in 
the form attached hereto, in a penal sum not less than the maximum 
Contractor price, with a surety or sureties listed by the United States 
Treasury Department as Acceptance Sureties.
    In the event that the surety or sureties on the performance bond 
delivered to the Owner contemporaneously with the execution of the 
Contract or on any bond or bonds delivered in substitution therefor or 
in addition thereto shall at any time become unsatisfactory to the Owner 
or the Administrator, the Bidder agrees to deliver to the Owner another 
or an additional bond.
    Section 11. Taxes. The unit prices for Construction Units in this 
Proposal include provisions for the payment of all monies which will be 
payable by the Bidder or the Owner in connection with the construction 
of the Project on account of taxes imposed by any taxing authority upon 
the sale, purchase or use of materials, supplies and equipment, or 
services or labor of installation thereof, to be incorporated in the 
Project as part of such Construction Units. The Bidder agrees to pay all 
such taxes, except taxes upon the sale, purchase or use of owner-
furnished materials and it is understood that, as to owner-furnished 
materials, the values stated in the attached ``List of Owner's Materials 
on Hand'' and ``List of Materials Ordered by Owner But Not Delivered'' 
include taxes upon the sale, purchase or use of owner-furnished 
materials, if applicable. The Bidder will furnish to the appropriate 
taxing authorities all required information and reports pertaining to 
the Project, except as to the owner-furnished materials.
    Section 12. Changes in Quantities. The Bidder understands and agrees 
that the quantities called for in this Proposal are approximate, and 
that the total number of units upon which payment shall be made shall be 
as set forth in the Inventory. If the Owner changes the quantity of any 
Assembly Unit or Assembly Units specified in this Proposal by more than 
15%, and the materials cost to the Bidder is increased thereby to an 
extent which would not be adequately compensated by application of the 
unit prices in this Proposal to the revised quantity of such unit or 
units, such change, to the extent of the quantities of such units in 
excess of such 15%, shall be regarded as a change in the construction 
within the meaning of Article II, Section 1(d) of this proposal.
    Section 13. Description of Contract. The Notice and Instructions to 
Bidders, Plans, Specifications for Construction and Construction 
Drawings, all attached hereto and

[[Page 444]]

made a part hereof together with the Proposal and Acceptance constitute 
the con- 
tract. The Plans and Construction Drawings are identified as follows: 
________

                                        List of Owner's Materials on Hand                                       
----------------------------------------------------------------------------------------------------------------
                                              Description    Catalog                                            
                  Item \1\                    of material      No.      Quantity   Unit price    Extended price 
----------------------------------------------------------------------------------------------------------------
                                                                                                                
    Total                                                                                                       
Above materials are located at:                                                                                 
----------------------------------------------------------------------------------------------------------------
Notes: 1. Item corresponds with item in list of materials in construction drawings. Under Article I, Section 3, 
  the value of these materials will be deducted from payments to the Bidder for completed Construction Units.   


                              List of Materials Ordered by Owner but not Delivered                              
----------------------------------------------------------------------------------------------------------------
                       Supplier    Scheduled                                                                    
      Item \2\         name and    delivery   Description    Catalog    Quantity   Unit price    Extended price 
                        address      date     of material      No.                                              
----------------------------------------------------------------------------------------------------------------
                                                                                                                
    Total                                                                                                       
Above material to be                                                                                            
 delivered to:                                                                                                  
----------------------------------------------------------------------------------------------------------------
Notes: 2. Item corresponds with item in list of materials in construction drawings. Under Article I, Section 3, 
  the value of these materials will be deducted from payments to the Bidder for completed Construction Units.   

                        Article II--Construction

               Section 1. Time and Manner of Construction

    a. The Bidder agrees to commence construction of the Project on a 
date (hereinafter called the ``Commencement Date'') which shall be 
determined by the Engineer after notice in writing of approval of the 
Contract by the Administrator and notice in writing from the Bidder that 
the Bidder has sufficient materials to warrant commencement and 
continuation of construction, but in no event will the Commencement Date 
be later than ____ calendar days after date of approval of the Contract 
by the Administrator. The Bidder further agrees to prosecute diligently 
and to complete construction in strict accordance with the Plans, 
Specifications and Construction Drawings within ____ (____) calendar 
days (excluding Sundays) after Commencement Date: Provided, however, 
that the Bidder will not be required to dig holes, set poles or install 
anchors if there are more than six (6) inches of frost in the ground nor 
to perform any construction on such days when in the judgment of the 
Engineer snow, rain, or wind, or the results of snow, rain, or frost 
make it impracticable to perform any operation of construction and to 
the extent of the time lost due to the conditions described herein and 
approved in writing by the Engineer, the time of completion set out 
above will be extended if the Bidder makes a written request therefor to 
the Owner as provided in subsection b of this Section 1.
    b. The time for Completion of Construction shall be extended for the 
period of any reasonable delay which is due exclusively to causes beyond 
the control and without the fault of the Bidder, including Acts of God, 
fires, floods, inability to obtain materials and acts or omissions of 
the Owner with respect to matters for which the Owner is solely 
responsible: Provided, however, that no such extension of time for 
completion shall be granted the Bidder unless within ten (10) days after 
the happening of any event relied upon by the Bidder for such an 
extension of time the Bidder shall have made a request therefor in 
writing to the Owner, and provided further that no delay in such time of 
completion or in the progress of the work which results from any of the 
above causes except acts or omissions of the Owner, shall result in any 
liability on the part of the Owner.
    c. The sequence of construction shall be as set forth below, the 
numbers or names being the designations of extensions or areas 
(hereinafter called the ``Sections'') corresponding to the numbers or 
names shown on the maps attached hereto, or if no Sections are set forth 
below, the sequence of construction shall be as determined by the 
Bidder, subject to the approval of the Engineer. ________
    d. The Owner, acting through the Engineer and with the approval of 
the Administrator,\1\ may from time to time during the progress

[[Page 445]]

of the construction of the Project make such changes in, additions to or 
subtractions from the Plans, Specifications, Construction Drawings, List 
of Materials and sequence of construction provided for in the previous 
paragraph which are part of the Contractor's Proposal as conditions may 
warrant: Provided, however, that if any change in the construction to be 
done shall require an extension of time, a reasonable extension will be 
granted if the Bidder shall make a written request therefor to the Owner 
within ten (10) days after any such change is made. And provided 
further, that if the cost to the Bidder of construction of the Project 
shall be materially increased by any such change or addition, the Owner 
shall pay the Bidder for the reasonable cost thereof in accordance with 
a Construction Contract Amendment signed by the Owner and the Bidder and 
approved by the Administrator,\2\ but no claim for additional 
compensation for any such change or addition will be considered unless 
the Bidder shall have made a written request therefor to the Owner prior 
to the commencement of work in connection with such change or addition.
---------------------------------------------------------------------------

    \1\ As long as the total price of this contract including all 
amendments is less than 120 percent of the original contract price as 
stated in the acceptance hereto, amendments executed on RUS Form 238 are 
not subject to the approval of the Administrator. Whenever an amendment 
to this contract causes the total amended contract to exceed 120 percent 
of the original contract price, that amendment and all subsequent 
amendments to this contract shall be made subject to the approval of the 
Administrator.
    \2\ See Footnote 1.
---------------------------------------------------------------------------

    e. The Bidder will not perform any work hereunder on Sundays unless 
there is urgent need for such Sunday work and the Owner consents thereto 
in writing. The time for completion specified in subsection a of this 
Section 1 shall not be affected in any way by inclusion of this 
subsection nor by the Owner's consent or lack of consent to Sunday work 
hereunder.
    Section 2. Environmental Protection. The Bidder shall perform work 
in such a manner as to maximize preservation of beauty, conservation of 
natural resources and minimize marring and scarring of the landscape and 
silting of streams. The Bidder shall not deposit trash in streams or 
waterways, and shall not deposit herbicides or other chemicals or their 
containers in or near streams, waterways or pastures. The Bidder shall 
follow, under the general direction of the Engineer, the criteria 
relating to environmental protection as specified herein by the 
Engineer.
    Section 3. The Bidder agrees that in the event this Proposal is 
accepted it will make available for use in connection with the proposed 
construction all necessary tools and equipment and qualified 
superintendents and foremen.
    Section 4. Changes in Construction. The Bidder agrees to make such 
changes in construction previously installed in the Project by the 
Bidder as required by the Owner for prices arrived at as follows:
    a. For substations and other units where only a portion of the 
complete unit is affected by the change, the compensation for such 
change shall be as agreed upon in writing by the Bidder and the Owner 
and approved by the Administrator \3\ prior to the commencement of work 
in connection with such change.
---------------------------------------------------------------------------

    \3\ See Footnote 1.
---------------------------------------------------------------------------

    b. For all other units, the compensation for such change shall be 
the reasonable cost thereof as agreed upon in writing by the Bidder and 
the Owner prior to the commencement of work in connection with such 
change, but in no event shall it exceed two (2) times the labor price 
quoted in the Proposal for the installation of the unit to be changed. 
Such compensation shall be in lieu of any other payment for the 
installation and removal of the original unit. (If a new or replacing 
unit is installed, payment for such new or replacing unit shall be made 
as shown in the final inventory.)
    No payment shall be made to the Bidder for materials or labor 
involved in correcting errors or omissions on the part of the Bidder 
which result in construction not in accordance with the Plans and 
Specifications.
    Section 5. Construction Not in Proposal. The Bidder also agrees that 
when it is necessary to construct units not shown in the Proposal it 
will construct such units for a price arrived at as follows:
    a. The cost of materials shall be determined by the invoices.
    b. The cost of labor shall be the reasonable cost thereof, but in no 
event shall it exceed an amount determined by calculating the ratio of 
the total labor costs to the total material costs in the section of the 
Proposal involved, and multiplying the cost of materials for the unit in 
question by this ratio.
    Section 6. Supervision and Inspection.
    a. The Bidder shall cause the construction work on the Project to 
receive constant supervision by a competent superintendent (hereinafter 
called the ``Superintendent'') who shall be present at all times during 
working hours where construction is being carried on. The Bidder shall 
also employ, in connection with the construction of the Project, 
capable, experienced and reliable foremen and such skilled workmen as 
may be required for the various classes of work to be performed. 
Directions and instructions given to the Superintendent shall be binding 
upon the Bidder.
    b. The Owner reserves the right to require the removal from the 
Project of any employee of the Bidder if in the judgment of the Owner 
such removal shall be necessary in order to protect the interest of the 
Owner. The Owner or the Supervisor, if any, shall have the right to 
require the Bidder to increase the number of its employees and to 
increase or change the amount or kind of tools and equipment if at any 
time the progress of the work shall be unsatisfactory

[[Page 446]]

to the Owner or Supervisor; but the failure of the Owner or Supervisor 
to give any such directions shall not relieve the Bidder of its 
obligations to complete the work within the time and in the manner 
specified in this Proposal.
    c. The manner of construction of the Project, and all materials and 
equipment used therein, shall be subject to the inspection, tests and 
approval of the Owner and the Administrator, and the Bidder shall 
furnish all information required by the Owner or by the Administrator 
concerning the nature or source of any materials incorporated or to be 
incorporated in the Project. The Owner and the Administrator shall have 
the right to inspect all payrolls, invoices of materials, and other data 
and records of the Bidder and of any subcontractor, relevant to the 
construction of the Project. The Bidder shall provide all reasonable 
facilities necessary for such inspection and tests and shall maintain an 
office at the site of the Project, with telephone service where 
obtainable and at least one office employee to whom directions and 
instructions of the Owner may be delivered. Delivery of such directions 
or instructions in writing to the employee of the Bidder at such office 
shall constitute delivery to the Bidder. The Bidder shall have an 
authorized agent accompany the Engineer when final inspection is made 
and, if requested by the Owner, when any other inspection is made.
    d. In the event that the Owner, or the Administrator, shall 
determine that the construction contains or may contain numerous 
defects, it shall be the duty of the Bidder and the Bidder's Surety or 
Sureties, if any, to have an inspection made by an engineer approved by 
the Owner and the Administrator for the purpose of determining the exact 
nature, extent and location of such defects.
    e. The Engineer may recommend to the Owner that the Bidder suspend 
the work wholly or in part for such period or periods as the Engineer 
may deem necessary due to unsuitable weather or such other conditions as 
are considered unfavorable for the satisfactory prosecution of the work 
or because of the failure of the Bidder to comply with any of the 
provisions of the Contract: Provided, however, that the Bidder shall not 
suspend work pursuant to this provision without written authority from 
the Owner so to do. The time of completion hereinabove set forth shall 
be increased by the number of days of any such suspension, except when 
such suspension is due to the failure of the Bidder to comply with any 
of the provisions of this Contract. In the event that work is suspended 
by the Bidder with the consent of the Owner, the Bidder before resuming 
work shall give the Owner at least twenty-four (24) hours notice thereof 
in writing.
    Section 7. Defective Materials and Workmanship.
    a. The acceptance of any materials, equipment (except owner 
furnished materials) or any workmanship by the Owner or the Engineer 
shall not preclude the subsequent rejection thereof if such materials, 
equipment, or workmanship shall be found to be defective after delivery 
or installation, and any such materials, equipment or workmanship found 
defective before final acceptance of the construction shall be replaced 
or remedied, as the case may be, by and at the expense of the Bidder. 
Any such condemned material or equipment shall be immediately removed 
from the site of the Project by the Bidder at the Bidder's expense. The 
Bidder shall not be entitled to any payment hereunder so long as any 
defective materials, equipment or workmanship in respect to the Project, 
of which the Bidder shall have had notice, shall not have been replaced 
or remedied, as the case may be.
    b. Notwithstanding any certificate which may have been given by the 
Owner or the Engineer, if any materials, equipment (except owner-
furnished materials) or any workmanship which does not comply with the 
requirements of this Contract shall be discovered within one (1) year 
after Completion of Construction of the Project, the Bidder shall 
replace such defective materials or equipment or remedy any such 
defective workmanship within thirty (30) days after notice in writing of 
the existence thereof shall have been given by the Owner. If the Bidder 
shall be called upon to replace any defective materials or equipment or 
to remedy defective workmanship as herein provided, the Owner, if so 
requested by the Bidder shall deenergize that section of the Project 
involved in such work. In the event of failure by the Bidder so to do, 
the Owner may replace such defective materials or equipment or remedy 
such defective workmanship, as the case may be, and in such event the 
Bidder shall pay to the Owner the cost and expense thereof.

               Article III--Payments and Release of Liens

    Section 1. Payments to Bidder.
    a. Within the first fifteen (15) days of each calendar month, the 
Owner shall make partial payment to the Bidder for construction 
accomplished during the preceding calendar month on the basis of 
completed Assembly Units furnished and certified to by the Bidder, 
recommended by the Engineer and approved by the Owner solely for the 
purposes of payment: Provided, however, that such approval shall not be 
deemed approval of the workmanship or materials. Only ninety percent 
(90%) of each such estimate approved during the construction of the 
Project shall be paid by the Owner to the Bidder prior to Completion of 
the Project: Provided, however, that at any time after work, which, in 
the sole determination of the Engineer,

[[Page 447]]

amounts to fifty percent (50%) of the Maximum Contract Price has been 
completed, the Owner may elect, in lieu of paying ninety percent (90%) 
of each such subsequent estimate, to pay each such subsequent estimate 
in full. Upon completion by the Bidder of the construction of the 
Project, the Engineer will prepare a Final Inventory of the Project 
showing the total number and character of Assembly Units and, after 
checking such Inventory with the Bidder, will certify it to the Owner, 
together with a certificate of the total cost of the construction 
performed. Upon the approval of such certificates by the Owner and the 
Administrator, the Owner shall make payment to the Bidder of all amounts 
to which the Bidder shall be entitled thereunder which shall not have 
been paid: Provided, however, that such final payment shall be made not 
later than ninety (90) days after the date of Completion of Construction 
of the Project, as specified in the Certificate of Completion, unless 
withheld because of the fault of the Bidder.
    b. The Bidder shall be paid on the basis of the number of 
Construction Units actually installed at the direction of the Owner 
shown by the inventory based on the staking sheets or structure lists; 
Provided, however, that the total cost shall not exceed the maximum 
Contract price for the construction of the Project as set forth in the 
Acceptance, unless such excess shall have been approved in writing by 
the Administrator \4\.
---------------------------------------------------------------------------

    \4\ See Footnote 1.
---------------------------------------------------------------------------

    c. Notwithstanding the provisions of Section 1a above, the Bidder 
may, by giving written notice thereof to the Owner, elect to receive 
payment in full for any Section of the Project upon:
    (1) completion of construction of such Section as certified by the 
Engineer and approved by the Owner and the Administrator;
    (2) submission to the Owner and the Administrator of the releases of 
lien and the certificate referred to in Section 2 hereof;
    (3) approval by the Owner and the Administrator of the inventory in 
respect of such Section; and
    (4) submission to the Owner and the Administrator of the consent in 
writing by the Surety or Sureties, if any, on the Contractor's Bond to 
payment in full for such Section prior to Completion of the Project.
    If no Sections are designated in Article II, Section lc, the term 
``Section'' shall mean for purposes of this subsection c and Article IV, 
Section 3b only, a part of the Project as designated by the Owner which 
represents at least twenty-five percent (25%) of the maximum Contract 
price as stated in Article III, Section 1, and which is capable of being 
energized and operated by the Owner.
    d. Interest at the rate of ____ percent \5\ (____%) per annum shall 
be paid by the Owner to the Bidder on all unpaid balances due on monthly 
estimates, commencing fifteen (15) days after the due date; provided the 
delay in payment beyond the due date is not caused by any condition 
within the control of the Bidder. The due date for purposes of such 
monthly payment shall be the fifteenth day of each calendar month 
provided (1) the Bidder on or before the fifth day of such month shall 
have submitted its certification of Construction Units completed during 
the preceding month and (2) the Owner on or before the fifteenth day of 
such month shall have approved such certification. If, for reasons not 
due to the Bidder's fault, such approval shall not have been given on or 
before the fifteenth day of such month, the due date for purposes of 
this subsection d shall be the fifteenth day of such month 
notwithstanding the absence of the approval of the certification.
---------------------------------------------------------------------------

    \5\ The Owner shall insert a 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.
---------------------------------------------------------------------------

    e. Interest at the rate of ____ percent \6\ (____%) per annum shall 
be paid by the Owner to the Bidder on the final payment for the Project 
or any completed Section thereof, commencing fifteen (15) days after the 
due date. The due date for purposes of such final payment shall be the 
date of approval by the Administrator of all of the documents requiring 
such approval, as a condition precedent to the making of final payment, 
or ninety (90) days after the date of Completion of Construction of the 
Project, as specified in the Certificate of Completion, whichever date 
is earlier.
---------------------------------------------------------------------------

    \6\ See Footnote 5.
---------------------------------------------------------------------------

    f. No payment shall be due while the Bidder is in default in respect 
of any of the provisions of this Contract and the Owner may withhold 
from the Bidder the amount of any claim by a third party against either 
the Bidder or the Owner based upon an alleged failure of the Bidder to 
perform the work hereunder in accordance with the provisions of this 
Contract.
    Section 2. Release of Liens and Certificate of Contractor. (See 
sample RUS Form 224, Waiver and Release of Lien and sample RUS Form 231, 
Certificate of Contractor.) Upon the completion by the Bidder of the 
Project (or any Section thereof if the Bidder shall elect to receive 
payment in full for any Section when completed as provided above) but 
prior to final payment to the Bidder, the Bidder shall deliver to the 
Owner, in duplicate, releases of all liens and of rights to claim any 
lien, in the form attached hereto from all manufacturers, materialmen, 
and

[[Page 448]]

subcontractors furnishing services or materials for the Project or such 
Section and a certificate in the form attached hereto to the effect that 
all labor used on or for the Project or such Section has been paid and 
that all such releases have been submitted to the Owner for approval.
    Section 3. Payments to Materialmen and Subcontractors. The Bidder 
shall pay each materialman, and each subcontractor, if any, within five 
(5) days after receipt of any payment from the Owner, the amount thereof 
allowed the Bidder for and on account of materials furnished or 
construction performed by each materialman or each subcontractor.

            Article IV--Particular Undertakings of the Bidder

    Section 1. Protection to Persons and Property. The Bidder shall at 
all times take all reasonable precautions for the safety of employees on 
the work and of the public, and shall comply with all applicable 
provisions of Federal, State, and Municipal safety laws and building and 
construction codes, as well as the safety rules and regulations of the 
Owner. All machinery and equipment and other physical hazards shall be 
guarded in accordance with the ``Manual of Accident Prevention in 
Construction'' of the Associated General Contractors of America unless 
such instructions are incompatible with Federal, State, or Municipal 
laws or regulations.
    The following provisions shall not limit the generality of the above 
requirements.
    a. The Bidder shall at no time and under no circumstances cause or 
permit any employee of the Bidder to perform any work upon energized 
lines, or upon poles carrying energized lines, unless otherwise 
specified in the Notice and Instructions to Bidders.
    b. The Bidder shall so conduct the construction of the Project as to 
cause the least possible obstruction of public highways.
    c. The Bidder shall provide and maintain all such guard lights and 
other protection for the public as may be required by applicable 
statutes, ordinances and regulations or by local conditions.
    d. The Bidder shall do all things necessary or expedient to properly 
protect any and all parallel, converging and intersecting lines, joint 
line poles, highways and any and all property of others from damage, and 
in the event that any such parallel, converging and intersecting lines, 
joint line poles, highways or other property are damaged in the course 
of the construction of the Project the Bidder shall at its own expense 
restore any or all of such damaged property immediately to as good a 
state as before such damage occurred.
    e. Where the right-of-way of the Project traverses cultivated lands, 
the Bidder shall limit the movement of its crews and equipment so as to 
cause as little damage as possible to crops, orchards or property and 
shall endeavor to avoid marring the lands. All fences which are 
necessarily opened or moved during the construction of the Project shall 
be replaced in as good condition as they were found and precautions 
shall be taken to prevent the escape of livestock. The Bidder shall not 
be responsible for loss of or damage to crops, orchards or property 
(other than livestock) on the right-of-way necessarily incident to the 
construction of the Project and not caused by negligence or inefficient 
operation of the Bidder. The Bidder shall be responsible for all other 
loss of or damage to crops, orchards, or property, whether on or off the 
right-of-way, and for all loss of or damage to livestock caused by the 
construction of the Project. The right-of-way for purposes of this said 
section shall consist of an area extending ____ feet on both sides of 
the center line of the poles along the route of the Project lines, plus 
such area reasonably required by the Bidder for access to the route of 
the Project lines from Public roads to carry on construction activities.
    f. The Project, from the commencement of work to completion, or to 
such earlier date or dates when the Owner may take possession and 
control in whole or in part as hereinafter provided shall be under the 
charge and control of the Bidder and during such period of control by 
the Bidder all risks in connection with the construction of the Project 
and the materials to be used therein shall be borne by the Bidder. The 
Bidder shall make good and fully repair all injuries and damages to the 
Project or any portion thereof under the control of the Bidder by reason 
of any Act of God or other casualty or cause whether or not the same 
shall have occurred by reason of the Bidder's negligence.
    (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.
    (ii) To the maximum extent permitted by law, Bidder shall defend, 
indemnify, and hold harmless Owner and Owner's directors, officers, and 
employees from all liens and claims filed or asserted against Owner, its 
directors, officers, and employees, or Owner's property or facilities, 
for services performed or materials or equipment furnished by Bidder, 
its

[[Page 449]]

subcontractors and suppliers of any tier, and from all losses, demands, 
and causes of action arising out of any such lien or claim. Bidder shall 
promptly discharge or remove any such lien or claim by bonding, payment, 
or otherwise and shall notify Owner promptly when it has done so. If 
Bidder does not cause such lien or claim to be discharged or released by 
payment, bonding, or otherwise, Owner shall have the right (but shall 
not be obligated) to pay all sums necessary to obtain any such discharge 
or release and to deduct all amounts so paid from the amount due Bidder.
    (iii) Bidder shall provide to Owner's satisfaction evidence of 
Bidder's ability to comply with the indemnification provisions of 
subparagraphs i and ii above, which evidence may include but may not be 
limited to a bond or liability insurance policy obtained for this 
purpose through a licensed surety or insurance company.
    g. Any and all excess earth, rock, debris, underbrush and other 
useless material shall be removed by the Bidder from the site of the 
Project as rapidly as practicable as the work progresses.
    h. Upon violation by the Bidder of any of the provisions of this 
Section, after written notice of such violation given to the Bidder by 
the Engineer or the Owner, the Bidder shall immediately correct such 
violation. Upon failure of the Bidder so to do the Owner may correct 
such violation at the Bidder's expense: Provided, however, that the 
Owner may, if it deems it necessary or advisable, correct such violation 
at the Bidder's expense without such prior notice to the Bidder.
    i. The Bidder shall submit to the Owner monthly reports in duplicate 
of all accidents, giving such data as may be prescribed by the Owner.
    j. The Bidder shall not proceed with the cutting of trees or 
clearing of right-of-way without written notification from the owner 
that proper authorization has been received from the owner of the 
property, and the Bidder shall promptly notify the Owner whenever any 
landowner objects to the trimming or felling of any trees or the 
performance of any other work on its land in connection with the Project 
and shall obtain the consent in writing of the Owner before proceeding 
in any such case.
    Section 2. Insurance. The Bidder shall take out and maintain 
throughout the period of this Agreement the following types and minimum 
amounts of insurance:
    a. Workers' compensation and employers' liability insurance as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to the workers' 
compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    b. Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million for each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or polices of insurance, primary and excess including umbrella or 
catastrophe form.
    c. Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, nonowned, or hired, shall 
have limits for bodily injury or death of not less than $1 million per 
person and $1 million for each occurrence, and property damage limits of 
$1 million for each occurrence. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    The Owner shall have the right at any time to require public 
liability insurance and property damage liability insurance greater than 
those required in subsection ``b'' and ``c'' of this Section. In any 
such event, the additional premium or premiums payable solely as the 
result of such additional insurance shall be added to the Contract 
price.
    The Owner shall be named as Additional Insured on all policies of 
insurance required in subsections ``b'' and ``c'' of this Section.
    The policies of insurance shall be in such form and issued by such 
insurer as shall be satisfactory to the Owner. The Bidder shall furnish 
the Owner a certificate evidencing compliance with the foregoing 
requirements which shall provide not less than (30) days prior written 
notice to the Owner of any cancellation or material change in the 
insurance.
    Section 3. Delivery of Possession and Control to Owner.
    a. Upon written request of the Owner the Bidder shall deliver to the 
Owner full possession and control of any portion of the Project provided 
the Bidder shall have been paid at least ninety percent (90%) of the 
cost of construction of such portion. Upon such delivery of the 
possession and control of any portion of the Project to the Owner, the 
risk and obligations of the Bidder as set forth in Article IV, Section 
1f hereof with respect to such portion of the Project so delivered to 
the Owner shall be terminated: Provided, however, that nothing herein 
contained shall relieve the Bidder of any liability with respect to 
defective materials and workmanship as contained in Article II, Section 
6 hereof.

[[Page 450]]

    b. Where the construction of a Section as hereinbefore defined in 
Article II, Section 1c and Article III, Section 1c shall have been 
completed by the Bidder, the Owner agrees, after receipt of a written 
request from the Bidder, to accept delivery of possession and control of 
such Section upon the issuance by the Engineer of a written statement 
that the Section has been inspected and found acceptable by the 
Engineer. Upon such delivery of the possession and control of any such 
Section to the Owner, the risk and obligations of the Bidder as set 
forth in Article IV, Section 1f hereof with respect to such Section so 
delivered to the Owner shall be terminated: Provided, however, that 
nothing herein contained shall relieve the Bidder of any liability with 
respect to defective materials or workmanship as contained in Article 
II, Section 6 hereof.
    Section 4. Energizing the Project.
    a. Prior to Completion of the Project the Owner, upon written notice 
to the Bidder, may test the construction thereof by temporarily 
energizing any portion or portions thereof. During the period of such 
test the portion or portions of the Project so energized shall be 
considered as within the possession and control of the Owner and 
governed by the provisions of Section 3 of this Article. Upon written 
notice to the Bidder by the Owner of the completion of such test and 
upon deenergizing the lines involved therein said portion, or portions 
of the Project shall be considered as returned to the possession and 
control of the Bidder unless the Owner shall elect to continue 
possession and control in the manner provided in Section 3 of this 
Article.
    b. The Owner shall have the right to energize permanently any 
portion or portions of the Project delivered to its possession and 
control pursuant to the provisions of Section 3 of this Article.
    Section 5. Assignment of Guarantees. All guarantees of materials and 
workmanship running in favor of the Bidder shall be transferred and 
assigned to the Owner prior to the time the Bidder receives final 
payment.

                           Article V--Remedies

    Section 1. Completion on Bidder's Default. If default shall be made 
by the Bidder or by any subcontractor in the performance of any of the 
terms of this Proposal, the Owner, without in any manner limiting its 
legal and equitable remedies in the circumstances, may serve upon the 
Bidder and the Surety or Sureties, if any, upon the Contractor's Bond or 
Bonds a written notice requiring the Bidder to cause such default to be 
corrected forthwith. Unless within twenty (20) days after the service of 
such notice upon the Bidder such default shall be corrected or 
arrangements for the correction thereof satisfactory to both the Owner 
and the Administrator shall be made by the Bidder or its Surety or 
Sureties, if any, the Owner may take over the construction of the 
Project and prosecute the same to completion by Contract or otherwise 
for the account and at the expense of the Bidder, and the Bidder and its 
Surety or Sureties, if any, shall be liable to the Owner for any cost or 
expense in excess of the Contract price occasioned thereby. In such 
event the Owner may take possession of and utilize, in completing the 
construction of the Project, any materials, tools, supplies, equipment, 
appliances, and plant belonging to the Bidder or any of its 
subcontractors, which may be situated at the site of the Project. The 
Owner in such contingency may exercise any rights, claims or demands 
which the Bidder may have against third persons in connection with this 
Contract and for such purpose the Bidder does hereby assign, transfer 
and set over unto the Owner all such rights, claims and demands.
    Section 2. Liquidated Damages. The time of the Completion of 
Construction of the Project is of the essence of the Contract. Should 
the Bidder neglect, refuse or fail to complete the construction within 
the time herein agreed upon, after giving effect to extensions of time, 
if any, herein provided, then, in that event and in view of the 
difficulty of estimating with exactness damages caused by such delay, 
the Owner shall have the right to deduct from and retain out of such 
moneys which may be then due, or which may become due and payable to the 
Bidder the sum of ____ dollars (____) per day for each and every day 
that such construction is delayed in its completion beyond the specified 
time, as liquidated damages and not as a penalty; if the amount due and 
to become due from the Owner to the Bidder is insufficient to pay in 
full any such liquidated damages, the Bidder shall pay to the Owner the 
amount necessary to effect such payment in full; Provided, however, that 
the Owner shall promptly notify the Bidder in writing of the manner in 
which the amount retained, deducted or claimed as liquidated damages was 
computed.
    Section 3. Cumulative Remedies. Every right or remedy herein 
conferred upon or reserved to the Owner or the Government or the 
Administrator shall be cumulative, shall be in addition to every right 
and remedy now or hereafter existing at law or in equity or by statute 
and the pursuit of any right or remedy shall not be construed as an 
election: Provided, however, that the provisions of Section 2 of this 
Article shall be the exclusive measure of damages for failure by the 
Bidder to complete the construction of the Project within the time 
herein agreed upon.

                        Article VI--Miscellaneous

    Section 1. Definitions.
    a. The term ``Administrator'' shall mean the Administrator of the 
Rural Utilities

[[Page 451]]

Service of the United States of America and his duly authorized 
representatives or any other person in whom or authority in which may be 
vested the duties and functions which the Administrator is now 
authorized by law to perform.
    b. The term ``Engineer'' shall mean the engineer employed by the 
Owner, with the approval of the Administrator, to provide engineering 
services for the Project and said Engineer's duly authorized assistants 
and representatives.
    c. The term ``Supervisor'' shall mean the person, if any, appointed 
by the Administrator as the representative of the Government under the 
provisions of the Loan Contract providing for such appointment in 
special cases. The term is limited to such special representative of the 
Government, if any, who is responsible exclusively to the Administrator 
and does not refer to the Manager or any other person employed by the 
Owner and responsible to it.
    d. The term ``Project'' shall mean the rural electric system, or 
portion thereof, described in the Plans and Specifications, Construction 
Drawings and maps attached hereto.
    e. The term ``Completion of Construction'' shall mean full 
performance by the Bidder of the Bidder's obligations under the Contract 
and all amendments and revisions thereof except the Bidder's obligations 
in respect of (1) Releases of Liens and Certificate of Contractor under 
Article III, Section 2 hereof, (2) the inventory referred to in Article 
III, Section 1 hereof, and (3) other final documents. The term 
``Completion of the Project'' shall mean full performance by the Bidder 
of the Bidder's obligations under the Contract and all amendments and 
revisions thereof. The Certificate of Completion, signed by the Engineer 
and approved in writing by the Owner and the Administrator, shall be the 
sole and conclusive evidence as to the date of Completion of 
Construction and as to the fact of Completion of the Project.
    Section 2. Materials and Supplies. In the performance of this 
contract there shall be furnished only such unmanufactured articles, 
materials, and supplies as have been mined or produced in the United 
States, Mexico, or Canada, and only such manufactured articles, 
materials, and supplies as have been manufactured in the United States 
substantially all from articles, materials, or supplies mined, produced 
or manufactured, as the case may be, in the United States, Mexico, or 
Canada; provided that other articles, materials, or supplies may be used 
in the event and to the extent that the Administrator shall expressly in 
writing authorize such use pursuant to the provisions of the Rural 
Electrification Act of 1938, being Title IV of Public Resolution No. 
122, 75th Congress, approved June 21, 1938. The Seller agrees to submit 
to the Purchaser such certificates with respect to compliance with the 
foregoing provision as the Administrator from time to time may require.
    Section 3. Patent Infringement. The Bidder shall save harmless and 
indemnify the Owner from any and all claims, suits and proceedings for 
the infringement of any patent or patents covering any materials or 
equipment used in construction of the Project.
    Section 4. Permits for Explosives. All permits necessary for the 
handling or use of dynamite or other explosives in connection with the 
construction of the Project shall be obtained by and at the expense of 
the Bidder.
    Section 5. Compliance with Statutes and Regulations. The Bidder 
shall comply with all applicable statutes, ordinances, rules and 
regulations pertaining to the work. The Bidder acknowledges that it is 
familiar with the Rural Electrification Act of 1936, as amended, the so-
called ``Kick-Back'' Statute thereto, and 18 U.S.C. Secs. 287, 1001, as 
amended. The Bidder understands that the obligations of the parties 
hereunder are subject to the applicable regulations and orders of 
Governmental Agencies having jurisdiction in the premises.
    Section 6. Equal Opportunity Provisions.
    a. Bidder's Representations.
    The Bidder represents that:
    It has ____, does not have ____, 100 or more employees, and if it 
has, that it has ____, has not ____, furnished the Equal Employment 
Opportunity-Employers Information Report EEO-1, Standard Form 100, 
required of employers with 100 or more employees pursuant to Executive 
Order 11246 and Title VII of the Civil Rights Act of 1964.
    The Bidder agrees that it will obtain, prior to the award of any 
subcontract for more than $10,000 hereunder to a subcontractor with 100 
or more employees, a statement, signed by the proposed subcontractor, 
that the proposed subcontractor has filed a current report on Standard 
Form 100.
    The Bidder agrees that if it has 100 or more employees and has not 
submitted a report on Standard Form 100 for the current reporting year 
and that if this Contract will amount to more than $10,000, the Bidder 
will file such report, as required by law, and notify the owner in 
writing of such filing prior to the Owner's acceptance of this Proposal.
    b. Equal Opportunity Clause. During the performance of this 
Contract, the Bidder agrees as follows:
    (1) The Bidder will not discriminate against any employee or 
applicant for employment because of race, color, religion, sex or 
national origin. The Bidder will take affirmative action to ensure that 
applicants are employed, and that employees are treated during 
employment without regard to their race, color, religion, sex or 
national origin. Such action shall include, but not be limited to, the 
following: Employment, upgrading, demotions or transfer; recruitment

[[Page 452]]

or recruitment advertising; layoff or termination; rates of pay or other 
forms of compensation; and selection of training, including 
apprenticeship. The Bidder agrees to post in conspicuous places, 
available to employees and applicants for employment, notices to be 
provided setting forth the provisions of this Equal Opportunity Clause.
    (2) The Bidder will, in all solicitations or advertisements for 
employees placed by or on behalf of the Bidder, state that all qualified 
applicants will receive consideration for employment without regard to 
race, color, religion, sex or national origin.
    (3) The Bidder will send to each labor union or representative of 
workers, with which it has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or workers' representative of the Bidder's commitments under 
this section, and shall post copies of the notice in conspicuous places 
available to employees and applicants for employment.
    (4) The Bidder will comply with all provisions of Executive Order 
11246 of September 24, 1965, and the rules, regulations and relevant 
orders of the Secretary of Labor.
    (5) The Bidder will furnish all information and reports required by 
Executive Order 11246 of September 24, 1965, and by rules, regulations, 
and orders of the Secretary of Labor, or pursuant thereto, and will 
permit access to its books, records, and accounts by the administering 
agency and the Secretary of Labor for purposes of investigation to 
ascertain compliance with such rules, regulations, and orders.
    (6) In the event of the Bidder's noncompliance with the Equal 
Opportunity Clause of this Contract or with any of the said rules, 
regulations, or orders, this Contract may be canceled, terminated, or 
suspended in whole or in part, and the Bidder may be declared ineligible 
for further Government contracts or federally assisted construction 
contracts in accordance with procedures authorized in Executive Order 
11246 of September 24, 1965, and such other sanctions may be imposed and 
remedies invoked as provided in Executive Order 11246 of September 24, 
1965, or by rule, regulation, or order of the Secretary of Labor, or as 
provided by law.
    (7) The Bidder will include this Equal Opportunity Clause in every 
subcontract or purchase order unless exempted by the rules, regulations, 
or order of the Secretary of Labor issued pursuant to Section 204 of 
Executive Order 11246 of September 24, 1965, so that such provisions 
will be binding upon each subcontractor or vendor. The Bidder will take 
such action with respect to any subcontract or purchase order as the 
administering agency may direct as a means of enforcing such provisions, 
including sanctions for noncompliance; Provided, however, that in the 
event Bidder becomes involved in, or is threatened with, litigation with 
a subcontractor or vendor as a result of such direction by the 
administering agency, the Bidder may request the United States to enter 
into such litigation to protect the interests of the United States.
    c. Certificate of Nonsegregated Facilities. The Bidder certifies 
that it does not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it does not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Bidder certifies further 
that it will not maintain or provide for its employees any segregated 
facilities at any of its establishments, and that it will not permit its 
employees to perform their services at any location, under its control, 
where segregated facilities are maintained. The Bidder agrees that a 
breach of this certification is a violation of the Equal Opportunity 
Clause in this Contract. As used in this certification, the term 
``segregated facilities'' means any waiting rooms, work areas, restrooms 
and washrooms, restaurants and other eating areas, timeclocks, locker 
rooms and other storage or dressing areas, parking lots, drinking 
fountains, recreation or entertainment areas, transportation, and 
housing facilities provided for employees which are segregated by 
explicit directive or are in fact segregated on the basis of race, 
color, religion, or national origin, because of habit, local custom, or 
otherwise. The Bidder agrees that (except where it has obtained 
identical certifications from proposed subcontractors for specific time 
periods) it will obtain identical certifications from proposed 
subcontractors prior to the award of subcontracts exceeding $10,000 
which are not exempt from the provisions of the Equal Opportunity 
Clause, and that it will retain such certifications in its files.
    Section 7. Franchises and Rights-of-Way. The Bidder shall be under 
no obligation to obtain or assist in obtaining: Any franchises, 
authorizations, permits or approvals required to be obtained by the 
Owner from Federal, State, County, Municipal or other authorities; any 
rights-of-way over private lands; or any agreements between the Owner 
and third parties with respect to the joint use of poles, crossings, or 
other matter incident to the construction and operation of the Project.
    Section 8. Nonassignment of Contract. The Bidder shall perform 
directly and without subcontracting not less than twenty-five per centum 
(25%) of the construction of the Project, to be calculated on the basis 
of the total Contract price. The Bidder shall not assign the Contract 
effected by an acceptance of this Proposal or any interest in any funds 
that may be due or become due hereunder or enter into any contract with 
any person, firm or corporation for the performance of

[[Page 453]]

the Bidder's obligations hereunder or any part thereof, without the 
approval in writing of the Owner and of the Surety or Sureties, if any, 
on any bond furnished by the Bidder for the faithful performance of the 
Bidder's obligations hereunder. If the Bidder, with the consent of the 
Owner and any Surety or Sureties on the Contractor's Bond or Bonds, 
shall enter into a subcontract with any subcontractor for the 
performance of any part of this Contract, the Bidder shall be as fully 
responsible to the Owner and the Government for the acts and omissions 
of such subcontractor and of persons employed by such subcontractor as 
the Bidder would be for its own acts and omissions and those of persons 
directly employed by it.
    Section 9. Extension to Successors and Assigns. Each and all of the 
covenants and agreements herein contained shall extend to and be binding 
upon the successors and assigns of the parties hereto.
    Section 10. Contractor. Upon acceptance of this Proposal, the 
successful Bidder shall be the Contractor and all references in the 
Proposal to the Bidder shall apply to the Contractor.
    Section 11. Approval by the Administrator. No acceptance of this 
Proposal shall become effective until approval in writing of the 
Administrator: Provided, however, that no obligations shall arise 
hereunder unless such approval is given within forty-five (45) days from 
the date of acceptance by the Owner.

________ (Bidder)
By ________ (President)
________ (Address)
Attest: ________ (Secretary)
Date ________

    The Proposal must be signed with the full name of the Bidder. If the 
Bidder is a partnership, the Proposal must be signed in the partnership 
name by a partner. If the Bidder is a corporation, the Proposal must be 
signed in the corporate name by a duly authorized officer and the 
corporate seal affixed and attested by the Secretary of the Corporation.

                     Transmission Construction Units

                          Section 1--Pole Units

    A pole unit consists of one pole in place. It does not include pole-
top assembly unit or other parts attached to the pole. The first two 
digits indicate the length of the pole; the third digit shows the 
classification per A.S.A. (Example: 45-3 means a pole 45 feet long, 
class 3.)

Species of Timber: ________
Kind of Preservative: (Check one)
1. Creosote ____; 2. Pentachlorophenol ____; 3. Copper Naphthenate ____; 
          4. Waterborne preservative--CCA ____ ACZA ____
Method of Treatment: (Check one)
1. Pressure ____; 2. Thermal process: ____
Pole Plan Under Which the Poles are to be Furnished: (Check one)
1. Insured Warranted ____; 2. Independently Inspected ____; 3. Quality 
          Assured ____; 4. Either Insured Warranted, Independently 
          Inspected, or Quality Assured ____

(Engineer to complete above)

----------------------------------------------------------------------------------------------------------------
                                                          Unit Price                           Extended price-- 
  Unit No.       No. of units    ------------------------------------------------------------  labor & materials
                                         Labor             Materials       Labor & materials                    
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------

Total, Section 1-- ________

                   Section 2--Pole-Top Assembly Units

    A pole-top assembly unit consists of the hardware, crossarms and 
their appurtenances, insulators, etc., except tie wire, required to 
support the power conductors and overhead ground wire. It does not 
include the pole, the downlead, and butt coil, which are separate units.

----------------------------------------------------------------------------------------------------------------
                                                          Unit Price                           Extended price-- 
  Unit No.       No. of units    ------------------------------------------------------------  labor & materials
                                         Labor             Materials       Labor & materials                    
----------------------------------------------------------------------------------------------------------------
TH                                                                                                              
TP                                                                                                              
TS                                                                                                              
TSS                                                                                                             
TSZ                                                                                                             
TUS-1                                                                                                           
TUS-2                                                                                                           
----------------------------------------------------------------------------------------------------------------


[[Page 454]]

Total, Section 2-- ________

                   Section 3--Conductor Assembly Units

    A conductor assembly unit consists of 1,000 feet of a single 
conductor or overhead ground wire, and includes tie wire, sleeves for 
splicing, and armor rods with clips or armor wire where necessary. The 
length of conductor or overhead ground wire shall be determined by 
taking the sum of all straight horizontal span distances between pole 
stakes or from center to center of the poles carrying the conductors. 
The conductor sizes and types listed are the manufacturer's designation.

____ Tension Stringing (Engineer check when required.)

----------------------------------------------------------------------------------------------------------------
                                                          Unit Price                           Extended price-- 
  Unit No.       No. of units    ------------------------------------------------------------  labor & materials
                                         Labor             Materials       Labor & materials                    
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------

Total, Section 3-- ______
    As provided for in the specifications, prior to beginning of work 
the Bidder will furnish the Engineer the following data on tension 
equipment:

Diameter Bull Wheel ________ in.
Diameter Groove ________ in.
Conductor Bending Radius ________ in.
Thickness of Neoprene at Bottom of Groove ________ in.
Stringing Sheave Diameter; Tangent ______ in., Large Angle ______ in.

                      Section 4--Guy Assembly Units

    A guy assembly unit consists of the hardware and wire. Guy guards 
are designated separately.

----------------------------------------------------------------------------------------------------------------
                                                          Unit Price                           Extended price-- 
  Unit No.       No. of units    ------------------------------------------------------------  labor & materials
                                         Labor             Materials       Labor & materials                    
----------------------------------------------------------------------------------------------------------------
TG-1                                                                                                            
TG-2                                                                                                            
TG-3                                                                                                            
TG-4                                                                                                            
TG-5                                                                                                            
----------------------------------------------------------------------------------------------------------------

Total, Section 4-- ________

                    Section 5--Anchor Assembly Units

    An anchor assembly unit consists of the anchor with rod or rods, 
complete, ready for attaching the guy wire.

----------------------------------------------------------------------------------------------------------------
                                                          Unit Price                           Extended price-- 
  Unit No.       No. of units    ------------------------------------------------------------  labor & materials
                                         Labor             Materials       Labor & materials                    
----------------------------------------------------------------------------------------------------------------
TA-1-5                                                                                                          
TA-1-8                                                                                                          
TA-3                                                                                                            
----------------------------------------------------------------------------------------------------------------

Total, Section 5-- ________

                 Section 6--Miscellaneous Assembly Units

    A miscellaneous assembly unit consists of an additional unit needed 
in the Project for line construction but not otherwise listed in the 
Proposal.

----------------------------------------------------------------------------------------------------------------
                                                          Unit Price                           Extended price-- 
  Unit No.       No. of units    ------------------------------------------------------------  labor & materials
                                         Labor             Materials       Labor & materials                    
----------------------------------------------------------------------------------------------------------------
TM                                                                                                              
----------------------------------------------------------------------------------------------------------------


[[Page 455]]

Total, Section 6-- ________

                 Section 7--Right-of-Way Clearing Units

    TM-12. The unit is 1,000 feet in length and ________ (________) feet 
in width (to be measured ________ (________) feet on one side of pole 
line or centerline of structures) of actual clearing of right-of-way. 
This includes clearing of underbrush, tree removal, and such tree 
trimming as is required so that the right-of-way, except for tree stumps 
which shall not exceed ________ in height, shall be clear from the 
ground up on one side of the line of poles carrying conductors (See 
Detail A, Drawing TM-12-2A.) The length of actual clearing shall be 
measured in a straight line, parallel to the horizontal line between 
poles or centerline of structures and across the maximum dimension of 
foliage cleared projected to the ground line (See Detail B, Drawing TM-
12-2A.) All trees and underbrush across the width of the right-of-way 
shall be considered to be grouped together as a single length in 
measuring the total length of clearing (See Detail C, Drawing TM-12-2A.) 
Spaces along the right-of-way in which no trees are to be removed or 
trimmed or underbrush cleared shall be omitted from the total 
measurement. All lengths thus arrived at, added together and divided by 
1,000 shall give the number of TM-12 units of clearing. The Bidder shall 
not remove or trim shade, fruit, or ornamental trees unless so directed 
by the Engineer in writing.
    TM-12 (1). This unit is identical with TM-12, except the full width 
of the right-of-way to be cleared shall be ________ (________) feet wide 
(to be measured ________ (________) feet on each side of the pole line 
or centerline of structures) (See Detail D, Drawing TM-12-2A.)
    TM-13. The unit, for purpose of quoting, is 1,000 feet in length of 
clearing off the right-of-way. The Engineer will select those trees off 
the right-of-way that he deems to be a hazard to the line and will 
designate them to the Bidder in writing as danger trees. When so 
designated, the Bidder shall remove or top such trees at his option 
except that the Bidder shall trim and not remove shade, fruit or 
ornamental trees unless otherwise directed by the Engineer in writing 
(See Drawings TM-12-2A and TM-13 for examples of danger trees.)
    The measurement of length of right-of-way to be cleared shall be 
considered as a straight line parallel to the horizontal line between 
poles or centerline of structures, such measurement of length to be 
based on maximum dimension of foliage (not trunk) projected to the 
ground line (See Details E, F, G and H, Drawing TM-12-2A.) Dead trees 
having no foliage shall be measured across the maximum dimension and 
multiplied by two. (See Detail F, Drawing TM-12-2A.) Each tree so 
removed shall be added together to determine the total length of 
clearing. All lengths thus arrived at, added together and divided by 
1,000 shall give the number of TM-13 units (Example: Details E, F, G and 
H, Drawing TM-12-2A, total 0.10 of a TM-13 unit.)
    TMC-12, TMC-12 (1). These units are identical to the respective TM 
units except that chemical treatment of stumps is required in addition 
to the clearing of underbrush, tree removal and tree trimming. TM-14. 
The unit is 1,000 feet in length and ________ (________) feet in width 
(to be measured feet on one side of right-of-way center line) of actual 
clearing of right-of-way. Trees and underbrush should be cleared from 
the ground up within 10 feet of any structure location. The Engineer 
will mark the trees and brush to be cleared to provide ``undulating'' 
boundaries. Low growing trees and brush are to be left in the right-of-
way to the extent it will not be hazardous to the line or will not 
interfere with the service road. The length of actual clearing shall be 
measured in a straight line parallel to the horizontal line between 
poles or center line of structures and across the maximum dimension of 
foliage cleared projected to the ground line (See Detail B, Drawing TM-
12-2A.) All trees and underbrush cleared across the right-of-way shall 
be considered to be grouped together as a single length in measuring the 
total length of clearing (See Detail C, Drawing TM-12-2A.) Spaces along 
the right-of-way in which no trees are to be removed or trimmed or 
underbrush cleared shall be omitted from the total measurement.
    TM-14 (1). This unit is identical with TM-14 except the full width 
of the right-of-way to be cleared shall be ________ (________) feet wide 
(See Detail D, Drawing TM-12-2A.)
    TM-15. The unit is 1,000 feet in length and ________ feet in width 
(to be measured ________ (________) feet on one side of the right-of-way 
center line) of actual clearing of the right-of-way. Trees and 
underbrush should be cleared from ground up within 10 feet of any 
structure location. The Engineer will mark the trees and brush to be 
cleared to provide a ``feathered'' appearance in the right-of-way. Low 
growing trees and brush are to be left in the right-of-way to the extent 
it will not be hazardous to the line or will not interfere with the 
service road.
    The length of actual clearing shall be measured in a straight line 
parallel to the horizontal line between poles or center line of 
structures and across the maximum dimension of foliage cleared projected 
to ground line (See Detail B, Drawing TM-12-2A). All trees and 
underbrush cleared across the right-of-way shall be considered to be 
grouped together as a single length in measuring the total length of 
clearing (See Detail C, Drawing TM-12-2A). Spaces along the right-of-way 
in which no trees are to be removed or trimmed or underbrush cleared

[[Page 456]]

shall be omitted from the total measurement.
    TM-15 (1). This unit is identical to TM-15 except the full width of 
the right-of-way, to be cleared shall be ________ (________) feet wide 
(See Detail D, Drawing TM-12-2A).
    Additional Requirements. (When specifying TM units denote type of 
disposal A or B).
A. Trees, brush, branches and refuse shall, without delay, be disposed 
          of by such of the following methods as the Engineer will 
          direct Engineer to strike out methods not to be used)
    1. Burned
    2. Piled on one side of right-of-way
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (Describe)________
B. Trees that are felled shall be cut to commercial wood lengths, 
          stacked neatly, and left on the right-of-way for the 
          landowner. Commercial wood length means the length designated 
          by the Engineer but in no case shall it be required to be less 
          than ________ (________) feet. Brush, branches and refuse 
          shall, without delay, be disposed of by such of the following 
          methods as the Engineer will direct (Engineer to strike out 
          methods not to be used).
    1. Burned
    2. Piled on one side of right-of-way
    3. Roller chopped and left on right-of-way in such a manner as not 
to obstruct roads, ditches, drains, etc.
    4. Other (Describe)________

                     Transmission Right-of-Way Unit

----------------------------------------------------------------------------------------------------------------
                                                          Unit Price                           Extended price-- 
  Unit No.       No. of units    ------------------------------------------------------------  labor & materials
                                         Labor             Materials       Labor & materials                    
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------

Total Section 7--________

                  Section 8--Substation Assembly Units

    Description of Construction Units. Each Construction Unit consists 
of a complete installation of the designated portion of a substation as 
specified on the drawings, together with connections to associated 
equipment. Each Construction Unit represents all labor and material 
including necessary accessories completely installed and tested in 
satisfactory operation. Full identification of each Construction Unit 
and all necessary specifications of the installation is shown on the 
drawings.
    Items of material in each Construction Unit shall be of the 
designated size, rating, type, voltage, or other specification in 
accordance with the drawings. The bill of material drawing for each 
substation shows the identification of the Construction Units under 
which the material is to be installed and shows which items of material 
may be partly or entirely found in the lists of owner-furnished 
materials. All items of equipment, unless otherwise specified, are 
mounted on a structure which shall be a Construction Unit of Group A.
    Each Construction Unit is designated by the letter of the Group to 
which it belongs and an identifying number. The same item of equipment 
carries the same Construction Unit designation in all the substations. 
Items of equipment designated by the same Construction Unit in one 
substation are of only one kind as to voltage, type and other 
specifications. The tabulation of construction units for each substation 
is separate and contains all units necessary for construction of that 
substation.
    Group A. Structures. A Construction Unit consists of a structure, or 
structures, with bus supports including insulators and fittings, buses, 
conductors and overhead ground wires to adjacent structures within the 
substation, grounding material to connect equipment with the ground bus, 
and associated material including mounting brackets, supports for 
equipment, clamps and connectors, all as specified in the drawings.
    Group B. Three-Pole Group Operated Air Break Switches. A 
Construction Unit consists of one 3-pole group operated air break switch 
with all accessories and operating mechanisms as specified in the 
drawings.
    Group C. Lightning Arresters. A Construction Unit consists of one 
single-phase lightning arrester.
    Group D. Single Pole Disconnecting Switches. A Construction Unit 
consists of one single pole disconnecting or by-pass switch as specified 
in the drawings. If a fuse disconnect switch is specified, the fuse is 
included with the switch.
    Group E. Oil Circuit Breakers. A Construction Unit consists of one 
complete three-phase power circuit breaker complete with supporting 
frame and control cabinet, unless shown otherwise in the drawings, 
mounted as specified in the drawings.
    Group F. Oil Circuit Reclosers. A Construction Unit consists of a 
complete single-phase or three-phase oil circuit recloser as specified 
in the drawings.
    Group G. Meters, Relays and Instrument Transformers. A Construction 
Unit consists

[[Page 457]]

of one meter, relay, potential transformer or current transformer.
    Group H. Transformers. A Construction Unit consists of one power 
transformer or one station service transformer either single-phase or 
three-phase as specified in the drawings.
    Group I. Voltage Regulators. A Construction Unit consists of one 
single-phase or three-phase voltage regulator as specified in the 
drawings.
    Group J. Communications and Supervisory Control Equipment. A 
Construction Unit consists of carrier current equipment, microwave, or 
other types of communications and supervisory control equipment as 
specified in the drawings.
    Group K. Conduit and Cable. A Construction Unit consists of the 
wire, cable, conduit and accessories necessary to complete the 
installation of equipment in accordance with the specifications and 
drawings, where such installation has not been included in other Groups.
    Group L. Foundations. A Construction Unit consists of concrete 
footings and foundations except for the fence, as specified in the 
drawings.
    Group M. Site Preparation. A Construction Unit consists of clearing, 
grading, drainage work, and surfacing, as specified in the drawings.
    Group N. Fence. A Construction Unit consists of the complete 
installation of the fence, gates, etc., as specified in the drawings.
    Group O. Station Grounding. A Construction Unit consists of the 
complete ground bus including ground rods, grounding mats or platforms, 
except as otherwise provided in other Groups, with connections to 
structures, equipment, and fence as specified in the drawings.
    Group P. Building. A Construction Unit consists of a control 
building or cabinet, on a foundation of Group L and the facilities and 
equipment installed therein as specified in the drawings, except as 
otherwise provided in other Groups.
    Other Groups. The Engineer shall specify such additional Groups as 
may be necessary for the completion of the Project. Description of these 
Groups shall be provided by an addition to this Section of the 
Specifications for Construction.

________ Station Construction Units
Unit No. ________
Name and Description of Construction Unit ________
No. of Units ________
Unit Prices ________
Labor ________
Materials ________
Labor and Materials ________
Extended Price--Labor and Materials ________
Total Price ________

                            Proposal Summary

    Recapitulation of Sections:

Section--1 ________ $ ________
Section--2 ________ $ ________
Section--3 ________ $ ________
Section--4 ________ $ ________
Section--5 ________ $ ________
Section--6 ________ $ ________
Section--7 ________ $ ________
Section--8 ________ $ ________
Total ________ $ ________

                               Acceptance

    Subject to the approval of the Administrator, the Owner hereby 
accepts the foregoing Proposal of the Bidder, ________ for the 
construction of the following:

Transmission Construction Units: Sections: ________
The total contract price is $ ________
________ Owner
By ________ President
________ Secretary
________ Date of Contract

                             [End of clause]

Secs. 1726.353--1726.399  [Reserved]



                      Subpart J--Contract Closeout



Sec. 1726.400  Final contract amendment.

    As needed, a final contract amendment will be prepared and processed 
in accordance with Sec. 1726.24(b) prior to or in conjunction with the 
closeout of the contract.



Sec. 1726.401  Material contract closeout.

    This section is applicable to contracts executed on RUS Form 173.
    (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

[[Page 458]]

shall make final payment to the supplier in accordance with the 
provisions of the material contract or written purchase order.



Sec. 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.



Sec. 1726.403  Project construction contract closeout.

    This section is applicable to contracts executed on RUS Forms 200, 
203, 257, 764, 786, 830, and 831.
    (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

[[Page 459]]

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 181, Certificate of Completion, Contract Construction 
for Buildings (for contracts executed on RUS Form 257), or RUS Form 187, 
Certificate of Completion, Contract Construction (for contracts executed 
on all other forms under this section).
    (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 Forms 203, 764, 830 or 831.
    (vi) Certification by the project architect or engineer in 
accordance with Sec. 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 
the following closeout documents for RUS approval (through the GFR 
except for generation projects):
    (A) RUS Form 181, Certificate of Completion, Contract Construction 
for Buildings (for contracts executed on RUS Form 257), or RUS Form 187, 
Certificate of Completion, Contract Construction (for contracts executed 
on all other forms under this section).
    (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 Forms 203, 764, or 831.
    (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 181 
or RUS Form 187 (as applicable) 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. Where this certification is executed for the 
corporation by a person other than the president, a certified copy of 
the authorization from the corporate board must be included with the

[[Page 460]]

certification. This certification is not a replacement for itemized 
invoices.



Sec. 1726.404  Non-site specific construction contract closeout.

    This section is applicable to contracts executed on RUS Forms 201, 
790, and 792.
    (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.



Sec. 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--Table of Contents




Sec.
1728.10  General purpose and scope.
1728.20  Establishment of standards and specifications.
1728.30  Inclusion of an item for listing or technical acceptance.
1728.40  Procedure for submission of a proposal.
1728.50  Removal of an item from listing or technical acceptance.

[[Page 461]]

1728.60  List of materials and equipment.
1728.70  Procurement of materials.
1728.97  Incorporation by reference of electric standards and 
          specifications.
1728.201  RUS Bulletin 1728H-701, RUS Specification for Wood Crossarms 
          (Solid and Laminated), Transmission Timbers and Pole Keys.
1728.202  RUS Bulletin 1728H-702, RUS Specification for Quality Control 
          and Inspection of Timber Products.

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Editorial Note: Nomenclature changes to part 1728 appear at 55 FR 
39397, Sept. 27, 1990.



Sec. 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.

[50 FR 47710, Nov. 20, 1985. Redesignated at 55 FR 39395, Sept. 27, 
1990]



Sec. 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 Sec. 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 Sec. 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 Sec. 1728.97. RUS will establish 
and define these categories and will establish all criteria for 
acceptability within these categories.

[50 FR 47710, Nov. 20, 1985. Redesignated at 55 FR 39395, Sept. 27, 
1990, and amended at 55 FR 53487, Dec. 31, 1990]



Sec. 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

[[Page 462]]

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),\1\
---------------------------------------------------------------------------

    \1\ Nondomestic items are items which do not qualify as domestic 
products pursuant to RUS ``Buy American'' requirement.
---------------------------------------------------------------------------

    (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 Sec. 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 
Sec. 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.''

[50 FR 47711, Nov. 20, 1985. Redesignated at 55 FR 39395, Sept. 27, 
1990]

[[Page 463]]



Sec. 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.

[50 FR 47711, Nov. 20, 1985. Redesignated at 55 FR 39395, Sept. 27, 
1990]



Sec. 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.''

All committee ``A'' decisions regarding the actions listed above must be 
by unanimous vote. If the vote is not unanimous, the item will 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.
    (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.

[[Page 464]]

    (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.

Failure to obtain a majority vote on any of the above actions shall mean 
that the product will continue to be listed or accepted.

Written notice of Committee ``B's'' decision stating the basis of the 
decision will be provided to the sponsor.
    (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.

Written notice of the Administrator's determination, stating the basis 
for the decision, will be provided to the sponsor.

The Administrator's actions are final.

[50 FR 47711, Nov. 20, 1985. Redesignated at 55 FR 39395, Sept. 27, 
1990]



Sec. 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 Sec. 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

[[Page 465]]

equipment in the List of Materials. Used items will not be considered 
for listing.

[50 FR 47712, Nov. 20, 1985. Redesignated at 55 FR 39395, Sept. 27, 
1990]



Sec. 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.

[50 FR 47712, Nov. 20, 1985. Redesignated at 55 FR 39395, Sept. 27, 
1990]



Sec. 1728.97  Incorporation by reference of electric standards and specifications.

    (a) The following electric bulletins have been approved for 
incorporation by reference by the Director of the Office of the Federal 
Register. The bulletins containing construction standard (50-1 to 50-14) 
and Bulletin 50-18 (DT-5C), may be purchased from the Superintendent of 
Documents, U.S. Government Printing Office, Washington, DC 20402. The 
bulletins containing specifications for materials and equipment (50-15 
to 50-99) may be obtained from the Rural Utilities Service, 
Administrative Services Division, Room 0175-S, Washington, DC 20250. 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.

The bulletins are available for inspection at the Office of the Federal 
Register, 800 North Capitol Street, NW., suite 700, Washington, DC. 
These materials are incorporated as they exist on the date of the 
approval and a notice of any change in these materials will be published 
in the Federal Register.
    (b) List of Bulletins.

Bulletin 50-1 (T-805-B), Electric Transmission Specifications and 
          Drawings for 115 kV to 230 kV (10-88)
Bulletin 50-2 (T-805-A), Electric Transmission Specifications and 
          Drawings for 34.5 kV to 69 kV (2-73)
Bulletin 50-3 (D-804), Specifications and Drawings for 12.5/7.2 kV Line 
          Construction (4-83)
Bulletin 50-4 (D-801), Specification and Drawings for 34.5/19.9 kV 
          Distribution Line Construction (11-86)
Bulletin 50-5 (D-803), Specifications and Drawings for 14.4/24.9 kV Line 
          Construction (9-69)
Bulletin 50-6 (D-806), Specifications and Drawings for Underground 
          Electric Distribution (3-90)
Bulletin 50-15 (DT-3), RUS Specifications for Pole Top Pins with 1\3/8\' 
          Diameter Lead Thread (1-51)
Bulletin 50-16 (DT-4), RUS Specifications for Angle Suspension Brackets 
          (3-52)
Bulletin 50-19 (DT-7), RUS Specifications for Clevis Bolts (8-53)
Bulletin 50-23 (DT-18), RUS Specifications for 60'' Wood Crossarm Braces 
          (2-71)
Bulletin 50-31 (D-3), RUS Specifications for Pole Top Pins with 1'' 
          Diameter Lead Threads (2-79)
Bulletin 50-32 (D-4), RUS Specifications for Steel Crossarm Mounted Pins 
          with 1'' Diameter Lead Threads (10-50)

[[Page 466]]

Bulletin 50-33 (D-5), RUS Specifications for Single and Double Upset 
          Spool Bolts (2-51)
Bulletin 50-34 (D-6), RUS Specifications for Secondary Swinging Clevises 
          (12-70)
Bulletin 50-35 (D-7), RUS Specifications for Service Swinging Clevises 
          (9-52)
Bulletin 50-36 (D-8), RUS Specifications for Service Deadend Clevises 
          (9-52)
Bulletin 50-40 (D-14), RUS Specifications for Pole Top Brackets for 
          Channel Type Pins (9-51)
Bulletin 50-41 (D-15), RUS Specifications for Service Wireholders (11-
          51)
Bulletin 50-55 (T-2), RUS Specifications for Overhead Ground Wire 
          Support Brackets (5-53)
Bulletin 50-56 (T-3), RUS Specifications for Steel Plate Anchors for 
          Transmission Lines (12-53)
Bulletin 50-60 (T-9), RUS Specification--Single Pole Steel Structures, 
          Complete with Arms (12-71)
Bulletin 50-70 (U-1), RUS Specification for 15 kV and 25 kV Primary 
          Underground Power Cable (12-22-87)
Bulletin 50-72 (U-4), RUS Specification for Electrical Equipment 
          Enclosures (5-35 kV) (10-79)
Bulletin 50-73 (U-5), RUS Specifications for Pad-Mounted Transformers 
          (Single and Three-Phase) (1-77)
Bulletin 50-74 (U-6), RUS Specification for Secondary Pedestals (600 
          Volts and Below) (10-79)
Bulletin 50-91 (S-3), RUS Specifications for Step-Down Distribution 
          Substation Transformers (34.4-138 kV) (1-78)
Bulletin 1728F-700, RUS Specification for Wood Poles, Stubs and Anchor 
          Logs (8-93).

[48 FR 31853, July 12, 1983, as amended at 52 FR 22289, June 11, 1987; 
52 FR 48799, Dec. 28, 1987; 53 FR 39229, Oct. 6, 1988; 53 FR 44176, Nov. 
2, 1988; 55 FR 8909, Mar. 9, 1990. Redesignated at 55 FR 39395, Sept. 
27, 1990, as amended at 56 FR 1563, Jan. 16, 1991; 58 FR 41398, Aug. 3, 
1993; 59 FR 66440, Dec. 27, 1994]



Sec. 1728.201  RUS Bulletin 1728H-701, RUS Specification for Wood Crossarms (Solid and Laminated), Transmission Timbers and Pole Keys.

    (a) General provisions. (1) This section implements contractual 
provisions between RUS and borrowers receiving financial assistance from 
RUS. The contractual agreement between RUS and its borrowers requires 
the borrower's system to be constructed in accordance with RUS accepted 
plans and specifications. Each RUS electric borrower must purchase only 
wood crossarms produced in accordance with the specification in this 
section.
    (2) Each RUS electric borrower shall require each contractor to 
agree in writing to furnish only materials produced in accordance with 
the specification in this section.
    (3) This specification describes the minimum acceptable quality of 
wood distribution crossarms and transmission crossarms (hereinafter 
called crossarms) that are purchased by or for RUS borrowers. Where 
there is conflict between this specification and any other specification 
referred to in this section, this specification shall govern.
    (4) Various requirements relating to quality control and inspection 
are contained in Sec. 1728.202 of this part, RUS Specification for 
Quality Control and Inspection of Timber Products. Section 1728.201 of 
this part and the American National Standards Institute (ANSI) 05.2, 
1983, American National Standard for Wood Products--Structural Glued 
Laminated Timber for Utility Structures, shall be followed exactly and 
shall not be interpreted or subjected to judgment by the quality control 
person or an independent inspector.
    (5) The borrower shall purchase from producers only material that 
meets the requirements of this specification. Each purchaser shall use a 
written purchase order to purchase material for use in RUS financed 
systems in order to insure compliance with the standards and 
specifications of this part. The written purchase order shall contain a 
provision that specifically requires the producer to comply with the 
provisions of this part. The purchase order shall contain a provision 
that specifically requires the producer to make the treating plant, and 
storage areas available, during normal business hours, in order for 
representatives of either the purchaser or RUS to inspect such to 
determine compliance with the standards and specifications of this part.
    (6) The borrower shall insure that the producer provides the 
inspectors with full information (drawings, etc.) relating to the 
requirements contained in purchase order which is supplementary to this 
specification.
    (7) The borrower shall insure that the producer maintains, or has 
access to,

[[Page 467]]

adequate laboratory facilities at or very near the treating plant. All 
chemical tests, assays or analyses associated with the treatment shall 
be independently performed in this laboratory by both the quality 
control designee and the borrower's inspector. If acceptable to RUS on a 
case-by-case basis, the producer may use a central laboratory.
    (8) Inspection and treatment of all timber products produced under 
this specification should be performed after receipt of the order from 
the purchaser, except as provided for reserve treated stock.
    (9) The borrower shall insure that each inspection agency maintains 
its own central laboratory with qualified staff capable of completely 
analyzing the preservative and treatments. If acceptable to RUS, this 
central laboratory may be used for the independent inspector's routine 
assays, with results made available the next working day.
    (10) The testing and inspection of the lamination process shall be 
in accordance with American Institute of Timber Construction (AITC) 200-
83, Inspection Manual.
    (11) With the exception of reserve treated stock, all invoices for 
treated timber products shall be accompanied, in duplicate, by a copy of 
the producer's Certificate of Compliance and a copy of either the 
Independent Inspection Report or a Quality Assurance Plan Certificate. 
The certificate shall be presented to the purchaser with the invoice. 
For reserve treated stock, inspection reports shall be available from 
the inspection agency. When shipped from reserve stock, the invoice 
shall bear an endorsement and a further certification by the producer 
that the material meets the requirements of this specification and any 
supplementary requirements cited in the purchase order under which it is 
purchased.
    (12) Crossarms shall be warranted to conform to this specification. 
If any crossarm is determined to be defective or does not conform to 
this specification within 1 year after shipment to the borrower, it 
shall be replaced as promptly as possible by the producer. In the event 
of failure to do so, the purchaser may make such replacement and the 
cost of the crossarm, at destination, recoverable from the producer.
    (b) Definitions.
    Arm refers to structural wood member used to support electrical 
conductors.
    Certificate of compliance is a certification by an authorized 
employee of the producer that the material shipped meets the 
requirements of this specification and any supplementary requirements 
specified in a purchase order from a borrower or the borrower's 
contractor.
    Crossarm is a term used interchangeably with arm.
    Independent inspection relates to examination of material by an 
independent inspector employed by a commercial inspection agency.
    Inspection means an examination of material in sufficient detail to 
insure conformity to all phases of the specification under which it was 
purchased.
    Lot is a quantity of crossarms of like size, conditioning, and 
fabrication, usually making up one treating charge.
    Producer is used to describe the party who manufactures and treats 
crossarms.
    Purchaser refers to either the RUS borrower or contractors acting as 
the borrower's agent, except where a part of the specification 
specifically refers to only the RUS borrower or the contractor.
    Quality control designee refers to an individual designated by the 
producer to be responsible for quality control.
    Reserve treated stock consists of timber products treated in 
accordance with this specification, prior to and in anticipation of the 
receipt of specific orders, and held in storage ready for immediate 
shipment.
    Supplier is a term used interchangeably with producer, or in some 
cases, may be the distributor selling crossarms to the borrower.
    Treating plant is the organization that applies the preservative 
treatment to the crossarms.
    (c) Related specifications and standards incorporated by reference.
    The following specifications and standards are incorporated by 
reference. This incorporation by reference was approved by the Director 
of the Federal Register in accordance with 5

[[Page 468]]

U.S.C. 552(a) and 1 CFR part 51. Copies of each reference are available 
for inspection during normal business hours at RUS, room 1250-S, U.S. 
Department of Agriculture, Washington, DC 20250 or at the Office of the 
Federal Register, 800 North Capitol Street, NW., suite 700, Washington, 
DC. Copies of these standards and specifications may be purchased from 
the addresses shown below.
    (1) West Coast Lumber Inspection Bureau, Standard No. 17, Grading 
Rules for West Coast Lumber, September 1, 1991, available from West 
Coast Lumber Inspection Bureau, P.O. Box 23145, Portland, Oregon 97223, 
telephone (503) 639-0651, Fax (503) 684-8928.
    (2) Southern Pine Inspection Bureau, Standard Grading Rules for 
Southern Pine Lumber, October 15, 1991, available from Southern Pine 
Inspection Bureau, 4709 Scenic Highway, Pensacola, Florida 32504, 
telephone (904) 434-2611.
    (i) Southern Pine Inspection Bureau, Special Product Rules for 
Structural, Industrial, and Railroad-Freight Car Lumber, October 15, 
1991, available from Southern Pine Inspection Bureau, 4709 Scenic 
Highway, Pensacola, Florida 32504, telephone (904) 434-2611.
    (ii) [Reserved]
    (3) American Wood Preservers' Association (AWPA), Book of Standards, 
1991 edition, available from AWPA, P.O. Box 286, Woodstock, Maryland 
21163-0286.
    (i) A1-91, Standard Methods for Analysis of Creosote and Oil-Type 
Preservatives.
    (ii) A2-91, Standard Methods for Analysis of Waterborne 
Preservatives and Fire-Retardant Formulations.
    (iii) A3-91, Standard Methods for Determining Penetration of 
Preservatives and Fire Retardants.
    (iv) A5-91, Standard Methods for Analysis of Oil-Borne 
Preservatives.
    (v) A6-89, Method for the Determination of Oil-Type Preservatives 
and Water in Wood.
    (vi) A7-75, Standard Wet Ashing Procedure for Preparing Wood for 
Chemical Analysis.
    (vii) A9-90, Standard Method for Analysis of Treated Wood and 
Treating Solutions by X-Ray Spectroscopy.
    (viii) A11-83, Standard Method for Analysis of Treated Wood and 
Treating Solutions by Atomic Absorption Spectroscopy.
    (ix) C1-91, All Timber Products--Preservative Treatment by Pressure 
Processes.
    (x) C4-91, Poles--Preservative Treatment by Pressure Processes.
    (xi) C8-91, Western Red Cedar and Alaska Yellow Cedar Poles--
Preservative Treatment by the Full-Length Thermal Process.
    (xii) C10-91, Lodgepole Pine Poles--Preservative Treatment by the 
Full-Length Thermal Process.
    (xiii) C12-90, Western Larch Poles--Full-Length Preservative 
Treatment by Thermal Process.
    (xiv) M1-90, Standard for the Purchase of Treated Wood Products.
    (xv) M2-91, Standard for Inspection of Treated Timber Products.
    (xvi) M3-81, Standard Quality Control Procedures for Wood Preserving 
Plants.
    (xvii) M4-91, Standard for the Care of Preservative-Treated Wood 
Products.
    (xviii) P1/P13-91, Standard for Coal Tar Creosote for Land and, 
Fresh Water and Marine (Coastal Water Use).
    (xix) P5-91, Standards for Waterborne Preservatives.
    (xx) P8-91, Standards for Oil-Borne Preservatives.
    (xxi) P9-91, Standards for Solvents and Formulations for Organic 
Preservative Systems.
    (4) American Institute of Timber Construction (AITC) 200-83, 
Inspection Manual, 1987 edition, available from AITC, 333 West Hampden 
Avenue, Englewood, Colorado 80110, telephone (303) 761-3212.
    (5) American National Standards Institute (ANSI) 05.2-1983, American 
National Standard for Wood Products--Structural Glued Laminated Timber 
for Utility Structures, available from ANSI, 1430 Broadway, New York, 
New York 10018.
    (6) American Society for Testing and Materials (ASTM) D9-87 (1992), 
Standard Terminology Relating to Wood, available from ASTM, 1916 Race 
Street, Philadelphia, PA 19103-1187, telephone number (215) 299-5585.
    (d) Independent inspection plan.

[[Page 469]]

    This plan or a Quality Assurance Plan, as described in paragraph (e) 
of this section, is acceptable for supplying crossarms. All crossarms 
produced under the independent inspection plan for use on an RUS 
financed system shall be inspected by a qualified independent inspector 
in accordance with Sec. 1728.202 of this part.
    (1) The borrower has the prerogative to contract directly with the 
inspection agency for service. The borrower should, where practical, 
select the inspection agency so that continual employment is dependent 
only on performance acceptable to the borrower and in accordance with 
this specification. The selected inspection agency shall not subcontract 
the service to any other inspection agency without the prior written 
consent by the borrower.
    (2) The producer shall not be a party to the selection of the 
inspection agency by the borrower and shall not interfere with the work 
of the inspector, except to provide notification of the readiness of 
material for inspection. To obtain the inspection services for reserve 
stock, the producer may deal directly with the inspection agency. Under 
the Independent Inspection Plan, the producer shall not treat material 
before it has been properly inspected in the white, as evidenced by the 
inspector's hammer mark.
    (3) The methods of inspection described in this section and in 
Sec. 1728.202 of this part shall be used no matter which plan crossarms 
are produced under, i.e., Independent Inspection Plan, or Quality 
Assurance Plans, as described in this section. The number of crossarms 
actually inspected by monitors of quality control under a Quality 
Assurance Plan may vary from the number of crossarms inspected under the 
Independent Inspection Plan.
    (e) Quality assurance plans.
    The producer shall furnish crossarms conforming to this 
specification as monitored by a Quality Assurance Plan acceptable to 
RUS. RUS borrower groups or agents for borrower groups endeavoring to 
operate Quality Assurance Plans shall submit their plan for assuring 
quality control to the Director, Electric Staff Division, Rural 
Utilities Service, Washington, DC 20250-1500, for specific approval 
prior to contracting with RUS borrowers under such plans.
    (f) Material requirements--(1) Material and grade. All crossarms 
furnished under this specification shall be free of brashy wood, decay, 
and insect holes larger than 3/32 of an inch (0.24 cm), and shall meet 
additional requirements as shown on specific drawings. They shall be 
made of one of the following:
    (i) Douglas-fir which conforms to the applicable crossarm provisions 
of paragraphs 170 and 170a, or the applicable transmission arm 
provisions of paragraphs 169 and 169a of the 1991 Standard Grading Rules 
for West Coast Lumber No. 17. All references to Douglas-fir shall be of 
coastal origin;
    (ii) Southern Yellow Pine which conforms to the provisions of Dense 
Industrial Crossarm 65, as described in paragraph 31.2 in Southern Pine 
Inspection Bureau 1991 Special Product Rules for Southern Pine; or
    (iii) Laminated wood crossarms shall conform to ANSI 05.2-1983, and 
have at least the same load carrying capacity as the solid sawn arm it 
replaces. The load carrying capacity of the laminated arms shall be 
determined by one of the procedures outlined in ANSI 05.2.
    (2) Borrowers may use alternative wood crossarms that are listed in 
RUS Bulletin 1728C-100, List of Materials Acceptable for Use on Systems 
of RUS Electrification Borrowers.
    (3) Knots. Sound, firm, and tight knots, if well spaced, are 
allowed.
    (i) Slightly decayed knots are permitted, except on the top face, 
provided the decay extends no more than 3/4 of an inch (1.91 cm) into 
the knot and provided the cavities will drain water when the arm is 
installed. For knots to be considered well spaced, the sum of the sizes 
of all knots in any 6 inches (15.24 cm) of length of a piece shall not 
exceed twice the size of the largest knot permitted. More than one knot 
of maximum permissible size shall not be in the same 6 inches (15.24 cm) 
of length. Slightly decayed, firm, or sound ``Pin knots'' (3/8 of an 
inch (0.95 cm) or less) are not considered in size, spacing, or zone 
considerations.
    (ii) Knots are subject to the following limits on size and location:

[[Page 470]]



                    Knot Limits For Distribution Arms                   
                 DRAWING M-19 (SEE FIGURE 1, EXHIBIT A)                 
                        All Dimensions in Inches                        
------------------------------------------------------------------------
                                                           Maximum Knot 
                                                             Diameter   
               Class of Knot and Location                ---------------
                                                           Close   Dense
                                                           Grain   Grain
------------------------------------------------------------------------
Round Knots                                                             
  Single Knot: Maximum Diameter.........................                
    Center Section*.....................................                
      Upper Half........................................     3/4       1
      Lower Half........................................       1   1-1/4
    Elsewhere...........................................   1-1/4   1-1/2
                                                                        
Sum of Diameters in a 6-Inch Length: Maximum                            
    Center Section......................................                
      Upper Half........................................   1-1/2       2
      Lower Half........................................       2   2-1/2
    Elsewhere...........................................   2-1/2       3
------------------------------------------------------------------------


------------------------------------------------------------------------
                   Inch                                  Cm             
------------------------------------------------------------------------
3/4                                         1.91                        
1                                           2.54                        
1-1/4                                       3.18                        
1-3/8                                       3.49                        
1-1/2                                       3.81                        
1-3/4                                       4.45                        
1-7/8                                       4.76                        
2                                           5.08                        
2-1/4                                       5.72                        
2-1/2                                       6.35                        
3-1/4                                       8.26                        
3-1/2                                       8.89                        
3-5/8                                       9.21                        
4-5/8                                       11.75                       
5-5/8                                       14.29                       
7-3/8                                       18.73                       
9-3/8                                       23.81                       
------------------------------------------------------------------------


                    Knot Limits For Transmission Arms                   
                       (SEE FIGURE 2, EXHIBIT A)'                       
                        All Dimensions in Inches                        
------------------------------------------------------------------------
                                             Maximum Diameter For Single
         Pole Mounting Hole Zone*                       Knot            
------------------------------------------------------------------------
Upper Half (inner zone)                     3/4                         
Upper Half (outer zone)                     1 for close grain           
                                            1-1/4 dense grain           
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                        Wide Face (Two  
                                                            Sides)      
   Other Locations Transmission Arm Size**    Narrow -------------------
                                               Face              Along  
                                                       Edge   Centerline
------------------------------------------------------------------------
4-5/8 x 5-5/8 or less                              1   1-1/4     1-1/4  
5-5/8 x 7-3/8                                  1-1/4   1-3/8     1-7/8  
3-5/8 x 9-3/8                                    3/4   1-3/4    2-1/4   
------------------------------------------------------------------------
*No knot will be closer than its diameter to the pole mounting hole.    
**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 3/8 of an inch (0.95 cm) deep on one face and the maximum round 
knot for its particular location on the worst face, with a maximum width 
of 1 inch (2.54 cm) measured at the midpoint of the spiked section. 
Elsewhere across the bottom or side faces, spike knots shall not exceed 
1/2 the equivalent displacement of a round knot permitted at that 
location, provided that the depth of the knot on the worst face shall 
not exceed the maximum round knot allowed at that location.
    (v) Loose knots and knot holes shall drain water when the arm is 
normally installed. In the center section, upper half, they shall not be 
greater than 1/2 the dimensions of round knots. Elsewhere, they shall 
not be greater than the round knot dimension. They shall be prohibited 
in deadend arms.
    (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) Knot spacing. 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) Knots which have a maximum of 5/8 inch (1.59 cm) diameter may 
intersect pin holes in the center section. One inch (2.54 cm) diameter 
knots may intersect pin holes elsewhere.
    (4) Miscellaneous characteristics, features and requirements.
    (i) The top face of distribution crossarms shall not have more than 
four medium pitch and bark pockets in 8

[[Page 471]]

foot (2.4 m) arms, and not more than five pitch and bark pockets in 10 
foot (3.0 m) arms. Elsewhere a maximum of six medium pockets in 8 foot 
(2.4 m) arms and eight in 10 foot (3.0 m) arms shall be permitted. 
Equivalent smaller pockets shall be permissible. An occasional large 
pocket is permissible.
    (ii) Shakes shall be prohibited.
     (iii) Checks. Prior to treatment on properly seasoned arms, single 
face checks shall not exceed an average penetration of 1/4 the depth 
from any face and shall be limited to 10 inches (25.40 cm) long on the 
top face, and 1/3 the arm length on the other faces. Checks shall not be 
repeated in the same line of grain in adjacent pin holes. The sum of the 
average depths of checks occurring in the same plane on opposite faces 
shall be limited to 1/4 the face depth.
    (iv) Compression wood shall be prohibited on any face. It is 
permitted if wholly enclosed in the arm, more than six annual rings from 
the surface, and not over 3/8 of an inch (0.95 cm) in width.
    (v) Insect holes larger than 3/32 of an inch (0.24 cm) shall be 
prohibited. Pin holes (i.e. holes not over 1/16 of an inch (0.16 cm) 
diameter) shall be allowed if scattered and not exceeding 10 percent of 
the arm girth.
    (vi) Wane shall be allowed on one edge, limited to approximately 1 
inch (2.54 cm), measured across the corner. Outside of the top center 
section, an aggregate length not to exceed 2 feet may have wane up to 1-
1/2 inches (3.81 cm) on an occasional piece on one or both edges. Bark 
shall be removed.
    (vii) Prior to preservative treatment, crook, bow, or twist shall 
not exceed 1/2 of an inch (1.27 cm) in 8 foot arms (2.4 m) and 5/8 of an 
inch (1.59 cm) in 10 foot (3.0 m) arms.
    (g) Manufacture. (1) All dimensions and tolerances shall conform to 
those shown on the drawings in this section or drawings supplied with 
the purchase order. Drawings supplied shall meet or exceed minimum 
dimensions and tolerances shown on the drawings in this section. Cross-
sectional dimensions shall be measured and judged at about 1/4 the arm 
length, except when the defects of ``skip dressing'' or ``machine bite 
or offset'' are involved.
    (2) Lamination techniques shall comply with ANSI 05.2-1983.
    (3) 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 1/8 of an inch (0.32 cm) of the center-line 
locations on the face in which it appears. The holes shall be 
perpendicular to the starting and finishing faces.
    (4) 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 3/8 of an inch (0.95 cm) radius. The two bottom 
edges may be slightly eased 1/8 of an inch (0.32 cm) radius for the 
entire length.
    (5) Incising. The lengthwise surfaces of Douglas-fir crossarms shall 
be incised approximately 1/4 of an inch (0.64 cm) deep. The incision 
shall be reasonably clean cut with a spacing pattern that insures 
uniform penetration of preservative.
    (6) Workmanship. All crossarms shall be first quality workmanship. 
Crossarms shall be dressed on four sides, although ``hit and miss 
skips'' may occur on two adjacent faces on occasional pieces. Five (5) 
percent of a lot or shipment may be 1/8 of an inch (0.32 cm) scant in 
thickness or width at the ends for a length not exceeding 6 inches 
(15.24 cm), or may have 1/8 of an inch (0.32 cm) machine bite on offset.
    (h) Conditioning prior to treatment. (1) All solid sawn crossarms 
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. Southern Yellow Pine arms shall have 
an average moisture content of 22 percent or less, with a maximum not to 
exceed 30 percent.
    (2) Moisture content levels shall be measured at about 1/4 the 
length and at a depth of about 1/5 the crossarm's thickness. 
Additionally, the moisture content gradient between the shell (i.e. 1/4 
of an inch (0.64 cm) deep) and the core (i.e. about 1 inch (2.54 cm) 
deep) shall not exceed 5 percentage points.
    (3) A minimum of at least 20 solid sawn crossarms per treating 
charge

[[Page 472]]

shall be measured to verify moisture content and shall be duly recorded 
by the quality control designee or independent inspector.
    (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.
    (i) Preservatives. (1) The preservatives shall be:
    (i) Creosote which conforms to the requirements of AWPA Standard P1 
when analyzed in accordance with the methods in AWPA Standard A1, 
sections 2, 3, 4, either 5 or 9, and 6;
    (ii) Pentachlorophenol which contains not less than 95 percent 
chlorinated phenols and conforms to AWPA Standard P8 when analyzed in 
accordance with AWPA Standard A5 or A9. The hydrocarbon solvents for 
introducing the preservative into the wood shall meet the requirements 
of AWPA Standard P9 Type A; or
    (iii) Waterborne preservatives, which may only be one of the 
following:
    (A) Ammoniacal Copper Arsenates (ACA) and Ammoniacal Copper Zinc 
Arsenate (ACZA) which shall meet the requirements of AWPA Standard P5, 
when analyzed in accordance with methods in AWPA Standards A2, A9, or 
A11; and
    (B) Chromated Copper Arsenates (CCA) which shall meet the 
requirements of one of the formulations given in AWPA Standard P5, 
sections 4, 5 or 6, and 10. Tests to establish conformity shall be made 
in accordance with AWPA Standards A2, A9, or A11.
    (1) The pH of treating solutions of the waterborne preservatives 
shown in AWPA Standard P5, section 10, shall be determined in accordance 
with AWPA Standard A2, section 8.
    (2) Waterborne preservatives are available either as oxides, which 
form non-ionizing chemical compounds in the wood, or as salts, which 
leave ionizing compounds as well as non-ionizing compounds in the wood. 
Salt formulations of a waterborne preservative are more corrosive to 
metal than the oxide formulation and may cause surface deposits. Unless 
otherwise specified in the purchase order, the oxide formulations of 
waterborne preservatives shall be supplied.
    (3) Douglas-fir crossarms shall not be treated with CCA 
preservatives.
    (4) Materials treated with waterborne preservatives shall be free of 
visible surface deposits.
    (iv) Copper Naphthenate (CuN) concentrate used to prepare wood 
preserving solutions shall contain not less than 6 percent nor more than 
8 percent copper in the form of Copper Naphthenate and shall conform to 
AWPA Standard P8 when analyzed in accordance with AWPA Standard A5. The 
hydrocarbon solvents for introducing the preservative into the wood 
shall meet the requirements of AWPA Standard P9 Type A.
    (2) [Reserved]
    (j) Preservative treatment. (1) All timber products treated under 
this specification shall be treated by either a pressure or a thermal 
(nonpressure) process.
    (2) These materials may be further conditioned by steaming, or by 
heating in hot oil (Douglas-fir), within the following limits:

------------------------------------------------------------------------
                                           Time                         
                                           Hours    Temperature Deg. F  
                                          (max.)          (max.)        
------------------------------------------------------------------------
Steam                                        3    220 (104.4C)          
Heating in Preservative                      3    210 (98.9C)           
------------------------------------------------------------------------

    (3) A final steam or hot oil bath may be used only to meet 
cleanliness requirements of paragraph (k) of this section. Total 
duration of the final steam bath shall not exceed 2 hours and the 
temperature shall not exceed 240 degrees Fahrenheit (115.6C).
    (k) Results of treatments. (1) The quality control designee 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 not less than 20 crossarms 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 
(7.62 cm) from the end of the arm and no closer than 3 inches (7.62 cm) 
from the edge of the holes. The bored holes shall be plugged with 
preservative-treated plugs driven into the arm. Borings from laminated 
arms

[[Page 473]]

shall not be taken from the same laminate unless there is an end joint 
separation.
    (3) Penetration by the preservative, as determined in accordance 
with AWPA Standard A3, shall be 100 percent of the sapwood in crossarms. 
In the heartwood of Douglas-fir crossarms, the penetration shall be not 
less than 3 inches (7.62 cm) longitudinally from the edge of holes and 
ends, and at least 3/16 inch (0.45 cm) from the surface of any face.
    (4) Retention of preservative in the outer 6/10 of an inch (1.52 cm) 
for Douglas-fir and one inch (2.54 cm) for Southern Yellow Pine assay 
zones at the treating plant shall be not less than:

------------------------------------------------------------------------
                                                          AWPA Analysis 
            Preservative               Retention (pcf)        Method    
------------------------------------------------------------------------
Creosote                              8                  A6             
Pentachlorophenol                     0.4*               A5             
ACA, ACZA, or CCA                     0.4                A2, A7, A9, or 
                                                          A11           
Copper Naphthenate                    0.04               A5, A9, or A11 
------------------------------------------------------------------------
*This retention is for the lime ignition method. The copper pyridine    
  method, retention 0.36 pcf, is required when timbers may have been in 
  contact with salt water, and for all species native to the Pacific    
  coast region. It is not required when it specifically states on the   
  rough sawn material invoice that this material has not been in contact
  with salt water or is shown by analysis to have no additional         
  chlorides present in the wood before treating.                        

    (5) Cleanliness of lengthwise surfaces of all crossarms shall be 
free from tarry, greasy, or sticky material, and from oil exudation and 
pentachlorophenol crystallization (blooming).
    (6) Re-treatment of materials which do not meet the penetration and 
retention requirements of this specification may be done only twice. 
Initial treatment steaming time plus re-treatment steaming time, 
combined, shall not exceed time allowed in paragraph (i) of this 
section.
    (l) Marks and brands. (1) All crossarms shall be branded (hot brand) 
or die-stamped legibly and to a depth of approximately 1/16 of an inch 
(0.16 cm) before treatment.
    (2) The letters and figures shall be not less than 1/2 of an inch 
(1.27 cm) in height. The top of the brand shall be oriented to the top 
of the arm.
    (3) The brand or die-stamp shall include:
    (i) The manufacturer's identification symbol;
    (ii) Month and year of manufacture;
    (iii) Species of timber such as DF for Douglas-fir and SP for 
Southern Yellow Pine; and
    (iv) The preservative notated with a C for creosote, P for penta, S 
for salts, or N for Copper Naphthenate.
    (4) An example is:

    M-6-72  Manufacturer--Month--Year
    DF-P      Douglas-fir--penta treated

    (5) The brand or stamp shall be placed on either of the wide 
surfaces of the arms, oriented with letters right side up towards the 
top of the arm and preferably about 1 foot (30.48 cm) from the midpoint 
of the arm.
    (6) The mark should be approximately the same location on each type 
of crossarm of each producer.
    (7) Brands, inspection marks, or quality assurance marks shall be 
removed from arms that do not meet these specifications
    (m) Storage. (1) Producers may treat crossarms for reserve stock 
under any of the RUS approved plans. Prior to treating reserve stock, 
and annually thereafter, producers shall notify the Director of the 
Electric Staff Division of their intent to treat reserve stock. The 
letter of notification shall be addressed to the Director, Electric 
Staff Division, Rural Utilities Service, Washington, DC 20250-1500.
    (2) RUS shall acknowledge, by letter, each notification of intent to 
treat material for reserve stock under the RUS specification.
    (3) RUS's letter acknowledging the plant's advance notice of intent 
to treat material for reserve treated stock for the calendar year in 
question shall be evidence of compliance with the notification 
requirements.
    (4) Producers shall notify RUS of:
    (i) The locations of all storage or distribution yards where reserve 
treated stock will be maintained;
    (ii) The designation of the RUS-approved plan;
    (iii) The name of the selected inspection agency, where applicable; 
and
    (iv) Any changes that occur during the year.
    (5) Crossarms treated with oil-borne preservatives which have been 
held in storage for more than 1 year before shipment to the borrower, 
shall be reassayed before shipment and shall be

[[Page 474]]

re-treated if found nonconforming for retention on orders placed in 
accordance with this section.
    (6) The crossarms shall meet the assay after re-treatment in 
accordance with paragraph (k) of this section.
    (7) Crossarms which are held in storage after final acceptance shall 
be stacked in piles or on skids in such a manner as to assure good 
ventilation. The stacks shall be covered or stored indoors for 
protection from the sun and weather to reduce checking, bending, and 
loss of preservative.
    (8) Borrowers or their contractors shall not purchase reserve 
treated stock from plants that fail to comply with the notification 
requirements.
    (n) Drawings. (1) The drawings of Exhibit B of this section, 
Crossarm Drilling Guide, have a type number and show in detail the hole 
size, shape, and pattern desired for crossarms ordered under this 
specification.
    (2) Purchase orders shall indicate the type required.
    (3) Crossarms shall be furnished in accordance with the details of 
these drawings or in accordance with drawings attached to the purchase 
order
    (4) Technical drawings for transmission crossarms are published in 
RUS Bulletin 1728F-T805B (formerly 50-1), Electric Transmission 
Specifications and Drawings, 115kV through 230kV, and RUS Bulletin 
1728F-T805A (formerly 50-2), Electric Transmission Specification and 
Drawings, 34.5kV through 69kV.
    (5) Appropriate drawings for transmission arms are to be specified 
and included with purchase orders.
    (o) Destination inspection. (1) When cross-sectional tolerances are 
measured at destination, average shrinkage allowance shall be considered 
using the arm's current moisture content and actual size.
    (2) Using the average shrinkage allowances for Douglas-fir and 
Southern Yellow Pine as 1 percent size change for each four point 
moisture content change below the fiber saturation point, calculations 
can be made to determine if the arm met the minimum size at time of 
manufacture, when the arm was to meet the average moisture content.

[[Page 475]]

     Exhibit A to Sec. 1728.201--Distribution and Transmission Arms

[GRAPHIC] [TIFF OMITTED] TC16SE91.002


[[Page 476]]


           Exhibit B to Sec. 1728.201--Crossarm Drilling Guide

[GRAPHIC] [TIFF OMITTED] TC16SE91.003


[58 FR 41396, Aug. 3, 1993]

[[Page 477]]



Sec. 1728.202  RUS Bulletin 1728H-702, RUS Specification for Quality Control and Inspection of Timber Products.

    (a) Scope. This specification describes in more detail the 
responsibilities and procedures pertaining to quality control for 
crossarms, as specified in Sec. 1728.201 of this part, and poles, 
covered in RUS Bulletin 1728F-700, incorporated by reference in 
Sec. 1728.97 of this part and in Sec. 1755.97 of 7 CFR part 1755.
    (b) Related specifications and standards incorporated by reference.
    The following specifications and standards referenced throughout 
this section are incorporated by reference. This incorporation by 
reference is approved by the Director of the Federal Register in 
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies of each are 
available for inspection during normal business hours at RUS, room 1250-
S, U.S. Department of Agriculture, Washington, DC 20250 or at the Office 
of the Federal Register, 800 North Capitol Street, NW., suite 700, 
Washington, DC. Copies of these standards and specifications may be 
purchased from the addresses shown below.
    (1) American Wood-Preservers' Association (AWPA), Book of Standards, 
1991 edition, available from AWPA, P.O. Box 286, Woodstock, Maryland 
21163-0286.
    (i) A1-91, Standard for Coal Tar Creosote for Land and Fresh Water 
Use.
    (ii) A2-91, Standard Methods for Analysis of Waterborne 
Preservatives and Fire-Retardant Formulations.
    (iii) A3-91, Standard Methods for Determining Penetration of 
Preservatives and Fire Retardants.
    (iv) A5-91, Standard Methods for Analysis of Oil-Borne 
Preservatives.
    (v) A6-89, Method for the Determination of Water and Oil-Type 
Preservatives in Wood.
    (vi) A7-75, Wet ashing Procedure for Preparing Wood for Chemical 
Analysis.
    (vii) A9-90, Standard Method for Analysis of Treated Wood and 
Treating Solutions by X-Ray Emission Spectroscopy.
    (viii) A11-83, Analysis of Treated Wood and Treating Solutions by 
Atomic Absorption Spectroscopy.
    (ix) C1-91, Standard for Preservative Treatment by Pressure 
Processes All Timber Products.
    (x) C4-91, Standard for the Preservative Treatment of Poles by 
Pressure Processes.
    (xi) C8-91, Standard for the Full-Length Thermal Process Treatment 
of Western Red Cedar Poles.
    (xii) C10-91, Lodgepole Pine Poles--Preservative Treatment by the 
Full-Length Thermal Process.
    (xiii) C12-90, Western Larch Poles--Full-Length preservative 
Treatment by Thermal Process.
    (xiv) M1-90, Standard for the Purchase and Preservation of Forest 
Products.
    (xv) M2-91, Standard Instructions for the Inspection of Preservative 
Treatment of Wood.
    (xvi) M3-81, Standard Quality Control Procedures for Wood Preserving 
Plants.
    (xvii) M4-91, Standard for the Care of Preservative-Treated Wood 
Products.
    (xviii) P1/P13-91, Standard for Coal Tar Creosote for Land and, 
Fresh Water and Marine (Coastal Water Use).
    (xix) P5-91, Standards for Water-Borne Preservatives.
    (xx) P8-91, Standards for Oil-Borne Preservatives.
    (xxi) P9-91, Standards for Solvents for Organic Preservative 
Systems.
    (2) American Institute of Timber Construction (AITC) 200-83, 
Inspection Manual, 1987 edition, available from AITC, 333 West Hampden 
Avenue, Englewood, Colorado 80110.
    (3) American National Standards Institute (ANSI) 05.2-1983, American 
National Standard for Wood Products--Structural Glued Laminated Timber 
for Utility Structures, available from ANSI, 1430 Broadway, New York, 
New York 10018.
    (4) American National Standards Institute/American Institute of 
Timber Construction (ANSI/AITC) A190.1-1983, American National Standard 
for Wood Products--Structural Glued Laminated Timber, available from 
ANSI, 1430 Broadway, New York, New York 10018.
    (5) American Society for Testing and Materials (ASTM) D9-87 (1992), 
Standard Terminology Relating to Wood, available from ASTM, 1916 Race 
Street,

[[Page 478]]

Philadelphia, Pennsylvania 19103-1187, telephone number (215) 299-5585.
    (c) General stipulations. (1) Each RUS electric borrower shall 
submit to the Director, Electric Staff Division, Rural Utilities 
Service, room 1250-S, 14th and Independence Avenue, SW., Washington, DC 
20250-1500, in January of each year a list of plants from which it 
obtained poles or crossarms during the preceding calendar year.
    (2) Ultimate quality control is the responsibility of the producer's 
management; however, a member of the producer's staff shall be 
designated quality control designee and charged with the responsibility 
for the exercise of proper quality control procedures. The requirements 
in American Wood Preservers' Association (AWPA) Standard M3, covering 
records, adequate laboratory, plant gauges, and other plant facilities 
including proper storage, shall be followed.
    (3) The methods of inspection described in this section shall be 
used no matter which plan timber products are purchased under, i.e., 
Insured Warranty Plan, Independent Inspection Plan, or Quality Assurance 
Plans as described in Sec. 1728.201 of this part or RUS Bulletin 1728F-
700. The number of poles and crossarms actually inspected by monitors 
for quality control under a Quality Assurance Plan or the Insured 
Warranty Plan may vary from the number of poles and crossarms inspected 
under the Independent Inspection Plan. Under the Independent Inspection 
Plan, each pole and a sample number of crossarms shall be inspected.
    (4) Under the Independent Inspection Plan, the RUS borrower should 
designate in the purchase order which inspection agency it has selected. 
Unless the RUS borrower contracts for inspection as a separate 
transaction, the treating company shall obtain the services of the RUS 
borrower's designated inspection agency. For reserve treated stock for 
purchase under the Independent Inspection Plan, the treating company 
shall obtain the services of an inspection agency. Selection of and 
changes in inspection agencies for reserve treated stock shall be 
promptly reported to the Director, Electric Staff Division, Rural 
Utilities Service, Washington, DC 20250-1500, in accordance with RUS 
Bulletin 1728F-700, and Sec. 1728.201.
    (5) Individual inspectors in the employ of Independent Inspection 
Agencies shall be experienced and competent. The inspector shall perform 
all phases of the inspection personally and in the proper sequence. The 
primary responsibility of the inspector is to determine, for the 
borrower, by careful inspection and verification, that the timber 
products, preservative, and treatment meet the requirements of RUS 
Bulletin 1728F-700 and Bulletin 1728H-701 and that the methods, storage 
facilities, and production equipment conform to applicable RUS 
specifications. For details of the recommended inspector's 
qualifications see appendix A of this section.
    (6) Laminated materials for use on RUS borrower systems shall follow 
manufacturing and quality control requirements as specified in ANSI 
05.2--1983, American National Standard for Wood Products--Structural 
Glued Laminated Timber for Utility Structures, and ANSI/AITC A190.1-
1983, American National Standard for Wood Products--Structural Glued 
Laminated Timber. The product shall be marked and certified.
    (i) Laminated material shall be inspected by a qualified inspection 
and testing agency.
    (ii) Quality control of material shall be performed to determine 
conformance with Sec. 1728.201 of this part and AITC 200-83, Inspection 
Manual.
    (d) Quality control and inspection procedures for product 
acceptance. It is the responsibility of the plant quality control 
designee to perform the following procedures to insure that a particular 
lot of material conforms to the requirements of the applicable RUS 
specification prior to treatment. After the plant quality control 
designee has performed these procedures, a particular lot of material 
shall be released to the inspector for verification of conformance.
    (1) Poles can be purchased under any of the three purchase plans. 
These plans are Insured Warranty Plan, Independent Inspection Plan, or a 
Quality Assurance Plan. Under the Independent Inspection Plan, all poles 
in a lot shall

[[Page 479]]

be inspected. Under the Insured Warranty Plan and a Quality Assurance 
Plan, the number of poles in a lot actually inspected may be less than 
every pole, depending on the terms of the plans.
    (i) Ample space and assistance shall be provided by the treating 
plant for handling and turning to insure that the surfaces of all items 
can be adequately inspected.
    (ii) Under the Independent Inspection Plan, all poles shall be 
inspected for conformance to the requirements of RUS Bulletin 1728F-700. 
If a pole is rejected and the cause of rejection is corrected, the 
rejected pole may be offered again for inspection as new material.
    (iii) Dimensions, length, and circumference shall be measured by a 
standard steel pole tape to determine that they are in agreement with 
the details for class and length in the brand and butt stamp. If it is 
obvious by visual comparison with a measured pole that the brand 
information is correct, individual poles need not be measured. Pole 
circumference dimensions made prior to treatment shall govern 
acceptance. Reduction in dimension due to treatment and shipping shall 
be not more than 2 percent below the minimum for the pole class.
    (iv) If 15 percent of the poles in a lot offered for inspection are 
defective, the inspector shall terminate the inspection. Re-examination 
of an entire lot by plant quality control shall be required when the 
number of rejected poles equals or exceeds 15 percent of the lot 
inspected. All defective or nonconforming poles either shall be removed 
from the lot or marked out.
    (v) Poles in a lot inspected for decay shall be of the same 
seasoning condition. If the independent inspector suspects that decay 
has occurred, he shall cut a slice from both ends for closer 
examination. If 5 percent of the inspected poles in a lot shows evidence 
of decay, the entire lot shall be unconditionally rejected without 
further sorting.
    (vi) Moisture content, when limited by the purchaser, as stated on 
the borrower's purchase order, shall be measured by calibrated electric 
moisture meter. Calibration of the 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.
    (vii) Material failing to conform for moisture content may be 
retested upon request after a recalibration of the instrument. The 
results of the second test shall govern disposition of the lot.
    (viii) Re-examination for any mechanical damage or deterioration and 
for original acceptance shall be conducted on timber products not 
treated within 10 days after original inspection.
    (2) Crossarms can be purchased only under either of two purchase 
plans. These plans are the Independent Inspection Plan or Quality 
Assurance Plans. Under the Independent Inspection Plan, crossarms are to 
be inspected prior to manufacture, during manufacture, and after 
treatment. Under a Quality Assurance Plan, crossarms are monitored 
according to the terms of the quality assurance program acceptable to 
RUS.
    (i) Inspection prior to treatment shall include:
    (A) Surface inspection of all ends of all arms. This is usually done 
on the stacks of arms prior to manufacture. Particular attention shall 
be paid to defects commonly found in the ends, such as compression wood, 
red heart and other forms of decay, shakes, splits, through checks, 
scantiness, honeycomb, and low density, determined by rings per inch 
(centimeter) and percent of summerwood. Whenever the number of 
nonconforming arms is found to exceed 0.5 percent of the lot or one arm, 
whichever is greater, the entire lot shall be rejected for excess number 
of defective ends. After the producer has removed or marked out the 
defective material, the arms may be resubmitted for inspection.
    (B) Surface inspection of the lengthwise sides performed on a random 
representative sample. The sample size shall equal 20 percent of a lot 
size or 200 arms, whichever is smaller. The inspector shall examine side 
surfaces as they are slowly rotated. When necessary, the rotation may be 
stopped for closer inspection. Whenever the number of nonconforming arms 
is found to exceed 2 percent of the sample size, the entire lot shall be 
rejected. After the producer has removed or marked out

[[Page 480]]

the defective material, the arms may be resubmitted for inspection.
    (C) Check of moisture content of the random sample by a calibrated 
moisture meter.
    (D) Check of crossarm dimensions of the random sample measured after 
surfacing.
    (ii) Inspection during manufacture shall consist of:
    (A) Checking bolt and insulator pin holes for squareness and 
excessive splintering;
    (B) Checking brands for completeness, location, and legibility; and
    (C) Checking arms for conformance.
    (iii) Under the Independent Inspection Plan, there shall be a final 
inspection during and after treatment for preservative retention and 
penetration and for damage.
    (3) Structural glued laminated timber shall be tested and inspected 
in accordance with AITC 200-83, Inspection Manual. Grade of lumber shall 
be inspected by a qualified grader for specified quality, and so marked, 
in accordance with grading rules of the American Lumber Standards. 
Adhesives used for all structural arms shall meet requirements of ANSI 
05.2-83, paragraph 5.2. Melamine urea adhesives shall not be used. End 
joint spacings and limitations shall be in accordance with ANSI 05.2-83.
    (e) Preservatives. (1) Creosote shall conform to the requirements of 
AWPA Standard P1 when analyzed by AWPA Standard Al, sections 2, 3, 4, 
either 5 or 9, and 6.
    (i) Each occasional charge, all material treated in a cylinder at 
one time, shall be analyzed.
    (ii) The first charge and one of every five charges randomly 
selected in consecutive charges shall be analyzed.
    (2) Solutions of waterborne preservatives shall be analyzed for 
components in accordance with AWPA Standards A2, A9, or A11, and shall 
meet the requirements of P5 for composition. AWPA A2 shall be used as a 
referee method.
    (3) Pentachlorophenol shall contain not less than 95 percent 
chlorinated phenols and conform to AWPA Standard P8 in hydrocarbon 
solvent AWPA P9 Type A.
    (4) Copper Naphthenate in hydrocarbon solvent (AWPA P9 Type A) shall 
contain not less than 6 percent nor more than 8 percent copper in the 
form of Copper Naphthenate and conform to AWPA Standard P8 when analyzed 
in accordance with AWPA Standard A5.
    (f) Plant facilities and inspection during treatment. (1) 
Manufacturing and treating plant facilities shall conform to AWPA 
Standard M3, paragraph 3. Pressure plants shall be equipped with 
recording instruments to register time, pressure, temperature and vacuum 
during each cycle of treatment. They shall also be equipped with 
indicating thermometers and pressure and vacuum gauges to check the 
accuracy of the recorders. Work tanks shall be equipped with a 
thermometer. Thermal treating vats shall be equipped with a time and 
temperature recorder and with an indicating thermometer. Temperature 
recording devices are not mandatory for plants treating exclusively with 
waterborne preservatives.
    (2) Under the Independent Inspection Plan, the inspector shall be 
present during the treatment procedure, except at times when it may be 
impractical, such as during late night or early morning treatments. At 
such times, temperature, pressure, and vacuum data shall be taken from 
the recording charts.
    (3) Recording instruments shall be checked with indicating gauges 
and thermometers. Inaccuracies shall be referred to the treating company 
for prompt correction. In the event of an inaccuracy, indicating 
possible damage to the material, the inspector shall reject the charge.
    (g) Results of treatment. (1) Poles shall be tested for retention 
and penetration by means of a calibrated increment borer 0.2 inches 
(0.51 cm)  0.02 inches (0.05 cm) in diameter in accordance 
with procedures in AWPA Standard M2, paragraph 5.22. Under the 
Independent Inspection Plan, all treating charges shall be tested for 
retention and penetration. Plant quality control and independent 
inspection shall do their analyses separately. Under the Insured 
Warranty Plan and Quality Assurance Plans, the frequency of testing 
retention and penetration may vary according to the plan.

[[Page 481]]

    (i) Western red and northern white cedars and western larch poles 
shall be bored at any point of the periphery approximately 6-12 inches 
(15.24-30.48 cm) above ground line and all other species approximately 1 
foot (30.48 cm) above or below the brand.
    (ii) Penetration shall be determined in accordance with AWPA 
Standard A3. Chrome Azurol S and Penta-Check shall be used to determine 
penetration of copper containing preservatives and penta, respectively.
    (iii) Retention sampling.
    (A) When there are 20 or more poles in the treating charge, the 
retention sample for creosote shall consist of 20 assay zones from 
southern pine and Douglas-fir poles. All poles in charges with fewer 
than 20 poles shall be bored once. Charges with less than 15 poles shall 
be bored once and bored again on a random basis to obtain a minimum of 
15 assay zones.
    (B) Retention samples shall be taken from 20 poles in charges of 20 
or more poles.
    (C) Retention samples for Alaska yellow, western red, and northern 
white cedars shall be comprised of a minimum of 30 assay zones for 
creosote and waterborne preservatives. For penta charges of fewer than 
30 poles, the sample shall contain the assay zone from each pole in the 
lot.
    (D) Retention samples shall be comprised of borings, representative 
of pole volumes for each class and length in the charge. Further 
selection and marking of poles of mixed seasoning, volume, and location 
on the tram shall be made as illustrated in the following table:

------------------------------------------------------------------------
                                                  Vol.            Number
       Number of Poles           Class/Length    in cu.   Total     of  
                                                   ft.   Volume  Borings
------------------------------------------------------------------------
27                             7/30(09.1 m)      232     15      3      
26                             4/35(10.7 m)      447     29      6      
11                             5/35(10.7 m)      163     10      2      
55*                            6/35(10.7 m)      704     46      9      
                                                --------                
          Total..............                    1,546                  
------------------------------------------------------------------------
*If a portion of these poles were green and some partially seasoned,    
  then the number of borings should reflect the approximate percentage  
  of each.                                                              

     (iv) When material in a lot consists of fewer pieces than the 
designated minimum number of samples for assay, additional borings shall 
be taken so as to make up at least the minimum sample, and in such 
manner that the sample is representative of the lot of material with 
respect to any variations in size, seasoning condition, or other 
features that might affect the results of treatment.
     (v) Analyses for preservative retention shall be performed.
     (A) Creosote shall be analyzed by AWPA Standard A6.
     (B) Penta shall be analyzed by AWPA Standard A5 or A9. Copper 
pyridine method is required when timber may have been in contact with 
salt water and for all species native to the Pacific coast region, 
unless the raw material invoice specifically states that the material 
either has not been in contact with salt water or has been shown by 
analysis to have contained no additional chlorides before treating.
     (C) Copper Naphthenate shall be analyzed by tests in accordance 
with AWPA Standards A5 or A9.
     (D) Waterborne preservatives shall be analyzed by tests in 
accordance with AWPA Standards A2, A7, A9, or A11.
     (E) Prior to unloading a tram, the inspectors may take their own 
samples and analyze them concurrently with the quality control designee, 
but each shall work independently, and quality control data shall be 
presented before acceptance of the charge.
     (vi) Penetration sampling of poles.
     (A) Group A poles consist of poles with a circumference of 37.5 
inches (95.25 cm) or less at 6 feet (1.8 m) from butt.
     (1) Bore 20 Group A poles or 20 percent of the poles, whichever is 
greater. Accept if 100 percent of the sample conform; otherwise, bore 
all poles.
     (2) Re-treat the charge if more than 15 percent of the borings are 
found to be nonconforming.
     (3) Re-treat all nonconforming poles if 15 percent or fewer fail 
the requirement.
     (B) Group B poles consist of poles with circumference greater than 
37.5 inches (95.25 cm) at 6 feet (1.8 m) from the butt.
     (1) For Group B poles 50 feet (15.2 m) and shorter, bore each pole 
and re-treat only those found to be nonconforming, unless more than l5 
percent fail; in that case, re-treat the entire lot.

[[Page 482]]

     (2) For Group B poles longer than 50 feet (15.2 m), bore each pole 
twice at 90 degrees apart around the pole and accept only those poles 
conforming to the penetration requirement in both borings. All 
nonconforming poles may be re-treated only twice.
     (vii) All holes (nominal 0.2 of an inch (0.05 cm) diam. bit) shall 
be promptly filled with treated, tight-fitting wood plugs.
     (2) Under the Independent Inspection Plan, all treating charges of 
crossarms shall be tested for retention and penetration. Plant quality 
control inspectors and independent inspectors shall do their analyses 
independently. Under the Quality Assurance Plans, the frequency of 
testing retention and penetration may vary according to the plan.
     (i) The penetration and retention sample shall consist of 20 (48 
for creosote) outer 6/10 of an inch (1.52 cm) for Douglas-fir and 1 inch 
(2.54 cm) for Southern Yellow Pine zones from borings taken from any 
face except the top face at a location as close to the end as possible 
being at least 3 inches (7.62 cm) from the end of the arm and no closer 
than 3 inches from the edge of any holes. For laminated material, 
borings shall be taken from laminates on a random basis.
     (ii) Penetration shall be tested by taking not less than 20 borings 
from 20 crossarms in each charge, determined in accordance with AWPA 
Standard A3. Chrome Azurol S and Penta-Check shall be used to determine 
penetration of copper containing preservatives and penta, respectively.
     (3) Laminated material shall be checked for any evidence of 
delamination due to treatment and for the identifying quality stamp of 
AITC or American Plywood Association (APA).
     (4) When x-ray fluorescence (XRF) instruments are used to analyze 
preservative or retention, Periodic Instrument Checks (PIC) shall be 
made by the treating plant and any outside inspection agency using the 
treating plant's instrument or its own. Appendix B of this section 
outlines a recommended procedure.
     (5) At a minimum, treating plants shall perform the PIC weekly and 
record the results in the instrument's log, which shall be stored with 
the instrument. Independent inspection agencies shall use their own 
samples to perform the PIC on treater's instrument once per visit, not 
to exceed one PIC per week. Inspection agencies shall record their 
results in the instrument's log and state the date of its latest PIC on 
all treating reports.
     (6) XRF instruments shall be accurate and reliable, and they shall 
generate reproducible results. Instruments shall have thorough 
instructions which should include recommendations on drying techniques, 
equipment, and density calculations. These drying recommendations shall 
be followed when using these instruments.
     (h) Product acceptance. Under the Independent Inspection Plan, the 
inspector shall signify acceptance by marking each piece of accepted 
material with a clear, legible hammer stamp in one end prior to 
treatment and in the other end after treatment. The inspector shall 
personally mark each piece, and shall not delegate this responsibility 
to another person.
    (i) Charge inspection reports.
     (1) Inspection Reports shall cover the following:
     (i) The total pieces in the lot, number of and causes for 
rejection;
     (ii) The conditioning of the material prior to treatment;
     (iii) The analyses of preservative identified by the analyst's 
signature or certification;
     (iv) The details of treatment; and
     (v) The results of treatment. These results shall include the 
following:
     (A) The depth of penetration for retention sample and a summary of 
all poles rejected for insufficient penetration;
     (B) Worksheets for retention analyses, each identified by quality 
control designee and independent inspector;
     (C) The number of pieces offered and rejected, together with the 
cause(s) for rejection;
     (D) The date of latest Periodic Instrument Check.
     (2) On each inspection report the independent inspector and the 
plant quality control designee shall certify, in writing, that the 
material listed on the report has been inspected before,

[[Page 483]]

during, and after treatment, and that the preservative used was analyzed 
in accordance with the requirements of this section.
     (3) Each inspector or inspection agency shall retain for a period 
of 1 year a copy or transcript of each report of inspection, together 
with laboratory worksheets covering retention by assay and preservative 
analyses for the purchaser, and on request shall furnish a copy or 
transcript of any of these reports to the Director, Electric Staff 
Division, Rural Utilities Service, Washington, DC 20250-1500.
    (j) Charge numbers on re-treat poles. The letter ``R'' shall be 
added to the original charge number in the butts of all poles that are 
re-treated for insufficient penetration or retention of preservative. 
All poles that fail to meet treatment requirements after two re-
treatments shall be permanently rejected.
    (k) Safety provisions. Poles intended for RUS borrowers shall not be 
inspected when, in the opinion of the inspector, unsafe conditions are 
present.

   Appendix A to Sec. 1728.202--Recommended Inspectors' Qualifications

    (a) Inspection agencies should see that inspectors assigned to the 
inspection of timber products and treatment for RUS borrowers are 
competent and experienced.
     (b) Recommended experience. In general, any of the following 
examples are recommended as minimum qualifying experience before a new 
inspector may be permitted to inspect timber products for RUS borrowers:
     (1) Three years' experience as an inspector of timber and the 
preservative treatment of timber.
     (2) Three years' experience in timber treating plant quality 
control work.
     (3) Under the direct supervision of an experienced, well-qualified 
inspector, who has performed the following:
     (i) Inspected at least 2,500 poles and/or crossarms ``in the 
white.''
     (ii) Checked preservative penetration results on at least 500 poles 
and crossarms.
     (iii) Made at least 35 wood assays for preservative retention.
     (iv) Made at least 25 analyses of each type preservative used on 
material the person is assigned to inspect.
     (v) In both (b)(1) and (b)(2) of this appendix A, the experience 
should be not less than that required in (b)(3)(i), (b)(3)(ii), 
(b)(3)(iii), and (b)(3)(iv).
     (4) Inspectors experienced in the inspections of one product, such 
as poles, should not be qualified to inspect another product, such as 
crossarms, until the above experience is gained.
     (5) The inspector should be especially well informed in wood 
preservation and the operation of a timber treating plant, and be 
competent in preservative analysis and other laboratory work.
     (6) In all cases, an inspector should be thoroughly instructed in 
the application of RUS specifications and the standards pertaining 
thereto before being permitted to independently inspect timber products 
and the treatments applied to them. Knowledge of these specifications 
and standards, as well as the inspector's proficiency, may be checked 
routinely by members of the RUS staff.

      Appendix B to Sec. 1728.202--Periodic Instrument Check X-ray 
                              Fluorescence

     (a) General. The following sample calibration standards and 
procedures may be used in lieu of comparison with analysis by wet ash or 
lime ignition methods.
     (b) Penta. Until such time as AWPA approves calibration standards 
for penta, the following method should be used to run a salt water 
solution to measure Cl (chloride).
     (1) Standard Solution. Dry approximately 15 grams of reagent grade 
NaCl at 105 deg.C for 1 hour. Weigh 10.00 grams into a tared beaker. Add 
distilled water until the total weight is 100.00 grams. Stir until 
completely dissolved. This will give a 10 percent weight to weight 
solution of NaCl.
     (2) Baseline Check. (i) Insure that the instrument is in good 
agreement with lime ignition.
     (ii) Record any user correction factors.
     (iii) Stabilize and standardize the instrument.
     (iv) Run the salt solution five times using the PENTA-OIL 
calibration mode.
     (v) Record the average and standard deviation of the values for 
percent penta. The average value will now be considered the nominal 
value.
     (3) Periodic Instrument Check. Run the salt solution two times and 
average the results. If the value is more than  5 percent of 
the nominal value, the instrument needs further calibration, following 
manufacturer's recommendation.
     (c) Waterborne preservatives. Treaters and inspection agencies 
should purchase AWPA Committee P-5 Standard Reference Materials to 
analyze on their instruments. Reference materials should be in the 
retention range of the material being produced at the plants. If the 
value is more than  5 percent of the nominal value, the 
instrument needs further calibration. AWPA Committee P-5 Standard 
Reference Materials may be purchased from:


[[Page 484]]


    American Wood Preservers' Association, P.O. Box 286, Woodstock, 
Maryland 21163, Phone: (410) 456-3169.

[58 FR 41406, Aug. 3, 1993]



   PART 1730--ELECTRIC SYSTEM OPERATIONS AND MAINTENANCE  [RESERVED]






PART 1735--GENERAL POLICIES, TYPES OF LOANS, LOAN REQUIREMENTS--TELEPHONE PROGRAM--Table of Contents




                           Subpart A--General

Sec.
1735.1  General statement.
1735.2  Definitions.
1735.3  Availability of forms.
1735.4--1735.9  [Reserved]

               Subpart B--Loan Purposes and Basic Policies

1735.10  General.
1735.11  Area coverage.
1735.12  Nonduplication.
1735.13  Location of facilities and service for nonrural subscribers.
1735.14  Borrower eligibility.
1735.15  Civil rights.
1735.16  Minimum loan amount.
1735.17  Facilities financed.
1735.18  Additional equity.
1735.19  Mergers and consolidations.
1735.20  Acquisitions.
1735.21  Refinancing loans.
1735.22  Loan security.
1735.23--1735.29  [Reserved]

                        Subpart C--Types of Loans

1735.30  Hardship loans.
1735.31  RUS cost-of-money and RTB loans.
1735.32  Guaranteed loans.
1735.33--1735.39  [Reserved]

                        Subpart D--Terms of Loans

1735.40  General.
1735.41  Notes.
1735.42  [Reserved]
1735.43  Payments on loans.
1735.44  Prepayment premiums.
1735.45  Extension of payments.
1735.46  Loan security documents.
1735.47  Rescissions of loans.
1735.48--1735.49  [Reserved]

             Subpart E--Basic Requirements for Loan Approval

1735.50  Administrative findings.
1735.51  Required findings.
1735.52  Findings required for particular loan purposes.
1735.53--1735.59  [Reserved]

        Subpart F--Mortgage Controls on Acquisitions and Mergers

1735.60  Specific provisions.
1735.61  Approval criteria.
1735.62  Approval of acquisitions and mergers.
1735.63--1735.69  [Reserved]

              Subpart G--Acquisitions Involving Loan Funds

1735.70  Use of loan funds.
1735.71  Nonrural areas.
1735.72  Acquisition agreements.
1735.73  Loan design.
1735.74  Submission of data.
1735.75  Interim financing.
1735.76  Acquisition of affiliates.
1735.77  Release of loan funds, requisitions, advances.
1735.78--1735.79  [Reserved]

 Subpart H--Acquisitions or Mergers Not Involving Additional Loan Funds

1735.80  Submission of data.
1735.81--1735.89  [Reserved]

        Subpart I--Requirements for All Acquisitions and Mergers

1735.90  Preliminary approvals.
1735.91  Location of facilities.
1735.92  Accounting considerations.
1735.93  Notes.
1735.94  Final approval and closing procedure.
1735.95  Unadvanced loan funds.
1735.96--1735.99  [Reserved]

                    Subpart J--Toll Line Acquisitions

1735.100  Use of loan funds.
1735.101  With nonloan funds.

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Editorial Note: Nomenclature changes to part 1735 appear at 55 FR 
39397, Sept. 27, 1990.



                           Subpart A--General



Sec. 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,

[[Page 485]]

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.

[55 FR 39395, Sept. 27, 1990; 55 FR 41170, Oct. 9, 1990]



Sec. 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.
    Adjusted assets has the meaning as defined in Article II, section 
15(d) of the standard RUS mortgage. See 7 CFR part 1758.
    Adjusted net worth has the meaning as defined in Article II, section 
15(d) of the standard RUS mortgage. See 7 CFR part 1751.
    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.
    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 
Sec. 2.4 of the standard loan contract into which all RUS loan funds are 
advanced. See 7 CFR part 1758.
    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 and RTB borrowers for that class of facility.
    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

[[Page 486]]

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 Sec. 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.
    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.
    Mortgage means the security agreement between RUS and the borrower, 
including any amendments and supplements thereto.
    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 Sec. 1735.31(c). 
RUS cost-of-money loans are made concurrently with RTB loans.
    RTB loan means a loan made by the Rural Telephone Bank (RTB) under 
section 408 of the RE Act bearing an interest rate as determined under 7 
CFR 1610.10. RTB loans are made concurrently with RUS cost-of-money 
loans.
    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. The population figure is obtained from the most 
recent data available, such as from the Bureau of the Census and Rand 
McNally and Company. 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.
    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.
    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

[[Page 487]]

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.

[54 FR 13351, Apr. 3, 1989; 54 FR 16194, Apr. 21, 1989. Redesignated at 
55 FR 39395, Sept. 27, 1990, as amended at 56 FR 26596, June 10, 1991; 
58 FR 66253, Dec. 20, 1993]



Sec. 1735.3  Availability of 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.

[54 FR 13351, Apr. 3, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, 
and amended at 59 FR 66441, Dec. 27, 1994]
Secs. 1735.4--1735.9  [Reserved]



               Subpart B--Loan Purposes and Basic Policies

    Source: 54 FR 13351, Apr. 3, 1989, unless otherwise noted. 
Redesignated at 55 FR 39395, Sept. 27, 1990.



Sec. 1735.10  General.

    (a) The Rural Utilities Service (RUS) makes loans to furnish and 
improve telephone service in rural areas. 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 specialized and technical 
accounting, engineering, and other managerial assistance in the 
construction and operation of their facilities when necessary to aid the 
development of rural telephone service and to protect loan security.
    (b) RUS will not make hardship loans, RUS cost-of-money loans, or 
RTB loans for any purposes that, in RUS's opinion, are inconsistent with 
the borrower achieving the requirements stated in the State's 
telecommunications 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) RUS will not deny or reduce a loan or an advance of loan funds 
based on a borrower's level of general funds.
    (d) No fees or charges are assessed for any type of loan or 
guarantee provided by RUS or the Rural Telephone Bank (RTB).
    (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.

[58 FR 66253, Dec. 20, 1993, as amended at 59 FR 17464, Apr. 13, 1994]



Sec. 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.



Sec. 1735.12  Nonduplication.

    (a) In states having a state regulatory body with authority to 
regulate

[[Page 488]]

telephone service and to require certificates of convenience and 
necessity, the borrower must obtain such a certificate before RUS will 
make a loan. Facilities or services not specifically covered by such 
certificate will be subject to the provisions of Sec. 1735.12(b).
    (b) In states where there is no such regulatory body, 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.
    (c) RUS shall consider the following criteria in determining whether 
service is reasonably adequate:
    (1) Availability of telephone service to commercial establishments, 
professional offices, essential community services, and residences in 
the community.
    (2) Reasonable audibility and clarity of sound transmission and 
reception.
    (3) Absence of frequent interruptions.
    (4) Adequacy of line circuits and central office facilities to 
permit reasonably frequent subscriber use without unreasonable delay.
    (5) Availability of connections with other exchanges and with the 
interexchange facilities of the Nation.
    (6) Any other criteria the Administrator determines to be applicable 
to the particular case.



Sec. 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

[[Page 489]]

    (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.

[54 FR 13351, Apr. 3, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, 
as amended at 58 FR 66253, Dec. 20, 1993]



Sec. 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.
    (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 must provide or propose to provide the 
basic local exchange telephone service needs of rural areas, and it must 
be incorporated.

[58 FR 66253, Dec. 20, 1993]



Sec. 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.



Sec. 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.



Sec. 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 concurrent RUS cost-of-money and RTB loans 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 Sec. 1735.12;
    (3) Facilities to serve subscribers outside the local exchange 
service area of the borrower unless those facilities are necessary to 
furnishing or improving telephone service within the borrower's service 
areas; and
    (4) Facilities to provide service other than 1-party.
    (d) 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 Sec. 1735.47.

[54 FR 13351, Apr. 3, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, 
and amended at 58 FR 66253, Dec. 20, 1993]



Sec. 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.



Sec. 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.

[[Page 490]]

See RUS Bulletins 320-4, 321-2, 325-1, and 326-1.



Sec. 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.

[54 FR 13351, Apr. 3, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, 
and amended at 58 FR 66253, Dec. 20, 1993]



Sec. 1735.21  Refinancing loans.

    (a) Hardship loans and guaranteed loans may include funds to 
refinance outstanding indebtedness of corporations furnishing telephone 
service when such refinancing is necessary and incidental to furnishing 
or improving telephone service in rural areas. Refinancing may not 
constitute more than 40 percent of the loan.
    (b) Loans for refinancing are not made solely to enable borrowers to 
obtain a lower interest rate or a longer amortization period. RUS 
requires borrowers, to the greatest extent possible, to liquidate 
outstanding indebtedness through the use of nonloan funds.
    (c) If deemed necessary by RUS to provide itself with adequate 
security, RUS will consider loans for refinancing outstanding 
indebtedness secured by a lien on property offered as security for the 
loan, if the property covered by the lien is integral to the operation 
of the system.
    (d) RUS will consider loans for refinancing when the borrower would 
otherwise be unable to meet payments on both the outstanding 
indebtedness and the loan as they become due.
    (e) RUS may consider loans for refinancing in other situations.

[54 FR 13351, Apr. 3, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, 
and amended at 58 FR 66254, Dec. 20, 1993]



Sec. 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) 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.
    (d) The borrower shall provide RUS with a satisfactory Area Coverage 
Survey. See 7 CFR 1737.30 and 1737.31.
    (e) 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.
    (f) Borrowers with loans approved prior to November 1, 1993, must 
continue to meet the TIER maintenance requirements contained in their 
loan contract or mortgage. Loan contracts and mortgages covering 
hardship loans, RUS cost-of-money loans, RTB loans, and guaranteed loans 
approved on or after December 20, 1993, shall contain a provision 
requiring the borrower to maintain a TIER of at least 1.0 during the 
Forecast period. At the end of the Forecast period, the borrower shall 
be required to maintain, at a minimum, a TIER at least equal to the 
projected TIER determined by the feasibility study prepared in 
connection with the loan, but not greater than 1.75. Execution and 
delivery of these loan contracts and mortgages shall supersede any 
conflicting TIER requirements in the borrower's previous loan contracts 
or mortgages.
    (g) A borrower will not be required to raise its TIER as a condition 
for receiving a loan. Additional financial, investment, and managerial 
controls appear

[[Page 491]]

in the loan contract and mortgage required by RUS.

[54 FR 13351, Apr. 3, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, 
as amended at 56 FR 26597, June 10, 1991; 58 FR 66254, Dec. 20, 1993]
Secs. 1735.23--1735.29  [Reserved]



                        Subpart C--Types of Loans



Sec. 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 concurrent RUS 
cost-of-money and RTB 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:

[[Page 492]]

    (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 1703 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 concurrent RUS cost-of-money and RTB loans under 
sections 305 and 408, respectively, of the RE Act.
    (g) Hardship loans may be made simultaneously with concurrent RUS 
cost-of-money and RTB loans or guaranteed loans.

[58 FR 66254, Dec. 20, 1993]



Sec. 1735.31  RUS cost-of-money and RTB loans.

    (a) RUS makes cost-of-money loans, under section 305(d)(2) of the RE 
Act, concurrently with RTB loans made under section 408 of the RE Act. 
To qualify for concurrent RUS cost-of-money and RTB loans on or after 
November 1, 1993, a borrower must meet each of the following 
requirements:
    (1) The average number of proposed subscribers per mile of line in 
the service area of the borrower is not more than 15, or the borrower 
has a projected TIER (including the proposed loans) of 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) The loan amounts from each program (RUS cost-of-money and RTB, 
including amounts for class B stock) will be proportionate to the total 
amount of funds appropriated for the fiscal year for RUS cost-of-money 
loans and RTB loans. To determine the RUS cost-of-money portion, 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

[[Page 493]]

RUS cost-of-money and RTB funds appropriated for the fiscal year in 
which the loan is approved. The same method would be used to calculate 
the RTB portion (see 7 CFR 1610.6(b)). If during the fiscal year the 
amount of funds appropriated changes, the ratio will be adjusted 
accordingly and applied only to those loans approved afterwards.
    (c) The RUS cost-of-money loan shall bear interest as described in 
paragraphs (c)(1) and (c)(2) of this section (the actual rate of 
interest on the RTB loan shall be determined as provided in 7 CFR 
1610.10):
    (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 Sec. 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) On request of any borrower who is eligible for concurrent RUS 
cost-of-money and RTB 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.
    (e) Concurrent RUS cost-of-money and RTB loans may be made 
simultaneously with hardship loans or guaranteed loans.

[58 FR 66255, Dec. 20, 1993]



Sec. 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 concurrent RUS cost-of-money and RTB 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 Sec. 1735.46).
    (b) Requirements. To qualify for a guaranteed loan, a borrower must 
have

[[Page 494]]

a projected TIER (including the proposed loan or loans) of at least 1.5 
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 Sec. 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. For the purpose of this section, the term ``net worth'' means 
``Total Retained Earnings or Margins and Capital Credits'' plus either 
``Total Capital Stock Outstanding and Subscribed'' or ``Total Membership 
and Capital Certificates'' as reported to RUS pursuant to RUS 
Telecommunications Operations Manual section 1800. RUS will 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) Rederal 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 Federal Register. 
The Notice will include a description of the proposed project, the 
estimated total cost, the estimated amount of the guaranteed loan, a 
statement that the Federal Financing Bank (FFB) has a standing loan 
commitment agreement with RUS, and the name and address of the borrower 
to which financing proposals may be submitted.
    (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.

[[Page 495]]

    (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 Sec. 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.

[54 FR 13351, Apr. 3, 1989; 54 FR 16194, Apr. 21, 1989. Redesignated at 
55 FR 39395, Sept. 27, 1990, as amended at 56 FR 26597, June 10, 1991; 
58 FR 66255, Dec. 20, 1993]
Secs. 1735.33--1735.39  [Reserved]



                        Subpart D--Terms of Loans

    Source: 54 FR 13351, Apr. 3, 1989, unless otherwise noted. 
Redesignated at 55 FR 39395, Sept. 27, 1990.



Sec. 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.



Sec. 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.
Sec. 1735.42  [Reserved]



Sec. 1735.43  Payments on Loans.

    (a) Borrowers shall, at the time a loan application is submitted, 
select a loan maturity up to a maximum of 35 years. If the maturity 
selected exceeds the composite economic life of the facilities to be 
financed by the loan by a period of more than three years, release of 
funds included in the loan shall be conditioned upon the borrower 
electing to either:
    (1) Establish and maintain, pursuant to a plan approved by RUS, a 
funded reserve in such an amount that the balance of the reserve plus 
the value of the facilities less depreciation shall at all times be at 
least equal to the remaining principal payments on the loan; or
    (2) Maintain a net plant to secured debt ratio of at least 1.2. 
Secured debt shall mean the total of long term debt and current 
maturities of long term debt (whether owed to RUS, RTB, or some other 
creditor) and capital leases.

The loan documents prepared by RUS for the loan will contain the 
appropriate condition as selected by the borrower. If the funded reserve 
option is selected, funding of the reserve must begin within one year of 
approval of release of funds and must continue regularly over the 
composite economic life of the facilities financed. If net plant to 
secured debt ratio option is selected,

[[Page 496]]

this ratio must be achieved one year following the first advance of loan 
funds and must be shown in RUS's analysis of the borrower's operating 
report.
    (b) 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.

[56 FR 26598, June 10, 1991]



Sec. 1735.44  Prepayment premiums.

    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 7 CFR part 1610 for prepayment premiums on RTB loans. 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.



Sec. 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.



Sec. 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) The standard form of mortgage or other security document 
required by RUS to secure telephone loans prohibits the borrower from 
making certain investments or distributions of assets unless, after such 
action, the borrower's adjusted net worth is at least:
    (1) Forty percent of its adjusted assets; or
    (2) As an alternative, the sum of ten percent of its adjusted assets 
plus certain other adjustments specified in the mortgage.
    (c) The standard form of telephone mortgage also states that if the 
borrower's adjusted net worth is at least ten percent of its adjusted 
assets, the borrower is not required to take or refrain from taking 
certain actions as set forth in the mortgage.
    (d) RUS will apply the ten percent requirement to all telephone 
borrowers regardless of whether the borrower's existing mortgage sets 
forth a higher percentage of adjusted net worth to assets for purposes 
of determining whether the borrower can:
    (1) Use the alternative calculation described in paragraph (b)(2) of 
this section to determine if it can make investments or distributions; 
or
    (2) Take advantage of the benefits described in paragraph (c) of 
this section.

[[Page 497]]

    (e) A borrower with an adjusted net worth of less than twenty 
percent of its adjusted assets shall continue to fulfill the 
requirements of the mortgage relating to reporting its ownership and 
transfers of its ownership, including capital stock, membership 
certificates and equity capital certificates.
    (f) Any borrower meeting the standard forty percent limitation 
described in paragraph (b)(1) of this section shall continue to be able 
to pay dividends or make investments in accordance with the borrower's 
mortgage.
    (g) 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.
    (h) This section does not limit the rights of any parties to the 
mortgage other than RUS or RTB.

[54 FR 13351, Apr. 3, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, 
and amended at 59 FR 29537, June 8, 1994]



Sec. 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, RTB 
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.

[56 FR 26598, June 10, 1991]
Secs. 1735.48--1735.49  [Reserved]



             Subpart E--Basic Requirements For Loan Approval

    Source: 54 FR 13351, Apr. 3, 1989, unless otherwise noted. 
Redesignated at 55 FR 39395, Sept. 27, 1990.



Sec. 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.



Sec. 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.

[[Page 498]]

    (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 service shall result from a particular 
loan for those borrowers not required by the state regulatory commission 
to have a certificate of convenience and necessity (or its equivalent). 
For borrowers required to have a certificate of convenience and 
necessity, all portions of the existing and proposed system must be 
covered by the certificate.

[54 FR 13351, Apr. 3, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, 
as amended at 56 FR 26598, June 10, 1991]



Sec. 1735.52  Findings required for particular loan purposes.

    (a) Refinancing. For loans that include funds to refinance 
outstanding indebtedness of the borrower, the borrower shall provide RUS 
with satisfactory evidence to enable the Administrator to determine that 
the inclusion in the loan of such funds shall be necessary and 
incidental to furnishing or improving telephone service in rural areas. 
See 7 CFR 1735.21.
    (b) Facilities for nonrural areas. 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.
Secs. 1735.53--1735.59  [Reserved]



        Subpart F--Mortgage Controls on Acquisitions and Mergers

    Source: 54 FR 14626, Apr. 12, 1989, unless otherwise noted. 
Redesignated at 55 FR 39395, Sept. 27, 1990.



Sec. 1735.60  Specific provisions.

    (a) The standard form of RUS mortgage (see 7 CFR part 1758) 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).
    (3) Article II, section 15(c), which applies to each borrower with 
an adjusted net worth of less than 20 percent of its adjusted assets, 
sets forth, among other matters, certain requirements in the event of a 
change in ownership interests of the borrower, which in the sole opinion 
of the majority noteholders might adversely affect its or their 
security.
    (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.



Sec. 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:

[[Page 499]]

    (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.



Sec. 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.
Secs. 1735.63--1735.69  [Reserved]



              Subpart G--Acquisitions Involving Loan Funds

    Source: 54 FR 14626, Apr. 12, 1989, unless otherwise noted. 
Redesignated at 55 FR 39395, Sept. 27, 1990.



Sec. 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.

[[Page 500]]

    (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.



Sec. 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.



Sec. 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.



Sec. 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.



Sec. 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 Sec. 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.

[[Page 501]]

    (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.

(Approved by the Office of Management and Budget under control number 
0572-0084)

[54 FR 14626, Apr. 12, 1989. Redesignated at 55 FR 39395, Sept. 27, 
1990; 58 FR 66256, Dec. 20, 1993]



Sec. 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 Sec. 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

[[Page 502]]

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 Sec. 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.



Sec. 1735.76  Acquisition of affiliates.

    A borrower shall not use RUS loan funds to acquire any stock or any 
telephone plant or an affiliate.



Sec. 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.
Secs. 1735.78--1735.79  [Reserved]



 Subpart H--Acquisitions or Mergers Not Involving Additional Loan Funds



Sec. 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.

[[Page 503]]

    (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.

(Approved by the Office of Management and Budget under control number 
0572-0084)

[54 FR 14626, Apr. 12, 1989. Redesignated at 55 FR 39395, Sept. 27, 
1990]
Secs. 1735.81--1735.89  [Reserved]



        Subpart I--Requirements for All Acquisitions and Mergers

    Source: 54 FR 14626, Apr. 12, 1989, unless otherwise noted. 
Redesignated at 55 FR 39395, Sept. 27, 1990.



Sec. 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.

(Approved by the Office of Management and Budget under control number 
0572-0084)



Sec. 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.



Sec. 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

[[Page 504]]

evidence satisfactory to the Administrator that it has adjusted its 
records on the basis of the inventory.



Sec. 1735.93  Notes.

    Substitute notes may be required in the case of an acquisition or 
merger, regardless of the source of funds.



Sec. 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.



Sec. 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.
Secs. 1735.96--1735.99  [Reserved]



                    Subpart J--Toll Line Acquisitions



Sec. 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.

[54 FR 14626, Apr. 12, 1989. Redesignated at 55 FR 39395, Sept. 27, 
1990]



Sec. 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

[[Page 505]]

other proof of ownership of the toll facilities required by RUS.

[54 FR 14626, Apr. 12, 1989. Redesignated at 55 FR 39395, Sept. 27, 
1990]



PART 1737--PRE-LOAN POLICIES AND PROCEDURES COMMON TO GUARANTEED AND INSURED TELEPHONE LOANS--Table of Contents




                           Subpart A--General

Sec.
1737.1  General statement.
1737.2  Definitions.
1737.3  Availability of RUS forms.
1737.4--1737.9  [Reserved]

                     Subpart B--Preapplication Stage

1737.10  Initial contact.
1737.11  Preapplication determinations.
1737.12--1737.19  [Reserved]

                     Subpart C--The Loan Application

1737.20  [Reserved]
1737.21  The completed loan application.
1737.22  Supplementary information.
1737.23--1737.29  [Reserved]

    Subpart D--Preloan Studies--Area Coverage Survey and Loan Design

1737.30  General.
1737.31  Area Coverage Survey (ACS).
1737.32  Loan Design (LD).
1737.33--1737.39  [Reserved]

  Subpart E--Interim Financing of Construction of Telephone Facilities

1737.40  General.
1737.41  Procedure for obtaining approval.
1737.42  Procedure for construction.
1737.43--1737.49  [Reserved]

               Subpart F--Review of Application Procedures

1737.50  Review of completed loan application.
1737.51  Approval of loan design.
1737.52--1737.59  [Reserved]

              Subpart G--Project Cost Estimation Procedures

1737.60  Telephone loan budget.
1737.61  Cost allocation for rural and nonrural areas.
1737.62--1737.69  [Reserved]

             Subpart H--Feasibility Determination Procedures

1737.70  Description of feasibility study.
1737.71  Interest rate to be considered for the purpose of assessing 
          feasibility for loans.
1737.72--1737.79  [Reserved]

                    Subpart I--Characteristics Letter

1737.80  Description of characteristics letter.
1737.81--1737.89  [Reserved]

                Subpart J--Final Loan Approval Procedures

1737.90  Loan approval requirements.
1737.91  Approval.
1737.92  Loan documents.
1737.93--1737.99  [Reserved]

                  Subpart K--Release of Funds Procedure

1737.100  Prerequisites to the release and advance of funds.
1737.101  Amounts spent for preloan activities.
1737.102--1737.109  [Reserved]

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 54 FR 13356, Apr. 3, 1989, unless otherwise noted. 
Redesignated at 55 FR 39396, Sept. 27, 1990.

    Editorial Note: Nomenclature changes to part 1737 appear at 55 FR 
39397, Sept. 27, 1990.



                           Subpart A--General



Sec. 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.

[[Page 506]]

    (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.



Sec. 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 
Sec. 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.).
    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). RUS cost-of-money loans are made concurrently with RTB 
loans.
    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.
    RTB loan means a loan made by the Rural Telephone Bank (RTB) under 
section 408 of the RE Act bearing an interest rate as determined under 7 
CFR 1610.10. RTB loans are made concurrently with RUS cost-of-money 
loans.
    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

[[Page 507]]

within the boundaries of any incorporated or unincorporated city, 
village or borough having a population exceeding 5,000 inhabitants. The 
population figure is obtained from the most recent data available, such 
as from the Bureau of the Census and Rand McNally and Company. 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.
    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.

[54 FR 13356, Apr. 3, 1989. Redesignated at 55 FR 39396, Sept. 27, 1990, 
as amended at 56 FR 26598, June 10, 1991; 58 FR 66256, Dec. 20, 1993]



Sec. 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.

[54 FR 13356, Apr. 3, 1989. Redesignated at 55 FR 39396, Sept. 27, 1990, 
and amended at 59 FR 66441, Dec. 27, 1994]
Secs. 1737.4--1737.9  [Reserved]



                     Subpart B--Preapplication Stage



Sec. 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.



Sec. 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.

[[Page 508]]

    (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 and RTB loans should refer to 7 
CFR part 1751, subpart B.

[54 FR 14626, Apr. 12, 1989. Redesignated at 55 FR 39395, Sept. 27, 
1990, as amended at 58 FR 66256, Dec. 20, 1993]
Secs. 1737.12--1737.19  [Reserved]



                     Subpart C--The Loan Application

Sec. 1737.20  [Reserved]



Sec. 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.

(Approved by the Office of Management and Budget under control number 
0572-0079)

[54 FR 13356, Apr. 3, 1989. Redesignated at 55 FR 39396, Sept. 27, 1990, 
as amended at 56 FR 26598, June 10, 1991]



Sec. 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).

[[Page 509]]

    (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) Certified copy of a certificate of convenience and necessity 
(or its equivalent), or information demonstrating the nonduplication of 
reasonably adequate facilities, for all areas in the loan project.
    (14) 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.
    (15) Copies of rate schedules. (A copy of the tariff must be 
available for review by the RUS field representative.)
    (16) Executed copy of RUS Form 291, ``Certification of Nonsegregated 
Facilities''.
    (17) A sketch or map showing the existing and proposed service 
areas.
    (18) 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).
    (19) 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.
    (20) 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.

All of the actions in paragraph (a)(19) 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)(19) of this section are included 
on RUS Form 490, Application for Telephone Loan or Guarantee.
    (b) The following must be submitted by all initial loan applicants 
and 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) Borrower's Environmental Report (BER)--See 7 CFR part 1794.
    (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

[[Page 510]]

Matters--Primary Covered Transactions'' (see appendix A to 7 CFR part 
3017).
    (7) Borrower's determination of loan maturity, including information 
noted in Sec. 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) The following must be submitted for all borrowers requesting 
funds for refinancing:
    (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 use of loan 
funds is necessary and incidental to furnishing or improving rural 
telephone service. See 7 CFR 1735.21.
    (d) Borrowers requesting loan funds for acquisitions should refer to 
RUS bulletins 320-4, 321-2, 325-1, and 326-1 for requirements.

(Approved by the Office of Management and Budget under control number 
0572-0079)

[54 FR 13356, Apr. 3, 1989. Redesignated at 55 FR 39396, Sept. 27, 1990, 
as amended at 56 FR 26599, June 10, 1991, 58 FR 66256, Dec 20, 1993]
Secs. 1737.23--1737.29  [Reserved]



    Subpart D--Preloan Studies--Area Coverage Survey and Loan Design



Sec. 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.

(Approved by the Office of Management and Budget under control number 
0572-0079)



Sec. 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

[[Page 511]]

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 Sec. 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.

(Approved by the Office of Management and Budget under control number 
0572-0079)



Sec. 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

[[Page 512]]

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.

[[Page 513]]

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.

(Approved by the Office of Management and Budget under control number 
0572-0079)

[54 FR 13356, Apr. 3, 1989; 54 FR 16194, Apr. 21, 1989. Redesignated at 
55 FR 39396, Sept. 27, 1990; 58 FR 66256, Dec. 20, 1993]
Secs. 1737.33--1737.39  [Reserved]



  Subpart E--Interim Financing of Construction of Telephone Facilities



Sec. 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.



Sec. 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:

[[Page 514]]

    (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 Sec. 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 satisfied the requirements of 7 
CFR part 1794 applying to the proposed interim construction.
    (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'' (see appendix A to 7 CFR part 3017).
    (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.

(Approved by the Office of Management and Budget under control number 
0572-0079)

[54 FR 13356, Apr. 3, 1989. Redesignated at 55 FR 39396, Sept. 27, 1990, 
as amended at 56 FR 26599, June 10, 1991; 59 FR 54381, Oct. 31, 1994]



Sec. 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 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

[[Page 515]]

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.

[54 FR 13356, Apr. 3, 1989; 54 FR 16194, Apr. 21, 1989. Redesignated at 
55 FR 39396, Sept. 27, 1990]
Secs. 1737.43--1737.49  [Reserved]



               Subpart F--Review of Application Procedures



Sec. 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,'' (see appendix A to 7 CFR part 3017);
    (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.

See 7 CFR part 1737 for additional 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 7 CFR 
3017.505).
    (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.

[54 FR 13356, Apr. 3, 1989; 54 FR 16194, Apr. 21, 1989. Redesignated at 
55 FR 39396, Sept. 27, 1990; 58 FR 66256, Dec. 20, 1993]



Sec. 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.
Secs. 1737.52--1737.59  [Reserved]



              Subpart G--Project Cost Estimation Procedures



Sec. 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,

[[Page 516]]

engineering, vehicles and work equipment, office equipment, operating 
funds, refinancing with loan funds, debt retirement with nonloan funds, 
acquisitions, and contingencies. The amounts budgeted, exclusive of 
prior loan reserves, generally shall be rounded to the nearest $1,000.
    (1) If the loan is to be made by the Rural Telephone Bank (RTB) or 
concurrently with RTB, the budget shall include the amount required for 
the purchase of RTB Class B stock. This is 5 percent of the amount to be 
borrowed from RTB for all purposes other than the purchase of RTB Class 
B stock. The borrower may elect to use nonloan funds for all or part of 
this requirement.
    (2) The amount of funds included in any loan shall be limited for 
certain items:
    (i) Operating funds for working capital or current operating 
deficiencies shall be included only in cases of financial hardship as 
determined by the Administrator.
    (ii) 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 Sec. 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.



Sec. 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

[[Page 517]]

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.
Secs. 1737.62--1737.69  [Reserved]



             Subpart H--Feasibility Determination Procedures



Sec. 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) 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 paragraph describes the method 
in 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 7 CFR 
1735.22(f) at a loan interest rate of 5 percent on a loan made as 
described in this paragraph, then the loan interest rate shall be fixed, 
for the remainder of the loan repayment period, at the standard interest 
rate of 5 percent.
    (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

[[Page 518]]

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.

[54 FR 13356, Apr. 3, 1989. Redesignated at 55 FR 39396, Sept. 27, 1990, 
as amended at 56 FR 26599, June 10, 1991; 58 FR 66256, Dec. 20, 1993]



Sec. 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 concurrent RUS cost-of-money and RTB loans, the Administrator shall 
assume that the loans, 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''

[[Page 519]]

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.

[58 FR 66257, Dec. 20, 1993]
Secs. 1737.72--1737.79  [Reserved]



                    Subpart I--Characteristics Letter



Sec. 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.

[54 FR 13356, Apr. 3, 1989. Redesignated at 55 FR 39396, Sept. 27, 1990, 
as amended at 56 FR 26600, June 10, 1991]
Secs. 1737.81--1737.89  [Reserved]



                Subpart J--Final Loan Approval Procedures



Sec. 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:

[[Page 520]]

    (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.

Accordingly, a finding shall be made on whether loan funds will be used 
to finance buildings, machinery, fixtures or furnishings located in an 
identified special flood hazard area. If loan funds are to be used in 
such a special flood hazard area, a provision will be included in the 
loan contract restricting the release of funds until all the 
requirements of the Flood Insurance Act have been satisfied.
    (6) All environmental requirements must be met (see 7 CFR part 
1794).

[54 FR 13356, Apr. 3, 1989. Redesignated at 55 FR 39396, Sept. 27, 1990, 
as amended at 56 FR 26600, June 10, 1991]



Sec. 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.



Sec. 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).
Secs. 1737.93--1737.99  [Reserved]



                  Subpart K--Release of Funds Procedure



Sec. 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.

(Approved by the Office of Management and Budget under control number 
0572-0085)



Sec. 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.

(Approved by the Office of Management and Budget under control number 
0572-0085)
Secs. 1737.102--1737.109  [Reserved]



PART 1739--PRE-LOAN POLICIES AND PROCEDURES FOR GUARANTEED TELEPHONE LOANS--Table of Contents




                           Subpart A--General

1739.1  General.

[[Page 521]]

1739.2  Definitions.
1739.3  Initial contact.
1739.4--1739.49  [Reserved]

         Subpart B--Section 314 Loan Guarantees--Private Sector

1739.50  Legal authority.
1739.51  Eligible loan purposes.
1739.52  Eligible lenders.
1739.53  Exclusion of tax-exempt financing.
1739.54  Loan guarantee limit.
1739.55  Loan security.
1739.56  Interest rates.
1739.57  Loan maturity.
1739.58  Terms of repayment.
1739.59  Advance of funds.
1739.60  Fees for guaranteed loans.
1739.61  Loan servicing.
1739.62  Secondary transactions.
1739.63  Conflict of interest.
1739.64  Debarment and suspension.
1739.65  Borrower's loan guarantee application.
1739.66  Notice of lender selection.
1739.67  Lender's loan note.
1739.68  Lender's loan agreement.
1739.69  Lender's agreement.
1739.70  Conditional commitment to guarantee.
1739.71  Changes in conditions.
1739.72  Documents summary.
1739.73  Execution of final documents.
1739.74  Access to records of lender.
1739.75  Loan documentation.
1739.76--1739.99  [Reserved]

Appendix A to Part 1739--Lender's Agreement
Appendix B to Part 1739--Assignment Guarantee Agreement
Appendix C to Part 1739--Notice of Lender Selection
Appendix D to Part 1739--Conditional Commitment to Guarantee
Appendix E to Part 1739--Loan Note Guarantee
Appendix F to Part 1739--Loan Note

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 56 FR 42479, Aug. 27, 1991, unless otherwise noted.



                           Subpart A--General



Sec. 1739.1  General.

    (a) This part establishes specific pre-loan policies, procedures and 
requirements that apply to guaranteed loans which finance the 
construction and improvement of telephone facilities in rural areas, and 
other facilities and purposes as set forth in 7 CFR 1735.17.
    (b) Additional general and pre-loan policies and procedures that 
apply to both guaranteed loans and insured loans are set forth in 7 CFR 
parts 1735 and 1737. Borrowers must also comply with all other 
applicable RUS regulations.
    (c) This part supersedes those portions of RUS Bulletin 320-22, 
Guarantee of Loans for Telephone Facilities, and supplements thereto 
that are in conflict.



Sec. 1739.2  Definitions.

    The definitions in 7 CFR parts 1735, 1737 and 1744 are applicable to 
this part. Other terms used in this part shall have the following 
meaning:
    Amended and Restated Loan Commitment Agreement means the agreement 
between RUS and the Federal Financing Bank (FFB) that sets forth certain 
terms and conditions for loans made by the FFB and guaranteed by RUS, 
and well as the responsibilities and obligations of the two parties.
    Assignment Guarantee Agreement means the agreement executed between 
RUS, the private lender and the holder that sets forth the terms and 
conditions of an assignment of all or any part of the guaranteed portion 
of a loan.
    Conditional Commitment to Guarantee means the executed document that 
sets forth RUS's conditional commitment to guarantee a private lender's 
loan subject to the acknowledgment and acceptance by the borrower and 
lender of certain conditions and requirements. A similar document may be 
used for guaranteed loans made by the FFB.
    Holder means the entity that owns all or part of the guaranteed 
portion of a loan. A lender may be a holder, but in most contexts holder 
refers to an entity other than the lender.
    Lender means the organization making and servicing the guaranteed 
loan under the provisions of an executed Lender's Agreement. Lender is 
also referred to as a private lender.
    Lender certification statement means the statement executed by a 
private lender certifying to RUS that the Lender's Agreement, the Loan 
Note, any loan agreement between the lender

[[Page 522]]

and borrower, any Assignment Guarantee Agreement, and any other 
documents to be executed among the respective parties are the same in 
form and substance, except as clearly specified by the lender, as such 
unexecuted documents previously approved by RUS.
    Lender's Agreement means the written contract between the private 
lender and RUS setting forth primarily the lender's rights and 
obligations with respect to the guaranteed loan and the manner in which 
RUS will make payments to the lender under the Loan Note Guarantee.
    Loan Note means an evidence of debt. Should RUS guarantee a bond 
issue, ``note'' shall also be construed to include ``bond'' or other 
evidence of indebtedness.
    Loan Note Guarantee means the contract of guarantee issued by RUS 
that sets forth the terms and conditions of RUS's guarantee of a private 
lender's loan.
    Monetary default, which is also referred to as a payment default, 
means the failure of a borrower to make a loan payment when due as 
prescribed in the Loan Note.
    Notice of Lender Selection means the document that sets forth the 
private lender's qualifications and the private lender's proposal to 
make a loan to a borrower.
    Private lender means a lender eligible under Sec. 1739.52.



Sec. 1739.3  Initial contact.

    Telephone systems interested in applying for a loan guarantee that 
have not previously received financial assistance from RUS should write 
to the Rural Utilities Service, United States Department of Agriculture, 
14th and Independence Avenue, SW., Washington, DC 20250-1500. A field or 
headquarters staff representative may be assigned by RUS to visit the 
applicant and discuss its financial needs and eligibility. Existing 
borrowers should initiate contact directly with their assigned field 
representative. Borrowers may consult with RUS field representatives and 
headquarters staff, as necessary.
Secs. 1739.4--1739.49  [Reserved]



         Subpart B--Section 314 Loan Guarantees--Private Sector



Sec. 1739.50  Legal authority.

    Pursuant to section 314 of the RE Act, RUS may provide financial 
assistance to borrowers for the purposes set forth in section 201 of the 
RE Act by providing 90 percent guarantees of loans made by any legally 
organized lending agency as defined in 7 CFR 1739.52. RUS may not 
provide a guarantee under this subpart for a loan made by the Federal 
Financing Bank, the Rural Telephone Bank, or any other lending agency 
that is an agency or instrumentality of the United States.



Sec. 1739.51  Eligible loan purposes.

    RUS may provide 90 percent loan guarantees for the loan purposes set 
forth in 7 CFR 1735.17.



Sec. 1739.52  Eligible lenders.

    (a) To be eligible for a loan guarantee under this subpart, a lender 
must be a legally organized lending agency. The following classes of 
lenders are eligible, provided they meet all the requirements of this 
section:
    (1) Any Federal or state chartered bank or savings and loan 
association;
    (2) Any Farm Credit System institutions with direct lending 
authority;
    (3) Building and loan associations;
    (4) The Rural Telephone Finance Cooperative;
    (5) A mortgage company that is part of a bank holding company;
    (6) An agricultural credit corporation that is a subsidiary of a 
Federal or state chartered bank;
    (7) An insurance company regulated by the National Association of 
Insurance Commissioners; and
    (8) Other lenders that meet the requirements of this section.
    (b) Lenders shall be subject to credit examination and supervision 
by a Federal or state agency unless RUS determines that alternative 
examination and supervisory mechanisms are adequate.
    (c) Lenders shall demonstrate to RUS the capability to adequately 
service guaranteed loans. They also shall be in

[[Page 523]]

good standing with their licensing authority and meet the loan-making, 
the loan-servicing, and other requirements of the state in which the 
lender makes loans guaranteed under this subpart.
    (d) The lender selected by the borrower shall provide evidence 
satisfactory to RUS of its qualification under this section, along with 
the name of the authority that supervises such lender.
    (e) RUS may require that a lender provide information on its 
financial strength and capitalization.



Sec. 1739.53  Exclusion of tax-exempt financing.

    (a) A loan, including any other type of debt issuance, is not 
eligible for an RUS guarantee 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 purposes 
of chapter I of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(12) 
et seq.)
    (b) The lender shall certify to RUS, and each subsequent holder of 
the loan shall certify to the seller, that it is in compliance with this 
section.
    (c) A loan guarantee issued by RUS shall be null and void with 
respect to the current holder of the loan if said holder is in violation 
of this section.



Sec. 1739.54  Loan guarantee limit.

    (a) RUS will guarantee repayment of 90 percent of the outstanding 
loan principal and 90 percent of the interest due on the outstanding 
loan principal, as further defined in 7 CFR 1746.56. A lesser proportion 
may be guaranteed if requested by the lender.
    (b) RUS's guarantee is limited to the loan repayment obligation of 
the borrower and does not extend to guaranteeing that a lender will 
remit to a holder loan payments made by the borrower.



Sec. 1739.55  Loan security.

    (a) RUS will allow the full pro rata sharing of its mortgage 
security on all of a borrower's facilities and property with a private 
lender on both the guaranteed and unguaranteed portions of the loan (see 
7 CFR 1746.56 for the application of payments between the guaranteed and 
unguaranteed portions of the loan.) RUS's accommodation of its lien will 
provide for the following:
    (1) An equal pro rata mortgage lien with all other lenders on the 
mortgage in the event of liquidation;
    (2) Limited controls over the borrower's operations; and
    (3) The ability to pursue remedies for financial defaults, as set 
forth in the mortgage, subject to RUS's prior written approval.
    (b) If RUS has repurchased the guaranteed portion of the loan, the 
lender's lien will then apply only to the unguaranteed portion of the 
loan, and RUS shall have the lien for the guaranteed portion of the 
loan.
    (c) The lender may not obtain greater security for the unguaranteed 
portion of the loan than for the guaranteed portion, and if the lender 
exercises any rights to set-off in order to collect any portion of the 
loan, any payments so collected shall be applied as provided in 7 CFR 
1746.56.
    (d) At all times when any note representing any portion of the 
guaranteed loan is outstanding, the mortgage security shall secure 
payment of all such notes pro rata. So long as any such note has not 
been repurchased by RUS, the lender and not the holder of such note or 
any interest therein shall be considered to be, and shall have the 
rights of, a secured noteholder for purposes of such mortgage security.
    (e) The granting of a lien to the lender is subject to any approval 
rights of other mortgagees secured under the mortgage.
    (f) The mortgage, which is subject to RUS approval, shall be 
prepared by the lender, unless RUS decides otherwise.



Sec. 1739.56  Interest rates.

    (a) Interest rates, which are subject to RUS approval, shall be 
negotiated between the lender and the borrower. They may be either fixed 
or variable. The interest rate must be the same for the guaranteed and 
unguaranteed portions of the loan.
    (b) The interest rate charged shall be no higher than the rate 
customarily charged by the lender on other loans of similar maturity, 
having a similar risk of repayment and similar security.

[[Page 524]]

RUS will not guarantee a loan if it determines, in its sole discretion, 
that the proposed interest rate does not meet the standards of this 
paragraph.
    (c) If a variable interest rate is selected, it shall be tied to a 
published rate, agreed to by the lender and the borrower and approved by 
RUS, that is recognized regionally or nationally and is readily 
accessible and verifiable. The published rate selected may not be 
changed unless approved in writing by the lender, the borrower, and RUS.
    (d) The frequency of change in a variable interest rate for a given 
advance of funds shall be specified in the Lender's Agreement and in the 
Loan Note, but shall not be more often than monthly. The variable 
interest rate for a given advance of funds shall not be raised:
    (1) More than 100 basis points in any year; and
    (2) Not more than 500 basis points during the life of the loan, 
which establishes the ceiling interest rate for the loan advance. The 
borrower shall be given sufficient notice of each adjustment in the 
interest rate.
    (e) A variable interest rate can be changed to a fixed rate, 
provided the fixed rate does not exceed the ceiling interest rate for 
the advance. A fixed interest rate can be changed to a variable rate if 
the variable rate has a ceiling that is not higher than the 
originalfixed rate. Such interest rate changes may be made at any time 
during the life of the loan in accordance with the Lender's Agreement 
and as provided in the Loan Note. Written notice to and prior written 
approval by RUS for each change under this paragraph is required. The 
lender is responsible for the legal documentation of interest changes 
under this paragraph by an amendment to the Loan Note.
    (f) The Loan Note shall provide for adjustment of payment 
installments coincident with an interest rate change to ensure that the 
outstanding principal balance is amortized within the prescribed loan 
maturity and to eliminate the possibility of a balloon payment at the 
final maturity date of the loan.
    (g) The interest rate applicable to each advance of funds shall be 
established and recorded in accordance with the terms of the Loan Note.



Sec. 1739.57  Loan maturity.

    The maturity of the loan, which may not exceed 35 years, is subject 
to the requirements of Sec. 1735.43(a) and (b). The maturity date shall 
be determined by mutual consent of the borrower and the lender.



Sec. 1739.58  Terms of repayment.

    (a) The method and frequency of debt service payments on the loan 
shall be specified in the Loan Note and are subject to RUS approval. 
Debt service payments shall be scheduled on terms that assure repayment 
of the loan by the final maturity date, and shall be no less frequent 
than quarterly.
    (b) Interest shall be payable on the unpaid principal balance, from 
the date of each advance of funds until the principal is repaid.
    (c) The guaranteed loan may be repaid in substantially equal 
periodic installments covering interest and principal, in periodic 
installments that include interest and level amortization of principal, 
or other principal repayment schedule satisfactory to RUS.
    (d) Principal amortization on loan fund advances during the first 2 
years following the date of the Loan Note shall begin no later than 2 
years from the date of the Loan Note. Principal amortization on advances 
made 2 years or more after the date of the Loan Note shall begin with 
the next scheduled loan payment.
    (e) RUS will not guarantee any loan under this subpart that provides 
for:
    (1) A balloon payment of principal or interest at the final maturity 
date of the loan; or
    (2) The payment of interest on interest.



Sec. 1739.59  Advance of funds.

    (a) The time limit on advance of funds shall be as agreed upon by 
the borrower and lender.
    (b) When requested by the lender, the Administrator may approve the 
advance of loan funds after the date set forth in paragraph (a) of this 
section if the borrower has demonstrated to the satisfaction of the 
Administrator that

[[Page 525]]

said advances will be adequately secured under the mortgage.
    (c) RUS will rescind its loan guarantee with respect to any loan 
funds not advanced to a borrower as of the final date approved for 
advancing funds pursuant to this section.
    (d) RUS reserves the right to restrict advance of funds if the 
continued feasibility of the loan can not be adequately demonstrated.



Sec. 1739.60  Fees for guaranteed loans.

    (a) No fees or charges will be assessed by RUS for its guarantee of 
a loan under this subpart.
    (b) The lender may assess the borrower loan origination fees or 
other charges, subject to RUS approval, provided such fees and charges 
are no higher than those charged by the lender to its other customers 
for similar types of transactions.
    (c) Any loan servicing fees assessed a holder, other than RUS, are 
not subject to RUS review or approval.
    (d) Fees and other charges authorized by this section will not be 
guaranteed by RUS and shall not be included as part of the loan.



Sec. 1739.61  Loan servicing.

    The lender shall be responsible for servicing the entire guaranteed 
loan in accordance with the Lender's Agreement, notwithstanding the fact 
that another party may hold all or a part of the guaranteed portion of 
the loan. Loan servicing requirements are set forth in 7 CFR 1746.52.



Sec. 1739.62  Secondary transactions.

    (a) Lenders are permitted to assign to a holder up to 100 percent of 
the guaranteed portion of a loan, provided the loan is not in payment 
default. The assignment may be by direct sale of all or part of the 
guaranteed portion of the loan to the holder, or by other means. The 
assignment must comply with the provisions of 7 CFR 1746.53, and be 
evidenced by an Assignment Guarantee Agreement, using appendix B of this 
part as a guide to the extent practicable. The unguaranteed portion of a 
loan shall not be assigned except for security purposes.
    (b) The Loan Note Guarantee and the Assignment Guarantee Agreement 
shall be considered collectively to constitute the ``contract of 
guarantee'' as that term is used in Section 306 of the RE Act with 
respect to assignment of the loan and related loan guarantee.
    (c) If RUS makes a payment under the Lender's Agreement, RUS's 
liability for such payment is discharged. The lender is responsible for 
remitting to the holder that portion of the payment due the holder as 
set forth in 7 CFR 1746.56 and the Lender's Agreement.



Sec. 1739.63  Conflict of interest.

    (a) All eligible lenders shall provide information, satisfactory to 
RUS, in the Notice of Lender Selection as to whether and the extent 
that:
    (1) The borrower, its principal officers, members of the board of 
directors, or members of the immediate families of said officials hold 
any stock or other evidence of ownership in the lender's organization; 
and
    (2) The lender or its principal officers hold any stock or other 
evidence of ownership in the borrower, other than patronage capital.
    (b) If a borrower has knowledge of any information required in 
paragraph (a) of this section that is not reported on the Notice of 
Lender Selection form, it shall report such information to the lender 
and RUS.
    (c) RUS will determine whether such ownership represents an actual 
or potential conflict of interest.



Sec. 1739.64  Debarment and suspension.

    Lenders are required to comply with certain Federal requirements on 
debarment and suspension as set forth in 7 CFR part 3017.



Sec. 1739.65  Borrower's loan guarantee application.

    All loan guarantee applications shall be submitted to RUS. The 
applications of all borrowers shall include all of the material required 
for applications under 7 CFR part 1737, a completed Notice of Lender 
Selection as set forth in Sec. 1739.66, and a copy of the form of 
opinion of counsel that will be given in connection with the loan 
transaction.



Sec. 1739.66  Notice of lender selection.

    (a) Borrowers must submit a Notice of Lender Selection to RUS 
setting

[[Page 526]]

forth the lender's qualifications and the lender's loan proposal. The 
notice must be signed by the lender and the borrower. The Notice of 
Lender Selection shall be prepared using appendix C of this part as a 
guide to the extent practicable.
    (b) RUS encourages borrowers to make a lender selection prior to the 
submission of an application for a loan guarantee so that the Notice of 
Lender Selection can be submitted with the borrower's application. The 
notice shall provide the following information:
    (1) The lender's current interest rates and proposed interest rate 
terms;
    (2) The basic terms and conditions of the lender's loan;
    (3) Potential conflicts of interest between the borrower and lender;
    (4) Credit reports on the borrower, if available, obtained from 
national or regional credit bureaus or similar organizations, and the 
lender's assessment of said reports;
    (5) Fees and charges to be assessed by the lender;
    (6) A description of the lender's loan servicing plans;
    (7) The lender's financial analysis and evaluation of the borrower 
and the proposed loan;
    (8) Any plans by the lender to market, by means of an assignment of 
the guarantee, all or part of the guaranteed portion of the loan;
    (9) Evidence of the lender's regulation by the appropriate 
authorities, including a description of its current standing with those 
authorities and evidence of the lender's fulfillment of licensing and 
other requirements;
    (10) Evidence of the lender's financial strength and capitalization;
    (11) A draft of the Loan Note;
    (12) A copy of the form of loan agreement to be used, if any; and
    (13) The form of lender's opinion of counsel that shall be given in 
connection with the loan transaction.
    (c) If evidence in paragraphs (b)(9) and (b)(10) of this section has 
been provided to RUS within the 12 months preceding RUS receipt of the 
Notice of Lender Selection, such evidence need not be resubmitted if 
there has been no material change in conditions.
    (d) If a borrower has not made a lender selection at the time of 
submitting an application for a loan guarantee, the borrower shall 
contact a prospective lender regarding the lender's proposed rate of 
interest, loan maturity and debt repayment method on similar 
transactions, and include the lender's written response with the 
borrower's application for a loan guarantee. Such information shall be 
used by the borrower in its long range financial forecast included with 
the application.
    (e) RUS will determine the lender's qualification based on the 
information submitted by the lender as required by this subpart. RUS 
will provide written notification of its approval or disapproval of the 
borrower's choice of lender to the borrower and the lender.
    (f) The lender shall notify RUS and the borrower promptly of any 
material changes in the information contained in the Notice of Lender 
Selection submitted to RUS.
    (g) Any changes in lender selection must be approved by RUS and 
supported by an amendment to the Notice of Lender Selection form.
    (h) RUS will not conditionally commit to guarantee a loan until the 
borrower has selected a lender and submitted to RUS a complete Notice of 
Lender Selection, in form and substance satisfactory to RUS.



Sec. 1739.67  Lender's loan note.

    (a) A loan guaranteed by RUS shall be represented by a single Loan 
Note that shall be prepared by the lender and executed by the borrower.
    (b) Appendix F of this part shall be used to the extent practicable 
in preparing the loan note. The Loan Note and any Loan Note amendments 
are subject to RUS written approval.
    (c) A completed draft of the note shall be submitted with the Notice 
of Lender Selection, or as soon thereafter as practicable. RUS will 
notify the borrower and the lender of RUS's approval or disapproval of 
the draft note. If material changes are made in the draft Loan Note 
after it has been approved by RUS, the lender shall clearly identify the 
changes to RUS, with evidence of the borrower's concurrence with the 
changes, when the final executed Loan Note is submitted to RUS for 
approval.

[[Page 527]]

    (d) Each Loan Note guaranteed by RUS shall include a Loan Note 
Guarantee based on appendix E of this part to the extent practicable.
    (e) The Loan Note shall include a date beyond which the lender shall 
not advance any funds under the note. This date is subject to RUS 
approval and to the provisions of Sec. 1739.59.
    (f) Loan notes may be amended, subject to RUS approval, but new Loan 
Notes may not be issued.



Sec. 1739.68  Lender's loan agreement.

    (a) Loans guaranteed by RUS may be represented by a loan agreement, 
in form and substance satisfactory to RUS, executed between the lender 
and the borrower. Such loan agreements may include, for example, 
provisions of interest rates, loan repayment, advance of funds 
procedures, approvals required by law, special convenants and 
conditions, prepayments, and events of default.
    (b) A completed draft of the loan agreement shall be submitted with 
the Notice of Lender Selection, or as soon thereafter as practicable. 
RUS will notify the borrower and the lender of RUS's approval or 
disapproval of the draft contract. If material changes are made in the 
draft contract after it has been approved by RUS, the lender shall 
clearly identify the changes to RUS, with evidence of the borrower's 
concurrence with the changes, when the final executed loan agreement is 
submitted to RUS for approval.



Sec. 1739.69  Lender's agreement.

    (a) The Lender's Agreement is the executed agreement between RUS and 
the lender setting forth primarily the lender's rights and obligations 
with respect to the guaranteed loan and the manner in which RUS will 
make payments to the lender under the Loan Note Guarantee. The Lender's 
Agreement in appendix A of this part should be used as a guide to the 
extent practicable.
    (b) Subsequent to RUS's approval of a borrower's choice of private 
lender, the lender shall prepare a draft of the Lender's Agreement for 
RUS's review and approval. Evidence of RUS's approval of this draft 
agreement will be provided in writing to the lender, with a copy to the 
borrower.
    (c) If material changes are made in the draft Lender's Agreement 
after it has been approved by RUS, the lender shall clearly identify the 
changes to RUS before the final agreement is submitted to RUS for 
approval.
    (d) Lenders will be required to follow existing RUS policies and 
procedures, as well as future policies and procedures, provided such 
future policies and procedures are not inconsistent with the express 
provisions of the Lender's Agreement executed by the lender and RUS.
    (e) Other provisions of the Lender's Agreement are set forth in 7 
CFR part 1746, subpart B.



Sec. 1739.70  Conditional commitment to guarantee.

    (a) RUS will commit to guarantee a loan, subject to conditions to be 
met by the borrower or lender, when the administrative findings 
applicable to the loan are signed per 7 CFR part 1737.
    (b) RUS's Conditional Commitment to Guarantee, using appendix D of 
this part as a guide to the extent practicable, will be provided to the 
lender, with a copy to the borrower. Such commitment will include the 
following:
    (1) The interest rate provisions of the loan, the loan amount and 
purposes, and the conditions precedent to the execution of a Loan Note 
Guarantee by RUS and the advance of guaranteed funds by the lender.
    (2) A request that the lender and borrower each sign the 
``Acceptance of Conditions'' section of the Conditional Commitment to 
Guarantee and return it to RUS by the date specified indicating their 
acceptance of the stated terms and conditions and requesting the 
issuance of a Loan Note Guarantee by RUS.
    (3) A request that the lender begin preparing in final form the 
Lender's Agreement and Loan Note, along with the loan agreement and 
Assignment Guarantee Agreement, as applicable.
    (c) The Conditional Commitment to Guarantee shall be valid for a 
period not to exceed one year from the date of execution unless extended 
in writing by RUS before the expiration date.

[[Page 528]]

    (d) If RUS determines it is unable to guarantee a loan, RUS will 
notify the borrower and lender in writing. Such notification will 
include the reasons for denial of the guarantee.



Sec. 1739.71  Changes in conditions.

    (a) Changes in loan terms and conditions. Changes in contractual 
conditions regarding interest rate provisions or other terms and 
conditions, after execution of the Conditional Commitment to Guarantee, 
may be made for good cause if acceptable to both the lender and the 
borrower, and prior written approval is obtained from RUS.
    (b) Change of Lender. (1) With RUS's prior written approval, a new 
lender may be substituted prior to execution of the Loan Note Guarantee. 
Subsequent to such execution, a new lender will not be approved unless 
the original lender has discontinued lending operations, or is unable to 
make the loan or satisfactorily fulfill its obligations under the 
Lender's Agreement. New lenders must meet the requirements of this 
subpart.
    (2) The borrower shall provide in writing to RUS, with a copy to the 
new lender, the reasons for the substitution and any proposed changes in 
the conditions of the loan.
    (c) Criteria for approval. In deciding whether or not to approve 
changes authorized by this section, RUS will consider whether the 
changes will increase RUS's guarantee risk or otherwise adversely affect 
the government's interests, and whether the changes are essential to 
enable the borrower to obtain a loan from an eligible lender.

[56 FR 42479, Aug. 27, 1991; 56 FR 55205, Oct. 25, 1991]



Sec. 1739.72  Documents summary.

    For the convenience of the reader, this section summarizes the main 
documents set forth in this subpart:
    (a) Borrower's Loan Guarantee Application (see 7 CFR part 1737 and 
Sec. 1739.65). The application is submitted by the borrower to RUS and 
contains all of the documents and other information required for RUS to 
approve a loan guarantee. Information provided RUS in connection with an 
insured or Rural Telephone Bank loan is not required to be resubmitted.
    (b) Notice of Lender Selection (Sec. 1739.66). This document, signed 
by the lender and the borrower, sets forth the lender's qualifications 
and the basic terms and conditions of the lender's proposed loan. The 
notice is submitted to RUS by the borrower, preferably at the same time 
as the loan guarantee application.
    (c) Conditional Commitment to Guarantee (Sec. 1739.70). RUS issues 
this commitment to the lender when RUS determines that a loan guarantee 
can be approved if certain conditions are met by the borrower and/or 
lender.
    (d) Lender Certification (Sec. 1739.73). The lender submits this 
document to RUS before the Lender's Agreement, Loan Note, Assignment 
Guarantee Agreement, and loan agreement are executed in final form to 
certify that these documents are the same in form and substance as the 
most recent draft of the documents approved by RUS.
    (e) Loan Note (Sec. 1739.67). This is the promissory note issued by 
the borrower to the lender, which sets forth the obligation of the 
borrower to repay the loan with interest. A draft of the Loan Note is 
submitted by the borrower to RUS for approval at the same time as the 
Notice of Lender Selection, or as soon thereafter as practicable.
    (f) Loan Agreement (Sec. 1739.68). In addition to the Loan Note, the 
borrower and the lender may execute a loan agreement to set forth 
certain provisions of the loan, such as those relating to interest 
rates, loan repayment, advance of funds procedures, etc. Procedures for 
RUS approval of a loan agreement are the same as for the Loan Note.
    (g) Loan Note Guarantee (Sec. 1739.67). This is the contract of 
guarantee, prepared by the lender, which states the terms and conditions 
of RUS's guarantee of the lender's loan.
    (h) Lender's Agreement (Sec. 1739.69). This contract between RUS and 
the lender sets forth primarily the lender's rights and obligations with 
respect to the guaranteed loan and the manner in which RUS will make 
payments to the lender under the Loan Note Guarantee. After RUS has 
approved the borrower's choice of lender, the Lender's Agreement is 
prepared by the lender and submitted to RUS for approval.

[[Page 529]]

    (i) Assignment Guarantee Agreement (Sec. 1739.62). This agreement is 
required if the lender intends to assign all or part of the guaranteed 
portion of the loan. It is prepared by the lender and is executed by the 
lender, the holder, and RUS.



Sec. 1739.73  Execution of final documents.

    (a) The process to execute final loan and security documents will 
begin after the borrower and lender sign the ``Acceptance of 
Conditions'' section of the Conditional Commitment to Guarantee and 
return it to RUS. The process must be completed before expiration of the 
Conditional Commitment to Guarantee as provided for in Sec. 1739.70. 
Before a Loan Note Guarantee will be issued, the lender must certify to 
RUS that there has been no material adverse change in the Borrower's 
financial condition nor any other material adverse changes in the 
Borrower's condition since the date of submission of the loan guarantee 
application to RUS. If any such change, in the opinion of RUS, threatens 
loan feasibility or loan security, regardless of when the change 
occurred or when RUS became aware it, RUS is under no obligation to 
issue a Loan Note Guarantee.
    (b) All final documents shall be prepared by the lender and 
submitted to RUS for approval. Said documents must either be materially 
the same in form and substance as the draft documents previously 
approved by RUS, or any material changes must be clearly identified to 
RUS.
    (c) Borrowers under the jurisdiction of a state regulatory authority 
may obtain drafts of the loan and security documents in advance from the 
lender in order to begin proceedings with the state authority.
    (d) The lender will be responsible for:
    (1) Arranging for and ensuring the proper execution of the loan and 
security documents by all parties;
    (2) Arranging for and ensuring the proper recording of all security 
instruments, if applicable; and
    (3) Providing to RUS all said documents, evidence of proper 
execution and recording, and opinions of counsel, in form and substance 
satisfactory to the Administrator, regarding the loan transaction for 
both the lender and borrower.
    (e) When RUS has determined that all of the required loan and 
security documents and associated evidence of execution and recording 
are satisfactory, RUS will execute the Lender's Agreement, the Loan Note 
Guarantee, and if applicable, the Assignment Guarantee Agreement.
    (f) The original of the executed Loan Note Guarantee, Loan Note, 
Lender's Agreement, and any loan agreement will be provided to the 
lender. The original of the executed Assignment Guarantee Agreement, if 
applicable, will be provided to the lender for transmittal to the 
holder.
    (g) If RUS determines that it cannot execute the Loan Note Guarantee 
or other related documents because all requirements have not been met, 
RUS will inform the lender and borrower of the reasons and establish a 
reasonable period for the lender and the borrower to resolve the 
problems, if possible.



Sec. 1739.74  Access to records of lender.

    Upon request, the lender shall permit representatives of RUS and 
other agencies of the Federal government to inspect and make copies of 
any of the records of the lender pertaining to RUS guaranteed loans. 
Such inspection and copying may be made during the lender's regular 
office hours, or any other time the lender and the government find 
convenient.



Sec. 1739.75  Loan documentation.

    The document examples set forth in appendices A through F of this 
part shall be used as a guide to the extent practicable for loans 
guaranteed under this subpart.
Secs. 1739.76--1739.99  [Reserved]

              Appendix A to Part 1739--Lender's Agreements

Type of Loan:___________________________________________________________
RUS Loan No.____________________________________________________________
Applicable: 7 CFR parts 1712, 1719, 1739 & 1746

_______________________________________________________________________
(Lender) of_____________________________________________________________
has made a loan to______________________________________________________
(Borrower) in the principal amount of $________ as evidenced by a note 
(include Bond as appropriate) described as follows:

_______________________________________________________________________

[[Page 530]]

    The United States of America, acting through the Rural Utilities 
Service (RUS) has entered into a Loan Note Guarantee or has issued a 
Conditional Commitment to Guarantee to enter into a Loan Note Guarantee 
with the Lender applicable to such loan to guarantee repayment of 90 
percent of the outstanding principal advanced and interest owed thereon. 
The terms of the Loan Note Guarantee are controlling. As a condition for 
obtaining a guarantee of the loan, and to facilitate the marketability 
of the guaranteed portion of the loan, the Lender enters into this 
agreement.
    THE PARTIES AGREE:
    I. The maximum loss covered under the Loan Note Guarantee will not 
exceed 90 percent of the principal advanced and accrued interest on the 
above indebtedness.
    II. Full Faith and Credit. The Loan Note Guarantee constitutes an 
obligation supported by the full faith and credit of the United States 
and is incontestable except for fraud or misrepresentation of which the 
Lender had actual knowledge at the time it became such Lender or which 
Lender participates in or condones. Any note which provides for the 
payment of interest on interest shall not be guaranteed. Any Loan Note 
Guarantee or Assignment Guarantee Agreement attached to or relating to a 
note which provides for payment of interest on interest is void.
    The Loan Note Guarantee will be unenforceable by the Lender to the 
extent any loss is occasioned by violation of usury laws, negligent 
servicing, or failure to obtain the required security regardless of the 
time at which RUS acquires knowledge of the foregoing. Negligent 
servicing is defined as the failure to perform those services which a 
reasonable prudent Lender would perform in servicing its portfolio of 
loans that are not guaranteed. The term includes not only a failure to 
act but also not acting in a timely manner or acting in a manner 
contrary to the manner in which a reasonably prudent Lender would act up 
to the time of loan maturity or until a final loss is paid.
    III. Lender's Assignment of Guaranteed Portion of Loan.
    A. The Lender may retain all of the guaranteed loan. The Lender is 
not permitted to sell or participate in any amount of the guaranteed or 
unguaranteed portions of the loan to the applicant or Borrower or 
members of their immediate families, their officers, directors, 
stockholders, other owners, or any parent, subsidiary or affiliate. If 
the Lender desires to market all or part of the guaranteed portion of 
the loan at or subsequent to loan closing, such loan must not be in 
default as set forth in the items of the notes.
    B. The Lender may assign all or a part of the guaranteed portion of 
the loan to not more than one Holder. The assignment is subject to RUS 
approval, and an ``Assignment Guarantee Agreement'' must be used. The 
Holder, and any subsequent Holder, upon written notice to Lender and 
RUS, may reassign to not more than one assignee all, but not part, of 
its unpaid guaranteed portion of the loan. Upon such notification the 
assignee shall succeed to all rights and obligations of the Holder 
thereunder.
    C. When a guaranteed portion of a loan is assigned to a Holder, the 
Holder shall thereupon succeed to all rights of Lender under the Loan 
Note Guarantee to the extent of the portion of the loan purchased, but 
not including those rights conveyed solely by the security instrument. 
Lender will remain bound to all the obligations under the Loan Note 
Guarantee and this agreement and the applicable RUS program regulations 
found in 7 CFR Parts 1712, 1719, 1739 and 1746 and to future RUS program 
regulations not inconsistent with the express provisions hereof.
    IV. The Lender agrees loan funds will be used for the purposes 
authorized in the applicable subpart of 7 CFR 1712 or 1739 and in 
accordance with the terms of the Conditional Commitment to Guarantee.
    V. Lender agrees to obtain RUS approval to advance loan funds prior 
to each advance of funds.
    VI. The Lender certifies that it has disclosed in writing to RUS all 
information concerning actual or potential conflicts of interest as 
required by 7 CFR part 1712 or 1739.
    VII. The Lender certifies that it has no knowledge of any material 
adverse change, financial or otherwise, in the Borrower, Borrower's 
business, or any parent, subsidiaries, or affiliates since it requested 
a Loan Note Guarantee.
    VIII. The Lender certifies that a Loan Note concurred in by RUS has 
been or will be signed with the Borrower.
    IX. Servicing.
    A. The Lender will service the entire loan and will remain mortgagee 
and/or secured party of record, notwithstanding the fact that another 
party may hold a portion of the loan. The entire loan will be secured by 
the same security. Lender may charge Holder a servicing fee. The 
unguaranteed portion of a loan will not be paid first nor given any 
preference or priority over the guaranteed portion of the loan.
    B. Disposition of the guaranteed portion of the loan may be made 
prior to full disbursement of loan funds, only with the prior written 
approval of RUS. Subsequent to full disbursement, the guaranteed portion 
of the loan may be disposed of as provided herein.
    C. It is the Lender's responsibility to see that the borrower has 
obtained any required approvals of the loan from a state regulatory 
authority.
    D. Lender's servicing responsibilities include, but are not limited 
to:

[[Page 531]]

    1. Obtaining compliance with the covenants and provisions in the 
note, security instruments, and any loan agreement or supplemental 
agreements and notifying RUS and the Borrower in writing of any 
violations. None of the aforesaid instruments will be altered without 
RUS's prior written concurrence. The Lender must service the loan in a 
reasonable and prudent manner.
    2. Receiving all payments on principal and interest on the loan as 
they fall due and promptly remitting and accounting to any Holder its 
pro rata share thereof determined according to its interest in the loan, 
less only Lender's servicing fee. The loan may be reamortized, renewed, 
rescheduled or written down only with agreement of the Lender and Holder 
and only with RUS's written concurrence.
    3. Inspecting the collateral as often as necessary to properly 
service the loan.
    4. Assuring that adequate insurance is maintained. This includes 
hazard insurance obtained and maintained with a loss payable clause in 
favor of the Lender as the mortgagee or secured party and Fidelity Bond 
coverage if required.
    5. Assuring that: taxes, assessment or ground rents against or 
affecting collateral are paid; the loan and collateral are protected in 
foreclosure, bankruptcy, receivership, insolvency, condemnation, or 
other litigation; insurance loss payments, condemnation awards, or 
similar proceeds are applied on debts in accordance with section 2 of 
the Loan Note Guarantee, or to rebuilding or otherwise acquiring needed 
replacement collateral with the written approval of RUS; proceeds from 
the sale or other disposition of collateral are applied in accordance 
with section 2 of the Loan Note Guarantee, except that proceeds from the 
disposition of collateral such as machinery, equipment, furniture or 
fixtures may, with prior written approval of RUS, be used to acquire 
property of similar nature; and the Borrower complies with all laws and 
ordinances applicable to the loan and the collateral.
    6. Assuring that if corporate guarantees are part of the collateral, 
current financial statements from such loan guarantors will be obtained 
and copies provided to RUS at such time and frequency as required by the 
Conditional Commitment to Guarantee or any loan agreement. In the case 
of guarantees secured by collateral, assuring that the priority and 
validity of the lien is properly maintained.
    7. Obtaining the lien coverage and lien priorities specified by the 
Lender and agreed to by RUS, properly recording or filing lien or notice 
instruments to obtain or maintain such lien priorities during the 
existence of the guarantee by RUS.
    8. Assuring that the Borrower obtains marketable title to the 
collateral.
    9. Assuring that the Borrower or any party liable is not released 
from liability for all or any part of the loan except in accordance with 
RUS regulations.
    10. Providing the Director, Fiscal Accounting Division, RUS with a 
loan status report within 10 working days of the end of each quarter 
(March 31, June 30, September 30, and December 31).
    11. Obtaining from the Borrower periodic financial statements under 
the following schedule:
_______________________________________________________________________
    Lender is responsible for analyzing the financial statements, taking 
any servicing actions, and reporting such actions to the RUS Area 
Operations Branch responsible for the loan.
    12. Notifying the RUS Area Operations Branch promptly of a 
prepayment of all or a portion of the Loan Note by the borrower.
    13. Assuring that the funds are used for the purposes approved in 
the loan, except that the lender may rely on RUS for said assurance if 
RUS has agreed in advance in writing.
    E. The lender shall reimburse RUS for any payments made to a holder 
under the guarantee on account of negligent servicing.
    X. Default.
    A. The Lender shall notify the RUS Area Operations Branch promptly, 
in writing, when any default in the payment of principal or interest due 
on a loan has been in effect for five calendar days or more. In the case 
of such monetary defaults, the lender shall contact the borrower to 
determine the nature of the problem, and subsequently submit the 
following to the RUS Area Operations Branch:
    1. A report, submitted promptly, setting forth the lender's views as 
to the reasons for the default, how long the borrower is expected to be 
in default, and the corrective actions being taken by the borrower to 
achieve a current debt service position, and
    2. A proposal, submitted promptly for RUS's approval, outlining 
actions to be taken by the lender and the borrower to cure the default 
if the default has been in effect for 30 calendar days or more. Such 
proposal must be delivered to RUS within 35 calendar days of the date of 
the default.
    B. The lender shall take all reasonable steps to cure the default as 
soon as practicable. Actions taken by the Lender with written 
concurrence of RUS may include but are not limited to the following or 
any combination thereof:
    1. Deferment of principal payments subject to rights of any Holder.
    2. An additional unguaranteed temporary loan by the Lender to bring 
the account current.
    3. Reamortization of or rescheduling the payments on the loan, 
subject to rights of any Holder.

[[Page 532]]

    4. Transfer and assumption of the loan in accordance with RUS 
regulations.
    5. Reorganization.
    6. Liquidation.
    7. Changes in interest rate with RUS's, Lender's, and the Holder's 
approval, provided such interest rate is adjusted proportionally between 
the guaranteed and unguaranteed portion of the loan and the type of rate 
remains the same.
    C. The Lender will negotiate in good faith in an attempt to resolve 
any problem to permit the borrower to cure a default, where reasonable.
    D. The Holder has the right to request that the Lender repurchase 
the unpaid guaranteed portion of the loan when (a) the borrower is in 
default not less than 60 days on principal and/or interest due on the 
loan, or (b) the Lender has failed to remit to the Holder its pro rata 
share of any payment made by the borrower within 30 days of its receipt. 
If the Lender agrees to repurchase, repurchase will be for an amount 
equal to the unpaid guaranteed portion of principal and accrued 
interest, less the Lender's servicing fee. Holder will concurrently send 
a copy of demand to RUS. The Lender will accept an assignment without 
recourse from the Holder upon repurchase. The Lender is encouraged to 
repurchase the loan to facilitate the accounting for funds, resolve the 
problem, and to permit the borrower to cure the default where 
reasonable. The Lender will promptly notify the Holder and RUS of its 
decision regarding repurchase.
    E. If the borrower is in default on its loan payments and the Lender 
does not repurchase the Holder's portion as provided in paragraph D, 
within thirty (30) days after written demand to RUS from Holder, RUS 
will either (a) pay to Lender any shortfall in principal and interest 
payments by the borrower on the guaranteed portion held by the Holder, 
as due, to be remitted by Lender to Holder, or (b) purchase the unpaid 
principal balance of the guaranteed portion held by the Holder, together 
with accrued interest to date of repurchase, less Lender's sevicing fee. 
Under option (b) of this paragraph, the Loan Note Guarantee will not 
cover any note interest to the Holder accruing after 90 days from the 
date of the original demand letter of the Holder to the Lender 
requesting the repurchase. RUS's obligation to Holder applies only in 
the case where the Borrower is in monetary default, and does not apply 
if the Borrower is not in default and the Lender fails to remit payment 
to Holder.
    The demand to RUS shall include a copy of the written demand made 
upon the Lender. The Holder or its duly authorized agent will also 
include evidence of its right to require payment from RUS. Such evidence 
will consist of the original of the Assignment Guarantee Agreement 
properly assigned to RUS without recourse including all rights, title 
and interest in the loan. RUS will be subrogated to all rights of 
Holder. The Holder will include in its demand the amount due, including 
unpaid principal, unpaid interest to date of demand, and interest 
subsequently accruing from date of demand to proposed payment date. 
Unless othewise determined by RUS, such proposed payment will not be 
later than 30 days from the date of demand.
    RUS will promptly notify the Lender of its receipt of the Holder's 
demand for payment. The Lender will promptly provide RUS with the 
information necessary for RUS determination of the appropriate amount 
due the Holder. Any discrepancy between the amount claimed by the Holder 
and the information submitted by the Lender must be resolved before 
payment will be approved. RUS will notifiy both parties, who must 
resolve the conflict to RUS's satisfaction, before payment by RUS will 
be approved. Such conflict will suspend the running of the 30 day 
payment requirement. Upon receipt of the necessary information, RUS will 
review the demand and determine if payment is warranted, and if so, pay 
the Lender, who shall in turn promptly pay the Holder.
    F. If the Lender holds any part of the guaranteed portion of the 
loan and a monetary event of default has been in effect for 180 days 
from the payment due date, and the Lender has not been able to work out 
a satisfactory cure of the default, RUS will at its option make payment 
to the Lender under one of the methods set forth below within 30 days of 
written demand by the Lender, provided the Lender has met all of its 
obligations under the Lender's Agreement:
    1. RUS will pay the outstanding principal balance, plus accrued 
interest that the Borrower has failed to pay with respect to the portion 
of the guaranteed loan held by the Lender. In this case, the guarantee 
will not cover any note interest accruing after 90 days from the date of 
the demand letter by the Lender to RUS.
    2. RUS will pay that portion of principal and interest payments owed 
on the guaranteed portion of the loan held by the lender that the 
borrower has failed to pay, plus such principal and interest payments 
owed on said guaranteed portion, as due, that the borrower fails to pay 
in the future.
    G. Lender consents to the purchase by RUS and agrees to furnish on 
request by RUS a current statement, certified by an appropriate 
authorized officer of the Lender, of the unpaid principal and interest 
then owed by the Borrower on the loan and the amount then owed to any 
Holder. Lender agrees that any purchase by RUS does not change, alter or 
modify any of the Lender's obligations to RUS arising from said loan or 
guarantee, nor does it waive any of RUS's rights against Lender, and 
that RUS will have the right to set-off against Lender all rights 
inuring to RUS as the Holder of this instrument against

[[Page 533]]

RUS's obligation to Lender under the Loan Note Guarantee.
    H. Servicing fees assessed by the Lender to a Holder are collectible 
only from payment installments received by the Lender from the Borrower. 
When RUS repurchases from a Holder, RUS will pay the Holder only the 
amounts due the Holder. RUS will not reimburse the Lender for servicing 
fees assessed to a Holder and not collected from payments received from 
the Borrower. No servicing fee shall be charged RUS and no such fee is 
collectible from RUS.
    I. Lender may also repurchase the guaranteed portion of the loan 
pursuant to section 12 of the Loan Note Guarantee.
    XI. Liquidation. If the Lender concludes that liquidation of a 
guaranteed loan account is necessary because of one or more defaults or 
third party actions that the Borrower cannot or will not cure or 
eliminate within a reasonable period of time, a meeting will be arranged 
by the Lender with RUS. If RUS concurs in the Lender's conclusion or at 
any time concludes independently that liquidation is necessary, it will 
promptly notify the Lender and the matter will be handled as follows:
    A. Lender's proposed method of Liquidation. Within 30 days after the 
decision to liquidate, the Lender will advise RUS in writing of its 
proposed detailed method of liquidation called a liquidation plan and 
will provide RUS with:
    1. Such proof as RUS requires to establish the Lender's ownership of 
the guaranteed loan promissory note and related security instruments.
    2. Information lists concerning the Borrower's assets including real 
and personal property, fixtures, claims, contracts, inventory, accounts 
receivable, corporate guarantees, and other existing and contingent 
assets, and advice as to whether or not each item is serving as 
collateral for the guaranteed loan.
    3. A proposed method of making the maximum collection possible on 
the indebtedness.
    4. If the outstanding principal loan balance including accrued 
interest is $200,000 or less, the Lender will obtain an estimate of the 
market and potential liquidated value of the collateral. On loan 
balances in excess of $200,000, the Lender will obtain an independent 
appraisal report on all collateral securing the loan, which will reflect 
the current market value and potential liquidation value. The appraisal 
report is for the purpose of permitting the Lender and RUS to determine 
the appropriate liquidation actions. Any independent appraiser's fee 
will be shared equally by RUS and the Lender.
    B. RUS's Response to Lender's Liquidation Plan. RUS will inform the 
Lender in writing whether it concurs in the Lender's liquidation plan 
within 30 days after receipt of such plan from the Lender. If RUS needs 
additional time to respond to the liquidation plan, it will advise the 
Lender of a definite time for such response. Should RUS and the Lender 
not agree on the Lender's liquidation plan, negotiations will take place 
between RUS and the Lender to resolve the disagreement. The Lender will 
ordinarily conduct the liquidation, however, should RUS opt to conduct 
the liquidation, RUS will proceed as follows:
    1. The Lender will transfer to RUS all rights and interest necessary 
to allow RUS to liquidate the loan. In this event, the Lender will not 
be paid for any loss until after the collateral is liquidated and the 
final loss is determined by RUS.
    2. RUS will attempt to obtain the maximum amount of proceeds from 
liquidation.
    3. Options available to RUS include any one or combination of the 
usual commercial methods of liquidation.
    C. Acceleration. The Lender or RUS, if it liquidates, will proceed 
as expeditiously as possible when acceleration of the indebtedness is 
necessary including giving any notices and taking any other legal 
actions required by the security instruments. A copy of the acceleration 
notice or other acceleration documents will be sent to RUS or the 
Lender, as the case may be.
    D. Liquidation: Accounting and Reports. When the Lender conducts the 
liquidation, it will account for funds during the period of liquidation 
and will provide RUS with periodic reports on the progress of 
liquidation, disposition of collateral, resulting costs, and additional 
procedures necessary for successful completion of liquidation. When RUS 
is the holder of a portion of the guaranteed loan, the Lender will 
transmit to RUS any payments received from the Borrower and/or pro rata 
share of liquidation or other proceeds, etc., pursuant to the priorities 
set forth in section 2 of the Loan Note Guarantee. When RUS liquidates, 
the Lender will be provided with similar reports on Request.
    E. Determination of Loss and Payment. In all liquidation cases, 
final settlement will be made with the Lender after the collateral is 
liquidated. RUS will have the right to recover losses paid under the 
guarantee from any party liable.
    1. Estimated loss payments may be approved by RUS after the Lender's 
liquidation plan has been approved by RUS. Payments will be made in 
accordance with applicable RUS procedures.
    2. When the Lender is conducting the liquidation and owns any of the 
guaranteed portion of the loan, it may request a tentative loss estimate 
by submitting to RUS an estimate of loss that will occur in connection 
with liquidation of the loan. If RUS agrees to pay an estimated loss 
settlement, the Lender shall apply such amount due to the outstanding 
principal balance owed on the guaranteed debt. The appraisal value of 
the collateral will be used to determine the

[[Page 534]]

estimated loss. Once this claim is approved by RUS, the Lender will 
discontinue interest accrual on the defaulted loan and the loss claim 
will be promptly processed in accordance with the applicable RUS 
procedures.
    Within 30 days of RUS's approval of the loss estimate, RUS will 
request the issuance of a Treasury check in payment of the estimated 
amount due the Lender.
    After liquidation has been completed, a final loss report will be 
submitted by the Lender to RUS.
    3. After the Lender has completed liquidation, RUS, upon receipt of 
the final accounting and report of loss, may audit and will determine 
the actual loss. If RUS has any questions regarding the amounts set 
forth in the final report of loss, it will investigate the matter. The 
Lender will make its records available to and otherwise assist RUS in 
making the investigation. If RUS finds any discrepancies, it will 
contact the Lender and arrange for the necessary corrections to be made 
as soon as possible. When RUS finds the final report of loss to be 
proper in all respects, it will be tentatively approved.
    4. When the Lender has conducted liquidation and after the final 
report of loss has been tentatively approved:
    a. If the loss is greater than the estimated loss payment, RUS will 
request the issuance of a Treasury check in payment of the additional 
amount owed by RUS to the Lender.
    b. If the loss is less than the estimated loss payment, the Lender 
will reimburse RUS for the overpayment plus interest at the note rate 
from date of payment.
    5. If RUS has conducted liquidation, it will provide an accounting 
and report of loss to the Lender and will pay the Lender in accordance 
with the Loan Note Guarantee.
    6. If the Lender has made authorized protective advances, it may 
claim recovery for the guaranteed portion of any loss of monies advanced 
as protective advances and interest resulting from such protective 
advances as provided above, and such payment will be made by RUS when 
the final report of loss is approved.
    F. Maximum amount of interest loss payment. Notwithstanding any 
other provisions of this agreement, the amount payable by RUS to the 
Lender cannot exceed the limits set forth in the Loan Note Guarantee. If 
RUS conducts the liquidation, loss occasioned by accruing interest will 
be covered by the guarantee only to the date RUS accepts this 
responsibility. Loss occasioned by accruing interest will be covered to 
the extent of the guarantee to the date of final settlement when the 
liquidation is conducted by the Lender, provided it proceeds 
expeditiously with the liquidation plan approved by RUS.
    G. Application of RUS loss payment. The estimated loss payment shall 
be applied as of the date of such payment. The total amount of the loss 
payment remitted by RUS will be applied by the Lender on the guaranteed 
portion of the loan debt. However, such application does not release the 
Borrower from liability. At time of final loss the Lender will notify 
the Borrower that the loss payment has been so applied.
    H. Income from collateral. Any net rental or other income that has 
been received by the Lender from the collateral will be applied on the 
guaranteed loan debt.
    I. Liquidation costs. Certain reasonable liquidation costs will be 
allowed during the liquidation process. The liquidation costs will be 
submitted as a part of the liquidation plan. Such costs will be deducted 
from gross proceeds from the disposition of collateral unless the costs 
have been previously determined by the lender (with RUS's written 
concurrence) to be protective advances. If changed circumstances after 
submission of the liquidation plan require a revision of liquidation 
costs, the Lender will obtain RUS's written concurrence prior to 
proceeding with the proposed changes. No in-house expenses of the Lender 
will be allowed. In-house expenses include, but are not limited to, 
employees' salaries, staff lawyers, travel and overhead.
    J. Foreclosure. The parties owning the guaranteed portion and 
unguaranteed portions of the loan will join to institute foreclosure 
action or, in lieu of foreclosure, to take a deed of conveyance to such 
parties. When the conveyance is received and liquidated, net proceeds 
will be applied to the guaranteed loan debt.
    K. Payment. Such loss will be paid by RUS within 60 days after the 
review of the accounting of the collateral.
    XII. Protective Advances.
    Protective advances must constitute an indebtedness of the Borrower 
to the Lender and be secured by the security instrument(s). RUS's 
written authorization is required on all protective advances. Protective 
advances include, but are not limited to, advances made for taxes, 
annual assessments, ground rents, hazard or flood insurance premiums 
affecting the collateral, and other expenses necessary to preserve or 
protect the security. Attorney fees are not a protective advance.
    XIII. Additional Loans or Advances.
    The Lender will not make additional expenditures or new loans 
without first obtaining the written approval of RUS even though such 
expenditures or loans will not be guaranteed.
    XIV. Future Recovery.
    After a loan has been liquidated and final loss has been paid by 
RUS, any future funds that may be recovered by the Lender will be pro 
rated between RUS and the Lender. RUS will be paid such amount recovered 
in proportion to the percentage it guaranteed for the loan and the 
Lender will retain such

[[Page 535]]

amounts in proportion to the percentage of the unguaranteed portion of 
the loan.
    XV. Transfer And Assumption Cases.
    If a loss should occur upon consummation of a complete transfer and 
assumption for less than the full amount of the debt and the transferor-
debtor is released from personal liability, the Lender, if it holds the 
guaranteed portion, may file a report of estimated loss to recover its 
pro rata share of the actual loss at that time.
    XVI. Bankruptcy.
    A. The Lender is responsible for protecting the guaranteed loan debt 
and all collateral securing the loan in bankruptcy proceedings. When the 
loan is involved in a reorganization bankruptcy proceeding under 
Chapters 9, 11, 12 or 13 of the Bankruptcy Code (11 U.S.C. 101 et seq.), 
payment of loss claims may be made as proved in this section XVI. For a 
Chapter 7 bankruptcy or liquidation plan in a Chapter 11 bankruptcy, 
only paragraph XVI B.3. is applicable.
    B. Loss Payments.
    1. Estimated Loss Payments.
    a. If a borrower has filed for protection under a reorganization 
bankruptcy, the Lender will request a tentative estimated loss payment 
of accrued interest and principal written off. This request can be made 
only after the bankruptcy plan is confirmed by the court. Only one 
estimated loss payment is allowed during the reorganization bankruptcy. 
All subsequent claims during reorganization will be considered revisions 
to the initial estimated loss. A revised estimated loss payment may be 
processed by RUS at its option in accordance with any court approved 
changes in the reorganization plan. At the time the performance under 
the confirmed reorganization plan has been completed, the Lender is 
responsible for providing RUS with the documentation necessary to review 
and adjust the estimated loss claim to (a) reflect the actual principal 
and interest reduction on any part of the guaranteed debt determined to 
be unsecured and (b) to reimburse the Lender for any court ordered 
interest rate reduction during the term of the reorganization plan.
    b. The estimated loss claim, as well as any revisions to this claim, 
will be accompanied by necessary legal documentation to support the 
claim.
    c. Upon completion of the reorganization plan, the Lender will 
report to RUS on the status of the borrower and the loan pursuant to RUS 
instructions.
    2. Interest Loss Payments.
    a. Interest loss payments sustained during the period of the 
reorganization plan will be processed in accordance with paragraph XVI 
B.1.
    b. Interest loss payments sustained after the reorganization plan is 
completed will be processed annually when the Lender sustains a loss as 
a result of a permanent interest rate reduction that extend beyond the 
period of the reorganization plan.
    3. Final Loss Payments.
    a. Final Loss Payments will be processed when the loan is 
liquidated.
    b. If the loan is paid in full without an additional loss, RUS will 
close out the estimated loss account at the time notification of payment 
in full is received.
    4. Payment Application. The Lender must apply estimated loss 
payments first to the unsecured principal of the guaranteed portion of 
the debt and then to the unsecured interest of the guaranteed portion of 
the debt. In the event the bankruptcy court attempts to direct the 
payments to be applied in a different manner, the Lender will 
immediately notify the RUS servicing office.
    5. Overpayments. Upon completion of the reorganization plan, the 
Lender will provide RUS with the documentation necessary to determine 
whether the estimated loss paid equals the actual loss sustained. If the 
actual loss sustained, as a result of the reorganization, is greater 
than the estimated loss payment, the Lender will submit a revised 
estimated loss in order to obtain payment of the additional amount owed 
by RUS to the Lender. If the actual loss payment is less than the 
estimated loss, the Lender will reimburse RUS for the overpayment plus 
interest at the note rate from the date of the payment of the estimated 
loss.
    XVII. Other Requirements.
    This agreement is subject to all the applicable provisions of 7 CFR 
Parts 1712, 1719, 1739 and 1746 and any future amendments of these 
regulations not inconsistent with this agreement.
    XVIII. Execution of Agreements.
    If this agreement is executed prior to the execution of the Loan 
Note Guarantee, this agreement does not impose any obligation upon RUS 
with respect to the execution of such guarantee. RUS in no way warrants 
that such a guarantee has been or will be executed.
    XIX. Notices.
    All notices and actions will be initiated through the RUS Area 
Operations Branch.

Dated this ____________ day of ____________, 19____.

LENDER:
ATTEST: (Seal)__________________________________________________________
By______________________________________________________________________
Title___________________________________________________________________
UNITED STATES OF AMERICA, Rural Utilities Service.

By______________________________________________________________________
Title___________________________________________________________________

[56 FR 42479, Aug. 27, 1991; 56 FR 47832, Sept. 20, 1991; 56 FR 55205, 
Oct. 25, 1991]

[[Page 536]]



         Appendix B to Part 1739--Assignment Guarantee Agreement

Type of Loan:___________________________________________________________
RUS Loan No.____________________________________________________________
Applicable: 7 CFR 1712, 1719, 1739 & 1746

_______________________________________________________________________
of______________________________________________________________________
(Lender) has made a loan to_____________________________________________
in the principal amount of $____________________________________________
as evidenced by a note dated.___________________________________________
The United States of America, acting through the Rural Utilities Service 
(RUS) entered into a Loan Note Guarantee with the Lender applicable to 
such loan to guarantee the loan not to exceed ________% of the amount of 
the principal advanced and any interest due thereon as provided therein.
_______________________________________________________________________
of______________________________________________________________________
(Holder) desires to purchase from Lender ________% of the guaranteed 
portion of such loan. Copies of Borrower's note and the Loan Note 
Guarantee are attached hereto as a part hereto.
    NOW, THEREFORE, THE PARTIES AGREE:
    1. The principal amount of the loan now outstanding is 
$____________. Lender hereby assigns to Holder ____________% of the 
guaranteed portion of the loan representing $____________ of such loan 
now outstanding in accordance with all of the terms and conditions 
hereinafter set forth.
    2. Loan servicing. The Lender will be responsible for servicing the 
entire loan and will remain mortgagee and/or secured party of record. 
The entire loan will be secured by the same security.
    The Lender will receive all payments on account of principal of, or 
interest on, the entire loan and shall promptly remit to the Holder its 
pro rata share thereof determined according to their respective 
interests in the loan, less only Lender's servicing fee.
    3. Servicing Fee. Holder agrees that Lender will retain a servicing 
fee of ____________ percent per annum of the unpaid balance of the 
guaranteed portion of the loan assigned hereunder.
    4. Purchase by Holder. The portion purchased by the Holder must be 
from the guaranteed portion of the loan. Subject to the limitations of 7 
CFR 1712.55 or 1739.55, the Holder will hereby succeed to all rights of 
the Lender under the Loan Note Guarantee to the extent of the assigned 
portion of the loan. The Lender, however, will remain bound by all the 
obligations under the Loan Note Guarantee and the applicable program 
regulations found in 7 CFR Parts 1712, 1719, 1739 and 1746 now in 
effect, and future RUS program regulations not inconsistent with the 
provisions of said guarantee.
    5. Full Faith and Credit. The Loan Note Guarantee constitutes an 
obligation supported by the full faith and credit of the United States 
and is incontestable except for fraud or misrepresentation of which the 
Holder has actual knowledge at the time of this assignment, or which it 
participates in or condones. A note which provides for the payment of 
interest on interest shall not be guaranteed. Any Assignment Guarantee 
Agreement attached to or relating to a note which provides for payment 
of interest on interest is void.
    6. Exclusion of Tax-Exempt Financing. A loan is not eligible for a 
guarantee if the income from the loan or the income from obligations 
issued by the owner of the loan (Lender or Holder), when the obligations 
are created by the loan, is excluded from gross income for the purposes 
of Chapter I of the Internal Revenue Code of 1986. The Lender shall 
certify to RUS, and each subsequent Holder of the loan shall certify to 
the seller, that it is in compliance with this section. The loan 
guarantee and the Assignment Guarantee Agreement shall be null and void 
with respect to the current owner of a guaranteed portion of the loan if 
said owner is in violation of this section.
    7. Rights and Liabilities. The guarantee and right to require 
purchase will be directly enforceable by Holder notwithstanding any 
fraud or misrepresentations by Lender or any unenforceability of the 
Loan Note Guarantee by Lender. Nothing contained herein shall constitute 
any waiver by RUS of any rights it possesses against the Lender, and the 
Lender agrees that Lender will be liable and will promptly reimburse RUS 
for any payment made by RUS to Holder that RUS would not be required to 
make if such lender had held the guaranteed portion of the loan. The 
Holder, upon written notice to the Lender and RUS, may resell the unpaid 
balance of the guaranteed portion of the loan assigned hereunder. An 
endorsement may be added to this form to effectuate the transfer.
    8. Repurchase by the Lender (Defaults). The holder has the right to 
request that the Lender repurchase the unpaid guaranteed portion of the 
loan from the Holder within 30 days of written demand by the Holder 
when: (a) the borrower is in default not less than 60 days on principal 
and/or interest due on the loan, or (b) the Lender has failed to remit 
to the Holder its pro rata share of any payment made by the borrower 
within 30 days of its receipt. If the Lender agrees to repurchase, 
repurchase will be for an amount equal to the unpaid guaranteed portion 
of principal and accrued interest, less the Lender's servicing fee. The 
loan note guarantee will not cover the note interest to the Holder 
accruing after 90 days from the date of the demand letter to the Lender 
requesting the repurchase. Holder will concurrently send a copy of 
demand to RUS. The Lender will accept an assignment without recourse 
from the Holder upon repurchase. The Lender is encouraged to repurchase 
the loan to facilitate the

[[Page 537]]

accounting for funds, resolve the problem, and to permit the borrower to 
cure the default, where reasonable. The Lender will notify the Holder 
and RUS of its decision regarding repurchase.
    9. RUS Purchase or Payments on Guaranteed Portion Held by Holder. If 
the borrower is in default on its loan payments and the Lender does not 
repurchase the Holder's portion as provided in paragraph 8 hereof, 
within thirty (30) days after written demand to RUS from Holder, RUS 
will either (a) pay to Lender any shortfall in principal and interest 
payments by the borrower on the guaranteed portion held by the Holder, 
as due, to be remitted by Lender to Holder, or (b) purchase the unpaid 
principal balance of the guaranteed portion held by the Holder, together 
with accrued interest to date of repurchase, less Lender's servicing 
fee. In the case of option (b) herein, the Loan Note Guarantee will not 
cover any note interest to the Holder accruing after 90 days from the 
date of the original demand letter of the Holder to the Lender 
requesting the repurchase. RUS's obligation to Holder applies only in 
the case where the Borrower is in monetary default, and does not apply 
if the Borrower is not in default and the Lender fails to remit payment 
to Holder.
    The demand to RUS shall include a copy of the written demand made 
upon the Lender. The Holder or its duly authorized agent will also 
include evidence of its right to require payment from RUS. Such evidence 
will consist of the original of the Assignment Guarantee Agreement 
properly assigned to RUS without recourse including all rights, title 
and interest in the loan. RUS will be subrogated to all rights of 
Holder. The Holder will include in its demand the amount due, including 
unpaid principal, unpaid interest to date of demand, and interest 
subsequently accruing from date of demand to proposed payment date. 
Unless otherwise determined by RUS, such proposed payment will not be 
later than 30 days from the date of demand.
    RUS will promptly notify the Lender of its receipt of the Holder's 
demand for payment. The Lender will promptly provide RUS with the 
information necessary for RUS determination of the appropriate amount 
due the Holder. Any discrepancy between the amount claimed by the Holder 
and the information submitted by the Lender must be resolved before 
payment will be approved. RUS will notify both parties, who must resolve 
the conflict to RUS's satisfaction, before payment by RUS will be 
approved. Such conflict will suspend the running of the 30 day payment 
requirement. Upon receipt of the necessary information, RUS will review 
the demand and determine if payment is warranted, and if so, pay the 
Lender, who shall in turn promptly pay the Holder.
    10. Lender's Obligations. Lender consents to the purchase by RUS and 
agrees to furnish on request by RUS a current statement, certified by an 
appropriate authorized officer of the Lender, of the unpaid principal 
and interest then owed by the Borrower on the loan and the amount then 
owed to any Holder. Lender agrees that any purchase by RUS does not 
change, alter or modify any of the Lender's obligations to RUS arising 
from said loan or guarantee, nor does it waive any of RUS's rights 
against Lender, and that RUS will have the right to set-off against 
Lender all rights inuring to RUS as the Holder of this instrument 
against RUS's obligation to Lender under the Loan Note Guarantee.
    11. Repurchase by Lender for Servicing. If in the opinion of the 
Lender, repurchase of the guaranteed portion of the loan is necessary to 
adequately service the loan, the Holder will sell the portion of the 
loan to the Lender for an amount equal to the unpaid principal and 
interest on such portion, less Lender's servicing fee. The Loan Note 
Guarantee will not cover any note interest to the Holder accruing after 
90 days from the date of the demand letter of the Lender or RUS to the 
Holder requesting that the Holder tender its guaranteed portion.
    a. The Lender will not repurchase from the Holder for arbitrage 
purposes or other purposes to further its own financial gain.
    (b.) No repurchase will be made without RUS written approval.
    (c.) If the Lender does not repurchase the Holder's portion, RUS at 
its option may purchase such guaranteed portion for servicing purposes.
    12. Foreclosure. The parties owning the quaranteed portion and 
unguaranteed portion of the loan will join to institute foreclosure 
action, or in lieu of foreclosure, take a deed of conveyance to such 
parties.
    13. Reassignment. Holder upon written notice to Lender and RUS may 
reassign the unpaid guaranteed portion of the loan sold hereunder. Upon 
such notification, the assignee will succeed to all rights and 
obligations of the Holder hereunder.
    14. Notices.
    All notice and actions will be initiated through RUS at the 
following mailing address as of the date of this instrument.

_______________________________________________________________________
Lender:

By______________________________________________________________________
Title___________________________________________________________________
Date____________________________________________________________________
Holder:
By______________________________________________________________________
Title___________________________________________________________________
Date____________________________________________________________________
United States of America, Rural Utilities Service

By______________________________________________________________________
Title___________________________________________________________________

[[Page 538]]

Date____________________________________________________________________

[56 FR 42479, Aug. 27, 1991; 56 FR 47832, Sept. 20, 1991]

           Appendix C to Part 1739--Notice of Lender Selection

    Applicable: 7 CFR parts 1712, 1719, 1739 & 1746

    A. Borrower:

Name:___________________________________________________________________
RUS ID No.______________________________________________________________
Address:________________________________________________________________
_______________________________________________________________________
Lender:

Name:___________________________________________________________________
Address:________________________________________________________________
_______________________________________________________________________
    B. Terms and Conditions of Loan:

  1. Amount:____________________________________________________________
  2. Term (yrs):________________________________________________________
    3. Interest rate:

Fixed:__________________________________________________________________
Variable:_______________________________________________________________
    If variable, state terms and base rate used to determine rate.
  4. Prepayment penalty, if any:________________________________________
    C. State whether the borrower, its principal officers, members of 
the board of directors, or members of the immediate families of said 
officials hold any stock or other evidence of ownership in the lender's 
organization. If so, give details.
    D. State whether the lender or its principal officers hold any stock 
or other evidence of ownership in the borrower, other than patronage 
capital. If so, give details.
    E. Lender's evaluation of credit reports on borrower obtained from 
national or regional credit bureaus. Enclose reports.
    F. List any loan origination or other fees to be charged the 
borrower.
    G. List any loan servicing fees to be charged a holder.
    H. Describe loan servicing plans.
    I. Lender's evaluation of (1) the borrower's financial condition, 
repayment ability, management capability, and past record, and (2) the 
feasibility of the loan.
    J. Does lender plan to market the guaranteed portion of loan? 
Yes.______ No______. Percentage of guaranteed portion to be 
marketed:______%
    K. Regulatory Agencies: Is lender in good standing with all 
regulatory agencies to which it is subject? Yes ______ No ______. If no, 
explain.
    L. List all regulatory agencies (national, state or local) to which 
the lender is subject and explain if there are any pending matters with 
such agencies. Indicate if permits, licenses or clearances are necessary 
and their status.
    M. If the lender is not regulated or examined by a Federal or stae 
agency, submit evidence that lender has established qualification 
requirements for principal officers and staff, and has fidelity, and 
errors and omissions bonding.
    N. Is the lender currently debarred or suspended from participation 
in a Federal government contract or delinquent on any obligation to the 
Federal Government? Yes ______ No ______. If yes, explain.
    O. If, in addition to a loan Note, a loan contract will be executed 
between the lender and borrower, enclose a copy of the proposed 
contract.

Borrower:

By:_____________________________________________________________________
Title:__________________________________________________________________
Lender:

By:_____________________________________________________________________
Title:__________________________________________________________________

      Appendix D to Part 1739--Conditional Commitment to Guarantee

Borrower
Lender
Type of Loan
Loan No.________________________________________________________________
State
Principal Amount of Loan
    From an examination of information supplied by the Lender on the 
above proposed loan and other relevant information, it appears that a 
Loan Note Guarantee can be issued.
    Therefore, the United States of America, acting through the Rural 
Utilities Service (RUS), hereby agrees that, in accordance with 
applicable provisions of the RUS regulations published in the Code of 
Federal Regulations and related forms, it will execute the ``Loan Note 
Guarantee,'' subject to the conditions and requirements specified herein 
and in said Guarantee and the applicable RUS regulations.
    The interest rate for the loan is ____________ percent.\1\ If a 
variable rate is used, it cannot change more often than monthly and must 
be tied to a base rate, agreed to by the Lender, the Borrower and RUS, 
that meets the requirements of regulation 7 CFR part 1712, for electric 
loans, or 7 CFR part 1739, for telephone loans.
---------------------------------------------------------------------------

    \1\ Insert fixed interest rate or, if authorized by regulations, 
variable interest rate followed by a ``V''.
---------------------------------------------------------------------------

    The following conditions must be met before a Loan Note Guarantee 
will be issued:\2\
---------------------------------------------------------------------------

    \2\ Insert any conditions that must be met by the borrower or the 
lender before a Loan Note Guarantee can be issued. If none, so indicate.
---------------------------------------------------------------------------

    A Loan Note Guarantee will not be issued until the Lender certifies 
as required in 7 CFR parts 1712 or 1739 that there has been no

[[Page 539]]

material adverse change in the Borrower's financial condition nor any 
other material adverse changes in the Borrower's condition since the 
date of submission of the loan guarantee application to RUS. If any such 
change, in the opinion of RUS, threatens loan feasibility or loan 
security, regardless of when the change occurred or when RUS became 
aware of it, RUS is under no obligation to issue a Loan Note Guarantee.
    The Lender's certification must address all adverse changes and be 
supported by financial statements of the Borrower and any guarantors not 
more than 60 days old at the time of certification. For the purposes of 
this paragraph only, the term ``Borrower'' includes any parent, 
affiliate, or subsidiary of the Borrower.
    This agreement becomes null and void unless the conditions are 
accepted by the Lender and Borrower within 60 days from date of issuance 
by RUS. Any negotiations concerning these conditions must be completed 
by that time. Acceptance shall be indicated by signing and returning to 
RUS the attached ``Acceptance of Conditions'' form.
    Except as set out below, the purposes for which the loan funds will 
be used and the amounts to be used for such purposes are set out in the 
Borrower's loan guarantee applications:\3\
---------------------------------------------------------------------------

    \3\ Explain any differences in RUS-approved loan purposes or use of 
loan funds from those specified in the loan guarantee application. If 
none, so indicate.
---------------------------------------------------------------------------

    This conditional commitment will expire on ________ unless the time 
is extended in writing by RUS, or the Lender notifies RUS that it does 
not wish to obtain an RUS guarantee.

United States of America

By:_____________________________________________________________________
Date:___________________________________________________________________
Title:__________________________________________________________________
Rural Utilities Service

      Conditional Commitment to Guarantee Acceptance of Conditions

    To: Rural Utilities Service (RUS) \4\
---------------------------------------------------------------------------

    \4\ Return completed and signed copy of this acceptance statement to 
the RUS Area Operations Branch.
---------------------------------------------------------------------------

    The conditions of the Conditional Commitment to Guarantee including 
attachments are acceptable and the undersigned intend to proceed with 
the loan transaction and request issuance of a Loan Note Guarantee.

Name of Lender:_________________________________________________________
Date:___________________________________________________________________
By:_____________________________________________________________________
    (Signature of Lender)

By:_____________________________________________________________________
    (Name of Borrower)

Date:___________________________________________________________________
By:_____________________________________________________________________
    (Signature of Borrower)

              Appendix E to Part 1739--Loan Note Guarantee

Type of Loan____________________________________________________________
Applicable: 7 CFR 1712, 1719, 1739, & 1746
Borrower:
Lender:
Tax No.:
Lender's Address:
State:
Date of Note:
RUS Loan No.:
Lender's IRS ID:
Principal Amount of Loan: $_____________________________________________
    The guaranteed portion of the loan is $________, which is ________ 
percent of loan principal. The loan is evidenced by the following note 
________ (includes bond as appropriate).
    In consideration of the making of the subject loan by the above 
named Lender, the United States of America, acting through the Rural 
Utilities Service (RUS) pursuant to the Rural Electrification Act of 
1936 (7 U.S.C. 901 et seq.) and 7 CFR parts 1712 and 1719 or 1739 and 
1746, does hereby agree that in accordance with and subject to the 
conditions and requirements herein, it will pay to:
    A. Any Holder: 100 percent of any loss sustained by such Holder on 
the guaranteed portion of the loan and on interest due on such portion.
    B. The Lender: the lesser of (1.) or (2.) below:
    1. Any loss sustained by such Lender on the guaranteed portion 
including:
    a. Principal and interest indebtedness as evidenced by said note or 
by assumption agreement, and
    b. Principal and interest indebtedness on secured protective 
advances for protection and preservation of collateral made with RUS's 
authorization, including but not limited to advances for taxes, annual 
assessments, any ground rents, and hazard or flood insurance premiums 
affecting the collateral, or
    2. The guaranteed principal advanced to or assumed by the Borrower 
under said note or assumption agreement and any interest due thereon.
    If RUS conducts the liquidation of the loan, loss occasioned to a 
Lender by accruing interest after the date RUS accepts responsibility 
for liquidation will not be covered by this Loan Note Guarantee. If 
Lender conducts the liquidation of the loan, accruing interest shall be 
covered by this Loan Note Guarantee to date of final settlement when the 
Lender conducts the liquidation expeditiously in accordance with the 
liquidation plan approved by RUS.

[[Page 540]]

                          Definition of Holder

    The Holder is the person or organization other than the Lender that 
holds all or part of the guaranteed portion of the loan pursuant to an 
executed Assignment Guarantee Agreement. Holders have no loan servicing 
responsibilities and they are prohibited from obtaining any part of the 
guaranteed portion of the loan with proceeds from any obligation, the 
interest on which is excludable from gross income under Chapter I of the 
Internal Revenue Code of 1986.

                          Definition of Lender

    The Lender is the organization making and servicing the loan 
guaranteed by RUS under the provisions of 7 CFR parts 1712 and 1719 or 
1739 and 1746.

                         Conditions of Guarantee

    1. Loan servicing.
    Lender will be responsible for servicing the entire loan, and Lender 
will remain mortgagee and/or secured party of record not withstanding 
the fact that another party may hold a portion of the loan.
    2. Priorities.
    The entire loan will be secured by the same security. The 
unguaranteed portion of the loan will not be paid first nor given any 
preference or priority over the guaranteed portion. In the event of 
monetary default by the borrower, any proceeds from liquidation of the 
loan and any payments made by the borrower will be applied first to any 
loan payments made by RUS under the guarantee, including any penalties 
assessed by RUS, then to any principal and accrued interest owed on the 
guaranteed portion of the loan, and then to any principal and accrued 
interest owed on the unguaranteed portion of the loan.
    3. Full Faith and Credit.
    The Loan Note Guarantee constitutes an obligation supported by the 
full faith and credit of the United States and is incontestable except 
for fraud or misrepresentation of which Lender or any Holder had actual 
knowledge at the time it became such Lender or Holder or which Lender or 
any Holder participates in or condones. If the note to which this is 
attached or relates provides for payment of interest on interest then 
this Loan Note guarantee is void. In addition, the Loan Note Guarantee 
will be unenforceable by Lender to the extent any loss is occasioned by 
the violation of usury laws, negligent servicing or failure to obtain 
the required security, regardless of when RUS acquires knowledge of the 
foregoing. Negligent servicing is defined as the failure to perform 
those services which a reasonably prudent lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The term 
includes not only the concept of a failure to act but also not acting in 
a timely manner or acting in a manner contrary to the manner in which a 
reasonably prudent lender would act up to the time of loan maturity or 
until a final loss is paid.
    4. Rights and Liabilities.
    The guarantee and right of Holder to request purchase of its portion 
of the loan will be directly enforceable by Holder notwithstanding any 
fraud or misrepresentation by Lender or any unenforceability of this 
Loan Note Guarantee by Lender. Nothing contained herein will constitute 
any waiver by RUS of any rights it possesses against the Lender. Lender 
will be liable for and will promptly pay to RUS any payment made by RUS 
to Holder which, if such Lender had held the guaranteed portion of the 
loan, RUS would not be required to make.
    5. Exclusion of Tax-Exempt Financing.
    A loan is not eligible for a guarantee if the income from the loan 
or the income from obligations issued by the owner of the loan (Lender 
or Holder), when the obligations are created by the loan, is excluded 
from gross income for the purposes of Chapter I of the Internal Revenue 
Code of 1986. The Lender shall certify to RUS, and each subsequent 
Holder of the loan shall certify to the seller, that it is in compliance 
with this section. The loan guarantee and any Assignment Guarantee 
Agreement shall be null and void with respect to the current owner of a 
guaranteed portion of the loan if said owner is in violation of this 
section.
    6. Payments.
    Lender will receive all payments of principal and/or interest on 
account of the entire loan and will promptly remit to Holder its pro 
rata share thereof determined according to its respective interest in 
the loan, less only Lender's servicing fee.
    7. Protective Advances.
    Protective advances made by the Lender and approved in advance by 
RUS will be guaranteed against a percentage of loss to the same extent 
as provided in this Loan Note Guarantee, notwithstanding the guaranteed 
portion of the loan that is held by another.
    8. Repurchase by Lender.
    The Holder has the right to request that the Lender repurchase the 
unpaid guaranteed portion of the loan when (a) the borrower is in 
default not less than 60 days on principal and/or interest due on the 
loan, or (b) the Lender has failed to remit to the Holder its pro rata 
share of any payment made by the borrower within 30 days of its receipt. 
If the Lender agrees to repurchase, repurchase will be for an amount 
equal to the unpaid guaranteed portion of principal and accrued 
interest, less the Lender's servicing fee. The Loan Note Guarantee will 
not cover any note interest to the Holder accruing after 90 days from 
the date of the demand letter to the Lender requesting the repurchase. 
Holder will concurrently send a copy

[[Page 541]]

of demand to RUS. The Lender will accept an assignment without recourse 
from the Holder upon repurchase. The Lender is encouraged to repurchase 
the loan to facilitate the accounting for funds, resolve the problem, 
and to permit the borrower to cure the default where reasonable. The 
Lender will promptly notify the Holder and RUS and its decision 
regarding repurchase.
    9. RUS Purchase or Payments on Guaranteed Portion Held by Holder.
    If the borrower is in default on its loan payments and the Lender 
does not repurchase the Holder's portion as provided in paragraph 8 
hereof, within thirty (30) days after written demand to RUS from Holder, 
RUS will either (a) pay to Lender any shortfall in principal and 
interest payments by the borrower on the guaranteed portion held by the 
Holder, as due, to be remitted by Lender to Holder, or (b) purchase the 
unpaid principal balance of the guaranteed portion held by the Holder, 
together with accrued interest to date of repurchase, less Lender's 
servicing fee. In the case of option (b) herein, the Loan Note Guarantee 
will not cover any note interest to the Holder accruing after 90 days 
from the date of the original demand letter of the Holder to the Lender 
requesting the repurchase. RUS's obligation to Holder applies only in 
the case where the Borrower is in monetary default, and does not apply 
if the Borrower is not in default and the Lender fails to remit payment 
to Holder.
    The demand to RUS shall include a copy of the written demand made 
upon the Lender. The Holder or its duly authorized agent will also 
include evidence of its right to require payment from RUS. Such evidence 
will consist of the original of the Assignment Guarantee Agreement 
properly assigned to RUS without recourse including all rights, title 
and interest in the loan. RUS will be subrogated to all rights of 
Holder. The Holder will include in its demand the amount due, including 
unpaid principal, unpaid interest to date of demand, and interest 
subsequently accruing from date of demand to proposed payment date. 
Unless otherwise determined by RUS, such proposed payment will not be 
later than 30 days from the date of demand.
    RUS will promptly notify the Lender of its receipt of the Holder's 
demand for payment. The Lender will promptly provide RUS with the 
information necessary for RUS determination of the appropriate amount 
due the Holder. Any discrepancy between the amount claimed by the Holder 
and the information submitted by the Lender must be resolved before 
payment will be approved. RUS will notify both parties, who must resolve 
the conflict to RUS's satisfaction, before payment by RUS will be 
approved. Such conflict will suspend the running of the 30 day payment 
requirement. Upon receipt of the necessary information, RUS will review 
the demand and determine if payment is warranted, and if so, pay the 
Lender, who shall in turn promptly pay the Holder.
    10. RUS Purchase or Payments on Guaranteed Portion Held by Lender.
    If the Lender holds any part of the guaranteed portion of the loan 
and a monetary event of default has been in effect for 180 days from the 
payment due date, and the Lender has not been able to work out a 
satisfactory cure of the default, RUS will at its option make payment to 
the Lender under one of the methods set forth below within 30 days of 
written demand by the Lender, provided the Lender has met all of its 
obligations under the Lender's Agreement:
    a. RUS will pay the outstanding principal balance, plus accrued 
interest, that the Borrower has failed to pay with respect to the 
portion of the guaranteed loan held by the Lender. In this case, the 
guarantee will not cover any note interest accruing after 90 days from 
the date of the demand letter by the Lender to RUS.
    b. RUS will pay that portion of principal and interest payments owed 
on the guaranteed portion of the loan held by the lender that the 
borrower has failed to pay, plus such principal and interest payments 
owed on said guaranteed portion, as due, that the borrower fails to pay 
in the future.
    11. Lender's Obligations.
    Lender consents to the purchase by RUS and agrees to furnish on 
request by RUS a current statement, certified by an appropriate 
authorized officer of the Lender, of the unpaid principal and interest 
then owed by the Borrower on the loan and the amount then owed to any 
Holder. Lender agrees that any purchase by RUS does not change, alter or 
modify any of the Lender's obligations to RUS arising from said loan or 
guarantee, nor does it waive any of RUS's rights against Lender, and 
that RUS will have the right to set-off against Lender all rights 
inuring to RUS as the Holder of this instrument against RUS's obligation 
to Lender under the Loan Note Guarantee.
    12. Repurchase by Lender for Servicing.
    If in the opinion of the Lender, repurchase of the guaranteed 
portion of the loan is necessary to adequately service the loan, the 
Holder will sell the portion of the loan to the Lender for an amount 
equal to the unpaid principal and interest on such portion, less 
Lender's servicing fee. The Loan Note Guarantee will not cover any note 
interest to the Holder accruing after 90 days from the date of the 
demand letter of the Lender or RUS to the Holder requesting that the 
Holder tender its guaranteed portion.
    a. The Lender will not repurchase from the Holder for arbitrage 
purposes or other purposes to further its own financial gain.
    b. No repurchase will be made without RUS written approval.

[[Page 542]]

    c. If the Lender does not repurchase the Holder's portion, RUS at 
its option may purchase such guaranteed portion for servicing purposes.
    13. Custody of Unguaranteed Portion.
    The Lender must retain all of the guaranteed portion of the loan in 
its portfolio.
    14. When Guarantee Terminates.
    The Loan Note Guarantee will terminate automatically (a) upon full 
payment of the guaranteed loan, or (b) upon full payment of any loss 
obligation hereunder, or (c) upon written notice from the Lender to RUS 
that the guarantee will terminate 30 days after the date of notice, 
provided the Lender holds all of the guaranteed portion and the Loan 
Note Guarantee is returned to RUS.
    15. Settlement.
    The amount due under this instrument will be determined and paid as 
provided in the applicable Subpart of Part __________ of Title 7 CFR in 
effect on the date of this instrument.
    16. Notices.
    All notices and actions will be initiated through RUS at the 
following mailing address as of the date of this instrument:
_______________________________________________________________________
UNITED STATES OF AMERICA, Rural Utilities Service

By:_____________________________________________________________________
Title:__________________________________________________________________
Assumption Agreement by_________________________________________________
dated___________________________________________________________________
Assumption Agreement by_________________________________________________
dated___________________________________________________________________

                   Appendix F to Part 1739--Loan Note

                           Level Debt Service

    All of the Terms of this Note shall be in accordance with the 
applicable provisions of either 7 CFR parts 1712 and 1719 for electric 
loans, or 7 CFR parts 1739 and 1746 for telephone loans.

MORTGAGE NOTE
________ 19____
    1. Amount.

_______________________________________________________________________
(hereinafter called the ``Corporation''), a corporation organized and 
existing under the laws of the State of __________, for value received, 
promises to pay to the order of ________
_______________________________________________________________________
(hereinafter called the ``Lender''), at_________________________________
at the times and in the manner hereinafter provided, the sum of 
____________ dollars ($    ), with interest on the amount thereof 
advanced by the Lender, pursuant to a certain loan contract, dated as of 
________ 19____, between the Lender and the Corporation (said loan 
contract being hereinafter called the ``Loan Contract'') at the rate per 
annum specified in section 2.
    2. Interest Rate on Principal Advanced.
    The interest rate specified in this section shall be in accordance 
with 7 CFR 1712.56 or 1739.56 and is subject to approval by the Rural 
Utilities Service.
    3. Payment on Advances made within a Principal Deferment Period.
    Interest on principal advanced pursuant to the Loan Contract and 
remaining unpaid shall be payable on the last day of each ________ \1\ 
of each year for a period ending on ________\2\ 19________. Thereafter, 
to and including a date ________ \3\ (  ) years after the date hereof, 
the Corporation shall make a payment on each of said ________ \4\ dates 
in each year at the rate of $________ per $1,000 of the principal amount 
hereof advanced pursuant to the Loan Contract and unpaid as of ________ 
19____.\2\
---------------------------------------------------------------------------

    \1\ Insert billing period, eg. month, quarter.
    \2\ Insert ending date of principal deferral period. For electric 
loans, this period shall be no longer than 2 years for distribution and 
subtransmission facilities. For bulk transmission and generating 
facilities, the principal deferral period shall be approved by RUS but 
in no case shall the amortization of principal begin later than the date 
these facilities are placed into service. For telephone loans this 
period shall be no longer than 2 years.
    \3\ Insert number of years between date of note and the date the 
note is due.
    \4\ Insert billing period, eg. monthly, quarterly.
---------------------------------------------------------------------------

    4. Payment on Advances made after a Principal Deferment Period.
    Interest and principal payments on principal advanced after 
________,\2\ 19____ shall be made ________ \4\ beginning with the last 
day of the ________ following the month of each advance of principal. 
Each payment on an advance shall be of an amount including interest and 
principal equal to every other payment on that advance over a period 
between the date of the first payment on that advance and a date 
________ \3\ (  ) years after the date of this Note. These payments 
shall be in addition to the payment made pursuant to Section 3.
    5. Termination of Advances.
    Except as otherwise approved by RUS, the Lender's obligation to 
advance funds under this Note shall terminate ________ \5\ (  ) years 
after the date hereof.
---------------------------------------------------------------------------

    \5\ Insert, for electric loans, 4 years for distribution and 
subtransmission facilities or 7 years for bulk transmission and 
generating facilities. For telephone loans this period will be 
determined by agreement of the lender and borrower.
---------------------------------------------------------------------------

    6. Application of Payments.
    Each payment made on this Note shall be applied first to the payment 
of interest on principal and then on account of principal. ________ \3\ 
(  ) years after the date hereof, the

[[Page 543]]

principal hereof advanced remaining unpaid, if any, and interest 
thereon, shall become due and payable.
    7. Prepayments.
    The loan evidenced by this note may be prepaid in full or in part, 
subject to the following conditions:
    Any prepayment must be on both the guaranteed and unguaranteed 
portions of the loan, in proportion to the outstanding principal 
balances of each portion.
    8. Security.
    This Note has been executed and delivered pursuant to and is secured 
by a certain mortgage, dated as of ________, 19____ made by and among 
the

_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
as the same may have been amended or supplemented by any supplemental 
mortgage or supplemental mortgages (said mortgage and any such 
supplemental mortgage or supplemental mortgages being hereinafter 
collectively called the ``Mortgage''), and is one of several notes 
(hereinafter called the ``notes'') permitted to be executed and 
delivered by the Corporation pursuant to the Mortgage. The Mortgage 
provides that all notes shall be equally and ratably secured thereby and 
reference is hereby made to the Mortgage for a description of the 
property mortgaged and pledged, the nature and extent of the security 
and the rights of the holder of notes with respect thereto.
    9. Default.
    In case of default by the Corporation, as provided in the Mortgage, 
all principal advanced and remaining unpaid on this Note and any other 
notes at the time outstanding, and all interest thereon, may be declared 
or may become due and payable in the manner and with the effect provided 
in the Mortgage.
    10. Noteholder.
    This Note evidences indebtedness created by a loan made under the 
Loan Contract. If the Lender shall at any time assign all or part of the 
guaranteed portion of this loan, the Corporation shall continue to make 
payments hereunder to the Lender as collection agent for the holder, and 
for purposes of the Mortgage the Lender shall continue as, and shall 
have the rights of, the noteholder.
    11. Amendment of Note.
    This Note may be amended, subject to approval by the Rural Utilities 
Service, but new Loan Notes may not be issued.
    IN WITNESS WHEREOF the Corporation has caused this Note to be signed 
in its corporate name and its corporate seal to be hereunto affixed and 
attested by its officers thereunto duly authorized, all as of the day 
and year first written above.

by______________________________________________________________________
    President

(SEAL)

Attest:_________________________________________________________________

    Secretary

[56 FR 42479, Aug. 27, 1991; 56 FR 47832, Sept. 20, 1991]




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--Table of Contents




                          Subpart A--[Reserved]

         Subpart B--Lien Accommodations and Subordination Policy

Sec.
1744.20  General.
1744.21  Definitions.
1744.22--1744.29  [Reserved]
1744.30  Act purposes.
1744.31--1744.39  [Reserved]
1744.40  Non-Act purposes.
1744.41--1744.49  [Reserved]
1744.50  Application procedures.
1744.51--1744.59  [Reserved]

              Subpart C--Advance and Disbursement of Funds

1744.60  General.
1744.61  [Reserved]
1744.62  Introduction.
1744.63  The telephone loan budget.
1744.64  Budget adjustment.
1744.65  The construction fund.
1744.66  The financial requirement statement (FRS).
1744.67  Temporary excess construction funds.
1744.68  Order and method of advances of telephone loan funds.
1744.69  [Reserved]

                          Subpart D--[Reserved]

                     Subpart E--Borrower Investments

1744.200  General statement.
1744.201  Definitions.
1744.202  Borrowers may make qualified investments without prior 
          approval of the Administrator.
1744.203  Establishing amount of rural development investment.
1744.204  Rural development investments that do not meet the ratio 
          requirements.
1744.205  Determinations and application of limitations described in 
          Sec. 1744.202.
1744.206  Effect of subsequent failure to maintain ratios.

[[Page 544]]

1744.207  Investment not to jeopardize loan security.
1744.208  Rural development investments before November 28, 1990.
1744.209  Records.
1744.210  Effect of this subpart on RUS loan contract and mortgage.

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Editorial Note: Nomenclature changes to part 1744 appear at 55 FR 
39397, Sept. 27, 1990.



                          Subpart A--[Reserved]



         Subpart B--Lien Accommodations and Subordination Policy

    Source: 51 FR 32430, Sept. 12, 1986, unless otherwise noted. 
Redesignated at 55 FR 39396, Sept. 27, 1990.



Sec. 1744.20  General.

    Recent changes in the telephone industry, including deregulation and 
technological developments, have caused RUS borrowers and other 
organizations providing telephone services to consider undertaking 
projects to provide new telecommunication services. Although certain 
telecommunication services may not be eligible for financing under the 
RE Act, these services may nevertheless advance 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 new 
telecommunication services. To facilitate the financing of new 
telecommunication services, RUS is willing to consider accommodating the 
Government's lien on telephone borrowers' systems or subordinating the 
Government's lien on after-acquired property of telephone borrowers. 
This part sets forth RUS policy with respect to such lien accommodations 
and subordinations. The policies of this part will also be utilized by 
the Governor of the Rural Telephone Bank in carrying out the Rural 
Telephone Bank's loan program.



Sec. 1744.21  Definitions.

    Accommodation means sharing the Government's lien on a pari passu or 
pro rata basis with a private lender.
    Act means the Rural Electrification Act of 1936. as amended (7 
U.S.C. 901 et seq.)
    Administrator means the Administrator of RUS. See 7 CFR part 1735.
    Advance means transferring funds from RUS or FFB 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's 
mortgage when acquired.
    Borrower means any organization that has an outstanding 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 required 
by section 2.4 of the Loan Contract into which all RUS loan funds are 
advanced.
    Disbursement means the paying of money by the borrower out of the 
construction fund for approved loan purposes.
    FFB means the Federal Financing Bank.
    FRS means RUS Form 481 (OMB-No. 0572-0023) Financial Requirement 
Statement.
    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 Construction means the purchase of equipment or the conduct 
of construction under an RUS-approved plan of interim financing. See 7 
CFR part 1737.
    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 (RUS Loan) means any loan made or guaranteed by RUS. See 7 CFR 
part 1735.
    Loan Documents means the loan contract, note and mortgage between 
the borrower and RUS and any associated document pertinent to a loan.
    Loan Funds (RUS Loan Funds) means funds provided by RUS through 
direct or guaranteed loans.
    Private lender means any lender other than the Rural Utilities 
Service, the

[[Page 545]]

Rural Telephone Bank or the Federal Financing Bank.
    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). RUS cost-of-money loans are made concurrently with RTB 
loans.
    RTB means the Rural Telephone Bank.
    Subordination means granting a lien which a private lender has on 
specific property priority over the Government's lien on such property.
    Telecommunication services means any service for the transmission, 
emission, or reception of signals, sounds, 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.

[51 FR 32430, Sept. 12, 1986. Redesignated at 55 FR 39396, Sept. 27, 
1990. Further redesignated and amended at 59 FR 43716, Aug. 25, 1994]
Secs. 1744.22--1744.29  [Reserved]



Sec. 1744.30  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.
Secs. 1744.31--1744.39  [Reserved]



Sec. 1744.40   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. 
Generally, it would not be in the Government's interest if the 
accommodation or subordination is being requested to enable the borrower 
to avoid complying with such RUS policies or procedures, as competitive 
bid procedures or purchasing equipment acceptable to RUS, under 7 CFR 
part 1753.
    (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

[[Page 546]]

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.

[51 FR 32430, Sept. 12, 1986. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 43716, Aug. 25, 1994]
Secs. 1744.41--1744.49  [Reserved]



Sec. 1744.50  Application procedures.

    (a) Requests for information regarding applications for lien 
accommodations or subordination under this part should be addressed to 
the Assistant Administrator--Telephone Rural Utilities Service, 
Washington, DC 20250-1500.
    (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) Such information regarding the environmental impacts of the 
project as may be required pursuant to 7 CFR part 1794; and
    (6) 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.
Secs. 1744.51--1744.59  [Reserved]



              Subpart C--Advance and Disbursement of Funds

    Source: 54 FR 12186, Mar. 24, 1989, unless otherwise noted. 
Redesignated at 55 FR 39396, Sept. 27, 1990.



Sec. 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.
Sec. 1744.61  [Reserved]



Sec. 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.



Sec. 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.



Sec. 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

[[Page 547]]

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.



Sec. 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 Sec. 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.



Sec. 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

[[Page 548]]

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.

[54 FR 12186, Mar. 24, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, as amended at 56 FR 26600, June 10, 1991]



Sec. 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, FFB or RTB 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

[[Page 549]]

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.

[54 FR 12186, Mar. 24, 1989. Redesignated at 55 FR 39395, Sept. 27, 
1990, and amended at 58 FR 66257, Dec. 20, 1993]



Sec. 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, RTB, 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, RTB, 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 and RTB 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.

[[Page 550]]

    (5) Any other necessary identifying information.

[54 FR 12186, Mar. 24, 1989. Redesignated at 55 FR 39395, Sept. 27, 
1990, and amended at 58 FR 66257, Dec. 20, 1993]
Sec. 1744.69  [Reserved]



                          Subpart D--[Reserved]



                     Subpart E--Borrower Investments

    Source: 58 FR 52642, Oct. 12, 1993, unless otherwise noted.



Sec. 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) This subpart E applies to both RUS and RTB borrowers. For the 
purposes of RTB borrowers, as used in this subpart E, if a borrower has 
received a loan from the RTB, RUS means RTB, and Administrator means 
Governor unless the text indicates otherwise.



Sec. 1744.201  Definitions.

    As used in this subpart:
    Administrator means the Administrator of the Rural Utilities Service 
(RUS) and, as provided in Sec. 1744.200(b), the Governor of the Rural 
Telephone Bank (RTB).
    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 RTB, 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                    2002                    
 telecommunications use                                                 
(3) Telecommunications plant under              2003                    
 construction-short term                                                
(4) Telecommunications plant under              2004                    
 construction-long term                                                 
(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      
------------------------------------------------------------------------
Note: All references to account numbers are to the Uniform System of    
  Accounts (47 CFR part 32).                                            

    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).               


[[Page 551]]

    Qualified investment is defined in Sec. 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.
    RTB means the Rural Telephone Bank, an agency and instrumentality of 
the United States within the United States Department of Agriculture.
    Rural development investment is defined in Sec. 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      
------------------------------------------------------------------------
Note: All references regarding account numbers are to the Uniform System
  of Accounts (47 CFR part 32).                                         

    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.

[58 FR 52642, Oct. 12, 1993, as amended at 59 FR 66440, Dec. 27, 1994]



Sec. 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

[[Page 552]]

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.



Sec. 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.



Sec. 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.



Sec. 1744.205  Determinations and application of limitations described in Sec. 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

[[Page 553]]

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.



Sec. 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.



Sec. 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.



Sec. 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.



Sec. 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 
Sec. 1744.202.

(Approved by the Office of Management and Budget under control number 
0572-0098.)



Sec. 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 Sec. 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 1746--POST-LOAN POLICIES AND PROCEDURES FOR GUARANTEED TELEPHONE LOANS--Table of Contents




                           Subpart A--General

1746.1  General.
1746.2  Definitions.
1746.3--1746.49  [Reserved]

         Subpart B--Section 314 Loan Guarantees--Private Sector

1746.50  Legal authority.
1746.51  Purpose.
1746.52  Loan servicing.
1746.53  Secondary transactions.
1746.54  Borrower prepayments.
1746.55  Refinancing.
1746.56  Payments under lender's agreement.
1746.57  Obligations of borrower.
1746.58  Replacement of documents.
1746.59--1746.99  [Reserved]


[[Page 554]]


    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 56 FR 42492, Aug. 27, 1991, unless otherwise noted.



                           Subpart A--General



Sec. 1746.1  General.

    (a) This part establishes specific post-loan policies, procedures 
and requirements that apply to guaranteed telephone loans. Pre-loan 
policies, procedures and requirements are in 7 CFR part 1739.
    (b) Additional post-loan policies, procedures and requirements that 
apply to both guaranteed and insured loans are set forth in 7 CFR part 
1744. Borrowers must also comply with all other applicable RUS 
regulations.
    (c) This part supersedes those portions of RUS Bulletin 320-22, 
Guarantee of Loans for Telephone Facilities, and supplements thereto 
that are in conflict.



Sec. 1746.2  Definitions.

    The definitions in 7 CFR parts 1735, 1737 and 1744 are applicable to 
this part.
Secs. 1746.3--1746.49  [Reserved]



         Subpart B--Section 314 Loan Guarantees--Private Sector



Sec. 1746.50  Legal authority.

    Pursuant to section 314 of the RE Act, RUS may provide financial 
assistance to borrowers for the purposes set forth in section 201 of the 
RE Act by providing 90 percent guarantees of loans made by any legally 
organized lending agency is defined in 7 CFR 1739.52. RUS may not 
provide a guarantee under this subpart for a loan made by the Federal 
Financing Bank, the Rural Telephone Bank, or any other lending agency 
that is an agency or instrumentality of the United States.



Sec. 1746.51  Purpose.

    This subpart sets forth post-loan policies and procedures relating 
to an executed Lender's Agreement between RUS and a private lender for a 
telephone loan guaranteed under section 314 of the RUS Act.



Sec. 1746.52  Loan servicing.

    (a) The lender shall be responsible for the following:
    (1) Servicing the entire loan in accordance with the Lender's 
Agreement, notwithstanding the fact that another party may hold all or 
part of the guaranteed portion of the loan.
    (2) Ensuring that all obligations of the borrower to the lender 
under the lender's loan agreement, Loan Note, and the security 
instrument have been fulfilled.
    (3) Ensuring that it has obtained RUS approval to advance funds 
prior to each advance of funds. Such approvals will relate to RUS's 
interests and responsibilities and will not be intended in any way to 
represent or protect the interests of the lender.
    (4) Billing and collecting loan payments from the borrower.
    (5) Notifying the RUS Area Operations Branch promptly, in writing, 
when any default in the payment of principal or interest due on a loan 
has been in effect for five calendar days or more. (See 7 CFR 1700.1 for 
a listing of states served by each Area Operations Branch.) In the case 
of such monetary defaults, the lender shall contact the borrower to 
determine the nature of the problem, and subsequently submit the 
following to the RUS Area Operations Branch:
    (i) A report, submitted promptly, setting forth the lender's views 
as to the reasons for the default, how long the borrower is expected to 
be in default, and the corrective actions being taken by the borrower to 
achieve a current debt service position; and
    (ii) A proposal, submitted promptly for RUS's approval, outlining 
actions to be taken by the lender and the borrower to cure the default 
if the default has been in effect for 30 calendar days or more. Such 
proposal must be delivered to RUS within 35 calendar days of the date of 
the default.
    (6) Notifying the RUS Area Operations Branch promptly, in writing, 
if the borrower:
    (i) Has failed to pay any local, state or federal taxes owed; or
    (ii) Does not have adequate property and liability insurance based 
on prudent business practice.

[[Page 555]]

    (7) Reviewing the borrower's annual audited financial statement and 
providing a summary evaluation to the RUS Area Operations Branch within 
60 days of receipt of the document.
    (8) Notifying the RUS Area Operations Branch promptly if the 
borrower has not provided the required annual audited financial 
statement.
    (9) Notifying the RUS Area Operations Branch promptly of a 
prepayment of all or a portion of the Loan Note by the borrower.
    (10) Providing written quarterly loan statement reports to the 
Director, Financial Operations Division, RUS, within 10 working days of 
the end of the quarter. The reports shall include the amount of funds 
advanced for each Loan Note during the quarter, the date of each 
advance, applicable variable or fixed interest rates for the current 
quarter, record of variable interest rates for the past quarter, 
outstanding principal at the beginning and end of the quarter, accrued 
interest, the amount of principal and interest paid during the quarter, 
and other information that RUS may require.
    (11) Assuring that the funds are used for the purposes approved in 
the loan, except that the lender may rely on RUS for said assurance if 
RUS has agreed in advance in writing.
    (b) In the event of a monetary default, if RUS does not agree with 
the proposal submitted by the lender to cure the default, RUS will work 
with the lender in an effort to develop a mutually satisfactory plan. 
The plan, including any initiative to accelerate the Loan Note, is 
subject to the written approval of RUS.
    (c) Upon notice to the lender, RUS may assume loan servicing 
responsibilities for the entire loan or the guaranteed portion, or 
require the lender to assign such responsibilities to a different 
entity, if the lender fails to perform its loan servicing 
responsibilities under the Lender's Agreement, or if the lender becomes 
insolvent, makes an admission in writing of its inability to pay its 
debts generally as they become due, or becomes the subject of 
proceedings commenced under the Bankruptcy Reform, Act of 1978 (11 
U.S.C. 101 et seq.) or any similar applicable Federal or state law, or 
is no longer is in good standing with its licensing authority, or ceases 
to meet the eligibility requirements of 7 CFR 1739.52. Such negligent 
servicing is defined as the failure to perform those services which a 
reasonably prudent lender would perform in servicing its own portfolio 
of loans that are not guaranteed, and includes not only a failure to act 
but also not acting in a timely manner.
    (d) If loan servicing is assumed by RUS or reassigned to another 
entity, the lender shall cease collecting loan servicing fees for that 
portion of the loan for which servicing has been assumed or reassigned, 
and loan servicing fees shall be paid to RUS or such other entity.
    (e) If RUS determines that a lender is negligent in its required 
loan servicing responsibilities under the Lender's Agreement, such 
negligent servicing will cause the guarantee to be unenforceable by the 
lender to the extent such negligent servicing is determined to have 
caused a loss. If all or part of the guaranteed portion of the loan has 
been assigned to a holder, such negligent servicing shall not affect the 
holder's rights under the Assignment Guarantee Agreement, except that 
RUS's guarantee does not extend to guaranteeing that a lender will remit 
to a holder the holder's legitimate share of any payments made by the 
borrower.
    (f) The lender shall reimburse RUS for any payments made to a holder 
under the guarantee on account of negligent servicing.



Sec. 1746.53  Secondary transactions.

    (a) As set forth in 7 CFR 1739.62, lenders are authorized to assign 
to a holder up to 100 percent of the guaranteed portion of a loan, 
provided the loan is not in payment default.
    (b) The initial assignment by a lender requires prior written 
approval from RUS. Subsequent assignments by holders do not require RUS 
approval.
    (c) An assignment shall entitle the holder to all of the lender's 
rights under the Loan Note Guarantee to the extent of the guaranteed 
loan purchased. However, the lender shall remain responsible for 
servicing the entire loan and shall continue to be

[[Page 556]]

bound by all obligations under the Loan Note Guarantee and the Lender's 
Agreement.
    (d) The borrower, its principal officers, members of the borrower's 
board of directors, and members of the immediate families of said 
officials shall not be a holder of the borrower's loan.
    (e) An Assignment Guarantee Agreement, prepared by the lender using 
appendix B to 7 CFR part 1739 as a guide to the extent practicable, will 
be executed between RUS, the lender and the holder evidencing the amount 
of the guaranteed portion of the loan assigned. The lender shall send 
the original of the Assignment Guarantee Agreement to the holder and a 
conformed copy to RUS.
    (f) The holder, and any subsequent holder, with prior written 
approval of the lender, may reassign its unpaid guaranteed portion of 
the loan. The lender shall maintain adequate records to enable 
verification, at any time, as to the legal holder of the assigned 
portion of the loan.
    (g) The assigned portion of a loan may be held by only one holder at 
a time. This, however, does not prohibit two or more entities from 
consolidating into a single entity as holder.
    (h) As set forth in 7 CFR 1739.53, holders are prohibited from 
obtaining any part of the guaranteed portion of the loan with proceeds 
from any obligation the interest on which is excludable from income 
under chapter I of the Internal Revenue Code of 1986 (26 U.S.C. 
501(c)(21) et seq.).



Sec. 1746.54  Borrower prepayments.

    (a) Loans under this subpart may be prepaid in full or in part in 
accordance with the terms of the Loan Note or loan agreement. Any 
prepayment must be on both the guaranteed and unguaranteed portions of 
the loan, in proportion to the outstanding principal balances of said 
portions. Depending on the lender, there may be a premium associated 
with such prepayment.
    (b) Prepayment of a guaranteed loan under this subpart shall be 
accompanied by a simultaneous prepayment of any other loan made 
concurrently with such loan, including any RUS insured or guaranteed 
loan, or any Rural Telephone Bank loan, if requested by the RTB. Such 
prepayment shall be on a pro rata basis according to the outstanding 
principal balances of said loans and in accordance with the specific 
terms of the joint mortgage or other security instrument that provides 
common security for such loans.



Sec. 1746.55  Refinancing.

    With RUS approval, loans under this subpart may be refinanced under 
the Loan Note Guarantee if, in RUS's sole judgment, such refinancing 
will not increase RUS's loan guarantee risk or otherwise adversely 
affect the government's interests.



Sec. 1746.56  Payments under lender's agreement.

    (a) In the case of both monetary and non-monetary events of default, 
RUS will work with the borrower and the lender in an effort to eliminate 
the borrower's default as soon as possible.
    (b) Non-monetary defaults will not trigger any payments by RUS.
    (c) RUS's guarantee is limited to paying the amount by which 
payments made by the borrower, any amounts received from set-offs, and 
any proceeds received from liquidation are less than the principal and 
scheduled interest owed on the guaranteed portion of the loan. RUS's 
guarantee does not cover penalty interest or a lender's collection 
costs, although certain reasonable liquidation costs approved by RUS may 
be deducted from the gross proceeds from the liquidation of collateral, 
as provided in the Lender's Agreement.
    (d) In the event of a monetary default by the borrower;
    (1) Any payments made by the borrower on any loan or other 
obligations of the borrower held by the lender shall be applied pro rata 
to said obligations secured under the mortgage based on the outstanding 
principal balances thereof; and
    (2) Any payments made by the borrower on the guaranteed loan, any 
amounts received from set-offs, and any proceeds received from 
liquidation shall be applied first to reimburse RUS for any payments 
made under the guarantee. Any amounts remaining after said application 
shall be applied first to the guaranteed portion of the loan, up to the 
full amount owned on said

[[Page 557]]

portion, and second to the unguaranteed portion of the loan.
    (e) If a holder has been assigned all or any part of the guaranteed 
portion of the loan, payment to the holder will proceed as follows:
    (1) After a monetary event of default has been in effect for 60 
calendar days from the payment due date, the holder may request in 
writing that the lender repurchase the assigned portion of the loan. 
Within 30 calendar days of receipt of such demand, the lender shall 
either repurchase the assigned portion of the loan or inform the holder 
and RUS in writing that it does not intend to repurchase said portion.
    (2) RUS encourages lenders to repurchase the assigned portion of a 
loan in monetary default. Such repurchase will enhance a lender's 
ability to pursue payment remedies, with RUS's approval, including but 
not limited to principal deferments, changes in interest rates, or 
reamortization of payments.
    (3) If the lender does not repurchase the loan from the holder as 
provided in paragraph (e) (1) of this section, upon written demand by 
the holder RUS will, in accordance with the Assignment Guarantee 
Agreement, either:
    (i) Pay the outstanding principal balance owed, plus accrued 
interest, that the borrower has failed to pay with respect to the 
portion of the guaranteed loan held by the holder; or
    (ii) Pay that portion of principal and interest payments owed the 
holder that the borrower has failed to pay, plus such principal and 
interest payments owed the holder, as due, that the borrower fails to 
pay in the future.
    (4) RUS will make payment under paragraph (e) (3) of this section 
within 30 calendar days of receiving the written demand of the holder 
and verification of the identity of the legal holder and the amounts 
owed.
    (5) Payments by RUS will be made to the lender, who shall be 
responsible for paying the holder.
    (6) RUS's obligation to make payments, as set forth in the 
Assignment Guarantee Agreement, relates only to the failure of a 
borrower to make principal and interest payments required under the 
guaranteed Loan Note. RUS's guarantee does not extend to guaranteeing 
that the lender will remit to the holder principal and interest payments 
made by the borrower, or by RUS under the guarantee. Nor does RUS 
guarantee any premiums that may be associated with secondary 
transactions.
    (f) If the lender holds any part of the guaranteed portion of the 
loan and a monetary event of default has been in effect for 180 calendar 
days from the payment due date, and the lender has not been able to work 
out a satisfactory cure of the default, RUS will make payment to the 
lender under one of the methods set forth below within 30 calendar days 
of written demand by the lender, provided the lender has taken all 
reasonable steps in an attempt to cure the default and has met all of 
its obligations under the Lender's Agreement:
    (1) Pay the lender the outstanding principal balance, plus accrued 
interest, that the borrower has failed to pay with respect to the 
portion of the guaranteed loan held by the lender; or
    (2) Pay the lender that portion of principal and interest payments 
owed on the guaranteed portion of the loan held by the lender that the 
borrower has failed to pay, plus such principal and interest payments 
owed on said guaranteed portion, as due, that the borrower fails to pay 
in the future.
    (g) In considering its payment options, RUS will select, on a case 
by case basis, the option that is in the best interest of the 
Government.
    (h) When RUS has made a payment under the Loan Note Guarantee, it 
will establish in its accounts the amount of the payment as due and 
payable from the borrower, with interest accruing on all amounts owed, 
at the rate of interest specified in the Loan Note.



Sec. 1746.57  Obligations of borrower.

    (a) Borrowers must meet the applicable requirements of this subpart, 
subpart B of 7 CFR part 1739, and all other RUS regulations.
    (b) A borrower must provide the lender with information that is 
reasonably required to make and service the loan.



Sec. 1746.58  Replacement of documents.

    RUS may issue a replacement Loan Note Guarantee, Lender's Agreement

[[Page 558]]

or Assignment Guarantee Agreement that has been lost, stolen, destroyed, 
mutilated or defaced upon receipt of documentation, satisfactory to RUS, 
evidencing the loss of the original document. The lender shall 
coordinate the replacement of the document and submit the following 
documentation to RUS:
    (a) A certificate of loss properly notarized which shall include:
    (1) The legal name and address of lender and the capacity of the 
person certifying.
    (2) The legal name and present address of the owner who is 
requesting the replacement document.
    (3) Identification of the document, including the name of the 
borrower, face amount of Loan Note, date of the Loan Note, present 
balance of the loan, and percentage of guarantee. If an assignment is 
involved, identification shall also include the name of the current 
holder and any previous holders and the percentage of the guaranteed 
portion of the loan assigned. If the current holder is not the same as 
the original holder, a copy of the endorsement of each previous holder 
in the chain of transfer shall be included.
    (4) A full statement of the circumstances of the loss, theft or 
destruction of the document.
    (b) An indemnity bond acceptable to RUS shall accompany the request 
for replacement of the document. The bond shall be with surety except 
when the outstanding principal balance and accrued interest due the 
holder is less than $1,000,000. Such outstanding balance shall be 
certified by the lender in writing. All indemnity bonds shall be issued 
or payable to the United States of America acting through the RUS. The 
bond shall be in an amount not less than the unpaid principal and 
interest. The bond shall save RUS harmless against any claim or demand 
that might arise or against any damage, loss, costs or expenses that 
might be sustained or incurred by reasons of the loss or replacement of 
the instruments.
Secs. 1746.59--1746.99  [Reserved]



PART 1748--POST-LOAN POLICIES AND PROCEDURES FOR INSURED TELEPHONE LOANS  [RESERVED] 






PART 1751--TELECOMMUNICATIONS SYSTEM PLANNING AND DESIGN CRITERIA, AND PROCEDURES--Table of Contents




                          Subpart A--[Reserved]

Sec.
1751.1--1751.99  [Reserved]

         Subpart B--State Telecommunications Modernization Plan

1751.100  Definitions.
1751.101  General.
1751.102  Modernization Plan Developer; eligibility.
1751.103  Loan and loan advance requirements.
1751.104  Obtaining RUS approval of a proposed Modernization Plan.
1751.105  Amending a Modernization Plan.
1751.106  Modernization Plan; requirements.

    Authority: 7 U.S.C. 901 et seq., 1921 et seq.; Pub. L. 103-354, 108 
Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 60 FR 8174, Feb. 13, 1995, unless otherwise noted.



                          Subpart A--[Reserved]

Secs. 1751.1--1751.99  [Reserved]



         Subpart B--State Telecommunications Modernization Plan



Sec. 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 an RUS loan designation 
number and which has an outstanding telephone loan made by RUS or the 
Rural Telephone Bank, or guaranteed by RUS, or which has a completed 
loan application with RUS.

[[Page 559]]

    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 cost-of-money loan. A loan made under section 305(d)(2) of the 
RE Act bearing interest as determined under 7 CFR 1735.31(c). RUS cost-
of-money loans are made concurrently with RTB loans.
    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.
    RTB loan. A loan made by the Rural Telephone Bank (RTB) under 
section 408 of the RE Act bearing interest as determined under 7 CFR 
1610.10. RTB loans are made concurrently with RUS cost-of-money loans.
    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 Sec. 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.



Sec. 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

[[Page 560]]

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 Sec. 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.



Sec. 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 
Sec. 1751.103.



Sec. 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 loans, RUS cost-of-money 
loans, and RTB 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.

[[Page 561]]

    (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.



Sec. 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.



Sec. 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.



Sec. 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.

[[Page 562]]

    (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 Sec. 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

[[Page 563]]

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 1753--TELECOMMUNICA- TIONS SYSTEM CONSTRUCTION POLICIES AND PROCEDURES--Table of Contents




                           Subpart A--General

Sec.
1753.1  General.
1753.2  Definitions.
1753.3  Preconstruction review.
1753.4  Major and minor construction.
1753.5  Methods of major construction.
1753.6  Standards, specifications, and general requirements.
1753.7  Plans and specifications (P&S).
1753.8  Contract construction procedures.
1753.9  Subcontracts.
1753.10  Preconstruction conference.
1753.11  Contract amendments.
1753.12--1753.14  [Reserved]

                     Subpart B--Engineering Services

1753.15  General.
1753.16  Architectural services.
1753.17  Engineering services.
1753.18--1753.20  [Reserved]

                          Subpart C--[Reserved]

                  Subpart D--Construction of Buildings

1753.25  General.
1753.26  Plans and specifications (P&S).
1753.27  Bidding procedure.
1753.28  Contract amendments.
1753.29  Force account procedures.
1753.30  Closeout procedures.
1753.31--1753.35  [Reserved]

    Subpart E--Purchase and Installation of Central Office Equipment

1753.36  General.
1753.37  Plans and specifications (P&S).
1753.38  Procurement procedures.
1753.39  Closeout documents.
1753.40--1753.45  [Reserved]

         Subpart F--Outside Plant Major Construction by Contract

1753.46  General.
1753.47  Plans and specifications (P&S).
1753.48  Procurement procedures.
1753.49  Closeout documents.
1753.50  Construction by Form 773 contract.
1753.51--1753.55  [Reserved]

[[Page 564]]

      Subpart G--Outside Plant Major Construction by Force Account

1753.56  General.
1753.57  Procedures.
1753.58  Closeout Documents.
1753.59--1753.65  [Reserved]

        Subpart H--Purchase and Installation of Special Equipment

1753.66  General.
1753.67  Contracts and specifications.
1753.68  Purchasing special equipment.
1753.69--1753.75  [Reserved]

                      Subpart I--Minor Construction

1753.76  General.
1753.77  Methods of minor construction.
1753.78  Construction by contract.
1753.79  Construction by force account.
1753.80  Minor construction procedure.
1753.81  Inspection and certification.
1753.82  Minor construction closeout.
1753.83--1753.90  [Reserved]

              Subpart J--Construction Certification Program

1753.91  General.
1753.92  Policies and requirements.
1753.93  Responsibilities.
1753.94  Procedures.
1753.95  Advance of loan funds.
1753.96  Certification addendum.
1753.97--1753.99  [Reserved]

                         Appendices to Part 1753

Appendix A--Documents Required to Closeout Construction of Buildings
Appendix B--Documents Required to Closeout Central Office Equipment 
          Contract
Appendix C--Documents Required to Closeout Telephone Construction 
          Contract RUS Form 515
Appendix D--Step-by-Step Procedure for Closing Out Telephone 
          Construction Contract-Labor and Materials, RUS Form 515
Appendix E--Documents Required to Closeout Force Account Outside Plant 
          Construction
Appendix F--Documents Required to Closeout Equipment Contracts

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Editorial Note: Nomenclature changes to part 1753 appear at 55 FR 
39397, Sept. 27, 1990.



                           Subpart A--General

    Source: 54 FR 39267, Sept. 25, 1989, unless otherwise noted. 
Redesignated at 55 FR 39396, Sept. 27, 1990.



Sec. 1753.1   General.

    (a) The standard RUS Telephone Loan Documents contain provisions 
regarding procurement of materials and equipment and construction of 
telecommunication facilities by telephone borrowers. This part 1753 
implements certain of the provisions by setting forth the requirements 
and procedures to be followed by borrowers for purchasing materials and 
equipment and construction of telecommunication facilities by contract 
or force account.
    (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 
Sec. 1753.3),
    (2) RUS requirements with respect to methods of construction (See 
Secs. 1753.5 and 1753.6),
    (3) RUS requirements regarding sealed competitive bidding and 
negotiated bidding of construction contracts (See Secs. 1753.6 and 
1753.9),
    (4) RUS standards for materials, equipment, and construction 
financed with loan funds (See Sec. 1753.7), and
    (5) RUS requirements for subcontracts and contract amendments 
covering construction financed with loan funds (See Secs. 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

[[Page 565]]

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.



Sec. 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--The agreement between the borrower and an independent 
contractor covering the purchase, construction, or both of telephone 
facilities to be included in the borrower's telephone system.
    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.
    Major construction--A telephone plant project estimated to cost more 
than $100,000, including all labor and materials.

[[Page 566]]

    Minor construction--A telephone plant project estimated to cost 
$100,000 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 plan, which has been approved by RUS, for 
improving the public switched network of a state. The modernization plan 
must conform to the provisions of 7 CFR part 1751, subpart B, and 
applies to all telecommunications providers in the state.
    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--The construction or installation described in the P&S.
    Responsive bid--A bid that complies with the requirements of the 
plans and specifications.
    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 
Sec. 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.

[54 FR 39267, Sept. 25, 1989, unless otherwise noted. Redesignated at 55 
FR 39396, Sept. 27, 1990, and amended at 58 FR 66259, Dec. 20, 1993; 59 
FR 17464, Apr. 13, 1994]



Sec. 1753.3  Preconstruction review.

    (a) Prior 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

[[Page 567]]

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.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 58 FR 66259, Dec. 20, 1993; 59 FR 17464, Apr. 13, 
1994]



Sec. 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.



Sec. 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) Whether the contractor is selected 
through sealed competitive bidding or negotiation, as approved by RUS, 
award of the contract is subject to RUS approval.
    (2) The requirements and procedures for sealed competitive bidding 
are presented in Sec. 1753.8(a). The requirements and procedures for 
negotiation are presented in Sec. 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.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 43716, Aug. 25, 1994]



Sec. 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. 7 CFR 
part 1755 lists the RUS Bulletins containing the standards and 
specifications for telephone facilities. Materials and equipment meeting 
these standards are included on the List of Material Acceptable for Use 
on Telephone Systems of RUS Borrowers, RUS Bulletin 344-2. This bulletin 
may be obtained by subscription from the Superintendent of Documents, 
Government Printing Office, Washington, DC 20402.
    (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.
    (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).

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 43716, Aug. 25, 1994]

[[Page 568]]



Sec. 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 general engineering 
requirements and functional specifications prepared by the borrower's 
engineer and approved by RUS.
    (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 the P&S is required for major construction but 
not for minor construction, except as noted in subpart D.
    (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.
    (4) Telecommunications software license provision. If the borrower 
is required to enter into a software license agreement in order to use 
the equipment, the contract must contain the RUS prepared Software 
License Agreement as an Addendum.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 17679, Apr. 14, 1994]



Sec. 1753.8  Contract construction procedures.

    (a) Sealed, competitive bidding--(1) Bid opening date: Upon approval 
of the P&S by RUS, the borrower shall schedule a bid opening date. In 
setting the date sufficient time should be allowed for bidders to 
examine the project site and prepare their bids. The borrower shall 
notify the GFR of the bid date selected and invite the 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

[[Page 569]]

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.
    (ii) If an award is made, the borrower shall award the contract to 
the lowest responsive bidder, subject to RUS approval. 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) 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.
    (12) Execution of contract: (i) Upon approval by RUS of the award of 
contract by the borrower, 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.

[[Page 570]]

    (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.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 43716, Aug. 25, 1994]



Sec. 1753.9  Subcontracts.

    (a) RUS construction contract Forms 257, 397, 515, and 525 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, 397, 515, and 525, 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.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 43716, Aug. 25, 1994]



Sec. 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.



Sec. 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) After amendment, the amount of the contract will be $100,000 or 
more.
    (b) Prior RUS approval to execute other contract amendments is not 
required. These amendments are to be submitted after execution 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) Amendments are to be submitted in triplicate to RUS for approval 
with a copy of the board resolution or a letter signed by an authorized 
corporate official.

[[Page 571]]

Secs. 1753.12--1753.14  [Reserved]



                     Subpart B--Engineering Services

    Source: 54 FR 3984, Jan. 27, 1989, unless otherwise noted. 
Redesignated at 55 FR 39397, Sept. 27, 1990.



Sec. 1753.15  General.

    (a)(1) The standard RUS Loan Documents (See 7 CFR part 1758) contain 
provisions regarding engineering and architectural services performed by 
or for RUS telephone 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) 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.
    (3) 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 
Sec. 1753.17(c).
    (4)(i) For major construction, services provided by architects and 
engineers not on the borrower's staff must be provided under Form 165, 
Architectural Services Contract--Telephone, or Form 217, Postloan 
Engineering Service Contract--Telephone. These contracts require RUS 
approval.
    (ii) For minor construction, borrowers may use the contracts in 
Sec. 1753.15(a)(4)(i) 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 Sec. 1753.15(a)(5), is not 
required.
    (5) 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.

[[Page 572]]

    (2) RUS shall not make loan funds available for late payment 
interest charges.

[54 FR 3984, Jan. 27, 1989. Redesignated at 55 FR 39397, Sept. 27, 1990, 
and amended at 58 FR 66259, Dec. 20, 1993; 59 FR 17464, Apr. 13, 1994]



Sec. 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) When contracting for architectural services for major 
construction, the borrower shall use Form 165, except for unattended 
central office buildings, in which case either Form 165 or Form 217 
shall be used. Except for preloan studies (see 7 CFR part 1737), the 
borrower shall incur no obligation for architectural services until RUS 
has approved this agreement. A borrower shall not enter into the 
architectural services contract for major construction before RUS has 
approved the borrower's LD.
    (2) Reasonable modifications or additions to the terms and 
provisions in Form 165 may be made in order to obtain the specific 
services needed for a particular undertaking. Changes shall not be made 
that relieve the architect of any of the responsibilities set forth in 
the standard form. Borrowers should obtain assistance from their legal 
counsel to ensure that the contracts are properly prepared and executed.
    (3) If the fee schedule has to be modified in order for the borrower 
to obtain adequate architectural services, the borrower shall obtain 
written RUS approval of the revised fee schedule prior to executing 
contracts.
    (4) Three copies of Form 165 executed by the borrower and the 
architect shall be sent to the GFR to be forwarded to RUS for approval. 
If RUS approves the contract, one copy will be sent to the architect and 
one 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.

[54 FR 3984, Jan. 27, 1989. Redesignated at 55 FR 39397, Sept. 27, 1990, 
and amended at 59 FR 43717, Aug. 25, 1994]



Sec. 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

[[Page 573]]

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. 
(See 7 CFR part 1758).
    (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. Form 179 may be used to submit the employee 
qualifications.
    (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 on 
Form 179, 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,

[[Page 574]]

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.

[54 FR 3984, Jan. 27, 1989. Redesignated at 55 FR 39397, Sept. 27, 1990, 
and amended at 59 FR 43717, Aug. 25, 1994]
Secs. 1753.18--1753.20  [Reserved]



                          Subpart C--[Reserved]



                  Subpart D--Construction of Buildings

    Source: 54 FR 39267, Sept. 25, 1989, unless otherwise noted. 
Redesignated at 55 FR 39396, Sept. 27, 1990.



Sec. 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 central office, warehouse, and 
garage buildings with loan funds.
    (b) Terms used in this subpart are defined in Sec. 1753.2.
    (c) All plans and specifications for buildings to be constructed 
with loan funds are subject to the approval of RUS. Refer to 
Sec. 1753.26 for further instructions.
    (d) RUS Contract Form 257, Contract to Construct Buildings, shall be 
used for the construction of all central office, warehouse, and garage 
buildings with loan funds. Refer to Sec. 1753.26 (b) and (c) 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 Secs. 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 1794, which provides for compliance with the National 
Environmental Policy Act (NEPA) and Council on Environmental Quality 
(CEQ) regulations (40 CFR parts 1500-1508) implementing the procedural 
provisions of NEPA, as well as RUS's conformance with other laws, 
regulations, and Executive Orders regarding environmental protection.
    (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

[[Page 575]]

the building site has been obtained. RUS will not approve the 
construction contract until it has given title clearance.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 43717, Aug. 25, 1994]



Sec. 1753.26  Plans and specifications (P&S).

    (a) 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 Sec. 1753.26(b).
    (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.
    (b) 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.
    (c) 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.
    (d) Two sets of the building plans and specifications shall be 
prepared and submitted to the GFR.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 43717, Aug. 25, 1994]



Sec. 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 
Sec. 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 Sec. 1753.8(a).



Sec. 1753.28  Contract amendments.

    (a) The general requirements for contract amendments are set forth 
in Sec. 1753.11.

[[Page 576]]

    (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.



Sec. 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 
Sec. 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.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 43717, Aug. 25, 1994]



Sec. 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 an amendment under 
conditions set forth in Sec. 1753.11 a final contract amendment showing 
the changes shall be prepared and submitted to RUS with the closeout 
documents.
    (2) Immediately after completion of contract construction, including 
cleanup, the borrower shall:
    (i) Arrange with its architect or engineer, contractor, and the GFR 
for final inspection of the project.
    (ii) Furnish the contractor a summary of corrections or additions 
required to complete the project in accordance with the plans and 
specifications and the contract, and any contract amendments required to 
cover the corrections or additions.
    (iii) Arrange, upon completion of the corrections by the contractor, 
to have its engineer prepare or obtain the documents listed in appendix 
A which are required for closeout of contract construction.
    (iv) Make distribution of the completed documents as indicated in 
appendix A.
    (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 appendix A of this part that are required for the 
closeout of force account construction.
    (3) Make distribution of the completed documents as indicated in 
appendix A.
    (d) Final payment shall not be made until RUS has approved the 
closeout documents.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 43717, Aug. 25, 1994]
Secs. 1753.31--1753.35  [Reserved]



    Subpart E--Purchase and Installation of Central Office Equipment

    Source: 54 FR 39267, Sept. 25, 1989, unless otherwise noted. 
Redesignated at 55 FR 39397, Sept. 27, 1990.



Sec. 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.

[[Page 577]]

    (b) Terms used in this subpart are defined in Sec. 1753.2 and RUS 
Contract Forms 525 and 545.
    (c) Borrowers shall use RUS Contract Form 525, Central Office 
Equipment Contract (Including Installation), when the firm supplying the 
equipment will install it and RUS Contract Form 545, Central Office 
Equipment Contract (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 525 or 545 
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. Materials and equipment included in RUS 
Bulletin 344-2 ``List of Materials Acceptable for Use on Telephone 
Systems of RUS Borrowers'' have been accepted as meeting these 
requirements. If the equipment is not included in the ``List of 
Materials'' but has been approved for field trial installation, the 
borrower must in each instance obtain field trial approval from RUS 
prior to entering into any agreement with a supplier.
    (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.



Sec. 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) The P&S shall provide for a complement of spare parts to be 
provided to the borrower. The quantity and type of spare parts shall be 
determined in accordance with the provisions in RUS Form 522 ``General 
Specification for Digital, Stored Program Controlled Central Office 
Equipment.''
    (4) P&S for equipment to be provided under a Form 545 contract 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. (1) The P&S shall include RUS Contract Form 
525 or 545, 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.
    (2) Guidelines for the preparation of the detailed equipment 
specifications are contained in the Telecommunications Engineering and 
Construction Manual (TE&CM), which is available from RUS.
    (c) Submission of P&S. (1) Two sets of the P&S shall be submitted to 
the GFR for RUS review.
    (2) RUS will review the P&S and notify the borrower of approval or 
disapproval.
    (3) After approval of the P&S, one copy will be returned to the 
borrower.



Sec. 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 Sec. 1753.8(a). The 
procedure is as follows:

[[Page 578]]

    (1) Solicitation of bids. (i) After RUS approval of the 
specifications and equipment requirements, the borrower shall send 
``Notice and Instructions to Bidders'' to suppliers selected by the 
borrower with central office equipment included in the current ``List of 
Materials Acceptable for Use on Telephone Systems of RUS Borrowers.'' 
This ``Notice'' may also be sent to suppliers of non-domestic equipment 
currently accepted by RUS as meeting RUS technical standards. With RUS 
written approval, the ``Notice'' may also be sent to suppliers of 
central office equipment accepted for field trial.
    (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) RUS Contract Forms 525 or 545 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 
Sec. 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 approved 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, 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) A software license agreement (if required by the manufacturer) 
in the form indicated in Sec. 1753.38(c).
    (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 
changes to the P&S, sealed bids shall be solicited from only those 
bidders whose technical proposals meet the P&S requirements. When fewer 
than three bidders are qualified to bid, RUS approval

[[Page 579]]

must be obtained to proceed. Generally, RUS will grant this approval 
only if all suppliers currently listed in the ``List of Materials 
Acceptable for Use on Telephone Systems of RUS Borrowers'' 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 Sec. 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 
Sec. 1753.36(f), the borrower shall proceed in accordance with this 
subsection.
    (1) After RUS approval of the P&S and equipment requirements, 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 
Sec. 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) Changes in the P&S resulting from the technical session shall be 
subject to RUS's 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 based upon the engineer's detailed review of the proposal.
    (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 545 may be made in accordance with 
subpart I, if applicable, or by an approved Force Account Proposal 
(FAP).
    (c) Software license agreement (Addendum 2). The Addendum in this 
paragraph to RUS Form 525, Central Office Equipment Contract (Including 
Installation), and RUS Form 545, Central Office Equipment Contract (Not 
Including Installation), must be used with any central office equipment 
contract that requires a software license agreement and for which RUS 
financial assistance is to be provided.

                 Addendum 2--Software License Agreement

    (1) Definitions. For the purpose of this Software License 
Agreement--
    Contract means the RUS Form 525 Central Office Equipment Contract 
(Including Installation) or RUS Form 545 Central Office Equipment 
Contract (Not Including Installation),

dated ____________, between

_______________________________________________________________________
(the Licensee) and

_______________________________________________________________________
(the Licensor).

    Days means calendar days.
    Licensed Software means the computer programs, furnished for the 
operation of the

[[Page 580]]

System(s) provided under the Contract, whether contained on a tape, 
disc, semiconductor device, or other memory device or system memory 
consisting of logic instructions and instruction sequences in machine-
readable object code, which manipulate data in the central processor, 
control and perform input/output operations, perform error diagnostic 
and recovery routines, control call processing, and perform peripheral 
control, administrative and maintenance functions; as well as Licensor's 
standard customer documentation, excluding source code, used to 
describe, maintain and use the programs provided under the Contract.
    Licensee and Licensor, respectively, mean the parties signing the 
software license agreement as the licensee and licensor.
    Right-to-Use Fee is defined in section (2).
    Specifications means the RUS Form 522, General Specification for 
Digital, Stored Program Controlled Central Office Equipment, which is 
part of the Contract.
    System means the stored program controlled central office and 
associated remote switching terminal or terminals which use the Licensed 
Software covered by this License.
    (2) Software License Provisions. The Licensor may charge a fee, 
herein referred to as a Right-to-Use Fee, for use of the Licensed 
Software. The Right-to-Use Fee shall be included in the Total Base Bid 
as defined in the Contract. In consideration of the Right-to-Use Fee, 
the Licensor hereby grants the Licensee the right to use all Licensed 
Software, solely in connection with the System provided under this 
Contract, so that the System performs in accordance with the Contract 
and the Specifications.
    (i) The Licensee's right to use the Licensed Software is non-
exclusive and limited to use or operation in the United States of 
America, including its Territories, the Federated States of Micronesia, 
the Marshall Islands, Palau and the Commonwealth of Puerto Rico, with 
the System for which the Licensed Software is provided by the Licensor. 
The Licensee may reuse the equipment and its accompanying Licensed 
Software at another location within the Licensee's System without 
obtaining additional approvals from Licensor, provided, however, that 
the Licensee notify the Licensor, within ten (10) days, of the change in 
location of the equipment and Licensed Software.
    (ii) The Licensee and any successor to the Licensee's title in the 
System may, without further consent of the Licensor, transfer the 
Licensed Software and all of the Licensee's rights and interests under 
this Software License to any transferee who acquires legal title to the 
System, provided that such transferee first agrees in writing to the 
Licensor to abide by all of the terms and conditions of this License 
including, without limitation, the territorial limitation stated in 
section (2)(i) and the restrictions on decompiling or reverse assembly 
stated in section (2)(iii). Licensee shall give Licensor written notice 
thirty (30) days prior to any transfer. The Licensor shall not place any 
additional conditions on the transferee's use of the System or the 
Licensed Software. If the provisions of this section (2)(ii) are 
satisfied, thereafter the Licensee shall bear no responsibility for 
transferee's failure to abide by the terms and conditions of this 
License.
    (iii) The Licensee shall take reasonable steps to protect the 
confidentiality of the Licensed Software and shall not decompile or 
reverse assemble all or any part of the Licensed Software to generate 
source code. The Licensee shall not make the Licensed Software available 
to any person except on a need to know basis. The obligations of the 
Licensee hereunder shall not extend to any information or data relating 
to the Licensed Software which is now available to the general public or 
becomes available by reason of the acts of the Licensor or third 
parties.
    (iv) The Licensee may reproduce or copy the Licensed Software and 
related materials solely for the purpose of archival backup, in-house 
training and operating, maintaining, and administering the System 
provided under this Contract. In such reproduction, the Licensee shall 
include, upon all such copies of the Licensed Software, all proprietary 
notices, including the copyright notice within the Licensed Software 
program and related documentation in the form in which it is received 
from the Licensor.
    (v) The Licensee acknowledges that the Licensed Software program is 
the property of the Licensor, and shall not do, or cause to be done, 
anything to activate any of the subsisting nonactivated computer 
instruction steps therein unless authorized in writing by the Licensor. 
The Licensor shall have the exclusive right to activate, or authorize 
the activation of, the subsisting nonactivated program instruction steps 
in the Licensed Software. In this event Licensee shall pay any 
additional Right-To-Use Fee(s) agreed to by Licensee and Licensor.
    (vi) In the event the Licensor develops significant improvements to 
the Licensed Software, the Licensor may market the improvements as a 
separate offering requiring payment of an additional Right-to-Use Fee.
    (vii) The Licensee shall not modify or otherwise change the Licensed 
Software other than at the direction of the Licensor. This provision 
shall not apply to:
    (A) Changes to the Licensed Software which are necessary to preserve 
or restore service. Licensee shall use all reasonable efforts to contact 
Licensor before making any such changes. If the Licensor is unable to 
make the necessary changes promptly to the Licensed Software to preserve 
or restore service, then the Licensee may make only such changes to the 
Licensed Software as are

[[Page 581]]

necessary to preserve or restore service. In such event, Licensee shall 
promptly notify Licensor of the changes made by Licensee.
    (B) Changes made by the Licensee to its own database; and
    (C) Changes made by the Licensee in connection with the exercise of 
its rights under section (2)(xi).
    (viii) Within thirty (30) days after written notice that a program 
or a release thereof has been discontinued and is no longer required for 
the operation of the System and the Licensor has furnished the Licensee 
with a new program that is fully satisfactory to the Licensee, the 
Licensee agrees to return the original and all copies of the 
discontinued program and specified related documents. If such return is 
impossible or impractical, the Licensee shall destroy said program and 
documents and provide the Licensor with a written notice of such 
destruction.
    (ix) The Licensor warrants to the Licensee that any Software 
licensed under this Software License shall function for a period of five 
(5) years from the warranty start date defined in the Contract in 
accordance with the Specifications and any written or printed technical 
material provided by the Licensor to explain the operation of the 
Licensed Software and aid in its use. The Licensor shall correct all 
deficiencies within thirty (30) days from the date of receipt by the 
Licensor of written notice of such deficiencies from the Licensee. An 
extension of this thirty (30) day period may be allowed only if agreed 
upon by the Licensee and RUS. It shall be the Licensor's obligation to 
insert and thoroughly test, at no charge to the Licensee, any software 
amendment or alteration provided to satisfy the obligations of this 
section (2)(ix). If a deficiency is detected or a correction made within 
the final ninety (90) days of the warranty, the warranty shall be 
extended to a date ninety (90) days after the deficiency has been 
corrected.
    (x) The Licensor shall hold harmless and indemnify the Licensee from 
any and all claims, suits, and proceedings for the infringement of any 
patent, copyright, trademark, or violation of trade secrets covering any 
Licensed Software used with the System, except for items of the 
Licensee's design or selection. If the Licensee's use of the Licensed 
Software is enjoined, the Licensor shall promptly, at its own expense, 
place the Licensee in a position where it is able to use the System in 
accordance with the Specifications, whether by:
    (A) Modifying the Licensed Software or portion thereof so that it no 
longer infringes but remains functionally equivalent,
    (B) Replacing the Licensed Software with noninfringing equivalent 
software,
    (C) Obtaining for the Licensee a license or other right to use, or
    (D) Such other actions as may be required. This shall be in addition 
to any other rights or claims which the Licensee may have. The Licensor 
shall, at its own expense, (and the Licensee agrees to permit the 
Licensor to do so) defend any suits which may be instituted by any party 
against the Licensee for alleged infringement of patents, copyright, 
trademark, or violation of trade secrets relative to the Licensor's 
performance hereunder. Either party shall notify the other promptly of 
any such claims, and the Licensee shall give to the Licensor full 
authority and opportunity to settle such claims, and shall reasonably 
cooperate with the Licensor in obtaining information relative to such 
claims.
    (xi) In the event the Licensor becomes unwilling or unable to 
furnish support required by the Contract for the Licensed Software, the 
Licensor shall, upon written request of the Licensee, provide with the 
greatest possible dispatch all Licensed Software back-up documentation 
including proprietary information other than agreed excluded 
documentation. In this event, (1) the Licensee shall be permitted full 
use of all Licensed Software and documentation as long as the System is 
operational and (2) the Licensee may modify, or have modified, the 
Licensed Software for feature enhancement or proper equipment operation 
and becomes the owner of such modifications for all purposes, including 
patenting, copywriting, sale, or license thereof. Agreed excluded 
documentation is Licensed Software back-up documentation described in 
the first sentence of this section (2)(xi) which (A) is proprietary 
information of a third party, (B) was specifically described at the pre-
bid technical session and individually identified in an attachment to 
the Bid, and (C) RUS and the Licensee agree, before bids are opened, may 
be excluded from the requirements of this section (2)(xi). In the event 
the Licensor furnishes agreed excluded documentation and the Licensee 
exercises its rights under this section (2)(xi), the Licensor shall use 
its best efforts to provide such agreed excluded information to the 
Licensee, or obtain continuing support agreements from the parties 
retaining legal rights to the excluded documentation. Licensor agrees 
that certain Licensed Software cannot be excluded from the requirements 
of this section (2)(xi) including, but not limited to, software, the 
absence or improper operation of which would significantly impair the 
operation of the System, would significantly impair the ability of the 
Licensee to generate revenue, or would pose a risk to RUS loan security.
    (xii) A breach of this License by the Licensor is a breach of the 
Contract. Therefore, the remedies specified in the Contract shall apply.
    (xiii) The Licensee shall have thirty (30) days after receipt of 
written notice from the

[[Page 582]]

Licensor to correct any breach of this License. Damages payable by the 
Licensee for its breach of this License shall not exceed the total 
Contract price. The Licensor shall not terminate this License unless:
    (A) The Licensor has given RUS sixty (60) days notice before 
termination; and
    (B) RUS agrees with the Licensor that termination is the only method 
available to prevent significant harm to the Licensor from additional 
Licensee defaults.
    (xiv) The obligations of Licensee and Licensor and any successors in 
title under this Agreement shall survive the termination of this 
Agreement and continue after any termination of rights granted 
hereunder.
    (xv) Licensee and Licensor agree that it will not, without the prior 
written permission of the other party, use in advertising, publicity, 
packaging, labeling, or otherwise, any trade name, trademark, trade 
device, service mark, symbol, or any other identification or any 
abbreviation, contraction, or simulation thereof owned by the other 
party or any of its affiliates or used by the other party or any of its 
affiliates to identify any of their products or services, unless 
otherwise agreed by the parties.
    (xvi) This Software License Agreement shall prevail notwithstanding 
any conflicting terms or legends which may appear on or in the Licensed 
Software.
    (xvii) If any Section or part thereof, in this Agreement shall be 
held to be invalid or unenforceable in any jurisdiction in which this 
Agreement is being performed, then the meaning of such section or part 
shall be construed so as to render it enforceable, to the extent 
feasible; and if no feasible interpretation would save such section or 
part, it shall be severed from this Agreement and the remainder shall 
remain in full force and effect. However, in the event such section or 
part is considered an essential element of this Agreement, the parties 
shall promptly negotiate a replacement therefor.
    (xviii) This Software License and any amendments thereto, or 
revisions thereof, are subject to RUS approval.

                                Licensor

Company

Name____________________________________________________________________

By______________________________________________________________________

Title___________________________________________________________________

Date____________________________________________________________________

                                Licensee

Company

Name____________________________________________________________________

By______________________________________________________________________

Title___________________________________________________________________

Date____________________________________________________________________

[End of clause]

    (d) Contract amendments. (1) The general requirements for contract 
amendments are set forth in Sec. 1753.11.
    (2) Equipment contract amendments shall be prepared on RUS Contract 
Form 238, Construction or Equipment Contract Amendments.
    (e) 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, and submit it to the GFR.
    (3) After RUS approval of the supplier's proposal and the borrower's 
plan, the purchase may be made using RUS Contract Form 545 or, when 
applicable, the procedures contained in subpart I.
    (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 545 may be made in accordance with subpart 
I, if applicable, or by an approved FAP.
    (f) 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.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, and amended at 59 FR 17679, Apr. 14, 1994]



Sec. 1753.39  Closeout documents.

    Closeout of RUS Contract Form 525, Central Office Equipment Contract 
(Including Installation), and RUS Contract Form 545, Central Office 
Equipment Contract (Not Including Installation), shall be conducted as 
follows:
    (a) Contract amendments. The borrower shall prepare and arrange for 
the execution and submission to RUS of any required contract amendments 
so that any changes in either contract will have been approved prior to 
the

[[Page 583]]

time the closeout documents are prepared. RUS Contract Form 238, 
Construction or Equipment Contract Amendment, shall be used for this 
purpose.
    (b) Taxes. Under the terms of RUS Contract Forms 525 and 545, the 
bid prices do not include any amounts which are or may be payable by the 
bidder or the borrower on account of taxes imposed upon the sale, 
purchase or use of equipment, material and software covered by the 
contracts. If any such tax is paid by the bidder, the contract requires 
that the amount is to be stated separately on all invoices and paid by 
the borrower.
    (c) Acceptance tests. The borrower will perform acceptance tests in 
accordance with guidelines contained in the applicable TE&CM sections, 
as a part of the partial closeout and final closeout of RUS Contract 
Form 525.
    (d) Grounding system audit. A grounding system audit shall be 
performed and found acceptable for equipment provided under Form 525 and 
545 Contracts, prior to placing a central office or remote switching 
terminal into full service operation. The audits are to be conducted in 
accordance with guidelines contained in the applicable sections of RUS 
Form 522 ``General Specification for Digital, Stored Program Controlled 
Central Office Equipment.'' The audits shall be performed by the 
contractor and borrower for Form 525 equipment and by the borrower for 
Form 545 equipment.
    (e) Partial Closeout Procedure. Under conditions set forth in RUS 
Contract Form 525, 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 where the 
contractor is to receive such payment, the procedure contained in the 
applicable sections of RUS Contract Form 525 shall be followed. In 
addition to complying with the appropriate partial closeout procedure 
contained in RUS Contract Form 525, the borrower shall:
    (1) Assemble and distribute the closeout documents specified in 
appendix B.
    (2) Submit one copy of Form 754 to RUS with the FRS, requesting the 
remaining funds due the contractor on the central offices and associated 
remote switching terminals involved.
    (3) On receipt of the advance of loan funds, make prompt payment to 
the contractor.
    (f) Final Contract Closeout Procedure. The documents required for 
the final closeout of the central office equipment contracts, RUS 
Contract Forms 525 and 545, are listed in appendix B, which also 
indicates the number of copies and their distribution. The procedure to 
be followed is outlined below:
    (1) The borrower shall:
    (i) Immediately following completion of the last central office 
equipment installation, arrange with the contractor's installer, 
connecting company (where necessary), and the GFR for performance of the 
acceptance tests of offices not previously tested. The date for testing 
should be established so that the installer will not be required to 
return to the site for the sole purpose of assisting in these tests. 
Acceptance tests shall be performed within 30 days of completion of the 
installation, unless otherwise requested in writing by the contractor 
and approved in writing by the borrower.
    (ii) When the acceptance tests have been satisfactorily completed 
and the contractor has corrected all the discrepancies:
    (A) Prepare and assemble the documents listed in appendix B, 
Documents Required to Close Out Central Office Equipment Contracts.
    (B) Notify the GFR that the project is ready for final RUS 
inspection.
    (iii) Make the documents listed in appendix B available for GFR 
review on the date of final inspection.
    (iv) Distribute the documents as indicated in appendix B, including 
submission to the GFR of all documents required by RUS.
    (2) The documents required and the procedure to be used for 
equipment purchased and/or installations made using the method of minor 
construction are set forth in subpart I.

[[Page 584]]

    (g) Final payment shall be made according to the payment terms of 
the contract.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, and amended at 59 FR 31126, June 17, 1994; 59 FR 43717, Aug. 25, 
1994]
Secs. 1753.40--1753.45  [Reserved]



         Subpart F--Outside Plant Major Construction by Contract

    Source: 54 FR 39267, Sept. 25, 1989, unless otherwise noted. 
Redesignated at 55 FR 39397, Sept. 27, 1990.



Sec. 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 
Sec. 1753.2 and RUS Contract Form 515.
    (b) The contract method for major construction is described in 
Sec. 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 Secs. 1753.47, 
1753.48 and 1753.49.
    (2) A Form 515 contract which is for less than $200,000, may, at the 
borrower's option, be negotiated. See Sec. 1753.48(b).
    (3) Form 773 shall be used for major outside plant projects which 
may not be competitively bid, and which cannot be designed and staked at 
the time of contract execution. Projects of this nature include routine 
line extensions and placement of subscriber drops. The Form 773 contract 
is limited to a maximum of $200,000. In any twelve month period, RUS 
will not finance more than $400,000, or ten per cent (10%) of the 
borrower's previous year's outside plant total construction, whichever 
is greater, in Form 773 contracts for a borrower. This limitation 
includes all major and minor outside plant construction performed under 
Form 773 contracts, and is determined by the date the Form 773 contract 
is executed. See 7 CFR Sec. 1753.50.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, and amended at 59 FR 43717, Aug. 25, 1994]



Sec. 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 
Sec. 1753.3).
    (ii) Deviations from the approved LD (7 CFR part 1737) must be 
approved by RUS (See Sec. 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

[[Page 585]]

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 
Sec. 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) Two sets of 
the plans and specifications and one copy of the ``Check List for Review 
of Plans and Specifications,'' RUS Form 553, OMB control number 0572-
0062, signed by the borrower's engineer, shall be furnished to the GFR.
    (2) If RUS approves the P&S, RUS will return one set to the 
borrower.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, 55 FR 53488, Dec. 31, 1990]



Sec. 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 Sec. 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 Sec. 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 contract shall be 
conducted in accordance with Sec. 1753.8(a).
    (ii) Two copies of the assembly unit sections of the apparent lowest 
responsive bid accepted by the borrower shall be sent to RUS.
    (b) Negotiated bidding. (1) Competitive bids are not required for 
outside plant construction that is estimated to cost less than $200,000 
labor and materials. The borrower shall obtain RUS approval of the plans 
and specifications before it selects the contractor for negotiated 
bidding.
    (2) The procedures to be followed are contained in Sec. 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 Sec. 1753.11 on RUS Contract Form 526, 
Construction Contract Amendment.

[[Page 586]]

    (d) Subcontracts. The RUS requirements for subcontracts and the 
procedures to be followed are set forth in Sec. 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 Sec. 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.



Sec. 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. Appendix C lists the documents required to 
closeout the Form 515 construction contract.
    (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) After inspection, the borrower shall prepare and distribute the 
final inventory documents as indicated on appendices C and D. The 
documents listed for RUS shall be submitted to the GFR. The approved 
final inventory is considered the final contract amendment. An extension 
to the contractor's bond is required when the total inventory price 
exceeds the maximum contract by more than 20 percent.
    (3) Final payment shall be made according to the payment provisions 
of Article III of Form 515.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, and amended at 59 FR 43717, Aug. 25, 1994]

[[Page 587]]



Sec. 1753.50  Construction by Form 773 contract.

    (a) The borrower shall prepare the contract form and provide such 
details of construction as may be available. Compensation may be based 
upon unit prices, hourly rates, or another mutually agreeable basis.
    (b) 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.
    (d) The borrower must ensure that the contractor selected meets all 
Federal and State requirements, and that the contractor maintains the 
insurance coverage required by the contract for the duration of the 
work. See 7 CFR part 1788.
    (e) The borrower shall finance major construction under the Form 773 
contract with general funds and obtain reimbursement with loan funds 
when construction is completed and an executed Form 771 has been 
submitted to RUS.
    (f) If the contract exceeds $100,000, a contractor's bond shall be 
required. See 7 CFR part 1788.
    (g) When the construction is completed to the borrower's 
satisfaction, the borrower shall obtain from the contractor a final 
invoice and an executed copy of RUS Form 743, Certificate of Contractor 
and Indemnity Agreement.
    (h) The closeout document for the Form 773 contract is RUS Form 771. 
See Sec. 1753.81 for the requirements for completing Form 771.
    (i) An original and two copies of Form 771 shall be sent to the GFR. 
The GFR may inspect the construction, and will initial and return the 
original and one copy to the borrower.
    (j) The original Form 771 shall be submitted with an FRS to RUS only 
in conjunction with a request for an advance of loan funds for the work.

[59 FR 43717, Aug. 25, 1994]
Secs. 1753.51--1753.55  [Reserved]



      Subpart G--Outside Plant Major Construction by Force Account

    Source: 55 FR 3572, Feb. 2, 1990, unless otherwise noted. 
Redesignated at 55 FR 39397, Sept. 27, 1990.



Sec. 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 Sec. 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.

(Approved by the Office of Management and Budget under control number 
0572-0062)



Sec. 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:

[[Page 588]]

    (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.
    (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 Sec. 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.

[[Page 589]]



Sec. 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 
appendix E. The following is a brief description of the closeout 
documents:
    (1) Final Inventory and Certificate of Engineer, RUS Forms 817, 
817a, and 817b are prepared by the engineer.
    (i) Assembly units inventoried on Form 817a shall be grouped 
according to the applicable plant account classification as specified in 
7 CFR part 1770, Revision and Codification of RUS's Accounting System 
Requirements for Telephone Borrowers of the Rural Utilities Service.
    (ii) On Form 817, the engineer provides a comparison between the 
final inventory total price (based on assembly prices in the approved 
FAP) and the actual cost of construction (from the borrower's accounting 
records).
    (iii) The actual costs from the borrower's accounting records are 
not to include costs for (a) engineering, legal and other professional 
services, (b) interest during construction and (c) preliminary survey 
charges.
    (2) Certificate, ``Buy American,'' RUS Form 213.
    (3) Key Map, prepared by the engineer, is a permanent record of the 
general location of the lines and facilities of the borrower's system.
    (4) Detail Maps, prepared by the engineer, show the details of the 
outside plant of the telephone system, the location of subscribers and 
other pertinent operating details.
    (5) Staking Sheets, prepared by the engineer, show by assembly units 
the outside plant constructed, and serve as the permanent outside plant 
record.
    (6) Tabulation of Staking Sheets, prepared by the engineer, is a 
summary of the assembly units shown on the staking sheets for preparing 
the final inventory.
    (7) Treated Forest Products Inspection Reports, prepared by an RUS 
approved inspection company, certify that wood products furnished for 
construction meet all requirements of the RUS specifications.
    (c) Closeout procedures. (1) The borrower shall notify the GFR when 
the project is ready for final inspection.
    (2) The GFR shall 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 and distributed as indicated on appendix E. The documents 
listed for RUS are to be submitted to the GFR.
    (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.
Secs. 1753.59--1753.65  [Reserved]



        Subpart H--Purchase and Installation of Special Equipment

    Source: 54 FR 39267, Sept. 25, 1989, unless otherwise noted. 
Redesignated at 55 FR 39397, Sept. 27, 1990.



Sec. 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 Sec. 1753.2 and RUS 
Contract Forms 397 and 398.
    (c) Special equipment purchased with loan funds must be included in 
the List of Materials Acceptable for Use on

[[Page 590]]

Telephone Systems of RUS Borrowers (See Bulletin 344-2) and meet RUS's 
standards and specifications (See 7 CFR part 1755) unless otherwise 
approved by RUS.
    (d) Borrowers must obtain RUS review and approval of the LD for 
their telephone systems. Applications of special 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.
    (e) RUS Form 397 and applicable specifications shall be used for the 
purchase of special equipment for major construction on a furnish and 
install basis.
    (f) RUS Form 398 and applicable specifications shall be used for the 
purchase of equipment for major construction on a furnish only basis. 
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 Form 398 contract.
    (g) 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.
    (h) Some types of special equipment contain software. See subpart E 
for RUS software licensing requirements.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, and amended at 58 FR 66259, Dec. 20, 1993; 59 FR 17464, Apr. 13, 
1994]



Sec. 1753.67  Contracts and specifications.

    (a) Special Equipment Contract, RUS Form 397 shall be used to 
purchase equipment on a furnish and install basis.
    (b) Special Equipment Contract, RUS Form 398 shall be used to 
purchase equipment on a furnish only basis.
    (c) The equipment specifications must accompany the selected 
contract form.
    (1) Each specification consists of performance specifications, 
installation requirements (if applicable) and application engineering 
requirements.
    (2) RUS specifications for the Special Equipment Contract are listed 
in 7 CFR part 1755.



Sec. 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 Form 398 Contract, 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.

[[Page 591]]

    (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 Form 397 specifications. A copy of the 
acceptance tests results must be attached to the closeout documents or 
work order summary.
    (9) Detailed considerations and guidelines for the preparation of 
the specifications for the various applications of special equipment can 
be found in RUS Telecommunications Engineering and Construction Manuals.
    (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 the P&S 
and sends two copies to the GFR for approval.
    (ii) RUS approves the P&S in writing (or notifies the borrower of 
any reason for withholding approval).
    (iii) The borrower obtains proposals from three or more sellers.
    (iv) The borrower selects the proposal to be accepted and sends 
notification of this selection supported by a summary of all proposals 
and an engineer's recommendation to RUS for approval.
    (v) RUS approves the proposal selection in writing (or notifies 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 
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.
    (ii) RUS notifies the borrower in writing of RUS's decision as to 
whether to approve the P&S and whether to allow the borrower to 
negotiate for specific equipment.
    (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 Sec. 1753.11.
    (2) The borrower shall prepare any required amendments to special 
equipment contracts, arrange for the execution by all parties, and 
submit these amendments to RUS, so that any changes in the contract will 
have been submitted by the time closeout documents are submitted. RUS 
Form 238, Construction or Equipment Contract Amendment shall be used for 
this purpose.
    (d) Closeout procedures--(1) Acceptance tests for Form 397. (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

[[Page 592]]

performance of the equipment meets the contract specifications.
    (2) Acceptance tests for Form 398. (i) 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. (i) When the acceptance tests have been 
completed and all deficiencies have been corrected, the borrower shall:
    (A) Assemble the documents listed in appendix F that are required 
for the closeout of the special equipment contract.
    (B) Notify the GFR that the installation is ready for final 
acceptance.
    (C) Make available for the GFR the documents listed in appendix F.
    (ii) The GFR reviews the final documents and distributes all the 
documents as indicated in appendix F.
    (iii) Final payment shall be made according to the payment terms of 
the contract.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, and amended at 59 FR 43718, Aug. 25, 1994]
Secs. 1753.69--1753.75  [Reserved]



                      Subpart I--Minor Construction

    Source: 55 FR 3573, Feb. 2, 1990, unless otherwise noted. 
Redesignated at 55 FR 39397, Sept. 27, 1990.



Sec. 1753.76  General.

    (a) This subpart implements and explains the provisions of the Loan 
Documents (as defined in 7 part CFR 1758) setting forth 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 Sec. 1753.2.

(Approved by the Office of Management and Budget under control number 
0572-0062)



Sec. 1753.77  Methods of minor construction.

    Minor construction may be performed by contract using RUS Contract 
Form 773. ``Miscellaneous Construction Work and Maintenance Services'', 
or by work order construction.



Sec. 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.

[55 FR 3573, Feb. 2, 1990. Redesignated at 55 FR 39397, Sept. 27, 1990, 
and amended at 59 FR 43718, Aug. 25, 1994]



Sec. 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.

[[Page 593]]

    (c) The construction foreman shall maintain a tabulation of all 
construction units installed.



Sec. 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 is limited in any twelve 
month period to the following amounts for the following discrete 
categories of minor construction. A borrower could, for example, receive 
financing of Form 773 contracts in a twelve month period in amounts up 
to $400,000 of central office equipment and $200,000 of special 
equipment and $200,000 of buildings. The date of the Form 773 contract 
is the date the Form 773 contract is executed.
    (1) For outside plant construction, the limit is $400,000 or ten per 
cent (10%) of the borrower's previous calendar year's outside plant 
total construction, whichever is greater.
    (2) For central office eqiupment, the limit is $400,000.
    (3) For special equipment, the limit is $200,000.
    (4) For buildings, the limit is $200,000.
    (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 use of new 
materials listed in the List of Materials for Use on Telephone Systems 
of RUS Borrowers (Bul. 344-2) and the application of RUS construction 
practices. (See Sec. 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.

[55 FR 3573, Feb. 2, 1990. Redesignated at 55 FR 39397, Sept. 27, 1990, 
and amended at 59 FR 43718, Aug. 25, 1994]



Sec. 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 engineer who is either 
licensed in the state where the inspection will be performed, or is a 
borrower's staff engineer, who meets the requirements of the ``employee 
in charge'' of force account engineering as described in subpart B of 
this part. The GFR will periodically audit the inspection of minor

[[Page 594]]

construction to ensure integrity of the procedure. RUS borrowers with 
less than 2000 subscribers may use the above procedure or have 
construction inspection performed by the GFR.
    (b) Engineering services for minor construction may be contracted 
using RUS Form 245, Engineering Service Contract--Special Services. 
Costs for these services may be included in the costs for construction 
on the Form 771. (See subpart B of this part.
    (c) Upon completion of construction, the borrower shall obtain the 
engineer's certification on RUS Form 771. An official of the borrower, 
designated by the board of directors, shall also execute the borrower's 
certification on Form 771.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, and amended at 55 FR 53488, Dec. 31, 1990]



Sec. 1753.82  Minor construction closeout.

    (a) For minor construction inspected by the borrower's engineer, an 
original and two copies of Form 771 shall be sent to the GFR. The GFR 
will initial and return the original and one copy.
    (b) When funds are requested for minor construction, the original 
Form 771 signed or initialed by the GFR, shall be submitted with the 
FRS. Forms 771 should be submitted only with the FRS which they support. 
RUS does not encumber funds pursuant to Forms 771 unless an advance is 
made to the borrower. (See 7 CFR part 1744 subpart C).
Secs. 1753.83--1753.90  [Reserved]



              Subpart J--Construction Certification Program

    Source: 55 FR 3574, Feb. 2, 1990, unless otherwise noted. 
Redesignated at 55 FR 39397, Sept. 27, 1990.



Sec. 1753.91  General.

    (a) This subpart implements and explains the provisions of the loan 
documents setting forth the requirements and procedures to be followed 
by borrowers accepting nomination for the construction certification 
program. Terms used in this subpart are defined in Sec. 1753.2.
    (b) [Reserved]

(Approved by the Office of Management and Budget under control number 
0572-0062)



Sec. 1753.92  Policies and requirements.

    (a) It is RUS policy that, as borrowers gain in experience and 
maturity, the advice and assistance rendered by RUS shall progressively 
diminish. Prior to approval of a loan, RUS may nominate certain 
borrowers to fulfill the responsibilities for administration and 
construction of projects financed with RUS loans. Borrowers who accept 
this nomination will be known as ``certification borrowers,'' and the 
program in which they participate will be known as the ``certification 
program.''
    (b) Generally, initial loan borrowers are not eligible for the 
certification program.
    (c) Generally, the factors which RUS will consider in selecting 
borrowers for the certification program will include:
    (1) The experience of the staff of the borrower.
    (2) The RUS assessment of the borrower's ability to handle the 
certification program requirements considering the size and complexity 
of the proposed construction in the LD.
    (3) The history of the borrower in following RUS's policies and 
procedures.
    (4) Other factors deemed relevant by RUS.
    (d) Except as specifically stated in this subpart, certification 
borrowers must comply with all requirements applicable to other 
borrowers.
    (e) RUS reserves the right at any time to require submission of 
construction documents or to remove the borrower from the certification 
program.



Sec. 1753.93  Responsibilities.

    (a) Responsibilities transferred to certification borrowers. (1) 
Approval of engineering and architectural service contracts.
    (2) Approval of P&S.
    (3) Approval of price quotations and bids, except where the low 
price bid is not accepted.
    (4) Approval of award of construction contracts and amendments.
    (5) Approval of FAP's if RUS has approved the force account method 
of construction for the construction project.

[[Page 595]]

    (6) Inspection and certification of construction.
    (7) Approval of closeout documents.
    (8) Other responsibilities as may be specifically granted in writing 
by RUS.
    (b) Responsibilities retained by RUS. (1) Approval to deviate from 
RUS requirements, except as provided in (a) above.
    (2) Approval of use of loan funds for projects other than those 
included in the loan construction budget. See 7 CFR part 1744 subpart C.
    (3) Approval of use of loan funds in excess of amounts included in 
the loan budget.
    (4) Approval of force account methods of engineering and 
construction.
    (5) Approval to make significant deviations from the work plan 
approved by RUS.
    (6) Approval of interim construction.
    (7) Approval to use materials not listed in the List of Materials 
Acceptable for Use on Telephone Systems of RUS Borrowers.
    (8) Approval of field trials.
    (9) Approval to modify or alter standard forms and contracts.
    (10) Approval to open bids when fewer than the required number have 
been received.
    (11) Approval of outside plant layouts.
    (12) ``Buy American'' determinations.
    (13) Other responsibilities not specifically transferred by this 
subpart or in writing by RUS.



Sec. 1753.94  Procedures.

    (a) Certification borrowers shall appoint three certification 
officials. These appointments shall be subject to RUS approval.
    (1) The ``Certifying Officer'' shall be an officer or employee of 
the borrower who is authorized to execute binding agreements. This 
officer shall sign all contracts, amendments, closeout documents and the 
certification on RUS Form 158, Certification of Contract or Force 
Account Proposal Approval, and RUS Form 159, Summary of Completed 
Construction.
    (2) The ``Construction Certifier'' shall be an experienced telephone 
engineer who is either licensed in the state where the inspection will 
be performed, or is a borrower's staff engineer who meets the 
requirements of the ``employee in charge'' of force account engineering 
as described in subpart B of this part. RUS may determine that it will 
accept the certification only for matters within the staff engineer's 
area of specialization. In such cases the position of ``Construction 
Certifier'' shall be filled by more than one engineer. This official is 
responsible for certifying that the construction complies with all 
technical and code requirements.
    (3) The ``Certification Coordinator'' shall administer the 
certification program and serve as the official point of contact for 
RUS. The certifying officer or construction certifier may also serve as 
the certification coordinator.
    (b) Certification borrowers, shall submit and obtain RUS approval of 
a work plan before construction and related engineering begin.
    (1) The work plan shall provide a description of the proposed 
construction and methods of purchasing in such detail as to enable RUS 
to monitor the construction program to ensure to its satisfaction that 
loan purposes are accomplished in an organized construction program.
    (2) The work plan shall include the following:
    (i) The names and qualifications of the proposed certification 
officials defined in Sec. 1753.94(a).
    (ii) A listing of the proposed work projects to accomplish the loan 
purposes showing the estimated cost, method of performing the 
construction, and the proposed commencement and completion dates for 
each work project. The proposed work projects shall be summarized on RUS 
Form 157, Construction Work Plan and Cost Distribution, or a form 
providing essentially the same information.
    (iii) The proposed source of funds for meeting cost overruns if the 
total estimated cost of work projects exceeds the loan budget.
    (iv) A statement signed by the borrower's certification officials 
and the GFR that the work plan is accurate and complete.
    (c) Under the certification program, the borrower shall follow all 
standard RUS postloan engineering and construction procedures except 
that the approvals shown in Sec. 1753.93(a) will be

[[Page 596]]

made by certification officials rather than RUS. The approvals noted in 
Sec. 1753.93(a)(1), (4) and (5) will be reported immediately to RUS 
using RUS Form 158. Approval of closeouts, Sec. 1753.93(a) (6) and (7), 
will be reported immediately on RUS Form 159.
    (d) As the construction program progresses, the certification 
borrower shall request, by letter, RUS approval of any significant 
changes in work plan schedules and budgets and in certification 
officials.



Sec. 1753.95  Advance of loan funds.

    Advance of loan funds needed to meet the certification borrower's 
current financial obligations are to be requested on RUS Form 481 for 
construction and engineering items supported by appropriate RUS Forms 
158 and 159. For items other than construction or engineering, other 
supporting data shall be submitted. (See 7 CFR part 1744 subpart C.)



Sec. 1753.96  Certification addendum.

    The certification borrower shall modify standard RUS forms of 
contract for use under the certification program by inserting an 
executed copy of the following certification addendum in each copy of 
the contract.

                         Certification Addendum

    Permission has been obtained by the Owner to proceed with this 
contract under 7 CFR part 1753 subpart J, pursuant to which the 
references in the RUS construction document requiring approvals and 
other actions of the RUS Administrator will not apply unless RUS gives 
specific notice in writing to the affected parties that designated 
approval(s) or action(s) will be required. Certifications by the 
Contractor of amounts due and certifications of completions of work 
under the contract are to be construed to be rendered for the purpose of 
inducing the Rural Utilities Service or Rural Telephone Bank to advance 
funds to the Owner to make, or reimburse the Owner for, payments under 
this contract.
Date
_______________________________________________________________________
Owner
By______________________________________________________________________
Certifying Officer
Date____________________________________________________________________
_______________________________________________________________________
Contractor
By______________________________________________________________________
_______________________________________________________________________
Title
Secs. 1753.97--1753.99  [Reserved]

                         Appendices to Part 1753

[[Page 597]]



                                    Appendix A to Part 1753--Documents Required To Closeout Construction of Buildings                                   
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Use with                       Prepared by                                       Distribution              
    Form                            ----------------------------------------------------------------  Number  ------------------------------------------
furnished by       Description                       Force                   Architect/                 of                                              
     RUS                               Contract     account     Contractor    engineer    Borrower    copies   Borrower     RUS    Architect  Contractor
--------------------------------------------------------------------------------------------------------------------------------------------------------
238.........  Construction or        x            ...........  ...........  x            ..........         3  ........         3  .........  ..........
               Equipment Contract                                                                                                                       
               Amendment (Submit to                                                                                                                     
               RUS for approval, as                                                                                                                     
               required).                                                                                                                               
181.........  Certificate of         x            ...........  ...........  x            ..........         3         1         1  .........          1 
               Completion (Contract                                                                                                                     
               Construction) (1).                                                                                                                       
181a........  Certificate of         ...........  x            ...........  x            ..........         2         1         1  .........  ..........
               Completion (Force                                                                                                                        
               Account                                                                                                                                  
               Construction).                                                                                                                           
231.........  Certificate or         x            ...........  x            ...........  ..........         2         1         1  .........  ..........
               Contractor.                                                                                                                              
224.........  Waiver and Release of  x            ...........  x            ...........  ..........         2         1         1  .........  ..........
               Lien (2 copies from                                                                                                                      
               each supplier).                                                                                                                          
213.........  Certifcate (Buy        x            ...........  x            ...........  ..........         1         1  ........  .........  ..........
               American).                                                                                                                               
284.........  Statement of           x            x            ...........  x            ..........         3         1         1          1  ..........
               Architect's Fee.                                                                                                                         
              Inventory-List         x            x            ...........  ...........  ..........         3         1         1          1  ..........
               Materials and                                                                                                                            
               Services Furnished                                                                                                                       
               by Borrower Upon                                                                                                                         
               Which Architectural                                                                                                                      
               Services Were                                                                                                                            
               Furnished. Show Cost                                                                                                                     
               (See Form 284).                                                                                                                          
              Inventory-List         x            x            ...........  ...........  x                  3         1         1          1  ..........
               Materials and                                                                                                                            
               Services Furnished                                                                                                                       
               by Borrower Upon                                                                                                                         
               Which Architectural                                                                                                                      
               Services Were Not                                                                                                                        
               Performed Show Cost.                                                                                                                     
(2).........  ``As Built'' Plans     x            x            ...........  x            ..........         1         1  ........  .........  ..........
               and Specifications.                                                                                                                      
              Guarantees,            x            ...........  x            ...........  ..........         1         1  ........  .........  ..........
               Warranties, Bonds,                                                                                                                       
               Operating or                                                                                                                             
               Maintenance                                                                                                                              
               Instructions, et                                                                                                                         
               cetera.                                                                                                                                  
              Architect/Engineer     x            x            ...........  x            ..........         3         1         1  .........         1  
               Seismic Safety                                                                                                                           
               Certification.                                                                                                                           
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) Cost of Materials and Services Furnished by Borrower not to be Included in Total Cost on 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 in Lieu of the  
  ``As-Built'' Plans and Specifications.                                                                                                                


[59 FR 43718, Aug. 25, 1994]

[[Page 598]]


                                      Appendix B--Documents Required to Closeout Central Office Equipment Contract                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Use with                           Prepared by               Total            Distribution         
Form furnished by      Description     ------------------------------------------------------------------------  No. of  -------------------------------
       RUS                                RUS form 525      RUS form 545       Contractor         Engineer       copies   Borrower  Contractor     RUS  
--------------------------------------------------------------------------------------------------------------------------------------------------------
238..............  Construction or      X                 X                 ................  X                        3  ........  ..........         3
                    Equipment Contract                                                                                                                  
                    Amendment (Submit                                                                                                                   
                    to RUS for                                                                                                                          
                    approval, if                                                                                                                        
                    required, before                                                                                                                    
                    following                                                                                                                           
                    documents).                                                                                                                         
754..............  Certficate of        X                 ................  X                 X                        4         2          1          1
                    Completion and                                                                                                                      
                    Certificate of                                                                                                                      
                    Contractor and                                                                                                                      
                    Indemnity                                                                                                                           
                    Agreement (If                                                                                                                       
                    submitted, Form                                                                                                                     
                    744 is not                                                                                                                          
                    required).                                                                                                                          
517..............  Results of           X                 ................  ................  X                        2         1          1   ........
                    Acceptance Tests                                                                                                                    
                    (Prepare and                                                                                                                        
                    distribute copies                                                                                                                   
                    immediately upon                                                                                                                    
                    completion of the                                                                                                                   
                    acceptance tests                                                                                                                    
                    of each central                                                                                                                     
                    office).                                                                                                                            
752a.............  Certificate of       ................  X                 ................  X                        3         1          1          1
                    Completion-Not                                                                                                                      
                    Including                                                                                                                           
                    Installation.                                                                                                                       
224..............  Waiver and Release   X                 ................  X                 ................         2         1  ..........         1
                    of Lien (Two                                                                                                                        
                    copies from each                                                                                                                    
                    supplier).                                                                                                                          
231..............  Certificate of       X                 ................  X                 ................         2         1  ..........         1
                    Contractor.                                                                                                                         
213..............  Certificate (Buy     X                 X                 X                 ................         2         1  ..........         1
                    American).                                                                                                                          
                   Switching Diagram,   X                 X                 X                 ................         2         2  ..........  ........
                    as installed.                                                                                                                       
                   Set of Drawings      X                 X                 X                 ................         2         2  ..........  ........
                    (Each set to                                                                                                                        
                    include all the                                                                                                                     
                    drawings required                                                                                                                   
                    under the                                                                                                                           
                    Specification RUS                                                                                                                   
                    Form 522).                                                                                                                          
--------------------------------------------------------------------------------------------------------------------------------------------------------


    [59 FR 43718, Aug. 25, 1994]


[[Page 599]]



                                 Appendix C--Documents Required to Closeout Telephone Construction Contract RUS Form 515                                
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               Number                                         Prepared by                          Distribution         
    RUS Form No.            Description          of      Form available from ---------------------------------------------------------------------------
                                               copies            RUS                Engineer             Contractor       Borrower  Contractor     RUS  
--------------------------------------------------------------------------------------------------------------------------------------------------------
724.................  Final Inventory.......         3  x                     x                     ....................         1          1          1
724a................  Final Inventory.......         3  x                     x                     ....................         1          1          1
                      Contractor's Board             3  ....................  ....................  x                            1          1          1
                       Extension (When                                                                                                                  
                       required).                                                                                                                       
281.................  Tabulation of                  3  ....................  ....................  x                            1          1          1
                       Materials Furnished                                                                                                              
                       by Borrower.                                                                                                                     
213.................  Certificate (``Buy             1  x                     ....................  x                            1  ..........  ........
                       American'').                                                                                                                     
                      Listing of                     1  ....................  ....................  ....................  ........  ..........         1
                       Construction Change                                                                                                              
                       Orders.                                                                                                                          
224.................  Waiver and Release of          2  x                     ....................  x                            1  ..........         1
                       Lien (Two copies from                                                                                                            
                       each supplier).                                                                                                                  
231.................  Certificate of                 2  x                     ....................  x                            1  ..........         1
                       Contractor.                                                                                                                      
527.................  Final Statement of             3  x                     x                     ....................         1          1          1
                       Construction.                                                                                                                    
                      Reports on Results of          2  ....................  x                     ....................         1          1   ........
                       Acceptance Tests.                                                                                                                
                      Set of Final Staking           1  ....................  x                     ....................         1  ..........  ........
                       Sheets.                                                                                                                          
                      Tabulation of Staking          1  ....................  x                     ....................         1  ..........  ........
                       Sheets.                                                                                                                          
                      Correction Summary             1  ....................  x                     ....................         1  ..........  ........
                       (legible copy).                                                                                                                  
                      Treated Forest                 1  ....................  ....................  ....................         1  ..........  ........
                       Products Inspection                                                                                                              
                       Reports or                                                                                                                       
                       Certificates of                                                                                                                  
                       Compliance (Prepared                                                                                                             
                       by inspection company                                                                                                            
                       or supplier).                                                                                                                    
                      Final Key Map (when            1  ....................  x                     ....................         1  ..........         1
                       applicable).                                                                                                                     
                      Final Central Office           1  ....................  x                     ....................         1  ..........         1
                       Area and Town Detail                                                                                                             
                       Maps.                                                                                                                            
--------------------------------------------------------------------------------------------------------------------------------------------------------

[59 FR 43718, Aug. 25, 1994]


[[Page 600]]



Appendix D--Step-by-Step Procedure for Closing Out Telephone Construction Contract-Labor and Materials, RUS Form
                                                       515                                                      
----------------------------------------------------------------------------------------------------------------
                       Sequence                                                                                 
------------------------------------------------------                 By                        Procedure      
     Step No.                      When                                                                         
----------------------------------------------------------------------------------------------------------------
 1................  Prior to completion of             Borrower's Engineer..............  Receives instructions 
                     construction.                                                         from the GFR         
                                                                                           concerning the       
                                                                                           closeout procedure.  
 2................  Upon completion of construction..  Borrower's Engineer..............  Prepares the          
                                                                                           following: 1 set of  
                                                                                           Key Maps, when       
                                                                                           applicable, which    
                                                                                           show work done under 
                                                                                           the construction     
                                                                                           contract marked with 
                                                                                           red pencil. 1 set of 
                                                                                           Detail Maps, which   
                                                                                           show work done under 
                                                                                           the construction     
                                                                                           contract marked with 
                                                                                           red pencil. 1 copy of
                                                                                           Tabulation of Staking
                                                                                           Sheets. 1 copy of    
                                                                                           tentative Final      
                                                                                           Inventory, RUS Forms 
                                                                                           724, 724a.           
 3................  After construction has been        Borrower's Engineer..............  Forwards letter to the
                     completed and acceptance tests                                        borrower with copies 
                     made.                                                                 to the GFR stating   
                                                                                           that the project is  
                                                                                           ready for final      
                                                                                           inspection.          
 4................  Upon receipt of letter from        GFR..............................  Promptly arranges with
                     borrower's engineer.                                                  borrower, borrower's 
                                                                                           engineer, and        
                                                                                           contractor for final 
                                                                                           inspection of        
                                                                                           construction. It is  
                                                                                           contemplated that    
                                                                                           final inspections    
                                                                                           will be made on      
                                                                                           sections of line as  
                                                                                           construction is      
                                                                                           completed, leaving a 
                                                                                           minimum amount to be 
                                                                                           inspected at this    
                                                                                           time.                
 5................  When requested by the GFR........  RUS Field Accountant.............  Audits RUS Form 281,  
                                                                                           if borrower supplied 
                                                                                           part of the          
                                                                                           materials.           
 6................  Inspection date scheduled........  Borrower's Engineer..............  Shall have the        
                                                                                           following documents  
                                                                                           available for the    
                                                                                           GFR: 1 set of ``as   
                                                                                           constructed'' Key    
                                                                                           Maps (when           
                                                                                           applicable). 1 set of
                                                                                           ``as constructed''   
                                                                                           Detail Maps. 1 copy  
                                                                                           of the List of       
                                                                                           Construction Change  
                                                                                           Orders. 1 set of     
                                                                                           Final Staking Sheets.
                                                                                           1 copy of Tabulation 
                                                                                           Staking Sheets. 1    
                                                                                           copy of Treated      
                                                                                           Forest Products      
                                                                                           Inspection Reports or
                                                                                           Certificates of      
                                                                                           Compliance. 1 copy of
                                                                                           tentative Final      
                                                                                           Inventory RUS Form   
                                                                                           724, 724a. 1 copy of 
                                                                                           tentative Tabulation,
                                                                                           RUS Form 231, if     
                                                                                           borrower furnished   
                                                                                           part of material. 1  
                                                                                           copy of Report on    
                                                                                           Results of Acceptance
                                                                                           Tests.               
 7................  During inspection................  Borrower's Engineer..............  Issues instructions to
                                                                                           contractor covering  
                                                                                           corrections in       
                                                                                           construction found   
                                                                                           during inspection by 
                                                                                           GFR in the company of
                                                                                           the borrower's       
                                                                                           engineer and the     
                                                                                           contractor or his/her
                                                                                           representative.      
 8................  During inspection................  Contractor.......................  Corrects defects in   
                                                                                           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.  
 9................  During inspection................  Borrower's Engineer..............  With GFR inspects and 
                                                                                           approves corrected   
                                                                                           construction.        
10................  During inspection................  Borrower's Engineer..............  Marks inspected areas 
                                                                                           on the Key Map, if   
                                                                                           available, otherwise 
                                                                                           on the Detail Maps.  
11................  Upon completion of inspection....  Borrower's Engineer..............  Prepares or obtains   
                                                                                           all the closeout     
                                                                                           documents listed in  
                                                                                           Appendix C. Makes    
                                                                                           distribution of the  
                                                                                           copies of the        
                                                                                           documents as         
                                                                                           indicated in Appendix
                                                                                           C. Forwards the      
                                                                                           documents for RUS to 
                                                                                           the GFR.             
12................  After reviewing final documents..  RUS GFR..........................  Reviews documents and 
                                                                                           distributes copies as
                                                                                           indicated in Appendix
                                                                                           C.                   
13................  After signing final inventory....  Borrower.........................  Prepares and submits  
                                                                                           Financial Requirement
                                                                                           Statement, RUS Form  
                                                                                           481, requesting      
                                                                                           amount necessary to  
                                                                                           make final payment   
                                                                                           due under contract.  
14................  On receipt of final advance......  Borrower.........................  Promptly forwards     
                                                                                           check for final      
                                                                                           payment to           
                                                                                           contractor.          
15................  During next loan fund audit        RUS Field accountant.............  Makes an examination  
                     review after final payment to                                         of borrowers         
                     contractor.                                                           construction records 
                                                                                           for (1) compliance   
                                                                                           with the construction
                                                                                           contract and Subpart 
                                                                                           F and (2) RUS Form   
                                                                                           281, Tabulation of   
                                                                                           Materials Furnished  
                                                                                           by Borrowers, if any,
                                                                                           for appropriate      
                                                                                           costs.               
----------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------
[59 FR 43718, Aug. 25, 1994]


[[Page 601]]


               Appendix E--Documents Required to Closeout Force Account Outside Plant Construction              
----------------------------------------------------------------------------------------------------------------
                                                                                 No. of copies required and     
                                                  Description on title of        distribution of documents      
      Item No.               RUS form No.                document         --------------------------------------
                                                                            Total No.      Owner         RUS    
----------------------------------------------------------------------------------------------------------------
a. .................  817, 817a, 817b..........  Final inventory force               2            1            1
                                                  account construciton                                          
                                                  and certificate of                                            
                                                  engineer.                                                     
b ..................  213 .....................  Certificate, ``Buy                  1            1            0
                                                  American'' (as                                                
                                                  applicable-one from                                           
                                                  each supplier).                                               
c ..................  .........................  Detail maps.............            1            1            0
d ..................  .........................  Key map if applicable...            1            1            0
e ..................  .........................  Staking sheets..........            1            1            0
f ..................  .........................  Tabulation of staking               1            1            0
                                                  sheets.                                                       
g ..................  .........................  Treated forest products             1            1            0
                                                  inspection reports, if                                        
                                                  applicable.                                                   
----------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------
[59 FR 43721, Aug. 25, 1994]


[[Page 602]]


                                             Appendix F--Documents Required to Closeout Equipment Contracts                                             
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         No. of copies                              Prepared by                                    Distribution         
                                     -------------------------------------------------------------------------------------------------------------------
 Form furnished      Description                                     Form 397                        Form 398                                           
     by RUS                           Form 397  Form 398 ---------------------------------------------------------------- Borrower  Contractor     RUS  
                                                            Contractor       Engineer       Contractor       Engineer                                   
--------------------------------------------------------------------------------------------------------------------------------------------------------
238              Construction or             3         3  ..............  x               ..............  x               ........  ..........         3
                  Equipment Contract                                                                                                                    
                  Amendment (If                                                                                                                         
                  required, submit                                                                                                                      
                  to RUS for                                                                                                                            
                  approval before                                                                                                                       
                  other closeout                                                                                                                        
                  documents).                                                                                                                           
396              Certificate of              3  ........  ..............  x               ..............  x                      1          1          1
                  Completion-Special                                                                                                                    
                  Equipment Contract                                                                                                                    
                  (Including                                                                                                                            
                  Installation).                                                                                                                        
396a             Certificate of       ........         3  ..............  x               ..............  x                      1          1          1
                  Completion-Special                                                                                                                    
                  Equipment Contract                                                                                                                    
                  (Not Including                                                                                                                        
                  Installation).                                                                                                                        
744              Certificate of              2  ........  x               ..............  ..............  ..............         1  ..........         1
                  Contractor and                                                                                                                        
                  Indemnity                                                                                                                             
                  Agreement.                                                                                                                            
213              Certificate (Buy            2         2  x               ..............  x               ..............         1  ..........         1
                  American).                                                                                                                            
                 Report in writing,          2         2  x               ..............  ..............  x                      1  ..........         1
                  including all                                                                                                                         
                  measurements and                                                                                                                      
                  other information                                                                                                                     
                  required under                                                                                                                        
                  Part II of the                                                                                                                        
                  applicable                                                                                                                            
                  specifications.                                                                                                                       
                 Set of maintenance          1         1  x               ..............  x               ..............         1  ..........  ........
                  recommendations                                                                                                                       
                  for all equipment                                                                                                                     
                  furnished under                                                                                                                       
                  the contract.                                                                                                                         
--------------------------------------------------------------------------------------------------------------------------------------------------------


    [59 FR 43718, Aug. 25, 1994]

[[Page 603]]



PART 1755--TELECOMMUNICATIONS STANDARDS AND SPECIFICATIONS FOR MATERIALS, EQUIPMENT AND CONSTRUCTION--Table of Contents




Sec.
1755.1--1755.2  [Reserved]
1755.3  Field trials.
1755.4--1755.92  [Reserved]
1755.93  List of standard forms of telecommunications contracts.
1755.94--1755.96  [Reserved]
1755.97  Incorporation by reference of telephone standards and 
          specifications.
1755.98  List of telephone standards and specifications included in 
          other 7 CFR parts.
1755.99--1755.199  [Reserved]
1755.200  RUS standard for splicing copper and fiber optic cables.
1755.201--1755.369  [Reserved]
1755.370  RUS specification for seven wire galvanized steel strand.
1755.371--1755.389  [Reserved]
1755.390  RUS specifications for filled telephone cables.
1755.391--1755.396  [Reserved]
1755.397  RUS performance specification for line concentrators.
1755.398--1755.521  [Reserved]
1755.522  RUS general specification for digital, stored program 
          controlled central office equipment.
1755.523--1755.524  [Reserved]
1755.525  Form 525, central office equipment contract (including 
          installation.)
1755.526--1755.699  [Reserved]
1755.700  RUS specification for aerial service wires.
1755.701  Scope.
1755.702  Copper coated steel reinforced (CCSR) aerial service wire.
1755.703  Nonmetallic reinforced (NMR) aerial service wire.
1755.704  Requirements applicable to both CCSR and NMR aerial service 
          wires.
1755.705--1755.859  [Reserved]
1755.860  RUS specification for filled buried wires.
1755.861--1755.869  [Reserved]
1755.870  RUS specification for terminating cables.
1755.871--1755.889  [Reserved]
1755.890  RUS specification for filled telephone cables with expanded 
          insulation.
1755.900  RUS specification for filled fiber optic cables.
1755.910  RUS specification for outside plant housings and serving area 
          interface systems.

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

    Editorial Note: Nomenclature changes to part 1755 appear at 55 FR 
39397, Sept. 27, 1990.
Secs. 1755.1--1755.2  [Reserved]



Sec. 1755.3  Field trials.

    (a) Except as covered in Bulletin 345-3, no loan funds shall be 
advanced for any product if any item to be included in the project is 
not included in the ``List of Materials Acceptable for Use on Telephone 
Systems of RUS Borrowers,'' RUS Bulletin 344-2. When new items of 
materials or equipment are considered for acceptance by RUS or when a 
previously accepted item has been subjected to such major modifications 
that its suitability cannot be determined based on laboratory data and/
or field experience, a field trial shall be required if RUS so 
determines. This field trial consists of limited field installations of 
the materials or equipment in closely monitored situations designed to 
determine, to RUS's satisfaction, their operational effectiveness under 
actual field conditions. Field trials are to be used only as a means for 
determining, to RUS's satisfaction, the operational effectiveness of a 
new or revised product under actual field conditions. Both the 
manufacturer and borrower are responsible for assuring that the field 
trial is carried out and that the required information on the product's 
performance is received by RUS in a timely manner. The use of materials 
or equipment derived from new inventions or concepts untried within the 
telephone industry is defined as ``an experiment'' and shall be handled 
as a special case using procedures considered appropriate by RUS to meet 
the individual experiment.
    (b) To qualify for a field trial, the new and improved materials and 
equipment must appear to RUS to offer one or more of the following 
benefits:
    (1) Improved performance.
    (2) Decreased cost.
    (3) Broader application.
    (c) The item of material or equipment subject to field trial may be 
only part of the total amount of materials or equipment included in a 
bid or it may be the key component of the facility or system provided; 
therefore, RUS shall have authority to require that a satisfactory plan 
be provided to maintain or restore service in the event that the 
materials and equipment fail

[[Page 604]]

to meet established performance requirements. RUS shall limit the 
quantity of new materials and equipment installed on any field trial and 
shall also limit the number of field trials for a given product to what 
RUS considers reasonable to provide the necessary information.
    (d) A borrower may participate in a field trial only if, in RUS's 
opinion, the borrower possesses:
    (1) Adequate financial resources so that no delay in the project 
will result from lack of funds.
    (2) The financial stability to overcome difficulties which may 
result from an unsuccessful field trial. The borrower must be able to 
restore and maintain service until the manufacturer meets its financial 
obligations with respect to the field trial.
    (3) Qualified personnel to enable it to discharge its 
responsibilities.
    (4) A record satisfactory to RUS for maintaining equipment and plant 
facilities and for providing RUS with information when requested.
    (5) Willingness to participate in the field trial and awareness of 
the effort and responsibility this entails.
    (e) The test site for the field trial shall be, in RUS's opinion, 
readily accessible and provide the conditions, such as temperature 
extremes, high probability of lightning damage, etc., for which the 
product is being evaluated. The material or equipment involved shall be 
covered by an RUS specification or a suitable standard acceptable to 
RUS. The supplier is required to submit test data to show conformance 
with the applicable specification or standard. Further testing shall be 
performed if required by RUS personnel.
    (f) A field trial shall normally continue for a minimum of six 
months, or for a longer period of time determined by RUS to be required 
to obtain conclusive data that the item either fulfills all requirements 
or is unacceptable. Either the borrower or supplier may terminate a 
field trial at any time, in accordance with their contractual agreement. 
Such termination, if prior to the time required by RUS, shall constitute 
withdrawal of the product from consideration by RUS. RUS has authority 
to terminate field trials based on its determination that the equipment 
is not performing satisfactorily and that this lack of performance may, 
in RUS's opinion, cause service degradation or hazards to life or 
property.
    (g) Field trials shall be conducted in accordance with the 
instructions set forth in this regulation and the agreement relating to 
the specific application. Both the supplier and the borrower shall 
agree, and obtain RUS approval before the start of the trial, on the 
following:
    (1) The specific purpose of the field trial;
    (2) Ownership of items during trial;
    (3) Starting date and duration;
    (4) Responsibility for costs and removal of items in the event of 
noncompliance with the specification or purpose intended and 
arrangements for service continuity or restoration;
    (5) Responsibility for testing, test equipment and normal operation 
and maintenance during the trial period;
    (6) Availability of test equipment on site during the trial period; 
and
    (7) Responsibility for spare parts and components consumed during 
the trial period.
    (h) Both the supplier and the borrower shall keep RUS informed of 
the status of a field trial. These reports shall not be limited to 
details of problems of failures encountered during installation and 
subsequent operation but shall include information on progress of the 
field trial. If these reports are not received in accordance with the 
requirements of the RUS Form 399b, RUS shall have the authority to deny 
or suspend loan funds related to these products until the delinquent 
reports are received.
    (i) Before a borrower purchases materials or equipment that require 
a field trial, prior approval must be obtained from RUS and RUS Form 
399b, RUS Telecommunications Equipment Field Trial (available from the 
Director, Administrative Services Division, Rural Utilities Service, 
Room 0175, South Building, U.S. Department of Agriculture, Washington, 
DC 20250) will be completed by RUS and must be signed by both the 
borrower and supplier as an indication that they understand their

[[Page 605]]

responsibilities in the field trial. Assurance must also be obtained 
from RUS that the ``particular item'' that is the subject of the field 
test is eligible for a field trial. To obtain this assurance, any 
proposal for use of an item on a field trial basis shall be forwarded to 
the Chief, Area Engineering Branch, for review and approval.
    (j) Procedures for establishing field trials for the various 
categories of equipment after RUS has approved the 399b:
    (1) Electronic transmission equipment. The procedure set forth in 
Bulletin 385-2 ``Purchasing and Installing Special Electronic 
Equipment'' shall be followed except that the Special Equipment Contract 
(Including Installation), RUS Form 397, shall be used in all purchases 
of electronic equipment for field trials. In addition, the borrower and 
supplier shall execute three copies of a ``Supplemental Agreement to 
Equipment Contract for Field Trial,'' RUS Form 399, or a ``Supplemental 
Agreement to Equipment Contract for Field Trial (Secondary--Delivery, 
Installation, Operation)'', RUS Form 399a, as well as three copies of 
the RUS Form 399b, ``RUS Telecommunications Equipment Field Trial'', and 
forward them, together with three copies of the executed contract and 
specifications, to the Chief, Area Engineering Branch. A limited number 
of copies of RUS Forms 399, 399a, and 399b are available from RUS upon 
request from the Director, Administrative Services Division, Rural 
Utilities Service, Room 0175, South Building, U.S. Department of 
Agriculture, Washington, DC 20250. Additional copies may be reproduced 
by the user as needed. This category includes:
    (i) Voice frequency repeaters;
    (ii) Trunk carriers;
    (iii) Subscriber carrier;
    (iv) Point-to-point radio (Microwave);
    (v) Coaxial cable system electronics;
    (vi) Fiber optic cable system electronics;
    (vii) Multiplex equipment;
    (viii) Mobile and fixed radiotelephone; and
    (ix) Other items of electronic equipment associated with 
transmission.
    (2) Central office equipment. The procedure set forth in Bulletin 
384-1 ``Purchasing and Installing Central Office Equipment'' shall be 
followed except that ``The Central Office Equipment Contract (Including 
Installation)'', RUS Form 525, shall be used to purchase switching 
equipment for field trials. In addition, the borrower and supplier shall 
execute three copies of a ``Supplemental Agreement to Equipment Contract 
for Field Trial,'' RUS Form 399, or a ``Supplemental Agreement to 
Equipment Contract for Field Trial (Secondary--Delivery, Installation, 
Operation)'', RUS Form 399a, as the case may be, as well as three copies 
of the RUS Form 399b, ``RUS Telecommunications Equipment Field Trial'', 
and forward them, together with three copies of the executed contract 
and specification to the Chief, Area Engineering Branch. This category 
includes:
    (i) Central office dial equipment;
    (ii) Direct distance dialing equipment;
    (iii) Automatic number identification equipment;
    (iv) Line concentrators;
    (v) Remote switching equipment; and
    (vi) All other items of equipment associated with switching 
equipment, such as loop extenders.
    (3) Protection equipment and materials, outside plant equipment and 
materials, and all other equipment and materials, which includes all 
items not covered in paragraph (j) (1) or (2) of this section, shall be 
handled as described in Bulletin 344-1 ``Methods of Purchasing Materials 
and Equipment for Use on Systems of Telephone Borrowers'' except that 
the borrower's purchase order form is to be used for purchasing 
materials and equipment in these categories. In addition, the borrower 
and supplier shall execute three copies of the ``Supplemental Agreement 
to Equipment Contract for Field Trial,'' RUS Form 399, or a 
``Supplemental Agreement to Equipment Contract for Field Trial 
(Secondary--Delivery, Installation, Operation)'', RUS Form 399a, as the 
case may be, as well as three copies of the RUS Form 399b, ``RUS 
Telecommunications Field Trial'', and forward them, together

[[Page 606]]

with three copies of the purchase order to the Chief, Area Engineering 
Branch.
    (k) For all items except Electronic Central Office Equipment, 
suppliers and manufacturers must furnish warranties or guarantees 
satisfactory to RUS against the failure of the material and equipment 
used in the field trial. Terms of this warranty must not be less than 
the provisions of the standard warranty included in the ``Telephone 
System Construction Contract'', RUS Form 515, or the warranty provided 
for similar materials and equipment included in the ``List of Materials 
Acceptable for Use on Telephone Systems of RUS Borrowers'', RUS Bulletin 
344-2. In lieu of a warranty, materials and equipment are sometimes 
furnished to RUS borrowers on a reduced or no cost basis. Terms of such 
arrangements are subject to RUS approval and should be fully covered in 
field trial proposals forwarded by borrowers to the Chief, Area 
Engineering Branch for review and approval. For the purchase of 
electronic central office equipment, suppliers and manufacturers are to 
provide warranties as provided in the applicable RUS contract form: RUS 
Form 397 for electronic equipment and RUS Form 525 for central office 
equipment. Forms 399 and 399a, which apply to field trials of these 
devices, specify that the term of the warranty does not begin until the 
satisfactory conclusion of the field trial.

[49 FR 28394, July 12, 1984. Redesignated at 55 FR 39397, Sept. 27, 
1990]
Secs. 1755.4--1755.92  [Reserved]



Sec. 1755.93  List of standard forms of telecommunications contracts.

    Following is a list of the current standard forms of contracts that 
RUS prepared for use by telephone borrowers when procuring engineering 
and architectural services, purchasing telephone materials and 
equipment, and constructing telephone facilities with RUS loan funds. 
Copies of the contract forms are available from the sources indicated in 
the listing. A notice of any change in these contract forms will be 
published in the Federal Register. 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.

----------------------------------------------------------------------------------------------------------------
                       Issue                                                                                    
    RUS Form No.       date             Title                    Purpose                 Source of copies       
----------------------------------------------------------------------------------------------------------------
165.................    9-69  Architectural Services    Used to engage the        RUS.\1\                       
                               Contract--Telephone.      services of an                                         
                                                         architect.                                             
168b................    3-62  Contractor's Bond.......  Used in RUS Form 515      Copy in the Form 515 Contract.
                                                         when the contract                                      
                                                         exceeds $100,000.                                      
168c................    4-79  Contractor's Bond.......  Used when the             RUS.\1\                       
                                                         contractor's surety has                                
                                                         accepted a Small                                       
                                                         Business Administration                                
                                                         guarantee and the                                      
                                                         contract is for $1                                     
                                                         million or less.                                       
217.................    7-81  Postloan Engineering      Used to engage the        RUS.\1\                       
                               Service Contract,         services of a                                          
                               Telephone System and      consulting engineer to                                 
                               Construction.             perform the postloan                                   
                                                         engineering services.                                  
238.................    4-72  Construction or           Amending the Building     RUS.\1\                       
                               Equipment Contract        Contract RUS Form 257;                                 
                               Amendment.                Special Equipment                                      
                                                         Contracts, RUS Forms                                   
                                                         397 and 398; Telephone                                 
                                                         Equipment Contract                                     
                                                         (Installation Only),                                   
                                                         RUS Form 400; Central                                  
                                                         Office Equipment                                       
                                                         Contracts, RUS Forms                                   
                                                         525 and 545.                                           
242.................   11-58  Assignment of             Used to transfer the      RUS.\1\                       
                               Engineering Service       responsibilities of                                    
                               Contract.                 completing the                                         
                                                         performance of the                                     
                                                         engineering service                                    
                                                         contract to another                                    
                                                         company.                                               
245.................   11-75  Engineering Service       Used to engage a          RUS.\1\                       
                               Contract, Special         consulting engineer to                                 
                               Services--Telephone.      perform special                                        
                                                         services.                                              
257.................    3-73  Contract to Construct     Building construction...  Supt. of Doc., GPO, Wash., DC 
                               Buildings.                                          20402.\2\                    
257a................   10-69  Contractor's Bond.......  Used in RUS Form 257....  Copy in the Form 257 Contract.
270.................    7-70  Equal Opportunity         Addendum to Construction  RUS.\1\                       
                               Addendum.                 and Equipment Contracts                                
                                                         not having current                                     
                                                         equal opportunity                                      
                                                         provisions.                                            

[[Page 607]]

                                                                                                                
282.................   11-53  Subcontract.............  Subcontracting a portion  RUS.\1\                       
                                                         of construction under a                                
                                                         construction contract                                  
                                                         requires approval of                                   
                                                         the borrower, surety                                   
                                                         and RUS prior to                                       
                                                         subcontracting.                                        
307.................    4-60  Bid Bond................  Bid proposals on RUS      Copies in each of the         
                                                         Forms 257, 515, and 525   contracts.                   
                                                         require either a bid                                   
                                                         bond or a certified                                    
                                                         check in an amount                                     
                                                         equal to ten percent of                                
                                                         the maximum bid price.                                 
397.................   12-67  Special Equipment         Purchase and              RUS.\1\                       
                               Contract (Including       installation of voice                                  
                               Installation).            frequency repeaters,                                   
                                                         trunk carrier,                                         
                                                         subscriber carrier,                                    
                                                         microwave, mobile                                      
                                                         radio, line                                            
                                                         concentrators, and                                     
                                                         other items of                                         
                                                         electronic equipment                                   
                                                         associated with                                        
                                                         transmission.                                          
397f................    2-63  Contractor's Bond         Used in RUS Form 397      Copy in the Form 397 Contract.
                               (Special Telephone        when the contract                                      
                               Equipment).               exceeds $100,000.                                      
No form number......    7-78  Addendum No. 1 to RUS     Incorporates the          RUS.\1\                       
                               Form 397, Special         liquidated damages                                     
                               Equipment Contract        provision into the 397                                 
                               (Including                contract.                                              
                               Installation).                                                                   
398.................   11-62  Special Equipment         Purchase and deliver      RUS.\1\                       
                               Contract (Not Incl.       voice frequency                                        
                               Installation).            repeaters, trunk                                       
                                                         carrier, subscriber                                    
                                                         carrier, microwave,                                    
                                                         mobile radio, line                                     
                                                         concentrators, and                                     
                                                         other items of                                         
                                                         electronic equipment                                   
                                                         associated with                                        
                                                         transmission.                                          
399.................    8-82  Supplemental Agreement    Used in any contract      RUS.\1\                       
                               to Equipment Contract     that contains material                                 
                               for Field Trial.          or equipment that                                      
                                                         requires a field trial                                 
                                                         and has primary status.                                
399a................    8-82  Supplemental Agreement    Used in any contract      RUS.\1\                       
                               to Equipment Contract     that contains material                                 
                               for Field Trial           or equipment that                                      
                               (Secondary--Delivery,     requires a field trial                                 
                               Installation,             and is the secondary                                   
                               Operation).               field trial category.                                  
400.................   10-65  Telephone Equipment       Used where the contract   RUS.\1\                       
                               Contract (Installation    will cover only the                                    
                               Only).                    installation of                                        
                                                         equipment.                                             
400a................   10-65  Contractor's Bond         Used in RUS Form 400      Copy in the Form 400 Contract.
                               (Telephone Equipment      when the contract                                      
                               Contract--Installation    exceeds $100,000.                                      
                               Only).                                                                           
515.................    1-90  Telephone System          Telephone outside plant   Supt. of Doc., GPO, Wash DC   
                               Construction Contract     construction, including   20402.\2\                    
                               (Labor and Materials).    direct buried plant,                                   
                                                         conduit and manholes,                                  
                                                         underground cable, pole                                
                                                         lines, aerial cable,                                   
                                                         service entrances and                                  
                                                         station protector.                                     
525.................    7-94  Central Office Equipment  Purchase and              RUS.\1\                       
                               Contract (Including       Installation of central                                
                               Installation).            office switching                                       
                                                         equipment.                                             
525a................   10-62  Contractor's Bond         Used in RUS Form 525      Copy in the Form 525 Contract.
                               (Central Office           when the contracts                                     
                               Equipment).               exceed $100,000.                                       
No form number......    8-79  Addendum No. 1 to RUS     Incorporates the          RUS.\1\                       
                               Form 525, Central         liquidated damages                                     
                               Office Equipment          provision into the 525                                 
                               Contract (Including       contract.                                              
                               Installation).                                                                   
526.................    8-66  Construction Contract     Amending the Telephone    RUS.\1\                       
                               Amendment.                System Construction                                    
                                                         Contract (Labor and                                    
                                                         Material), RUS Form 515.                               
545.................    9-66  Central Office Equipment  Purchase and deliver      RUS.\1\                       
                               Contract (Not Including   central office                                         
                               Installation).            equipment.                                             
756.................    3-63  Telephone Line Extension  Construction of system    RUS.\1\                       
                               Construction Contract     improvements and line                                  
                               (Labor and Materials).    extensions where scope                                 
                                                         of the project is not                                  
                                                         known.                                                 
773.................   12-90  Miscellaneous             Minor construction by     RUS.\1\                       
                               Construction Work and     contract and                                           
                               Maintenance Service       maintenance and repair                                 
                               Contract..                of telephone system                                    
                                                         facilities..                                           
787.................    8-63  Supplement A to           Used in RUS Form 515      RUS.\1\                       
                               Construction Contract     when borrower furnishes                                
                               RUS Form 515.             any material for                                       
                                                         construction of the                                    
                                                         project.                                               
No form number......    5-94  Addendum No. 2 to RUS     Incorporates the          RUS.\1\                       
                               Forms 525 and 545         Software License                                       
                               Central Office            Agreement into RUS                                     
                               Equipment Contracts.      Forms 525 and 545.                                     
----------------------------------------------------------------------------------------------------------------
\1\ A limited number of copies of the publication will be furnished by RUS upon request. As this document is    
  produced by the Federal Government and is, therefore, in the public domain, additional copies may be          
  duplicated locally by any user as desired. Requests for copies should be sent the Director, Administrative    
  Services Division, U.S. Department of Agriculture, Rural Utilities Service, Washington, DC 20250. The         
  telephone number of the RUS Publication Office is (202) 720-8674.                                             

[[Page 608]]

                                                                                                                
\2\ This contract form is for sale by the Superintendent of Documents, Government Printing Office, Washington,  
  DC 20402. RUS Form 33, Order Blank for RUS Contract Forms from the Government Printing Office should be used  
  to order the publication. Follow the procedure under (\1\) to obtain copies of Form 33 from RUS.              


[53 FR 15546, May 2, 1988; as amended at 55 FR 2510, Jan. 25, 1990. 
Redesignated at 55 FR 39397, Sept. 27, 1990, as amended at 56 FR 1484, 
Jan. 15, 1991; 59 FR 17681, Apr. 14, 1994; 59 FR 31126, June 17, 1994; 
59 FR 66440, Dec. 27, 1994]
Secs. 1755.94--1755.96  [Reserved]



Sec. 1755.97  Incorporation by reference of telephone standards and specifications.

    The following telephone Bulletins have been approved for 
incorporation by reference by the Director of the Office of the Federal 
Register on December 30, 1983. Bulletin 345-150 (Form 515a) containing 
the specifications and drawings for construction of buried cables and 
wires may be purchased from the Superintendent of Documents, U.S. 
Government Printing Office, Washington, DC 20402. The remaining 
Bulletins containing construction standards and specifications for 
materials and equipment may be obtained from the Rural Utilities 
Service, Administrative Services Division, Room 0175-S, Washington, DC 
20250. The bulletins are available for inspection at the Office of the 
Federal Register, 800 North Capitol Street, NW., suite 700, Washington, 
DC. These materials are incorporated as they exist on the date of the 
approval and a notice of any change in these materials will be published 
in the Federal Register. 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.

----------------------------------------------------------------------------------------------------------------
        RUS Bulletin No.          Specification No.   Date last issued      Title of standard or specification  
----------------------------------------------------------------------------------------------------------------
345-22.........................  PE-26.............  Jan. 1989.........  RUS specification for voice frequency  
                                                                          loading coils.                        
345-39.........................  ..................  Aug. 19, 1985.....  RUS specification for telephone station
                                                                          protectors.                           
345-50.........................  PE-60.............  Sept. 1979........  RUS specification for trunk carrier    
                                                                          systems.                              
345-52.........................  PC-5A.............  Jan. 1980.........  RUS standard for service entrance and  
                                                                          station protector installations.      
345-54.........................  PE-52.............  Dec. 1971.........  RUS specification for telephone cable  
                                                                          splicing connectors.                  
345-55.........................  PE-61.............  Dec. 1973.........  RUS specification for central office   
                                                                          loop extenders and loop extender voice
                                                                          frequency repeater combinations.      
345-63.........................  PC-4..............  May 1976..........  RUS standard for acceptance tests and  
                                                                          measurements of telephone plant.      
345-65.........................  PE-65.............  Mar. 22, 1985.....  Specification for shield bonding       
                                                                          connectors.                           
345-66.........................  PE-64.............  Sept. 1979........  RUS specification for subscriber       
                                                                          carrier systems.                      
345-69.........................  PE-29.............  Jan. 1978.........  RUS specification for two-wire voice   
                                                                          frequency repeater equipment.         
345-72.........................  PE-74.............  Oct. 1985.........  RUS specification for filled splice    
                                                                          closures.                             
345-78.........................  PE-78.............  Feb. 1980.........  RUS specification for carbon arrester  
                                                                          assemblies for use in protectors.     
345-150........................  Form 515a.........  July 1989.........  RUS specifications and drawings for    
                                                                          construction of direct buried plant.  
345-151........................  Form 515c.........  July 1989.........  RUS specifications and drawings for    
                                                                          conduit and manhole construction.     
345-152........................  Form 515d.........  July 1989.........  RUS specifications and drawings for    
                                                                          underground cable installation.       
345-153........................  Form 515f.........  July 1989.........  RUS specifications and drawings for    
                                                                          construction of pole line and aerial  
                                                                          cables.                               
345-154........................  Form 515g.........  July 1989.........  RUS specifications and drawings for    
                                                                          service entrance and station          
                                                                          protection installation.              
345-180........................  Form 397a.........  Jan. 1963.........  RUS specifications for voice frequency 
                                                                          repeaters and voice frequency         
                                                                          repeatered trunks.                    
345-183........................  Form 397d.........  June 1970.........  RUS design specifications for point-to-
                                                                          point microwave radio systems.        
345-184........................  Form 397e.........  May 1971..........  RUS design specifications for mobile   
                                                                          and fixed dial radio telephone        
                                                                          equipment.                            
1728F-700......................  ..................  9-2-93............  RUS Specification for Wood Poles, Stubs
                                                                          and Anchor Logs                       
----------------------------------------------------------------------------------------------------------------

[48 FR 57470, Dec. 30, 1983]

[[Page 609]]

    Editorial Note: For Federal Register citations affecting 
Sec. 1755.97, see the List of CFR Sections Affected in the Finding Aids 
section of this volume.



Sec. 1755.98  List of telephone standards and specifications included in other 7 CFR parts.

    The following standards and specifications are included throughout 7 
CFR chapter XVII. These standards and specifications are not 
incorporated by reference elsewhere in the chapter. 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.

------------------------------------------------------------------------
              Section                   Issue date           Title      
------------------------------------------------------------------------
1728.202                             9-2-93           RUS Specification 
                                                       for Quality      
                                                       Control and      
                                                       Inspection of    
                                                       Timber Products. 
1755.200                             1-26-95          RUS Standard for  
                                                       Splicing Copper  
                                                       and Fiber Optic  
                                                       Cables.          
1755.370                             1-19-90          RUS Specification 
                                                       for Seven Wire   
                                                       Galvanized Steel 
                                                       Strand.          
1755.390                             6-21-93          RUS Specification 
                                                       for Filled       
                                                       Telephone Cables.
1755.397                             3-6-90           RUS Design        
                                                       Specification for
                                                       Digital Lightwave
                                                       Transmission     
                                                       Systems, RUS Form
                                                       397h.            
1755.522                             6-28-93          RUS General       
                                                       Specification for
                                                       Digital, Stored  
                                                       Program          
                                                       Controlled       
                                                       Central Office   
                                                       Equipment.       
1755.525                             7-18-94          RUS Form 525,     
                                                       Central Office   
                                                       Equipment        
                                                       Contract         
                                                       (Including       
                                                       Installation).   
1755.700 through 1755.704..........  6-24-96          RUS Specification 
                                                       for Aerial       
                                                       Service Wires.   
1755.860                             12-20-93         RUS Specification 
                                                       for Filled Buried
                                                       Wires.           
1755.870                             7-14-94          RUS Specification 
                                                       for Terminating  
                                                       Cables.          
1755.890                             6-21-93          RUS Specification 
                                                       for Filled       
                                                       Telephone Cables 
                                                       with Expanded    
                                                       Insulation.      
1755.900                             8-4-94           RUS Specification 
                                                       for Filled Fiber 
                                                       Optic Cables.    
1755.910                             11-21-94         RUS Specification 
                                                       for Outside Plant
                                                       Housings and     
                                                       Serving Area     
                                                       Interface        
                                                       Systems.         
------------------------------------------------------------------------


[58 FR 41410, Aug. 3, 1993, as amended at 59 FR 53044, Oct. 21, 1994; 59 
FR 66440, Dec. 27, 1994; 60 FR 1712, Jan. 5, 1995; 60 FR 5097, Jan. 26, 
1995; 61 FR 26074, May 24, 1996]
Secs. 1755.99--1755.199  [Reserved]



Sec. 1755.200  RUS standard for splicing copper and fiber optic cables.

    (a) Scope. (1) This section describes approved methods for splicing 
plastic insulated copper and fiber optic cables. Typical applications of 
these methods include aerial, buried, and underground splices.
    (2) American National Standard Institute/National Fire Protection 
Association (ANSI/NFPA) 70, 1993 National Electrical Code (NEC) 
referenced in this section is incorporated by reference by RUS. This 
incorporation by reference was approved by the Director of the Federal 
Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy of 
the ANSI/NFPA 1993 NEC standard is available for inspection during 
normal business hours at RUS, room 2845, U.S. Department of Agriculture, 
Washington, DC 20250-1500 or at the Office of the Federal Register, 800 
North Capitol Street, NW., suite 700, Washington, DC. Copies are 
available from NFPA, Batterymarch Park, Quincy, Massachusetts 02269, 
telephone number 1 (800) 344-3555.
    (3) American National Standard Institute/Institute of Electrical and 
Electronics Engineers, Inc. (ANSI/IEEE), 1993 National Electrical Safety 
Code (NESC) referenced in this section is incorporated by reference by 
RUS. This incorporation by reference was approved by the Director of the 
Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A 
copy of the ANSI/IEEE 1993 NESC standard is available for inspection 
during normal business hours at RUS, room 2845, U.S. Department of 
Agriculture, Washington, DC 20250-1500 or at the Office of the Federal 
Register, 800 North Capitol Street, NW., suite 700, Washington, DC. 
Copies are available from IEEE Service Center, 455 Hoes Lane, 
Piscataway, New Jersey 08854, telephone number 1 (800) 678-4333.

[[Page 610]]

    (b) General. (1) Only Rural Utilities Service (RUS) accepted filled 
cable and splicing materials shall be used on outside plant projects 
financed by RUS.
    (2) The installation instructions provided by the manufacturer of 
splicing materials shall be followed except where those instructions 
conflict with the procedures specified in this section.
    (3) Precautions shall be taken to prevent the ingress of moisture 
and other contaminants during all phases of the splicing installation. 
When an uncompleted splice must be left unattended, it shall be sealed 
to prevent the ingress of moisture and other contaminants.
    (4) Minor sheath damage during construction may be repaired if the 
repair is completed immediately and approved by the borrower's resident 
project representative. Minor damage is typically repaired by:
    (i) Scuffing the cable sheath associated with the damaged area;
    (ii) Applying several layers of DR tape over the scuffed and damaged 
area;
    (iii) Applying several layers of plastic tape over the DR tape; and
    (iv) If damage is severe enough to rupture the cable shield, a 
splice closure shall be installed.
    (5) All splice cases installed on RUS toll trunk and feeder cables 
shall be filled, whether aerial, buried, or underground.
    (c) Splicing considerations for copper cables--(1) Preconstruction 
testing. It is desirable that each reel of cable be tested for grounds, 
opens, shorts, crosses, and shield continuity before the cable is 
installed. However, manufacturer supplied test results are acceptable. 
All cable pairs shall be free from electrical defects.
    (2) Handling precautions. The cable manufacturer's instructions 
concerning pulling tension and bending radius shall be observed. Unless 
the cable manufacturer's recommendation is more stringent, the minimum 
bending radius shall be 10 times the cable diameter for copper cables 
and 20 times the cable diameter for fiber optic cables.
    (3) Cable sheath removal. (i) The length of cable sheath to be 
removed shall be governed by the type of splicing hardware used. Follow 
the splice case manufacturer's recommendations. For pedestals or large 
pair count splice housings, consider removing enough cable sheath to 
allow the conductors to extend to the top of the pedestal and then to 
hang downward to approximately 15 centimeters (cm) (6 inches (in.)) 
above the baseplate.
    (ii) Caution shall be exercised to avoid damaging the conductor 
insulation when cutting through the cable shield and removing the 
shield. Sharp edges and burrs shall be removed from the cut end of the 
shield.
    (4) Shield bonding and grounding. For personnel safety, the shields 
of the cables to be spliced shall be bonded together and grounded before 
splicing activities are started. (See paragraphs (g)(2), and (g)(5)(i) 
through (g)(5)(iii) of this section for final bonding and grounding 
provisions.)
    (5) Binder group identification. (i) Color coded plastic tie wraps 
shall be placed loosely around each binder group of cables before 
splicing operations are attempted. The tie wraps shall be installed as 
near the cable sheath as practicable and shall conform to the same color 
designations as the binder ribbons. Twisted wire pigtails shall not be 
used to identify binder groups due to potential transmission 
degradation.
    (ii) The standard insulation color code used to identify individual 
cable pairs within 25-pair binder groups shall be as shown in Table 1:

        Table 1.--Cable Pair Identification Within Binder Groups        
------------------------------------------------------------------------
                                                    Color               
             Pair No.              -------------------------------------
                                            Tip               Ring      
------------------------------------------------------------------------
1.................................  White.............  Blue.           
2.................................  White.............  Orange.         
3.................................  White.............  Green.          
4.................................  White.............  Brown.          
5.................................  White.............  Slate.          
6.................................  Red...............  Blue.           
7.................................  Red...............  Orange.         
8.................................  Red...............  Green.          
9.................................  Red...............  Brown.          
10................................  Red...............  Slate.          
11................................  Black.............  Blue.           
12................................  Black.............  Orange.         
13................................  Black.............  Green.          
14................................  Black.............  Brown.          
15................................  Black.............  Slate.          
16................................  Yellow............  Blue.           
17................................  Yellow............  Orange.         
18................................  Yellow............  Green.          
19................................  Yellow............  Brown.          

[[Page 611]]

                                                                        
20................................  Yellow............  Slate.          
21................................  Violet............  Blue.           
22................................  Violet............  Orange.         
23................................  Violet............  Green.          
24................................  Violet............  Brown.          
25................................  Violet............  Slate.          
------------------------------------------------------------------------

    (iii) The standard binder ribbon color code used to designate 25-
pair binder groups within 600-pair super units shall be as shown in 
Table 2:

               Table 2.--Cable Binder Group Identification              
------------------------------------------------------------------------
                                                              Group pair
            Group No.                  Color of bindings         count  
------------------------------------------------------------------------
1................................  White-Blue...............    1-25    
2................................  White-Orange.............   26-50    
3................................  White-Green..............   51-75    
4................................  White-Brown..............  76-100    
5................................  White-Slate..............  101-125   
6................................  Red-Blue.................  126-150   
7................................  Red-Orange...............  151-175   
8................................  Red-Green................  176-200   
9................................  Red-Brown................  201-225   
10...............................  Red-Slate................  226-250   
11...............................  Black-Blue...............  251-275   
12...............................  Black-Orange.............  276-300   
13...............................  Black-Green..............  301-325   
14...............................  Black-Brown..............  326-350   
15...............................  Black-Slate..............  351-375   
16...............................  Yellow-Blue..............  376-400   
17...............................  Yellow-Orange............  401-425   
18...............................  Yellow-Green.............  426-450   
19...............................  Yellow-Brown.............  451-475   
20...............................  Yellow-Slate.............  476-500   
21...............................  Violet-Blue..............  501-525   
22...............................  Violet-Orange............  526-550   
23...............................  Violet-Green.............  551-575   
24...............................  Violet-Brown.............  576-600   
------------------------------------------------------------------------

    (iv) Super-unit binder groups shall be identified in accordance with 
Table 3:

                   Table 3.--Super-Unit Binder Colors                   
------------------------------------------------------------------------
                Pair numbers                         Binder color       
------------------------------------------------------------------------
1-600......................................  White.                     
601-1200...................................  Red.                       
1201-1800..................................  Black.                     
1801-2400..................................  Yellow.                    
2401-3000..................................  Violet.                    
3001-3600..................................  Blue.                      
3601-4200..................................  Orange.                    
4201-4800..................................  Green.                     
4801-5400..................................  Brown.                     
5401-6000..................................  Slate.                     
------------------------------------------------------------------------

    (v) Service pairs in screened cables shall be identified in 
accordance with Table 4:

          Table 4.--Screened Cable Service Pair Identification          
------------------------------------------------------------------------
                                                    Color               
         Service pair No.          -------------------------------------
                                            Tip               Ring      
------------------------------------------------------------------------
1.................................  White.............  Red.            
2.................................  White.............  Black.          
3.................................  White.............  Yellow.         
4.................................  White.............  Violet.         
                                    Red...............  Black.          
6.................................  Red...............  Yellow.         
7.................................  Red...............  Violet.         
8.................................  Black.............  Yellow.         
9.................................  Black.............  Violet.         
------------------------------------------------------------------------

    (6) Cleaning conductors. It is not necessary to remove the filling 
compound from cable conductors before splicing. However, it is 
permissible to wipe individual conductors with clean paper towels or 
clean cloth rags. No cleaning chemicals, etc., shall be used. Caution 
shall be exercised to maintain individual cable pair and binder group 
identity. Binder group identity shall be maintained by using color coded 
plastic tie wraps. Individual pair identification shall be maintained by 
carefully twisting together the two conductors of each pair.
    (7) Expanded plastic insulated conductor (PIC) precautions. Solid 
PIC and expanded (foam or foam skin) PIC are spliced in the same manner, 
using the same tools and materials and, in general, should be treated 
the same. However, the insulation on expanded PIC is much more fragile 
than solid PIC. Twisting or forming expanded PIC into extremely compact 
splice bundles and applying excessive amounts of tension when tightening 
tie wraps causes shiners and, thus shall be avoided.
    (8) Splice connectors. (i) Only RUS accepted filled splice 
connectors shall be used on outside plant projects financed by RUS.
    (ii) Specialized connectors are available for splicing operations 
such as butt splices, in line splices, bridge taps, clearing and 
capping, and multiple pair splicing operations. The splice connector 
manufacturer's recommendations shall be followed concerning connector 
selection and use.
    (iii) Caution shall be exercised to maintain conductor and pair 
association both during and after splicing operations.
    (iv) Splicing operations that involve pairs containing working 
services shall

[[Page 612]]

utilize splice connectors that permit splicing without the interruption 
of service.
    (9) Piecing out conductors. Conductors may be pieced-out to provide 
additional slack or to repair damaged conductors. However, the 
conductors shall be pieced-out with conductors having the same gauge and 
type and color of insulation. The conductors used for piecing-out shall 
be from cables having RUS acceptance.
    (10) Splice organization. Spliced pair bundles shall be arranged in 
firm lay-ups with minimum conductor tension in accordance with the 
manufacturer's instructions.
    (11) Binder tape. Perforated nonhygroscopic and nonwicking binder 
tape should be applied to splices housed in filled splice cases. The 
binder tape allows the flow of filling compound while holding the splice 
bundles near the center of the splice case to allow adequate coverage of 
filling compound.
    (12) Cable tags. Cables shall be identified by a tag indicating the 
cable manufacturer's name, cable size, date of placement, and generic 
route information. Information susceptible to changes caused by future 
cable throws and rearrangements should not be included. Tags on load 
coil stubs shall include the serial number of the coil case, the 
manufacturer's name, and the inductance value.
    (13) Screened cable. Screened PIC cable is spliced in the same 
manner as nonscreened PIC cable. However, special considerations are 
necessary due to differences in the cable design. The transmit and 
receive bundles of the cable shall be separated and one of the bundles 
shall be wrapped with shielding material in accordance with the cable 
manufacturer's recommendations. When acceptable to the cable 
manufacturer, it is permissible to use either the scrap screening tape 
removed from the cable during the sheath opening process provided the 
screening tape is edge coated or new pressure sensitive aluminum foil 
tape over polyethylene tape.
    (14) Service wire connections. (i) Buried service wires may be 
spliced directly to cable conductors inside pedestals using the same 
techniques required for branch cables. Buried service wires may also be 
terminated on terminal blocks inside pedestals in areas where high 
service order activity or fixed count cable administration policies 
require terminal blocks. However, only RUS accepted terminal blocks 
equipped with grease or gel filled terminations to provide moisture and 
corrosion resistance shall be used.
    (ii) Only filled terminal blocks having RUS acceptance shall be used 
on aerial service wire connections.
    (15) Copper cable testing. Copper cable testing shall be performed 
in accordance with RUS Bulletin 345-63, ``RUS Standard for Acceptance 
Tests and Measurements of Telephone Plant,'' PC-4, (Incorporated by 
reference at Sec. 1755.97).
    (16) Cable acceptance. Installed cable shall be tested and pass the 
inventory and acceptance testing specified in the Telephone System 
Construction Contract (Labor and Materials), RUS Form 515. The tests and 
inspections shall be witnessed by the borrower's resident project 
representative. All conductors shall be free from grounds, shorts, 
crosses, splits, and opens.
    (d) Splice arrangements for copper cables--(1) Service distribution 
closures. (i) Ready access closures permit cable splicing activities and 
the installation of filled terminal blocks for service wire connections 
in the same closure. Ready access designs shall allow service 
technicians direct access to the cable core as well as the terminal 
block.
    (ii) Fixed count terminals shall restrict service technician access 
to the cable core. Predetermined cable pairs shall be spliced to the 
terminal leads or stub cable in advance of service assignments.
    (2) Aerial splices. Aerial splice cases accommodate straight 
splices, branch splices, load coils, and service distribution terminals. 
Aerial splicing arrangements having more than 4 cables spliced in the 
same splice case are not recommended. Stub cabling to a second splice 
case to avoid a congested splice is acceptable.
    (3) Buried splices. (i) Direct buried splice cases accommodate 
straight splices, branch splices, and load coils. Direct buried splices 
shall be filled and

[[Page 613]]

shall be used only when above ground splicing in pedestals is not 
practicable.
    (ii) A treated plank or equivalent shall be placed 15 cm (6 in.) 
above the buried splice case to prevent damage to the splice case from 
future digging. Where a firm base for burying a splice cannot be 
obtained, a treated plank or equivalent shall be placed beneath the 
splice case.
    (iii) Each buried splice shall be identified for future locating. 
One method of marking the splice point is the use of a warning sign. 
Another method is the burying of an electronic locating device.
    (4) BD-type pedestals. (i) BD-type pedestals are housings primarily 
intended to house, organize, and protect cable terminations 
incorporating splice connectors, ground lugs, and load coils. Activities 
typically performed in pedestals are cable splicing, shield bonding and 
grounding, loading, and connection of subscriber service drops.
    (ii) The recommended splice capacities for BD-type pedestals are 
shown in Table 5. However, larger size pedestals are permissible if 
service requirements dictate their usefulness. Table 5 is as follows:

            Table 5.--Splice Capacities for BD-Type Pedestals           
------------------------------------------------------------------------
                                                          Maximum load  
                                    Maximum straight       splice pair  
                                  splice pair capacity   capacity using 
                                    using single pair      single pair  
          Pedestal type               connectors or       connectors or 
                                  multiple pair splice    multiple pair 
                                         modules         splice modules 
                                                          (see note 1)  
------------------------------------------------------------------------
BD3, BD3A.......................  100 Pair............  50 Pair.        
BD4, BD4A.......................  200 Pair............  100 Pair.       
BD5, BD5A.......................  600 Pair............  300 Pair.       
BD7.............................  1200 Pair...........  600 Pair.       
BD14, BD14A.....................  100 Pair............  50 Pair.        
BD15, BD15A.....................  400 Pair............  200 Pair.       
BD16, BD16A.....................  600 Pair............  300 Pair.       
------------------------------------------------------------------------
Note 1: This table refers to load coil cases that are to be direct      
  buried with stub cables extending into the pedestal for splicing.     
  Requirements involving individual coil arrangements inside the        
  pedestal should be engineered on a case-by-case basis.                

    (iii) Special distribution pedestals having a divider plate for 
mounting filled terminal blocks are available. Distribution pedestals 
are also equipped with service wire channels for installation of buried 
service wires without disturbing the cabling and gravel inside the base 
of the pedestal. Distribution pedestals are recommended in locations 
where the connection of service wires is required.
    (5) Large pair count splice housings. Large pair count splice 
housings are recommended for areas not suitable for man- holes. The 
recommended capacities are shown in Table 6:

          Table 6.--Splice Capacities for Large Count Housings          
------------------------------------------------------------------------
                                                          Maximum load  
                                   Maximum straight       splice pair   
                                 splice pair capacity    capacity using 
                                  using single pair       single pair   
         Housing type               connectors or        connectors or  
                                 multiple pair splice    multiple pair  
                                       modules           splice modules 
                                                          (see note 1)  
------------------------------------------------------------------------
BD 6000.......................  6,000 Pair...........  3,000 Pair.      
BD 8000.......................  8,000 Pair...........  4,000 Pair.      
BD 10000......................  10,000 Pair..........  5,000 Pair.      
------------------------------------------------------------------------

    (6) Pedestal restricted access inserts. Restricted access inserts 
may be used to protect splices susceptible to unnecessary handling where 
subsequent work activities are required or expected to occur after 
splices have been completed. Restricted access inserts also provide 
moisture protection in areas susceptible to temporary flooding. A 
typical restricted access insert is shown in Figure 1:


[[Page 614]]

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[[Page 615]]

    (7) Serving Area Interface (SAI) Systems. SAI systems provide the 
cross-connect point between feeder and distribution cables. Connection 
of feeder to distribution pairs is accomplished by placing jumpers 
between connecting blocks. Only RUS accepted connecting blocks having 
grease or gel filled terminations to provide moisture and corrosion 
resistance shall be used.
    (8) Buried cable splicing arrangements. Typical buried cable 
splicing arrangements are illustrated in Figures 2 through 5:

[[Page 616]]

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[[Page 617]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.004



[[Page 618]]

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[[Page 619]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.006



[[Page 620]]

    (9) Underground splices (manholes). Underground splice cases 
accommodate straight splices, branch splices, and load coils. 
Underground splices shall be filled.
    (10) Central office tip cable splices. (i) Filled cable or filled 
splices are not recommended for use inside central offices, except in 
cable vault locations. Outside plant cable sheath and cable filling 
compound are susceptible to fire and will support combustion. Fire, 
smoke, and gases generated by these materials during burning are 
detrimental to telephone switching equipment.
    (ii) Tip cables should be spliced in a cable vault. However, as a 
last resort, tip cables may be spliced inside a central office if flame 
retardant splice cases or a noncombustible central office splice housing 
is used to contain the splice.
    (iii) Splices inside the central office shall be made as close as 
practical to the point where the outside plant cables enter the 
building. Except in cable vault locations, outside plant cables within 
the central office shall be wrapped with fireproof tape or enclosed in 
noncombustible conduit.
    (e) Splicing considerations for fiber optic cables--(1) Connection 
characteristics. Splicing efficiency between optical fibers is a 
function of light loss across the fiber junctions measured in decibels 
(dB). A loss of 0.2 dB in a splice corresponds to a light transmission 
efficiency of approximately 95.5 percent.
    (2) Fiber core alignment. Fiber splicing techniques shall be 
conducted in such a manner that the cores of the fibers will be aligned 
as perfectly as possible to allow maximum light transmission from one 
fiber to the next. Without proper alignment, light will leave the fiber 
core and travel through the fiber cladding. Light outside the fiber core 
is not a usable light signal. Core misalignment is illustrated in Figure 
6:

[GRAPHIC] [TIFF OMITTED] TR26JA95.007


[[Page 621]]


    (3) Splice loss. (i) Splice loss can also be caused by fiber defects 
such as nonidentical core diameters, cores not in center of the fiber, 
and noncircular cores. Such defects are depicted in Figure 7:

[[Page 622]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.008



[[Page 623]]

    (ii) Undesirable splice losses are caused by poor splicing 
techniques including splicing irregularities such as improper cleaves 
and dirty splices. Typical cleave problems are illustrated in Figure 8:

[GRAPHIC] [TIFF OMITTED] TR26JA95.009


[[Page 624]]


    (4) Handling precautions. The following precautions shall be 
observed:
    (i) Avoid damaging the cable during handling operations prior to 
splicing. Minor damage may change the transmission characteristics of 
the fibers to the extent that the cable section will have to be 
replaced;
    (ii) The cable manufacturer's recommendations concerning pulling 
tension shall be observed. The maximum pulling tension for most fiber 
optic cable is 2669 newtons (600 pound-force);
    (iii) The cable manufacturer's recommendations concerning bending 
radius shall be observed. Unless the cable manufacturer's recommendation 
is more stringent, the minimum bending radius for fiber optic cable 
shall be 20 times the cable diameter;
    (iv) The cable manufacturer's recommendations concerning buffer tube 
bending radius shall be observed. Unless the cable manufacturer's 
recommendation is more stringent, the minimum bending radius for buffer 
tubes is usually between 38 millimeters (mm) (1.5 in.) and 76 mm (3.0 
in.). The bending limitations on buffer tubes are intended to prevent 
kinking. Buffer tube kinking may cause excessive optical loss or fiber 
breakage; and
    (v) Handle unprotected glass fibers carefully to avoid introducing 
flaws such as scratched or broken fibers.
    (5) Personnel safety. The following safety precautions shall be 
observed:
    (i) Safety glasses shall be worn when handling glass fibers;
    (ii) Never view open-ended fibers with the naked eye or a magnifying 
device. Improper viewing of a fiber end that is transmitting light may 
cause irreparable eye damage; and
    (iii) Dispose of bare scrap fibers by using the sticky side of a 
piece of tape to pick up and discard loose fiber ends. Fiber scraps 
easily penetrate the skin and are difficult to remove.
    (6) Equipment requirements. (i) Fiber optic splices shall be made in 
areas where temperature, humidity, and cleanliness can be controlled. 
Both fusion and mechanical splicing techniques may require a splicing 
vehicle equipped with a work station that will allow environmental 
control.
    (ii) Both fusion and mechanical splicing techniques are permitted on 
RUS financed projects. When using the mechanical splicing technique, 
only RUS accepted mechanical fiber optic splice connectors can be used.
    (iii) Fusion splicing machines shall be kept in proper working 
condition. Regular maintenance in accordance with the machine 
manufacturer's recommendations shall be observed.
    (iv) Mechanical splicing tools shall be in conformance with the tool 
manufacturer's recommendations.
    (v) An optical time domain reflectometer (OTDR) shall be used for 
testing splices. The OTDR shall be stationed at the central office or 
launch point for testing individual splices as they are made and for 
end-to-end signature tests for the fiber optic link.
    (vi) An optical power meter shall be used for end-to-end cable 
acceptance tests.
    (vii) A prerequisite for the successful completion of a fiber optic 
splicing endeavor is the presence of a talk circuit between the splicing 
technician in the splicing vehicle and the operator of the OTDR in the 
central office. The splicing technician and the OTDR operator shall have 
access to communications with each other in order to inform each other 
as to:
    (A) Which splices meet the loss objectives;
    (B) The sequence in which buffer tubes and fibers are to be selected 
for subsequent splicing operations; and
    (C) The timing required for the performance of OTDR testing to 
prevent making an OTDR test at the same time a splice is being fused.
    (7) Cable preparation. (i) Engineering work prints shall prescribe 
the cable slack needed at splice points to reach the work station inside 
the splicing vehicle. Consideration should be given to the slack 
required for future maintenance activity as well as initial construction 
activities. The required slack may be different for each splice point, 
depending on the site logistics. However, the required slack is seldom 
less than 15 meters (50 feet). The amount of slack actually used shall 
be recorded for each splice point to assist future maintenance and 
restoration efforts.
    (ii) The splice case manufacturer's recommendations concerning the 
amount of cable sheath to be removed

[[Page 625]]

shall be followed to facilitate splicing operations. The length of the 
sheath opening shall be identified with a wrap of plastic tape.
    (iii) If the cable contains a rip cord, the cable jacket shall be 
ring cut approximately 15 cm (6 in.) from the end and the 15 cm (6 in.) 
of cable jacket shall be removed to expose the rip cord. The rip cord 
shall be used to slit the jacket to the tape mark.
    (iv) If the cable does not contain a rip cord, the cable jacket 
shall be slit using a sheath splitter. No cuts shall be made into the 
cable core nor shall the buffer tubes be damaged.
    (v) If the cable contains an armor sheath, the outer jacket shall be 
opened along the slit and the jacket shall be removed exposing the armor 
sheath. The armor shall be separated at the seam and pulled from the 
cable exposing the inner jacket. The armor shall be removed making 
allowances for a shield bond connector. The inner sheath shall be slit 
using a sheath splitter or rip cord. The cable core shall not be damaged 
nor shall there be any damage to the buffer tubes. The jacket shall be 
peeled back and cut at the end of the slit. The exposed buffer tubes 
shall not be cut, kinked, or bent.
    (vi) After the cable sheath has been removed, the binder tape shall 
be removed from the cable. The cable shall not be crushed or deformed.
    (vii) The buffer tubes shall be unstranded one at a time. The buffer 
tubes shall not be kinked.
    (viii) If the cable is equipped with a strength member, the strength 
member shall be cut to the length recommended by the splice case 
manufacturer.
    (ix) Each buffer tube shall be inspected for kinks, cuts, and flat 
spots. If damage is detected, an additional length of cable jacket shall 
be removed and all of the buffer tubes shall be cut off at the point of 
damage.
    (x) The cable preparation sequence shall be repeated for the other 
cable end.
    (8) Shield bonding and grounding. For personnel safety, the shields 
and metallic strength members of the cables to be spliced shall be 
bonded together and grounded before splicing activities are started. 
(See paragraphs (g)(4), and (g)(5)(i) through (g)(5)(iii) of this 
section for final bonding and grounding provisions).
    (9) Fiber optic color code. The standard fiber optic color code for 
buffer tubes and individual fibers shall be as shown in Table 7:

             Table 7.--Fiber and Buffer Tube Identification             
------------------------------------------------------------------------
     Buffer tube and fiber No.                      Color               
------------------------------------------------------------------------
 1.................................  Blue.                              
 2.................................  Orange.                            
 3.................................  Green.                             
 4.................................  Brown.                             
 5.................................  Slate.                             
 6.................................  White.                             
 7.................................  Red.                               
 8.................................  Black.                             
 9.................................  Yellow.                            
10.................................  Violet.                            
11.................................  Rose.                              
12.................................  Aqua.                              
13.................................  Blue/Black Tracer.                 
14.................................  Orange/Black Tracer.               
15.................................  Green/Black Tracer.                
16.................................  Brown/Black Tracer.                
17.................................  Slate/Black Tracer.                
18.................................  White/Black Tracer.                
19.................................  Red/Black Tracer.                  
20.................................  Black/Yellow Tracer.               
21.................................  Yellow/Black Tracer.               
22.................................  Violet/Black Tracer.               
23.................................  Rose/Black Tracer.                 
24.................................  Aqua/Black Tracer.                 
------------------------------------------------------------------------

    (10) Buffer tube removal. (i) The splice case manufacturer's 
recommendation shall be followed concerning the total length of buffer 
tube to be removed. Identify the length to be removed with plastic tape.
    (ii) Experiment with a scrap buffer tube to determine the cutting 
tool adjustment required to ring cut a buffer tube without damaging the 
fibers.
    (iii) Buffer tubes shall be removed by carefully ring cutting and 
removing approximately 15 to 46 cm (6 to 18 in.) of buffer tube at a 
time. The process shall be repeated until the required length of buffer 
tube has been removed, including the tape identification marker.
    (11) Coated fiber cleaning. (i) Each coated fiber shall be cleaned. 
The cable manufacturer's recommendations shall be followed concerning 
the solvent required to clean the coated fibers. Reagent grade isopropyl 
alcohol is a commonly used cleaning solvent.
    (ii) A tissue or cotton ball shall be soaked in the recommended 
cleaning solvent and the coated fibers shall be carefully wiped one at a 
time using a clean tissue or cotton ball for each

[[Page 626]]

coated fiber. Caution shall be exercised to avoid removing the coloring 
agent from the fiber coating.
    (12) Fiber coating removal. (i) Fiber coatings shall be removed. In 
accordance with the splicing method used, the splice case manufacturer's 
recommendation shall be followed concerning the length of fiber coating 
to be removed.
    (ii) The recommended length of fiber coating shall be removed only 
on the two fibers to be spliced. Fiber coating removal shall be 
performed on a one-fiber-at-a-time basis as each splice is prepared.
    (13) Bare fiber cleaning. After the fiber coating has been removed, 
the bare fibers shall be cleaned prior to splicing. Each fiber shall be 
wiped with a clean tissue or cotton ball soaked with the cleaning 
solvent recommended by the cable manufacturer. The bare fiber shall be 
wiped one time to minimize fiber damage. Aggressive wiping of bare fiber 
shall be avoided as it lowers the fiber tensile strength.
    (14) Fiber cleaving. Cleaving tools shall be clean and have sharp 
cutting edges to minimize fiber scratches and improper cleave angles. 
Cleaving tools that are recommended by the manufacturer of the splicing 
system shall be used.
    (15) Cleaved fiber handling. The cleaved and cleaned fiber shall not 
be allowed to touch other objects and shall be inserted into the 
splicing device.
    (16) Completion of the splice. (i) In accordance with the method of 
splicing selected by the borrower, the splice shall be completed by 
either fusing the splice or by applying the mechanical connector.
    (ii) Each spliced fiber shall be routed through the organizer tray 
one at a time as splices are completed. The fibers shall be organized 
one at a time to prevent tangled spliced fibers. The splice case 
manufacturer's recommendation shall be followed concerning the splice 
tray selection.
    (17) Fiber optic testing. Fiber optic testing shall be performed in 
accordance with RUS Bulletin 345-63, ``RUS Standard for Acceptance Tests 
and Measurements of Telephone Plant,'' PC-4, (Incorporated by reference 
at Sec. 1755.97).
    (18) Cable acceptance. Installed cable shall be tested and pass the 
inventory and acceptance testing specified in the Telephone System 
Construction Contract (Labor and Materials), RUS Form 515. The tests and 
inspections shall be witnessed by the borrower's resident project 
representative.
    (f) Splice arrangements for fiber optic cables--(1) Aerial splices. 
Cable slack at aerial splices shall be stored either on the messenger 
strand, on the pole, or inside a pedestal at the base of the pole. A 
typical arrangement for the storage of slack cable at aerial splices is 
shown in Figure 9:

[[Page 627]]

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[[Page 628]]

    (2) Buried splices. Buried splices shall be installed in handholes 
to accommodate the splice case and the required splicing slack. An 
alternative to the handhole is a pedestal specifically designed for 
fiber optic splice cases. Typical arrangements for buried cable splices 
are shown in Figures 10 and 11:

[[Page 629]]

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[[Page 630]]

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[[Page 631]]

    (3) Underground manhole splices. Underground splices shall be stored 
in manholes on cable hooks and racks fastened to the manhole wall. The 
cable slack shall be stored on cable hooks and racks as shown in Figure 
12:

[GRAPHIC] [TIFF OMITTED] TR26JA95.013


[[Page 632]]


    (4) Central office cable entrance. (i) Filled cable or filled 
splices are not recommended for use inside central offices except in 
cable vault locations. Outside plant cable sheath and cable filling 
compound are susceptible to fire and will support combustion. Fire, 
smoke, and gases generated by these materials during burning are 
detrimental to telephone switching equipment.
    (ii) As a first choice, the outside plant fiber optic cable shall be 
spliced to an all-dielectric fire retardant cable in a cable vault with 
the all-dielectric cable extending into the central office and 
terminating inside a fiber patch panel.
    (iii) As a second choice, the outside plant cable may be spliced 
inside the central office if a flame retardant fiber optic splice case 
or a noncombustible central office splice housing equipped with 
organizer trays is used to contain the splice.
    (iv) In cases referenced in paragraphs (f)(4)(ii) and (f)(4)(iii) of 
this section, as a minimum the fire retardant all-dielectric cable used 
to provide the connection between the cable entrance splice and the 
fiber patch panel shall be listed as Communication Riser Cable (Type 
CMR) in accordance with Sections 800-50 and 800-51(b) of the 1993 
National Electrical Code.
    (v) Splices inside the central office shall be made as close as 
practicable to the point where the outside plant cables enter the 
building. Except in cable vault locations, outside plant cables within 
the central office shall be wrapped with fireproof tape or enclosed in 
noncombustible conduit.
    (g) Bonding and grounding fiber optic cable, copper cable, and 
copper service wire--(1) Bonding. Bonding is electrically connecting two 
or more metallic items of telephone hardware to maintain a common 
electrical potential. Bonding may involve connections to another 
utility.
    (2) Copper cable shield bond connections. (i) Cable shields shall be 
bonded at each splice location. Only RUS accepted cable shield bond 
connectors shall be used to provide bonding and grounding connections to 
metallic cable shields. The shield bond connector manufacturer's 
instructions shall be followed concerning installation and use.
    (ii)(A) Shield bonding conductors shall be either stranded or 
braided tinned copper wire equivalent to a minimum No. 6 American Wire 
Gauge (AWG) and shall be RUS accepted. The conductor connections shall 
be tinned or of a compatible bimetallic design to avoid corrosion 
problems associated with dissimilar metals. The number of shield bond 
connectors required per pair size and gauge shall be as shown in Table 
8:

        Table 8.--Shield Bond Connectors per Pair Size and Gauge        
------------------------------------------------------------------------
                         Pair size and gauge                            
   19 AWG    ------------------------------------------   No. of shield 
                 22 AWG        24 AWG        26 AWG      bond connectors
------------------------------------------------------------------------
0-25........     0-100         0-150         0-200                  1   
50-100......   150-300       200-400       300-600                  2   
150-200.....   400-600       600-900      900-1500                  3   
300-600.....  900-1200      1200-2100     1800-3600                 4   
------------------------------------------------------------------------

    (B) It is permissible to strap across the shield bond connectors of 
several cables with a single length of braided wire. However, both ends 
of the braid shall be terminated on the pedestal ground bracket to 
provide a bonding loop. Shield bond connection methods for individual 
cables are shown in Figures 13 through 15, and the bonding of several 
cables inside a pedestal using the bonding loop is shown in Figure 16:

[[Page 633]]

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[[Page 634]]

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[[Page 635]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.016



[[Page 636]]

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[[Page 637]]

    (3) Buried service wire shield bond connections. Buried service wire 
shields shall be connected to the pedestal bonding and grounding system. 
Typical buried service wire installations are shown in Figures 17 and 
18. In addition to the methods referenced in Figures 17 and 18, the 
shields of buried service wires may also be connected to the pedestal 
bonding and grounding system using buried service wire bonding harnesses 
listed on Page 3.3.1, Item ``gs-b,'' of RUS Bulletin 1755I-100. RUS 
Bulletin 1755I-100 may be purchased from the Superintendent of 
Documents, U.S. Government Printing Office, Washington, DC 20402. When 
those harnesses are used they shall be installed in accordance with the 
manufacturer's instructions. Figures 17 and 18 are as follows:

[[Page 638]]

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[[Page 639]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.019



[[Page 640]]

    (4) Fiber optic cable bond connections. (i) The cable shield and 
metallic strength members shall be bonded at each splice location. Only 
RUS accepted fiber optic cable shield bond connectors shall be used to 
provide bonding connections to the metallic cable shields. The shield 
bond connector manufacturer's instructions shall be followed concerning 
installation and use.
    (ii) Shield bonding conductors shall be either stranded or braided 
tinned copper wire equivalent to a minimum No. 6 American Wire Gauge 
(AWG) and shall be RUS accepted. The conductor connections shall be 
tinned or of a compatible bimetallic design to avoid corrosion problems 
associated with dissimilar metals.
    (5) Grounding. (i) Grounding is electrically connecting metallic 
telephone hardware to a National Electrical Safety Code (NESC) 
acceptable grounding electrode. Acceptable grounding electrodes are 
defined in the Rule 99A of the NESC.
    (ii) The conductor used for grounding metallic telephone hardware 
shall be a minimum No. 6 AWG solid, bare, copper conductor.
    (iii) For copper and fiber optic cable plant, all cable shields, all 
metallic strength members, and all metallic hardware shall be:
    (A) Grounded at each splice location to a driven grounding electrode 
(ground rod) of:
    (1) At least 1.5 meters (5 feet) in length where the local frost 
level is normally less than 0.30 meters (1 foot) deep; or
    (2) At least 2.44 meters (8 feet) in length where the local frost 
level is normally 0.30 meters (1 foot) or deeper; and
    (B) Bonded to a multi-grounded power system neutral when the splice 
is within 1.8 meters (6 feet) of access to the grounding system of the 
multi-grounded neutral system. Bonding to the multi-grounded neutral of 
a parallel power line may help to minimize telephone interference on 
long exposures with copper cable plant. Consideration, thus, should be 
given to completing such bonds, at least four (4) times each mile, when 
splices are greater than 1.8 meters (6 feet) but less than 4.6 meters 
(15 feet) from access to the multi-grounded neutral.
    (6) Bonding and grounding splice cases. (i) Splice cases are 
equipped with bonding and grounding devices to ensure that cable shields 
and metallic strength members maintain electrical continuity during and 
after cable splicing operations. The splice case manufacturer's 
recommendations shall be followed concerning the bonding and grounding 
procedures. Conductors used for bonding shall be either stranded or 
braided tinned copper wire equivalent to 6 AWG. Conductors used for 
grounding shall be a solid, bare, copper wire equivalent to minimum No. 
6 AWG.
    (ii) Buried splice cases installed in either handholes or pedestals 
shall be grounded such that the cable shield grounds are attached to a 
common ground connection that will allow the lifting of a ground on the 
cable shield in either direction to permit efficient cable locating 
procedures. As a first choice, buried grounding conductor(s) shall be 
bare. However, if two or more grounding conductors are buried in the s 
they shall be insulated to avoid shorts when a locating tone is applied.
    (iii) A typical bonding and grounding method for fiber optic splices 
is shown in Figure 19:

[[Page 641]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.020



[[Page 642]]

    (7) Bonding and grounding central office cable entrances. The RUS 
Telecommunications Engineering and Construction Manual (TE&CM) Section 
810 provides bonding and grounding guidance for central office cable 
entrances. Splicing operations shall not be attempted before all 
metallic cable shield and strength members are bonded and grounded.

[60 FR 5097, Jan. 26, 1995; 60 FR 9079, Feb. 16, 1995]
Secs. 1755.201--1755.369  [Reserved]



Sec. 1755.370  RUS specification for seven wire galvanized steel strand.

    (a) RUS incorporates by reference ASTM A475-78, Standard 
Specification for Zinc-Coated Steel Wire Strand, issued May 1978. All 
seven wire galvanized steel strand purchased after April 1, 1990, for 
use on telecommunications systems financed by RUS loan funds must 
conform to this standard. This incorporation by reference was approved 
by the Director of the Federal Register in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51 on January 19, 1990). Copies of ASTM A475-78 
are available for inspection during normal business hours at the Office 
of the Federal Register, 800 North Capitol Street, NW., suite 700, 
Washington, DC, and at the Rural Utilities Service, Administrative 
Services Division, room 0175-S, U.S. Department of Agriculture, 
Washington, DC 20250, telephone 202-382-9551. Copies are available from 
the American Society for Testing and Materials, 1916 Race Street, 
Philadelphia, PA 19103, telephone 215-299-5400.
    (b) In addition to the requirements of ASTM 475-78, all coils and 
reels having Class B or C coatings shall be marked with a 3-inch wide 
and 6-inch long deep-colored stripe, green or orange, respectively, to 
identify the class of galvanized coating of the strand. This marking 
shall be applied to the exposed convolutions of the strand in the eye of 
the coils and located near the midpoint on the outside layer of strand 
on the reels. The marking shall not cover any welded joint markings.

[55 FR 1792, Jan. 19, 1990; 55 FR 3685, Feb. 2, 1990. Redesignated at 55 
FR 39397, Sept. 27, 1990]
Secs. 1755.371--1755.389  [Reserved]



Sec. 1755.390  RUS specification for filled telephone cables.

    (a) Scope. (1) This section covers the requirements for filled 
telephone cables intended for direct burial installation either by 
trenching or by direct plowing, for underground application by placement 
in a duct, or for aerial installations by attachment to a support 
strand.
    (i) The conductors are solid copper, individually insulated with an 
extruded solid insulating compound.
    (ii) The insulated conductors are twisted into pairs which are then 
stranded or oscillated to form a cylindrical core.
    (iii) For high frequency applications, the cable core may be 
separated into compartments with screening shields.
    (iv) A moisture resistant filling compound is applied to the 
stranded conductors completely covering the insulated conductors and 
filling the interstices between pairs and units.
    (v) The cable structure is completed by the application of suitable 
core wrapping material, a flooding compound, a shield or a shield/armor, 
and an overall plastic jacket.
    (2) The number of pairs and gauge size of conductors which are used 
within the RUS program are provided in the following table:

AWG                                              19     22     24     26
                                                                        
Pairs                                             6      6      6       
                                                 12     12     12       
                                                 18     18     18       
                                                 25     25     25     25
                                                        50     50     50
                                                        75     75     75
                                                       100    100    100
                                                       150    150    150
                                                       200    200    200
                                                       300    300    300
                                                       400    400    400
                                                              600    600
                                                                     900
------------------------------------------------------------------------
Note: Cables larger in pair sizes than those shown in this table must   
  meet all requirements of this section.                                


    (3) Screened cable, when specified, must meet all requirements of 
this section. The pair sizes of screened cables used within the RUS 
program are referenced in paragraph (e)(2)(i) of this section.

[[Page 643]]

    (4) All cables sold to RUS borrowers for projects involving RUS loan 
funds under this section must be accepted by RUS Technical Standards 
Committee ``A'' (Telephone). For cables manufactured to the 
specification of this section, all design changes to an accepted design 
must be submitted for acceptance. RUS will be the sole authority on what 
constitutes a design change.
    (5) Materials, manufacturing techniques, or cable designs not 
specifically addressed by this section may be allowed if accepted by 
RUS. Justification for acceptance of modified materials, manufacturing 
techniques, or cable designs must be provided to substantiate product 
utility and long-term stability and endurance.
    (6) The American National Standard Institute/Insulated Cable 
Engineers Association, Inc. (ANSI/ICEA) S-84-608-1988 Standard For 
Telecommunications Cable, Filled, Polyolefin Insulated, Copper Conductor 
Technical Requirements referenced throughout this section is 
incorporated by reference by RUS. This incorporation by reference was 
approved by the Director of the Federal Register in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. Copies of ANSI/ICEA S-84-608-1988 are 
available for inspection during normal business hours at RUS, room 2845, 
U.S. Department of Agriculture, Washington, DC 20250 or at the Office of 
the Federal Register, 800 North Capitol Street, NW., suite 700, 
Washington, DC. Copies are available from ICEA, P. O. Box 440, South 
Yarmouth, MA 02664, telephone number (508) 394-4424.
    (7) American Society for Testing and Materials specifications (ASTM) 
A 505-87, Standard Specification for Steel, Sheet and Strip, Alloy, Hot-
Rolled and Cold-Rolled, General Requirements For; ASTM B 193-87, 
Standard Test Method for Resistivity of Electrical Conductor Materials; 
ASTM B 224-80, Standard Classification of Coppers; ASTM B 694-86, 
Standard Specification for Copper, Copper Alloy, and Copper-Clad 
Stainless Steel Sheet and Strip for Electrical Cable Shielding; ASTM D 
4565-90a, Standard Test Methods for Physical and Environmental 
Performance Properties of Insulations and Jackets for Telecommunications 
Wire and Cable; and ASTM D 4566-90, Standard Test Methods for Electrical 
Performance Properties of Insulations and Jackets for Telecommunications 
Wire and Cable referenced in this section are incorporated by reference 
by RUS. These incorporations by references were approved by the Director 
of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR 
part 51. Copies of the ASTM standards are available for inspection 
during normal business hours at RUS, room 2845, U.S. Department of 
Agriculture, Washington, DC 20250 or at the Office of the Federal 
Register, 800 North Capitol Street, NW., suite 700, Washington, DC. 
Copies are available from ASTM, 1916 Race Street, Philadelphia, PA 
19103-1187, telephone number (215) 299-5585.
    (b) Conductors and conductor insulation. (1) The gauge sizes of the 
copper conductors covered by this specification must be 19, 22, 24, and 
26 American Wire Gauge (AWG).
    (2) Each conductor must comply with the requirements specified in 
ANSI/ICEA S-84-608-1988, paragraph 2.1.
    (3) Factory joints made in conductors during the manufacturing 
process must comply with the requirements specified in ANSI/ICEA S-84-
608-1988, paragraph 2.2.
    (4) The raw materials used for conductor insulation must comply with 
the requirements specified in ANSI/ICEA S-84-608-1988, paragraphs 3.1 
through 3.1.3.
    (5) The finished conductor insulation must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraphs 3.2.1 and 
3.3.
    (6) Insulated conductors must not have an overall diameter greater 
than 2 millimeters (mm) (0.081 inch (in.)).
    (7) A permissible overall performance level of faults in conductor 
insulation must average not greater than one fault per 12,000 conductor 
meters (40,000 conductor feet) for each gauge of conductor.
    (i) All insulated conductors must be continuously tested for 
insulation faults during the twinning operation with a method of testing 
acceptable to RUS. The length count and number of faults must be 
recorded. The information must be retained for a period of 6 months and 
be available for review by RUS when requested.

[[Page 644]]

    (ii) The voltages for determining compliance with the requirements 
of this section are as follows:

------------------------------------------------------------------------
                                                 Direct Current Voltages
                      AWG                              (kilovolts)      
------------------------------------------------------------------------
19                                                                   8.0
22                                                                   6.0
24                                                                   5.0
26                                                                   4.0
------------------------------------------------------------------------

    (8) Repairs to the conductor insulation during manufacture are 
permissible. The method of repair must be accepted by RUS prior to its 
use. The repaired insulation must be capable of meeting the relevant 
electrical requirements of this section.
    (9) All repaired sections of insulation must be retested in the same 
manner as originally tested for compliance with paragraph (b)(7) of this 
section.
    (10) The colored insulating material removed from or tested on the 
conductor, from a finished cable, must meet the performance requirements 
specified in ANSI/ICEA S-84-608-1988, paragraphs 3.4.1, 3.4.2, 3.4.4, 
3.4.5, and 3.4.6.
    (c) Identification of pairs and twisting of pairs. (1) The 
insulation must be colored to identify:
    (i) The tip and ring conductor of each pair; and
    (ii) Each pair in the completed cable.
    (2) The colors to be used in the pairs in the 25 pair group, 
together with the pair numbers must be in accordance with the table 
specified in ANSI/ICEA S-84-608-1988, paragraph 3.5.
    (3) Positive identification of the tip and ring conductors of each 
pair by marking each conductor of a pair with the color of its mate is 
permissible. The method of marking must be accepted by RUS prior to its 
use.
    (4) Other methods of providing positive identification of the tip 
and ring conductors of each pair may be employed if accepted by RUS 
prior to its use.
    (5) The insulated conductors must be twisted into pairs.
    (6) In order to provide sufficiently high crosstalk isolation, the 
pair twists must be designed to enable the cable to meet the capacitance 
unbalance and crosstalk loss requirements of paragraphs (k)(5), (k)(6), 
and (k)(8) of this section.
    (7) The average length of pair twists in any pair in the finished 
cable, when measured on any 3 meter (10 foot) length, must not exceed 
the requirement specified in ANSI/ICEA S-84-608-1988, paragraph 3.5.
    (d) Forming of the cable core. (1) Twisted pairs must be assembled 
in such a way as to form a substantially cylindrical group.
    (2) When desired for lay-up reasons, the basic group may be divided 
into two or more subgroups called units.
    (3) Each group, or unit in a particular group, must be enclosed in 
bindings of the colors indicated for its particular pair count. The pair 
count, indicated by the colors of insulation, must be consecutive as 
indicated in paragraph (d)(6) of this section through units in a group.
    (4) The filling compound must be applied to the cable core in such a 
way as to provide as near a completely filled core as is commercially 
practical.
    (5) Threads and tapes used as binders must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraphs 4.2 and 
4.2.1.
    (6) The colors of the bindings and their significance with respect 
to pair count must be as follows:

------------------------------------------------------------------------
Group                                                                   
 No.                Color of Bindings                 Group Pair Count  
------------------------------------------------------------------------
1      White-Blue.................................           1-25       
2      White-Orange...............................          26-50       
3      White-Green................................          51-75       
4      White-Brown................................          76-100      
5      White-Slate................................         101-125      
6      Red-Blue...................................         126-150      
7      Red-Orange.................................         151-175      
8      Red-Green..................................         176-200      
9      Red-Brown..................................         201-225      
10     Red-Slate..................................         226-250      
11     Black-Blue.................................         251-275      
12     Black-Orange...............................         276-300      
13     Black-Green................................         301-325      
14     Black-Brown................................         326-350      
15     Black-Slate................................         351-375      
16     Yellow-Blue................................         376-400      
17     Yellow-Orange..............................         401-425      
18     Yellow-Green...............................         426-450      
19     Yellow-Brown...............................         451-475      
20     Yellow-Slate...............................         476-500      
21     Violet-Blue................................         501-525      
22     Violet-Orange..............................         526-550      
23     Violet-Green...............................         551-575      
24     Violet-Brown...............................         576-600      
------------------------------------------------------------------------

    (7) The use of the white unit binder in cables of 100 pairs or less 
is optional.
    (8) When desired for manufacturing reasons, two or more 25 pair 
groups

[[Page 645]]

may be bound together with nonhygroscopic and nonwicking threads or 
tapes into a super-unit. Threads or tapes must meet the requirements 
specified in paragraph (d)(5) of this section. The group binders and the 
super-unit binders must be color coded such that the combination of the 
two binders must positively identify each 25 pair group from every other 
25 pair group in the cable. Super-unit binders must be of the color 
shown in the following table:

                        Super-Unit Binder Colors                        
------------------------------------------------------------------------
            Pair Numbers                         Binder Color           
------------------------------------------------------------------------
1-600                                                  White            
601-1200                                                 Red            
1201-1800                                              Black            
1801-2400                                             Yellow            
2401-3000                                             Violet            
------------------------------------------------------------------------

    (9) Color binders must not be missing for more than 90 meters (300 
feet) from any 25 pair group or from any subgroup used as part of a 
super-unit. At any cable cross-section, no adjacent 25 pair groups and 
no more than one subgroup of any super-unit may have missing binders. In 
no case must the total number of missing binders exceed three. Missing 
super-unit binders must not be permitted for any distance.
    (10) Any reel of cable which contains missing binders must be 
labeled indicating the colors and location of the binders involved. The 
labeling must be applied to the reel and also to the cable.
    (e) Screened cable. (1) Screened cable must be constructed such that 
a metallic, internal screen(s) must be provided to separate and provide 
sufficient isolation between the compartments to meet the requirements 
of this section.
    (2) At the option of the user or manufacturer, identified service 
pairs providing for voice order and fault location may be placed in 
screened cables.
    (i) The number of service pairs provided must be one per twenty-five 
operating pairs plus two for a cable size up to and including 400 pairs, 
subject to a minimum of four service pairs. The pair counts for screened 
cables are as follows:
      

                       Screened Cable Pair Counts                       
------------------------------------------------------------------------
   Carrier Pair Count          Service Pairs          Total Pair Count  
------------------------------------------------------------------------
24                                    4                      28         
50                                    4                      54         
100                                   6                     106         
150                                   8                     158         
200                                  10                     210         
300                                  14                     314         
400                                  18                     418         
------------------------------------------------------------------------

    (ii) The service pairs must be equally divided among the 
compartments. The color sequence must be repeated in each compartment.
    (iii) The electrical and physical characteristics of each service 
pair must meet all the requirements set forth in this section.
    (iv) The colors used for the service pairs must be in accordance 
with the requirements of paragraph (b)(5) of this section. The color 
code used for the service pairs together with the service pair number 
are shown in the following table:

                      Color Code For Service Pairs                      
------------------------------------------------------------------------
                                                   Color                
        Service Pair No.         ---------------------------------------
                                          Tip                Ring       
------------------------------------------------------------------------
1                                 White.............  Red               
2                                   ''..............  Black             
3                                   ''..............  Yellow            
4                                   ''..............  Violet            
5                                 Red...............  Black             
6                                   ''..............  Yellow            
7                                   ''..............  Violet            
8                                 Black.............  Yellow            
9                                   ''..............  Violet            
------------------------------------------------------------------------

    (3) The screen tape must comply with the requirements specified in 
ANSI/ICEA S-84-608-1988, paragraphs 5.1 through 5.4.
    (4) The screen tape must be tested for dielectric strength by 
completely removing the protective coating from one end to be used for 
grounding purposes.
    (i) Using an electrode, over a 30 centimeter (1 foot) length, apply 
a direct current voltage at the rate of rise of 500 volts/second until 
failure.
    (ii) No breakdown should occur below 8 kilovolts.
    (f) Filling compound. (1) After or during the stranding operation 
and prior to application of the core wrap, filling compound must be 
applied to the cable core. The compound must be as nearly colorless as 
is commercially feasible

[[Page 646]]

and consistent with the end product requirements and pair 
identification.
    (2) The filling compound must comply with the requirements specified 
in ANSI/ICEA S-84-608-1988, paragraphs 4.4 through 4.4.4.
    (3) The individual cable manufacturer must satisfy RUS that the 
filling compound selected for use is suitable for its intended 
application. The filling compound must be applied to the cable in such a 
manner that the cable components will not be degraded.
    (g) Core wrap. (1) The core wrap must comply with the requirements 
specified in ANSI/ICEA-S-84-608-1988, paragraph 4.3.
    (2) If required for manufacturing reasons, white or colored binders 
of nonhygroscopic and nonwicking material may be applied over the core 
and/or wrap. When used, binders must meet the requirements specified in 
paragraph (d)(5) of this section.
    (3) Sufficient filling compound must be applied to the core wrap so 
that voids or air spaces existing between the core and the inner side of 
the core wrap are minimized.
    (h) Flooding compound (1) Sufficient flooding compound must be 
applied on all sheath interfaces so that voids and air spaces in these 
areas are minimized. When the optional armored design is used, the 
flooding compound must be applied between the core wrap and shield, 
between the shield and armor, and between the armor and the jacket so 
that voids and air spaces in these areas are minimized. The use of 
floodant over the outer metallic substrate is not required if uniform 
bonding, per paragraph (i)(7) of this section, is achieved between the 
plastic-clad metal and the jacket.
    (2) The flooding compound must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 4.5 and the jacket slip 
test requirements of appendix A, paragraph (III)(5) of this section.
    (3) The individual cable manufacturer must satisfy RUS that the 
flooding compound selected for use is acceptable for the application.
    (i) Shield and optional armor (1) A single corrugated shield must be 
applied longitudinally over the core wrap.
    (2) For unarmored cable the shield overlap must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 6.3.2. Core 
diameter is defined as the diameter under the core wrap and binding.
    (3) For cables containing the coated aluminum shield/coated steel 
armor (CACSP) sheath design, the coated aluminum shield must be applied 
in accordance with the requirements specified in ANSI/ICEA S-84-608-
1988, paragraph 6.3.2, Dual Tape Shielding System.
    (4) General requirements for application of the shielding material 
are as follows:
    (i) Successive lengths of shielding tapes may be joined during the 
manufacturing process by means of cold weld, electric weld, soldering 
with a nonacid flux, or other acceptable means.
    (ii) Shield splices must comply with the requirements specified in 
ANSI/ICEA S-84-608-1988, paragraph 6.3.3.
    (iii) The corrugations and the application process of the coated 
aluminum and copper bearing shields must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 6.3.1.
    (iv) The shielding material must be applied in such a manner as to 
enable the cable to pass the cold bend test specified in paragraph 
(l)(3) of this section.
    (5) The following is a list of acceptable materials for use as cable 
shielding. Other types of shielding materials may also be used provided 
they are accepted by RUS prior to their use.

------------------------------------------------------------------------
              Standard Cable                   Gopher Resistant Cable   
------------------------------------------------------------------------
8-mil Coated Aluminum1                      10-mil Copper               
5-mil Copper                                6-mil Copper-Clad           
                                            Stainless Steel             
                                            5 mil Copper-Clad           
                                            Stainless Steel             
                                            5 mil Copper-Clad Alloy     
                                            Steel                       
                                            7-mil Alloy 194             
                                            6-mil Alloy 194             
                                            8-mil Coated Aluminum1      
                                            and 6-mil Coated Steel1     
------------------------------------------------------------------------
\1\Dimensions of uncoated metal                                         

    (i) The 8-mil aluminum tape must be plastic coated on both sides and 
must comply with the requirements of ANSI/ICEA S-84-608-1988, paragraph 
6.2.2.
    (ii) The 5-mil copper tape must comply with the requirements 
specified in

[[Page 647]]

ANSI/ICEA S-84-608-1988, paragraph 6.2.3.
    (iii) The 10-mil copper tape must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 6.2.4.
    (iv) The 6-mil copper clad stainless steel tape must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 6.2.5.
    (v) The 5-mil copper clad stainless steel tape must be in the fully 
annealed condition and must conform to the requirements of American 
Society for Testing and Materials (ASTM) B 694-86, with a cladding ratio 
of 16/68/16.
    (A) The electrical conductivity of the clad tape must be a minimum 
of 28 percent of the International Annealed Copper Standard (IACS) when 
measured per ASTM B 193-87.
    (B) The tape must be nominally 0.13 millimeter (0.005 inch) thick 
with a minimum thickness of 0.11 millimeter (0.0045 inch).
    (vi) The 5-mil copper clad alloy steel tape must be in the fully 
annealed condition and the copper component must conform to the 
requirements of ASTM B 224-80 and the alloy steel component must conform 
to the requirements of ASTM A 505-87, with a cladding ratio of 16/68/16.
    (A) The electrical conductivity of the copper clad alloy steel tape 
must comply with the requirement specified in paragraph (i)(5)(v)(A) of 
this section.
    (B) The thickness of the copper clad alloy steel tape must comply 
with the requirements specified in paragraph (i)(5)(v)(B) of this 
section.
    (vii) The 6-mil and 7-mil 194 copper alloy tapes must comply with 
the requirements specified in ANSI/ICEA S-84-608-1988, paragraph 6.2.6.
    (6) The corrugation extensibility of the coated aluminum shield must 
comply with the requirements specified in ANSI/ICEA S-84-608-1988, 
paragraph 6.4.
    (7) When the jacket is bonded to the plastic coated aluminum shield, 
the bond between the jacket and shield must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 7.2.6.
    (8) A single plastic-coated steel corrugated armor must be applied 
longitudinally directly over the coated aluminum shield listed in 
paragraph (i)(5) of this section with an overlap complying with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 6.3.2, 
Outer Steel Tape.
    (9) Successive lengths of steel armoring tapes may be joined during 
the manufacturing process by means of cold weld, electric weld, 
soldering with a nonacid flux, or other acceptable means. Armor splices 
must comply with the breaking strength and resistance requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 6.3.3.
    (10) The corrugations and the application process of the coated 
steel armor must comply with the requirements specified in ANSI/ICEA S-
84-608-1988, paragraph 6.3.1.
    (i) The corrugations of the armor tape must coincide with the 
corrugations of the coated aluminum shield.
    (ii) Overlapped portions of the armor tape must be in register 
(corrugations must coincide at overlap) and in contact at the outer 
edge.
    (11) The armoring material must be so applied to enable the cable to 
pass the cold bend test as specified in paragraph (l)(3) of this 
section.
    (12) The 6-mil steel tape must be electrolytic chrome-coated steel 
(ECCS) plastic coated on both sides and must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 6.2.8.
    (13) When the jacket is bonded to the plastic-coated steel armor, 
the bond between the jacket and armor must comply with the requirement 
specified in ANSI/ICEA-S-84-608-1988, paragraph 7.2.6.
    (j) Cable jacket. (1) The jacket must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 7.2.
     (2) The raw materials used for the cable jacket must comply with 
the requirements specified in ANSI/ICEA S-84-608-1988, paragraph 7.2.1.
    (3) Jacketing material removed from or tested on the cable must meet 
the performance requirements specified in ANSI/ICEA S-84-608-1988, 
paragraphs 7.2.3 and 7.2.4.
    (4) The thickness of the jacket must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 7.2.2.

[[Page 648]]

    (k) Electrical requirements--(1) Conductor resistance. The direct 
current resistance of any conductor in a completed cable and the average 
resistance of all conductors in a Quality Control Lot must comply with 
the requirements specified in ANSI/ICEA S-84-608-1988, paragraph 8.1.
    (2) Resistance unbalance. (i) The direct current resistance 
unbalance between the two conductors of any pair in a completed cable 
and the average resistance unbalance of all pairs in a completed cable 
must comply with the requirements specified in ANSI/ICEA S-84-608-1988, 
paragraph 8.2.
    (ii) The resistance unbalance between tip and ring conductors shall 
be random with respect to the direction of unbalance. That is, the 
resistance of the tip conductors shall not be consistently higher with 
respect to the ring conductors and vice versa.
    (3) Mutual capacitance. The average mutual capacitance of all pairs 
in a completed cable and the individual mutual capacitance of any pair 
in a completed cable must comply with the requirements specified in 
ANSI/ICEA S-84-608-1988, paragraph 8.3.
    (4) Capacitance difference. (i) The capacitance difference for 
completed cables having 75 pairs or greater must comply with the 
requirement specified in ANSI/ICEA S-84-608-1988, paragraph 8.4.
    (ii) When measuring screened cable, the inner and outer pairs must 
be selected from both sides of the screen.
    (5) Pair-to-pair capacitance unbalance--(i) Pair-to-pair. The 
capacitance unbalance as measured on the completed cable must comply 
with the requirements specified in ANSI/ICEA S-84-608-1988, paragraph 
8.5.
    (ii) Screened cable. In cables with 25 pairs or less and within each 
group of multigroup cables, the pair-to-pair capacitance unbalance 
between any two pairs in an individual compartment must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 8.5. The 
pair-to-pair capacitance unbalances to be considered must be:
    (A) Between pairs adjacent in a layer in an individual compartment;
    (B) Between pairs in centers of 4 pairs or less in an individual 
compartment; and
    (C) Between pairs in adjacent layers in an individual compartment 
when the number of pairs in the inner (smaller) layer is 6 or less. The 
center is counted as a layer.
    (iii) In cables with 25 pairs or less, the root-mean-square (rms) 
value must include all the pair-to-pair unbalances measured for each 
compartment separately.
    (iv) In cables containing more than 25 pairs, the rms value must 
include the pair-to-pair unbalances in the separate compartments.
    (6) Pair-to-ground capacitance unbalance--(i) Pair-to-ground. The 
capacitance unbalance as measured on the completed cable must comply 
with the requirements specified in ANSI/ICEA S-84-608-1988, paragraph 
8.6.
    (ii) When measuring pair-to-ground capacitance unbalance all pairs 
except the pair under test are grounded to the shield and/or shield/
armor except when measuring cables containing super units in which case 
all other pairs in the same super unit must be grounded to the shield.
    (iii) The screen tape must be left floating during the test.
    (iv) Pair-to-ground capacitance unbalance may vary directly with the 
length of the cable.
    (7) Attenuation. (i) For nonscreened and screened cables, the 
average attenuation of all pairs on any reel when measured at 150 and 
772 kilohertz must comply with the requirements specified in ANSI/ICEA 
S-84-608-1988, paragraph 8.7, Solid Column.
    (ii) For T1C type cables over 12 pairs, the maximum average 
attenuation of all pairs on any reel must not exceed the values listed 
below when measured at a frequency of 1576 kilohertz at or corrected to 
a temperature of 20  1 deg.C. The test must be conducted in 
accordance with ASTM D 4566-90.

------------------------------------------------------------------------
                                                         Maximum Average
                                                           Attenuation  
                                                             decibel/   
                          AWG                             kilometer (dB/
                                                          km) (decibel/ 
                                                              mile)     
------------------------------------------------------------------------
19.....................................................    13.4 (21.5)  
22.....................................................    18.3 (29.4)  
24.....................................................    23.1 (37.2)  
------------------------------------------------------------------------


[[Page 649]]

    (8) Crosstalk loss. (i) The equal level far-end power sum crosstalk 
loss (FEXT) as measured on the completed cable must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 8.8, FEXT 
Table.
    (ii) The near-end power sum crosstalk loss (NEXT) as measured on 
completed cable must comply with the requirements specified in ANSI/ICEA 
S-84-608-1988, paragraph 8.8, NEXT Table.
    (iii) Screened cable. (A) For screened cables the NEXT as measured 
on the completed cable must comply with the requirements specified in 
ANSI/ICEA S-84-608-1988, paragraphs 8.9 and 8.9.1.
    (B) For T1C screened cable the NEXT as measured on the completed 
cable must comply with the requirements specified in ANSI/ICEA S-84-608-
1988, paragraphs 8.9 and 8.9.2.
    (9) Insulation resistance. The insulation resistance of each 
insulated conductor in a completed cable must comply with the 
requirement specified in ANSI/ICEA S-84-608-1988, paragraph 8.11.
    (10) High voltage test. (i) In each length of completed cable, the 
insulation between conductors must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 8.12, Solid Column.
    (ii) In each length of completed cable, the dielectric between the 
shield and/or armor and conductors in the core must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 8.13, 
Single Jacketed, Solid Column. In screened cable the screen tape must be 
left floating.
    (iii) Screened cable. (A) In each length of completed screened 
cable, the dielectric between the screen tape and the conductors in the 
core must comply with the requirement specified in ANSI/ICEA S-84-608-
1988, paragraph 8.14.
    (B) In this test, the cable shield and/or armor must be left 
floating.I11(11) Electrical variations. (i) Pairs in each length of 
cable having either a ground, cross, short, or open circuit condition 
will not be permitted.
    (ii) The maximum number of pairs in a cable which may vary as 
specified in paragraph (k)(11)(iii) of this section from the electrical 
parameters given in this section are listed below. These pairs may be 
excluded from the arithmetic calculation.

------------------------------------------------------------------------
                                                               Maximum  
                                                              Number of 
                                                              Pairs With
                     Nominal Pair Count                       Allowable 
                                                              Electrical
                                                              Variation 
------------------------------------------------------------------------
6-100......................................................      1      
101-300....................................................      2      
301-400....................................................      3      
401-600....................................................      4      
601 and above..............................................      6      
------------------------------------------------------------------------

    (iii) Parameter variations. (A) Capacitance unbalance-to-ground. If 
the cable fails either the maximum individual pair or average 
capacitance unbalance-to-ground requirement and all individual pairs are 
3937 picofarad/kilometer (1200 picofarad/1000 feet) or less, the number 
of pairs specified in paragraph (k)(11)(ii) of this section may be 
eliminated from the average and maximum individual calculations.
    (B) Resistance unbalance. Individual pair of 7 percent for all 
gauges.
    (C) Conductor resistance, maximum. The following table shows maximum 
conductor resistance:

------------------------------------------------------------------------
                                                                 (ohms/ 
                        AWG                            ohms/      1000  
                                                     kilometer    feet) 
------------------------------------------------------------------------
19                                                      29.9     ( 9.1) 
22                                                      60.0     (18.3) 
24                                                      94.5     (28.8) 
26                                                     151.6     (46.2) 
------------------------------------------------------------------------
Note: RUS recognizes that in large pair count cable (600 pair and above)
  a cross, short or open circuit condition occasionally may develop in a
  pair which does not affect the performance of the other cable pairs.  
  In these circumstances rejection of the entire cable may be           
  economically unsound or repairs may be impractical. In such           
  circumstances the manufacturer may desire to negotiate with the       
  customer for acceptance of the cable. No more than 0.5 percent of the 
  pairs may be involved.                                                

    (l) Mechanical requirements--(1) Compound flow test. All cables 
manufactured in accordance with the requirements of this section must be 
capable of meeting the compound flow test specified in ANSI/ICEA S-84-
608-1988, paragraph 9.1 using a test temperature of 80  
1 deg.C.
    (2) Water penetration. All cables manufactured in accordance with 
the requirements of this section must be capable of meeting the water 
penetration test specified in ANSI/ICEA S-84-608-1988, paragraph 9.2.
    (3) Cable cold bend test. All cables manufactured in accordance with 
the

[[Page 650]]

requirements of this section must be capable of meeting the cable cold 
bend test specified in ANSI/ICEA S-84-608-1988, paragraph 9.3.
    (4) Cable impact test. All cables manufactured in accordance with 
the requirements of this section must be capable of meeting the cable 
impact test specified in ANSI/ICEA S-84-608-1988, paragraph 9.4.
    (5) Jacket notch test (CACSP sheath only). All cables utilizing the 
coated aluminum/coated steel sheath (CACSP) design manufactured in 
accordance with the requirements of this section must be capable of 
meeting the jacket notch test specified in ANSI/ICEA S-84-608-1988, 
paragraph 9.5.
    (6) Cable torsion test (CACSP sheath only). All cables utilizing the 
coated aluminum/coated steel sheath (CACSP) design manufactured in 
accordance with the requirements of this section must be capable of 
meeting the cable torsion test specified in ANSI/ICEA S-84-608-1988, 
paragraph 9.6.
    (m) Sheath slitting cord (optional). (1) Sheath slitting cords may 
be used in the cable structure at the option of the manufacturer unless 
specified by the end user.
    (2) When a sheath slitting cord is used it must be nonhygroscopic 
and nonwicking, continuous throughout a length of cable and of 
sufficient strength to open the sheath without breaking the cord.
    (n) Identification marker and length marker. (1) Each length of 
cable must be identified in accordance with ANSI/ICEA S-84-608-1988, 
paragraphs 10.1 through 10.1.4. The color of the ink used for the 
initial outer jacket marking must be either white or silver.
    (2) The markings must be printed on the jacket at regular intervals 
of not more than 0.6 meter (2 feet).
    (3) The completed cable must have sequentially numbered length 
markers in accordance with ANSI/ICEA S-84-608-1988, paragraph 10.1.5. 
The color of the ink used for the initial outer jacket marking must be 
either white or silver.
    (o) Preconnectorized cable (optional). (1) At the option of the 
manufacturer and upon request by the purchaser, cables 100 pairs and 
larger may be factory terminated in 25 pair splicing modules.
    (2) The splicing modules must meet the requirements of RUS Bulletin 
345-54, PE-52, RUS Specification for Telephone Cable Splicing Connectors 
(Incorporated by reference at Sec. 1755.97), and be accepted by RUS 
prior to their use.
    (p) Acceptance testing and extent of testing. (1) The tests 
described in appendix A of this section are intended for acceptance of 
cable designs and major modifications of accepted designs. What 
constitutes a major modification is at the discretion of RUS. These 
tests are intended to show the inherent capability of the manufacturer 
to produce cable products having long life and stability.
    (2) For initial acceptance, the manufacturer must submit:
    (i) An original signature certification that the product fully 
complies with each section of the specification;
    (ii) Qualification Test Data, per appendix A of this section;
    (iii) To periodic plant inspections;
    (iv) A certification that the product does or does not comply with 
the domestic origin manufacturing provisions of the ``Buy American'' 
requirements of the Rural Electrification Act of 1938 (7 U.S.C. 901 et 
seq.);
    (v) Written user testimonials concerning field performance of the 
product; and
    (vi) Other nonproprietary data deemed necessary by the Chief, 
Outside Plant Branch (Telephone).
    (3) For requalification acceptance, the manufacturer must submit an 
original signature certification that the product fully complies with 
each section of the specification, excluding the Qualification Section, 
and a certification that the product does or does not comply with the 
domestic origin manufacturing provisions of the ``Buy American'' 
requirements of the Rural Electrification Act of 1938 (7 U.S.C. 901 et 
seq.), for acceptance by August 30 of each year. The required data must 
have been gathered within 90 days of the submission. If the initial 
acceptance of a product to this specification was within 180 days of 
August 30, then requalification for that product will not be required 
for that year.
    (4) Initial and requalification acceptance requests should be 
addressed to:


[[Page 651]]


    Chairman, Technical Standards Committee ``A'' (Telephone), 
Telecommunications Standards Division, Rural Utilities Service, 
Washington, DC 20250-1500.

    (5) Tests on 100 percent of completed cable. (i) The shield and/or 
armor of each length of cable must be tested for continuity in 
accordance with ANSI/ICEA S-84-608-1988, paragraph 8.16.
    (ii) The screen tape of each length of screened cable must be tested 
for continuity in accordance with ANSI/ICEA S-84-608-1988, paragraph 
8.16.
    (iii) Dielectric strength between conductors and shield and/or armor 
must be tested to determine freedom from grounds in accordance with 
paragraph (k)(10)(ii) of this section.
    (iv) Dielectric strength between conductors and screen tape must be 
tested to determine freedom from grounds in accordance with paragraph 
(k)(10)(iii) of this section.
    (v) Each conductor in the completed cable must be tested for 
continuity in accordance with ANSI/ICEA S-84-608-1988, paragraph 8.16.
    (vi) Dielectric strength between conductors must be tested to insure 
freedom from shorts and crosses in each length of completed cable in 
accordance with paragraph (k)(10)(i) of this section.
    (vii) Each conductor in the completed preconnectorized cable must be 
tested for continuity.
    (viii) Each length of completed preconnectorized cable must be 
tested for split pairs.
    (ix) The average mutual capacitance must be measured on all cables. 
If the average mutual capacitance for the first 100 pairs tested from 
randomly selected groups is between 50 and 53 nanofarad/kilometer (nF/
km) (80 and 85 nanofarad/mile), the remainder of the pairs need not be 
tested on the 100 percent basis (See paragraph (k)(3) of this section).
    (6) Capability tests. Tests on a quality assurance basis must be 
made as frequently as is required for each manufacturer to determine and 
maintain compliance with:
    (i) Performance requirements for conductor insulation, jacketing 
material, and filling and flooding compounds;
    (ii) Bonding properties of coated or laminated shielding and 
armoring materials and performance requirements for screen tape;
    (iii) Sequential marking and lettering;
    (iv) Capacitance difference, capacitance unbalance, crosstalk, and 
attenuation;
    (v) Insulation resistance, conductor resistance and resistance 
unbalance;
    (vi) Cable cold bend and cable impact tests;
    (vii) Water penetration and compound flow tests; and
    (viii) Jacket notch and cable torsion tests.
    (q) Summary of records of electrical and physical tests. (1) Each 
manufacturer must maintain suitable summary records for a period of at 
least 3 years of all electrical and physical tests required on completed 
cable by this section as set forth in paragraphs (p)(5) and (p)(6) of 
this section. The test data for a particular reel must be in a form that 
it may be readily available to the purchaser or to RUS upon request.
    (2) Measurements and computed values must be rounded off to the 
number of places or figures specified for the requirement according to 
ANSI/ICEA S-84-608-1988, paragraph 1.3.
    (r) Manufacturing irregularities. (1) Repairs to the shield and/or 
armor are not permitted in cable supplied to end users under this 
section.
    (2) Minor defects in jackets (defects having a dimension of 3 
millimeters (0.125 inch) or less in any direction) may be repaired by 
means of heat fusing in accordance with good commercial practices 
utilizing sheath grade compounds.
    (s) Preparation for shipment. (1) The cable must be shipped on 
reels. The diameter of the drum must be large enough to prevent damage 
to the cable from reeling or unreeling. The reels must be substantial 
and so constructed as to prevent damage to the cable during shipment and 
handling.
    (2) The thermal wrap must comply with the requirements of ANSI/ICEA 
S-84-608-1988, paragraph 10.3. When a thermal reel wrap is supplied, the 
wrap must be applied to the reel and must be suitably secured in place 
to minimize thermal exposure to the cable during storage and shipment. 
The use of the thermal reel wrap as a means of reel

[[Page 652]]

protection will be at the option of the manufacturer unless specified by 
the end user.
    (3) The outer end of the cable must be securely fastened to the reel 
head so as to prevent the cable from becoming loose in transit. The 
inner end of the cable must be securely fastened in such a way as to 
make it readily available if required for electrical testing. Spikes, 
staples, or other fastening devices which penetrate the cable jacket 
must not be used. The method of fastening the cable ends must be 
accepted by RUS prior to its use.
    (4) Each length of cable must be wound on a separate reel unless 
otherwise specified or agreed to by the purchaser.
    (5) The arbor hole must admit a spindle 63 millimeters (2.5 inches) 
in diameter without binding. Steel arbor hole liners may be used but 
must be accepted by RUS prior to their use.
    (6) Each reel must be plainly marked to indicate the direction in 
which it should be rolled to prevent loosening of the cable on the reel.
    (7) Each reel must be stenciled or labeled on either one or both 
sides with the information specified in ANSI/ICEA S-84-608-1988, 
paragraph 10.4 and the RUS cable designation:

    Cable Designation

    BFC
    Cable Construction
    Pair Count
    Conductor Gauge

    A = Coated Aluminum Shield
    C = Copper Shield
    Y = Gopher Resistant Shield
    X = Armored, Separate Shield
    H = T1 Screened Cable
    H1C = T1C Screened Cable
    P = Preconnectorized
        Example: BFCXH100-22

Buried Filled Cable, Armored (w/separate shield), T1 Screened Cable, 100 
pair, 22 AWG.

    (8) When cable manufactured to the requirements of this section is 
shipped, both ends must be equipped with end caps acceptable to RUS.
    (9) When preconnectorized cables are shipped, the splicing modules 
must be protected to prevent damage during shipment and handling. The 
protection method must be acceptable to RUS and accepted prior to its 
use.
    (10) All cables ordered for use in underground duct applications 
must be equipped with a factory-installed pulling-eye on the outer end 
in accordance with ANSI/ICEA S-84-608-1988, paragraph 10.5.2.

(The information and recordkeeping requirements of this section have 
been approved by the Office of Management and Budget (OMB) under the 
control number 0572-0059)

        Appendix A to 7 CFR 1755.390--Qualification Test Methods

    (I) The test procedures described in this appendix are for 
qualification of initial designs and major modification of accepted 
designs. Included in (V) of this appendix are suggested formats that may 
be used in submitting the test results to RUS.
    (II) Sample selection and preparation. (1) All testing must be 
performed on lengths removed sequentially from the same 25 pair, 22 
gauge jacketed cable. This cable must not have been exposed to 
temperatures in excess of 38 deg.C since its initial cool down after 
sheathing. The lengths specified are minimum lengths and if desirable 
from a laboratory testing standpoint longer lengths may be used.
    (a) Length A shall be 10  0.2 meters (33  
0.5 feet) long and must be maintained at 23  3 deg.C. One 
length is required.
    (b) Length B shall be 12  0.2 meters (40  
0.5 feet) long. Prepare the test sample by removing the jacket, shield 
or shield/armor and core wrap for a sufficient distance on both ends to 
allow the insulated conductors to be flared out. Remove sufficient 
conductor insulation so that appropriate electrical test connections can 
be made at both ends. Coil the sample with a diameter of 15 to 20 times 
its sheath diameter. Three lengths are required.
    (c) Length C shall be one meter (3 feet) long. Four lengths are 
required.
    (d) Length D shall be 300 millimeters (1 foot) long. Four lengths 
are required.
    (e) Length E must be 600 millimeters (2 feet) long. Four lengths are 
required.
    (f) Length F shall be 3 meters (10 feet) long and must be maintained 
at 23  3 deg.C for the duration of the test. Two lengths are 
required.
    (2) Data reference temperature. Unless otherwise specified, all 
measurements must be made at 23  3 deg.C.
    (III) Environmental tests--(1) Heat aging test--(a) Test samples. 
Place one sample each of lengths B, C, D and E in an oven or 
environmental chamber. The ends of Sample B must exit from the chamber 
or oven for electrical tests. Securely seal the oven exit holes.

[[Page 653]]

    (b) Sequence of tests. The samples are to be subjected to the 
following tests after conditioning:
    (i) Water Immersion Test outlined in (III)(2) of this appendix;
    (ii) Water Penetration Test outlined in (III)(3) of this appendix;
    (iii) Insulation Compression Test outlined in (III)(4) of this 
appendix; and
    (iv) Jacket Slip Strength Test outlined in (III)(5) of this 
appendix.
    (c) Initial measurements. (i) For Sample B measure the open circuit 
capacitance for each odd numbered pair at 1, 150, and 772 kilohertz, and 
the attenuation at 150 and 772 kilohertz after conditioning the sample 
at the data reference temperature for 24 hours. Calculate the average 
and standard deviation for the data of the 13 pairs on a per kilometer 
or (on a per mile) basis.
    (ii) The attenuation at 150 and 772 kilohertz may be calculated from 
open circuit admittance (Yoc) and short circuit impedance (Zsc) or may 
be obtained by direct measurement of attenuation.
    (iii) Record on suggested formats in (V) of this appendix or on 
other easily readable formats.
    (d) Heat conditioning. (i) Immediately after completing the initial 
measurements, condition the sample for 14 days at a temperature of 65 
 2 deg.C.
    (ii) At the end of this period note any exudation of cable filler. 
Measure and calculate the parameters given in (III)(1)(c) of this 
appendix. Record on suggested formats in (V) of this appendix or on 
other easily readable formats.
    (iii) Cut away and discard a one meter (3 foot) section from each 
end of length B.
    (e) Overall electrical deviation. (i) Calculate the percent change 
in all average parameters between the final parameters after 
conditioning and the initial parameters in (III)(1)(c) of this appendix.
    (ii) The stability of the electrical parameters after completion of 
this test must be within the following prescribed limits:
    (A) Capacitance. The average mutual capacitance must be within 5 
percent of its original value;
    (B) The change in average mutual capacitance must be less than 5 
percent over frequency 1 to 150 kilohertz; and
    (C) Attenuation. The 150 and 772 kilohertz attenuation must not have 
increased by more than 5 percent over their original values.
    (2) Water immersion electrical test--(a) Test sample selection. The 
10 meter (33 foot) section of length B must be tested.
    (b) Test sample preparation. Prepare the sample by removing the 
jacket, shield or shield/armor, and core wrap for sufficient distance to 
allow one end to be accessed for test connections. Cut out a series of 6 
millimeter (0.25 inch) diameter holes along the test sample, at 30 
centimeters (1 foot) intervals progressing successively 90 degrees 
around the circumference of the cable. Assure that the cable core is 
exposed at each hole by slitting the core wrapper. Place the prepared 
sample in a dry vessel which when filled will maintain a one meter (3 
foot) head of water over 6 meters (20 feet) of uncoiled cable. Extend 
and fasten the ends of the cable so they will be above the water line 
and the pairs are rigidly held for the duration of the test.
    (c) Capacitance testing. Measure the initial values of mutual 
capacitance of all odd pairs in each cable at a frequency of 1 kilohertz 
before filling the vessel with water. Be sure the cable shield or 
shield/armor is grounded to the test equipment. Fill the vessels until 
there is a one meter (3 foot) head of water on the cables.
    (i) Remeasure the mutual capacitance after the cables have been 
submerged for 24 hours and again after 30 days.
    (ii) Record each sample separately on suggested formats in (V) of 
this appendix or on other easily readable formats.
    (d) Overall electrical deviation. (i) Calculate the percent change 
in all average parameters between the final parameters after 
conditioning with the initial parameters in (III)(2)(c) of this 
appendix.
    (ii) The average mutual capacitance must be within 5 percent of its 
original value.
    (3) Water penetration testing. (a) A watertight closure must be 
placed over the jacket of length C. The closure must not be placed over 
the jacket so tightly that the flow of water through pre-existing voids 
of air spaces is restricted. The other end of the sample must remain 
open.
    (b) Test per Option A or Option B--(i) Option A. Weigh the sample 
and closure prior to testing. Fill the closure with water and place 
under a continuous pressure of 10  0.7 kilopascals (1.5 
 0.1 pounds per square inch gauge) for one hour. Collect the 
water leakage from the end of the test sample during the test and weigh 
to the nearest 0.1 gram. Immediately after the one hour test, seal the 
ends of the cable with a thin layer of grease and remove all visible 
water from the closure, being careful not to remove water that 
penetrated into the core during the test. Reweigh the sample and 
determine the weight of water that penetrated into the core. The weight 
of water that penetrated into the core must not exceed 8 grams.
    (ii) Option B. Fill the closure with a 0.2 gram sodium fluorscein 
per liter water solution and apply a continuous pressure 10  
0.7 kilopascals (1.5  0.1 pounds per square inch gauge) for 
one hour. Catch and weigh any water that leaks from the end of the cable 
during the one hour period. If no water leaks from the sample, carefully 
remove the water from the closure. Then carefully remove the jacket, 
shield or shield/armor and core wrap

[[Page 654]]

one at a time, examining with an ultraviolet light source for water 
penetration. After removal of the core wrap, carefully dissect the core 
and examine for water penetration within the core. Where water 
penetration is observed, measure the penetration distance. The distance 
of water penetration into the core must not exceed 127 millimeters (5.0 
inches).
    (4) Insulation compression test--(a) Test Sample D. Remove jacket, 
shield or shield/armor, and core wrap being careful not to damage the 
conductor insulation. Remove one pair from the core and carefully 
separate, wipe off core filler, and straighten the insulated conductors. 
Retwist the two insulated conductors together under sufficient tension 
to form 10 evenly spaced 360 degree twists in a length of 10 centimeters 
(4 inches).
    (b) Sample testing. Center the mid 50 millimeters (2 inches) of the 
twisted pair between 2 smooth rigid parallel metal plates that are 50 
millimeters  x  50 millimeters (2 inches  x  2 inches). Apply a 1.5 volt 
direct current potential between the conductors, using a light or buzzer 
to indicate electrical contact between the conductors. Apply a constant 
load of 67 newtons (l5 pound-force) on the sample for one minute and 
monitor for evidence of contact between the conductors. Record results 
on suggested formats in (V) of this appendix or on other easily readable 
formats.
    (5) Jacket slip strength test--(a) Sample selection. Test Sample E 
from (III)(1)(a) of this appendix.
    (b) Sample preparation. Prepare test sample in accordance with the 
procedures specified in ASTM D 4565-90a.
    (c) Sample conditioning and testing. Remove the sample from the 
tensile tester prior to testing and condition for one hour at 50 
 2 deg.C. Test immediately in accordance with the procedures 
specified in ASTM D 4565-90a. A minimum jacket slip strength of 67 
newtons (15 pound-force) is required. Record the highest load attained.
    (6) Humidity exposure. (a) Repeat steps (III)(1)(a) through 
(III)(1)(c)(iii) of this appendix for separate set of samples B, C, D, 
and E which have not been subjected to prior environmental conditioning.
    (b) Immediately after completing the measurements, expose the test 
sample to 100 temperature cyclings. Relative humidity within the chamber 
must be maintained at 90  2 percent. One cycle consists of 
beginning at a stabilized chamber and test sample temperature of 52 
 1 deg.C, increasing the temperature to 57  
1 deg.C, allowing the chamber and test samples to stabilize at this 
level, then dropping the temperature back to 52  1 deg.C.
    (c) Repeat steps (III)(1)(d)(ii) through (III)(5)(c) of this 
appendix.
    (7) Temperature cycling. (a) Repeat steps (III)(1)(a) through 
(III)(1)(c)(iii) of this appendix for separate set of samples B, C, D, 
and E which have not been subjected to prior environmental conditioning.
    (b) Immediately after completing the measurements, subject the test 
sample to the 10 cycles of temperature between a minimum of -40 deg.C 
and +60 deg.C. The test sample must be held at each temperature extreme 
for a minimum of 1 1/2 hours during each cycle of temperature. The air 
within the temperature cycling chamber must be circulated throughout the 
duration of the cycling.
    (c) Repeat steps (III)(1)(d)(ii) through (III)(5)(c) of this 
appendix.
    (IV) Control sample--(1) Test samples. A separate set of lengths A, 
C, D, E, and F must have been maintained at 23  3 deg.C for 
at least 48 hours before the testing.
    (2) Repeat steps (III)(2) through (III)(5)(c) of this appendix 
except use length A instead of length B.
    (3) Surge Test. (a) One length of sample F must be used to measure 
the breakdown between conductors while the other length of F must be 
used to measure the core to shield breakdown.
    (b) The samples must be capable of withstanding without damage, a 
single surge voltage of 20 kilovolts peak between conductors, and a 35 
kilovolts peak surge voltage between conductors and the shield or 
shield/armor as hereinafter described. The surge voltage must be 
developed from a capacitor discharged through a forming resistor 
connected in parallel with the dielectric of the test sample. The surge 
generator constants must be such as to produce a surge of 1.5  x  40 
microsecond wave shape.
    (c) The shape of the generated wave must be determined at a reduced 
voltage by connecting an oscilloscope across the forming resistor with 
the cable sample connected in parallel with the forming resistor. The 
capacitor bank is charged to the test voltage and then discharged 
through the forming resistor and test sample. The test sample will be 
considered to have passed the test if there is no distinct change in the 
wave shape obtained with the initial reduced voltage compared to that 
obtained after the application of the test voltage.
    (V) The following suggested formats may be used in submitting the 
test results to RUS:

[[Page 655]]



                Environmental Conditioning______________                
                          Frequency 1 kilohertz                         
------------------------------------------------------------------------
                                                  Capacitance           
                                      ----------------------------------
             Pair Number                     nF/km (nanofarad/mile)     
                                      ----------------------------------
                                            Initial           Final     
------------------------------------------------------------------------
1                                      ____________      ____________   
3                                      ____________      ____________   
5                                      ____________      ____________   
7                                      ____________      ____________   
9                                      ____________      ____________   
11                                     ____________      ____________   
13                                     ____________      ____________   
15                                     ____________      ____________   
17                                     ____________      ____________   
19                                     ____________      ____________   
21                                     ____________      ____________   
23                                     ____________      ____________   
25                                     ____________      ____________   
Average x                              ____________      ____________   
                                                                        
------------------------------------------------------------------------
Overall Percent Difference in Average x ______________                  


                Environmental Conditioning______________                
                         Frequency 150 kilohertz                        
------------------------------------------------------------------------
                                    Capacitance          Attenuation    
                               -----------------------------------------
                                 nF/km (nanofarad/     dB/km (decibel/  
          Pair Number                  mile)                mile)       
                               -----------------------------------------
                                 Initial     Final    Initial     Final 
------------------------------------------------------------------------
1                               ______     ______    ______     ______  
3                               ______     ______    ______     ______  
5                               ______     ______    ______     ______  
7                               ______     ______    ______     ______  
9                               ______     ______    ______     ______  
11                              ______     ______    ______     ______  
13                              ______     ______    ______     ______  
15                              ______     ______    ______     ______  
17                              ______     ______    ______     ______  
19                              ______     ______    ______     ______  
21                              ______     ______    ______     ______  
23                              ______     ______    ______     ______  
25                              ______     ______    ______     ______  
Average x                       ______     ______    ______     ______  
------------------------------------------------------------------------
Overall Percent Difference in Average x        Capacitance:____________ 
      Conductance:____________                                          


                Environmental Conditioning______________                
                         Frequency 772 kilohertz                        
------------------------------------------------------------------------
                                    Capacitance          Attenuation    
                               -----------------------------------------
                                 nF/km (nanofarad/     dB/km (decibel/  
          Pair Number                  mile)                mile)       
                               -----------------------------------------
                                 Initial     Final    Initial     Final 
------------------------------------------------------------------------
1                               ______     ______    ______     ______  
3                               ______     ______    ______     ______  
5                               ______     ______    ______     ______  
7                               ______     ______    ______     ______  
9                               ______     ______    ______     ______  
11                              ______     ______    ______     ______  
13                              ______     ______    ______     ______  
15                              ______     ______    ______     ______  
17                              ______     ______    ______     ______  
19                              ______     ______    ______     ______  
21                              ______     ______    ______     ______  
23                              ______     ______    ______     ______  
25                              ______     ______    ______     ______  
Average x                       ______     ______    ______     ______  
------------------------------------------------------------------------
Overall Percent Difference in Average x        Capacitance:____________ 
      Conductance:____________                                          


                Environmental Conditioning______________                
                   Water Immersion Test (1 kilohertz)                   
------------------------------------------------------------------------
                                                Capacitance             
                                  --------------------------------------
           Pair Number                     nF/km (nanofarad/mile)       
                                  --------------------------------------
                                      Initial      24 Hours      Final  
------------------------------------------------------------------------
1                                  ______        ______       ______    
3                                  ______        ______       ______    
5                                  ______        ______       ______    
7                                  ______        ______       ______    
9                                  ______        ______       ______    
11                                 ______        ______       ______    
13                                 ______        ______       ______    
15                                 ______        ______       ______    
17                                 ______        ______       ______    
19                                 ______        ______       ______    
21                                 ______        ______       ______    
23                                 ______        ______       ______    
25                                 ______        ______       ______    
Average x                          ______        ______       ______    
------------------------------------------------------------------------
Overall Percent Difference in Average x ______________                  


                                                                 Water Penetration Test                                                                 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Option A                                                  Option B                        
                                     -------------------------------------------------------------------------------------------------------------------
                                           End Leakage grams            Weight Gain grams            End Leakage grams           Penetration mm (in.)   
--------------------------------------------------------------------------------------------------------------------------------------------------------
Control.............................                                                                                                                    
                                     -------------------------------------------------------------------------------------------------------------------
Heat Age............................                                                                                                                    
                                     -------------------------------------------------------------------------------------------------------------------
Humidity Exposure...................                                                                                                                    
                                     -------------------------------------------------------------------------------------------------------------------
Temperature Cycling.................                                                                                                                    
                                     -------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------


                         Insulation Compression                         
------------------------------------------------------------------------
                                                      Failures          
------------------------------------------------------------------------
Control...................................  ________________            
Heat Age..................................  ________________            
Humidity Exposure.........................  ________________            
Temperature Cycling.......................  ________________            
------------------------------------------------------------------------

      

                       Jacket Slip Strength @ 50C                       
------------------------------------------------------------------------
                                               Load in newtons (pound-  
                                                       force)           
------------------------------------------------------------------------
Control...................................  ________________            

[[Page 656]]

                                                                        
Heat Age..................................  ________________            
Humidity Exposure.........................  ________________            
Temperature Cycling.......................  ________________            
------------------------------------------------------------------------


                        Filler Exudation (grams)                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Heat Age..................................  ________________            
Humidity Exposure.........................  ________________            
Temperature Cycle.........................  ________________            
------------------------------------------------------------------------


                         Surge Test (kilovolts)                         
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Conductor to Conductor....................  ________________            
Shield to Conductors......................  ________________            
------------------------------------------------------------------------


[58 FR 29338, May 20, 1993; 58 FR 32749, June 11, 1993; as amended at 60 
FR 1711, Jan. 5, 1995]
Secs. 1755.391--1755.396  [Reserved]



Sec. 1755.397  RUS performance specification for line concentrators.

    (a) General. (1) This section covers general requirements for a line 
concentrator (LC) system. This system shall operate in accordance with 
the manufacturer's specifications. Reliability shall be of prime 
importance in the design, manufacture and installation of the equipment. 
The equipment shall automatically provide for:
    (i) Terminating subscriber lines at a location remote from the 
serving central office;
    (ii) Concentrating the subscriber lines over a few transmission and 
supervisory paths to the serving central office; and
    (iii) Terminating the lines at the central office without loss of 
individual identity. A subscriber connected to a line concentrator shall 
be capable of having essentially the same services as a subscriber 
connected directly to the central office equipment (COE). Intra-unit 
calling among subscribers connected to the concentrator may be provided, 
but is not required.
    (2) Industry standards, or portions thereof, referred to in this 
paragraph (a) are incorporated by reference by RUS. This incorporation 
by reference was approved by the Director of the Federal Register in 
accordance with 5 U.S.C. 552 (a) and 1 CFR part 51. Copies of these 
standards are available for inspection during normal business hours at 
RUS, room 2838, U.S. Department of Agriculture, Washington, DC 20250 or 
at the Office of the Federal Register, 800 North Capitol Street, NW., 
suite 700, Washington, DC.
    (3) American National Standards Institute (ANSI) standards are 
available from ANSI Inc., 11 West 42nd Street, 13th floor, New York, NY 
10036, telephone 212-642-4900.
    (i) ANSI Standard S1.4-1983, Specification for Sound Level Meters, 
including Amendment S1.4A-1985.
    (ii) [Reserved]
    (4) American Society for Testing Materials (ASTM) are available from 
1916 Race Street, Philadelphia, PA 19103, telephone 215-299-5400.
    (i) ASTM Specification B33-91, Standard Specifications for Tinned 
Soft or Annealed Copper Wire for Electrical Purposes.
    (ii) [Reserved]
    (5) Bell Communications Research (Bellcore) standards are available 
from Bellcore Customer Service, 8 Corporate Place, Piscataway, NJ 08854, 
telephone 1-800-521-2673.
    (i) TR-TSY-000008, Issue 2, August 1987, Digital Interface between 
the SLC 96 Digital Loop Carrier System and a Local Digital Switch.
    (ii) Bell Communications Research (Bellcore) document TR-TSY-000057, 
Issue 1, April 1987, including Revision 1, November 1988, Functional 
Criteria for Digital Loop Carrier Systems.
    (iii) Bell Communications Research (Bellcore) Document TR-NWT-
000303, Issue 2, December 1992, including Revision 1, December 1993, 
Integrated Digital Loop Carrier System Generic Requirements, Objectives, 
and Interface.
    (6) Federal Standard H28, Screw-Thread Standards for Federal 
Services, March 31, 1978, including Change Notice 1, May 28, 1986; 
Change Notice 2, January 20, 1989; and Change Notice 3, March 12, 1990. 
Copies may be obtained from the General Services Administration, 
Specification Section, 490 East L'Enfant Plaza SW, Washington, DC 20407, 
telephone 202-755-0325.
    (7) IEEE standards are available from IEEE Service Center, 445 Hoes 
Lane,

[[Page 657]]

P.O. Box 1331, Piscataway, NJ 08854, telephone 1-800-521-2673.
    (i) IEEE Standard 455-1985, Standard Test Procedure for Measuring 
Longitudinal Balance of Telephone Equipment Operating in the Voice Band.
    (ii) [Reserved]
    (8) RUS standards are available from Publications and Directives 
Management Branch, Administrative Services Division, Rural Utilities 
Service, room 0180, South Building, U.S. Department of Agriculture, 
Washington, DC 20250-1500.
    (i) RUS Bulletin 345-50, PE-60 (Sept 1979), RUS Specification for 
Trunk Carrier Systems.
    (ii) [Reserved]
    (b) Types of requirements. (1) Unless otherwise indicated, the 
requirements listed in this section are considered to be fixed 
requirements.
    (2) The concentrator system shall communicate with standard T1 
digital transmission format at a minimum between the concentrator and 
central office terminals. Analog conversion functions at remote and 
central office terminals shall be capable of being eliminated to 
accommodate end-to-end digital transmission.
    (3) The LC shall operate properly as an integral part of the 
telephone network when connected to physical or carrier derived circuits 
and central offices meeting RUS specifications and other generally 
accepted telecommunications practices, such as Bellcore documents TR-
NWT-000303, Integrated Digital Loop Carrier System Generic Requirements, 
Objectives and Interface; TR-TSY-000008, Digital Interface between the 
SLC 96 Digital Loop Carrier System and a Local Digital Switch; and TR-
TSY-000057, Functional Criteria for Digital Loop Carrier Systems.
    (4) For RUS acceptance consideration of a LC, the manufacturer must 
certify and demonstrate that all requirements specified in this section 
are available and in compliance with this section.
    (5) Certain requirements are included in this section for features 
which may not be needed for every application. Such features are 
identifiable by the inclusion in the requirements of some such phrase as 
``when specified by the owner'' or ``as specified by the owner.'' In 
some cases where an optional feature will not be required by an owner, 
either now or in the future, a system which does not provide this 
feature shall be considered to be in compliance with the specification 
for the specific installation under consideration, but not in compliance 
with the entire specification.
    (6) The owner may properly request bids from any supplier of an RUS 
accepted LC whose system provides all the features which will be 
required for a specific installation.
    (7) When required by the owner, the supplier shall state compliance 
to the Carrier Serving Area (CSA) requirements, as stated in Bell 
Communications Research (Bellcore) Standard TR-TSY-000057, Functional 
Criteria for Digital Loop Carrier Systems.
    (c) Reliability. (1) The failure rate of printed circuit boards 
shall not exceed an average of 2.0 percent per month of all equipped 
cards in all system terminals during the first 3 months after cutover, 
and shall not exceed an average of 1.0 percent per month of all equipped 
cards in all system terminals during the second 3-month period. The 
failure rate for the equipment shall be less than 0.5 percent per month 
of all equipped cards in all system terminals after 6 months. A failure 
is considered to be the failure of a component on the PC board which 
requires it to be repaired or replaced.
    (2) The line concentrator terminal units shall be designed such that 
there will be no more than 4 hours of total outages in 20 years.
    (d) System type acceptance tests. General test results will be 
required on each system type. Any system provided in accordance with 
this section shall be capable of meeting any requirement in this section 
on a spot-check basis.
    (e) Features required. The network control equipment and peripheral 
equipment shall be comprised of solid-state and integrated circuitry 
components as far as practical and in keeping with the state-of-the-art 
and economics of the subject system.
    (f) Subscriber lines--(1) General. (i) The remote LC units shall 
operate satisfactorily with subscriber lines which meet all of the 
conditions under the bidder's specifications and all the requirements

[[Page 658]]

of this section. This section recognizes that the loop limit of the line 
concentrator is dependent upon the transmission facility between the LC 
central office termination and the LC remote unit. When voice frequency 
(physical) circuits are used, the loop limit from the COE to the 
subscriber shall be 1900 ohms (including the telephone set). When 
electronically derived circuits (carrier, lightwave, etc.) are used, the 
loop limits of the electronic system will control. The bidder shall 
identify the loop limits of the equipment to be supplied.
    (ii) There should be provisions for such types of lines as ground 
start, loop start, regular subscriber, pay stations, etc.
    (2) Dialing. (i) General. The line concentrator remote and central 
office terminal equipment shall satisfactorily transmit dialing 
information when used with subscriber dials having a speed of operation 
between 8 and 12 dial pulses per second and a break period of 55 to 65% 
of the total signaling period.
    (ii) Subscriber dial interdigital time. The remote and central 
office LC equipment shall permit satisfactory telecommunications 
operation when used with subscriber rotary dial interdigital times of 
200 milliseconds minimum, and pushbutton dialing with 50 milliseconds 
minimum.
    (iii) Subscriber line pushbutton dialing frequencies. The frequency 
pairs assigned for pushbutton dialing when provided by the central 
office shall be as listed in this paragraph (f)(2)(iii), with an 
allowable variation of 1.5 percent:

------------------------------------------------------------------------
                                        High group frequencies (Hz)     
   Low group frequencies (Hz)    ---------------------------------------
                                   1209    1336    1477        1633     
------------------------------------------------------------------------
697.............................       1       2       3  Spare.        
770.............................       4       5       6  Spare.        
852.............................       7       8       9  Spare.        
941.............................       *       0       #  Spare.        
------------------------------------------------------------------------

    (3) Ringing. (i) When LC ringing is generated at the remote end, it 
shall be automatic and intermittent and shall be cut off from the called 
line upon removal of the handset at the called station during either the 
ringing or silent period.
    (ii) When ringing generators are provided in the LC on an ancillary 
basis, they shall be accepted or technically accepted by RUS.
    (iii) Where ringing is generated at the remote end, the ringing 
system shall provide sufficient ringing on a bridged basis over the 
voltage and temperature limits of this specification and over subscriber 
loops within the limits stated by the manufacturer. The manufacturer 
shall state the minimum number (not less than two) of main station 
ringers that can be used for each ringing option available.
    (g) Traffic. (1)(i) The minimum grade of service for traffic in the 
line concentrator shall be B=.005 using the Traffic Table, based on the 
Erlang Lost-Calls-Cleared Formula. Required grade of service, traffic 
assumptions and calculations for the particular application being 
implemented shall be supplied by the bidder.
    (ii) Service to customers served by a traffic sensitive LC should 
not be noticeably different than the service to customers served by the 
dedicated physical pairs from the central office so that uniform grade 
of service will be provided to all customers in any class of service. 
Reference Sec. 1755.522(p)(1)(i), RUS General Specification for Digital, 
Stored Program Controlled Central Office Equipment.
    (2) Traffic and Plant Registers. Traffic measurements consist of 
three types--peg count, usage, and congestion. A peg count register 
scores one count per call attempt per circuit group such as trunks, 
digit receivers, senders, etc. Usage counters measure the traffic 
density in networks, trunks and other circuit groups. Congestion 
registers score the number of calls which fail to find an idle circuit 
in a trunk group or to find an idle path through the switching network 
when attempting to connect two given end points. These conditions 
constitute ``network blocking.''

[[Page 659]]

    (3) When required, traffic data will be stored in electronic storage 
registers or a block of memory consisting of one or more traffic 
counters for each item to be measured. The bidder shall indicate what 
registers are to be supplied, their purpose and the means for displaying 
the information locally (or at a remote location when available).
    (h) Transmission requirements. (1) General. Unless otherwise stated, 
the requirements in paragraphs (h) (2) through (20) of this section are 
specified in terms of analog measurements made from Main Distributing 
Frame (MDF) terminals to MDF terminals excluding cabling loss.
    (2) Telephone transmitter battery supply. A minimum of 20 
milliamperes, dc, shall be provided for the transmitter of the telephone 
set at the subscriber station under all loop conditions specified by the 
bidder. The telephone set is assumed to have a resistance of 200 ohms.
    (3) Impedance--subscriber loops. For the purpose of this section, 
the input impedance of all subscriber loops served by the equipment is 
arbitrarily considered to be 900 ohms in series with 2.16 microfarad 
capacitor at voice frequencies.
    (4) Battery noise. Noise across the remote terminal battery at power 
panel distribution bus terminals shall not exceed 35 dBrnC during the 
specified busy hour.
    (5) Stability. The long-term allowable variation in loss through the 
line concentrator system shall be 0.5 dB from the loss 
specified by the bidder.
    (6) Return loss. The specified return loss values are determined by 
the service and type of port at the measuring end. Two-wire ports are 
measured at 900 ohms in series with 2.16 microfarads, and 4-wire ports 
are measured at 600 ohms resistive. When other balance networks are 
supplied, test equipment arranged for operation with the supplied 
network(s) may be used. The requirement given shall meet the following 
cited values on each balance network available in the system:

Line-to-Line or Line-to-Trunk (2-Wire)
Echo Return Loss (ERL)--18 dB, Minimum
Singing Return Loss (SRL)--Low--15 dB, Minimum
Singing Return Loss (SRL)--High--18 dB, Minimum

    (7) Longitudinal balance. The minimum longitudinal balance, with dc 
loop currents between 20 to 70 mA, shall be 60 dB at all frequencies 
between 60 and 2000 Hz, 55 dB at 2700 Hz and 50 dB at 3400 Hz. The 
method of measurement shall be as specified in the IEEE standard 455, 
``Standard Testing Procedure for Measuring Longitudinal Balance of 
Telephone Equipment Operating in the Voice Band.'' Source voltage level 
shall be 10 volts root mean square (rms) where conversation battery feed 
originates at the remote end.
    (8) 60 hz longitudinal current immunity. The LC 60 Hz longitudinal 
current immunity shall be measured in accordance with Figure 1 of this 
section. Under test conditions cited on Figure 1 of this section, the 
system noise shall be 23 dBrnC or less as follows:

[[Page 660]]

[GRAPHIC] [TIFF OMITTED] TR29AU95.002



[[Page 661]]

    (9) Steady noise (idle channel at 900 ohm impedance). Steady noise: 
Measure on terminated call. Noise measurements shall comply with the 
following:

Maximum--23 dBrnC0
Average--18 dBrnC0 or Less
3KHz Flat--Less than 35 dBrnO as an Objective

    (10) Impulse noise. LC central office terminal equipment shall have 
an impulse noise limit of not more than five counts exceeding 54 dBrnC0 
voice band weighted in a 5-minute period on six such measurements made 
during the busy hour. A WILCOM T-194C Transmission Test Set, or 
equivalent, should be used for the measurements. The measurement shall 
be made by establishing a normal connection from the noise counter 
through the switching equipment in its off-hook condition to a quiet 
termination of 900 ohms impedance. Office battery and signaling circuit 
wiring shall be suitably segregated from voice and carrier circuit 
wiring, and frame talking battery filters provided, if and as required, 
in order to meet these impulse noise limits.
    (11) Crosstalk coupling. Worst case equal level crosstalk shall be 
65 dB minimum in the range 200 to 3400 Hz. This shall be measured 
between any two paths through the system by connecting a 0 dBm0 level 
tone to the disturbing pair.
    (12) Digital error rate. The digital line concentrator shall not 
introduce more than one error in 10 \8\ bits averaged over a 5-minute 
period, excluding the least significant bit.
    (13) Quantizing distortion. (i) The system shall meet the following 
requirements:

------------------------------------------------------------------------
                                                  Minimum signal to     
     Input level (dBm0) 1004 or 1020 Hz       distortion with C-message 
                                                      weighting         
------------------------------------------------------------------------
0 to -30...................................  33 dB                      
-30 to -40.................................  27 dB                      
-40 to -45.................................  22 dB                      
------------------------------------------------------------------------

    (ii) Due to possible loss of the least significant bit on direct 
digital connections, a signal to distortion degradation of up to 2 dB 
may be allowed where adequately justified by the bidder.
    (14) Overload level. The overload level shall be +3 dBm0.
    (15) Gain tracking (linearity) shall meet the following 
requirements:

------------------------------------------------------------------------
                                                               Maximum  
                   Input signal level \1\                        gain   
                                                              deviation 
------------------------------------------------------------------------
+3 to -37 dBm0.............................................  0.5 dB
-37 to -50 dBm0............................................  1 dB 
------------------------------------------------------------------------
\1\ 1004 Hz reference at 0 dBm0.                                        

    (16) Frequency response (loss relative to 1004 Hz) for line-to-line 
(via trunk group or intra-link) connections shall meet the following 
requirements:

------------------------------------------------------------------------
              Frequency (Hz)                  Loss at 0 dBm0 input \1\  
------------------------------------------------------------------------
60........................................  20 dB Min.\2\               
300.......................................  -1 to +3 dB                 
600 to 2400...............................  +1 dB                       
3400......................................  -1 to +3 dB                 
------------------------------------------------------------------------
\1\ (-) means less loss and (+) means more loss.                        
\2\ Transmit End.                                                       

    (17) Envelope delay distortion. On any properly established 
connection, the envelope delay distortion shall not exceed the following 
limits:

------------------------------------------------------------------------
                      Frequency (Hz)                        Microseconds
------------------------------------------------------------------------
1000 to 2600..............................................         190  
800 to 2800...............................................         350  
600 to 3000...............................................         500  
400 to 3200...............................................         700  
------------------------------------------------------------------------

    (18) Absolute delay. The absolute one-way delay through the line 
concentrator, excluding delays associated with the central office 
switching equipment, shall not exceed 1000 microseconds analog-to-analog 
measured at 1800 Hz.
    (19) Insertion loss. The insertion loss in both directions of 
transmission at 1004 Hz shall be included in the insertion loss 
requirements for the connected COE switch and shall not increase the 
overall losses through the combined equipment beyond the values for the 
COE alone, when operated through a direct digital interface. Systems 
operated with a (VF) line circuit interface may introduce up to 3 dB 
insertion loss. Reference Sec. 1755.522(q)(3).
    (20) Detailed requirements for direct digital connections. (i) This 
paragraph (h)(20) covers the detailed requirements for the provision of 
interface units which will permit direct digital connection between the 
host central office and line concentrator subscriber terminals over 
digital facilities. The digital

[[Page 662]]

transmission system shall be compatible with T1 type span lines using a 
DS1 interface and other digital interfaces that may be specified by the 
owner. The RUS specification for the T1 span line equipment is PE-60. 
Other span line techniques may also be used. Diverse span line routing 
may be used when specified by the owner.
    (ii) The output of a digital-to-digital port shall be Pulse Code 
Modulation (PCM), encoded in eight-bit words using the mu-255 encoding 
law and D3 encoding format, and arranged to interface with a T1 span 
line.
    (iii) Signaling shall be by means of Multifrequency (MF) or Dual 
Pulsing (DP) and the system which is inherent in the A and B bits of the 
D3 format. In the case where A and B bits are not used for signaling or 
system control, these bits shall only be used for normal voice and data 
transmission.
    (iv) When a direct digital interface between the span line and the 
host central office equipment is to be implemented, the following 
requirements shall be met:
    (A) The span line shall be terminated in a central office as a 
minimum a DS1 (1.544Mb/s) shall be provided;
    (B) The digital central office equipment shall be programmed to 
support the operation of the digital port with the line concentrator 
subscriber terminal;
    (C) The line concentrator subscriber terminal used with a direct 
digital interface shall be interchangeable with the subscriber terminal 
used with a central office terminal.
    (i) Alarms. The system shall send alarms for such conditions as 
blown fuses, blocked controls, power failure in the remote terminal, 
etc., along with its own status indication and status of dry relay 
contact closures or solid-state equivalent to the associated central 
office alarm circuits. Sufficient system alarm points shall be provided 
from the remote terminal to report conditions to the central office 
alarm system. The alarms shall be transmitted from the remote terminal 
to the central office terminal as long as any part of the connecting 
link is available for this transmission. Fuses shall be of the alarm and 
indicator type, and their rating designated by numerals or color code on 
fuse positions.
    (j) Electrical protection--(1) Surge protection. (i) Adequate 
electrical protection of line concentrator equipment shall be included 
in the design of the system. The characteristics and application of 
protection devices must be such that they enable the line concentrator 
equipment to withstand, without damage or excessive protector 
maintenance, the dielectric stresses and currents that are produced in 
line-to-ground and tip-to-ring circuits through the equipment as a 
result of induced or conducted lightning or power system fault-related 
surges. All wire terminals connected to outside plant wire or cable 
pairs shall be protected from voltage and current surges.
    (ii) Equipment must pass laboratory tests, simulating a hostile 
electrical environment, before being placed in the field for the purpose 
of obtaining field experience. For acceptance consideration RUS requires 
manufacturers to submit recently completed results (within 90 days of 
submittal) of data obtained from the prescribed testing. Manufacturers 
are expected to detail how data and tests were conducted. There are five 
basic types of laboratory tests which must be applied to exposed 
terminals in an effort to determine if the equipment will survive. 
Figure 2 of this section, Summary of Electrical Requirements and Tests, 
identifies the tests and their application as follows:

[[Page 663]]



                                                 Figure 2.--Summary of Electrical Requirements and Tests                                                
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  Number of                             
                Test                  Application criteria       Peak voltage or        Surge waveshape        applications and           Comments      
                                                                     current                                 maximum time between                       
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current surge......................  Low impedance paths     500A or lesser current  10 x 1000 s.  5 each polarity at 1   None.                
                                      exposed to surges.      (see fig. 4).                                  minute intervals.                          
60 Hz current carrying.............  High or low impedance   10A rms or lesser       11 Cycles of 60 Hz     3 each at 1 minute     None.                
                                      paths exposed to        current (see fig. 6).   (0.183 Sec.).          intervals.                                 
                                      surges.                                                                                                           
AC Power service surge voltage.....  AC power service        2500V or +3    1.2 x 50 s..  5 each polarity at 1   AC arrester, if used,
                                      connection.             clamping V of                                  minute intervals.      must be removed.    
                                                              arrester employed at                                                  Communications line 
                                                              10kV/s.                                                      arresters, if used, 
                                                                                                                                    remain in place.    
Voltage surge......................  High impedance paths    1000V or +3    10 x 1000 s.  5 each polarity at 1   All primary          
                                      exposed to surges.      dc breakdown of                                minute intervals.      arresters, if used, 
                                                              arrester employed.                                                    must be removed.    
Arrester response delay............  Paths protected by      +3  breakdown  100V/s rise   5 each polarity at 1   All primary          
                                      arresters, such as      of arrester employed    decay to \1/2\ V. in   minute intervals.      arrestors, if used, 
                                      gas tubes, with         at 100V/s of   tube's delay time.                            must be removed.    
                                      breakdown dependent     rise.                                                                                     
                                      on V. rate of rise.                                                                                               
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 664]]

    (iii) Electrical protection requirements for line concentrator 
equipment can be summarized briefly as follows:
    (A) Current surge tests simulate the stress to which a relatively 
low impedance path may be subjected before main frame protectors break 
down. Paths with a 100 Hz impedance of 50 ohms or less shall be 
subjected to current surges, employing a 10 x 1000 microsecond waveshape 
as defined in Figure 3 of this section, Surge Waveshape. For the purpose 
of determining this impedance, arresters which are mounted within the 
equipment are to be considered zero impedance. The crest current shall 
not exceed 500A; however, depending on the impedance of the test 
specimen this value of current may be lower. The crest current through 
the sample, multiplied by the sample's 100 Hz impedance, shall not 
exceed 1000 V. Where sample impedance is less than 2 ohms, peak current 
shall be limited to 500A as shown in Figure 4 of this section, Current 
Surge Tests. Figures 3 and 4 follow:

[[Page 665]]

[GRAPHIC] [TIFF OMITTED] TR29AU95.003



[[Page 666]]

[GRAPHIC] [TIFF OMITTED] TR29AU95.004



[[Page 667]]

    (B) Sixty Hertz (60 Hz) current carrying tests shall be applied to 
simulate an ac power fault which is conducted to the unit over the cable 
pairs. The test shall be limited to 10 amperes Root Mean Square (rms) of 
60 Hz ac for a period of 11 cycles (0.1835 seconds) and shall be applied 
longitudinally from line to ground.
    (C) AC power service surge voltage tests shall be applied to the 
power input terminals of ac powered devices to simulate switching surges 
or lightning-induced transients on the ac power system. The test shall 
employ a 1.2 x 50 microsecond waveshape with a crest voltage of 2500 V. 
Communications line protectors may be left in place for these tests.
    (D) Voltage surge tests which simulate the voltage stress to which a 
relatively high impedance path may be subjected before primary 
protectors break down and protect the circuit. To ensure coordination 
with the primary protection while reducing testing to the minimum, 
voltage surge tests shall be conducted at a 1000 volts with primary 
arresters removed for devices protected by carbon blocks, or the +3 
sigma dc breakdown voltage of other primary arresters. Surge waveshape 
should be 10 x 1000 microseconds.
    (E) Arrester response delay tests are designed to stress the 
equipment in a manner similar to that caused by the delayed breakdown of 
gap type arresters when subjected to rapidly rising voltages. Arresters 
shall be removed for these tests, the peak surge voltage shall be the +3 
sigma breakdown voltage of the arrester in question on a voltage rising 
at 100 V per microsecond, and the time for the surge to decay to half 
voltage shall equal at least the delay time of the tube as explained in 
Figure 5 of this section, Arrester Response Delay Time as follows:

[[Page 668]]

[GRAPHIC] [TIFF OMITTED] TR29AU95.005



[[Page 669]]

    (iv) Tests shall be conducted in the following sequence. As not all 
tests are required in every application, non-applicable tests should be 
omitted:
    (A) Current Impulse Test;
    (B) Sixty Hertz (60 Hz) Current Carrying Tests;
    (C) AC Power Service Impulse Voltage Test;
    (D) Voltage Impulse Test; and
    (E) Arrester Response Delay Time Test.
    (v) A minimum of five applications of each polarity for the surge 
tests and three for the 60 Hz Current Carrying Tests are the minimum 
required. All tests shall be conducted with not more than 1 minute 
between consecutive applications in each series of three or five 
applications to a specific configuration so that heating effects will be 
cumulative. See Figure 6 of this section, 60 Hz Current Surge Tests as 
follows:

[[Page 670]]

[GRAPHIC] [TIFF OMITTED] TR29AU95.006



[[Page 671]]

    (vi) Tests shall be applied between each of the following terminal 
combinations for all line operating conditions:
    (A) Line tip to ring;
    (B) Line ring to ground;
    (C) Line tip to ground; and
    (D) Line tip and ring tied together to ground.
    (2) Dielectric strength. (i) Arresters shall be removed for all 
dielectric strength tests.
    (ii) Direct current potentials shall be applied between all line 
terminals and the equipment chassis and between these terminals and 
grounded equipment housings in all instances where the circuitry is dc 
open circuit from the chassis, or connected to the chassis through a 
capacitor. The duration of all dielectric strength tests shall be at 
least 1 second. The applied potential shall be at a minimum equal to the 
plus 3 sigma dc breakdown voltage of the arrester, provided by the line 
concentrator manufacturer.
    (3) Insulation resistance. Following the dielectric tests, the 
insulation resistance of the installed electrical circuits between wires 
and ground, with the normal equipment grounds removed, shall not be less 
than 10 megohms at 500 volts dc at a temperature of 68  deg.F (20 
deg.C) and at a relative humidity of approximately 50 percent. The 
measurement shall be made after the meter stabilizes, unless the 
requirement is met sooner. Arresters shall be removed for these tests.
    (4) Self-protection. (i) All components shall be capable of being 
continuously energized at rated voltage without injury. Design 
precautions must be taken to prevent damage to other equipment 
components when a particular component fails.
    (ii) Printed circuit boards or similar equipment employing 
electronic components should be self-protecting against external grounds 
applied to the connector terminals. Board components and coatings 
applied to finished products shall be of such material or so treated 
that they will not support combustion.
    (iii) Every precaution shall be taken to protect electrostatically 
sensitive components from damage during handling. This shall include 
written instructions and recommendations.
    (k) Miscellaneous--(1) Interconnect wire. All interconnect wire 
shall be of soft annealed tinned copper wire meeting the requirements of 
ASTM Specification B33-91 and of suitable cross-section to provide safe 
current carrying capacity and mechanical strength. The insulation of 
installed wire, connected to its equipment and frames, shall be capable 
of withstanding the same insulation resistance and dielectric strength 
requirements as given in paragraphs (j)(2) and (j)(3) of this section at 
a temperature of 120  deg.F (49  deg.C), and a relative humidity of 90 
percent.
    (2) Wire wrapped terminals. These terminals are preferred and where 
used shall be of a material suitable for wire wrapping. The connections 
to them shall be made with a wire wrapping tool with the following 
minimum number of successive non-overlapping turns of bare tinned copper 
wire in contact with each terminal:
    (i) 6 turns of 30 gauge;
    (ii) 6 turns of 26 gauge;
    (iii) 6 turns of 24 gauge; or
    (iv) 5 turns of 22 gauge.
    (3) Protection against corrosion. All metal parts of equipment 
frames, distributing frames, cable supporting framework and other 
exposed metal parts shall be constructed of corrosion resistant 
materials or materials plated or painted to render them adequately 
corrosion resistant.
    (4) Screws and bolts. Screw threads for all threaded securing 
devices shall be of American National Standard form in accordance with 
Federal Standard H28, unless exceptions are granted to the manufacturer 
of the switching equipment. All bolts, nuts, screws, and washers shall 
be of nickel-copper alloy, steel, brass or bronze.
    (5) Environmental requirements. (i) The bidder shall specify the 
environmental conditions necessary for safe storage and satisfactory 
operation of the equipment being bid. If requested, the bidder shall 
assist the owner in planning how to provide the necessary environment 
for the equipment.
    (ii) To the extent practicable, the following temperature range 
objectives shall be met:

[[Page 672]]

    (A) For equipment mounted in central office and subscriber 
buildings, the carrier equipment shall operate satisfactory within an 
ambient temperature range of 32  deg.F to 120  deg.F (0  deg.C to 49 
deg.C) and at 80 percent relative humidity between 50  deg.F and 100 
deg.F (10  deg.C and 38  deg.C); and
    (B) Equipment mounted outdoors in normal operation (with cabinet 
doors closed) shall operate satisfactorily within an ambient temperature 
range (external to cabinet) of -40  deg.F to 140  deg.F (-40  deg.C to 
60  deg.C) and at 95 percent relative humidity between 50  deg.F to 100 
deg.F (10  deg.C to 38  deg.C). As an alternative to the (60  deg.C) 
requirement, a maximum ambient temperature of 120  deg.F (49  deg.C) 
with equipment (cabinet) exposed to direct sunlight may be substituted.
    (6) Stenciling. Equipment units and terminal jacks shall be 
adequately designated and numbered. They shall be stenciled so that 
identification of equipment units and leads for testing or traffic 
analysis can be made without unnecessary reference to prints or 
descriptive literature.
    (7) Quantity of equipment bays. Consistent with system arrangements 
and ease of maintenance, space shall be provided on the floor plan for 
an orderly layout of future equipment bays. Readily accessible terminals 
will be provided for connection to interbay and frame cables to future 
bays. All cables, interbay and intrabay (excluding power), if 
technically feasible, shall be terminated at both ends by connectors.
    (8) Radio and television interference. Measures shall be employed by 
the bidders to limit the radiation of radio frequencies generated by the 
equipment so as not to interfere with radio, television receivers, or 
other sensitive equipment.
    (9) Housing. (i) When housed in a building supplied by the owner, a 
complete floor plan including ceiling height, floor loading, power 
outlets, cable entrances, equipment entry and travel, type of 
construction, and other pertinent information shall be supplied.
    (ii) In order to limit corrosion, all metal parts of the housing and 
mounting frames shall be constructed of suitable corrosion resistant 
materials or materials protectively coated to render them adequately 
resistant to corrosion under the climatic and atmospheric conditions 
existing in the area in which the housing is to be installed.
    (10) Distributing frame. (i) The line concentrator terminal 
equipment located at the central office shall be protected by the 
central office main distribution frame. The bidder may supply additional 
protection capability as appropriate. All protection devices (new or 
existing) shall be arranged to operate in a coordinated manner to 
protect equipment, limit surge currents, and protect personnel.
    (ii) The distributing frame shall provide terminals for terminating 
all incoming cable pairs. Arresters shall be provided for all incoming 
cable pairs, or for a smaller number of pairs if specified.
    (iii) The current carrying capacity of each arrester and its 
associated mounting shall coordinate with a #22 gauge copper conductor 
without causing a self-sustaining fire or permanently damaging other 
arrester positions. Where all cable pairs entering the housing are #24 
gauge or finer, the arresters and mountings need only coordinate with 
#24 gauge cable conductors.
    (iv) Remote terminal protectors may be mounted and arranged so that 
outside cable pairs may be terminated on the left or bottom side of 
protectors (when facing the vertical side of the MDF) or on the back 
surface of the protectors. Means for easy identification of pairs shall 
be provided.
    (v) Protectors shall have a ``dead front'' (either insulated or 
grounded) where live metal parts are not readily accessible.
    (vi) Protectors shall be provided with an accessible terminal of 
each incoming conductor which is suitable for the attachment of a 
temporary test lead. They shall also be constructed so that auxiliary 
test fixtures may be applied to open and test the subscriber's circuit 
in either direction. Terminals shall be suitable for wire wrapped 
connections or connectorized.
    (vii) If specified, each protector group shall be furnished with a 
factory assembled tip cable for splicing to the outside cable; the tip 
cable shall be 20 feet (6.1 m) in length, unless otherwise

[[Page 673]]

specified. Tip cable used shall be RUS accepted.
    (viii) Protector makes and types used shall be RUS accepted.
    (l) Power equipment--(1) General. When specified, batteries and 
charging equipment shall be supplied for the remote terminal of the line 
concentrator.
    (2) Operating voltage. (i) The nominal operating voltage of the 
central office and remote terminal shall be 48 volts dc, provided by a 
battery with the positive side tied to system ground.
    (ii) Where equipment is dc powered, it must operate satisfactorily 
over a range of 50 volts  6 volts dc.
    (iii) Where equipment is ac powered, it must operate satisfactorily 
over a range of 12010 volts or 22010 volts ac.
    (3) Batteries. (i) Unless otherwise specified by the owner, sealed 
batteries shall be supplied for the remote line concentrator terminal.
    (ii) The batteries shall have an ampere hour load capacity of no 
less than 8 busy hours. When an emergency ac supply source is available, 
the battery reserve may be reduced to 3 busy hours.
    (iii) The batteries shall be sealed when they are mounted in the 
cabinet with the concentrator equipment.
    (iv) When specified by the owner, battery heaters shall be supplied 
in a bidder-furnished housing.
    (4) Charging equipment. (i) One charger capable of carrying the full 
dc power load of the remote terminal shall be supplied unless otherwise 
specified by the owner.
    (ii) Charging shall be on a full float basis. The rectifiers shall 
be of the full wave, self-regulating, constant voltage, solid-state type 
and shall be capable of being turned on and off manually.
    (iii) When charging batteries, the voltage at the battery terminals 
shall be adjustable and shall be set at the value recommended for the 
particular battery being charged, provided it is not above the maximum 
operating voltage of the central office switching equipment. The voltage 
shall not vary more than 0.02 volt dc per cell between 10% 
load and 100% load. Between 3% and 10% load, the output voltage shall 
not vary more than 0.04 volt dc per cell. Beyond full load 
current the output voltage shall drop sharply. The above output voltage 
shall be maintained with input line voltage variations of plus or minus 
10 percent. Provision shall be made to manually change the output 
voltage of the rectifier to 2.25 volts per cell to provide an 
equalization charge on the battery.
    (iv) The charger noise, when measured with a suitable noise 
measuring set and under the rated battery capacitance and load 
conditions, shall not exceed 22 dBrnC. See Figure 7 of this section, 
Charger Noise Test as follows:

[[Page 674]]

[GRAPHIC] [TIFF OMITTED] TR29AU95.007



[[Page 675]]

    (v) The charging equipment shall be provided with a means for 
indicating a failure of charging current whether due to ac power 
failure, an internal failure in the charger, or to other circumstances 
which might cause the output voltage of the charger to drop below the 
battery voltage. Where a supplementary constant current charger is used, 
an alarm shall be provided to indicate a failure of the charger.
    (vi) Audible noise developed by the charging equipment shall be kept 
to a minimum. Acoustic noise resulting from operation of the rectifier 
shall be expressed in terms of dB indicated on a sound level meter 
conforming to American National Standards Institute S1.4, and shall not 
exceed 65 dB (A-weighting) measured at any point 5 feet (1.5m) from any 
vertical surface of the rectifier.
    (vii) The charging equipment shall be designed so that neither the 
charger nor the central office equipment is subject to damage in case 
the battery circuit is opened for any value of load within the normal 
limits.
    (5) Power panel. (i) Battery and charger control switches, dc 
voltmeters, dc ammeters, fuses and circuit breakers, supervisory and 
timer circuits shall be provided as required. Portable or panel mounted 
frequency meters or voltmeters shall be provided as specified by the 
owner.
    (ii) Power panels, cabinets and shelves, and associated wiring shall 
be designed initially to handle the line concentrator terminal when it 
reaches its ultimate capacity as specified by the owner.
    (iii) The power panel shall be of the ``dead front'' type.
    (6) Ringing equipment. The ringing system shall provide sufficient 
ringing on a bridged basis over the voltage and temperature limits of 
this section and over subscriber drops within the limits stated by the 
bidder. The ringing system shall be without operational problems such as 
bell tapping during dialing. The bidder shall state the minimum number 
(not less than two) of main station ringers that can be used for each 
ringing option available.
    (7) Interrupter equipment. The interrupter may be an integral part 
of the system or may be part of the associated central office equipment 
connected to the line concentrator central office terminal.
    (8) Special systems. Manufacturers of LC systems that operate by 
extending ringing current from the central office shall state their 
required input ringing (voltage and frequency) and the limitations on 
the connected subscriber loop.
    (m) Fusing requirements--(1) General. (i) The equipment shall be 
completely wired and equipped with fuses, trouble signals, and all 
associated equipment for the wire capacity of the frames or cabinets 
provided.
    (ii) Design precautions shall be taken to prevent the possibility of 
equipment damage arising from the insertion of an electronic package 
into the wrong connector or the removal of a package from any connector 
or improper insertion of the correct card in its connector.
    (2) Fuses. Fuses and circuit breakers shall be of an alarm and 
indicator type, except where the fuse or breaker location is indicated 
on the alarm printout. Their rating shall be designated by numerals or 
color codes on the fuse or the panel.
    (n) Trouble location and test--(1) Equipment. (i) Trouble 
indications in the system may be displayed in the form of lights on the 
equipment units or printed circuit boards.
    (ii) When required, a jack or other connector shall be provided to 
connect a fault or trouble recorder (printer or display).
    (2) Maintenance system. (i) The maintenance system shall monitor and 
maintain the system operation without interruption of call processing 
except for major failures.
    (ii) The maintenance system shall be arranged to provide the ability 
to determine trouble to an individual card, functional group of cards, 
or other equipment unit.
    (o) Spare parts. Lists of spare parts and maintenance tools as 
recommended by the bidder shall be provided. The cost of such tools and 
spare parts shall be indicated and shall not be included in the base 
price.
    (p) Drawings and printed material. (1) The bidder shall supply 
instructional material for each line concentrator system involved at the 
time of delivery

[[Page 676]]

of the equipment. It is not the intent of this section to require system 
documentation necessary for the repair of individual circuit boards.
    (2) Three complete sets of legible drawings shall be provided for 
each central office to be accessed. Each set shall include all of the 
following:
    (i) Drawings of major equipment items such as frames, with the 
location of major component items of equipment shown therein;
    (ii) Wiring diagrams indicating the specific method of wiring used 
on each item of equipment and interconnection wiring between items of 
equipment;
    (iii) Maintenace drawings covering each equipment item that contains 
replaceable parts, appropriately identifying each part by name and part 
number; and
    (iv) Job drawings including all drawings that are individual to the 
particular line concentrator involved such as mainframe, power 
equipment, etc.
    (3) The following information shall also be furnished:
    (i) A complete index of required drawings;
    (ii) An explanation of electrical principles of operation of overall 
concentrator system;
    (iii) A list of tests which can be made with each piece of test 
equipment furnished and an explanation of the method of making each 
test;
    (iv) A sample of each form recommended for use in keeping records;
    (v) The criteria for analyzing results of tests and determining 
appropriate corrective action;
    (vi) A set of general notes on methods of isolating equipment faults 
to specific printed circuit cards in the equipment;
    (vii) A list of typical troubles which might be encountered, 
together with general indications as to probable location of each 
trouble; and
    (viii) All special line concentrator system grounding requirements.
    (4) When installation is to be done by the bidder a complete set of 
drawings shall be provided by the owner, such as floor plans, lighting, 
grounding and ac power access.
    (q) Installation and acceptance--(1) General. Paragraphs (q)(2)(i) 
through (q)(3)(xxi) of this section covers the general requirements for 
the installation of line concentrator equipment by the bidder, and 
outlines the general conditions to be met by the owner in connection 
with such installation work. The responsibilities apply in both the 
central office installation and remote terminal installations, unless 
otherwise noted.
    (2) Responsibilities of owner. The owner shall:
    (i) Allow the bidder and its employees free access to the premises 
and facilities at all hours during the progress of the installation;
    (ii) Provide access to the remote site and any other site for 
development work needed during the installation;
    (iii) Take such action as necessary to ensure that the premises are 
dry and free from dust and in such condition as not to be hazardous to 
the installation personnel or the material to be installed (not required 
when remote terminal is not installed in a building);
    (iv) Provide heat or air conditioning when required and general 
illumination in rooms in which work is to be performed or materials 
stored;
    (v) Provide suitable openings in buildings to allow material to be 
placed in position (not required when a remote terminal is not installed 
in a building);
    (vi) Provide the necessary conduit and commercial and dc-ac inverter 
output power to the locations shown on the approved floor plan drawings;
    (vii) Provide 110 volts a.c., 60 Hz commercial power equipped with a 
secondary arrester and a reasonable number of outlets for test, 
maintenance and installation equipment;
    (viii) Provide suitable openings or channels and ducts for cables 
and conductors from floor to floor and from room to room;
    (ix) Provide suitable ground leads, as designated by the bidder (not 
required when remote terminal is not installed in a building);
    (x) Provide the necessary wiring, central office ground and 
commercial power service, with a secondary arrester, to the location of 
an exterior remote terminal installation based on the voltage and load 
requirements furnished voltage and load requirements furnished by the 
bidder;

[[Page 677]]

    (xi) Test at the owners expense all lines and trunks for continuity, 
leakage and loop resistance and ensure that all lines and trunks are 
suitable for operation with the central office and remote terminal 
equipment specified;
    (xii) Make alterations and repairs to buildings necessary for proper 
installation of material, except to repair damage for which the bidder 
or its employees are responsible;
    (xiii) Connect outside cable pairs on the distributing frame (those 
connected to protectors);
    (xiv) Furnish all line, class of service assignment, and party line 
assignment information to permit bidder to program the data base memory 
within a reasonable time prior to final testing;
    (xv) Release for the bidder's use, as soon as possible, such 
portions of the existing plant as are necessary for the proper 
completion of such tests as require coordination with existing 
facilities including facilities for T1 span lines with properly 
installed repeaters between the central office and the remote terminal 
installations;
    (xvi) Make prompt inspections as it deems necessary when notified by 
the bidder that the equipment, or any part thereof, is ready for 
acceptance;
    (xvii) Provide adequate fire protection apparatus at the remote 
terminal, including one or more fire extinguishers or fire extinguishing 
systems of the gaseous type, that has low toxicity and effect on 
equipment;
    (xviii) Provide necessary access ports for cable, if underfloor 
cabling is selected;
    (xix) Install equipment and accessory plant devices mounted external 
to the central office building and external to the repeater and other 
outside housings including filters, repeater housings, splicing of 
repeater cable stubs, externally mounted protective devices and other 
such accessory devices in accordance with written instructions provided 
by the bidder; and
    (xx) Make all cross connections (at the MDF or Intermediate 
Distribution Frame IDF) between the physical trunk or carrier equipment 
and the central office equipment unless otherwise specified in appendix 
A of this section.
    (3) Responsibilities of bidder. The bidder shall:
    (i) Allow the owner and its representatives access to all parts of 
the building at all times;
    (ii) Obtain the owner's permission before proceeding with any work 
necessitating cutting into or through any part of the building structure 
such as girders, beams, concrete or tile floors, partitions or ceilings 
(does not apply to the installation of lag screws, expansion bolts, and 
similar devices used for fastening equipment to floors, columns, walls, 
and ceilings);
    (iii) Be responsible for and repair all damage to the building due 
to carelessness of the bidder's workforce, exercise reasonable care to 
avoid any damage to the owner's switching equipment or other property, 
and report to the owner any damage to the building which may exist or 
may occur during its occupancy of the building;
    (iv) Consult with the owner before cutting into or through any part 
of the building structure in all cases where the fireproofing or 
moisture proofing may be impaired;
    (v) Take necessary steps to ensure that all fire fighting apparatus 
is accessible at all times and all flammable materials are kept in 
suitable places outside the building;
    (vi) Not use gasoline, benzene, alcohol, naphtha, carbon 
tetrachloride or turpentine for cleaning any part of the equipment;
    (vii) Be responsible for delivering the CO and remote terminal 
equipment to the sites where they will be needed;
    (viii) Install the equipment in accordance with the specifications 
for the line concentrator;
    (ix) Have all leads brought out to terminal blocks on the MDF (or 
IDF if stated in appendix A of this section) and have all terminal 
blocks identified and permanently labeled;
    (x) Use separate shielded type leads grounded at one end only unless 
otherwise specified by the owner or bidder or tip cables meeting RUS 
cable crosstalk requirements for carrier frequencies inside the central 
office;
    (xi) Group the cables to separate carrier frequency, voice 
frequency, signaling, and power leads;

[[Page 678]]

    (xii) Make the necessary power and ground connections (location as 
shown in appendix A of this section) to the purchaser's power terminals 
and ground bus unless otherwise stated in appendix A of this section 
(ground wire shall be 6 AWG unless otherwise stated);
    (xiii) Place the battery in service in compliance with the 
recommendations of the battery manufacturer;
    (xiv) Make final charger adjustments using the manufacturer's 
recommended procedure;
    (xv) Run all jumpers, except line and trunk jumpers (those connected 
to protectors) unless otherwise specified in appendix A of this section;
    (xvi) Establish and update all data base memories with subscriber 
information as supplied by the owner until an agreed turnover time;
    (xvii) Give the owner notice of completion of the installation at 
least one week prior to completion;
    (xviii) Permit the owner or its representative to conduct tests and 
inspections after installation has been completed in order that the 
owner may be assured the requirements for installation are met;
    (xix) Allow access, before turnover, by the owner or its 
representative, upon request, to the test equipment which is to be 
turned over as a part of the delivered equipment, to permit the checking 
of the circuit features which are being tested and to permit the 
checking of the amount of connected equipment to which the test circuits 
have access;
    (xx) Notify the owner promptly of the completion of work of the 
central office terminals, remote terminals or such portions thereof as 
are ready for inspection; and
    (xxi) Correct promptly all defects for which the bidder is 
responsible.
    (4) Information to be furnished by bidder. The bidder shall 
accompany its bid with the following information:
    (i) Two copies of the equipment list and the traffic calculations 
from which the quantities in the equipment list are determined;
    (ii) Two copies of the traffic tables from which the quantities are 
determined, if other than the Erlang B traffic tables;
    (iii) A block diagram of the line concentrator and associated 
maintenance equipment will be provided;
    (iv) A prescribed method and criteria for acceptance of the 
completed line concentrator which will be subject to review;
    (v) This special grounding requirements including the recommended 
configuration, suggested equipment and installation methods to be used 
to accomplish them;
    (vi) The special handling and equipment requirements to avoid damage 
resulting from the discharge of static electricity (see paragraph (j) 
(4) (iii) of this section) or mechanical damage during transit 
installation and testing;
    (vii) The location of technical assistance service, its availability 
and conditions for owner use and charges for the service by the bidder; 
and
    (viii) The identification of the subscriber loop limits available 
beyond the line concentrator.
    (5) Installation requirements. (i) All work shall be done in a neat, 
workmanlike manner. Equipment frames or cabinets shall be correctly 
located, carefully aligned, anchored, and firmly braced. Cables shall be 
carefully laid with sufficient radius of curvature and protected at 
corners and bends to ensure against damage from handling or vibration. 
Exterior cabinet installations for remote terminals shall be made in a 
permanent, eye-pleasing manner.
    (ii) All multiple and associated wiring shall be continuous, free 
from crosses, reverses, and grounds and shall be correctly wired at all 
points.
    (iii) An inspection shall be made by the owner or its 
representatives prior to performing operational and performance tests on 
the equipment, but after all installing operations which might disturb 
apparatus adjustments have been completed. The inspection shall be of 
such character and extent as to disclose with reasonable certainty any 
unsatisfactory condition of apparatus or equipment. During these 
inspections, or inspections for apparatus adjustments, or wire 
connections, or in testing of equipment, a sufficiently detailed 
examination shall be made throughout the portion of the equipment within 
which such condition is

[[Page 679]]

observed, or is likely to occur, to disclose the full extent of its 
existence, where any of the following conditions are observed:
    (A) Apparatus or equipment units failing to compare in quantity and 
type to that specified for the installation;
    (B) Apparatus or equipment units damaged or incomplete;
    (C) Apparatus or equipment affected by rust, corrosion or marred 
finish; and
    (D) Other adverse conditions resulting from failure to meet 
generally accepted standards of good workmanship.
    (6) Operational tests. (i) Operational tests shall be performed on 
all circuits and circuit components to ensure their proper functioning 
in accordance with appropriate explanation of the operation of the 
circuit.
    (ii) All equipment shall be tested to ensure proper operation with 
all components connected in all possible combinations and each line 
shall be tested for proper ring, ring trip and supervision.
    (iii) All fuses shall be verified for continuity and correct rating. 
Alarm indication shall be demonstrated for each equipped fuse position. 
An already failed fuse compatible with the fuse position may be used.
    (iv) Each alarm or signal circuit shall be checked for correct 
operation.
    (v) A sufficient quantity of locally originating and incoming calls 
shall be made to demonstrate the function of the line concentrator 
including all equipped transmission paths. When intra-link calling is 
supplied, all intra-link transmission paths shall be demonstrated.
    (7) Acceptance tests and data required. (i) Data shall be supplied 
to the owner by the bidder in writing as a part of the final documents 
in closing out the contract as follows:
    (A) A detailed cross connect drawing of alarm to power board, 
central office battery to physical trunks or carrier system, wiring 
options used in terminals, channels, filters, repeaters, etc., marked in 
the owner's copy of the equipment manual or supplied separately;
    (B) The measured central office supply voltages applied to the 
equipment terminals or repeaters at the time the jack and test point 
readings are made and ac supply voltages where equipment is powered from 
commercial ac sources;
    (C) A list of all instruments, including accessories, by 
manufacturer and type number, used to obtain the data; and
    (D) The measurements at all jack or test points recommended by the 
manufacturer, including carrier frequency level measurements at all 
carrier terminals and repeaters where utilized.
    (ii) Data in the form of a checklist or other notations shall be 
supplied showing the results of the operational tests.
    (iii) The bidder shall furnish to the owner a record of the battery 
cell or multicell unit voltages measured at the completion of the 
installation of the switching system before it is placed in commercial 
service. This is not required at a site where the owner furnishes dc 
power.
    (8) Joint inspection requirements. (i) The bidder shall notify the 
owner in writing at least one week before the date the complete system 
will be ready for inspection and tests. A joint inspection shall be made 
by the bidder and the owner (or owner's engineer) to determine that the 
equipment installation is acceptable. The inspection shall include 
physical inspection, a review of acceptance test data, operational 
tests, and sample measurements.
    (A) The owner shall review the acceptance test data and compare it 
to the requirements of this section.
    (B) Sample measurements shall be made on all systems installed under 
this contract. Test methods should follow procedures described in 
paragraph (g)(5) of this section.
    (C) A check shall be made of measured test point and jack readings 
for compliance with the manufacturer's specifications. This applies also 
to channels, terminals, carrier frequency repefault locating circuits.
    (ii) In the event that the measured data or operational tests show 
that equipment fails to meet the requirements quirements of this 
section, the deficiencies are to be resolved as set forth in Article II 
of the 397 Special Equipment Contract. (Copies are available from RUS, 
room 0174, U.S. Department of Agriculture, Washington, DC 20250-1500.) 
The reports of the bidder

[[Page 680]]

and the owner shall be detailed as to deficiencies, causes, corrective 
action necessary, corrective action to be taken, completion time, etc.

(The information and recordkeeping requirements of this section have 
been approved by the Office of Management and Budget (OMB) under the 
control number 0572-0059.)

    Appendix A to Sec. 1755.397--Specification for Line Concentrator 
                     Detailed Equipment Requirements

                  (Information To Be Supplied by Owner)

Telephone Company (Owner)

Name:___________________________________________________________________
Location:_______________________________________________________________

Number of LC's Required: ________
Line Concentrator Locations:

------------------------------------------------------------------------
                                                   No. of      Central  
                   Location                        Lines        Office  
------------------------------------------------------------------------
                                                ...........  ...........
                                                ...........  ...........
                                                ...........  ...........
                                                ...........  ...........
------------------------------------------------------------------------

                               1. General

    1.1  Notwithstanding the bidder's equipment lists, the equipment and 
materials furnished by the bidder must meet the requirements of 
paragraphs (a) through (p) of this section, and this appendix A.
    1.2  Paragraph (a) through (p) of this section cover the minimum 
general requirements for line concentrator equipment.
    1.3  Paragraph (q) of this section covers the requirements for 
installation, inspection and testing when such service is included as 
part of the contract.
    1.4  This appendix A covers the technical data for application 
engineering and detailed equipment requirements insofar as they can be 
established by the owner. This appendix A shall be filled in by the 
owner.
    1.5  Appendix B of this section covers detailed information on the 
line concentrator equipment, information on system reliability and 
traffic capacity as proposed by the bidder. Appendix B of this section 
is to be filled in by the bidder and must be presented with the bid.

Office Name

(By Location)___________________________________________________________

LC Designation__________________________________________________________

2. Number of Subscriber Lines

------------------------------------------------------------------------
                                                                  Wired 
                                                      Equipped    only  
------------------------------------------------------------------------
Single-Party........................................  ........  ........
Pay Station (Type:________).........................  ........  ........
Other (Describe:________)...........................  ........  ........
      Total.........................................  ........  ........
------------------------------------------------------------------------

                           3. Loop Resistance

    3.1  Number of non-pay station lines having a loop resistance, 
including the telephone set as follows:
    3.1.1  For physical trunks between the remote and the office units, 
the loop resistance is to include the resistance of the trunk.

------------------------------------------------------------------------
                                                                No. of  
                                                                lines   
------------------------------------------------------------------------
1200-1900 ohms.............................................  ...........
1901-3200 ohms.............................................  ...........
3201-4500 ohms.............................................  ...........
------------------------------------------------------------------------

    3.1.2  Number of pay station lines having a loop resistance, 
excluding the telephone set, greater than:

------------------------------------------------------------------------
                                                                No. of  
                                                                lines   
------------------------------------------------------------------------
1200 ohms (Prepay).........................................  ...........
1000 ohms (Semi-Postpay)...................................  ...........
------------------------------------------------------------------------

    When physical trunks are used, these resistances include that of the 
facility between the CO and the remote.
    3.1.3  Range extension equipment, if required, is to be provided:

________ By Bidder

________ By Owner

(Quantity and Type)_____________________________________________________

_______________________________________________________________________

                             4. Traffic Data

    4.1  Average combined originating and terminating hundred call 
seconds (CCS) per line in the busy hour:

______ CCS/Line. (Assume originating & terminating equal.)
    4.2  Percent Intra-Calling ________
    4.3  Total Busy Hour Calls ________

                           5. TYPE or RINGING

                                                                        
           5.1  Frequency No.               1.      2.      3.      4.  
                                                                        
Frequency (Hz)..........................  ......  ......  ......  ......
Max. No. of Phones/Freq.................  ......  ......  ......  ......
                                                                        

    5.2 Minimum ringing generator capacity to be supplied shall be 
sufficient to serve ________ lines (each frequency).

                  6. Central Office Equipment Interface

    6.1  COE will be:
    6.1.1  COE Manufacturer

_______________________________________________________________________

Type____________________________________________________________________

Year____________________________________________________________________

Generic_________________________________________________________________

    6.1.2 ________ See digital central office specification for the 
switchboard at ____________________ .
    6.2  Interface will be:
6.2.1  ________ Line Circuit(s)

[[Page 681]]

6.2.2  ________ Direct Digital Interface
6.2.3  ________ Other (Describe)

_______________________________________________________________________

_______________________________________________________________________

    6.3  Mounting rack for line concentrator furnished by:

________ Bidder

________ Owner

(Specify width and height of rack available) (Width) (Height)

    6.4  Equipment to be installed in existing building:

________ Yes (Attach detailed plan)

________ No

                       7. Transmission Facilities

    7.1  Transmission facilities between the central office and remote 
terminals shall be:
    7.1.1  Type:

________ VF Carrier Derived Circuits

________ Digital Span Line (DS1)

________ Other

_______________________________________________________________________

(Attach a layout of the transmission facilities between the central 
          office and the remote terminals describing transmission and 
          signaling parameters, routing and resistance where 
          applicable.)
    7.1.2  Utilizes physical plant

________ Cable Pairs (Existing/New)

________ Other

_______________________________________________________________________

    Note: Unless otherwise stated, physical plant will be supplied by 
the owner.

    7.1.3  Terminal equipment for transmission facility to be supplied 
by:

________ Owner

________ Bidder
    7.1.3.1  Carrier e/w voice terminations ________  Yes ________  No

Manufacturer and type___________________________________________________
Central office voice terminations Equipped ________, Wired Only ________
    7.1.3.2  Digital span line (DS1) supplied by

________ Owner

________ Bidder

Manufacturer and Type___________________________________________________
    7.1.3.3  Number of repeaters (per span line) ________
    7.1.3.4  Diverse (alternate) span line routing required

________ Yes (Describe in Item 11) ________ No
    7.1.3.5  Span line terminations only ________ Yes ________ No
    7.1.3.6  Span line power required (CO and Remote Terminals) ________ 
Yes ________ No
    7.1.3.7  Physical facility between CO and remote Loop Resistance 
________ ohms, Length ________ meters

                     8. Power Equipment Requirements

    8.1  Central Office Terminal
    8.1.1  Owner-furnished -48 volt dc power ________ Yes ________ No
    8.1.2  Other (Describe)
_______________________________________________________________________

    8.1.3  Standby power is available ________ Yes ________ No
    8.2  Remote Terminal
    8.2.1  Owner-furnished -48 vdc power ________ Yes ________ No
    8.2.2  Bidder-furnished power supply ________ Yes ________ No
    8.2.3 AC power available at site:

________ 110 vac, 60 Hz, single-phase

________ Other (Describe in Item 11)

    8.2.4  A battery reserve of ________ busy hours shall be provided 
for this line concentrator terminal when it reaches ________ lines at 
the traffic rates specified.
    8.2.5  Batteries supplied shall be:

________ Lead Calcium
________ Stabilized Electrolyte
________ Sealed Lead Acid
________ Other (Describe in item 11)
    8.2.6  Standby power is available ________ Yes ________ No

                           9. Remote Terminal

    9.1  Mounting
    9.1.1  ________ Outside Housing (To be furnished by bidder)
    9.1.2  ________ Concrete Slab to be furnished by owner (Bidder to 
supply construction details after award.)
    9.1.3  ________ Manhole, environmentally controlled (Describe in 
Item 11)
    9.1.4  ________ Pedestal Mounting
    9.1.5  ________ Pole Mounting (Owner-furnished installed pole)
    9.1.6  ________ Prefab Building (Owner-furnished site)
    9.2  Equipment is to be installed in an existing building.

________ Yes ________ No
(Attach detailed plan.)
    9.3  Other (Describe)
_______________________________________________________________________

_______________________________________________________________________

                             10. Alternates

                          11. Explanatory Notes

   Appendix B to Sec. 1755.397--Specification for Line Concentrators 
           Detailed Requirements; Bidder Supplied Information

Telephone Company (Owner)

Name:___________________________________________________________________

Location:_______________________________________________________________

Line Concentrator Equipment Locations

Central Office Terminal:________________________________________________

Remote Terminal:________________________________________________________

[[Page 682]]

                               1. General

    1.1  The equipment and materials furnished by the bidder must meet 
the requirements of paragraphs (a) through (p) of this section.
    1.2  Paragraph (a) through (p) of this section cover the minimum 
general requirements for line concentrator equipment.
    1.3  Paragraph (q) of this section covers requirements for 
installation, inspection and testing when such service is included as 
part of the contract.
    1.4  Appendix A of this section covers the technical data for 
application engineering and detailed equipment requirements insofar as 
they can be established by the owner. Appendix A of this section is to 
be filled in by the owner.
    1.5  This appendix B covers detailed information on the line 
concentrator equipment, information as to system reliability and traffic 
capacity as proposed by the bidder. This appendix B shall be filled in 
by the bidder and must be presented with the bid.

                        2. Performance Objectives

    2.1  Reliability (See paragraph (c) of this section)

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.2  Busy Hour Load Capacity and Traffic Delay (See Paragraph (g) of 
this section)

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

           3. Equipment Quantities Dependent on System Design

    3.1  Transmission Facilities between the Central Office and Remote 
Terminals

------------------------------------------------------------------------
                                                  Quantity     Quantity 
                     Type                         equipped    wired only
------------------------------------------------------------------------
                                                ...........  ...........
                                                ...........  ...........
                                                ...........  ...........
------------------------------------------------------------------------

                          4. Power Requirements

                      4.1  Central Office Terminal

Voltage_________________________________________________________________

Current Drain (Amps) Normal ________, Peak ________

Fuse Qty ________, Size ________, Type ________ 

Heat Dissipation (BTU/Hr.) ________ 
_______________________________________________________________________

                          4.2  Remote Terminal

AC or DC________________________________________________________________

Voltage_________________________________________________________________

Current Drain (Amps) Normal ________, Peak ________

Fuse Qty ________, Size ________, Type ________

Heat Dissipation (BTU/Hr.) ________
_______________________________________________________________________

    Power required for heating or cooling equipment in remote bidder-
furnished housing

_______________________________________________________________________

_______________________________________________________________________

                 5. Temperature and Humidity Limitations

                            5.1  Temperature

------------------------------------------------------------------------
                                                  Central               
                                                   office      Remote*  
------------------------------------------------------------------------
Maximum  deg.F ( deg.C).......................  ...........  ...........
Minimum  deg.F ( deg.C).......................  ...........  ...........
------------------------------------------------------------------------

                         5.2  Relative Humidity

------------------------------------------------------------------------
                                                  Central               
                                                   office      Remote*  
------------------------------------------------------------------------
Maximum.......................................  ...........  ...........
Minimum.......................................  ...........  ...........
------------------------------------------------------------------------
* Show conditions outside bidder-furnished housing.                     

                          6. Explanatory Notes

[60 FR 44729, Aug. 29, 1995]
Secs. 1755.398--1755.521  [Reserved]



Sec. 1755.522  RUS general specification for digital, stored program controlled central office equipment.

    (a) General. (1) This section covers general requirements for a 
digital telephone central office switching system, which is fully 
electronic and controlled by stored program processors. A digital 
switching system transfers information which is digitally encoded from 
any input port to a temporarily addressed exit port. The information may 
enter the system in either analog or digital form and may or may not be 
converted to analog at the exit port depending on the facility beyond. 
The switching system shall operate properly as an integral part of the 
telephone network when connected to physical and carrier derived 
circuits meeting RUS specifications and other generally accepted 
telecommunications practices.
    (2) The output of a digital-to-digital port shall be Pulse Code 
Modulation (PCM), encoded in eight-bit words using the mu-255 encoding 
law and D3

[[Page 683]]

encoding format, and arranged to interface with a T1 span line.
    (3) American National Standards Institute (ANSI) Standard S1.4-1983, 
Specification for Sound Level Meters, is incorporated by reference by 
RUS. This includes S1.4A-1985 that is also incorporated by reference. 
This incorporation by reference was approved by the Director of the 
Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. 
Copies may be obtained from ANSI Inc., 11 West 42nd Street, 13th Floor, 
New York, NY 10036, telephone 212-642-4900. Copies may be inspected 
during normal business hours at RUS, room 2838-S, U.S. Department of 
Agriculture, Washington, DC 20250 or at the Office of the Federal 
Register, 800 North Capitol Street, NW., suite 700, Washington, DC.
    (4) American Society for Testing Materials (ASTM) Specification B 
33-91, Standard Specification for Tinned Soft or Annealed Copper Wire 
for Electrical Purposes, is incorporated by reference by RUS. This 
incorporation by reference was approved by the Director of the Federal 
Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies 
may be obtained from ASTM, 1916 Race Street, Philadelphia, PA, telephone 
215-299-5400. Copies may be inspected during normal business hours at 
RUS, room 2838-S, U.S. Department of Agriculture, Washington, DC 20250 
or at the Office of the Federal Register, 800 North Capitol Street, NW., 
suite 700, Washington, DC.
    (5) Bell Communications Research (Bellcore) document SR-TSV-002275, 
BOC Notes on the LEC Networks--1990, March 1991, is incorporated by 
reference by RUS. This incorporation by reference was approved by the 
Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 
1 CFR Part 51. Copies may be obtained from Bellcore Customer Service, 60 
New England Avenue, Piscataway, NJ 08854, telephone 1-800-521-2673. 
Copies may be inspected during normal business hours at RUS, room 2838-
S, U.S. Department of Agriculture, Washington, DC 20250 or at the Office 
of the Federal Register, 800 North Capitol Street, NW., suite 700, 
Washington, DC.
    (6) Bellcore TR-TSY-000508, Automatic Message Accounting, July 1987, 
is incorporated by reference by RUS. This incorporation by reference was 
approved by the Director of the Federal Register in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. Copies may be obtained from Bellcore 
Customer Service, 60 New England Avenue, Piscataway, NJ 08854, telephone 
1-800-521-2673. Copies may be inspected during normal business hours at 
RUS, room 2838-S, U.S. Department of Agriculture, Washington, DC 20250 
or at the Office of the Federal Register, 800 North Capitol Street, NW., 
suite 700, Washington, DC.
    (7) Federal Standard H28, Screw-Thread Standards for Federal 
Services, March 31, 1978, is incorporated by reference by RUS. This 
includes: Change Notice 1, Federal Standard, Screw-Thread Standards for 
Federal Services, May 28, 1986; Change Notice 2, Federal Standard, 
Screw-Thread Standards for Federal Services, January 20, 1989; and 
Change Notice 3, Federal Standard, Screw-Thread Standards for Federal 
Services, March 12, 1990. This incorporation by reference was approved 
by the Director of the Federal Register in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51. Copies may be obtained from the General 
Services Administration, Specification Section, 490 East L'Enfant Plaza 
SW, Washington, DC 20407, telephone 202-755-0325. Copies may be 
inspected during normal business hours at RUS, room 2838-S, U.S. 
Department of Agriculture, Washington, DC 20250 or at the Office of the 
Federal Register, 800 North Capitol Street, NW., suite 700, Washington, 
DC.
    (8) Institute of Electrical and Electronics Engineers (IEEE) Std 
455-1985, IEEE Standard Test Procedure for Measuring Longitudinal 
Balance of Telephone Equipment Operating in the Voice Band, is 
incorporated by reference by RUS. This incorporation by reference was 
approved by the Director of the Federal Register in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. Copies may be obtained from IEEE 
Service Center, 445 Hoes Lane, P. O. Box 1331, Piscataway, NJ 08854, 
telephone (201) 981-0060. Copies may be inspected during normal business 
hours at RUS, room 2838-S, U.S. Department of Agriculture, Washington, 
DC 20250 or at the Office of the Federal Register,

[[Page 684]]

800 North Capitol Street, NW., suite 700, Washington, DC.
    (9) Institute of Electrical and Electronics Engineers (IEEE) Std 
730-1989, IEEE Standard for Software Quality Assurance Plans, is 
incorporated by reference by RUS. This incorporation by reference was 
approved by the Director of the Federal Register in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. Copies may be obtained from IEEE 
Service Center, 445 Hoes Lane, P. O. Box 1331, Piscataway, NJ 08854, 
telephone (201) 981-0060. Copies may be inspected during normal business 
hours at RUS, room 2838-S, U.S. Department of Agriculture, Washington, 
DC 20250 or at the Office of the Federal Register, 800 North Capitol 
Street, NW., suite 700, Washington, DC.
    (10) RUS Bulletin 345-50, PE-60, RUS Specification for Trunk Carrier 
Systems, September 1979, is incorporated by reference by RUS. This 
incorporation by reference was approved by the Director of the Federal 
Register in accordance with 5 U.S.C. 552 (a) and 1 CFR part 51. Copies 
may be obtained from the Rural Utilities Service, Administrative 
Services Division, room 0175-S, Washington, DC 20250. The bulletin may 
be inspected at the Office of the Federal Register, 800 North Capitol 
Street, NW., suite 700, Washington, DC.
    (11) RUS Bulletin 345-55, PE-61, Central Office Loop Extenders and 
Loop Extender Voice Frequency Repeater Combinations, December 1973, is 
incorporated by reference by RUS. This incorporation by reference was 
approved by the Director of the Federal Register in accordance with 5 
U.S.C. 552 (a) and 1 CFR part 51. Copies may be obtained from the Rural 
Utilities Service, Administrative Services Division, room 0175-S, 
Washington, DC 20250. The bulletin may be inspected at the Office of the 
Federal Register, 800 North Capitol Street, NW., suite 700, Washington, 
DC.
    (12) RUS Bulletin 345-87, PE-87, RUS Specification for Terminating 
(TIP) Cable, December 1983, is incorporated by reference RUS. This 
incorporation by reference was approved by the Director of the Federal 
Register in accordance with 5 U.S.C. 552 (a) and 1 CFR part 51. Copies 
may be obtained from the Rural Utilities Service, Administrative 
Services Division, room 0175-S, Washington, DC 20250. The bulletin may 
be inspected at the Office of the Federal Register, 800 North Capitol 
Street, NW., suite 700, Washington, DC.
    (b) Reliability. (1) Quality control and burn-in procedures shall be 
sufficient so the failure rate of printed circuit boards does not exceed 
an average of 1.0 percent per month of all equipped cards in the central 
office during the first three months after cutover, and an average of 
0.5 percent per month of all equipped cards in the central office during 
any 6-month period thereafter. A failure is considered to be the failure 
of a component on the PC board which requires it to be repaired or 
replaced.
    (2) The central office switching system shall be designed such that 
the expected individual line downtime does not exceed 30 minutes per 
year. This is the interval that the customer is out of service as a 
result of all failure types, excluding dispatch and travel time, i.e., 
hardware, software, and procedural errors.
    (3) The central office switching system shall be designed such that 
there will be no more than 1 hour of total outages in 20 years, 
excluding dispatch and travel time for unattended offices.
    (c) System type acceptance tests. (1) System type acceptance tests 
(general acceptance tests) are performed for the purpose of determining 
whether or not a type of switching system should be added or retained as 
an RUS accepted system. While general acceptance tests will be required 
on each system type, they will not be expected to cover every 
requirement in this section. However, any installation of a system 
provided in accordance with this section shall be capable of meeting any 
requirement in this section on a spot-check basis.
    (2) A ``completed call'' test shall be made part of these system 
type acceptance tests. There shall be no more than two in 10,000 locally 
originating and incoming calls misdirected, unsuccessfully terminated, 
prematurely disconnected or otherwise failing as a result of equipment 
malfunction and/or equipment failures, or as a result of transients, 
noise or design deficiencies. This test shall be made with a load box 
with no less than 10 lines access and 10

[[Page 685]]

subscriber numbers for completion, or equivalent, with no other traffic 
in the system. If there is a failure in the equipment during this test, 
the cause shall be repaired and the test restarted at zero calls.
    (3) System type acceptance testing applies basically to factory type 
testing, and not to owner acceptance testing for individual 
installations. The overall installed and operating system shall also 
meet these requirements, except for unusual circumstances or where 
specifically excluded by this or other RUS requirements.
    (d) Types of requirements. (1) Unless otherwise indicated, the 
requirements listed in this section are fixed requirements.
    (2) Optional requirements are those which may not be needed for 
every office and are identifiable by a phrase such as, ``when specified 
by the owner,'' or, ``as specified by the owner.''
    (3) In some cases where an optional feature specified in paragraph 
(e) of this section will not be required by an owner, either now or in 
the future, a system which does not provide this feature will be 
considered to be in compliance with this section for the specific 
installation under consideration, but not in compliance with the entire 
section.
    (4) The owner may request bids from any RUS accepted supplier whose 
system provides all the features which will be required for a specific 
installation.
    (5) The Application Guide, RUS TE&CM 322, provides information about 
the economic and service factors involved in all optional features, as 
well as instructions for the completion of appendices A and B of this 
section.
    (e) General requirements. (1) The equipment shall provide for 
terminating and automatically interconnecting subscriber lines and 
trunks in response to dial pulses (or pushbutton dialing signals, if 
specified) without the aid of an operator.
    (2) Complete flexibility shall be provided for assigning any 
subscriber directory number to any central office line equipment by the 
use of internal programmed memory. Thus, any subscriber line and/or 
directory number may be moved to another terminal to distribute traffic 
loads, if the line equipment hardware is compatible with the service 
provided.
    (3) The system shall be arranged to interface with interexchange 
carrier trunks and networks using single digit or multi-digit access 
codes. The system shall be equipped to handle at least 20-digit 
subscriber dialed numbers. All subscriber directory numbers in the 
office shall be seven-digit numbers.
    (4) The network and the control equipment shall be comprised of 
solid-state and integrated circuitry components. Peripheral equipment 
shall be comprised of solid-state and integrated circuitry components as 
far as practical and consistent with the state-of-the-art and economics 
of the subject system.
    (5) The basic switching system shall include the provision of 
software programming and necessary hardware, including memory, for 
optional custom calling services such as call waiting, call forwarding, 
three-way calling, and abbreviated dialing. It shall be possible to 
provide these services to any individual line (single-party) subscriber. 
The addition of these services shall not reduce the anticipated ultimate 
engineered line, trunk, and traffic capacity of the switching system as 
specified in appendix A of this section.
    (6) The requirements in this specification apply only to single 
party lines. Although only single frequency ringing is required, other 
types may be requested in appendix A of this section.
    (7) Provision shall be made for local automatic message accounting 
(LAMA), and for traffic service position system (TSPS) trunks, or 
equivalent, to the operator's office when required either initially or 
in the future.
    (8) Tandem switching features shall be provided if specified in 
appendix A of this section.
    (9) The system shall be arranged to serve a minimum of eight All 
Number Calling (ANC) office codes per office, with discrimination on 
terminating calls by trunk group, numbering plan, or programmed memory 
and class mark, if specified in appendix A of this section.
    (10) Busy hour load handling capacity is an important feature when 
an office

[[Page 686]]

approaches capacity. The delays which may occur in call completion 
during busy hour periods may prove to be excessive in some system 
designs. Accordingly, each bidder shall provide, in appendix C of this 
section, data satisfactory to RUS regarding the busy hour load handling 
capacity and traffic delays of the system.
    (11) Provision shall be made for hotel-motel arrangements, as 
required by the owner, to permit the operation of message registers at 
the subscriber's premises to record local outdial calls by guests (see 
Item 10.5, appendix A of this section).
    (12) Provision shall be made to identify the calling line or 
incoming trunk on nuisance calls (see paragraph (g)(10) of this section 
for details).
    (13) Full access from every subscriber line to every interoffice 
trunk shall be provided.
    (14) Facilities shall be provided to implement service orders, make 
traffic studies, and perform switching and transmission tests by means 
of remote control devices if such operations are specified in Items 11.2 
and 11.3 of appendix A of this section.
    (15) Provision shall be made for the addition of facilities to 
record all subscriber originated calls based on dialed directory number, 
time of day, and duration of conversation. They shall be such that the 
additional equipment (if any is required) may be added to an in-service 
system without interruption of service and a minimum of equipment, 
wiring and software modifications.
    (16) The system shall be capable of distributed switching operation 
where groups of subscriber lines can be remotely located from the 
central office. The remotely situated units are known as ``Remote 
Switching Terminals'' (RST's) (see paragraph (w) of this section). This 
does not eliminate the use of pair gain devices such as direct digitally 
connected concentrators, regular concentrators or subscriber carrier 
equipment, where specifically ordered by the owner and its engineer.
    (17) The switching system shall have means to synchronize its clock 
with switches above it in the network hierarchy, when specified by the 
owner in item 3, appendix A of this section (see paragraph (j) of this 
section).
    (18) Consistent with system arrangements and ease of maintenance, 
space shall be provided on the floor plan for an orderly layout of 
future equipment bays that will be required for anticipated traffic when 
the office reaches its ultimate size. Readily accessible terminals shall 
be provided for connection to interbay and frame cables to future bays. 
All cables, interbay and intrabay (excluding power), if technically 
feasible, shall be terminated at both ends by use of connectors.
    (19) When specified in appendix A of this section, the system shall 
be capable of processing emergency calls to a 911 service bureau 
connected either by a group of one-way 911 lines or a trunk group.
    (i) It shall be possible to reach the service bureau by dialing 911, 
1+911, or a 7-digit number.
    (ii) The system shall select an idle 911 line or trunk.
    (iii) The system shall provide usual ringing and ringback signal 
until the called 911 line answers.
    (iv) If the calling line goes on-hook first, the system shall hold 
the connection from the called 911 line and return steady low tone to 
the service bureau. The system shall then begin a 45-minute timeout, 
after which the calling line is disconnected and an alarm message is 
printed on a TTY. If the calling line goes off-hook before timeout, the 
system shall reestablish the conversation path.
    (v) If the calling line does not disconnect, the service bureau 
attendant shall have the ability to force a disconnect of the 
established connection with the calling party.
    (vi) When the 911 call is answered, the equipment shall be arranged 
so that coin lines are not charged for the call. Similarly, if some form 
of local call charging is used, there shall be no charge for the 911 
call.
    (vii) If the 911 service bureau is holding a calling line, it shall 
be possible for the 911 line to cause the equipment to ring back the 
calling line. This is done by providing a flash of on-hook signal from 
the 911 line lasting from 200 to 1,100 milliseconds. The signal to the 
calling line shall be ringing current if the line is on-hook, or 
receiver off-hook (ROH) tone if the line is off-hook.

[[Page 687]]

    (viii) Calls shall not be originated from the service bureau via the 
dedicated 911 lines. If an attempt is made to originate a call, it shall 
receive reorder tone. After 6 minutes, the system shall print an alarm 
message.
    (ix) If 911 calls pass through intermediate switching, the forced-
hold control, emergency ringback, and calling line status monitoring 
capabilities are lost.
    (f) Line circuit requirements--(1) General. (i) The range of direct 
current (dc) resistances of subscriber loops, measured from the main 
frame in the central office and including the telephone set shall be at 
least 0-1900 ohms without loop extension and 1900-3600 ohms with loop 
extenders, or equivalent. The range when using extension equipment may 
be significantly reduced for straight line ringers. These limits apply 
under maximum adverse environmental and manufacturing variation 
tolerance conditions. Central office voltage shall be stabilized at a 
value necessary to provide at least a nominal 21 milliamperes current 
with a nontreated loop of at least 1900 ohms. Minimum loop insulation 
resistance without loop extenders shall be 25,000 ohms between 
conductors or from either conductor or both conductors in parallel to 
ground. Loop insulation resistance for loop extension devices may be 
100,000 ohms minimum between conductors or from either conductor or both 
conductors in parallel to ground.
    (ii) In addition to operating on nonloaded cable pairs and 
subscriber carrier, the equipment shall function properly with D-66 and 
H-88 loaded cable pairs, including any provisions the equipment must 
control for the purposes of proper transmission.
    (2) Dialing--(i) Subscriber dial speed. The line equipment and 
central office equipment (COE) in tandem shall operate satisfactorily 
when used with subscriber dials having a speed of operation between 
eight and twelve impulses per second and a break period of 55 to 65 
percent of the total impulse period.
    (ii) Subscriber dial interdigital time. The line equipment and 
central office equipment shall operate satisfactorily with subscriber 
rotary dial interdigital times of 200 milliseconds minimum, and with 
pushbutton dialing interdigital times of 50 milliseconds minimum.
    (iii) Subscriber line pushbutton dialing frequencies. (A) The 
frequency pairs assigned for pushbutton dialing shall be as follows, 
with an allowable variation of  1.5 percent:

------------------------------------------------------------------------
                                        High Group Frequencies (Hz)     
    Low Group Frequencies (Hz)    --------------------------------------
                                   1209  1336  1477          1633       
------------------------------------------------------------------------
697..............................    1     2     3   Spare              
770..............................    4     5     6   Spare              
852..............................    7     8     9   Spare              
941..............................    *     0        Spare              
------------------------------------------------------------------------

    (B) The receiver shall comply with the operating parameters of the 
dual-tone multifrequency (DTMF) central office receiver as described in 
section 6 of Bell Communications Research (Bellcore) document SR-TSV-
002275, BOC Notes on the LEC Networks--1990.
    (3) Impedance. For the purpose of this section, the input impedance 
of all subscriber loops served by the equipment is arbitrarily 
considered to be 900 ohms at voice frequencies.
    (4) Lockout. (i) All line circuits shall be arranged for line 
lockout. When a permanent condition occurs prior to placing a line into 
lockout, a timed low level warning followed by a timed high level 
receiver off-hook (ROH) tone (see paragraph (i)(2)(xi) of this section) 
or a howler circuit (see paragraph (o)(2)(iii)(C) of this section) shall 
be applied to the line.
    (ii) The line on lockout shall be reconnected automatically to the 
central office when the permanent off-hook condition is cleared.
    (5) Pay stations. Pay stations may be prepay, or semi-postpay, as 
specified by the owner.
    (6) Loop extension. (i) The number of lines which exceed 1900 ohms 
will be specified by the owner. When requested by the owner, the bidder 
shall furnish equipment to guarantee satisfactory operation of all 
lines.
    (ii) Working limits for subscriber lines with loop extenders are 
covered in RUS Bulletin 345-55, PE-61, Central Office Loop Extenders and 
Loop Extender Voice Frequency Repeater Combinations.
    (iii) Ringing from RUS accepted loop extenders, or their equivalent, 
shall be cut off from the called line when the

[[Page 688]]

handset at the called station is removed during the ringing or the 
silent interval.
    (7) Private branch exchange (PBX) lines. PBX trunk hunting shall be 
available. It will not be necessary to segregate PBX lines to certain 
line groups.
    (8) Quantity. A sufficient number of terminations shall be provided, 
in addition to the quantity specified by the owner for subscriber line 
service, to meet the requirements of the system for equipment testing, 
alarm checking, tone transfer, loop around test and other features.
    (9) Types. There shall be provisions for types of lines such as 
ground start, loop start, regular subscriber, pay stations, etc.
    (g) Intraoffice switching requirements. (1) The switching system 
shall:
    (i) Provide dial tone in response to origination of a call by a 
subscriber, except on special lines where the application of dial tone 
is not applicable, such as manual and hot lines;
    (ii) Remove dial tone immediately after the first digit has been 
dialed;
    (iii) Recognize the class of service of the calling subscriber;
    (iv) Register the digits dialed by the calling subscriber where the 
rotary dial or pushbutton dialing characteristics and the minimum 
interdigital times are as specified;
    (v) Perform the necessary translation functions when the required 
number of digits have been registered, and select a channel to a proper 
outgoing trunk, if one is available, to the designated interexchange 
carrier;
    (vi) Provide a transmission path from the calling subscriber line to 
the selected trunk, if an idle one is found;
    (vii) Provide for more than one alternate route to the desired 
destination when specified by the owner, select an idle outgoing trunk 
in the first or second choice alternate route trunk group, if all trunks 
in the higher choice groups are busy, and provide a reorder signal (see 
paragraph (i)(2)(iv) of this section) to the subscriber if no trunks are 
available in the last choice alternate route;
    (viii) Translate the proper part of the registered incoming routing 
data on tandem calls into an identification of an outgoing trunk group, 
select an idle trunk in that group, initiate the connection of the 
incoming trunk to the outgoing trunk, set the trunks in the proper 
configuration for tandem operation, and transmit information as required 
to permit completion to the desired destination in the distant office;
    (ix) Transmit the proper stored information over the selected trunk 
to permit completion of outgoing calls to the desired destination by the 
distant office or offices, and provide multifrequency (MF) outpulsing 
when specified;
    (x) Register all the digital information on calls incoming from a 
distant office, when dial or MF pulsing characteristics and interdigital 
times are as specified;
    (xi) Translate internally a registered directory number into line 
equipment location, ringing code and terminating class (such as ``PBX 
hunting'') on incoming or intraoffice calls;
    (xii) Test the called line for a busy condition;
    (xiii) Connect the incoming trunk or locally originated call to the 
called line if the called line is idle;
    (xiv) Permit any type of ringing voltage available in the central 
office to be associated with any Subscriber Directory Number (SDN), 
cause the proper type of ringing voltage to be connected to the called 
line, and remove ringing from the line upon answer whether in the 
ringing or silent period; and
    (xv) Test and monitor the switching system continually during 
periods of low traffic using the maintenance and diagnostic subsystem.
    (2) The switching system shall offer at least the following 
originating and terminating class-of-service indications on a per-line 
basis to subscribers, as specified by the owner:
    (i) Flat rate individual line, bridged ringing;
    (ii) Flat rate PBX and trunk hunting numbers, bridged ringing;
    (iii) Pay station;
    (iv) Message rate subscriber line;
    (v) Wide Area Telephone Service (WATS);
    (vi) Extended Area Service (EAS);
    (vii) Data service;
    (viii) Hotel-Motel capability;
    (ix) Denied originating;
    (x) Denied terminating;

[[Page 689]]

    (xi) Custom calling features;
    (xii) Special interexchange carrier accesses; and
    (xiii) Presubscription to designated interexchange carrier.
    (3) The switching system shall provide PBX hunting.
    (i) At least one trunk hunting group in each 100 SDN's equipped 
shall be provided. More may be provided as specified by the owner.
    (ii) PBX groups shall be of a reasonable size commensurate with the 
ultimate size of the switching system.
    (iii) Any available SDN may be used for PBX trunk hunting.
    (iv) Each PBX group shall have the capability of being assigned one 
or more nonhunting SDN's for night service.
    (v) If the called line is a PBX hunting line, the switching system 
shall test all assigned lines in the hunting group for a busy condition.
    (vi) If the called PBX group is busy, line busy tone, as specified 
in paragraph (i)(2)(iii) of this section, shall be returned to the 
originating end of the connection.
    (4) The switching system shall provide pay stations which may be 
prepay or semi-postpay. The system shall be arranged so that an operator 
and emergency service (911) may be reached from prepay or semi-postpay 
coin lines without the use of a coin, when the proper pay station 
equipment is provided.
    (5) To meet dialing requirements, the switching system shall:
    (i) Initiate the line lockout function after a delay, as specified 
in paragraph (r)(3) of this section, if dial or pushbutton dialing 
pulses are not received after initiation of a call, preferably routing 
the subscriber line to a holding circuit for tones and then 
automatically to lockout;
    (ii) Connect 120 interruptions per minute (IPM) paths busy tone, 
recorded message, or other distinctive tone to the calling subscriber if 
an interval longer than that specified in paragraph (r)(4) of this 
section elapses between dialed digits;
    (iii) Register the standard tone calling signals received from a 
subscriber station arranged for pushbutton dialing if specified by the 
owner, provide arrangements to function properly with 12-button 
pushbutton dialing sets, and return a reorder signal to the subscriber 
upon receipt of signal from the 11th or 12th buttons if neither of these 
buttons is assigned functions; and
    (iv) Connect the incoming trunk to the digit register equipment 
within 120 milliseconds after seizure where direct dialing is received 
on calls from a distant office, cancel the bid for a register, and 
return reorder tone to the calling end if dial pulses are received 
before a register is attached.
    (6) The switching system shall provide for appropriate circuit 
usage.
    (i) To avoid inefficient utilization of the switching network, that 
portion of the common equipment that establishes the connection on 
intramachine calls shall not require more than 500 milliseconds, 
exclusive of ringing and ring trip, to complete its function under no-
delay conditions.
    (ii) The switching system shall provide for duplication in a load 
sharing or redundant configuration any circuit elements or components, 
the failure of which would reduce the grade of service of 100 or more 
lines by more than 25 percent of the traffic carrying capacity.
    (iii) The switching system shall ensure that failure of access to a 
high choice circuit will not prevent subsequent calls from being served 
by lower choice circuits, wherever possible.
    (iv) Where only two circuits of a type are provided, circuits shall 
be designed so that failure of one circuit will not permanently block 
any portion of the system for the duration of the failure.
    (v) Where more than two circuits of a type are provided, successive 
usages should be on a rotational or random basis rather than the step-up 
selection with the possible exception of a last choice trunk.
    (vi) The system shall be designed so that, in the event of a network 
failure, the system shall immediately or simultaneously use a redundant 
portion of the network to complete the call.
    (7) The switching system shall provide busy verification facilities 
with the method of access specified by the owner.

[[Page 690]]

    (i) Only an operator or a switchman shall be able to override a busy 
line condition.
    (ii) If the called line is busy, off-hook supervision shall be given 
the operator or switchman.
    (iii) The responsibility of restricting subscribers in distant 
offices from having access to busy verification shall be on the distant 
office personnel when the toll trunks are used for both toll connecting 
and verification traffic.
    (iv) When a verification code is used, all digits of the code must 
be dialed before cut-through to the called line can be accomplished.
    (8) The switching system shall provide intercept facilities.
    (i) All unused numbering plan area codes, home numbering plan area 
office codes, service codes and subscriber directory numbers (SDN's) 
shall be routed to intercept. All intercept administration shall be by 
changes in memory administrable by telephone company personnel. Maximum 
machine time to place a subscriber on intercept shall be 15 seconds.
    (ii) Unequipped SDN's intercept shall be effective if the processor 
memory does not have information concerning the SDN in question.
    (iii) The intercept equipment shall be arranged so that specific 
SDN's can be routed to a separate intercept circuit for changed numbers.
    (iv) When an intercept call is answered, either by an operator or by 
a recorded announcement, an off-hook or charge supervision signal shall 
not be returned, even momentarily, to the originating end.
    (v) When intercepting service is to be handled over the regular 
interoffice toll trunks, a distinctive identifying tone shall be 
transmitted when the operator answers. This tone shall be of the 
frequency and duration specified in paragraph (i)(2)(x) of this section.
    (9) The switching system shall provide nuisance call trap facilities 
which, when activated, provide a permanent record of the calling and 
called numbers complete with date and time of day. Where the call 
originates over an interoffice trunk, the actual trunk number shall be 
recorded. There shall be provision for the called subscriber to hold the 
connection and for the positive trace of the call from origination to 
termination within the office.
    (10) The switching system shall follow appropriate release 
procedures.
    (i) The office shall be arranged so a connection to a terminating 
channel other than assistance operator shall be released under control 
of the calling party so that the channel can be reseized, unless the 
call is to emergency 911 service or other termination arranged for 
called party control.
    (ii) If the called party disconnects first, the channel used in the 
originally established connection shall be held until the calling party 
disconnects or until the timing interval specified in paragraph (r)(7) 
of this section has elapsed. This feature shall not interfere with the 
normal operation of calls to intercept, fire alarm, or other special 
services.
    (11) The switching system shall provide line load control 
facilities, when specified by the owner, to give preference for 
originating service to a limited group of subscribers during 
emergencies.
    (i) These facilities may be activated manually by input-output (I/O) 
device or automatically after a manual setting of a key (or equivalent) 
to put line load control into effect, as determined by the bidder. The 
automatic procedure is preferable.
    (ii) Procedures shall be established to avoid the unauthorized use 
of the line load control facilities.
    (iii) Where automatic activation is provided, service may be 
provided to small groups of nonemergency subscribers on limited grade of 
service whenever the office load becomes low enough to permit this to be 
done safely.
    (h) Interoffice trunk circuit requirements--(1) General. (i) The 
bidder shall supply, as requested by the owner, solid-state technology 
type trunk and signaling circuits of any of the types described in RUS 
TE&CM 319, Interoffice Trunking and Signaling, or, with the approval of 
RUS, any other more recent and desirable types not as yet covered in the 
manual. For dc signaling, the duplex (DX) and loop types of signaling 
are preferred.

[[Page 691]]

    (ii) Trunks shall not be directly driven from the subscriber's dial 
on outward calls.
    (iii) In order to reduce the spares inventory and minimize incidence 
of improper maintenance replacement of circuit assemblies, the types of 
trunk circuits shall be kept to a minimum. Variation in assemblies 
should be mainly limited to variation in signaling modes.
    (iv) Trunk circuits which connect with carrier or 4-wire 
transmission facilities shall be arranged for 4-wire transmission to 
avoid an intermediate 2-wire interface between a 4-wire switching system 
and trunk facilities.
    (2) Quantity. Trunk quantities shall be as specified in appendix A 
of this section. Sufficient space shall be provided for an orderly 
layout of trunks. Trunks of a certain type going to the same destination 
may be grouped together on the original installation.
    (3) Requirements for interoffice connections. (i) When operator 
trunks are used in common for both coin and noncoin lines, they shall be 
arranged to provide an indication to the operator by means of a visual 
signal or tone when calls are from pay stations. When a tone is used, it 
shall be of the type specified in paragraph (i)(2)(v) of this section 
and shall be connected to be heard only by the operator upon answer. It 
shall be possible to repeat the tone signal.
    (ii) There are no requirements for trunks arranged for manual re-
ring by a toll operator, either with the receiver on or off the hook, 
except to coin stations with the receiver on the hook.
    (iii) On calls from subscribers to the assistance operator, the 
release of the connection shall be under control of the last party to 
disconnect. An exception is operator control of disconnect that is used 
on outgoing trunks to a TSP/TSPS system.
    (iv) On calls originated by an operator, the release of the 
connection shall be under control of the operator.
    (v) Where trunks with E and M lead signaling are used, the trunk 
circuits for Type I signaling shall be arranged to place ground on the M 
lead during the on-hook condition and battery on the M lead in the off-
hook condition. For E and M Type II, only a make contact between the MA 
and MB lead will be required. In either type, current limiting shall be 
provided in the E lead of the trunk circuit itself, as required for 
proper operation. It shall be assumed that connection equipment in the 
form of trunk carrier, multiplex, or associated signaling apparatus 
furnishes only a contact closure to ground (Type I) or to a signal 
ground lead (Type II) for an off-hook condition on the E lead.
    (vi) Where answer supervision is used to determine the initiation of 
the charging interval for a call, such answer supervision shall not be 
effective for charging until after the elapse of the timing interval 
listed in paragraph (r)(5) of this section.
    (vii) When necessary, provision shall be made for reception of start 
and stop dial signals on toll trunk equipment.
    (viii) When trunks arranged for automatic message accounting (AMA), 
toll ticketing, or centralized automatic message accounting (CAMA) are 
specified by the owner, these trunks shall provide the pertinent 
features described in paragraph (k) of this section applicable to such 
functions.
    (4) Requirements for direct digital connections. (i) Interface units 
which will permit direct digital connection to other digital switches, 
channel banks and remote line and/or trunk circuits over digital 
facilities shall be provided when specified by the owner. The digital 
transmission system shall be compatible with T1 type span lines using a 
DS1 interface and other digital interfaces that may be specified by the 
owner. The RUS specification for the span line equipment is Bulletin 
345-50, PE-60, RUS Specification for Trunk Carrier Systems.
    (ii) Each interface circuit shall connect 24 voice channels to the 
switching system from a 1.544 megabit per second DS1 bit stream. The DS1 
bit stream entering or exiting the system shall be in the D3 format and 
the voice signals shall be encoded in 8 bit mu-255 PCM. The format and 
processing of the bit stream must be compatible with characteristics of 
the D3 channel bank such as alarm and maintenance characteristics. Loss 
of receive signal (DS1) shall be detected and the equivalent of a 
carrier group alarm shall be executed in

[[Page 692]]

2.5  0.5 seconds. Loss of synchronization shall be detected 
by slips, timing jitter, and wander in accordance with industry 
standards.
    (iii) Signaling shall be by means of MF or dial pulse (DP) and the 
system which is inherent in the A and B bits of the D3 format. In the 
case where they are not used for signaling, the A and B bits shall be 
used only for normal voice and data transmission.
    (i) Tone requirements--(1) General. Tones shall be provided to 
indicate the progress of a call through the office. Tone generators 
should be an integral part of the switching systems. The tones should be 
introduced digitally by the application of the appropriate bit stream to 
the line or trunk circuit via the digital switching network. The 
necessary precautions shall be made to ensure tone sources automatically 
if the primary sources fail.
    (2) Tone specifications. (i) Dial tone shall consist of 350 Hz plus 
440 Hz at a composite level of -10 dBm0 which equates to -13 dBm0 per 
frequency. This is the precise tone suitable for use with pushbutton 
dialing.
    (ii) Low tone shall consist of 480 Hz plus 620 Hz at a composite 
level of -21 dBm0 which equates to -24 dBm0 per frequency.
    (iii) Line busy tone shall be low tone interrupted at 60 IPM, with 
tone on 0.5 seconds and off 0.5 seconds.
    (iv) Reorder, all paths busy, and no circuit tone shall be low tone 
interrupted at 120 IPM, with tone on 0.25 seconds and off 0.25 seconds.
    (v) Identifying tone on calls from coin lines shall be uninterrupted 
low tone.
    (vi) High tone shall consist of 480 Hz at -17 dBm0.
    (vii) Audible ringback tone shall consist of 440 plus 480 Hz at a 
composite level of -16 dBm0 which equates to -19 dBm0 per frequency.
    (viii) The call progress tones listed in this section are described 
in Bellcore document SR-TSV-002275, BOC Notes on the LEC Networks--1990, 
section 6. The 350, 440, 480, and 620 Hz tones shall be held at 
 0.5 percent frequency tolerance and  3 dB 
amplitude variation. The amplitude levels specified are to be measured 
at the main distributing frame, excluding cable loss.
    (ix) Distinctive tone, when required for alarm calls, or other 
features, shall consist of high tone interrupted at 200 IPM with tone on 
150 ms and off 150 ms.
    (x) Identifying tone on intercepted calls shall consist of 
uninterrupted high tone impressed on the trunk circuit 300 to 600 
milliseconds following the operator's answer of intercepted calls.
    (xi) An ROH circuit shall have output tones which do not interfere 
with the pushbutton or multifrequency signaling tones. The ROH tone may 
be introduced digitally internal to the system near the overload level 
of +3 dBm0. No power adjustment will be required. The frequency of the 
output shall be distinctive and urgent in order to attract the 
subscriber's attention to an off-hook situation. (Warning: In order to 
determine the signal level, a frequency selective voltmeter must be used 
to determine the level of each signal component and mathematical power 
addition used to combine these measurements into a single level value.)
    (xii) During application of tones, office longitudinal balance shall 
be maintained within 15 dB of that specified in paragraph (q)(8) of this 
section.
    (j) System clock. (1) The central office clock and network 
synchronization system shall have the ability to be synchronized with 
external clocks for network synchronization, including detection of 
slips, timing, jitter and wander, in a digital-to-digital environment or 
operate initially in an independent network (refer to Bellcore document 
SR-TSV-002275, BOC Notes on the LEC Networks--1990, section 11).
    (2) The end office central office system clock shall be a Stratum 3 
clock with:
    (i) A minimum long-term accuracy of 4.6  x  10-6 
(7 Hz @ 1.544 MHz);
    (ii) A minimum stability of 3.7  x  10-7/day upon loss of 
all frequency references; and
    (iii) A ``Pull-In Range'' for the capability of synchronizing to a 
clock with accuracy of 4.6  x  10 -6.
    (3) The access tandem central office system clock shall be a Stratum 
2 clock with:
    (i) A minimum long-term accuracy of 1.6  x  10-8 
(0.025 Hz @ 1.544 MHz);

[[Page 693]]

    (ii) A minimum stability of 1  x  10-10/day upon loss of 
all frequency references; and
    (iii) A ``Pull-In Range'' for the capability of synchronization to a 
clock with accuracy of 1.6  x  10-8.
    (k) Switched access service arrangements--(1) General. The equipment 
shall be capable of providing Feature Group A, Feature Group B, Feature 
Group C, and Feature Group D switched access service arrangements, as 
described in Bellcore document SR-TSV-002275, BOC Notes on the LEC 
Networks--1990, section 6 and section 15, including arrangements for 
automatic number identification (ANI).
    (2) Operation. (i) All equipment shall be arranged for Feature Group 
A (Line Side Connection).
    (ii) All equipment shall be arranged for Feature Group B given that 
appendix A of this section requires the equipment of the necessary 
trunks (Trunk Side Connection).
    (iii) The equipment shall be arranged for Feature Group C on the 
trunk groups specified in appendix A of this section. Even though 
appendix A of this section specifies Feature Group D or some other trunk 
group, it shall be possible through software commands available to the 
owner to use Feature Group C signaling protocols on a trunk group basis 
until such time that the trunk group in question converts to Feature 
Group D signaling protocols.
    (iv) The equipment shall be arranged for Feature Group D on the 
trunk groups specified in appendix A of this section.
    (v) Calls originating from coin lines toward switched access service 
shall be arranged either to provide signaling protocols for TSPS, or in 
the absence of TSPS-type service, such calls shall be blocked.
    (vi) The equipment shall be arranged for forwarding routing 
information, calling party identification, and called party numbers in 
the proper feature group protocols, by trunk group as specified in 
appendix A of this section.
    (vii) The equipment shall be arranged for AMA data collection as 
specified in appendix A of this section by trunk group. Unless otherwise 
specified by the owner, the equipment shall be arranged to collect the 
billing data in the Bellcore AMA format as described in Bellcore 
document TR-TSY-000508, Automatic Message Accounting.
    (viii) If specified in Item 9.4, appendix A of this section, the 
equipment shall be arranged to store the billing data in a pollable 
system. If specified in Item 9.5, appendix A of this section, equipment 
shall be furnished to poll the pollable systems associated with the 
contract.
    (l) Fusing and protection requirements--(1) General. (i) The 
equipment shall be completely wired and equipped with fuses, trouble 
signals, and arranged for printout of fault conditions, with all 
associated equipment for the wired capacity of the frames or cabinets 
provided.
    (ii) Design precautions shall be taken to prevent the possibility of 
equipment damage arising from the insertion of an electronic package 
into the wrong connector, the removal of a package from any connector, 
or the improper insertion of the correct card in its connector.
    (2) Fuses. Fuses and circuit breakers shall be of an alarm and 
indicator type, except where the fuses or breaker location is indicated 
on the alarm printout. Their rating shall be designated by numerals or 
color code on the fuse panel, where feasible.
    (3) Components. (i) Insofar as possible, all components shall be 
capable of being continuously energized at rated voltage without 
injurious results. Insofar as possible, design precautions shall be 
taken to prevent damage to other equipment and components when a 
particular component fails.
    (ii) Printed circuit boards or similar equipment employing 
electronic components shall be self-protecting against external grounds 
applied to the connector terminals, where feasible. Board components and 
coatings applied to finished products shall be of such material or 
treated so they will not support combustion.
    (iii) Every precaution shall be taken to protect electrostatically 
sensitive components from damage during handling. This shall include 
written instructions and recommendations (see Item 6.1,h of appendix C 
of this section).

[[Page 694]]

    (m) Switching network requirements--(1) The network. (i) All 
networks shall be comprised of solid-state components.
    (ii) The switching network shall employ time division digital 
switching and be compatible for connection to D3 type PCM channel banks 
without conversion to analog.
    (iii) Equipment shall be available as required to connect analog 
lines and trunks, analog or digital service circuits, digital carriers 
to RST's, D3 channel banks or other digital switching units.
    (2) Network quantity. Where the number of stages in the switching 
network and their control varies with the capacity of the system, 
sufficient equipment and wiring shall be supplied initially in order 
that there will be no service interruptions when additions are made up 
to the ultimate capacity as specified in appendix A of this section. 
This does not imply the necessity of supplying empty cabinets unless 
this is the only way the necessary wiring can be accomplished.
    (n) Stored program control (SPC) equipment requirements. (1) The 
system shall provide redundancy in call processing such that the failure 
of a call processing unit does not degrade the call processing 
capabilities of the switching system nor result in the loss of 
established calls.
    (2) Programs shall be modular, flexible and structured. In the 
interest of more dependable and more easily read programs, it is 
desirable to use a language which is more person-oriented leaving the 
detailed machine-oriented problems to a compiler program. Quality 
assurance of all software programs shall be in accordance with IEEE Std 
730-1989, IEEE Standard for Software Quality Assurance Plans, or 
equivalent.
    (3) The office administration program shall have checks within it to 
prevent failure due to erroneous or inconsistent input data. It shall 
safeguard against the possibility of upsetting machine performance with 
improper instructions or information. In addition, modular structure 
shall allow the use of a variety of human-engineered service order 
formats. Service changes may be performed remotely if so desired. 
Average machine time for service change shall be 15 seconds or less. 
Service changes shall not be registered in permanent memory until 
verified. The access to the service change shall not have access to 
generic program.
    (4) The switching system shall be able to offer, by request, at 
least the following printouts of its routine stored data for 
administrative purposes:
    (i) A list of all assigned directory numbers, in numerical order, 
with their assigned class of service and line terminal numbers;
    (ii) A list of all directory numbers, in numerical order, associated 
with a class of service;
    (iii) A list of all unassigned line terminals;
    (iv) Traffic data in proper form for separation studies in 
accordance with the revenue separations procedures current at the time 
of the contract;
    (v) All lines on lockout;
    (vi) All lines assigned to intercept;
    (vii) All available (unassigned) directory numbers in the working 
thousands group; and
    (viii) A list of equipment busied out for maintenance.
    (5) The printouts in paragraph (n)(4) of this section may be delayed 
to times of light traffic.
    (6) Maintenance diagnostics shall be performed by a fault 
recognition system utilizing both software and hardware, each being used 
where they are most effective for maintenance and reliability. In the 
economic interests of providing early and efficient fault detection and 
accurate pinpointing of faulty areas, it is desirable to have a 
comprehensive person-machine interface supported by extensive automatic 
fault detection and analysis, involving diagnostic software for fault 
resolution and automatic recovery mechanisms to maintain continuous 
service. Maintenance messages may be channeled to a remote maintenance 
center if so desired.
    (7) Information in memory, having no requirement for changes to be 
introduced in the maintenance or operation of the system, may be stored 
in memory devices such as programmable

[[Page 695]]

read-only memory (PROM) or other devices that cannot be reprogrammed in 
the field.
    (o) Maintenance facilities--(1) Alarm features, including alarm 
sending. (i) The equipment shall be arranged to provide audible and 
visual alarms indicating fuse operation or other circuit malfunctions 
resulting from component failure, crosses or open wiring, or any other 
conditions affecting service which can be detected economically.
    (ii) The alarms shall be classified in accordance with their effect 
on the system.
    (A) Catastrophic alarms demand immediate attention and require 
notification of the highest level of supervisory personnel. Conditions 
such as loss of service, loss of one or more remote line switches or 
line concentrators connected through Direct Digital Interface, loss of 
network control, and loss of computer program in all processors shall 
produce catastrophic alarms.
    (B) Major alarms demand rapid action. Conditions such as loss of one 
or more groups of subscribers or trunk ports, blown fuses for common 
groups of channels, loss of control to groups of channels, failure of 
one or both redundant units, and total loss of battery charging current 
for more than 15 minutes shall produce major alarms.
    (C) Minor alarms indicate nonemergency conditions which cause 
degraded service or fault conditions which causes the system to operate 
within less-than-optimum performance. Conditions discovered in automatic 
routining which have not shown in the operation of the equipment but 
require attention and cumulative line lockout (level adjustable) are 
examples of minor alarm conditions.
    (iii) When the office is arranged for unattended operation, 
facilities shall be provided for extending the alarm indications to an 
attended point.
    (iv) When the use of a separate outside plant facility for alarm 
sending is specified, the nature of the alarm may be indicated to the 
distant point by machine printout or other display device.
    (v) When alarm sending is accomplished over a regular operator 
office trunk, the operator shall be apprised that the call is an alarm 
indication by a distinctive tone, as specified by the owner in appendix 
A of this section. It shall be possible for the operator to determine at 
any time the presence of a trouble condition by dialing a number set 
aside for that purpose. This number shall also be accessible from lines 
classmarked for this feature.
    (vi) When the alarm sending circuit seizes an interoffice operator 
trunk, the operator must dial the alarm checking code over another trunk 
before the first trunk can be released except where the alarm condition 
has disappeared first.
    (vii) The alarm sending circuit shall have access to two or more 
trunks if the trunks are used for subscriber traffic.
    (viii) An alarm indication of higher priority shall supersede an 
original alarm indication and reseize an interoffice operator trunk.
    (ix) In any group of offices purchased under one contract, the same 
codes shall be used in each office for alarm checking and test.
    (x) When the alarm checking number is dialed, the alarm indications 
received shall be as follows:
    (A) Catastrophic alarm--No tone.
    (B) Major alarm--Continuous busy tone 60 IPM, unless alarm is 
overridden.
    (C) Minor alarm--Continuous 1-ring code ringback tone, unless alarm 
is overridden.
    (D) No trouble--Continuous 2-ring code ringback tone, unless alarm 
is overridden.
    (xi) Audible and visual local alarms and transmitted alarms shall be 
provided as follows:

------------------------------------------------------------------------
                                                  Delay Interval        
------------------------------------------------------------------------
                                          Local                         
             Classification              Alarms     Alarms Transmitted  
------------------------------------------------------------------------
Catastrophic                                0                          0
Major                                       0                       0\1\
Minor                                       0                  0-30 Min.
------------------------------------------------------------------------
\1\Except no charge alarm delayed 15 minutes.                           

    (xii) The central office alarm circuits shall be arranged to provide 
optional wiring to transmit either a minor alarm or a major alarm and a 
printout to accommodate various types of trunk and subscriber carrier 
systems, microwave, mobile radio, other transmission systems, and 
environmental protection

[[Page 696]]

systems with different priorities when a set of contacts is closed in 
the equipment of such systems and the alarm checking code is dialed. The 
alarm relay shall be furnished by the supplier of the carrier multiplex 
and/or mobile radio equipment. The option or options shall be specified 
by the owner.
    (2) Trouble location and test. (i) Equipment. (A) A maintenance 
center shall be provided with a fault recorder (printer and/or display) 
for troubles. Here, system and sub-system visual trouble indications are 
shown for maintenance aid.
    (B) The fault recorder shall provide a permanent or semi-permanent 
record of the circuit elements involved whenever a trouble is 
encountered. It shall be arranged to recognize an existing fault 
condition and not cause multiple printouts of the same fault, except 
during test routine.
    (ii) Maintenance system. (A) The maintenance system shall monitor 
and maintain the system operation without interruption of call 
processing, except for major failures.
    (B) The maintenance system shall provide both specialized 
maintenance hardware circuits and an extensive software package to 
enable maintenance to determine trouble to an individual card or 
functional group of cards.
    (C) Maintenance programs may be both on-line and off-line. On-line 
maintenance programs are activated by system errors and shall be 
scheduled to execute call tests during low traffic periods and periodic 
hardware tests at specific time intervals. Programs shall provide 
diagnostic tools for the maintenance personnel and be initiated by them.
    (D) Scheduled periodic hardware tests shall automatically detect 
faults and alert maintenance personnel via alarm or appropriate input/
output device(s) at local and/or remote locations.
    (E) Facilities shall be provided so that test calls can be set up 
using pre-selected items of switching equipment.
    (F) The maintenance personnel shall be able to make tests to 
determine if every trunk and every item of switching equipment are 
functioning properly. Also, it shall be possible to make each trunk and 
each SPC equipment, or part thereof, busy to service calls. Where 
possible, equipment which is made busy to service calls shall still be 
accessible for test calls.
    (iii) Outside plant and subscriber stations. (A) A subscriber loop 
test set or equivalent shall be provided either as a separate set or as 
a part of the maintenance center, as specified in item 11.2 of appendix 
A of this section. This circuit shall include a high resistance volt-ohm 
meter, wiring to tip and ring terminals to permit a portable wheatstone 
bridge to be used, an operator's telephone circuit, a dial circuit (and 
pushbutton dialing keys, if specified), outgoing trunks to dial 
equipment for access to lines under test without use of the main 
distributing frame (MDF) test shoe and the necessary test keys. No dry 
cell batteries shall be accepted for test potentials. Circuits shall be 
designed so that alternating current (ac) induction on the line will 
have no effect on dc measurements. All functions shall be under control 
of lever or pushbutton keys. As a minimum the test system shall:
    (1) Test for bridged foreign electromotive force (EMF);
    (2) Test for regular line battery;
    (3) Test for booster battery voltage and polarity using the test 
shoe;
    (4) Test for open circuits, short, tip ground, and ring ground;
    (5) Test for tip or ring negative potential;
    (6) Test for capacitance of a subscriber's line;
    (7) Supply talking battery to the line with and without booster 
battery;
    (8) Ring the subscriber through the test access circuit or through a 
test shoe;
    (9) Test in and out of the central office; and
    (10) Supply a reverse polarity key for voltage readings, except when 
positive or negative values are displayed directly.
    (B) An acceptable arrangement for making the tests shown in 
paragraph (o)(2)(iii)(A) of this section is to have them under software 
control with results displayed at one of the system's I/O ports.
    (C) A howler circuit for maintenance purposes, if ordered by the 
owner, shall

[[Page 697]]

have output tones which do not interfere with the pushbutton or 
multifrequency signaling tones. The harmonics of the output tones shall 
be attenuated at least 26 dB below the fundamental frequency for all 
load conditions. The frequency stability shall be 2 percent or less for 
all output tones when the unit is operated in the specified load and 
environmental range. It shall be possible to vary the output voltage 
(power) of the howler circuit. It shall remove tone and restore the line 
to service when the telephone instrument receiver is placed on-hook. The 
frequency of the output shall be chosen to be distinctive and urgent in 
order to attract the subscriber's attention to an off-hook situation.
    (D) When a dial speed test facility is specified by the owner, it 
shall be accessed by dialing a special code and shall return to the 
calling station readily identifiable signals to indicate that the dial 
speed is slow, normal, or fast.
    (E) When the office is arranged for pushbutton dialing, optional 
facilities shall be provided for testing the pushbutton dialing 
equipment at the subscriber station.
    (F) When a system for testing subscriber lines in remote offices 
from a test position in a centrally located office is specified by the 
owner, it shall be capable of working with all the central offices and 
RST's in the remote areas. This testing equipment shall preferably be 
solid-state with a minimum of electromechanical devices and shall 
operate from central office battery. It shall be capable of working over 
any voice grade telephone circuit and shall not require a dedicated 
trunk. There shall be no interference to or from ``in-band'' voice 
channel tones. When used over a network, the verification or access 
shall be guarded to prevent unauthorized access by subscribers. Access 
to this system shall only be available to the test operator in all 
cases.
    (3) Transmission testing. (i) When transmission test circuits are 
specified in Item 11.3 of appendix A of this section, they shall permit 
testing of trunks by a distant office without any assistance in the 
local dial office. Analog test ports shall meet appropriate trunk 
requirements. If Centralized Automatic Reporting on Trunks (CAROT), or 
equivalent, is to be used, the equipment at the end office shall comply 
with Bellcore document SR-TSV-002275, BOC Notes on the LEC Networks--
1990, section 8, Item 2.
    (ii) Transmission test circuits are available with a variety of 
options. These include single frequency and multifrequency tone 
generators with one or more generator output terminals, quiet 
terminations, and loop around test arrangements for both one-way and 
two-way trunks.
    (iii) Where multifrequency generators are used, they are usually 
arranged to provide a minimum of three frequencies. With some equipment, 
up to seven additional frequencies may be provided if needed. No 
industry standardization of test frequencies is as yet provided. 
Therefore, it is important that the selection of frequencies, the order 
in which they are applied and the time interval for application of each 
frequency be agreed upon by the connecting company and the RUS borrower 
and listed in appendix A of this section in those situations where 
connecting companies request the installation of multifrequency 
generators in borrowers' central offices.
    (iv) The milliwatt generator shall be solid-state and generate the 
analog or digital equivalent of 1004 Hz. The milliwatt generator shall 
be assigned to a 4-wire analog test port or be digitally generated. All 
2-wire and 4-wire voice frequency ports are at a nominal 0 dBm0 level. 
The level of the 1004 Hz tone generator shall appear at outgoing 2-wire 
and 4-wire ports at 0 dBm  0.5 dB. For direct digital 
connections, the encoded output shall be the digital equivalent of a 0 
dBm0  0.5 dB signal.
    (v) Reference tone generators can be used individually or they can 
be part of a loop around test arrangement. If both single frequency and 
multifrequency reference tone generators are to be provided, only one 
can be arranged as part of a loop around test. Where a loop around 
arrangement is provided, the generator output can be obtained by dialing 
singly one of the two line terminals. By dialing the other line terminal 
singly, usually a 900 ohm resistor in series with a 2.16 microfarad 
capacitor is connected to the circuit under test to

[[Page 698]]

act as a ``quiet termination'' for noise measurements and other tests. 
Whenever both line terminals are held simultaneously, both the milliwatt 
supply and the quiet termination shall be lifted off and a ``loop 
around'' condition established. This permits the overall loss to be 
determined from the distant office by going out over one trunk, looping 
around in the end office and returning over the other trunk. The 
insertion loss of this test arrangement when used in a loop around 
configuration should not exceed 0.1 dB at the frequencies specified for 
the milliwatt supply. Unless otherwise specified, continuous off-hook 
supervision is to be provided on both line terminals to prevent 
collusive calling without charge. It will be permissible to accomplish 
the quiet termination by opening the 4-wire path internally and to 
accomplish the loop around by digital switching.
    (vi) Provision shall be made so that the milliwatt supply can be 
manually patched to circuits.
    (vii) Test jack access shall be provided for all interoffice trunks 
of the voice frequency type. The jack access shall be properly 
designated for line, drop, monitor, and signaling leads plus any other 
jacks as requested by the owner. This may be accomplished by a set of 
jacks located at the maintenance center which have access to each trunk 
on a switching basis.
    (p) Traffic--(1) General engineering guidelines. (i) The Traffic 
Table, based on the Erlang Lost-Calls-Cleared Formula, shall be used for 
determining the quantity of intraoffice paths, registers, and senders 
where full availability conditions apply. The following table shows the 
traffic capacity in CCS for 1 to 200 trunks at nine grades of service.

                                                                                          Traffic Table                                                                                         
                                                                              Full Availability for Random Traffic                                                                              
                                                                                       Lost-Calls-Cleared                                                                                       
                                                                                Offered Traffic Expressed in CCS                                                                                
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 Number of                                                                                                                                                                                      
   Trunks          B-.001             .002              .005               .01               .02               .05               .1                .2                .5         Number of Trunks
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1..........  0................  0...............  0...............  0...............  1...............  2...............  4...............  9...............  36..............  1               
2..........  2................  3...............  4...............  5...............  8...............  14..............  22..............  36..............  98..............  2               
3..........  7................  9...............  13..............  17..............  22..............  32..............  46..............  69..............  165.............  3               
4..........  16...............  19..............  25..............  31..............  39..............  55..............  74..............  106.............  234.............  4               
5..........  27...............  32..............  41..............  49..............  60..............  80..............  104.............  144.............  304.............  5               
                                                                                                                                                                                                
6..........  41...............  48..............  58..............  69..............  82..............  107.............  135.............  184.............  374.............  6               
7..........  57...............  65..............  78..............  90..............  106.............  135.............  168.............  224.............  445.............  7               
8..........  74...............  83..............  98..............  113.............  131.............  163.............  202.............  265.............  516.............  8               
9..........  92...............  103.............  120.............  136.............  156.............  193.............  236.............  307.............  586.............  9               
10.........  111..............  123.............  143.............  161.............  183.............  224.............  270.............  348.............  656.............  10              
                                                                                                                                                                                                
11.........  131..............  145.............  166.............  186.............  210.............  255.............  306.............  391.............  729.............  11              
12.........  152..............  167.............  190.............  212.............  238.............  286.............  341.............  433.............  801.............  12              
13.........  174..............  190.............  215.............  238.............  266.............  318.............  377.............  476.............  872.............  13              
14.........  196..............  213.............  240.............  265.............  295.............  350.............  413.............  519.............  944.............  14              
15.........  219..............  237.............  266.............  292.............  324.............  383.............  449.............  562.............  1015............  15              
                                                                                                                                                                                                
16.........  242..............  261.............  292.............  320.............  354.............  415.............  486.............  605.............  1087............  16              
17.........  266..............  286.............  318.............  347.............  384.............  449.............  523.............  648.............  1158............  17              
18.........  290..............  311.............  345.............  376.............  414.............  482.............  560.............  692.............  1230............  18              
19.........  314..............  337.............  372.............  404.............  444.............  515.............  597.............  735.............  1302............  19              
20.........  339..............  363.............  399.............  433.............  474.............  549.............  634.............  779.............  1374............  20              
                                                                                                                                                                                                
21.........  364..............  388.............  427.............  462.............  505.............  583.............  671.............  823.............  1445............  21              
22.........  389..............  415.............  455.............  491.............  536.............  617.............  709.............  866.............  1517............  22              
23.........  415..............  441.............  483.............  521.............  567.............  651.............  747.............  910.............  1589............  23              
24.........  441..............  468.............  511.............  551.............  599.............  685.............  784.............  954.............  1661............  24              
25.........  467..............  495.............  540.............  580.............  630.............  720.............  822.............  998.............  1733............  25              
                                                                                                                                                                                                
26.........  493..............  523.............  568.............  611.............  662.............  754.............  860.............  1042............  1805............  26              
27.........  520..............  550.............  598.............  641.............  693.............  788.............  898.............  1086............  1876............  27              
28.........  546..............  578.............  627.............  671.............  725.............  823.............  936.............  1130............  1948............  28              
29.........  573..............  606.............  656.............  702.............  757.............  858.............  974.............  1174............  2020............  29              
30.........  600..............  634.............  685.............  732.............  789.............  893.............  1012............  1218............  2092............  30              
                                                                                                                                                                                                
31.........  628..............  662.............  715.............  763.............  822.............  928.............  1050............  1263............  2164............  31              
32.........  655..............  690.............  744.............  794.............  854.............  963.............  1089............  1307............  2236............  32              
33.........  683..............  719.............  774.............  825.............  887.............  998.............  1127............  1351............  2308............  33              

[[Page 699]]

                                                                                                                                                                                                
34.........  711..............  747.............  804.............  856.............  919.............  1033............  1165............  1395............  2380............  34              
35.........  739..............  776.............  834.............  887.............  951.............  1068............  1203............  1439............  2452............  35              
                                                                                                                                                                                                
36.........  767..............  805.............  864.............  918.............  984.............  1104............  1242............  1484............  2524............  36              
37.........  795..............  834.............  895.............  950.............  1017............  1139............  1281............  1528............  2595............  37              
38.........  823..............  863.............  925.............  981.............  1050............  1174............  1319............  1572............  2667............  38              
39.........  851..............  892.............  955.............  1013............  1083............  1210............  1358............  1617............  2739............  39              
40.........  880..............  922.............  986.............  1044............  1116............  1246............  1396............  1661............  2811............  40              
                                                                                                                                                                                                
41.........  909..............  951.............  1016............  1076............  1149............  1281............  1435............  1706............  2883............  41              
42.........  937..............  980.............  1047............  1108............  1182............  1317............  1474............  1750............  2955............  42              
43.........  966..............  1010............  1078............  1140............  1215............  1352............  1512............  1795............  3027............  43              
44.........  995..............  1040............  1109............  1171............  1248............  1388............  1551............  1839............  3099............  44              
45.........  1024.............  1070............  1140............  1203............  1282............  1424............  1590............  1884............  3171............  45              
                                                                                                                                                                                                
46.........  1053.............  1099............  1171............  1236............  1315............  1459............  1629............  1928............  3243............  46              
47.........  1083.............  1129............  1202............  1268............  1349............  1495............  1668............  1973............  3315............  47              
48.........  1112.............  1159............  1233............  1300............  1382............  1531............  1706............  2017............  3387............  48              
49.........  1141.............  1189............  1264............  1332............  1416............  1567............  1745............  2062............  3459............  49              
50.........  1170.............  1220............  1295............  1364............  1449............  1603............  1784............  2106............  3531............  50              
                                                                                                                                                                                                
51.........  1200.............  1250............  1327............  1397............  1483............  1639............  1823............  2151............  3603............  51              
52.........  1229.............  1280............  1358............  1429............  1516............  1675............  1862............  2195............  3675............  52              
53.........  1259.............  1310............  1390............  1462............  1550............  1711............  1901............  2240............  3747............  53              
54.........  1289.............  1341............  1421............  1494............  1584............  1747............  1940............  2285............  3819............  54              
55.........  1319.............  1371............  1453............  1527............  1618............  1783............  1979............  2329............  3891............  55              
                                                                                                                                                                                                
56.........  1349.............  1402............  1484............  1559............  1652............  1819............  2018............  2374............  3962............  56              
57.........  1378.............  1432............  1516............  1592............  1686............  1856............  2057............  2418............  4034............  57              
58.........  1408.............  1463............  1548............  1625............  1719............  1892............  2096............  2463............  4106............  58              
59.........  1439.............  1494............  1579............  1657............  1753............  1928............  2136............  2508............  4178............  59              
60.........  1468.............  1525............  1611............  1690............  1787............  1965............  2174............  2552............  4250............  60              
                                                                                                                                                                                                
61.........  1499.............  1556............  1643............  1723............  1821............  2001............  2214............  2597............  4322............  61              
62.........  1529.............  1587............  1675............  1756............  1855............  2037............  2253............  2642............  4394............  62              
63.........  1559.............  1617............  1707............  1789............  1889............  2073............  2292............  2687............  4466............  63              
64.........  1590.............  1648............  1739............  1822............  1923............  2110............  2331............  2731............  4538............  64              
65.........  1620.............  1679............  1771............  1855............  1958............  2146............  2370............  2776............  4610............  65              
                                                                                                                                                                                                
66.........  1650.............  1710............  1803............  1888............  1992............  2182............  2409............  2821............  4682............  66              
67.........  1681.............  1742............  1835............  1921............  2026............  2219............  2449............  2865............  4754............  67              
68.........  1711.............  1773............  1867............  1954............  2060............  2255............  2488............  2910............  4826............  68              
69.........  1742.............  1804............  1900............  1987............  2094............  2291............  2527............  2955............  4898............  69              
70.........  1773.............  1835............  1932............  2020............  2129............  2328............  2566............  3000............  4970............  70              
                                                                                                                                                                                                
71.........  1803.............  1867............  1964............  2053............  2163............  2364............  2606............  3044............  5042............  71              
72.........  1834.............  1898............  1997............  2087............  2197............  2401............  2645............  3089............  5114............  72              
73.........  1865.............  1929............  2029............  2120............  2232............  2438............  2684............  3134............  5186............  73              
74.........  1895.............  1961............  2061............  2153............  2266............  2474............  2723............  3178............  5258............  74              
75.........  1926.............  1992............  2093............  2186............  2300............  2511............  2763............  3223............  5330............  75              
                                                                                                                                                                                                
76.........  1957.............  2024............  2126............  2219............  2335............  2547............  2802............  3268............  5402............  76              
77.........  1988.............  2055............  2159............  2253............  2369............  2584............  2841............  3313............  5474............  77              
78.........  2019.............  2087............  2191............  2286............  2404............  2620............  2881............  3357............  5546............  78              
79.........  2050.............  2118............  2223............  2319............  2438............  2657............  2920............  3402............  5618............  79              
80.........  2081.............  2150............  2256............  2353............  2473............  2694............  2959............  3447............  5690............  80              
                                                                                                                                                                                                
81.........  2112.............  2182............  2289............  2386............  2507............  2730............  2999............  3492............  5762............  81              
82.........  2143.............  2213............  2321............  2420............  2542............  2767............  3038............  3537............  5834............  82              
83.........  2174.............  2245............  2354............  2453............  2577............  2803............  3077............  3581............  5906............  83              
84.........  2206.............  2277............  2386............  2487............  2611............  2840............  3117............  3626............  5977............  84              
85.........  2237.............  2309............  2419............  2521............  2646............  2877............  3156............  3671............  6049............  85              
                                                                                                                                                                                                
86.........  2268.............  2340............  2452............  2554............  2680............  2913............  3196............  3716............  6121............  86              
87.........  2299.............  2372............  2485............  2588............  2715............  2950............  3235............  3761............  6193............  87              
88.........  2331.............  2404............  2517............  2621............  2750............  2987............  3275............  3805............  6265............  88              
89.........  2362.............  2436............  2550............  2655............  2784............  3024............  3314............  3850............  6337............  89              
90.........  2393.............  2468............  2583............  2688............  2819............  3060............  3353............  3895............  6409............  90              
                                                                                                                                                                                                
91.........  2425.............  2500............  2616............  2722............  2854............  3097............  3393............  3940............  6481............  91              
92.........  2456.............  2532............  2649............  2756............  2889............  3134............  3432............  3984............  6553............  92              
93.........  2488.............  2564............  2682............  2790............  2923............  3171............  3471............  4029............  6625............  93              
94.........  2519.............  2596............  2715............  2823............  2958............  3208............  3511............  4074............  6697............  94              

[[Page 700]]

                                                                                                                                                                                                
95.........  2551.............  2628............  2748............  2857............  2993............  3244............  3551............  4119............  6769............  95              
                                                                                                                                                                                                
96.........  2582.............  2660............  2781............  2891............  3028............  3281............  3590............  4164............  6841............  96              
97.........  2614.............  2692............  2814............  2925............  3063............  3318............  3630............  4209............  6913............  97              
98.........  2645.............  2724............  2847............  2958............  3097............  3355............  3669............  4253............  6985............  98              
99.........  2677.............  2757............  2880............  2992............  3132............  3392............  3708............  4298............  7057............  99              
100........  2709.............  2789............  2913............  3026............  3167............  3429............  3748............  4343............  7129............  100             
                                                                                                                                                                                                
105........  2867.............  2950............  3078............  3196............  3342............  3613............  3946............  4567............  7489............  105             
110........  3027.............  3112............  3244............  3366............  3516............  3798............  4143............  4792............  7849............  110             
115........  3186.............  3275............  3411............  3536............  3691............  3983............  4341............  5016............  8209............  115             
120........  3347.............  3437............  3578............  3707............  3867............  4168............  4539............  5241............  8569............  120             
125........  3507.............  3601............  3745............  3878............  4043............  4353............  4737............  5465............  8929............  125             
                                                                                                                                                                                                
130........  3669.............  3765............  3912............  4049............  4219............  4539............  4935............  5689............  9289............  130             
135........  3830.............  3929............  4081............  4221............  4395............  4724............  5133............  5914............  9649............  135             
140........  3992.............  4093............  4249............  4392............  4571............  4910............  5332............  6138............  10009...........  140             
145........  4155.............  4258............  4418............  4564............  4748............  5095............  5530............  6363............  10369...........  145             
150........  4318.............  4423............  4586............  4737............  4925............  5282............  5728............  6587............  10729...........  150             
                                                                                                                                                                                                
155........  4481.............  4589............  4755............  4909............  5102............  5467............  5927............  6812............  11089...........  155             
160........  4644.............  4755............  4925............  5082............  5279............  5654............  6125............  7037............  11449...........  160             
165........  4808.............  4920............  5094............  5255............  5457............  5840............  6324............  7261............  11809...........  165             
170........  4972.............  5087............  5264............  5428............  5634............  6026............  6523............  7486............  12169...........  170             
175........  5137.............  5253............  5434............  5602............  5811............  6213............  6722............  7710............  12529...........  175             
                                                                                                                                                                                                
180........  5301.............  5420............  5604............  5775............  5989............  6399............  6920............  7935............  12889...........  180             
185........  5466.............  5587............  5775............  5949............  6167............  6586............  7119............  8160............  13249...........  185             
190........  5631.............  5754............  5945............  6123............  6345............  6773............  7318............  8384............  13609...........  190             
195........  5797.............  5922............  6116............  6296............  6524............  6960............  7517............  8609............  13969...........  195             
200........  5962.............  6089............  6287............  6471............  6702............  7146............  7716............  8834............  14329...........  200             
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    (ii) The traffic capacity for all interoffice trunks shall be based 
on full availability, even though the distant office itself is not 
engineered to provide full availability access.
    (iii) The Traffic Table may also be used to determine the 
approximate traffic capacity of high-usage intertoll trunks. The traffic 
offered to high-usage groups may be read at B.10, signifying that 10 
percent of the traffic overflows to the alternate route. This 
approximates the HU12 table used by AT&T.
    (iv) In reading the trunk quantity from the table, the higher 
quantity shall be used when the CCS load is three or more CCS over the 
lower quantity. For example, the number of trunks justified for 294 CCS 
at B.005 is 16, but for 295 CCS 17 trunks are justified.
    (v) Limited availability is not permitted.
    (vi) The traffic capacity in the following table should be used for 
small trunk groups such as pay station, special service trunks, 
intercept, and PBX trunks, unless otherwise specified in appendix A of 
this section:

------------------------------------------------------------------------
            Number of Circuits                     Permissible CCS      
------------------------------------------------------------------------
1                                           10                          
2                                           20                          
3                                           30                          
4                                           40                          
------------------------------------------------------------------------

    (vii) The percentage of lines equipped for pushbutton dialing is to 
be used to determine the number of tone receivers. Local registers, if 
required, shall be supplied on the basis of all dial pulse.
    (2) Grade of service. (i) Grade of service specifies the expected 
performance when there are adequate service facilities for an assumed 
volume of traffic. It is expressed as a portion of the total traffic 
during a busy hour that cannot be terminated immediately or within a 
predetermined time period due to congestion. This places responsibility 
on the traffic engineers to specify facilities which will be entirely 
satisfactory to the users and which can be equipped

[[Page 701]]

at a price which will be accepted as reasonable.
    (ii) The number of calls encountering dial tone delay in excess of 3 
seconds, measured over the busy hour of the four high-consecutive week 
(4HW) period, shall not be more than 1.5 percent.
    (iii) The average post dialing delay objective for an intraoffice 
call shall not exceed 1 second. This includes all connect, operate, and 
translation time.
    (iv) The line to line (intraoffice) network matching loss objective 
shall be 0.02 or less.
    (v) The blocking probabilities related to trunks include both 
``mismatch'' probability and probability of ``all trunks busy.'' It is 
likely that the ``mismatch'' will be negligible in that many digital 
central offices have essentially nonblocking switching characteristics. 
The objectives for trunk connections are as follows:
    (A) Subscriber to outgoing trunk objective 0.01 or less;
    (B) Incoming trunk to subscriber objective 0.02 or less; and
    (C) Local trunk tandem objective 0.01 or less.
    (vi) Groups of common service circuits are to be engineered 
utilizing the full availability traffic tables that appear in paragraph 
(p)(1)(i) of this section at the following stipulated probabilities:
    (A) Outgoing trunks to 2/6 MF or dial pulse senders at B.001;
    (B) Incoming trunks to 2/6 MF receivers at B.001;
    (C) Incoming nondelay dial trunks to receivers at B.001; and
    (D) Incoming trunks with start dial at B.01.
    (vii) Remote Switching Terminals (RST's) shall meet the same grade 
of service objectives as the host.
    (3) Holding times. For the purpose of estimating the quantity of 
common control circuits, the following average holding times may be 
used. These holding times are conservative and represent the average 
effective and ineffective call. If these holding times are to be used, 
it must be so stated in appendix A of this section.
    (i) The following average call holding times (HT) may be used.

------------------------------------------------------------------------
                        Type of Call                         HT--Seconds
------------------------------------------------------------------------
Intraoffice                                                          120
EAS                                                                  150
Special Service, Intercept, Verification                              60
Toll, CLR                                                            300
Toll, S-S                                                             24
Toll, PPCS                                                           270
------------------------------------------------------------------------

    (ii) The following average subscriber dialing holding times may be 
used (times used to dial digits do not include machine time).

------------------------------------------------------------------------
                                               Digits    DP   Pushbutton
                                               Dialed   Sec.     Sec.   
------------------------------------------------------------------------
Operator, Non-Pay Station                         1      4.7       3.4  
Special Service                                   3      7.7       5.0  
Local                                             7     13.7       8.2  
EAS                                               7     13.7       8.2  
DDD: 1/0+7                                        8     15.2       9.0  
DDD: 1/0+10                                      11     19.7      11.4  
Dialing Time Per Digit                            -      1.5       0.8  
Dial Tone Response                                -      3.2       2.6  
------------------------------------------------------------------------

    (iii) The following average incoming register holding times may be 
used (times for digit registrations do not include machine time).

------------------------------------------------------------------------
                                                  Basic                 
                                            -----------------           
                                                              Additional
                                             Holding           Per Digit
                                               Time   Digits            
                                              (Sec.)                    
------------------------------------------------------------------------
MF Receiver from:                                                       
  No. 5 Crossbar--Non-LAMA.................      1.4       4       0.14 
  No. 5 Crossbar--LAMA.....................      2.3       4       0.14 
  Crossbar Tandem & 4A Toll................      3.1       4       0.14 
  No. 1 ESS................................      1.4       4       0.14 
Key Pulsing Switchboard                          5.2       4       0.60 
                                                                        
DP Receivers--10 PPS from:                                              
  SxS......................................      6.0       4        1.5 
  Dialing Switchboard......................      6.6       4        1.3 
  4A Toll..................................      5.6    5\1\          - 
  Crossbar Tandem..........................      4.9       4        1.2 
------------------------------------------------------------------------
\1\No reduction for fewer digits.                                       

    (iv) The following average sender holding times may be used (does 
not include machine setup and release time).

------------------------------------------------------------------------
                                                  Basic                 
                                            -----------------           
                                                              Additional
                                             Holding           Per Digit
                                               Time   Digits            
                                              (Sec.)                    
------------------------------------------------------------------------
MF Senders:                                                             
  No. 5 Crossbar...........................      1.5       4       0.14 
  Crossbar Tandem & 4A Toll\1\.............      2.0       4       0.14 
  TSP/TSPS.................................      2.4       7       0.14 
  SxS--CAMA, Called Number.................      3.7       7       0.14 
  SxS--CAMA, Calling Number................      1.3       7          - 
                                                                        
DP Senders--10 PPS:                                                     
  With Overlap Pulsing\2\..................      9.1   Up to            
                                                           6        1.8 

[[Page 702]]

                                                                        
  Without Overlap Pulsing..................      4.6       4        1.2 
------------------------------------------------------------------------
\1\Add 1.3 seconds for ANI outpulsing on special toll (0+) calls and on 
  DDD calls if AMA is not provided.                                     
                                                                        
\2\Assumes overlap outpulsing starting on receiving of third digit;     
  applies only to calls handled on direct trunk groups.                 

    (4) Traffic data requirements. (i) Traffic measurements are composed 
of primarily two types--counts and usage. The following types of traffic 
data recording are required:
    (A) Peg count registers shall be incremented when a successful 
network connection is established to a particular circuit group such as 
trunks, senders, digital receivers, etc.
    (B) Overflow count registers shall be incremented when access to a 
particular circuit group is denied due to all resource busy condition.
    (C) Network blockage count registers shall be incremented due to an 
unavailability of a path in an access or switching matrix network.
    (D) Usage measurements of the length of time associated with a 
particular setup event or network connection shall be made. Usage data 
measurements are normally collected by scanning circuit groups resources 
every 10 or 100 seconds to determine busy/idle states. Measurements are 
accumulated and read directly in CCS (hundred call seconds).
    (E) Service delay measurements shall provide percentage counts of 
the calls for a particular service that are delayed beyond a specified 
interval of time, e.g., calls not receiving dial tone within 3 seconds 
after call origination.
    (ii) Traffic data shall be stored in electronic storage registers or 
block of memory consisting of one or more traffic counters for each item 
to be measured. The registers listed in paragraph (p)(4)(i) of this 
section shall be associated with the interoffice trunks, switching 
network and central control equipment in such a manner that the register 
readings can be used to determine the traffic load and flow to, from and 
within the system. Two-way trunks shall be metered to indicate inward 
and outward seizures. The bidder shall indicate what registers are to be 
supplied and their purpose.
    (iii) The measured data shall be shown on a printout. It should be 
possible to have local or remote printout, or both. Arrangement shall be 
made for automatic data printout on command for 15-, 30-, or 60-minute 
intervals as required, and be arranged for automatic start-stop and in 
accordance with revenue separation procedures current at the time of 
contract.
    (iv) All traffic records shall have dates and times and office 
identification.
    (q) Transmission--(1) General. The transmission characteristics will 
be governed by the fact that the switching matrix will be based on 
digital operation. Unless otherwise stated, the requirements are in 
terms of analog measurements made from Main Distributing Frame (MDF) to 
MDF terminals, excluding cabling loss.
    (2) Impedance. For the purpose of this section, the nominal input 
impedance of analog ports in an end office shall be 900 ohms for 2-wire 
ports and 600 ohms for 4-wire ports. Where the connecting facility or 
equipment is other than this impedance, suitable impedance matching 
shall be provided by the bidder when specified by the owner.
    (3) Insertion loss. The insertion loss in both directions of 
transmission at 1004 Hz shall meet the following requirements when 
measured with a 0 dBm input signal at 900 ohms (or 600 ohms, when 
required) at a temperature of 77 deg.F  9 deg.F (25 deg.C 
 5 deg.C).
    (i) Trunk-to-trunk or trunk-to-line. The loss shall be set between 0 
and 0.5 dB for 2-wire to 2-wire, 2-wire to 4-wire, or 4-wire to 4-wire 
voice frequency connections.
    (ii) Line-to-line. The loss shall be set between 0 and 2 dB.
    (iii) Direct digital interface. On a direct digital interface, the 
loss through the office shall be adjusted to the proper level in the 
receive side.
    (iv) Stability. The long-term allowable variation in loss through 
the office shall be  0.5 dB from the loss specified by the 
bidder.
    (4) Frequency response (loss relative to 1004 hz) shall meet the 
following requirements.
    (i) Trunk-to-trunk.

[[Page 703]]



------------------------------------------------------------------------
                                           Loss at 0 dBm0 Input\1\      
------------------------------------------------------------------------
           Frequency (Hz)             2-Wire to 2-Wire  4-Wire to 4-Wire
------------------------------------------------------------------------
60                                   20 dB Min.\2\      16 dB Min.\2\   
200                                  0 to 5 dB          0 to 3 dB       
300-3000                             -0.5 dB to 1 dB    -0.3 to +0.3 dB 
3300                                 1.5 dB Max.        1.5 dB Max.     
3400                                 0 to 3 dB          0 to 3 dB       
------------------------------------------------------------------------
\1\(-) means less loss and (+) means more loss.                         
                                                                        
\2\Transmit End                                                         

    (ii) Line-to-line.

------------------------------------------------------------------------
               Frequency (Hz)                   Loss at 0 dBm0 Input\1\ 
------------------------------------------------------------------------
60                                            20 dB Min.\2\             
300                                           -1 to +3 dB               
600-2400                                      1 dB          
3200                                          -1 to +3 dB               
------------------------------------------------------------------------
\1\(-) means less loss and (+) means more loss.                         
                                                                        
\2\Transmit End                                                         

    (iii) Trunk-to-line. The trunk-to-line frequency response 
requirements shall be a compromise between those values specified in 
paragraphs (q)(4)(i) and (q)(4)(ii) of this section.
    (5) Overload level. The overload level at 900 ohm impedance shall be 
+3 dBm0.
    (6) Gain tracking (linearity) shall meet the following requirements.

------------------------------------------------------------------------
            Input Signal Level\1\                Maximum Gain Deviation 
------------------------------------------------------------------------
+3 to -37 dBm0                                 0.5 dB       
-37 to -50 dBm0                                1 dB         
------------------------------------------------------------------------
\1\1004 Hz reference at 0 dBm0.                                         

    (7) Return loss. (i) The specified return loss values are determined 
by the service and type of port at the measuring (near) end. Two-wire 
ports are measured (near end) at 900 ohms in series with 2.16 
microfarads and 4-wire ports are measured at 600 ohms resistive.
    (ii) Far end test terminations shall be as follows:
    (A) Loaded line circuit--1650 ohms in parallel with the series 
combination of .005 microfarads and 100 ohms;
    (B) Nonloaded line circuit--800 ohms in parallel with the series 
combination of .05 microfarads and 100 ohms;
    (C) Special service line circuit including electronic lines and 
carrier lines--900 ohms in series with 2.16 microfarads;
    (D) Two-wire trunk--900 ohms in series with 2.16 microfarads; and
    (E) Four-wire trunk--600 ohms.
    (iii) For trunk-to-trunk (2-wire or 4-wire) connections the echo 
return loss (ERL) shall be 27 dB, minimum and the singing return loss 
(SRL) shall be 20 dB, minimum low and 23 dB, minimum high.
    (iv) For trunk-to-line (2-wire or 4-wire) connections the ERL shall 
be 24 dB, minimum and the SRL shall be 17 dB, minimum low and 20 dB, 
minimum high.
    (v) For line-to-line or line-to-trunk (2-wire or 4-wire) connections 
the ERL shall be 18 dB, minimum and the SRL shall be 12 dB, minimum low 
and 15 dB, minimum high.
    (8) Longitudinal balance. The minimum longitudinal balance, with dc 
loop currents of 20 to 70 mA, shall be 60 dB at all frequencies between 
60 and 2000 Hz, 55 dB at 2700 Hz and 50 dB at 3400 Hz. The method of 
measurement shall be as specified in the IEEE Std 455-1985, IEEE 
Standard Test Procedure for Measuring Longitudinal Balance of Telephone 
Equipment Operating in the Voice Band. Source voltage level shall be 10 
volts root-mean-square (rms).
    (9) 60 hz longitudinal current immunity. Under test conditions with 
60 Hz, the system noise shall be no greater than 23 dBrnC0 as measured 
using the configuration in Figure 1.

[[Page 704]]

       FIGURE 1--MEASURING THE EFFECTS OF LOW FREQUENCY INDUCTION


Notes:
1. 900 ohm termination, C-message weighting, hold coil off
2. SNC Noise Choke 35 W, or equivalent
3. Test at 0.020 Adc and 0.070 Adc
4. 2  0.001 microfarad, 150 Vdc

    (10) Steady noise (idle channel at 900 ohms impedance) measured on a 
terminated call shall be 23 dBrnC0 maximum and average 18 dBrnC0 or 
less. The 3K Hz Flat noise should be less than 35 dBrnC0 as an 
objective.
    (11) Impulse noise. The central office switching equipment shall be 
capable of meeting an impulse noise limit of not more than five counts 
exceeding 54 dBrnC0 voice band weighted in a 5-minute period on six such 
measurements made during the busy hour. A Northeast Electronics Company 
TTS 4002 Impulse Noise Counter, Wilcom T194C, Hewlett Packard 4945, or 
equivalent, should be used for the measurements. The measurement shall 
be made by establishing a normal connection from the noise counter 
through the switching equipment in its off-hook condition to a quiet 
termination of 900 ohms impedance. Office battery and signaling circuit 
wiring shall be suitably segregated from voice and carrier circuit 
wiring, and frame talking battery filters provided, if and as required, 
in order to meet these impulse noise limits.
    (12) Crosstalk coupling. Worst case equal level crosstalk is to be 
75 dB minimum in the range 200-3400 Hz. This is to be measured between 
any two paths through the system connecting a 0 dBm0 level tone to the 
disturbing pair.
    (13) Quantizing distortion. (i) The switching system shall meet the 
following requirements.

------------------------------------------------------------------------
                                                   Minimum Signal to    
     Input Level (dBm0) 1004 or 1020 Hz        Distortion with C-Message
                                                       Weighting        
------------------------------------------------------------------------
0 to -30                                      33 dB                     
 -30 to -40                                   27 dB                     
 -40 to -45                                   22 dB                     
------------------------------------------------------------------------

    (ii) Due to the possible loss of the least significant bit on direct 
digital connections, a signal to distortion degradation of up to 2 dB 
may be allowed where adequately justified by the bidder.

[[Page 705]]

    (14) Absolute delay. The absolute one-way delay through the 
switching system, excluding delays associated with RST switching, shall 
not exceed 1000 microseconds analog-to-analog measured at 1800 Hz.
    (15) Envelope delay distortion. On any properly established 
connection, the envelope delay distortion shall not exceed the following 
limits.

------------------------------------------------------------------------
           Frequency Range (Hz)                     Microseconds        
------------------------------------------------------------------------
1000 to 2600                                190                         
800 to 2800                                 350                         
600 to 3000                                 500                         
400 to 3200                                 700                         
------------------------------------------------------------------------

    (16) Digital error rate. The digital switching system shall not 
introduce an error into digital connections which is worse than one 
error in 108 bits averaged over a 5-minute period.
    (17) Battery noise. Noise across battery at power board distribution 
bus terminals shall not exceed 35 dBrnC during the busy hour.
    (18) Radio and television interference. The central office switching 
equipment shall be designed and installed so that radiation of high 
frequency noise will be limited so as not to interfere with radio and 
television receivers.
    (r) Timing intervals--(1) Type of equipment required. The equipment 
for providing the specified timing intervals shall be solid-state.
    (2) Tolerance. Where a range of time is specified as minimum and 
maximum, the lower limits shall be considered as controlling and the 
variation between this minimum and the actual maximum shall be kept as 
small as practicable. In no case shall the quoted upper limit be 
exceeded.
    (3) Permanent signal timing. Lockout shall occur after an interval 
of 20 to 30 seconds after receipt of dial tone if a ``permanent'' 
condition occurs prior to the transmission of dial pulses or pushbutton 
dialing signals. This interval may be reduced appreciably during periods 
of heavy traffic.
    (4) Partial dial timing. Partial dial timing shall be within 15 to 
37 seconds. This timing may be reduced appreciably during periods of 
heavy traffic.
    (5) Charge delay timing. Charge delay timing shall be within 2 
seconds.
    (6) Called party disconnect timing. Timed disconnect of a 
terminating path under control of the called party shall be 10 to 32 
seconds.
    (7) Timing intervals for signals involved in distance dialing. 
Timing intervals shall be provided to meet the requirements for distance 
dialing equipment, which have been established in Bellcore document SR-
TSV-002275, BOC Notes on the LEC Networks--1990. Some of the more 
important times which this document specifies are for:
    (i) Disconnect signal;
    (ii) Wink signal;
    (iii) Start dialing signal;
    (iv) Pulse delay signal;
    (v) Go signal;
    (vi) Digit timing; and
    (vii) Sender, register, and link attachment timing.
    (s) Power requirements and equipment--(1) Operating voltage. The 
nominal operating voltage of the central office shall be 48 volts dc, 
provided by a battery with the positive side tied to system ground.
    (2) Batteries. (i) When battery cells of the lead antimony type are 
specified, the pasted plate type shall be considered adequate.
    (ii) When lead calcium cells are specified, no cell shall differ 
from the average voltage of the string of fully charged cells by more 
than 0.03 volt when measured at a charging rate in amperes 
equivalent to 10 percent of the ampere hour capacity of the cells. 
Similarly, when cells are fully charged and floating between 2.30 and 
2.33 volts per cell, the cell voltage of any cell in a given string 
shall not differ more than 0.03 volt from the average. These 
requirements are for test purposes only and do not apply to operating 
conditions.
    (iii) Voltage readings shall be corrected by a temperature 
coefficient of 0.0033 volt per degree F (0.006 per degree C), whenever 
temperature variations exist between cells in a given string. This 
correction factor shall also be applied when comparing cell voltages 
taken at different times and at different temperatures. The correction 
factor shall be added to the measured voltage when the temperature is 
above 77 deg.F (25 deg.C) and subtracted when the temperature is below 
77 deg.F (25 deg.C).

[[Page 706]]

    (iv) The specific gravity readings of lead antimony cells at full 
charge shall be 1.210  .010 at 77 deg.F (25 deg.C) at 
maximum electrolyte height.
    (v) When counter cells are supplied by the bidder, they shall be the 
dry counter electromotive force (CEMF) type.
    (vi) When lead antimony batteries are specified, they shall be 
designed to last a minimum of 10 years when maintained on a full float 
operation between 2.15 and 2.17 volts per cell. When lead calcium 
batteries are specified, they shall be designed to last a minimum of 20 
years when maintained on full float operation between 2.17 and 2.25 
volts per cell. The battery shall be clearly designated as ``antimony'' 
or ``calcium'' by means of stencils, decals or other devices.
    (vii) Each battery cell shall be equipped with an explosion control 
device.
    (viii) The battery size shall be calculated in accordance with 
standard procedures. The battery in no case shall have a reserve 
capacity in ampere hours less than four times the current capacity of 
the largest charger.
    (3) Charging equipment. (i) Charging shall be on a full float basis. 
The rectifiers shall be of the full wave, self-regulating, constant 
voltage, solid-state type and shall be capable of being turned on and 
off manually.
    (ii) When charging batteries, the voltage at the battery terminals 
shall be adjustable and shall be set at the value recommended for the 
particular battery being charged, providing it is not above the maximum 
operating voltage of the switching system equipment. The voltage shall 
not vary more than plus or minus 0.02 volt per cell between 10 percent 
load and 100 percent load. Between 3 percent and 10 percent load, the 
output voltage shall not vary more than plus or minus 0.04 volt per 
cell. Beyond full load current, the output voltage shall drop sharply. 
The output voltage shall be maintained with the line voltage variations 
of plus or minus 10 percent. Provision shall be made to change the 
output voltage of the rectifier manually to 2.25 volts per cell to 
provide an equalization charge on the battery.
    (iii) The charger noise shall not exceed 22 dBrnC when measured with 
a suitable noise measuring set and under the rated battery capacitance 
and load conditions as determined in Figure 2.

[[Page 707]]

                      FIGURE 2--CHARGER NOISE TEST


The manufacturer may elect to eliminate the capacitor C from the 
measurement.

    A. Capacitance in F = 30,000 F per ampere-hour per 
cell. For example, 25 cells at 100 ampere-hour would be equivalent to a 
capacitance of:

    (30,000  x  100)/25 = 120,000 F

    B. The value of the resistive load R is determined by the nominal 
battery voltage in volts divided by the full load rating in amperes. For 
example, for a 48 volt battery and a full load current of 24 amperes, 
the load resistance R is 48/24 = 2 ohms of appropriate power handling 
capacity.

    (iv) The charging equipment shall indicate a failure of charging 
current, whether due to ac power failure, an internal failure in the 
charger, or to other circumstances which might cause the output voltage 
of the charger to drop below the battery voltage. Where a supplementary 
constant current charger is used, an alarm shall be provided to indicate 
a failure of the charger.
    (v) Audible noise developed by the charging equipment shall be kept 
to a minimum. Acoustic noise resulting from operation of the rectifier 
shall be expressed in terms of dB indicated on a sound level meter 
conforming to ANSI S1.4-1983, Specification for Sound Level Meters, and 
shall not exceed 65 dB (A-weighting) measured at any point 5 feet (152.4 
cm) from any vertical surface of the rectifier.
    (vi) The charging equipment shall be designed so that neither the 
charger nor the central office switching equipment is subject to damage 
in case the battery circuit is opened for any value of load within the 
normal limits.
    (vii) The charging equipment shall have a capacity to meet the 
requirements of central office size and special requirements of the 
owner in appendix A of this section.
    (viii) Minimum equipment requirement for chargers is one of the 
following:

[[Page 708]]

    (A) Two chargers either capable of carrying the full office load as 
specified in Item 12 of appendix A of this section; or
    (B) Three chargers each capable of carrying half the office load as 
specified in Item 12 of appendix A of this section.
    (4) Miscellaneous voltage supplies. (i) Any power supply required 
for voltages other than the primary battery voltage shall be provided by 
either a solid-state dc-to-dc converter or dc-to-ac inverter, operating 
from the central office battery or from a separate battery and charger. 
These power supplies shall meet the noise limit specified for chargers 
in paragraph (s)(3)(iii) of this section, except the capacitor ``C'' 
shall be eliminated and the resistive load ``R'' shall be determined by 
the nominal output voltage in volts divided by the full load current 
rating in amperes. This requirement does not preclude the use of 
commercial ac power to operate input/output devices.
    (ii) Power converters required for the purpose of providing various 
operating voltages to printed circuit boards or similar equipment 
employing electronic components shall be provided in duplicate with each 
unit capable of immediately assuming the full operating load upon 
failure of a unit. An exception to the duplicate power converter 
requirement permits nonduplicated power converter(s) to be utilized 
where there is full compliance with the following criteria.
    (A) The failure of any single nonduplicated power converter shall 
not reduce the grade of service of common control and service circuits 
to any individual line or trunk by more than 50 percent.
    (B) The failure of any single nonduplicated power converter shall 
not reduce the traffic carrying capacity of any interoffice trunk group 
by more than 50 percent.
    (C) In central office switching systems of 400 or more equipped 
lines, any single nonduplicated power converter failure shall not cause 
a complete loss of service to more than 100 equipped lines.
    (D) In central office switching systems of less than 400 equipped 
lines, any single nonduplicated power converter failure shall not cause 
a complete loss of service to more than 25 percent of the total equipped 
lines.
    (5) Ringing generators. Ringing generators supplied on an ancillary 
basis shall be selected from RUS Bulletin 1755I-100, List of Materials 
Acceptable for Use on Telephone Systems of RUS Borrowers. Regardless of 
whether the ringing is generated on an ancillary basis or is generated 
integrally to the switching system, the ringing equipment shall meet the 
requirements of this section.
    (i) Ringing equipment provisioning. (A) Redundant ringing equipment 
shall be provided. There shall be automatic transfer to the redundant 
equipment within the period of one ringing cycle, in case of failure of 
the equipment in use (either regular or standby). Automatic transfer 
shall not take place under any other conditions. Manual transfer in each 
direction shall be provided.
    (B) An exception to the redundant ringing equipment requirement 
permits nonredundant ringing equipment to be utilized where there is 
full compliance with the following service criteria.
    (1) In a central office switching system of 400 or more equipped 
lines, a single nonduplicated ringing source failure shall not cause the 
complete loss of ringing capability to more than 100 lines.
    (2) In a central office switching system of less than 400 equipped 
lines, a single nonredundant ringing source failure shall not cause the 
complete loss of ringing capability to more than 25 percent of the total 
equipped lines.
    (ii) Output voltage. (A) The ringing generators shall have an output 
voltage which approximates a sine wave and, as a minimum, shall be 
suitable for ringing straight-line ringers. Although not a requirement 
for RUS listing, decimonic, synchromonic, or harmonic ringing may also 
be specified in appendix A of this section.
    (B) The ringing generator shall obtain its energy from the nominal 
48-volt office battery.
    (C) The output of each generator shall have three or more voltage 
taps or a single tap with associated variable control. Taps or control 
shall be easily

[[Page 709]]

accessible as installed in the field. Software control of ringing 
generator outputs via I/O devices may be provided in lieu of taps. The 
taps, or equivalent, shall be designated L, M, and H. The variable 
control shall have a locking device to prevent accidental readjustment. 
The outputs at the terminals of the generators with a voltage input of 
52.1 volts and rated full resistive load shall be as follows for the 
ringing frequencies provided:

------------------------------------------------------------------------
                                                     Output Volts rms   
                                                    (Tolerance 3 Volts) 
              Frequency Range (Hz)               -----------------------
                                                     L       M       H  
------------------------------------------------------------------------
16 2/3 through 20...............................      90     105     120
21 through 30...................................      95     110     120
31 through 42...................................     100     115     130
43 through 54...................................     110     125     140
------------------------------------------------------------------------

    (D) No voltages in excess of the values in column H of the table in 
paragraph (s)(5)(ii)(C) of this section shall be provided at the output 
taps. Additional intermediate and/or lower taps may be provided without 
restriction.
    (iii) Voltage regulation. (A) The output voltage for resistive, 
capacitive power factor of 0.8, and inductive power factor of 0.5 loads 
from no load to full rated output with 52.1 volts input battery shall 
not vary more than 3 percent from the output voltage 
measured at 1/2 rated output, 1.0 power factor with 52.1 volts dc input 
applied.
    (B) The output voltage for resistive, capacitive power factor of 
0.8, and inductive power factor of 0.5 from no load to full rated output 
with input battery variations between 48-56 volts dc shall not vary more 
than  10 percent from the output voltage measured at 1/2 
rated output and 1.0 power factor with 52.1 volts dc input applied.
    (C) The output voltage for resistive, capacitive power factor of 
0.8, and inductive power factor of 0.5 loads from no load to full rated 
output and with input battery variations between 44-56 volts dc shall 
not vary more than +10/-15 percent from the output voltage measured at 
1/2 rated output and 1.0 power factor with 52.1 volts dc input applied.
    (iv) Cross ringing. Unwanted voltage caused by harmonic distortion 
or intermodulation distortion shall not exceed 15 volts rms when 
measured within 5 Hz of any other assigned ringing frequency 
under any condition of load or input battery specified by paragraph 
(s)(5)(iii) of this section.
    (v) Frequency stability. At ambient temperature of 70 deg. 
5 deg.F (21 deg. 0.3 deg.C), for any combination 
of capacitive power factor of 0.8, inductive power factor of 0.5, and 
resistive loads with variations in input battery ranging from 44 to 56 
volts, the output frequency shall not vary more than 1/3 Hz 
or 1 percent, whichever is less stringent. At temperatures 
between 15 deg.F (4 deg.C) to 130 deg.F (54 deg.C), and for any 
combination of resistive load and variations in input battery ranging 
from 44-56 volts, the output frequency shall not vary more than 
1/3 Hz or 1 percent, whichever is less 
stringent.
    (vi) Self-protection on overloads. The ringing generator equipment 
shall be capable of withstanding a short circuit across any pair of 
output terminals for a period of 5 minutes without fuse operation or 
damage.
    (6) Interrupter equipment. (i) The interrupter shall be an integral 
part of the switching system and shall be controlled by any call 
processor or equivalent.
    (ii) The ringing cycle provided by the interrupter equipment shall 
not exceed 6 seconds in length. The ringing period shall be 2 seconds.
    (7) Power panels. (i) Battery and charger control switches, dc 
voltmeters, dc ammeters, fuses and circuit breakers, supervisory and 
timer circuits shall be provided as required. Voltmeters shall be 
provided as specified by the owner.
    (ii) Portable or panel mounted frequency meters shall be provided as 
specified by the owner unless the system is equipped to measure actual 
ringing generator voltage and frequency outputs internally. If the 
system is equipped to make such measurements and print the results, the 
bidder is not required to provide a frequency meter.
    (iii) Power panels, cabinets and shelves, and associated wiring 
shall be designed initially to handle the exchange when it reaches its 
ultimate capacity as specified by the owner.
    (iv) The power panel shall be of the ``dead front'' type.

[[Page 710]]

    (t) Main distributing frames. (1) The main distributing frame shall 
provide terminals for terminating all incoming cable pairs. Arresters 
shall be provided for all incoming cable pairs, or for a smaller number 
of pairs if specified, provided an acceptable means of temporarily 
grounding all terminated pairs which are not equipped with arresters is 
furnished.
    (2) The current carrying capacity of each arrester and its 
associated mounting shall coordinate with a 22 gauge copper conductor 
without causing a self-sustaining fire or permanently damaging other 
arrester positions. Where all cable pairs entering the central office 
are 24 gauge or finer, the arresters and mountings need only coordinate 
with 24 gauge cable conductors. Item 13 of appendix A of this section 
designates the gauge of the cable conductors serving the host office. 
Item 7 of appendix B of this section designates the gauge of the cable 
conductors serving the RST(s).
    (3) Central office protectors shall be mounted and arranged so that 
outside cable pairs may be terminated on the left side of protectors 
(when facing the vertical side of the MDF) or on the back surface of the 
protectors. Means for easy identification of pairs shall be provided.
    (4) Protectors shall have a ``dead front'' (either insulated or 
grounded) whereby live metal parts are not readily accessible.
    (5) Protectors shall be provided with an accessible terminal of each 
incoming conductor which is suitable for the attachment of a temporary 
test lead. They shall also be constructed so that auxiliary test 
fixtures may be applied to open and test the subscriber's circuit in 
either direction. Terminals shall be tinned or plated and shall be 
suitable for wire wrapped, insulation displacement or connectorized 
connections.
    (6) If specified in appendix A of this section, each protector group 
shall be furnished with a factory assembled tip cable for splicing to 
the entrance cable; the tip cable to be 20 feet (610 cm) in length 
unless otherwise specified. Factory assembled tip cable shall be 22 
gauge and selected from RUS Bulletin 1755I-100, List of Materials 
Acceptable for Use on Telephone Systems of RUS Borrowers. Tip cable 
requirements are provided in RUS Bulletin 345-87, PE-87, RUS 
Specification for Terminating (TIP) Cable. Cables having other kinds of 
insulation and jackets which have equivalent resistance to fire and 
which produce less smoke and toxic fumes may be used if specifically 
approved by RUS.
    (7) Protectors shall be mounted on vertical supports, with centers 
not exceeding 9 inches (22.9 cm). The space between protector units 
shall be adequate for terminating conductors.
    (8) Cable supporting framework shall be provided between the cable 
entrance and the MDF when overhead cable entrance is specified in Item 
14.3.3 of appendix A of this section.
    (9) The main distributing frame shall be equipped with a copper 
ground bus bar having the conductivity of a 6 American Wire Gauge (AWG) 
copper conductor or a greater conductivity, or may consist of another 
metal if specifically approved, provided it has adequate cross-sectional 
area to provide conductivity equivalent to, or better than, bare copper. 
A guardrail or equivalent shall also be furnished.
    (10) Other features not specified in paragraph (t) of this section 
may be required at the option of the owner, if checked in Item 13.4 of 
appendix A of this section.
    (11) Main frame protector makes and types shall be selected only 
from RUS Bulletin 1755I-100, List of Materials Acceptable for Use on 
Telephone Systems of RUS Borrowers. Protectors shall be capable of easy 
removal.
    (u) Electrical protection--(1) Surge protection. (i) Adequate 
electrical protection of central office switching equipment shall be 
included in the design of the system. The characteristics and 
application of protection devices shall be such that they enable the 
central office switching equipment to withstand, without damage or 
excessive protector maintenance, the dielectric stresses and currents 
that are produced in line-to-ground and tip-to-ring circuits through the 
equipment as a result of induced or conducted lightning or power system 
fault-related surges. All wire terminals connected to outside

[[Page 711]]

plant wire or cable pairs shall be protected from voltage and current 
surges.
    (ii) Central office switching equipment shall pass laboratory tests, 
simulating the hostile electrical environment, before being placed in 
the field for the purpose of obtaining field experience. There are five 
basic types of laboratory tests which shall be applied to exposed 
terminals in an effort to determine if the equipment will survive. 
Figure 3 summarizes these tests and the minimum acceptable levels of 
protection for equipment to pass them.

                             Figure 3--Summary of Electrical Requirements and Tests                             
----------------------------------------------------------------------------------------------------------------
                                                                                    No. of                      
                                    Application    Peak Voltage      Surge      Applications &                  
              Test                   Criteria       or Current     Waveshape      Max. Time         Comments    
                                                                                   Between                      
----------------------------------------------------------------------------------------------------------------
Current Surge                     Low Impedance   500A or        10x1000       5 each Polarity                  
                                   Paths Exposed   Lesser         s    at 1 minute                     
                                   to Surges       Current (See                 intervals                       
                                                   Fig. 5)                                                      
                                                                                                                
60 Hz Current Carrying            High or Low     10A rms or     11 Cycles of  3 each Polarity                  
                                   Impedance       Lesser         60 Hz         at 1 minute                     
                                   paths Exposed   Current (See   (0.183        intervals                       
                                   to Surges       Fig. 6)        Sec.)                                         
                                                                                                                
AC Power Service Surge Voltage    AC Power        2500V or +3    1.2x50        5 each Polarity  AC arrester, if 
                                   Service               s    at 1 minute      used, must be  
                                   Connection      clamping V                   intervals        removed.       
                                                   of arrester                                   Communications 
                                                   employed at                                   line arresters,
                                                   10kV/s                                           in place.      
                                                                                                                
Voltage Surge                     High Impedance  1000V or +3    10x1000       Same             All primary     
                                   Paths Exposed    dc   s                     arresters, if  
                                   to Surges       breakdown of                                  used, must be  
                                                   arrester                                      removed.       
                                                   employed                                                     
                                                                                                                
Arrester Response Delay           Paths           +3    100V/s rise                                      
                                   arresters,      arrester       decay to 1/                                   
                                   such as gas     employed at    2 V. in                                       
                                   tubes, with     100V/s of rise    delay time                                    
                                   dependent on                                                                 
                                   V. rate of                                                                   
                                   rise.                                                                        
----------------------------------------------------------------------------------------------------------------

    (iii) Two categories of surge tests. (A) Current surge tests 
simulate the stress to which a relatively low impedance path may be 
subjected before main frame protectors break down. Paths with a 100 Hz 
impedance of 50 ohms or less shall be subjected to current surges, 
employing a 10  x  1000 microseconds waveshape as defined in Figure 4. 
For the purpose of determining this impedance, arresters which are 
mounted within the equipment are to be considered zero impedance. The 
crest current shall not exceed 500A; however, depending on the impedance 
of the test specimen this value of current may be lower. The crest 
current through the sample, multiplied by the sample's 100 Hz impedance, 
shall not exceed 1000 volts (V). Where sample impedance is less than two 
ohms, crest current shall be limited to 500A as shown in Figure 5.

[[Page 712]]

                FIGURE 4--EXPLANATION OF SURGE WAVESHAPE


    Surge Waveshape is defined as follows:
    Rise Time  x  Time to Decay to Half Crest Value
    (For example, 10  x  1000 s)
Notes:
    T1 = Time to determine the rate of rise. The rate of rise 
is determined as the slope between 10% and 90% of peak voltage or 
current.
    T2 = Time to 50% of peak voltage (decay to half value).

[[Page 713]]

                FIGURE 5--EXPLANATION OF SURGE WAVESHAPE


VL = Not to exceed 1000V
VB = Charging Voltage
Z100 = Test Specimen Impedance to be measured at 100 Hz.
RP = Parallel Resistance (Waveshape)
RS = Series Resistance (Current Limiting)

------------------------------------------------------------------------
       Z100              RS                RP                 VB        
------------------------------------------------------------------------
0                         5                                   2500      
1                         4                                   2500      
2                         3                                   2500      
3                         2                                   1670      
4                         1                                   1250      
5                         0                                   1000      
7.5                       0                 15                1000      
10                        0                 10                1000      
15                        0                7.5                1000      
20                        0                6.7                1000      
25                        0               6.25                1000      
30                        0                  6                1000      
40                        0                5.7                1000      
50                        0                5.5                1000      
------------------------------------------------------------------------

     (B) Sixty Hertz (60 Hz) current-carrying tests should be applied to 
simulate an ac power fault which is conducted to the unit over the cable 
pairs. The test should be limited to 10 amperes rms at 60 Hz for a 
period of 11 cycles (0.1835 seconds) and should be applied 
longitudinally from line to ground (see Figures 3 and 6 of this 
section).

[[Page 714]]

                   FIGURE 6--60 HZ CURRENT SURGE TEST


V--700 Volts RMS (Approximately 1000V Peak).
Z60--Test specimen impedance to be measured at 60 Hz.
RS--Series Resistance (current limiting) in each side of 
          line. (Source impedance never less than 50  
          longitudinal.)


------------------------------------------------------------------------
                  Z60 Hz                                 RS             
------------------------------------------------------------------------
0                                           140                         
10                                          120                         
20                                          100                         
50                                          100                         
Over 50                                     100                         
------------------------------------------------------------------------

    (C) AC power service surge voltage tests should be applied to the 
power input terminals of ac powered devices to simulate switching surges 
or lightning-induced transients on the ac power system. The test shall 
employ a 1.2  x  50 microseconds waveshape with a crest voltage of 
2500V. Communications line protectors may be left in place for this 
test. Borrowers are urged to install commercially available surge 
protectors at the ac service entrance as part of their COE building 
program.
     (D) Voltage surge tests simulate the voltage stress to which a 
relatively high impedance path may be subjected before primary 
protectors break down and protect the circuit. To assure coordination 
with the primary protection while reducing testing to the minimum, 
voltage surge tests should be conducted at a 1000 volts with primary 
arresters removed for devices protected by carbon blocks, or the +3 
sigma dc breakdown of other primary arresters. Surge waveshape should be 
10  x  1000 microseconds.
    (E) Arrester response delay tests are designed to stress the 
equipment in a manner similar to that caused by the delayed breakdown of 
gap type arresters when subjected to rapidly rising voltages. Arresters 
shall be removed for these tests, the peak surge voltage should be the 
+3 sigma breakdown of the arrester in question on a voltage rising at 
100V per microsecond and the

[[Page 715]]

time for the surge to decay to half voltage shall equal at least the 
delay time of the tube, as explained in Figure 7.


          FIGURE 7--EXPLANATION OF ARRESTER RESPONSE DELAY TIME


The delay time is that period of time when the potential across an 
arrester exceeds its dc firing level.

    (iv) Five applications of each polarity for the surge tests and 
three for the 60 Hz Current Carrying Test are the minimum required. All 
tests should be conducted with not more than 1 minute between 
consecutive applications in each series of three or five to a specific 
configuration so that heating effects will be cumulative. As not all 
tests are required in every application, nonapplicable tests should be 
omitted. Tests should be conducted in the following sequence.
    (A) Current Impulse Test.
    (B) Sixty Hertz (60 Hz) Current Carrying Test.
    (C) AC Power Service Impulse Voltage Test.
    (D) Voltage Impulse Test.
    (E) Arrester Response Delay Test.
    (v) Tests should be applied between each of the following terminal 
combinations for all line operating conditions.
    (A) Line tip to ring.
    (B) Line ring to ground.
    (C) Line tip to ground.
    (D) Line tip to ring tied together to ground.
    (2) Extraordinary surge protection. A central office or RST may be 
located in an area where ground conditions prevent the reasonable 
economic achievement of a low resistance to ground and/or there exists a 
greater than average probability of surge damage. Such an unusually 
hostile operating environment shall be recognized and taken into 
consideration by the bidder in the engineering and specification of the 
central office switching system and

[[Page 716]]

line protection. This subject of operating environment, ground 
conditions, etc., should be discussed at the time of technical 
presentation to assure the owner that adequate system protection will be 
provided by the bidder.
    (3) Dielectric strength. Arresters shall be removed for all 
dielectric strength tests. The duration of all dielectric strength tests 
shall be at least 1 second. The applied potential shall equal or exceed 
the +3 sigma dc breakdown voltage of the arrester, provided by the COE 
manufacturer. Direct current potentials shall be applied between all 
line terminals and equipment chassis and between these terminals and 
grounded equipment housings in all instances where the circuitry is dc 
open circuit from the chassis, or connected to the chassis through a 
capacitor.
    (4) Insulation resistance. Following the dielectric tests, the 
insulation resistance of the installed electrical circuits between wires 
and ground, with the normal equipment grounds removed, shall not be less 
than 10 megohms at 500 volts dc at approximately room temperature 
(68 deg.F (20 deg.C)) and at a relative humidity of approximately 50 
percent. The measurement shall be made after the meter stabilizes, 
unless the requirement is met sooner. Arresters shall be removed for 
these tests.
    (5) Self-protection. (i) All components shall be of the self-
protecting type, capable of being continuously energized at rated 
voltage without injurious results.
    (ii) The unit equipment shall not be permanently damaged by 
accidental short circuits of any duration across either the central 
office side tip and ring or the line side tip and ring. A test is to be 
made with the unit energized at the highest recommended voltages.
    (6) Static discharge. Assemblies subject to damage by static 
discharge shall be identified and special handling instructions shall be 
supplied.
    (v) Miscellaneous--(1) Office wire. All office wire shall be of soft 
annealed tinned copper wire meeting the requirements of ASTM 
Specification B 33-91, Standard Specification for Tinned Soft or 
Annealed Copper Wire for Electrical Purposes, and of suitable cross-
section to provide safe current carrying capacity and mechanical 
strength. The insulation of installed wire, connected to its equipment 
and frames, shall be capable of withstanding the same insulation 
resistance and dielectric strength requirements as given in paragraphs 
(u)(3) and (u)(4) of this section at a temperature of 120 deg.F 
(49 deg.C) and a relative humidity of 90 percent.
    (2) Wire wrapped terminals. These terminals are preferred and where 
used shall be of a material suitable for wire wrapping. The connections 
to them shall be made with a wire wrapping tool with the following 
minimum number of successive nonoverlapping turns of bare tinned copper 
wire in contact with each terminal.
    (i) 6 Turns of 30 Gauge.
    (ii) 6 Turns of 26 Gauge.
    (iii) 6 Turns of 24 Gauge.
    (iv) 5 Turns of 22 Gauge.
    (3) Protection against corrosion. All metal parts of equipment 
frames, distributing frames, cable supporting framework, and other 
exposed metal parts shall be constructed of corrosion resistant 
materials or materials plated or painted to render them adequately 
corrosion resistant.
    (4) Screws and bolts. Screw threads for all threaded securing 
devices shall be of American National Standard form in accordance with 
Federal Standard H28, Screw-Thread Standards for Federal Services, 
unless exceptions are granted to the manufacturer of the switching 
equipment. All bolts, nuts, screws, and washers shall be of nickel-
copper alloy, steel, brass or bronze.
    (5) Temperature and humidity range. The supplier shall furnish the 
operating temperature and humidity ranges of the equipment being 
provided in order that adequate heating and cooling may be supplied (see 
Items 5.2.1 and 5.2.2 of appendix C of this section).
    (6) Stenciling. Equipment units and terminal jacks shall be 
adequately designated and numbered. They shall be stenciled so that 
identification of equipment units and leads for testing or traffic 
analysis can be made without unnecessary reference to prints or 
descriptive literature.
    (7) Equipment frame design. For newly designed systems, 
consideration should be given to the desirability of providing frames 
which can be installed in

[[Page 717]]

rooms of normal ceiling height [up to 10 feet (305 cm)]. Where feasible, 
frames and equipment units shall be designed for ready portability and 
high salvage value.
    (8) Quantity of equipment bays. Consistent with system arrangements 
and ease of maintenance, space shall be provided on the floor plan for 
an orderly layout of future equipment bays that will be required for 
anticipated traffic when the office reaches its ultimate size. Readily 
accessible terminals shall be provided for connection to interbay and 
frame cables to future bays. All cables, interbay and intrabay 
(excluding power), if technically feasible, shall be terminated at both 
ends by use of connectors.
    (w) Remote switching terminal (RST)--(1) General. The RST is a 
remotely located digital switching terminal which is placed at a 
subordinate wire center for subscriber lines and is a part of the host 
central office from a switching standpoint, and has hardware 
interchangeable with the host office, except for items that are 
applicable only to RST control and associated peripheral equipment. This 
does not preclude the use of existing in-service remote units on a new 
or upgraded host central office of the latest series generic or release.
    (2) Span line. The RST is to be connected to the host central office 
via a means compatible with T1 type span lines using a DS-1 interface. 
This connection will be for control supervision and subscriber 
communication. The RUS equipment specification for a span line is PE-60.
    (3) Switching. (i) The RST may have its switching functions 
controlled either by the host central office stored program control 
processors or by local subordinate processors which communicate with the 
host office processors.
    (ii) As long as the connecting span line is intact, the subscribers 
served by the RST shall have all features, traffic capacity, and 
services including busy verification, available to all other subscribers 
in the system.
    (iii) The RST shall have available an emergency call processing 
option which permits calling among all subscribers and from subscribers 
to emergency numbers within the RST if control link connections to the 
host central office are severed or otherwise disabled. The RST shall be 
capable of rerouting normally used emergency numbers, such as 911, to 
predetermined line terminations in this emergency stand-alone operating 
condition. This RST emergency call processing option shall be provided 
only when specified by the owner in Item 6.1 of appendix B of this 
section.
    (4) Subscriber line test. (i) Means shall be available on an 
optional basis to the maintenance personnel to make subscriber line 
tests from a common location for all subscriber lines including the RST.
    (ii) If tests in paragraph (w)(4)(i) of this section are not 
requested by the owner for a particular installation, a subscriber loop 
test set (see paragraph (o)(2)(iii)(A) of this section) shall be 
supplied at the RST with a means to access all lines.
    (5) Housing. When housed in a building supplied by the owner, a 
complete floor plan including ceiling height, power outlets, cable 
entrances, equipment entry and travel, type of construction, and other 
pertinent dimensions shall be supplied with this section.
    (6) Power--(i) Chargers. A single charger meeting the requirements 
of paragraph (s)(3) of this section (with the exception of paragraph 
(s)(3)(viii) of this section) is required. An additional charger capable 
of carrying the full load or a combination of three chargers each 
capable of carrying half the load shall be supplied if redundant 
chargers are specified in appendix B of this section.
    (ii) Ringing equipment provisioning. (A) Ringing sources shall be 
supplied in duplicate.
    (B) An exception to the duplicated ringing source requirement 
permits nonduplicated ringing source(s) to be utilized where there is 
full compliance with the following service criteria.
    (1) In a remote switching terminal (RST) of 400 or more equipped 
lines, a single nonduplicated ringing source failure shall not cause the 
complete loss of ringing capability to more than 100 lines.
    (2) In a remote switching terminal (RST) of less than 400 equipped 
lines, a

[[Page 718]]

single nonredundant ringing source failure shall not cause the complete 
loss of ringing capability to more than 25 percent of the total equipped 
lines.
    (iii) Power converter. (A) Power converters required for the purpose 
of providing various operating voltages to printed circuit boards or 
similar equipment employing electronic components shall be provided in 
duplicate with each unit capable of immediately assuming the full 
operating load upon failure of a unit.
    (B) An exception to the duplicate power converter requirement 
permits nonduplicated power converter(s) to be utilized where there is 
full compliance with the following criteria.
    (1) The failure of any single nonduplicated power converter shall 
not reduce the grade of service of common control and service circuits 
to any individual line or trunk by more than 50 percent.
    (2) The failure of any single nonduplicated power converter shall 
not reduce the traffic carrying capacity of any trunk group or service 
links to a host office by more than 50 percent.
    (3) In a remote switching terminal (RST) of 400 or more equipped 
lines, any single nonduplicated power converter failure shall not cause 
a complete loss of service to more than 100 equipped lines.
    (4) In a remote switching terminal (RST) of less than 400 equipped 
lines, any single nonduplicated power converter failure shall not cause 
a complete loss of service to more than 25 percent of the total equipped 
lines.
    (7) Alarm. Sufficient system alarm points shall be provided from the 
RST to report conditions to the host alarm system.
    (x) Responsibilities of the bidder--(1) Central office layout. (i) 
The successful bidder shall furnish tentative floor plan layout drawings 
showing the arrangement of the equipment and the dimensions of major 
equipment units. These drawings shall include minimum door dimensions 
and ceiling heights required for installation, maintenance and 
ventilation. If requested by the owner, the floor plan shall be such 
that the battery, charger, power board, main distributing frame and wire 
chief's test equipment are isolated from the other equipment by a 
partition.
    (ii) The layout drawings shall also show provision for the ultimate 
capacity of the central office as specified by the owner.
    (iii) After approval by the owner of the tentative floor plan, and 
within 10 calendar days after approval of the contract by the 
Administrator, the owner shall furnish the bidder the necessary data on 
the actual floor plan. Within 20 calendar days after receiving the 
necessary building data, the bidder shall then supply floor plan 
drawings showing exact locations of all equipment, both initial and 
ultimate, including points where connection to commercial power are 
required, with voltage and wattage indicated at each point. Within 20 
calendar days after receiving the floor plan drawings from the bidder, 
the owner shall approve these drawings or take the necessary steps to 
have the drawings changed to meet his approval. The layout planning must 
be so coordinated between the owner and the bidder as not to delay the 
scheduled equipment installation date.
    (2) Shipment of main distributing frame (MDF). The bidder shall ship 
the MDF equipment, with all necessary instructions to permit its 
installation by the owner, at the time requested by the owner in 
writing, provided such time is not earlier than 90 days prior to the 
date specified for the shipment of the rest of the central office 
equipment. If the owner or the owner's agent installs the main 
distributing frame, the owner shall assume the responsibility and the 
expense of proper installation according to information furnished by the 
bidder.
    (3) Drawings and printed material. (i) The bidder shall supply 
instructional material for each exchange involved at the time of 
delivery of the equipment. It is not the intent of this section to 
require system documentation necessary for the repair of individual 
circuit boards. The bidder shall supply three complete sets of legible 
drawings, each set to include all of the following drawings and 
documentation:

[[Page 719]]

    (A) A floor plan showing exact dimensions and location of each 
equipment frame or item to a convenient scale;
    (B) A block schematic drawing showing the various equipment 
components in the system, and their identifying circuit number (e.g., 
MDF, line circuits, memory, trunks, etc.);
    (C) Drawings of major equipment items such as frames, with the 
location of major component items of equipment shown;
    (D) Individual functional drawings for electrical circuits in the 
system;
    (E) A detailed description of the operation of each circuit down to 
a circuit package level;
    (F) Wiring diagrams indicating the specific method of wiring used on 
each item of equipment and interconnection wiring between items of 
equipment;
    (G) Sufficient software documentation to maintain and service the 
system, including drawings showing principal aspects of the software 
architecture;
    (H) Individual maintenance drawings covering each equipment item 
that contains replaceable parts, appropriately identifying each part by 
name and part number, or, complete ordering instructions for all 
replaceable parts if individual item drawings are not provided; and
    (I) Job drawings including all drawings that are individual to the 
particular office involved, such as main frame, power panel, test board, 
etc.
    (ii) The following information shall also be furnished:
    (A) Complete index of the required drawings;
    (B) Explanation of electrical principles of operation of the overall 
switching system;
    (C) List of tests which can be performed with each piece of test 
equipment furnished, and explanation of the method of performing each 
test;
    (D) Sample of each form recommended for use in keeping records of 
tests;
    (E) Criteria for analyzing results of tests and determining 
appropriate corrective action;
    (F) General notes on the methods of isolating equipment faults to 
specific printed circuit cards in the equipment;
    (G) List of typical troubles which might be encountered, together 
with general indications as to the probable location of each trouble;
    (H) Special office grounding requirements;
    (I) A site specific central office ground system acceptance 
checklist that is consistent with industry practice; and
    (J) A site specific layout of the master ground bar (MGB) showing 
assignment of P, A, N, and I equipment areas.
    (4) Distributing frame wire. The bidder shall provide sufficient 
tinned copper conductor distributing frame wire for the initial 
installation. The insulation of this wire shall be such that it will not 
support combustion. The insulation shall have good abrasion resistance 
and cut-through properties, exhibit good solder heat resistance, and be 
suitable for wire wrap connections or insulation displacement 
connections.
    (5) Technical assistance service. A technical assistance service 
shall be made available to assist the owner and its maintenance 
personnel on a 24-hour, 7 days a week basis. There is to be assistance 
available for both hardware and software problems. The necessary 
interface devices shall be supplied by the bidder.
    (6) Spare parts. (i) The spare parts bid price shall be based upon 
the required quantities of spares shown in Item 6.2 of appendix C of 
this section, and shall be added to the base bid for comparison purposes 
in awarding the bid. It is the supplier's responsibility to provide all 
spares required by this section. If the supplier neglects to list 
certain spare parts in Item 6.2 of appendix C of this section, but they 
are necessary to comply with this section, they shall be provided by the 
supplier at no additional cost to the owner.
    (A) ``Units'' are defined as user replaceable components used in the 
central office equipment. ``Spare Parts'' are direct replacements for 
units. Spare parts are necessary for the maintenance and diagnostic 
operations where the suspected faulty unit may be removed and a spare 
part substituted in anticipation that the trouble will be cleared.

[[Page 720]]

    (B) Examples of units for which spare parts should be furnished are 
printed circuit cards; circuit pack assemblies; fuses; and power 
supplies.
    (C) Spare parts are not required as part of this addendum for items 
such as connectorized cables, nuts, bolts, and similar hardware; nor for 
items which can be obtained from sources other than the bidder such as 
battery cells, chargers, powerboards, magnetic tape transport 
assemblies, disk drives, ringing machines, recorded announcement 
machines, loop extenders and voice frequency repeaters, fire bars, 
teletypewriters, and video monitors.
    (D) When 100 or more like units are used in the hosts and RST's to 
be bid, the quantity of spares to be furnished is determined by 
multiplying the total number of like units in the contract by .05 or 
.03, as applicable, and rounding off to the next lowest integer. For 
example, 119 Class 1 units require five spares; 120 require six.
    (E) When alternates are required, the price of the spare parts for 
the alternates shall be included with the price of the alternate.
    (F) For equipment in which the line cards consist of a number of 
plug-in ``daughter'' boards on a ``mother'' board, the line card is 
defined as the ``daughter'' board unit. In a similar manner for those 
designs which have line cards backed up by a ``control card,'' the 
``control card'' is not, by definition, a line card.
    (G) The quantities of spare parts determined in paragraph (x)(6)(vi) 
of this section are a minimum quantity. The bidder may add quantities of 
spare parts to bring the number of spare parts up to the bidder's list 
of spare parts necessary for proper operation in the field.
    (ii) A Class 1 unit does not have automatic transfer to a redundant 
or standby pool of identical units, and provides any function for 24 or 
more lines or trunks or for all trunks in a group. Nonredundant digital 
trunk interfaces are included in this category.
    (iii) A Class 2 unit has automatic transfer to a redundant or 
standby pool of identical units, and provides any function for 24 or 
more lines or trunks or for all trunks in a group. Redundant digital 
trunk interfaces and units of a redundant stored program processor are 
included in this category.
    (iv) A Class 3 unit does not have automatic transfer to a redundant 
or standby pool of identical units and provides any function for no more 
than 23 lines or trunks or for less than all trunks in a group. 
Nonredundant analog trunks are included in this category. Excluded from 
this category are line cards, which are in Class 4.
    (v) A Class 4 unit has automatic transfer to a redundant or standby 
pool of identical units and provides any function for no more than 23 
lines or trunks or for less than all trunks in a group. Also, any line 
cards are in Class 4.
    (vi) The spare parts for all of the hosts and the RST's included in 
this contract shall be provided as follows:

------------------------------------------------------------------------
Quantity of Units used in the CO's & RST's To Be Bid   Required Quantity
----------------------------------------------------- of Spares By Class
                                                            of Unit     
                     Class --->                      -------------------
                                                       1    2    3    4 
------------------------------------------------------------------------
1 through 9                                             1    1    0    0
10 through 24                                           2    2    1    0
25 through 49                                           3    2    2    0
50 through 99                                           4    3    2    0
100 or More                                            5%   3%   3%    0
------------------------------------------------------------------------

    (vii) As a part of the response to the bid, the supplier shall 
furnish a list of units used by class and a list of spare parts to be 
furnished with this contract. This list shall be placed in Item 6.2 of 
appendix C of this section for only one of the host specifications 
included in the entire contract.
    (7) Environmental requirements. The bidder shall specify the 
environmental conditions necessary for safe storage and satisfactory 
operation of the equipment being bid. If requested, the bidder shall 
assist the owner in planning how to provide the necessary environment 
for the equipment.
    (8) Unit costs for cost separation purposes. The successful bidder 
shall present a cost breakdown of the central office equipment on a 
discrete element basis 90 days after installation completion. This shall 
include the various frames, switching and transmission components, and 
software.
    (9) Single-point grounding system acceptance. Qualified 
representatives of the central office system supplier and the owner are 
to conduct a thorough

[[Page 721]]

joint acceptance audit of the grounding system prior to the central 
office being placed into service. A grounding system acceptance 
checklist provided by RUS, which is consistent with standard industry 
practice, will be used in conducting this audit. All required grounding 
system corrections are to be made prior to placing the central office 
system into full service operation. The successful completion of this 
grounding system audit will constitute an acceptance on the part of both 
parties, the owner and the central office supplier (refer to paragraph 
(y)(5) of this section, and appendix D of this section).
    (y) Installation. The following responsibilities apply to the 
central office equipment installation and Remote Switching Terminal 
(RST) installations, unless otherwise noted.
    (1) Responsibilities of owner. The owner shall:
    (i) Allow the bidder and its employees free access to the premises 
and facilities at all hours during the progress of the installation;
    (ii) Take such action as necessary to ensure that the premises are 
dry and free from dust and in such condition as not to be hazardous to 
the installation personnel or the material to be installed (not required 
for an RST installed in a self-contained environmentally controlled 
cabinet);
    (iii) Provide heat or air conditioning when required and general 
illumination in rooms in which work is to be performed or materials 
stored (not required for an RST installed in a self-contained 
environmentally controlled cabinet);
    (iv) Provide suitable openings in buildings to allow material to be 
placed in position (not required for an RST installed in a self-
contained environmentally controlled cabinet);
    (v) Provide the necessary conduit and commercial and dc-ac inverter 
output power to the locations shown on the approved floor plan drawings; 
provide 120 volts, 60 Hz commercial power equipped with a secondary 
arrester and a reasonable number of outlets for test, maintenance and 
installation equipment; provide suitable openings or channels and ducts 
for cables and conductors, from floor to floor and from room to room; 
provide an acceptable central office grounding system and at a ground 
resistance level that is reasonable for office site conditions (not 
required for an RST installed in a self-contained environmentally 
controlled cabinet);
    (vi) Provide the necessary wiring, central office grade ground and 
commercial power service, with a secondary arrester, to the location of 
an exterior RST installation based on the voltage and load requirements 
furnished by the bidder;
    (vii) Test at the owner's own expense all lines and trunks for 
continuity, leakage and loop resistance and ensure that all lines and 
trunks are suitable for operation with the central office equipment 
specified;
    (viii) Make alterations and repairs to buildings necessary for 
proper installation of material, except to repair damage for which the 
bidder or its employees are responsible;
    (ix) Connect outside cable pairs on the distributing frame and run 
all line and trunk jumpers (those connected to protectors);
    (x) Furnish all trunk, line, and party assignment information to 
permit the bidder to program the data base memory within a reasonable 
time prior to final testing;
    (xi) Release for the bidder's use such portions of the existing 
plant as are necessary for the proper completion of such tests as 
require coordination with existing facilities including facilities for 
T1 span lines with properly installed repeaters between the central 
office and the RST installations;
    (xii) Make prompt inspections as it deems necessary when notified by 
the bidder that the equipment, or any part of the equipment, is ready 
for acceptance;
    (xiii) Provide and install adequate fire protection apparatus, 
including one or more fire extinguishers or fire extinguishing systems 
of the gaseous type that has low toxicity and effect on equipment; and
    (xiv) Provide necessary access ports for cable, if underfloor cable 
is selected.
    (2) Responsibilities of bidder. The bidder shall:

[[Page 722]]

    (i) Allow the owner and its representatives access to all parts of 
the buildings at all times during the installation;
    (ii) Obtain the owner's permission before cutting into or through 
any part of the building structure such as girders, beams, concrete or 
tile floors, partitions or ceilings (not applicable to the installation 
of lag screws, expansion bolts, and similar devices used for fastening 
equipment to floors, columns, walls and ceilings);
    (iii) Be responsible for reporting to the owner any damage to the 
building which may exist or may occur during its occupancy of the 
building, repairing all damage to the building due to carelessness of 
the bidder's workforce, and exercising reasonable care to avoid any 
damage to the owner's property;
    (iv) Consult with the owner before cutting into or through any part 
of the building structure where the fireproofing or moisture proofing 
may be impaired;
    (v) Take necessary steps to ensure that all fire fighting apparatus 
is accessible at all times and all flammable materials are kept in 
suitable places outside the building;
    (vi) Not use gasoline, benzene, alcohol, naphtha, carbon 
tetrachloride or turpentine for cleaning any part of the equipment;
    (vii) Install the equipment in accordance with the specifications 
for the office;
    (viii) Run all jumpers, except line and trunk jumpers (those 
connected to protectors);
    (ix) Establish and update all data base memories with subscriber and 
trunk information as supplied by the owner until an agreed turnover 
time;
    (x) Give the owner notice of completion of the installation at least 
1 week prior to completion;
    (xi) Permit the owner or its representative to conduct tests and 
inspections after installation has been completed in order that the 
owner may be assured that the requirements for installation are met;
    (xii) Allow access, before turnover, by the owner or its 
representative, upon request, to the test equipment which is to be 
turned over as a part of the office equipment, to permit the checking of 
the circuit features which are being tested and to permit the checking 
of the amount of connected equipment to which the test circuits have 
access;
    (xiii) Make final charger adjustments using the manufacturer's 
recommended procedure;
    (xiv) Notify the owner promptly of the completion of work of the 
central office, or such portions as are ready for inspection;
    (xv) Correct promptly all defects for which the bidder is 
responsible;
    (xvi) Provide the owner with one set of marked prints, or strapping 
prints, showing which of the various options and figures are in use on 
each switching system as specified in paragraph (x)(3)(i) of this 
section;
    (xvii) Place the battery in service in compliance with the 
recommendations of the battery manufacturer; and
    (xviii) Furnish the owner with a record of the cell voltages and 
specific gravity readings made at the completion of the installation of 
the switching system and before it is placed in commercial service.
    (3) Installation requirements. (i) All work shall be done in a neat, 
workmanlike manner. Equipment frames or cabinets shall be correctly 
located, carefully aligned, anchored and firmly braced. Cables shall be 
carefully laid with sufficient radius of curvature and protected at 
corners and bends to ensure against damage from handling or vibration. 
Exterior cabinet installations for RST's shall be made in a permanent, 
eye-pleasing manner.
    (ii) All multiple and associated wiring shall be continuous, free 
from crosses, reverses and grounds and shall be correctly wired at all 
points.
    (iii) An inspection shall be made by the owner or its 
representatives prior to performing operational and performance tests on 
the equipment. However, this inspection shall be made after all 
installing operations which might disturb apparatus adjustments have 
been completed. The inspection shall be of such character and extent as 
to disclose with reasonable certainty any unsatisfactory condition of 
apparatus or equipment. During these inspections, or inspections for 
apparatus adjustments, or soldering, or in testing of

[[Page 723]]

equipment, a sufficiently detailed examination shall be made throughout 
the portion of the equipment within which such condition is observed, or 
is likely to occur, to disclose the full extent of its existence, where 
any of the following conditions are observed:
    (A) Apparatus or equipment units failing to compare in quantity and 
code with that specified for the installation;
    (B) Apparatus or equipment units damaged or incomplete;
    (C) Apparatus or equipment affected by rust, corrosion or marred 
finish; or
    (D) Other adverse conditions resulting from failure to meet 
generally accepted standards of good workmanship.
    (4) Operational test requirements. (i) Operational tests shall be 
performed on all circuits and circuit components to ensure their proper 
functioning in accordance with appropriate applicable documents supplied 
by the bidder.
    (ii) A sufficient quantity of overall tests shall be made to ensure 
proper operation of all specified features.
    (iii) A sufficient quantity of locally originating and incoming 
calls shall be made to prove the switching system can accept and process 
calls to completion.
    (5) Grounding system audit. (i) A grounding system audit shall be 
performed to ensure that a viable single-point grounding system is in 
place prior to the time the switching system is placed into full service 
operation. It is suggested that such an audit be conducted at the time 
the switching system is ready for turnover to the owner.
    (ii) This single-point grounding system audit is to be conducted by 
authorized representatives of the supplier and owner, and with the RUS 
general field representative participating at his discretion.
    (iii) The single-point grounding system audit is to be conducted 
using the checklist contained in appendix D of this section.
    (iv) Appendix D of this section shall be the principal single-point 
grounding system audit guideline document. A supplemental checklist may 
be prepared and provided by the switching system supplier which 
recognizes unique grounding requirements related to their particular 
switching system. The scope of this supplier checklist is to be confined 
to unique and specific switching system requirements only. Acceptable 
supplier supplemental grounding checklist must have prior approval of 
and be on file with the Central Office Equipment Branch of the 
Telecommunications Standards Division of RUS.
    (v) It is the responsibility of the central office supplier to 
ensure that the grounding system evaluation criteria contained in the 
combination of the appendix D checklist of this section and their 
optional supplemental checklist adequately fulfill requirements for 
warranty coverage.
    (vi) All deficiencies in the single-point grounding system are to be 
corrected prior to the switching system being placed into full service 
operation. Exceptions are permitted only by mutual agreement of the 
owner and supplier and with written approval of the RUS general field 
representative.
    (vii) The acceptance statement facesheet of the audit checklist in 
appendix D of this section shall be signed by authorized representatives 
of the supplier and owner to indicate mutual approval of the single-
point grounding system. Copies of all completed grounding system audit 
documents are to be provided to the supplier, owner and appropriate RUS 
telephone program regional offices.

(The information and recordkeeping requirements of this section have 
been approved by the Office of Management and Budget (OMB) under the 
control number 0572-0059)

Appendix A to 7 CFR 1755.522--Specification for Digital, Stored Program 
    Controlled Central Office Equipment Detailed Requirements (Host)

(Information To Be Supplied by Owner)

Telephone Company Name

_______________________________________________________________________

Location

_______________________________________________________________________

Central Office Name (By Location)

Town____________________________________________________________________

County__________________________________________________________________

State___________________________________________________________________

________Attended

________Unattended

________Remotes

[[Page 724]]

                               1. General

    1.1  Notwithstanding the bidder's equipment lists, the equipment and 
materials furnished by the bidder must meet the requirements of 
paragraphs (a) through (x), Appendix A and Appendix B of Sec. 1755.522.
    1.2  Paragraphs (a) through (x) of Sec. 1755.522 cover the minimum 
general requirements for digital, stored program controlled central 
office switching equipment.
    1.3  Paragraph (y) of Sec. 1755.522 covers requirements for 
installation, inspection, and testing when such service is included as 
part of the contract.
    1.4  Appendices A and B of Sec. 1755.522 cover the technical data 
for application engineering and detailed equipment requirements insofar 
as they can be established by the owner. These appendices are to be 
filled in by the owner.
    1.5  Appendix C of Sec. 1755.522 covers detailed information on the 
switching network equipment and the common control equipment, and 
information as to system reliability and heavy traffic delays as 
proposed by the bidder. This appendix is to be filled in by the bidder 
and must be presented with the bid.
    1.6  Appendix D of Sec. 1755.522 is the single-point grounding 
system audit checklist.

                           2. Numbering Scheme

    2.1  This office shall be arranged to serve the following area and 
office code(s):
_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    If more than one code is to be served, discrimination shall be 
determined by the following:

Number Translation ____
Separate Trunk Groups ____
Both (Explain in Item 16, Appendix A) ____

    2.2  This office shall be arranged to provide EAS service to the 
following:

------------------------------------------------------------------------
  Connecting office        Code        Connecting office        Code    
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
------------------------------------------------------------------------


    2.2.1  Seven digits shall be dialed for all local and EAS calls.
    2.3  Additional dialing procedures to be provided include the 
following:

------------------------------------------------------------------------
                        Feature                             Required    
------------------------------------------------------------------------
Station Paid Toll (Including Coin):                                     
           Home Numbering Plan Area (HNPA):                             
    ``1'' + 7 Digits..................................    ______________
    ``1'' + 10 Digits.................................    ______________
    Other (Explain in Item 16, Appendix A)............    ______________
  Foreign Numbering Plan Area (FNPA):                                   
    ``1'' + 10 Digits.................................    ______________
    Other (Explain in Item 16, Appendix A)............    ______________
------------------------------------------------------------------------


    10XXX Dialing to Interexchange Carriers:

------------------------------------------------------------------------
               Name                              Access code            
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
                           Feature                             Required 
------------------------------------------------------------------------
Person, Special (Including Coin):                                       
  HNPA--``0'' + 7 Digits....................................            
                                                             -----------
  ``0'' + 10 Digits.........................................            
                                                             -----------
  FNPA ``0'' + 10 Digits....................................            
                                                             -----------
  Other (Explain in Item 16, Appendix A)....................            
                                                             -----------
Directory Assistance:                                                   
  HNPA Local--411...........................................            
                                                             -----------
  ``1'' + 411...............................................            
                                                             -----------
  HNPA Toll ``1'' + 555-1212................................            
                                                             -----------
  FNPA Toll ``1'' + NPA + 555-1212..........................            
                                                             -----------
IDDD:                                                                   
  Operator Serviced 01......................................            
                                                             -----------
  Station-Station 011.......................................            
                                                             -----------
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                              No. to be 
                    Other service codes                         dialed  
------------------------------------------------------------------------
Wire Chief.................................................             
                                                            ------------
Repair Service.............................................             
                                                            ------------
Business Office............................................             
                                                            ------------
Emergency Calls to 911 Lines...............................             
                                                            ------------
Emergency Calls to 911 Trunks..............................             
                                                            ------------
Time.......................................................             
                                                            ------------
Weather....................................................             
                                                            ------------
100 Test Line..............................................             
                                                            ------------
102 Test Line..............................................             
                                                            ------------
105 Test Line..............................................             
                                                            ------------

[[Page 725]]

                                                                        
Other (Explain in Item 16, Appendix A).....................             
                                                            ------------
------------------------------------------------------------------------


    2.4  Assistance calls are answered: (Check appropriate items)
    2.4.1  At the operator office in ________________
    2.4.1.1  By means of the regular interoffice toll trunks ________
    2.4.1.2  By means of the regular interoffice EAS trunks ________
    2.4.1.3  By means of a separate special service trunk group ________
    2.4.1.4  Locally ________
    Explain:

                             3. Office Clock

    3.1  This office is to be slave clock synchronized with another 
office:

    ________ Yes    ________No


(Explain details in Appendix A, Item 16 if ``Yes''.)

    3.2  This office is to be a master clock office to provide 
synchronization timing for other offices:

    ________ Yes    ________No


(Explain details in Appendix A, Item 16 if ``Yes''.)

                     4. Interoffice Trunking Diagram

    4.1  A sketch showing relative location of exchanges, RST's, and 
number of circuits shall be included, also the office and area codes of 
the direct trunk points. The diagram should indicate whether toll or EAS 
trunk groups are ``High Usage'' or ``Final.'' Alternate routes should be 
included. Indicate whether the trunk termination is direct digital or 
analog.

                      5. Translator Function Chart

                                                                                                                                                        
                                                                                                                                                        
                                                                                         First route                          Alternate routes          
                                                                           -----------------------------------------------------------------------------
                                                                             Translator            Send             Translator            Send          
                Called point                        Subscriber dials           action   --------------------------    action   -------------------------
                                                                           -------------                          -------------                         
                                                                              Deletes      Prefixes                  Deletes      Prefixes              
                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        

    6. Line Circuit Requirements (Includes all lines associated with 
RST's.)

[[Page 726]]

                           6.1  Types of Lines

                                                                                                                                                        
                                                             No. of lines                                                                               
                                      ----------------------------------------------------------       No. of EAS areas           Total No. of lines    
                                            Local service only       both local and EAS service                                        required         
6.1.1  Individual--Flat Rate.........  ____________                 ____________                 ____________                 ____________              
6.1.2  Individual--Message Rate......  ____________                 ____________                 ____________                 ____________              
6.1.3  Pay Station...................  ____________                 ____________                 ____________                 ____________              
6.1.4  Telephone Company Official      ____________                 ____________                 ____________                 ____________              
 Lines.                                                                                                                                                 
6.1.5  Wire Chief....................  ____________                 ____________                 ____________                 ____________              
6.1.6  911 Emergency Service Bureau    ____________                 ____________                 ____________                 ____________              
 Lines.                                                                                                                                                 
6.1.7  Number Hunting PBX Groups:....  ____________                 ____________                 ____________                 ____________              


                                                                                                                                                        
                                                                       Type                        No. of lines                                         
 No. of                   Direct in dial    Restricted   ----------------------------------------------------------------   No. of EAS     Total No. of 
lines in   No. of groups         *        service at COE                                   Local service  Both local and       areas      lines required
  group                                                    Ground start     Loop start         only         EAS service                                 
______    ______          ______          ______          ______          ______          ______          ______          ______          ______        
______    ______          ______          ______          ______          ______          ______          ______          ______          ______        
______    ______          ______          ______          ______          ______          ______          ______          ______          ______        
______    ______          ______          ______          ______          ______          ______          ______          ______          ______        
______    ______          ______          ______          ______          ______          ______          ______          ______          ______        
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Furnish translation information under Item 5.                                                                                                         


[[Page 727]]

6.1.8  WATS Lines (Give details in Appendix A, Item 16)
    Number of Inward WATS Lines ________
    Number of Outward WATS Lines ________
6.1.9  Special Lines Required ________ (Explain in Item 16, Appendix A)
6.1.10  Total Number of Lines Required
    Host ______ (Incl. DDI Concentrator Lines)
    RST 1 ______
    RST 2 ______
    RST 3 ______
    Total ______
6.1.11  Total Director Numbers Required ______
    (Including RST's) (see Item 7.1, Appendix A)
6.1.12  Pay Station
    Type ____________
    New ____      Reused ____
    (Describe in Item 16, Appendix A)
6.1.13  Line Concentrator
6.1.13.1  Supplied by Owner (see Item 16, Appendix A, for details)
    ____ Yes      ____ No
6.1.13.2  Supplied by Bidder (If ``Yes'', attach REA Form 397g, 
          Performance Specification for Line Concentrators)
    ____ Yes      ____ No
6.2.  Data on Lines Required Range Extension
6.2.1  Number of non-pay station lines having a loop resistance, 
          including the telephone set, as follows:

                                                     No. of lines       
1901-3200 ohms.............................  ______                     
3201-3600 ohms.............................  ______                     
                                                                        

6.2.2  Number of pay station lines having loop resistance, excluding the 
          telephone set, greater than:

                                                     No. of lines       
1200 ohms (For Prepay).....................  ______                     
1000 ohms (For Semi-Postpay Operation).....  ______                     
                                                                        

6.2.3  Range extension equipment is to be provided:
6.2.3.1  Loop Extenders: Total Quantity ______
    By Bidder--Quantity ______
    By Owner--Quantity ______
    (Explain in Item 16, Appendix A)
6.2.3.2  VF Repeaters: Total Quantity ______
    By Bidder--Quantity ______
    (Bidder must have information on loading and cable size.)
    By Owner--Quantity ______
    (Explain in Item 16, Appendix A)
6.2.3.3  Range extension may be furnished as an extended range line 
          circuit at the option of the supplier. If this option is used, 
          the quantities of loop extenders and VF repeaters will be 
          different from the quantities listed above (see Item 6.1,a, 
          Appendix C).
    ____ Yes      ____ No
17. Traffic Data-Line Originating and Terminating Traffic
7.1  Originating Line Traffic--Estimated per Busy Hour (Includes all 
          Lines Associated With RST's):

[[Page 728]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    (a)  CCS per Main Station     (b) No. of Main Stations           (axb) Total CCS          No. of Lines Required \1\ 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ind.--Res.......................  __________                    __________                    __________                    __________                  
Ind.--Bus.......................  __________                    __________                    __________                    __________                  
Special Lines...................  __________                    __________                    __________                    __________                  
Pay Station.....................  __________                    __________                    __________                    __________                  
Telco Official..................  __________                    __________                    __________                    __________                  
Wire Chief......................  __________                    __________                    __________                    __________                  
No. Htg. or PBX.................  __________(\2\)               __________(\3\)               __________                    __________                  
WATS............................  __________                    __________                    __________                    __________                  
Data Service....................  __________                    __________                    __________                    __________                  
911 Emerg. Service..............  __________                    __________                    __________                    __________                  
  Total.........................  ............................  __________                    __________                    __________(\4\)             
                                                               -----------------------------------------------------------------------------------------
                                  ............................               (c)                           (d)                           (e)            
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ See Appendix A, Item 6.1.                                                                                                                           
\2\ This figure is the CCS per PBX trunk.                                                                                                               
\3\ This figure is the number of PBX trunks.                                                                                                            
\4\ This is the total number of line equipments required. The number to be provided will be determined by the equipment design of the system of the     
  selected bidder. See Appendix C, Item 3.1.1.2.                                                                                                        


[[Page 729]]

7.2  Average Originating CCS per Line per Busy Hour
    (d)/(e)=____/ ____=____ CCS/Line
    This office shall be engineered to handle an initial average 
originating busy hour traffic of ____ CCS per line. It is anticipated 
that the average originating busy hour traffic will increase to ____ CCS 
per line.
    Originating Traffic Attributed to Host Only ____ CCS/Line
7.3  Terminating Traffic--Estimated CCS per Busy Hour
    It is assumed that the total CCS for terminating traffic is the same 
as for originating traffic. Since digital switch networks are on a 
terminal per line basis, the terminating CCS per line will be the same 
as the originating CCS per line as shown in Item 7.2, Appendix A.
    Terminating Traffic Attributed to Host Only ____ CCS/Line
7.4  Percent of Pushbutton Lines ____
7.5  Anticipated Ultimate Capacity (20 years)
7.5.1  Subscriber Lines
    Host ________ (Incl. DDI Concentrator Lines)
    RST 1 ________
    RST 2 ________
    RST 3 ________
    Total ________

[[Page 730]]

                      8. Trunk Circuit Requirements

                        8.1  Interoffice Trunking

                      8.1.1  Trunking Requirements

                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        
1. Connecting                                                                                                                                           
 Office..........  ...........................................................  .................  .................  .................                 
2. Use of Trunk..  ...........................................................  .................  .................  .................                 
3. Trk. Grp.                                                                                                                                            
 Ntwk. Connection                                                                                                                                       
 1...............  ...........................................................  .................  .................  .................                 
4. Quantity                                                                                                                                             
 Equipped........  ...........................................................  .................  .................  .................                 
5. Ultimate %                                                                                                                                           
 Growth..........  ...........................................................  .................  .................  .................                 
6. CCS Capacity..  ...........................................................  .................  .................  .................                 
7. Direction.....  ...........................................................  .................  .................  .................                 
8. No. Digits                                                                                                                                           
 Dialed..........  ...........................................................  .................  .................  .................                 
9. No. Digits                                                                                                                                           
 Outpulsed.......  ...........................................................  .................  .................  .................                 
10. No. Digits                                                                                                                                          
 Inpulsed........  ...........................................................  .................  .................  .................                 
11. Type                                                                                                                                                
 Signaling.......  ...........................................................  .................  .................  .................                 
12. Type Pulsing.  ...........................................................  .................  .................  .................                 
13. Carrier Type                                                                                                                                        
 (2-Wire)........  ...........................................................  .................  .................  .................                 
14. Carrier Type                                                                                                                                        
 (4-Wire)........  ...........................................................  .................  .................  .................                 
15. Physical.....  ...........................................................  .................  .................  .................                 
16. Repeat Coils                                                                                                                                        
 2...............  ...........................................................  .................  .................  .................                 
17. DX Signaling                                                                                                                                        
 Set.............  ...........................................................  .................  .................  .................                 
18. Other Type                                                                                                                                          
 Signaling.......  ...........................................................  .................  .................  .................                 
19. Delay Dial...  ...........................................................  .................  .................  .................                 
20. Direct                                                                                                                                              
 Digital                                                                                                                                                
 Interface.......  ...........................................................  .................  .................  .................                 
21. a. Feature                                                                                                                                          
 Group B.........  ...........................................................  .................  .................  .................                 
    b. Feature                                                                                                                                          
     Group C.....  ...........................................................  .................  .................  .................                 
    c. Feature                                                                                                                                          
     Group D.....  ...........................................................  .................  .................  .................                 
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Designation of trunk group network connection involves the following categories:                                                                      
IC--Direct Inter-LATA Connecting Trunk=(IC/POP)                                                                                                         
TC--Tandem Connecting Trunks                                                                                                                            
IT--Intertandem Connecting Trunks                                                                                                                       
IL--Intra-LATA Connecting Trunks                                                                                                                        
TIC--Tandem Inter-LATA Connecting Trunks                                                                                                                
Misc.--Intercept, Busy Verification, etc.                                                                                                               
2 Omit repeating coils for carrier derived trunks.                                                                                                      


[[Page 731]]

    8.1.2  Pads for 4-Wire Carrier (7dB and 16dB)

Total Quantity ______
By Bidder Quantity ______
By Owner Quantity ______

    Refer to the attached information regarding connecting company trunk 
circuit drawing numbers and name of manufacturer.
    8.2  Switched Traffic Data
    8.2.1  Originating Traffic

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           No. of digits    Sender sig.                 
                          Type                                  CCS         H.T. secs.          BHC         out-pulsed         mode           Remarks   
--------------------------------------------------------------------------------------------------------------------------------------------------------
Toll ``0''-\1\..........................................  ..............  ..............  ..............  ..............  ..............  ..............
Toll ``0''+7 \1\ \2\....................................  ..............  ..............  ..............  ..............  ..............  ..............
Toll ``0''+10 \1\ \2\...................................  ..............  ..............  ..............  ..............  ..............  ..............
Toll S-S ``1''+7 \2\....................................  ..............  ..............  ..............  ..............  ..............  ..............
Toll S-S ``1''+10 \2\...................................  ..............  ..............  ..............  ..............  ..............  ..............
Toll Other..............................................  ..............  ..............  ..............  ..............  ..............  ..............
Special Service.........................................  ..............  ..............  ..............  ..............  ..............  ..............
Intercept...............................................  ..............  ..............  ..............  ..............  ..............  ..............
Intraoffice.............................................  ..............  ..............  ..............         XXXXXXX         XXXXXXX  ..............
EAS.....................................................  ..............  ..............  ..............  ..............  ..............  ..............
EAS.....................................................  ..............  ..............  ..............  ..............  ..............  ..............
EAS.....................................................  ..............  ..............  ..............  ..............  ..............  ..............
Tandem..................................................  ..............  ..............  ..............  ..............  ..............  ..............
Tandem..................................................  ..............  ..............  ..............  ..............  ..............  ..............
Tandem..................................................  ..............  ..............  ..............  ..............  ..............  ..............
911 Emerg. Service......................................  ..............  ..............  ..............  ..............  ..............  ..............
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................  ..............  ..............  ..............  ..............  ..............  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ PPCS traffic assumed to be divided 20 percent ``0''- and 80 percent ``0''+ if unknown.                                                              
\2\ Toll calls assumed to be divided two-thirds 7 digits and one-third 10 digits.                                                                       

Busy Hour Attempts=BHC Total  x  1.4=____
    8.2.2  Terminating Traffic

----------------------------------------------------------------------------------------------------------------
                                                                              No. of                            
               Type                     CCS       H.T. secs.      BHC         digits      Receiver     Remarks  
                                                                             inpulsed    sig. mode              
----------------------------------------------------------------------------------------------------------------
Toll Compl........................  ...........  ...........  ...........  ...........  ...........  ...........
Test & Ver........................  ...........  ...........  ...........  ...........  ...........  ...........
Intraoffice.......................  ...........  ...........  ...........  ...........  ...........  ...........
EAS...............................  ...........  ...........  ...........  ...........  ...........  ...........
EAS...............................  ...........  ...........  ...........  ...........  ...........  ...........
EAS...............................  ...........  ...........  ...........  ...........  ...........  ...........
Tandem............................  ...........  ...........  ...........  ...........  ...........  ...........
Tandem............................  ...........  ...........  ...........  ...........  ...........  ...........
Tandem............................  ...........  ...........  ...........  ...........  ...........  ...........
                                   -----------------------------------------------------------------------------
    Total.........................  ...........  ...........  ...........  ...........  ...........  ...........
----------------------------------------------------------------------------------------------------------------

                    9. Checklist of Features Required

9.1  Alternate Routing...........................................  .....
(Explain in Item 16, Appendix A)                                        
9.2  Data Service................................................  .....
(Explain in Item 16, Appendix A)                                        
9.3  This office shall be:                                              
9.3.1  End Office Only...........................................  .....
9.3.2  End Office and Intermediate Tandem........................  .....
(Explain in Item 16, Appendix A)                                        
9.3.3  End Office and Access Tandem..............................  .....
(Explain in Item 16, Appendix A)                                        
                                                                        

    9.4  Billing Data

----------------------------------------------------------------------------------------------------------------
                                                                            Send ANI       Store billing data   
                                                                         feature group -------------------------
                                                            Trunk group ---------------                Pollable 
                                                                          B    C    D    AMA system     system  
----------------------------------------------------------------------------------------------------------------
9.4.1  This office only...................................  ...........  ...  ...  ...  ...........  ...........
9.4.2  Trunks from Tributaries............................  ...........  ...  ...  ...  ...........  ...........
                                                                                                                
----------------------------------------------------------------------------------------------------------------
9.4.3  Local Message Detail Recording:                                                                          
----------------------------------------------------------------------------------------------------------------


[[Page 732]]

    9.5  Pollable Systems
    9.5.1  Polling device to be provided on this contract

____ Required
____ Not Required

(Provide details in Item 16, Appendix A)

    9.5.2  Pollable system to be backed up by tape or disc standby
____ Required
____ Not Required

                             9.6  AMA Format

    9.6.1  Bellcore Format
____Required
____ Not Required
(Provide details in Item 16, Appendix A)

                  10. Miscellaneous Operating Features

10.1  Busy Verification
10.1.1  By dedicated trunk from toll operator: ____
10.1.1.1  One-Way, Inward ____
10.1.1.2  Two-Way (Busy verification inward, intercept outward) ____
10.1.2  By prefix digit over intertoll trunk ____
    (Indicate digit(s) dialed) ____
10.1.3  Access by Switchman
10.1.3.1  Dedicated Trunk ____
10.1.3.2  Multiple of Operator Trunk ____
10.2  Intercept Facilities
10.2.1  Vacant code, disconnected number, and unassigned number 
          intercept shall be: (Check One)
    By recorded announcement:
    Without cut-through to operator ____
    With cut-through to operator ____
    By operator ____
10.2.2  Changed number intercept shall be: (Check One)
    By recorded announcement:
    Without cut-through to operator ____
    With cut-through to operator ____
    By operator ____
    By automatic intercept system (AIS) in distant office ____
10.2.3  Method of Reaching Operator, if required:
    Separate trunk group ____
    Regular interoffice toll trunks with idle trunk selecting over at 
least three trunks when three or more toll trunks are equipped ____
10.2.4  Number of separate intercept trunk circuits ____
10.3  Line Load Control
10.3.1  Line load control facilities are:
    ____ Required    ____ Not Required
    (Explain in Item 16, Appendix A)
10.4  Service Observing Facilities
10.4.1  Service observing facilities are:
    ____ Required    ____ Not Required
    (Explain in Item 16, Appendix A)
10.5  Hotel-Motel Arrangements
10.5.1  Hotel-motel arrangements for operation of message registers at 
          the subscriber's premises are:
    ____ Required    ____ Not Required
    (Explain in Item 16, Appendix A)
10.5.1.1  How are message registers to be activated?
    Line Reversal ____
    Third Wire ____
    Other ____
    (Explain in Item 16, Appendix A)
10.6  Nailed-Up Connections
    ____ Required    ____ Not Required
    (Explain in Item 16, Appendix A)
10.7  Vertical Services: (RST Lines are Included)

                                                                                                                
                                                     Initially                             Ultimate             
                                                                                                                
10.7.1  Call Waiting--No. of Lines....  ____________                         ____________                       
10.7.2  Call Forwarding--No. of Lines.  ____________                         ____________                       
        ____Local    ____Remote         ...................................  ...................................
        (Explain in Item 16, Appendix                                                                           
         A).                                                                                                    
10.7.3  Abbreviated Dialing No. of      ____________                         ____________                       
 Lines.                                                                                                         
        No. of Codes per Line ____for   ...................................  ...................................
         ____Lines                                                                                              
        No. of Codes per Line ____for   ...................................  ...................................
         ____Lines                                                                                              
10.7.4  Three-Way Calling--No. of       ____________                         ____________                       
 Lines.                                                                                                         
        CCS Per Line..................  ____________                         ____________                       
                                                                                                                

10.7.5  Other ____
    (Explain in Item 16, Appendix A)
    11. Maintenance Facility Requirements
    11.1  Alarm Signals
    11.1.1  Handled locally ____
Explain in Detail:______________________________________________________
_______________________________________________________________________
_______________________________________________________________________
    11.1.2  Transmitted to attended point
    11.1.2.1  Via operator office trunks ____
    11.1.2.2  Via printout or other display service ____
Explain in Detail:______________________________________________________
_______________________________________________________________________
_______________________________________________________________________

[[Page 733]]

    11.1.2.3  Type of tone to operator
    11.1.2.3.1  Distinctive tone (see (i)(2)(ix) of Sec. 1755.522) ____
    11.1.2.3.2  Other
Explain in Detail:______________________________________________________
_______________________________________________________________________
_______________________________________________________________________
    11.1.3  Alarm checking signals for carrier and mobile radio systems

                                                                        
                                                                        
                                                                        
11.1.3.1  Minor Alarm..............................................  ...
11.1.3.2  Major Alarm..............................................  ...
11.1.3.3  Terminals for both.......................................  ...
11.2  Trouble Location and Test                                         
11.2.1  Outside plant and stations (check desired items)                
11.2.1.1  Subscriber's loop test circuit:                               
11.2.1.1.1  As part of the maintenance center......................  ...
11.2.1.1.2  Separately.............................................  ...
11.2.1.2  Remote test set (Explain in Item 16, Appendix A).........  ...
11.2.1.3  Dial speed test circuit (Explain in Item 16, Appendix A).  ...
11.2.1.4  Pushbutton dialing test circuit..........................  ...
11.2.1.5  Howler (per (o)(2)(iii)(C) of Sec.  1755.522)............  ...
11.2.1.6  Hand test sets, number required ____ (Explain in Item 16,     
 Appendix A).......................................................     
                                                                        

                        11.3  Transmission Tests

    11.3.1  Furnish reference tone
Yes ____
No ____

------------------------------------------------------------------------
                                                  Time interval for     
  Frequencies and order in which applied         application of each    
                                                      frequency         
------------------------------------------------------------------------
____ Hz...................................  ____ Seconds                
____ Hz...................................  ____ Seconds                
____ Hz...................................  ____ Seconds                
____ Hz...................................  ____ Seconds                
------------------------------------------------------------------------

                           11.3.2  Test Lines

                      11.3.2.1  Test Line 100 ____

                      11.3.2.2  Test Line 102 ____

                      11.3.2.3  Test Line 104 ____

                      11.3.2.4  Test Line 105 ____

(Explain in Item 16, Appendix A)

                      11.3.2.5  Test Line 107 ____

                 11.3.2.6  Remote Office Test Line ____

 (Explain in Item 16, Appendix A)

                           11.4  Line Testing

                11.4.1  Automatic line insulation testing

Yes ____
No ____

                    11.4.2  Owner supplied equipment

Yes ____
No ____

                11.4.2.1  Vendor supplied interface only

Yes ____
No ____
    If supplied by owner, explain in Item 16, Appendix A, including 
manufacturer, model, location.

                          11.5  Remote Control

         11.5.1  Remote control of the system shall be provided.

Yes ____
No ____

    If required, explain in Item 16, Appendix A, including number, type 
and location.

           12. Power Equipment Requirements (Host Office Only)

                      12.1  Central Office Battery

    12.1.1  A battery reserve of ____ busy hours shall be provided for 
this office when it reaches ____ lines at the ultimate anticipated 
traffic rates specified in Item 7.2, Appendix A.

    12.1.1.1  The owner will furnish a standby generator, permanently 
installed in this office, with capacity sufficient to power air 
conditioning equipment required for cooling of the central office 
equipment and to maintain an adequate dc supply in the event of a 
failure of the commercial ac supply.

Yes ____
No ____

    12.1.2   Type of battery: (Check One)
Lead Calcium ____
Lead Antimony ____

    12.1.3  Voltmeter (portable 3-60-150 volt scale, 1% accuracy) shall 
be furnished.

Yes ____
No ____

    12.1.4  Hydrometer in a hydrometer holder with glass or plastic drop 
cup shall be furnished.

Yes ____
No ____2112.1.5  Type of battery rack required: (Check One)

Two Tier ____
Other ____
Explain:

    12.1.6  Special equipment power requirements (carrier, voice 
frequency repeaters, etc.). Drain in amperes ____
    12.1.6.1  Supply all necessary equipment to provide the following 
48-volt battery taps:

------------------------------------------------------------------------
                                              Fuse (or circuit breaker) 
            Number of circuits                          size            
------------------------------------------------------------------------
                                            ............................
                                            ............................

[[Page 734]]

                                                                        
                                            ............................
                                            ............................
------------------------------------------------------------------------

                        12.2  Charging Equipment

    12.2.1  Charging equipment shall be provided capable of charging the 
office battery on a full float basis when the office reaches ____ lines 
at the ultimate anticipated traffic rates specified in Item 7.2, 
Appendix A.
    12.2.2  Charger input rating shall be:

------------------------------------------------------------------------
                                                 3-Phase Connection:    
------------------------------------------------------------------------
Voltage ____                                3-Wire ____                 
Phase ____                                  4-Wire ____                 
Frequency ____                              Delta ____                  
                                                                        
                                            Y ____                      
------------------------------------------------------------------------

                         12.3  Ringing Equipment

    12.3.1  Solid-state ringing equipment in accordance with paragraph 
(s)(5)(i) of Sec. 1755.522 shall be provided for generating the 
frequencies specified by check marks in the following table. Ringing 
generator sets serving the entire office shall each be sized to carry 
the full office ringing load when the office size reaches ____ lines at 
the ultimate anticipated traffic rates specified in Item 7.2, Appendix 
A.
    12.3.2  Ringing frequencies to be supplied:

------------------------------------------------------------------------
                                                                Maximum 
                                              Frequency         No. of  
                                                in Hz         telephones
------------------------------------------------------------------------
Single Frequency............................         20  ...  ..........
Decimonic...................................         20  ...  ..........
                                                     30  ...  ..........
                                                     40  ...  ..........
                                                     50  ...  ..........
Harmonic....................................    16\2/3\  ...  ..........
                                                     25  ...  ..........
                                                33\1/3\  ...  ..........
                                                     50  ...  ..........
Synchromonic................................         20  ...  ..........
                                                     30  ...  ..........
                                                     42  ...  ..........
                                                     54  ...  ..........
------------------------------------------------------------------------

    12.3.3  Furnish frequency meter (accurate within 1.3 Hz) and 
voltmeter (5% accuracy) for ringing measurements (see paragraph 
(s)(7)(ii) of Sec. 1755.522). Check One:

Panel Mounted ____
Portable ____
Not Required ____

                            12.4  Power Board

    The power panel and associated wiring shall be of ample size to meet 
the load requirements when this office reaches ____ lines at the 
ultimate anticipated traffic rates specified in Item 7.2, Appendix A.

         13. Distributing Frame Requirements (Host Office Only)

13.1  Total number of outside plant cable pairs to be terminated...  ...
13.1.1  Gauge of outside plant cable pairs.........................  ...
13.2  Number of outside plant cable pairs to be protected..........  ...
13.3  Number of additional protector pair units to be provided on       
 MDF...............................................................  ...
                                                                        

Explain:

                        13.4  Main Frame Details

    Is present MDF to be reused?
Yes ____
No ____
    If ``Yes,'' Type ____
    Reused protectors are:
____ (Mfgr.)
____ (Type)
    13.4.1  Number of pairs of arrester units (switching equipment) ____
    13.4.2  Number of pairs of gas tube arrester units (special 
equipment) ____
    13.4.2.1  Gas tubes to be:
____ light,
____ medium,
____ heavy,
____ max. duty units
    13.4.2.2  Fail shorted/low breakdown failure mode required
Yes ____
No ____
    13.4.2.3  Breakdown voltage of gas tube arresters ____
    13.4.3  Number of terminated pairs to be grounded ____
    13.4.4  Factory assembled tip cable
Yes ____
No ____
    13.4.4.1  Tip cable length [if other than 20 feet (610 cm)]
____
    13.4.4.2  Tip cable formed
Up ____
Down ____
    13.4.5  Pairs per vertical ____
    13.4.6  Height of vertical ____ feet ____ inches

       14. Building and Floor Plan Information (Host Office Only)

    14.1  Equipment is to be installed in an existing building (Attach 
detailed plan.) ____
    14.2  A new building is planned ____
    14.2.1  Tentative plan (Note to Engineer: Show sketch without 
dimensions.)
    14.3  Detailed Arrangements
    14.3.1  Partition required (to isolate space containing battery, 
charger, power board, test panel, main distributing frame and 
subscriber's loop test circuit (wire chief's test desk) from that of the 
remaining equipment).
Yes ____

[[Page 735]]

No ____
    14.3.2  Vestibule required
Yes ____
No ____
    14.3.3  Cable entrance
Overhead____
Underground ____
    14.3.4  Additional floor space will be required for the following 
equipment which is being furnished by the owner or by the connecting 
company:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
    14.3.5  The office will be arranged for
 Overhead Interbay Cabling ____
 Underfloor (Computer Room Type) Interbay Cabling ____
    14.3.6  Is earthquake bracing required?
Yes ____
No ____
    (If ``Yes,'' explain zone and criteria used for zone in Item 16, 
Appendix A.)
    14.3.7  Office ground will be ____ ohms or less (Refer to Item 4.6.3 
of RUS TE&CM 810.)
    14.3.8  The office is considered to be in the following category for 
lightning damage probability based on the Figure 1 map of RUS TE&CM 823 
(see paragraph (u)(2) of 1755.522).
____ Very High
____ Higher than Average
____ Average
____ Lower than Average
____ Very Low
    14.3.9  The following is additional information regarding operating 
environment conditions which should be considered in determining system 
protection requirements (tower in vicinity, high exposure, etc.):

                         15. Alternate Requests

 16. Explanatory Notes (Include a detailed description of any equipment 
   to be reused, or otherwise supplied by the owner, loop extenders, 
                 subscriber carrier, VF repeaters, etc.)

 Appendix B to 7 CFR 1755.522--Detailed Information on Remote Switching 
                            Terminals (RST's)

(Complete One Form For Each RST)

1. Number of Subscriber Lines (These lines included in totals in Item 6, 
                              Appendix A).

    1.1  Single-Party: ________ Flat Rate ________ Message Rate.
    1.2  Semi-Postpay Pay Station ________.
    1.3  Prepay Pay Station ________.
    1.4  PABX Lines ________ Loop Start________ Ground Start ________ 
Restricted at Office ________ Other ________
(Describe in Item 12, Appendix B)

    1.5  Number of lines to be pushbutton ________________
    1.6  911 Emergency Lines ________
    1.7  Anticipated ultimate capacity (20-Year) ________

                               2. Traffic

    2.1  Originating traffic per line--CCS/BH: ________ Initial ________ 
Ultimate.
    2.2  Terminating traffic per line--CCS/BH: ________ Initial ________ 
Ultimate
    2.2.1  Terminating will be made equal to originating if it is not 
known to be different.

                      3. Subscriber Loop Resistance

    3.1  Number of subscriber lines having loop resistance, including 
the telephone set of:

No. of Lines
    1501-1900 Ohms __________
    1901-3200 Ohms ________
    3.2  Number of pay station lines having loop resistance, excluding 
the telephone set, greater than:

No. of Lines
    1200 Ohms (For Prepay) ____________
    1000 Ohms (For Semi-Post Pay Operation) __________.

                           4. Range Extension

    4.1  If no standby power is available at the site, loop extenders 
may be required on 1501 to 1900 ohms loops.
    4.2  Loop extenders: Total Quantity __________ By Bidder--Quantity 
________ By Owner--Quantity
(Explain in Item 12, Appendix B)
4.3  VF repeaters: Total Quantity __________ By Bidder--Quantity 
__________ By Owner--Quantity __________.

(Explain in Item 12, Appendix B)

                             5. Power Supply

    5.1  Power Board.
    5.1.1  The power board and associated wiring shall be of ample size 
to meet the load requirements when this RST reaches ________ lines at 
the ultimate anticipated traffic rates specified in Item 2, Appendix B.
    5.2  Charger input rating shall be: Voltage __________ Phase 
__________ Frequency __________
3-Phase Connection:
    3-Wire __________
    4-Wire __________
    Delta __________
    Y__________
    5.2.1  Charger shall be capable of charging the RST battery on a 
full float basis when the RST reaches ________ lines at ultimate traffic 
rate specified in Item 2, Appendix B.
    5.2.2  Charger shall be redundant ________.
    5.3  Battery reserve shall be ________ busy hours when the RST 
reaches ________ lines at the ultimate anticipated traffic specified in 
Item 2, Appendix B.
    5.4  Standby power is available.  Yes ______ No ______.

[[Page 736]]

    5.5  Special equipment power requirements ________ amps.
    5.6  Ringing.
    5.6.1  Type of Ringing.

  5.6.2  Frequency No.......................     1.     2.     3.     4.
  Frequency HZ..............................  .....  .....  .....  .....
  Max. No. Phones/Frequency.................  .....  .....  .....  .....
                                                                        


    5.6.3  Wattage to be sized for ________ lines.
    5.6.4  Frequency Meter (see Item 12.3.3, Appendix A). Panel Mounted 
______ Not Required ______.

                         6. Emergency Operation

    6.1  If path to central office is opened, the RST shall be able to 
complete calls between subscribers in its own system: Yes ______ No 
______
    Further requirements should be listed under Item 12, Appendix B.

                 7. RST Distribution Frame Requirements

    7.1  Total number of outside plant cable pairs to be terminated 
______.
    7.1.1  Gauge of outside plant cable pairs ________.
    7.2  Number of outside plant cable pairs to be protected ________.
    7.3  Number of additional protector pair units to be provided on MDF 
________.
    Explain:
    7.4  Main Frame Details
    7.4.1  Present MDF to be reused   Yes______ No ______.
    If ``Yes'', Type ________.
    Reused protectors are: ________ (Mfr.) ________ (Type).
    7.4.2   Number of pairs of arrester units (switching equipment) 
________.
    7.4.3  Number of pairs of gas tube arrester units (special 
equipment) ________.
    7.4.3.1  Gas tubes to be: ______ light, ______ medium, ______ heavy, 
______ maximum duty units.
    7.4.3.2 Fail  shorted/low breakdown failure mode required  Yes 
______ No ______.
    7.4.3.3  Breakdown voltage of gas tube arresters ________.
    7.4.4  Number of terminated pairs to be grounded ________.
    7.4.5  Factory assembled tip cable   Yes ______ No ______.
    7.4.5.1  Tip cable length [if other than 20 feet (610 cm)] ______.
    7.4.5.2  Tip cable formed  Up ______ Down ______.
    7.4.6  Pairs per vertical ________.
    7.4.7  Height of vertical ________ feet ________ inches.

                 8. Building and Floor Plan Information

    8.1  RST to be mounted in building ______.
    8.1.1  Earthquake bracing required  Yes ______ No ______ (see Item 
14.3.6, Appendix A).
    8.1.2  Supply building floor plan.
    8.2  RST to be mounted in cabinet out of doors ______.
    8.2.1  Cabinet to be mounted ______ on pole ______ on ground.

                         9. Subscriber Line Test

    9.1  Remote testing of subscriber lines is required  Yes ______ No 
______.
    9.2  Subscriber loop test set ______.

                  10. Span Lines to Host Central Office

    10.1  To be supplied by Owner ______.
    10.2  To be supplied by Bidder ______.
    10.2.1  When the bidder is to supply the span lines, an RUS Form 
397b, Trunk Carrier Systems, with the applicable parts completed must be 
attached with a physical layout of the span line.

                      11. Grounding Considerations

    11.1  The RST ground will be ______ ohms or less. (Refer to Item 
4.6.3 of RUS TE&CM 810.)
    11.2  This RST is considered to be in the following category for 
lightning damage probability based on the Figure 1 map of RUS TE&CM 
823.________ Very High ________ Higher than Average ________ Average 
________ Lower than Average ________ Very Low
    11.3  The following is additional information regarding operating 
environment conditions which should be considered in determining system 
protection requirements (tower in vicinity, high exposure, etc.):

                          12. Explanatory Notes

Appendix C to 7 CFR 1755.522--Specifications for Digital, Stored Program 
   Controlled Central Office Equipment Detailed Requirements--Bidder 
                          Supplied Information

Telephone Company
Name____________________________________________________________________
Location

_______________________________________________________________________

_______________________________________________________________________

Central Office Name (By Location)

Town __________
County __________ State ______
_______________________________________________________________________

    Attended ______  Unattended ______

                               1. General

    1.1  The equipment and materials furnished by the bidder must meet 
the requirements of paragraphs (a) through (x), Appendix A, and Appendix 
B of Sec. 1755.522.
    1.2  Paragraphs (a) through (x) of Sec. 1755.522 cover the minimum 
general requirements for digital, stored program controlled central 
office switching equipment.
    1.3  Paragraph (y) of Sec. 1755.522 covers requirements for 
installation, inspection, and

[[Page 737]]

testing when such service is included as part of the contract.
    1.4  Appendices A and B of Sec. 1755.522 cover the technical data 
for application engineering and detailed equipment requirements insofar 
as they can be established by the owner. These appendices are to be 
filled in by the owner.
    1.5  Appendix C of Sec. 1755.522 covers detailed information on the 
switching network equipment and the stored program controlled equipment, 
and information as to system reliability and heavy traffic delays as 
proposed by the bidder. This appendix is to be filled in by the bidder 
and must be presented with the bid.
    1.6  Appendix D of Sec. 1755.522 is the single-point grounding 
system audit checklist.

                        2. Performance Objectives

    2.1  Reliability (see paragraph (b) of Sec. 1755.522).
_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.2  Busy Hour Load Capacity and Traffic Delay (see paragraph 
(e)(10) of Sec. 1755.522. Describe basis for traffic analysis).
_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

           3. Equipment Quantities Dependent on System Design

    3.1  Switch Frames and Circuits.
    3.1.1  Number of Lines.
    3.1.1.1  The number of lines to be provided shall include the number 
required for the termination of subscriber lines, Item 7, Appendix A, 
plus the number required for routine testing plus any additional to meet 
the minimum switch increment of the selected system.
    3.1.1.2  The number of lines provided for this office will be ______
    3.1.2  Number of Ports Used for Trunks
    3.1.2.1  The number of trunk ports to be provided shall be based on 
the trunk quantities required (Item 8, Appendix A) as modified by the 
minimum increment of the selected system. Provision shall be made for at 
least 5 percent additional inlet and outlet ports over those required 
initially. The additional ports shall be used for connecting additional 
trunks that may be required in the future.
    3.1.2.2  The number of trunk ports provided for this office will be 
____________
    3.1.3  Number of Subscriber Directory Numbers
3.1.3.1  The number of directory numbers provided shall be based on the 
          total directory numbers required (Item 6.1.11, appendix A), as 
          modified by the memory increment of the proposed system.
    3.1.3.2  The number of subscriber directory numbers provided for 
this office will be ____________

                                 4. RST

    4.1  Information for RST's must be supplied for each RST to be 
furnished.
    4.2  Number of line terminals for this RST will be ____________ .
    4.3  Number of span line terminations to the central office being 
supplied ____________ .
    4.4  If the emergency operation option is required, it will provide 
the following service when connection to the main office is severed:

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    4.5  The ac power drain at the remote end will be:

Initial ____________  Ultimate ____________  Voltage: Single-Phase 
____________  Three-Phase ____________
    4.6  Special environmental requirements for the remote end:

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

                                5. Power

    5.1  AC Power Drain Watts

Initial ____________   Ultimate ____________  
    5.2  Heat Dissipation Watts

Provide the initial and ultimate equipment dissipation for each 
equipment room.
    5.2.1  Operating Temperature Range

Minimum ____________  Maximum ____________  
    5.2.2  Operating Humidity Range

Minimum ____________  Maximum ____________

           6. Additional Information to be Furnished by Bidder

    6.1  The bidder shall accompany its bid with the following 
information:
    a. Two copies of the equipment list and the calculations from which 
the quantities in the equipment list are determined;
    b. Two copies of the traffic tables from which the quantities are 
determined, other than the full availability tables shown in paragraph 
(p)(1)(i) of Sec. 1755.522;
    c. Two copies of detailed switching diagram showing the traffic on 
each route, the grade of service, the quantity of circuits, and main 
distributing frames;

[[Page 738]]

    d. Block diagram of stored program control and associated 
maintenance equipment;
    e. A prescribed method and criteria for acceptance of the completed 
central office, which is subject to review;
    f. Location of technical assistance service with 24-hour 
maintenance, and conditions when owner will be charged for access to the 
service;
    g. Calculations showing the method by which ringing machine sizes 
were derived;
    h. Precautions to be taken against static discharge;
    i. Details of central office grounding requirements, recognizing 
local grounding conditions;
    j. Details concerning traffic measurement capabilities and formats; 
and
    k. Details concerning AMA features and formats to be provided.
    6.2  As a part of the response to the bid, the bidder must also list 
information concerning the types and quantities of spare parts to be 
furnished. All units, excluding those units described in paragraph 
(x)(6)(i)(C) of Sec. 1755.522, must fall into one of the four classes. 
The information must be in the following format:

----------------------------------------------------------------------------------------------------------------
                           Quantity of units in the CO's and RST's      Quantity of spare parts furnished with  
                                        which are bid                                  this bid                 
 Unit No.    Unit name -----------------------------------------------------------------------------------------
                          Class 1     Class 2    Class 3    Class 4    Class 1    Class 2    Class 3    Class 4 
----------------------------------------------------------------------------------------------------------------
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------


                          7. Explanatory Notes

    Appendix D to 7 CFR 1755.522--Acceptance Checklist--Single-point 
                            Grounding System

                          1. Approval Statement

Telephone Company:______________________________________________________

RUS Borrower Designation:_______________________________________________

RUS Contract Number:____________________________________________________

N/A_____________________________________________________________________

Name:

Central Office:_________________________________________________________

Remote:_________________________________________________________________

Date of Inspection:_____________________________________________________

Names of Inspectors:
Owner Representative____________________________________________________

Central Office Supplies_________________________________________________

Consulting Engineer_____________________________________________________

Mutually Approved Exceptions:

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

Grounding System Approval:

Name (Owner Representative)_____________________________________________

Signature_______________________________________________________________

Title___________________________________________________________________

Date____________________________________________________________________

Name (Supplier Representative)__________________________________________

Signature_______________________________________________________________

Title___________________________________________________________________

Date____________________________________________________________________

                            2. General Survey

    2.1  This office is considered to be in the following category for 
probability of lightning damage based on the Figure 1 map in RUS TE&CM 
823 (also refer to paragraph (u)(2) of Sec. 1755.522)

____ Very High  ____ Higher than Average  ____ Average  ____ Lower than 
Average  ____ Very low

    2.2  Central office ground field (COGF) to be inspected for proper 
bonding of conductors to ground rods, etc. COGF to earth grounding 
reading is ________ ohms. (Refer to RUS TE&CM 802, Appendices C and D, 
Measurement Techniques.) Is this resistance reading acceptable? (Refer 
to RUS TE&CM 810, Items 1.6, 4.6.2 and 4.6.3 for protection 
considerations.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.3  Ground connection to be inspected from the master ground bar 
(MGB) to the central office ground field (COGF) to ensure it is properly 
sized and installed by most direct route with no sharp bends. (Refer to 
RUS TE&CM 810, Item 4.3.2 and section 8.1.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.4  Building structure grounds (steel rebar in footings, ironwork, 
etc.) are to be properly bonded and connected to the MGB. (Refer to RUS 
TE&CM 810, Item 4.3.4.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.5  Metallic central office door(s) are to be painted with metallic 
paint with doorknobs left bare. Door(s) and frames are to be

[[Page 739]]

grounded to the building structural ground or the MGB.

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.6  Metallic fences within 6 feet (183 cm) of the exchange 
building, storage facilities ground field, etc. are to be properly 
bonded to the COGF outside of the central office building. Handhole 
enclosure is to be used for the COGF connection to permit inspection and 
disconnect for earth resistance testing. (Refer to RUS TE&CM 810, 
Appendix C, Item 4.6.1.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.7  Lightning rod systems are to be grounded by a separate 
dedicated ground field. A bond should be provided between the COGF and 
the lightning rod ground field. Handhole enclosure is to be used for the 
COGF connection to permit inspection and disconnect for earth resistance 
testing. (Refer to RUS TE&CM 810, Item 4.3.2.1.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.8  Radio/microwave tower ground grid is to be properly bonded to 
the COGF by a direct outside connection. Handhole enclosure is to be 
used for the COGF connection to permit inspection and disconnect for 
earth resistance testing. (Refer to RUS TE&CM 810, Item 4.3.2 and 
section 10.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.9  If a qualified metallic water system is present, inspect the 
MGB connecting conductor to ensure that it is properly sized and 
installed by the most direct route with no sharp bends and that it is 
clamped solidly on the water pipes. (Refer to RUS TE&CM 810, Item 4.3.3 
for details on metallic water system grounding.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.10  All power and grounding conductors are to be continuous, end 
to end, with no splices, size discontinuity or intermediate 
terminations. If an exception is necessary, unusual care must be taken 
to assure proper bonding between the two sections. (Refer to RUS TE&CM 
810, Appendix C, section 5.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.11  All ground conductors should be void of sharp bends along 
their entire lengths. (Refer to RUS TE&CM 810, Item 8.2.2.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.12  Ground conductors should only be placed in nonmetallic 
conduit. Those routed through metallic conduit require that both ends of 
the conduit be bonded to the ground conductor. (Refer to RUS TE&CM 810, 
Item 8.2.4.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.13  Ground conductors should not be encircled by metallic clamp. 
Metallic straps are to be removed and replaced with nonmetallic clamps. 
(Refer to RUS TE&CM 810, Item 8.2.4.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.14  If metallic conduit is used, it is to be insulated from all 
ironwork.

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.15  Inspect to determine if the required central office supplier 
electrostatic discharge plates, wrist wraps, antistatic floor mats, etc. 
are available and properly installed. (Refer to RUS TE&CM 810, Item 
12.3.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    2.16  Ground conductors, except green wires, should not be routed 
close and parallel to other conductors so as to minimize induction on 
surges into equipment wiring. It is also better not to route these 
ground conductors through cable racks or troughs, or within the confines 
of any iron work. (Refer to RUS TE&CM 810, Item 8.2.3.)

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________


[[Page 740]]

________________________________________________________________________
_______________________________________________________________________

                       3. Master Ground Bar (MGB)

    3.1  The designated P, A, N, and I segments of the master ground bar 
(MGB) should be clearly identified. (Refer to RUS TE&CM 810, Figure 1 
for MGB segmentation arrangement.)

Acceptable:  ____Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    3.2  Check for appearance and proper location of following on MGB:
    (a) R--Interior radio equipment \1\
---------------------------------------------------------------------------

    \1\ Surge Producer--(P)
---------------------------------------------------------------------------

    (b) C--Cable entrance ground bar \1\
    (c) M--MDF ground bar \1\
    (d) G--Standby power equipment frame ground \1\
    (e) N--Commercial power MGN \2\
---------------------------------------------------------------------------

    \2\ Surge Absorber--(A)
---------------------------------------------------------------------------

    (f) B--Building structure ground \2\
    (g) L--Central office ground field \2\
    (h) W--Water pipe system \2\
    (i) N\1\--Battery Return \3\
---------------------------------------------------------------------------

    \3\ Grounds to non-IGZ Equipment--(N)
---------------------------------------------------------------------------

    (j) N\2\--Outside IGZ:  ____________\3\
    (k) N\3\--Outside IGZ:  ____________\3\
    (l) I\1\--Ground window bar \4\
---------------------------------------------------------------------------

    \4\ Grounds to IGZ Equipment (GWB's)--(I)
---------------------------------------------------------------------------

    (m) I\2\--Ground window bar \4\
Acceptable:  ____Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    3.3  All connections to MGB are to be two-hole bolted down copper 
crimped or compression type terminal lugs. (NOTE: No solder connections 
are permitted.)

Acceptable:  ____Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    3.4  MGB is to be properly insulated from the mounting surface.

Acceptable:  ____Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    3.5  All connections are to be tight.

Acceptable:  ____Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    3.6  The MGB is to have an anticorrosion coating of the type which 
enhances conductivity.

Acceptable:  ____Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    3.7  Bar is to be clearly stenciled or legibly labeled ``MGB.''

Acceptable:  ____Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

1______________________________________________________________________

    3.8  All ground leads are to be properly sized and labeled as to 
point of origin. (Refer to RUS TE&CM 810, Item 8.3.1 and section 8.1.)

    Acceptable: ____Yes    ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

                       4. Ground Window Bar (GWB)

    4.1  All equipment grounds that originate inside of an Isolated 
Ground Zone (IGZ) are to be terminated on the GWB which is preferably 
located physically inside the IGZ and insulated from its support. (Refer 
to RUS TE&CM 810, Item 5.1.)

    Acceptable: ____Yes    ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    4.2  Each GWB is to be connected to the MGB by the most direct route 
with a conductor of 2/0-gauge or coarser, or resistance of less than 
0.005 ohms. Parallel conductors for redundancy if required by the 
supplier. (Refer to RUS TE&CM 810, Item 8.1.2.)

    Acceptable: ____Yes    ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    4.3  The metal framework grounds of only that switching equipment 
and associated electrical equipment located inside of the IGZ should be 
connected to the GWB as required by the central office equipment 
supplier. (Refer to RUS TE&CM 810, Item 5.5.)

    Acceptable: ____Yes    ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    4.4  GWB is to be clearly stenciled or labeled ``GWB.''

    Acceptable: ____Yes    ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    4.5  All connections are to be tight.

    Acceptable: ____Yes    ____No

Comments:_______________________________________________________________


[[Page 741]]

________________________________________________________________________
_______________________________________________________________________

_______________________________________________________________________

                      5. Isolated Ground Zone (IGZ)

    5.1  IGZ areas are to be clearly marked on the floor or in some 
other easily recognizable manner. (Refer to RUS TE&CM 810, Item 6.1.1)

    Acceptable: ____Yes    ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    5.2  Confirm that all framework, cabinets, etc., within the IGZ are 
ground connected only to the GWB. (Refer to RUS TE&CM 810, Item 5.5.)

    Acceptable: ____Yes    ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    5.3  All cable racks, ground mats, switching and transmission 
equipment within the IGZ are to have ground leads only to the GWB. 
(Refer to RUS TE&CM 810, Item 5.5.2.)

    Acceptable: ____Yes    ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    5.4  Review ac power feed arrangement within the IGZ for acceptable 
receptacle type and confirm that all green wires are properly connected. 
(Refer to RUS TE&CM 810, Item 5.5.4.)

    Acceptable: ____Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    5.5  All ironwork, metallic conduit, and other equipment associated 
with the switch are to be properly insulated at the IGZ boundary as 
stipulated by the supplier. (Refer to RUS TE&CM 810, Item 6.2.)

    Acceptable: ____Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    5.6  With the GWB disconnected from the MGB, the resistance reading 
of ______ ohms between the GWB and the MGB indicates adequate isolation. 
(CAUTION: Test is to be conducted only with the approval and under the 
direction of the central office supplier.)

    Acceptable: ____Yes    ____ No

Comments________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

                       6. Entrance and Tip Cables

    6.1  When neither a cable vault nor a splicing trough exists, the 
outside plant cable should be brought into the central office and 
spliced to tip cables with a PVC outer jacket (ALVYNR) or 
equivalent as close as practical to the cable entrance. (Refer to RUS 
TE&CM 810, Item 7.3.4.)

    Acceptable: ____Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    6.2  All outside entrance cables and all tip cable shields are to be 
separated by at least a 3-inch (7.6 cm) gap between shield ends.

    Acceptable: ____Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    6.3  All entrance cable shields are to be bonded separately to 6 
AWG or larger insulated wire or bonding ribbon and connected to the 
Cable Entrance Ground Bar (CEGB) by most direct route with minimum 
bends.

    Acceptable: ____Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    6.4  Outside plant cable shields are to be connected only to the 
CEGB, and the tip cable shields are to be connected only to the Main 
Distributing Frame Bar (MDFB).

    Acceptable: ____Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

                   7. Cable Entrance Ground Bar (CEGB)

    7.1  The CEGB is to be properly insulated from the mounting surface. 
(Refer to TE&CM 810, Item 4.2.1.)

    Acceptable: ____Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    7.2  The CEGB is to be located as close as possible to the physical 
ends of the entrance cable shields.

    Acceptable:  ____ Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    7.3  All connections are to use two-hole bolted down copper crimped 
or compression type terminal lugs. (NOTE: No solder connections are 
permitted.)

    Acceptable:  ____Yes    ____No

Comments:_______________________________________________________________


[[Page 742]]

________________________________________________________________________
_______________________________________________________________________

_______________________________________________________________________

    7.4  All connections are to be tight.

    Acceptable:  ____Yes    ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    7.5  Bar is to be clearly stenciled or legibly labeled ``CEGB.''

    Acceptable:  ____ Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    7.6  All ground leads are to be properly sized and labeled.

    Acceptable:  ____ Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    7.7  The CEGB is to have an anticorrosion coating of the type which 
enhances conductivity.

    Acceptable:  ____ Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    7.8  The CEGB is to be connected to the MGB by a properly sized 
conductor and by the most direct route. (Refer to RUS TE&CM 810, section 
8.1.)

    Acceptable:  ____ Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

                    8. Main Distributing Frame (MDF)

    8.1  RUS strongly recommends that MDF protectors be furnished 
without heat coils. (Refer to RUS TE&CM 810, section 7.6.)

    Acceptable:  ____ Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    8.2  Incoming cable pairs terminated on MDF protector assemblies 
should be protected with protector modules. These modules should contain 
white coded carbon blocks or orange coded gas tube arrestors that are 
included in the RUS List of Materials. (Refer to RUS TE&CM 810, Item 
7.4)

    Acceptable:  ____ Yes    ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

7______________________________________________________________________

    8.3  All incoming subscriber cable pairs are to be properly 
terminated at either a protector equipped terminal or connected to 
ground.

    Acceptable: ____ Yes    ____ No

Comments________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    8.4  MDF protector assemblies may be mounted directly on the 
vertical frame ironwork. Protector assemblies on each vertical are 
interconnected with each other and the Main Distributing Frame Bar 
(MDFB) with a 6 copper grounding conductor. Alternative means of 
connecting to the MDFB are also acceptable which do not rely on the 
frame ironwork for conducting surge currents to ground. (Refer to RUS 
TE&CM 810, section 7.)

    Acceptable: ____ Yes    ____ No

Comments________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    8.5  Protective ``ground connections'' should be provided between 
the MDFB and the frame ironwork for personnel protection regardless of 
the type of protector assembly used. Protective ground leads should be 
14-gauge, less than 12 inches (30.5 cm) in length with paint thoroughly 
removed at point of connection to the ironwork. (Refer to RUS TE&CM 810, 
Item 7.1.3.)

    Acceptable: ____ Yes    ____ No

Comments________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    8.6  The MDFB should be insulated from the frame ironwork in all 
cases where it is used as a Master Ground Bar (MGB). (Refer to RUS TE&CM 
810, Item 7.1.2.)

    Acceptable: ____ Yes    ____ No

Comments________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    8.7  Where the MDFB is used as the MGB in very small offices the 
protective ``ground connections'' should be connected on the N section 
of the bar. The MDF line protector assembly grounds should be connected 
to the P section of the bar. (Refer to RUS TE&CM 810, Item 7.1.4.)

    Acceptable: ____ Yes    ____ No

Comments________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    8.8  The MDFB is to be connected to the MGB by the most direct path 
with minimum bends and proper conductor size. (Refer to RUS TE&CM 810, 
Item 8.1.4.)

    Acceptable: ____ Yes    ____ No

Comments________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________


[[Page 743]]

________________________________________________________________________
    8.9  The MDFB should be free of all other ground leads when not used 
as an MGB.

    Acceptable: ____ Yes    ____ No

Comments________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    8.10  Alternative arrangements which insulate the line protector 
assemblies and MDFB from the frame ironwork may require a direct ground 
connection of the frame ironwork to the MGB for personnel protection. 
Conductor is properly sized and tightened with paint removal on main 
frame ironwork at point of connection.

    Acceptable: ____ Yes    ____ No

Comments________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

                9. Power Service Protection and Grounding

    9.1  The ground conductor between the ac power system multigrounded 
neutral (MGN) at the main ac disconnect panel and the master ground bar 
(MGB) is to be properly sized and connected. (Refer to RUS TE&CM 810, 
Items 2.19, 4.3.1 and 8.1.3.)

 Acceptable:  ____Yes  ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    9.2  If there is a non-MGN ac power system, there is to be a 
properly sized and connected insulated conductor bond between the power 
service ground electrode and the MGB. (Refer to RUS TE&CM 810, Item 
4.3.1.1.)

Acceptable:  ____Yes  ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    9.3  AC conductors including ground conductors serving 120-volt ac 
electric convenience receptacles and all direct wire peripheral 
equipment, located in the IGZ, should be sized in accordance with normal 
``green wire'' criteria. (Refer to RUS TE&CM 810, Items 5.5.4, 5.5.5, 
and 5.5.6.)

Acceptable:  ____Yes  ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    9.4  Minimum protection for ac power serving the central office 
buildings should consist of an RUS accepted secondary arrestor at the 
service entrance. (Refer to RUS TE&CM 810, section 9.)

Acceptable:  ____Yes  ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    9.5  A properly sized conductor for ground bonding between the 
standby power plant framework (not separately derived) and the MGB is to 
be provided to equalize framework voltages for personnel safety reasons. 
(Refer to RUS TE&CM 810, Item 4.2.4.)

Acceptable:  ____Yes  ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

                            10. Miscellaneous

    10.1  All non-IGZ equipment frames, relay racks, cable racks and 
other ironwork are to be properly connected to the MGB. (Refer to TE&CM 
810, Item 4.4.)

Acceptable:  ____Yes  ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    10.2  Shields on high frequency intra-office cables are to be 
properly isolated and connected only to an isolation ground bar in the 
relay rack. All shielded cables entering the IGZ should only be 
referenced at the IGZ termination point as given by the manufacturer. 
(Refer to RUS TE&CM 810, Item 7.2.1.2.)

Acceptable:  ____Yes  ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    10.3  Isolation ground bars in the relay racks are to be properly 
connected to the MGB with appropriate sized conductor with no sharp 
bends.

Acceptable:  ____Yes  ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    10.4  All radio equipment cabinet(s) are to be at least 10 feet (305 
cm) from the IGZ.

Acceptable:  ____Yes  ____No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

    10.5  The metal spare parts cabinet is to be grounded with a #6 AWG 
or larger insulated wire to non-IGZ cable rack, etc. or directly to the 
MGB.

Acceptable:  ____ Yes  ____ No

Comments:_______________________________________________________________

_______________________________________________________________________

_______________________________________________________________________


[58 FR 30938, May 28, 1993; 58 FR 36252, July 6, 1993; as amended at 60 
FR 1711, Jan. 5, 1995; 60 FR 64312, 64314, Dec. 15, 1995]


[[Page 744]]


Secs. 1755.523--1755.524  [Reserved]



Sec. 1755.525  Form 525, central office equipment contract (including installation.)

    The RUS Form 525, Central Office Equipment Contract (Including 
Installation), in this section shall be used for all purchases of 
central office equipment (other than such purchases of special equipment 
using Form 397) using RUS financial assistance when the equipment is 
supplied and installed by the seller or installed by a firm under 
contract with the seller as defined in 7 CFR part 1753, subparts E and 
H. The RUS Form 525 Central Office Equipment Contract follows:

       Central Office Equipment Contract (Including Installation)

  Notice and Instructions to Bidders; Central Office Equipment Project 
                        (Including Installation)

    1. Sealed Proposals for the engineering, furnishing, delivery, and 
installation of central office equipment, materials and software for the

_______________________________________________________________________

_______________________________________________________________________
(hereinafter called the ``Owner'') which is to be part of the system 
known as

_______________________________________________________________________

_______________________________________________________________________
to be financed pursuant to a loan contract between the Owner and the 
United States of America (hereinafter called the ``Government'') by the 
Administrator of the Rural Utilities Service (hereinafter called the 
``Administrator'') will be received by the Owner on or before 
____________ o'clock, ________.M.,

_______________________________________________________________________

at______________________________________________________________________

_______________________________________________________________________
at which time and place the Proposals will be publicly opened and read. 
The Rural Telephone Bank may also be a party to the loan contract.
    2. The Bid Documents (composed of plans, specifications and 
drawings), together with all necessary forms and other documents for 
Bidders, may be obtained from the Owner or from the Engineer, at the 
latter's office at

_______________________________________________________________________

_______________________________________________________________________
    The Specifications may be examined at the office of the Owner or at 
the office of the Engineer. A copy of the loan contract between the 
Owner and the Government may be examined at the office of the Owner.
    Each set of Bid Documents will have a serial number, assigned by the 
Engineer, and the number of each set with the name of the Bidder will be 
recorded by the Engineer. Bids will be accepted only from original 
Bidders, or from some other qualified Bidder to whom such a set has been 
transferred by the original Bidder with the approval of the Engineer 
prior to the pre-bid technical session.
    3. A pre-bid technical session will be held with each Bidder during 
the week of __________, 19______ at

_______________________________________________________________________
for the purpose of receiving the Bidder's Technical Proposal, discussing 
details of the Project(s), and considering suggestions from Bidders. The 
Owner shall attach to this Notice a list of the information required in 
the Bidder's Technical Proposal. Each Bidder will be given a specific 
time period for the pre-bid technical session. At the pre-bid technical 
session, the Bidder shall fully describe to the Owner any exceptions to 
the Specifications the Bidder may request. In addition, the Bidder shall 
identify all features and capabilities that are not fully developed or 
do not have a verifiable satisfactory field performance record. If the 
Owner decides to incorporate any changes into the Specifications, the 
Owner shall furnish all prospective Bidders a copy of the Specifications 
containing such revisions (the ``Revised Specifications'') and all Bids 
shall be made on the basis of the Revised Specifications. At this 
session, the Bidder shall identify all documentation and materials that 
it claims constitute agreed excluded documentation under section (2)(xi) 
of the Software License. The Bidder shall claim as agreed excluded 
documentation only those items it may be unable to provide to the 
Borrower as required by said section (2)(xi). The Engineer shall 
immediately provide a list of all items so identified to [appropriate 
RUS office]. The Engineer shall inform the Bidder at least ________ days 
before the scheduled bid opening whether either the Engineer or [RUS] 
will reject the Bid because of items so identified. Licensor agrees that 
certain Licensed Software cannot be excluded from the requirements of 
said section (2)(xi), including but not limited to software that would 
significantly impair the operation of the System, would significantly 
impair the ability of the Owner to generate revenue, or would pose a 
risk to RUS loan security. If allowed, the agreed excluded documentation 
shall be individually identified in an attachment to the Bid. No bid 
shall be accepted from a Bidder who fails to attend the pre-bid 
technical session or fails to demonstrate to the Owner that its 
equipment meets the requirements of the Plans and Specifications.
    4. Proposals shall be submitted on the forms furnished by the Owner 
and must be delivered in a sealed envelope addressed to

[[Page 745]]

the Owner. The name and address of the Bidder, its license number, if a 
license is required for bidding on a project by the State, and the date 
and hour of the opening of bids must appear on the envelope in which the 
Proposal is submitted. Proposals must be in ink or typewritten. No 
alterations or interlineations will be permitted, unless made, 
initialed, and dated before submission.
    5. Prior to the submission of the Proposal, the Bidder shall make 
and shall be deemed to have made a careful examination of the 
Specifications, forms of Bidder's Proposal and Acceptance, and 
Contractor's Bond attached hereto, and shall become informed as to the 
location and characteristics of the proposed central office and remote 
terminal installations, features and services, the transportation 
facilities, the kind of facilities required before and during the 
delivery and installation of the equipment and materials, the general 
local conditions and all other matters that may affect the cost and the 
time of completion of the installations. Bidders will be required to 
comply with all applicable statutes, codes, and regulations, including 
those pertaining to the licensing of contractors and the ``Anti Kick-
Back Acts,'' as amended, (40 U.S.C. 276c; 41 U.S.C. 51 et seq.) and 
regulations issued pursuant thereto, and 18 U.S.C. 287, 874, 1001, as 
amended.
    6. Each Proposal must be accompanied by a Bid Bond, in the form 
attached, or a certified check on a bank that is a member of the Federal 
Deposit Insurance Corporation, payable to the order of the Owner, in an 
amount equal to ten percent (10%) of the maximum possible bid price. The 
maximum possible bid price is the sum of the total base bid, spare 
parts, maintenance tools and all positive amounts for alternates. Each 
Bidder agrees that, if its Proposal is one of the three low Proposals, 
its Bid Bond or check shall be held by the Owner until a Proposal is 
accepted and Contractor's Bond, when required, is furnished by the 
successful Bidder and such acceptance has been approved by the 
Administrator, or for a period not to exceed ninety (90) days from the 
date hereinbefore set for the opening of Proposals whichever period 
shall be the shorter. If such Proposal is not one of the three low 
Proposals, the Bid Bond or check will be returned to the Bidder within a 
period of thirty (30) days.
    7. The successful Bidder will be required to furnish to the Owner a 
Contractor's Bond in conformance with the requirements of 7 CFR part 
1788, subpart C, Insurance for Contractors, Engineers, and Architects.
    8. Should the successful Bidder fail or refuse to furnish a 
Contractor's Bond within thirty (30) days after written notification of 
the award of the Contract by the Owner, the Bidder will be considered to 
have abandoned the Proposal. In such event, the Owner shall be entitled 
(a) to enforce the Bid Bond in accordance with its terms, or (b) if a 
certified check has been delivered with the Proposal, to retain from the 
proceeds of the certified check the difference (not exceeding the amount 
of the certified check) between the amount of the Proposal and such 
larger amount for which the Owner may in good faith contract with 
another party to construct the Project(s). The term ``successful 
Bidder'' shall be deemed to include any Bidder whose Proposal is 
accepted after another Bidder has previously refused or has been unable 
to execute the Contract or to furnish a Contractor's Bond.
    9. If requested by the Owner or the Administrator, the Bidder shall 
furnish evidence, satisfactory to the Owner and the Administrator, that 
the Bidder has the necessary facilities, ability, and financial 
resources to perform the Contract.
    10. The Contract, when executed, shall be deemed to include the 
entire agreement between the parties thereto and neither party shall 
claim any modification thereof resulting from any representation or 
promise made at any time by any officer, agent, or employee of the other 
or by any other person.
    11. The Owner reserves the right to waive minor irregularities or 
minor errors in any Proposal, if it appears to the Owner that such 
irregularities or errors were made through inadvertence. Any such 
irregularities or errors so waived must be corrected on the Proposal in 
which they occur prior to the execution of any Contract which may be 
awarded thereon. Failure to provide a Bid Bond or check as specified in 
item six (6) above is not a minor irregularity.
    12. The Owner reserves the right to reject any or all Proposals.
    13. The equipment to be furnished for all central offices and remote 
switching terminals included in the Proposal is to be of one and the 
same basic design. A Proposal submitted on any other basis will not be 
considered.
    14. Equal Opportunity and Employment
    (a) The Offeror's or Bidders's attention is called to the ``Equal 
Opportunity Clause'' and the ``Standard Federal Equal Employment 
Specifications'' set forth herein.
    (b) The goals and timetables for minority and female participation, 
expressed in percentage terms for the Contractor's aggregate workforce 
in each trade on all construction work in the covered area, are as 
follows:

------------------------------------------------------------------------
                                      Goals for                         
                                       minority        Goals for female 
           Timetables             participation for    participation in 
                                      each trade            trade       
------------------------------------------------------------------------
                                  (Insert goals for  (Insert goals for  
                                   each year)         each year)        
------------------------------------------------------------------------

    These goals are applicable to all the Contractor's construction work 
(whether or not it is federal or federally assisted) performed

[[Page 746]]

in the covered area. If the Contractor performs construction work in a 
geographical area located outside of the covered area, it shall apply 
the goals established for such geographical area where work is actually 
performed. With regard to this second area, the Contractor also is 
subject to the goals for both its federally involved and nonfederally 
involved construction.
    The Contractor's compliance with Executive Order 11246 (3 CFR, 1963-
1965 Comp., p. 340) and the regulations in 41 CFR part 60-4 shall be 
based on its implementation of the Equal Opportunity Clause, specific 
affirmative action obligations required by the specifications set forth 
in 41 CFR 60-4.3(a), and its efforts to meet the goals. The hours of 
minority and female employment and training must be substantially 
uniform throughout the length of the contract, and in each trade, and 
the Contractor shall make a good faith effort to employ minorities and 
women evenly on each of its projects. Transfer of minority or female 
employees or trainees from Contractor to Contractor or from project to 
project for the sole purpose of meeting the Contractor's goals shall be 
a violation of the contract, Executive Order 11246 and the regulations 
in 41 CFR part 60-4. Compliance with the goals will be measured against 
the total work hours performed.
    (c) The Contractor shall provide written notification to the 
Director of the Office of Federal Contract Compliance Programs within 10 
working days of award of any construction subcontract in excess of 
$10,000 at any tier for construction work under the contract resulting 
from this solicitation. The notification shall list the name, address 
and telephone number of the subcontractor; employer identification 
number of the subcontractor; estimated dollar amount of the subcontract; 
estimated starting and completion dates of the subcontract; and the 
geographical area in which the subcontract is to be performed.
    (d) As used in this Notice, and in the contract resulting from this 
solicitation, the ``covered area'' is

_______________________________________________________________________

_______________________________________________________________________
(insert description of the geographical areas where the contract is to 
be performed giving the state, county and city, if any).

    Note: Paragraph 14 is applicable to the extent required by law. If 
applicable, certain information needs to be inserted at subparagraphs 
(b) and (d). In determining whether and how this paragraph is 
applicable, reference should be made to Office of Federal Contract 
Compliance Programs regulations (41 CFR Chapter 60).

_______________________________________________________________________

Date

_______________________________________________________________________

Owner

By______________________________________________________________________

Title___________________________________________________________________

Bidder's Proposal to Engineer, Furnish, Deliver, and Install Equipment, 
                         Materials and Software

(Proposal shall be submitted in ink or typewritten)

To:_____________________________________________________________________

(Hereinafter called the ``Owner'')
    The undersigned (hereinafter called the ``Bidder'') hereby proposes 
to engineer, furnish, deliver, and install the equipment, materials and 
software for each Project listed under Column 1, ``Project,'' in Article 
I, section 1, and described in the plans, specifications and drawings 
(hereinafter called the ``Specifications'') prepared by the Owner and 
attached hereto and made a part hereof, financed by a loan to the Owner 
made or guaranteed by the United States of America, acting through the 
Administrator of the Rural Utilities Service (hereinafter called the 
``Administrator''), or by loans to the Owner by the United States of 
America and by the Rural Telephone Bank, and designated ____________.
    The Bidder has become informed as to the location and 
characteristics of the proposed installations, has become informed as to 
the kind of facilities required before and during the delivery and 
installation of the equipment, material, and software and has become 
acquainted with the labor conditions which would affect the work.
    The Bidder agrees that if its bid is accepted the following terms 
and conditions shall govern.
    If, in submitting this Proposal, the Bidder has taken any exception 
to the form of proposal furnished by the Owner, the Bidder understands 
that the Owner and the Administrator may evaluate the effect of such 
change as they see fit and they may exclude the Proposal from 
consideration in determining the award of the Contract.

[[Page 747]]



                                                                                            Article I                                                                                           
         [Section 1. Bid Price. The Bidder will engineer, furnish, deliver, and install the equipment, materials, and software described in the Specifications for the following sums:]         
                                                                                                                                                                                                
                                                                                      Time in calendar days                                                                                     
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                      Materials,                                                                                 Completion of the                                              
 Project (see notes 1, 2 and 3)     equipment, and      Installation         Base bid           Delivery        Completion of    project (see note     Spare parts      Item       Maintenance  
                                       software                                                                  installation            4)                                           tools     
(1)                               (2)                (3)                (4)                (5)                (6)                (7)                (8)                   (9)   (10)            
                                                                                                                                                                                                
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  $                  $                  $                  .................  .................  .................  $                       a   $               
                                  $                  $                  $                  .................  .................  .................  $                       b   $               
                                  $                  $                  $                  .................  .................  .................  $                       c   $               
                                  $                  $                  $                  .................  .................  .................  $                       d   $               
                                  $                  $                  $                  .................  .................  .................  $                       e   $               
                                  $                  $                  $                  .................  .................  .................  $                       f   $               
                                  $                  $                  $                  .................  .................  .................  $                       g   $               
                                  $                  $                  $                  .................  .................  .................  $                       h   $               
                                  $                  $                  $                  .................  .................  .................  $                       i   $               
                                  $                  $                  $                  .................  .................  .................  $                       j   $               
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
      Totals....................  $                  $                  XXXXXXXXXX         XXXXXXXXXX         XXXXXXXXXX         XXXXXXXXXX         $                     XXX   $               
                                 ===============================================================================================================================================================
      Total Base Bid............  .................  .................  $                  XXXXXXXXXX         XXXXXXXXXX         XXXXXXXXXX         XXXXXXXXXX          XXXXX   XXXXXXXXXX      
Alternate No. 1.................  $                  $                  $                  .................  .................  .................  $                       k   $               
Alternate No. 2.................  $                  $                  $                  .................  .................  .................  $                       l   $               
Alternate No. 3.................  $                  $                  $                  .................  .................  .................  $                       m   $               
Alternate No. 4.................  $                  $                  $                  .................  .................  .................  $                       n   $               
Alternate No. 5.................  $                  $                  $                  .................  .................  .................  $                       o   $               
Alternate No. 6.................  $                  $                  $                  .................  .................  .................  $                       p   $               
Note 1: If a remote switching terminal, so designate and list after host office.                                                                                                                
Note 2: All items included in a Project shall have the same completion schedule.                                                                                                                
Note 3: Each Project shall be separated by a blank line.                                                                                                                                        
Note 4: Time in calendar days for Completion of the Project shall be 60 days after the time established for Completion of Installation.                                                         


[[Page 748]]

    Section 2. Acceptable Equipment. Unless otherwise specified by the 
Owner (and agreed to in advance in writing by RUS), the Bidder agrees to 
furnish under this Proposal only equipment which is currently covered by 
a letter of acceptance issued by the Chairman, Committee ``A'' 
(Telephone). [Note: for convenience of borrowers and others, 
domestically manufactured products are included in RUS Bulletin 17551-
100.] The Bidder agrees also to furnish only materials, equipment and 
software which are new and of most recent issue and manufacture, as of 
the date of the bid opening, or of near future release for which the 
Bidder can assure timely delivery.
    Section 3. Changes in Project. The Owner, with the approval of the 
Administrator, may from time to time during the performance of the 
Contract effected by the acceptance of this Proposal, make reasonable 
changes, additions to or subtractions from the Specifications which are 
part of the Proposal as conditions may warrant. However, if substantial 
changes in the Project shall require an extension of time, a reasonable 
extension will be granted if the Bidder shall make a written request 
therefor to the Owner within thirty (30) days after any such change is 
made. Further, if the cost to the Bidder shall be increased or decreased 
by any such change or addition, the Contract price shall be increased or 
decreased by a reasonable amount in accordance with a contract amendment 
signed by the Owner and the Bidder and approved by the Administrator. No 
claim for additional compensation for any such change or addition will 
be considered unless the Bidder shall have made a written request 
therefor to the Owner prior to the commencement of work in connection 
with such change or addition. The Delivery or Completion of Installation 
times specified under Columns 5, ``Delivery'', and 6, ``Completion of 
Installation,'' in Article I, section 1, can only be changed by a 
Contract amendment approved by the Bidder, the Owner and RUS.
    Section 4. Taxes. The bid prices herein set forth do not include any 
amounts payable by the Bidder or the Owner on account of taxes imposed 
by any taxing authority upon the sale, purchase or use of materials, 
supplies, equipment or software to be incorporated in the Project(s). If 
any such tax is applicable to the sale, purchase or use of materials, 
supplies, equipment or software hereunder, the amount thereof shall be 
stated separately on all invoices and paid by the Owner.

                               Article II

                        Delivery and Installation

    Section 1. Time of Completion of Installation. The time of delivery 
of materials, equipment, and software and of Completion of Installation 
are of the essence of this Contract. The Bidder shall deliver the 
materials, equipment, and software required hereunder for each Project 
upon the time intervals established under Column 5, ``Delivery,'' in 
Article I, section 1, after the Administrator shall have approved this 
Contract in writing, and shall prosecute diligently and complete the 
installation of materials, equipment and software for each Project in 
accordance with the terms of this Contract and Specifications to the 
satisfaction of the Owner and the Administrator within the number of 
calendar days specified under Column 6, ``Completion of Installation,'' 
in Article I, section 1. The times for such Delivery or such Completion 
of Installation shall be extended for the period of any reasonable delay 
due exclusively to causes beyond the control and without the fault of 
the Bidder, including, but not limited to, acts of God, fires, strikes, 
floods, changes in the Specifications as herein provided, and acts or 
omissions of the Owner with respect to matters for which the Owner is 
solely responsible. However, no such extension of time shall be granted 
the Bidder unless within thirty (30) days after Bidder becomes aware of 
the happening of any event relied upon by the Bidder for such an 
extension of time the Bidder shall have made a request therefor in 
writing to the Owner. Further, no delay in such time for delivery of 
materials, equipment and software or Completion of Installation or in 
the progress of the work shall result in any liability on the part of 
the Owner, except that the Owner shall be responsible for and shall pay 
the Bidder on demand all additional, supportable costs and expenses 
incurred by the Bidder due to delays to the extent such delays are 
caused by the Owner's failure to perform its obligations under this 
Contract unless the Owner's failure to perform is caused by forces 
beyond its control.
    Section 2. Sequence of Installation. All Projects shall be completed 
in the sequence in which they are listed under Column 1, ``Project,'' in 
Article I, section 1.
    Section 3. Supervision and Inspection. The Bidder shall give 
sufficient supervision to the work at the site of the Project(s), using 
the Bidder's best skill and attention. The Bidder shall carefully study 
and compare all drawings, specifications, and other instructions and 
shall promptly report to the Owner any error, inconsistency or omission 
which Bidder may discover. The Bidder shall keep on the Project(s) 
during its progress a competent superintendent (hereinafter called the 
``Superintendent'') and any necessary qualified assistants, all 
satisfactory to the Owner. The Superintendent shall represent the Bidder 
and all directions given to the Superintendent by the Owner shall be as 
binding as if given to the Bidder. When requested by the Bidder, such 
directions shall be confirmed in writing.
    Section 4. Inspection and Tests. The installation of materials, 
equipment and software hereunder and all materials, equipment and

[[Page 749]]

software used therein shall be subject to the inspection, test and 
approval of the Owner and Administrator, in accordance with the 
Specifications. The Bidder shall furnish all pertinent information 
required concerning the nature or source of materials. The Owner and the 
Administrator shall have the right to inspect pertinent records (other 
than manufacturing cost information) of the Bidder and of any 
subcontractor relevant to this Project(s). The Bidder shall provide all 
reasonable facilities necessary for such inspection and tests, except 
that the Bidder is not required to provide test equipment for the 
Owner's tests unless specifically required in the Specifications. 
Failure of the Owner to make inspections shall not release the Bidder 
from performance required hereunder.
    The Bidder shall notify the Owner in writing upon Completion of 
Installation of each Project and provide a copy of the results of tests, 
if any, conducted by the Bidder.
    The Owner shall make inspections and tests of each Project for 
compliance with the Specifications and provide the Bidder the results of 
such inspections and tests on RUS Form 517, Results of Acceptance Tests. 
If the Owner has not completed its inspections and tests and provided 
the Bidder the results on RUS Form 517 within thirty (30) days after the 
written notification of Completion of Installation from the Bidder, the 
Owner shall (1) pay to the Bidder the costs incurred by the Bidder as a 
result of this delay, and (2) grant an extension of time for the 
Completion of the Project equal to the number of days from the date of 
the end of the thirty (30) day period until the date the Owner provides 
the RUS Form 517 to the Bidder.
    Within thirty (30) days of receipt of the RUS Form 517 from the 
Owner, the Bidder shall correct all deficiencies, if any, listed on the 
RUS Form 517 and notify the Owner in writing of such corrections and 
deliver to the Owner the documents set forth in Article III, section 2, 
at which time a final Owner's inspection and test of each Project shall 
be conducted. If tests subsequent to this are made necessary by the 
Bidder's failure to satisfactorily resolve all such deficiencies as 
previously listed on the RUS Form 517, the Bidder shall pay the Owner 
for the cost incurred by the Owner for all such subsequent tests.
    Section 5. Delivery of Possession and Control to the Owner. The 
Bidder shall deliver to the Owner, and the Owner shall accept, full 
possession and control of each Project on the date of Completion of the 
Project or on an earlier date if agreed under Article IV, section 2.
    Section 6. Employees. The Owner shall have the right to require the 
removal of any employee of the Bidder from the Project site if in the 
judgment of the Owner such removal is necessary in order to protect the 
interest of the Owner.
    Section 7. Defective Workmanship, Materials or Software. Throughout 
the warranty period defined below the Bidder shall, within thirty (30) 
days of written notice from the Owner, and without charge to the Owner, 
at the Bidder's option, either remedy or replace any materials, 
equipment or software found to be defective in material, workmanship or 
installation, or not in conformity with the Specification. This is 
subject to the following definitions and conditions:
    (a) The warranty start date for a Project is the date of delivery of 
possession and control by the Bidder to the Owner of that Project 
included in the Contract. Refer to Article II, section 5. The warranty 
period is twelve (12) months from the warranty start date, or six (6) 
months from Completion of the Project, whichever results in the longer 
period of coverage.
    (b) Without regard to the expiration of the warranty period set 
forth above, the Bidder warrants to the Owner that any Software 
furnished under this Contract shall function, for a period of five (5) 
years from the warranty start date defined in the Contract, in 
accordance with the specifications and any written or printed technical 
material provided by the Bidder to explain the operation of the Software 
and aid in its use. The Bidder shall correct all deficiencies within 
thirty (30) days from the date of receipt by the Bidder of written 
notice of such deficiencies from the Owner. An extension of this thirty 
(30) day period may be allowed only if agreed upon by the Owner. It 
shall be the Bidder's obligation to insert and thoroughly test, at no 
charge to the Owner, any software amendment or alteration provided to 
satisfy the obligations of this Section 7. If a deficiency is detected 
or a correction made within the final ninety (90) days of the warranty, 
the warranty shall be extended to a date ninety (90) days after the 
deficiency has been corrected.
    (c) The Owner shall pay the Bidder for any use of the Bidder's 
technical assistance center except for usage to diagnose defects covered 
by this warranty.
    (d) This warranty is not diminished by the acceptance of 
workmanship, materials, equipment, or software, or by the issuing of any 
certificate with respect to Completion of the Project.
    (e) This warranty does not cover defects in materials, equipment or 
software that are caused by modifications to or abuse of materials, 
equipment or software by the Owner.
    (f) The Owner shall bear the cost and risk of shipping defective 
components to the Bidder's designated repair center. The Bidder shall 
bear the cost and risk of shipping new or repaired replacement 
components to the Owner.

[[Page 750]]

                               Article III

                      Payments and Releases of Lien

    Section 1. Payment to Bidder.
    (a) The Owner shall pay the Bidder upon the basis of written 
estimates of the materials, equipment, and software delivered at the 
site of the Project, presented by the Bidder, and approved by the Owner, 
the following percentages of the price of the materials, equipment, and 
software for each Project set forth under Column 2, ``Materials, 
Equipment, and Software,'' in Article I, Section 1, as and if revised:
    (i) Forty-five percent (45%) when fifty percent (50%) of the 
materials, equipment, and software for each Project has been delivered 
at the site of the Project, and
    (ii) Ninety percent (90%) when all the materials, equipment, and 
software required to place each Project into operation has been 
delivered at the site of the Project.
    (b) Upon written notification of the Completion of Installation of 
each Project, the Owner shall pay the Bidder ninety percent (90%) of the 
Base Bid plus accepted alternates for that Project.
    (c) Upon the Completion of Installation, but prior to the payment to 
the Bidder of any amount in excess of ninety percent (90%) of the Total 
Contract Price, the Owner shall inspect the work performed hereunder and 
if the work shall be found to be in accordance with the Specifications 
and all provisions hereunder, the Owner shall certify as to that fact 
and as to the amount of the balance found to be due to the Bidder. No 
later than thirty (30) days after Completion of the Contract, as defined 
in Article VII, section 1, ``Definitions,'' the Owner shall submit such 
final certificate to the Administrator for approval and when such 
approval has been given, the Owner shall pay to the Bidder all unpaid 
amounts to which the Bidder shall be entitled hereunder; provided, 
however, such final payments shall be made not later than sixty (60) 
days after Completion of the Contract unless approval by the 
Administrator shall be withheld or delayed due to Bidder's actions or 
failure to act.
    (d) Payment on undisputed invoices submitted by the Bidder shall be 
due thirty (30) days after receipt. Any amounts of these invoices not 
paid when due shall accrue interest at a rate one and one-half percent 
(1\1/2\%) higher than the ``Prime Rate'' published in the Wall Street 
Journal in its first issue of the month in which payment becomes due and 
changing each subsequent month with the first issue published in the 
respective month.
    (e) Notwithstanding other provisions of this Article III, the 
Bidder, shall, at its request in writing, receive payment in full for 
each Project upon Completion of Installation of such and upon:
    (i) Completion of the final acceptance tests of such Project as 
certified on RUS Form 754, Certificate of Completion, Central Office(s) 
and approved by the Owner.
    (ii) Submission to the Owner and Administrator of the releases of 
lien and Certificate of Contractor referred to in section 2 hereof or in 
lieu thereof, where the Bidder is the manufacturer, the execution of the 
Certificate of Contractor and Indemnity Agreement on RUS Form 754, all 
in respect of such Project.
    (iii) Approval by the Administrator of the Certificate of 
Completion, RUS Form 754 in respect of such Project.
    Ten percent (10%) of the contract price of one central office shall 
be retained until the Bidder shall have furnished the certificates and 
releases of lien or indemnity agreement in respect of the Project 
required by section 2 of this Article III.
    (This Section 1(e) is to be used only if (1) the Contract includes 
at least one central office and (2) the Owner wishes to allow the 
partial closeout procedure. The Owner shall strike out this Section 1(e) 
if the partial closeout procedure is not to be allowed)
    (f) Acceptance by the Owner of equipment, materials, workmanship or 
software while the Bidder is in default under any provision of this 
Contract shall not be construed as a waiver by the Owner of any right 
hereunder including, without limitation, any right to liquidated damages 
the Owner may have by virtue of Article V, section 2.
    Section 2. Release of Liens. Upon the Completion of Installation by 
the Bidder, but prior to the payment to the Bidder of any amount in 
excess of ninety percent (90%) of the Total Contract Price, except as 
specified in Article III, section 1(e), the Bidder shall deliver to the 
Owner (a) two original Waiver and Release of Lien in the form attached 
hereto, from manufacturers, material suppliers and subcontractors who 
have furnished materials or services for the work, and (b) two original 
Certificate of Contractor, in the form attached hereto, to the effect 
that all labor has been paid and that all such releases have been 
submitted to the Owner; and the Owner shall deliver to the Administrator 
for approval one of the originals of each such release and certificate.
    In lieu of releases of lien where the Bidder is the manufacturer of 
the equipment, the Bidder may deliver to the Owner, in duplicate in the 
form attached hereto, a Certificate of Contractor and Indemnity 
Agreement, stating that all manufacturers, material suppliers and 
subcontractors who have furnished materials or services for the 
Project(s) have been paid in full, and agreeing to indemnify the Owner 
against any liens arising out of the Bidder's performance hereunder 
which may have been or may be filed against the Owner.

[[Page 751]]

    In this Article III ``manufacturer'' shall mean a Bidder who makes, 
produces, or manufactures the equipment and whose interest, including 
non-contracted installation, represent more than fifty percent (50%) of 
the value of the Total Contract Price.

                               Article IV

                  Particular Undertakings of the Bidder

    Section 1. Protection to Persons and Property. At all times when 
equipment and materials are being delivered and installed the Bidder 
shall exercise reasonable precautions for the safety of employees on the 
job and of the public and shall comply with all applicable provisions of 
Federal, State and Municipal safety laws and building and construction 
codes. All machinery and equipment and other physical hazards shall be 
guarded in accordance with the ``Manual of Accident Prevention in 
Construction'' of the Associated General Contractors of America unless 
such instructions are incompatible with Federal, State or Municipal laws 
or regulations. The following provisions shall not limit the generality 
of the above requirements:
    (a) The Bidder shall at all times keep the premises free from 
accumulations of waste material or rubbish caused by its employees or 
work, and at the completion of the work the Bidder shall remove all 
rubbish from and about the Project(s) and all its tools, scaffolding and 
surplus materials and shall leave its work ``broom clean.''
    (b) The work, from its commencement to completion, or to such 
earlier date or dates when the Owner may take possession and control, 
shall be under the charge and control of the Bidder and during such 
period of control by the Bidder all risks in connection therewith, and 
in connection with the equipment, materials and software to be used 
therein, shall be borne by the Bidder. The Bidder shall make good and 
fully repair all injuries and damages to the equipment, materials and 
software under the control of the Bidder by reasons of any act of God, 
or any other casualty or cause whether or not the same shall have 
occurred by reason of the Bidder's negligence. The Bidder shall hold the 
Owner harmless from any and all claims for injuries of persons or for 
damage to property happening by reason of any negligence on the part of 
the Bidder or any of the Bidder's agents, subcontractors or employees 
during the control by the Bidder of the Project(s) or any part thereof. 
The Owner shall promptly notify the Bidder in writing of any such claims 
received and, except where the Owner is the claimant, shall give to the 
Bidder full authority and opportunity to settle such claims, and 
reasonably cooperate with the Bidder in obtaining information relative 
to such claims.
    (c) Monthly reports of all accidents shall be promptly submitted to 
the Owner by the Bidder giving such data as may be prescribed by the 
Owner.
    Section 2. Termination of Bidder's Risks and Obligations. The Bidder 
shall deliver to the Owner, and the Owner shall accept, full possession 
and control of each Project on the date of Completion of the Project. 
However, at any time after payment by the Owner to the Bidder of ninety 
percent (90%) of the Total Base Bid plus accepted alternates for that 
Project, but prior to Completion of the Project, the Owner and the 
Bidder may agree in writing to an earlier date of delivery of possession 
and control. Upon such delivery of possession and control of any Project 
the Bidder's risks and obligations as set forth in Article IV, section 
1(b), pertaining to such Project shall be terminated; provided, however, 
that nothing herein contained shall relieve the Bidder of its obligation 
for full performance under the Specifications, or its liability with 
respect to defective workmanship or materials as specified in Article 
II, section 7 hereof. The equipment shall not be placed in service until 
delivery of possession and control to the Owner has been accomplished, 
as set forth above.
    Section 3. Insurance. During the Bidder's performance hereunder, the 
Bidder shall take out and maintain fully paid insurance providing not 
less than the minimum coverage required by 7 CFR part 1788, subpart C.
    The Owner shall have the right to require public liability insurance 
and property damage liability insurance in an amount greater than those 
required in 7 CFR part 1788, subpart C. If this requirement is included 
in the plans and specifications used for bidding, the added costs shall 
be included in the bid price. If the requirement is added after the 
Contract is approved, the additional premium or premiums payable solely 
as the result of such additional insurance shall be added to the 
Contract price, by Contract amendment.
    Upon request by the Administrator, the Bidder shall furnish to the 
Administrator a certificate in such form as the Administrator may 
prescribe evidencing compliance with the foregoing requirements.
    Section 4. Purchase of Materials. The Bidder shall purchase all 
materials and supplies except software outright and not subject to any 
conditional sales agreements, bailment lease or other agreement 
reserving unto the seller any right, title or interest therein. 
Materials and supplies other than software shall become the property of 
the Owner as the Owner makes payments therefor to the Bidder in 
accordance with Article III, Section 1(a).
    Section 5. Software License. The software licensing agreement, if 
required, covering the rights, terms and conditions of the use and 
assignability of all software integral to the operation of the 
Project(s), shall be in the form of Addendum 1 to this Contract.

[[Page 752]]

    Section 6. Assignment of Guarantees. All guarantees of materials, 
equipment, workmanship and software running in favor of the Bidder shall 
be transferred and assigned to the Owner upon Completion of the Project 
and at such time as the Bidder receives final payment. Any such 
guarantees shall be in addition to the Bidder's warranty defined in 
Article II, section 7. This provision may be modified with respect to a 
particular warranty if the Bidder demonstrates to the satisfaction of 
RUS and the Owner that a transfer is not possible.
    Section 7. Patent, Copyright, Trademark and Trade Secret 
Infringement. The Bidder shall hold harmless and indemnify the Owner 
from any and all claims, suits, and proceedings for the infringement of 
any patent, copyright, trademark or violation of trade secrets covering 
any equipment or software used in the work, except for items of the 
Owner's design or selection. If the Owner's use of equipment or software 
is enjoined, the Bidder shall promptly, at its own expense, modify or 
replace the infringing equipment or software so that it no longer 
infringes but remains functionally equivalent, or obtain for the Owner a 
license or other right to use. This shall be in addition to any other 
rights or claims which the Owner may have. The Bidder shall, at its own 
expense, (and the Owner agrees to permit Bidder to do so,) defend any 
suits which may be instituted by any party against the Owner for alleged 
infringement of patents, copyright, trademark or violation of trade 
secrets relative to the Bidder's performance hereunder. Either party 
shall notify the other promptly of any such claims, and the Owner shall 
give to the Bidder full authority and opportunity to settle such claims, 
and shall reasonably cooperate with the Bidder in obtaining information 
relative to such claims.
    Section 8. Compliance with Statutes and Regulations. The Bidder 
shall comply with all applicable laws, statutes, ordinances, rules and 
regulations. The Bidder acknowledges that it is familiar with the Rural 
Electrification Act of 1936, as amended (7 U.S.C. 901 et seq.), the 
Anti-Kickback Acts, as amended (40 U.S.C. 276c; 41 U.S.C. 51 et seq.), 
and any rules and regulations issued pursuant thereto, and 18 U.S.C. 
201, 286, 287, 641, 666, 874, 1001, 1361 and 1366, as amended. The 
Bidder understands that the obligations of the parties hereunder are 
subject to the applicable regulations and orders of the Governmental 
agencies having jurisdiction in the premises.
    The Bidder represents that to the extent required by Executive 
Orders 12549 (3 CFR, 1985-1988 Comp., p. 189) and 12689 (3 CFR, 1989 
Comp., p. 235), Debarment and Suspension, and 7 CFR part 3017, it has 
submitted to the Owner a duly executed certification in the form 
prescribed in 7 CFR part 3017.
    The Bidder represents that, to the extent required, it has complied 
with the requirements of Public Law 101-121, section 319, 103 Stat. 701, 
750-765 (31 U.S.C. 1352), entitled ``Limitation on use of appropriated 
funds to influence certain Federal contracting and financial 
transactions,'' and any rules and regulations issued pursuant thereto.

                                Article V

                                Remedies

    Section 1. Completion on Bidder's Default. If default shall be made 
by the Bidder in the performance of any of the work hereunder, the 
Owner, without in any manner limiting its legal and equitable remedies 
in the circumstances, may serve upon the Bidder and the surety or 
sureties upon the Bidder's Bond or Bonds a written notice requiring the 
Bidder to cause such default to be corrected forthwith. Unless within 
thirty (30) days after the service of such notice upon the Bidder such 
default shall be corrected or arrangements for the correction thereof, 
satisfactory to both the Owner and the Administrator, shall have been 
made by the Bidder or its surety or sureties, the Owner may take over 
the performance of the Bidder's obligations hereunder and prosecute the 
same to completion by contract or otherwise for the account and at the 
expense of the Bidder, and the Bidder and its surety or sureties shall 
be liable to the Owner for any supportable cost or expense in excess of 
the bid price occasioned thereby. In such event, the Owner may take 
possession of and utilize, in completing the Project(s), any tools, 
supplies, equipment, appliances and plant belonging to the Bidder which 
may be situated at the site of the Project(s). The Owner, in such 
contingency, may exercise any rights, claims or demands which the Bidder 
may have against third persons in connection herewith and for such 
purpose the Bidder does hereby assign, transfer and set over unto the 
Owner all such rights, claims and demands.
    Section 2. Liquidated Damages. Should the Bidder fail to complete 
any Project as shown under Column 7, ``Completion of the Project,'' in 
Article I, Section 1, within the time herein agreed upon, after giving 
effect to extensions of time, if any, herein provided, then, in that 
event and in view of the difficulty of estimating with exactness damages 
caused by such delay, the Owner shall, so long as the subject Project 
shall not have been placed in service, have the right to deduct from and 
retain out of such moneys which may be then due, or which may become due 
and payable to the Bidder, the sum of:

_______________________________________________________________________
dollars ($____________)

for_____________________________________________________________________
(Project)


[[Page 753]]


for_____________________________________________________________________
dollars ($____________)

for_____________________________________________________________________
(Project)

dollars ($____________

for_____________________________________________________________________
per day for each and every day that such completion is delayed beyond 
the scheduled time for Completion of the Project, as liquidated damages 
and not as a penalty, up to the amount of the respective Base Bid plus 
accepted alternates for the affected Project: Provided, however, that 
the Owner shall promptly notify the Bidder in writing of the manner in 
which the amount claimed as liquidated damages was computed. The Bidder 
shall pay to the Owner the amount necessary to effect such payment in 
full. Such payment is not to be reduced by the value of any partial 
performance by the Bidder.
    At the technical sessions, each Bidder shall identify all features 
and capabilities that are not fully developed or do not have a 
verifiable satisfactory field performance record. If the Owner allows 
these features to be bid as separate Projects, then they are to be 
individually listed under Columns 1 through 10, in Article I, section 1. 
These unproven features and capabilities are to be individually listed 
in this section 2 also, with liquidated damages amounts determined by 
the Owner and stated for each. If a Bidder neglects to identify any such 
feature at the technical session, delay in providing the feature is 
considered a delay in completing the associated Project and the Owner 
may assess liquidated damages listed for that Project regardless of 
whether the Project is placed in service.
    Section 3. Consequential Damages. In no event shall the Bidder's 
liability for incidental or consequential loss or damage, except for 
personal injury or tangible property damage, exceed the amount of ten 
times the total contract price, as amended.
    Section 4. Enforcement of Remedies by Administrator. The 
Administrator may on behalf of the Owner exercise any right or enforce 
any remedy which the Owner may exercise or enforce hereunder.
    Section 5. Cumulative Remedies. Every right or remedy herein 
conferred upon or reserved to the Owner or the Administrator shall be 
cumulative and shall be in addition to every right and remedy now or 
hereafter existing at law or in equity or by statute and the pursuit of 
any right or remedy shall not be construed as an election. Provided, 
however, that the provisions of section 2 of this Article V shall be the 
exclusive measure of damages for failure by the Bidder to have effected 
the Completion of Project within the time herein agreed upon.

                               Article VI

                            Equal Employment

    Section 1. The Bidder.
    (a) The Bidder represents that:
    (1) It has, ______ does not have ______, 100 or more employees, and 
if it has, that
    (2) It has ______, has not ______, furnished the Equal Employment 
Opportunity Employers Information Report EEO-1, Standard Form 100, 
required of employers with 100 or more employees pursuant to Executive 
Order 11246 and Title VII of the Civil Rights Act of 1964.
    (b) The Bidder agrees that it will obtain, prior to the award of any 
subcontract for more than $10,000 hereunder to a subcontractor with 100 
or more employees, a statement, signed by the proposed subcontractor, 
that the proposed subcontractor has filed a current report on Standard 
Form 100.
    (c) The Bidder agrees that if it has 100 or more employees and has 
not submitted a report on Standard Form 100 for the current reporting 
year and that if this contract will amount to more than $10,000, the 
Bidder will file such report, as required by law, and notify the Owner 
in writing of such filing prior to the Owner's acceptance of this 
Proposal.
    (d) The Bidder certifies that it does not maintain or provide for 
its employees any segregated facilities at any of its establishments, 
and that it does not permit its employees to perform their services at 
any location, under its control, where segregated facilities are 
maintained. The Bidder certifies further that it will not maintain or 
provide for its employees any segregated facilities at any of its 
establishments, and that it will not permit its employees to perform 
their services at any location, under its control, where segregated 
facilities are maintained. The Bidder agrees that a breach of this 
certification is a violation of the Equal Opportunity Clause in this 
contract. As used in this certification, the term ``segregated 
facilities'' means any waiting rooms, work areas, restrooms and 
washrooms, restaurants and other eating areas, timeclocks, locker rooms 
and other storage or dressing areas, parking lots, drinking fountains, 
recreation or entertainment areas, transportation, and housing 
facilities provided for employees which are segregated by explicit 
directive or are in fact segregated on the basis of race, color, 
religion, or national origin, because of habit, local custom, or 
otherwise. The Bidder agrees that (except where it has obtained 
identical certifications from proposed subcontractors for specific time 
periods) it will obtain identical certifications from proposed 
subcontractors prior to the award of subcontracts exceeding $10,000 
which are not exempt from the provisions of the Equal Opportunity 
Clause, and that it will retain such certifications in its files.

[[Page 754]]

    Section 2. During the performance of this contract, the Contractor 
agrees as follows:
    (a) The Contractor will not discriminate against any employee or 
applicant for employment because of race, color, religion, sex or 
national origin. The Contractor will take affirmative action to ensure 
that applicants are employed, and that employees are treated during 
employment without regard to their race, color, religion, sex or 
national origin. Such action shall include, but not be limited to, the 
following: employment, upgrading, demotion or transfer; recruitment or 
recruitment advertising; layoff or termination; rates of pay or other 
forms of compensation; and selection for training, including 
apprenticeship. The Contractor agrees to post in conspicuous places 
available to employees and applicants for employment, notices to be 
provided setting forth the provisions of this nondiscrimination clause.
    (b) The Contractor will, in all solicitations or advertisements for 
employees placed by or on behalf of the Contractor, state that all 
qualified applicants shall receive consideration for employment without 
regard to race, color, religion, sex or national origin.
    (c) The Contractor will send to each labor union or representative 
of workers with which the Bidder has a collective bargaining agreement 
or other contract or understanding, a notice to be provided advising the 
said labor union or workers' representative of the Contractor's 
commitments under this section, and shall post copies of the notice in 
conspicuous places available to employees and applicants for employment.
    (d) The Contractor will comply with all provisions of Executive 
Order 11246 of September 24, 1965, and of the rules, regulations and 
relevant orders of the Secretary of Labor.
    (e) The Contractor will furnish all information and reports required 
by Executive Order 11246 of September 24, 1965, and by rules, 
regulations and orders of the Secretary of Labor, or pursuant thereto, 
and will permit access to the Contractor's books, records and accounts 
by the administering agency and the Secretary of Labor for purposes of 
investigation to ascertain compliance with such rules, regulations and 
orders.
    (f) In the event of the Contractor's noncompliance with the 
nondiscrimination clauses of this contract or with any of the said 
rules, regulations or orders, this contract may be canceled, terminated 
or suspended in whole or in part and the Contractor may be declared 
ineligible for further Government contracts or federally assisted 
construction contracts in accordance with procedures authorized in 
Executive Order 11246 of September 24, 1965, and such other sanctions as 
may be imposed and remedies invoked as provided in the said Executive 
Order 11246 of September 24, 1965, or by rule, regulation or order of 
the Secretary of Labor, or as otherwise provided by law.
    (g) The Contractor will include the portion of the sentence 
immediately preceding paragraph (a) and the provisions of paragraphs (a) 
through (g) in every subcontract or purchase order unless exempted by 
rules, regulations or orders of the Secretary of Labor issued pursuant 
to Section 204 of Executive Order 11246 of September 24, 1965, so that 
such provisions will be binding upon each subcontractor or vendor. The 
Contractor will take such action with respect to any subcontract or 
purchase order as the administering agency may direct as a means of 
enforcing such provisions, including actions for noncompliance: 
Provided, however, that in the event a contractor becomes involved in, 
or is threatened with, litigation with a subcontractor or vendor as a 
result of such direction by the administering agency, the Contractor may 
request the United States to enter into such litigation to protect the 
interests of the United States.
    Section 3. Equal Employment Opportunity Specifications.
    (a) As used in these specifications:
    ``Covered area'' means the geographical area described in the 
solicitation from which this contract resulted;
    ``Director'' means Director, Office of Federal Contract Compliance 
Programs, United States Department of Labor, or any person to whom the 
Director delegates authority;
    ``Employer identification number'' means the Federal Social Security 
number used on the Employer's Quarterly Federal Tax Return, U.S. 
Treasury Department Form 941; and
    ``Minority'' includes:
    (i) Black (all persons having origins in any of the Black African 
racial groups not of Hispanic origin);
    (ii) Hispanic (all persons of Mexican, Puerto Rican, Cuban, Central 
or South American or other Spanish Culture or origin, regardless of 
race);
    (iii) Asian and Pacific Islander (all persons having origins in any 
of the original peoples of the Far East, Southeast Asia, the Indian 
Subcontinent, or the Pacific Islands); and
    (iv) American Indian or Alaskan Native (all persons having origins 
in any of the original peoples of North America and maintaining 
identifiable tribal affiliations through membership and participation or 
community identification).
    (b) Whenever the Contractor, or any Subcontractor at any tier, 
subcontracts a portion of the work involving any construction trade, it 
shall physically include in each subcontract in excess of $10,000 the 
provisions of these specifications and the Notice which contains the 
applicable goals for minority and female participation and which is set 
forth in the solicitations from which this contract resulted.

[[Page 755]]

    (c) If the Contractor is participating (pursuant to 41 CFR 60-4.5) 
in a Hometown Plan approved by the U.S. Department of Labor in the 
covered area either individually or through an association, its 
affirmative action obligations on all work in the Plan area (including 
goals and timetables) shall be in accordance with that Plan for those 
trades which have unions participating in the Plan. Contractors must be 
able to demonstrate their participation in and compliance with the 
provisions of any such Hometown Plan. Each Contractor or Subcontractor 
participating in an approved Plan is individually required to comply 
with its obligations under the EEO clause, and to make a good faith 
effort to achieve each goal under the Plan in each trade in which it has 
employees. The overall good faith performance by other Contractors or 
Subcontractors toward a goal in an approved Plan does not excuse any 
covered Contractor's or Subcontractor's failure to take good faith 
efforts to achieve the Plan goals and timetables.
    (d) The Contractor shall implement the specific affirmative action 
standards provided in paragraphs (g) (i) through (xvi) of these 
specifications. The goals set forth in the solicitation from which this 
contract resulted are expressed as percentages of the total hours of 
employment and training of minority and female utilization the 
Contractor should reasonably be able to achieve in each construction 
trade in which it has employees in the covered area. Covered 
construction contractors performing construction work in geographical 
areas where they do not have a federal or federally assisted 
construction contract shall apply the minority and female goals 
established for the geographical area where the work is being performed. 
Goals are published periodically in the Federal Register in notice form, 
and such notices may be obtained from any Office of Federal Contract 
Compliance Programs office or from Federal procurement contracting 
officers. The Contractor is expected to make substantially uniform 
progress in meeting its goals in each craft during the period specified.
    (e) Neither the provisions of any collective bargaining agreement, 
nor the failure by a union with whom the Contractor has a collective 
bargaining agreement, to refer either minorities or women shall excuse 
the Contractor's obligations under these specifications, Executive Order 
11246, or the regulations promulgated pursuant thereto.
    (f) In order for the nonworking training hours of apprentices and 
trainees to be counted in meeting the goals, such apprentices and 
trainees must be employed by the Contractor during the training period, 
and the Contractor must have made a commitment to employ the apprentices 
and trainees at the completion of their training, subject to the 
availability of employment opportunities. Trainees must be trained 
pursuant to training programs approved by the U.S. Department of Labor.
    (g) The Contractor shall take specific affirmative actions to ensure 
equal employment opportunity. The evaluation of the Contractor's 
compliance with these specifications shall be based upon its effort to 
achieve maximum results from its actions. The Contractor shall document 
these efforts fully, and shall implement affirmative action steps at 
least as extensive as the following:
    (i) Ensure and maintain a working environment free of harassment, 
intimidation, and coercion at all sites, and in all facilities at which 
the Contractor's employees are assigned to work. The Contractor, where 
possible, will assign two or more women to each construction project. 
The Contractor shall specifically ensure that all foremen, 
superintendents, and other on-site supervisory personnel are aware of 
and carry out the Contractor's obligation to maintain such a working 
environment, with specific attention to minority or female individuals 
working at such sites or in such facilities.
    (ii) Establish and maintain a current list of minority and female 
recruitment sources, provide written notification to minority and female 
recruitment sources and to community organizations when the Contractor 
or its unions have employment opportunities available, and maintain a 
record of the organizations' responses.
    (iii) Maintain a current file of the names, addresses and telephone 
numbers of each minority and female off-the-street applicant and 
minority or female referral from a union, a recruitment source or 
community organization and of what action was taken with respect to each 
such individual. If such individual was sent to the union hiring hall 
for referral and was not referred back to the Contractor by the union 
or, if referred, not employed by the Contractor, this shall be 
documented in the file with the reason therefore, along with whatever 
additional actions the Contractor may have taken.
    (iv) Provide immediate written notification to the Director when the 
union or unions with which the Contractor has a collective bargaining 
agreement has not referred to the Contractor a minority person or woman 
sent by the Contractor, or when the Contractor has other information 
that the union referral process has impeded the Contractor's efforts to 
meet its obligations.
    (v) Develop on-the-job training opportunities and/or participate in 
training programs for the area which expressly include minorities and 
women, including upgrading programs and apprenticeship and trainee 
programs relevant to the Contractor's employment needs, especially those 
programs funded or approved by the Department of Labor. The Contractor 
shall provide notice of these

[[Page 756]]

programs to the sources compiled under (g)(ii) above.
    (vi) Disseminate the Contractor's EEO policy by providing notice of 
the policy to unions and training programs and requesting their 
cooperation in assisting the Contractor in meeting its EEO obligations; 
by including it in any policy manual and collective bargaining 
agreement; by publicizing it in the company newspaper, annual report, 
etc.; by specific review of the policy with all management personnel and 
with all minority and female employees at least once a year; and by 
posting the company EEO policy on bulletin boards accessible to all 
employees at each location where construction work is performed.
    (vii) Review, at least annually, the company's EEO policy and 
affirmative action obligations under these specifications with all 
employees having any responsibility for hiring, assignment, layoff, 
termination or other employment decisions including specific review of 
these items with onsite supervisory personnel such as Superintendents, 
General Foremen, etc., prior to the initiation of construction work at 
any job site. A written record shall be made and maintained identifying 
the time and place of these meetings, persons attending, subject matter 
discussed, and disposition of the subject matter.
    (viii) Disseminate the Contractor's EEO policy externally by 
including it in any advertising in the news media, specifically 
including minority and female news media, and providing written 
notification to and discussing the Contractor's EEO policy with other 
Contractors and Subcontractors with whom the Contractor does or 
anticipates doing business.
    (ix) Direct its recruitment efforts, both oral and written, to 
minority, female and community organizations, to schools with minority 
and female students and to minority and female recruitment and training 
organizations serving the Contractor's recruitment area and employment 
needs. Not later than one month prior to the date for the acceptance of 
applications for apprenticeship or other training by any recruitment 
source, the Contractor shall send written notification to organizations 
such as the above, describing the openings, screening procedures, and 
tests to be used in the selection process.
    (x) Encourage present minority and female employees to recruit other 
minority persons and women and, where reasonable, provide after school, 
summer and vacation employment to minority and female youth both on the 
site and in other areas of a Contractor's work force.
    (xi) Validate all tests and other selection requirements where there 
is an obligation to do so under 41 CFR Part 60-3.
    (xii) Conduct, at least annually, an inventory and evaluation at 
least of all minority and female personnel for promotional opportunities 
and encourage these employees to seek or to prepare for, through 
appropriate training, etc., such opportunities.
    (xiii) Ensure that seniority practices, job classifications, work 
assignments and other personnel practices, do not have a discriminatory 
effect by continually monitoring all personnel and employment related 
activities to ensure that the EEO policy and the Contractor's 
obligations under these specifications are being carried out.
    (xiv) Ensure that all facilities and company activities are 
nonsegregated except that separate or single-user toilet and necessary 
changing facilities shall be provided to assure privacy between the 
sexes.
    (xv) Document and maintain a record of all solicitations of offers 
for subcontracts from minority and female construction contractors and 
suppliers, including circulation of solicitations to minority and female 
contractor associations and other business associations.
    (xvi) Conduct a review, at least annually, of all supervisors' 
adherence to and performance under the Contractor's EEO policies and 
affirmative action obligations.
    (h) Contractors are encouraged to participate in voluntary 
associations which assist in fulfilling one or more of their affirmative 
action obligations (g) (i) through (xvi). The efforts of a contractor 
association, joint contractor-union, contractor-community, or other 
similar group of which the Contractor is a member and participant, may 
be asserted as fulfilling any one or more of its obligations under (g) 
(i) through (xvi) of these specifications provided that the Contractor 
actively participates in the group, makes every effort to assure that 
the group has a positive impact on the employment of minorities and 
women in the industry, ensures that the concrete benefits of the program 
are reflected in the Contractor's minority and female workforce 
participation, makes a good faith effort to meet its individual goals 
and timetables, and can provide access to documentation which 
demonstrates the effectiveness of actions taken on behalf of the 
Contractor. The obligation to comply, however, is the Contractor's and 
failure of such a group to fulfill an obligation shall not be a defense 
for the Contractor's noncompliance.
    (i) A single goal for minorities and a separate single goal for 
women have been established. The Contractor, however, is required to 
provide equal employment opportunity and to take affirmative action for 
all minority groups, both male and female, and all women, both minority 
and non-minority. Consequently, the Contractor may be in violation of 
Executive Order 11246 if a particular group is employed in a 
substantially disparate manner (for example, even though the Contractor 
has achieved its goals for women

[[Page 757]]

generally, the Contractor may be in violation of Executive Order 11246 
if a specific minority group of women is underutilized).
    (j) The Contractor shall not use the goals and timetables or 
affirmative action standards to discriminate against any person because 
of race, color, religion, sex, or national origin.
    (k) The Contractor shall not enter into any Subcontract with any 
person or firm debarred from Government contracts pursuant to Executive 
Order 11246.
    (l) The Contractor shall carry out such sanctions and penalties for 
violation of these specifications and of the Equal Opportunity Clause, 
including suspension, termination and cancellation of existing 
subcontracts as may be imposed or ordered pursuant to Executive Order 
11246, as amended, and its implementing regulations, by the Office of 
Federal Contract Compliance Programs. Any Contractor who fails to carry 
out such sanctions and penalties shall be in violation of these 
specifications and Executive Order 11246, as amended.
    (m) The Contractor, in fulfilling its obligations under these 
specifications, shall implement specific affirmative action steps, at 
least as extensive as those standards prescribed in paragraph (g) of 
these specifications, so as to achieve maximum results from its efforts 
to ensure equal employment opportunity. If the Contractor fails to 
comply with the requirements of Executive Order 11246, the implementing 
regulations, or these specifications, the Director shall proceed in 
accordance with 41 CFR 60-4.8.
    (n) The Contractor shall designate a responsible official to monitor 
all employment related activity to ensure that the company EEO policy is 
being carried out, to submit reports relating to the provisions hereof 
as may be required by the Government and to keep records. Records shall 
at least include for each employee the name, address, telephone numbers, 
construction trade, union affiliation if any, employee identification 
number when assigned, social security number, race, sex, status (e.g., 
mechanic, apprentice, trainee, helper, or laborer), dates of changes in 
status, hours worked per week in the indicated trade, rate of pay, and 
locations at which the work was performed. Records shall be maintained 
in an easily understandable and retrievable form; however, to the degree 
that existing records satisfy this requirement, contractors shall not be 
required to maintain separate records.
    (o) Nothing herein provided shall be construed as a limitation upon 
the application of other laws which establish different standards of 
compliance or upon the application of requirements for the hiring of 
local or other area residents (e.g. those under the Public Works 
Employment Act of 1977 and the Community Development Block Grant 
Program).
    Section 4. In this Article VI--
    (a) The term ``Contractor'' shall also mean ``Bidder'' or 
``Subcontractor'' as applicable.
    (b) The provisions of sections 2 & 3 are applicable to the extent 
required by law. In determining whether these Sections are applicable, 
reference should be made to Office of Federal Contract Compliance 
Programs regulations (41 CFR part 60).

                               Article VII

                              Miscellaneous

    Section 1. Definitions.
    The term ``Completion of the Contract'' shall mean accomplishment of 
Completion of the Project for all central offices (and associated remote 
switching terminals), features and services listed under Column 1, 
``Project,'' in Article I, Section 1, and all alternates accepted by the 
Owner, on the Owner's Acceptance.
    The term ``Completion of Installation'' shall mean full performance 
by the Bidder of the Bidder's obligation under the Contract and all 
amendments and revisions thereof, for a Project, except that it shall 
not include the acceptance tests nor performance of the Bidder's 
obligations in respect of (i) releases of lien and Certificate of 
Contractor under Article III, section 2, hereof and (ii) other final 
documents. The actual date of Completion of Installation shall be the 
date the Bidder submits to the Owner written notification that the 
Project is completed in conformance with the Specifications and ready 
for the Owner's acceptance inspection and tests as provided for under 
Article II, section 4.
    The term ``Completion of the Project'' shall mean full performance 
by the Bidder of the Bidder's obligations herein set out and all 
amendments and revisions thereof for a central office (and all 
associated remote switching terminals), feature or service. The 
scheduled date for Completion of the Project is sixty (60) days after 
Completion of Installation as specified under Column 7, ``Completion of 
Installation,'' in Article I, section 1, as amended or adjusted under 
Article II, section 1, and section 4. The scheduled date for Completion 
of the Project is the date from which liquidated damages are computed. 
The actual date of Completion of the Project shall be the date of the 
receipt by the Owner from the Bidder of (a) all documents listed in 
Article III, section 2, (b) other final documents, and (c) written 
notification that all deficiencies listed on the RUS Form 517, Results 
of Acceptance Test, have been corrected; provided, that the final 
inspection and tests by the Owner finds the deficiencies satisfactorily 
resolved. If the deficiencies have not been satisfactorily resolved, the 
actual date of Completion of the Project shall be the date that the 
deficiencies are fully and satisfactorily resolved as determined by 
subsequent Owner's tests. The Certificate of

[[Page 758]]

Completion approved and signed by the Owner and approved in writing by 
the Administrator shall be conclusive evidence as to the fact of 
Completion of the Project and the date thereof. Full compliance with the 
procedure for ``Completion of the Project'' and an individual 
Certificate of Completion is required for each Project listed under 
Column 1, ``Project,'' in Article I, section 1.
    The Contract shall consist of the Notice and Instructions to 
Bidders, the Bidder's Proposal and the Owner's Acceptance, the 
Contractor's Bond and the Specifications.
    The term ``days'' shall mean calendar days.
    The term ``minor errors or irregularities'' shall mean a defect or 
variation in a Bidder'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.''
    The term ``placed in service'' shall mean used by the Owner to earn 
revenue.
    The term ``Project'' shall mean a central office and all associated 
remote switching terminals (if any), a remote switching terminal if 
purchased without a supporting central office, a feature (or group of 
features), or a service (or group of services), which is listed under 
Column 1, ``Project,'' in Article I, section 1. The only instance in 
which a remote switching terminal can constitute a separate Project is 
where such remote switching terminal is purchased with associated 
modifications to its supporting host switch but no other modifications 
to the host switch are specified. A Project will have a single 
completion schedule listed under Column 7, ``Completion of 
Installation,'' in Article I, section 1, and a single liquidated damages 
amount shown in Article V, section 2. The Contract may consist of one or 
more Projects.
    The term ``Software'' shall mean computer programs contained on a 
tape, disc, semiconductor device or other memory device or system memory 
consisting of logic instructions and instruction sequences in machine-
readable object code, which manipulate data in the central processor, 
control and perform input/output operations, perform error diagnostic 
and recovery routines, control call processing, and perform peripheral 
control, and administrative and maintenance functions; as well as 
associated documentation, excluding source code, used to describe, 
maintain and use the programs provided under the Contract.
    The term ``Specifications'' shall mean the minimum performance 
requirements of the Owner as contained in the documents listed below, 
which are either attached or become a part of the Contract by reference, 
as amended by specific written exceptions contained in the Bidder's 
proposal and accepted by the Owner and the Administrator:

RUS Form __________, dated ________

RUS Form __________, dated ________

    Section 2. Continuing Equipment Support--Parts, Service, and 
Software. In addition to warranty repairs and replacement, the Bidder 
shall offer repair service and repair parts to the Owner in accordance 
with the Bidder's practices and terms then in effect, for the Bidder's 
manufactured equipment furnished pursuant to this Agreement. Such repair 
service or repair parts shall be available for as long as the Bidder is 
manufacturing or stocking such equipment, or for no less than eight (8) 
years after the Bidder has ceased manufacturing or offering for sale 
such equipment. The Bidder shall also offer software support services to 
the Owner in accordance with the Bidder's practices, terms, and charges 
then in effect, but in any event for no less than five (5) years after 
the Bidder has ceased manufacturing or offering for sale such software.
    Section 3. Materials and Supplies. The Bidder shall use only such 
unmanufactured articles, materials and supplies as have been mined or 
produced in the United States, Mexico or Canada and only such 
manufactured articles, materials and supplies as have been manufactured 
in the United States, Mexico or Canada substantially all from articles, 
materials or supplies mined, produced or manufactured, as the case may 
be, in the United States, Mexico or Canada; provided that foreign 
articles, materials or supplies may be used in the event and to the 
extent that the Administrator shall expressly authorize in writing such 
use pursuant to the provisions of the Rural Electrification Act of 1938, 
being Title IV of Public Resolution No. 122, 75th Congress, approved 
June 21, 1938. The Bidder agrees to submit to the Owner such certificate 
or certificates, signed by the Bidder and all subcontractors, with 
respect to compliance with the foregoing provision as the Administrator 
from time to time may require.
    Section 4. Bond. The Bidder shall furnish to the Owner a 
Contractor's Bond in conformance with the requirements of 7 CFR part 
1788, subpart C.
    Section 5. Confidentiality. All information supplied by the Bidder 
to the Owner which bears a legend or notice restricting its use, 
copying, or dissemination, except insofar as it may be in the public 
domain through no acts attributable to the Owner, shall be treated by 
the Owner as confidential information, and the Owner shall not reproduce 
any such information except for its own internal use and as authorized 
by this Contract, and shall use any information only for archival 
backup, in-house training, operating, maintenance and administrative 
purposes and in conjunction with its use of the

[[Page 759]]

equipment, materials and software furnished hereunder. All information 
supplied to the Bidder by the Owner which bears a legend or notice 
restricting its use, copying, or dissemination, except insofar as it may 
be in the public domain through no acts attributable to the Bidder, 
shall be treated by the Bidder as confidential information, and shall 
not be used by the Bidder for any purpose adverse to the interests of 
the Owner, and shall not be reproduced or distributed by the Bidder 
except for the Bidder's use in its performance under this Contract. The 
foregoing confidentiality obligations do not apply to information which 
is independently developed by the receiving party or which is lawfully 
received by the receiving party free of restriction from another source 
having a right to so furnish such information, or is already known to 
the receiving party at the time of disclosure free of restriction. If 
the Bidder has failed to provide continuing equipment support as 
described in Article VII, section 2, the Owner is released from this 
obligation. This provision does not restrict release of information by 
the United States of America pursuant to the Freedom of Information Act 
or other legal process.
    Section 6. Entire Agreement. The terms and conditions of this 
Contract as approved by RUS supersede all prior oral or written 
understandings between the parties. There are no understandings or 
representations, expressed or implied, not expressly set forth herein.
    Section 7. Survival of Obligations. The rights and obligations of 
the parties, which by their nature, would continue beyond the 
termination, cancellation, or expiration of this Contract, shall survive 
such termination or expiration.
    Section 8. Non-Waiver. No waiver of any terms or conditions of this 
Contract, or the failure of either party to enforce strictly any such 
term or condition on one or more occasions, shall be construed as a 
waiver of the same or of any other terms or conditions of this Contract 
on any other occasion.
    Section 9. Releases Void. Neither party shall require releases or 
waivers of any personal rights from representatives or employees of the 
other in connection with visits to its premises, nor shall such parties 
plead such releases or waivers in any action or proceeding.
    Section 10. License. The Bidder shall comply with all applicable 
construction codes.
    (a) The Bidder warrants that it possesses contractor's license 
number ________ issued to it by the State of ________ in which the 
project(s) is located, and said license expires on ________, 19____.
    (b) The Bidder warrants that no license is required in the state in 
which the Project(s) is located.
    (Bidder shall cross out that subsection that does not apply)
    Section 11. Nonassignment of Contract. The Bidder shall not assign 
the Contract, effected by acceptance of this Proposal, or any part 
hereof, or enter into any contract with any person, firm or corporation, 
for the performance of the Bidder's obligations hereunder, or any part 
hereof, without the approval in writing of the Owner, the Surety, and 
the Administrator. However, the Bidder may subcontract the whole or any 
part of the installation work to be performed at the installation site, 
(as distinguished from furnishing and delivery of equipment and 
materials), provided that; (a) the Bidder shall remain responsible for 
the performance thereof and (b) the Bidder shall obtain the consent of 
the surety to such subcontract. A copy of such consent shall be 
submitted to the Owner and the Administrator.
    Section 12. Choice of Law. The rights and obligations of the parties 
and all interpretations and performance of this Contract shall be 
governed in all respects by the laws of the State of __________ except 
for its rules with respect to the conflict of laws.
    Section 13. Approval of the Administrator. The acceptance of this 
proposal by the Owner shall not create a contract unless such acceptance 
shall be approved in writing by the Administrator within ninety (90) 
days after the date hereof:

By______________________________________________________________________
(Signature of Bidder)

_______________________________________________________________________
(Name--Type or Print)

_______________________________________________________________________
(Title)

_______________________________________________________________________
(Company Name of Bidder)

_______________________________________________________________________

_______________________________________________________________________

(Address of Bidder)

Attest:

_______________________________________________________________________
(Secretary)

_______________________________________________________________________
(Date)

The Proposal must be signed with the full name of the Bidder. In the 
case of a partnership the Proposal must be signed in the firm name by 
each partner. In the case of a corporation the Proposal must be signed 
in the corporate name by a duly authorized officer and the Corporate 
seal affixed and attested by the Secretary of the Corporation.

(If executed by other than the President, a Vice-President, a partner or 
the individual owner, a power of attorney or other legally acceptable 
document authorizing execution shall accompany this contract, unless 
such power of attorney is on file with RUS.)

[[Page 760]]

                               Acceptance

    Subject to the approval of the Administrator, the Owner hereby 
accepts the Proposal of ____________________________

_______________________________________________________________________
for the Project(s) herein described for the Total Base Bid of
$ ______________ and

Alternate For:                                                          
  Spare Parts, Item(s)....................  $ ________                  
  Maintenance Tools, Item(s)..............  $ ________                  
Alternate No. 1 (add) (deduct)............  $ ________                  
Alternate No. 2 (add) (deduct)............  $ ________                  
Alternate No. 3 (add) (deduct)............  $ ________                  
Alternate No. 4 (add) (deduct)............  $ ________                  
Alternate No. 5 (add) (deduct)............  $ ________                  
Alternate No. 6 (add) (deduct)............  $ ________                  
    The total contract price is...........  $ ________                  
                                                                        

By______________________________________________________________________
OWNER

ATTEST:_________________________________________________________________
PRESIDENT

_______________________________________________________________________
SECRETARY

_______________________________________________________________________
DATE OF ACCEPTANCE

[End of clause]

(The information collection and recordkeeping requirements of this 
section have been approved by the Office of Management and Budget (OMB) 
under control number 0572-0059)

[59 FR 31126, June 17, 1994, as amended at 60 FR 1711, Jan. 5, 1995]
Secs. 1755.526--1755.699  [Reserved]



Sec. 1755.700  RUS specification for aerial service wires.

    Secs. 1755.701 through 1755.704 cover the requirements for aerial 
service wires.

[61 FR 26074, May 24, 1996]



Sec. 1755.701  Scope.

    (a) This section covers the requirements for aerial service wires 
intended for aerial subscriber drops.
    (b) The aerial service wires can be either copper coated steel 
reinforced or nonmetallic reinforced designs.
    (c) For the copper coated steel reinforced design, the reinforcing 
members are the conductors.
    (1) The conductors are solid copper-covered steel wires.
    (2) The wire structure is completed by insulating the conductors 
with an overall extruded plastic insulating compound.
    (d) For the nonmetallic reinforced design, the conductors are solid 
copper individually insulated with an extruded solid insulating 
compound.
    (1) The insulated conductors are either laid parallel (two conductor 
design only) or twisted into pairs (a star-quad configuration is 
permitted for two pair wires).
    (2) The wire structure is completed by the application of 
nonmetallic reinforcing members and an overall plastic jacket.
    (e) All wires sold to RUS borrowers for projects involving RUS loan 
funds under Secs. 1755.700 through 1755.704 must be accepted by RUS 
Technical Standards Committee ``A'' (Telecommunications). For wires 
manufactured to the specification of Secs. 1755.700 through 1755.704, 
all design changes to an accepted design must be submitted for 
acceptance. RUS will be the sole authority on what constitutes a design 
change.
    (f) Materials, manufacturing techniques, or wire designs not 
specifically addressed by Secs. 1755.700 through 1755.704 may be allowed 
if accepted by RUS. Justification for acceptance of modified materials, 
manufacturing techniques, or wire designs must be provided to 
substantiate product utility and long term stability and endurance.

[61 FR 26074, May 24, 1996]



Sec. 1755.702  Copper coated steel reinforced (CCSR) aerial service wire.

    (a) Conductors. (1) Each conductor shall comply with the 
requirements specified in the American National Standard Institute/
Insulated Cable Engineers Association, Inc. (ANSI/ICEA) S-89-648-1993, 
paragraphs 2.1 through 2.1.5. The ANSI/ICEA S-89-648-1993 Standard For 
Telecommunications Aerial Service Wire, Technical Requirements (approved 
by ANSI July 11, 1994) is incorporated by reference in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. Copies of ANSI/ICEA S-89-648-1993 are 
available for inspection during normal business hours at RUS, room 2845, 
U.S. Department of Agriculture, Washington, DC 20250-1500 or at the 
Office of the Federal Register, 800 North Capitol Street, NW., suite 
700, Washington, DC. Copies are available from ICEA, P. O. Box 440, 
South Yarmouth,

[[Page 761]]

MA 02664, telephone number (508) 394-4424.
    (2) Factory joints in conductors shall comply with the requirement 
specified in ANSI/ICEA S-89-648-1993, paragraph 2.1.6.
    (b) Conductor insulation. (1) The raw materials used for the 
conductor insulation shall comply with the requirements specified in 
ANSI/ICEA S-89-648-1993, paragraph 3.1.1.
    (2) The raw materials shall be accepted by RUS prior to their use.
    (3) The finished conductor insulation shall be free from holes, 
splits, blisters, or other imperfections and shall be as smooth as is 
consistent with best commercial practice.
    (4) The finished conductor insulation shall comply with the 
requirements specified in ANSI/ICEA S-89-648-1993, paragraphs 3.1.5 
through 3.1.5.4.
    (5) The insulation shall have a minimum spot thickness of not less 
than 0.9 millimeters (mm) (0.03 inches (in.)) at any point.
    (c) Wire assembly. (1) The two conductors shall be insulated in 
parallel to form an integral configuration.
    (2) The finished wire assembly shall be either a flat or a notched 
oval. Other finished wire assemblies may be used provided that they are 
accepted by RUS prior to their use.
    (3) The overall dimensions of the finished wire assembly shall be in 
accordance with the following requirements:

------------------------------------------------------------------------
                                                    Dimensions          
                                         -------------------------------
                Diameter                    Minimum  mm     Maximum  mm 
                                               (in.)           (in.)    
------------------------------------------------------------------------
Major...................................      5.5 (0.22)      8.0 (0.31)
Minor...................................      3.0 (0.12)      5.0 (0.19)
------------------------------------------------------------------------

    (d) Conductor marking. The insulated conductors of a finished wire 
shall be marked in accordance with the requirements specified in ANSI/
ICEA S-89-648-1993, paragraph 3.1.4.
    (e) Electrical requirements.--(1) Conductor resistance. The direct 
current (dc) resistance of each conductor in a completed CCSR aerial 
service wire shall comply with the requirement specified in ANSI/ICEA S-
89-648-1993, paragraph 7.1.2.
    (2) Wet mutual capacitance. The wet mutual capacitance of the 
completed CCSR aerial service wire shall comply with the requirement 
specified in ANSI/ICEA S-89-648-1993, paragraph 7.1.3.
    (3) Wet attenuation. The wet attenuation of the completed CCSR 
aerial service wire shall comply with the requirement specified in ANSI/
ICEA S-89-648-1993, paragraph 7.1.4.
    (4) Wet insulation resistance. The wet insulation resistance of the 
completed CCSR aerial service wire shall comply with the requirement 
specified in ANSI/ICEA S-89-648-1993, paragraph 7.1.5.
    (5) Dielectric strength. (i) The wet dielectric strength between 
conductors and between each conductor of the completed CCSR aerial 
service wire and the surrounding water shall comply with the requirement 
specified in ANSI/ICEA S-89-648-1993, paragraph 7.1.6.
    (ii) The dry dielectric strength between conductors of the completed 
CCSR aerial service wire shall comply with the requirement specified in 
ANSI/ICEA S-89-648-1993, paragraph 7.1.7.
    (6) Fusing coordination. The completed CCSR aerial service wire 
shall comply with the fusing coordination requirement specified in ANSI/
ICEA S-89-648-1993, paragraph 7.1.8.
    (7) Insulation imperfections. Each length of completed CCSR aerial 
service wire shall comply with the requirement specified in ANSI/ICEA S-
89-648-1993, paragraph 7.1.9.
    (f) Mechanical requirements.--(1) Impact test. (i) All CCSR aerial 
service wires manufactured in accordance with this section shall comply 
with the unaged impact test specified in ANSI/ICEA S-89-648-1993, 
paragraph 8.1.2.
    (ii) All CCSR aerial service wires manufactured in accordance with 
this section shall comply with the aged impact test specified in ANSI/
ICEA S-89-648-1993, paragraph 8.1.3.
    (2) Abrasion resistance test. All CCSR aerial service wires 
manufactured in accordance with this section shall comply with the 
abrasion resistance test specified in ANSI/ICEA S-89-648-1993, paragraph 
8.1.4.
    (3) Static load test. All CCSR aerial service wires manufactured in 
accordance with this section shall comply with the static load test 
specified in

[[Page 762]]

ANSI/ICEA S-89-648-1993, paragraph 8.1.5.
    (4) Plasticizer compatibility test. All CCSR aerial service wires 
manufactured in accordance with this section shall comply with the 
plasticizer compatibility test specified in ANSI/ICEA S-89-648-1993, 
paragraph 8.1.8.
    (g) Environmental requirements.--(1) Cold temperature handling test. 
(i) All CCSR aerial service wires manufactured in accordance with this 
section shall comply with the unaged cold temperature handling test 
specified in ANSI/ICEA S-89-648-1993, paragraph 8.2.1.
    (ii) All CCSR aerial service wires manufactured in accordance with 
this section shall comply with the aged cold temperature handling test 
specified in ANSI/ICEA S-89-648-1993, paragraph 8.2.2.
    (2) Light absorption test. All CCSR aerial service wires 
manufactured in accordance with this section shall comply with the light 
absorption test specified in ANSI/ICEA S-89-648-1993, paragraph 8.2.3.
    (3) Low temperature separation test. All CCSR aerial service wires 
manufactured in accordance with this section shall comply with the low 
temperature separation test specified in ANSI/ICEA S-89-648-1993, 
paragraph 8.2.4.
    (4) Flammability test. All CCSR aerial service wires manufactured in 
accordance with this section shall comply with the flammability test 
specified in ANSI/ICEA S-89-648-1993, paragraph 8.3.
    (5) Wire listing. All CCSR aerial service wires manufactured in 
accordance with this section shall comply with the listing requirements 
specified in ANSI/ICEA S-89-648-1993, paragraph 8.4.
    (h) Identification marker. Each length of CCSR aerial service wire 
shall be identified in accordance with ANSI/ICEA S-89-648-1993, 
paragraph 9.1.4. When surface marking is employed, the color of the 
initial marking shall be either white or silver.
    (i) Length marking (optional). (1) Sequentially numbered length 
marking of the completed CCSR aerial service wire may be used at the 
option of the manufacturer unless specified by the end user.
    (2) When sequentially numbered length markings are used, the length 
markings shall be in accordance with ANSI/ICEA S-89-648-1993, paragraph 
9.1.5. The color of the initial marking shall be either white or silver.
    (j) Durability of marking. The durability of the marking of the CCSR 
aerial service wire shall comply with the requirements specified in 
ANSI/ICEA S-89-648-1993, paragraph 9.1.6.

[61 FR 26075, May 24, 1996]



Sec. 1755.703   Nonmetallic reinforced (NMR) aerial service wire.

    (a) Conductors. (1) Each conductor shall comply with the 
requirements specified in ANSI/ICEA S-89-648-1993, paragraphs 2.2 and 
2.2.1. The ANSI/ICEA S-89-648-1993 Standard For Telecommunications 
Aerial Service Wire, Technical Requirements (approved by ANSI July 11, 
1994) is incorporated by reference in accordance with 5 U.S.C. 552(a) 
and 1 CFR part 51. Copies of ANSI/ICEA S-89-648-1993 are available for 
inspection during normal business hours at RUS, room 2845, U.S. 
Department of Agriculture, Washington, DC 20250-1500 or at the Office of 
the Federal Register, 800 North Capitol Street, NW., suite 700, 
Washington, DC. Copies are available from ICEA, P. O. Box 440, South 
Yarmouth, MA 02664, telephone number (508) 394-4424.
    (2) Factory joints made in the conductors during the manufacturing 
process shall comply with the requirement specified in ANSI/ICEA S-89-
648-1993, paragraph 2.2.2.
    (b) Conductor insulation. (1) The raw materials used for the 
conductor insulation shall comply with the requirements specified in 
ANSI/ICEA S-89-648-1993, paragraphs 3.2 through 3.2.2.
    (2) The finished conductor insulation shall comply with the 
requirements specified in ANSI/ICEA S-89-648-1993, paragraph 3.2.3.
    (3) The dimensions of the insulated conductors shall comply with the 
requirements specified in ANSI/ICEA S-89-648-1993, paragraph 3.2.3.1.
    (4) The colors of the insulation shall comply with the requirements 
specified in ANSI/ICEA S-89-648-1993, paragraph 3.2.3.2.
    (5) A permissible overall performance level of faults in conductor 
insulation shall comply with the requirement specified in ANSI/ICEA S-
89-648-1993,

[[Page 763]]

paragraph 3.2.4.6. The length count and number of faults shall be 
recorded. The information shall be retained for a period of 6 months and 
be available for review by RUS when requested.
    (6) Repairs to the conductor insulation during manufacture are 
permissible. The method of repair shall be accepted by RUS prior to its 
use. The repaired insulation shall comply with the requirement specified 
in ANSI/ICEA S-89-648-1993, paragraph 3.2.3.3.
    (7) All repaired sections of insulation shall be retested in the 
same manner as originally tested for compliance with paragraph (b)(5) of 
this section.
    (8) The colored insulating material removed from or tested on the 
conductor, from a finished wire shall comply with the requirements 
specified in ANSI/ICEA S-89-648-1993, paragraphs 3.2.4 through 3.2.4.5.
    (c) Identification of pairs and layup of pairs. (1) The insulation 
shall be colored coded to identify:
    (i) The tip and ring conductor of each pair; and
    (ii) Each pair in the completed wire.
    (2) The colors to be used in the pairs together with the pair 
numbers shall be in accordance with the table specified in ANSI/ICEA S-
89-648-1993, paragraph 4.1.1.
    (3) The insulated conductors shall be either layed parallel (two 
conductor design only) or twisted into pairs.
    (4) When using parallel conductors for the two conductor design, the 
parallel conductors shall be designed to enable the wire to meet the 
electrical requirements specified in paragraph (g) of this section.
    (5) When twisted pairs are used, the following requirements shall be 
met:
    (i) The pair twists shall be designed to enable the wire to meet the 
electrical requirements specified in paragraph (g) of this section; and
    (ii) The average length of pair twists in any pair in the finished 
wire, when measured on any 3 meter (10 foot) length, shall not exceed 
the requirement specified in ANSI/ICEA S-89-648-1993, paragraph 4.1.
    (6) An alternative method of forming the two-pair wire is the use of 
a star-quad configuration.
    (i) The assembly of the star-quad shall be such as to enable the 
wire to meet the electrical requirements specified in paragraph (g) of 
this section.
    (ii) The star-quad configuration shall be assembled in accordance 
with ANSI/ICEA S-89-648-1993, paragraph 4.1.2.
    (iii) The average length of twist for the star-quad in the finished 
wire, when measured on any 3 meter (10 foot) length, shall not exceed 
the requirement specified in ANSI/ICEA S-89-648-1993, paragraph 4.1.
    (iv) The color scheme used to provide identification of the tip and 
ring conductors of each pair in the star-quad shall comply with the 
table specified in ANSI/ICEA S-89-648-1993, paragraph 4.1.2.
    (d) Strength members. The strength members shall comply with the 
requirements specified in ANSI/ICEA S-89-648-1993, paragraphs 6.1 and 
6.1.1.
    (e) Wire jacket. (1) The jacket shall comply with the requirements 
specified in ANSI/ICEA S-89-648-1993, paragraphs 5.1 and 5.1.1.
    (2) The jacket raw materials shall be accepted by RUS prior to their 
use.
    (f) Wire assembly. The finished wire assembly shall be in accordance 
with ANSI/ICEA S-89-648-1993, paragraph 5.1.3 and Figure 5-1.
    (g) Electrical requirements.--(1) Conductor resistance. The dc 
resistance of each conductor in a completed NMR aerial service wire 
shall comply with the requirement specified in ANSI/ICEA S-89-648-1993, 
paragraph 7.2.2.
    (2) Resistance unbalance. (i) The dc resistance unbalance between 
the two conductors of any pair in a completed NMR aerial service wire 
and the average resistance unbalance of all pairs in a Quality Control 
Lot shall comply with the requirements specified in ANSI/ICEA S-89-648-
1993, paragraph 7.2.3.
    (ii) The resistance unbalance between tip and ring conductors shall 
be random with respect to the direction of unbalance. That is, the 
resistance of the tip conductors shall not be consistently higher with 
respect to the ring conductors and vice versa.
    (3) Dry mutual capacitance. The dry mutual capacitance of the 
completed NMR aerial service wire shall comply with the requirements 
specified in ANSI/ICEA S-89-648-1993, paragraph 7.2.4, Type 1.

[[Page 764]]

    (4) Pair-to-pair capacitance unbalance. The pair-to-pair capacitance 
unbalance as measured on the completed NMR aerial service wire shall 
comply with the requirements specified in ANSI/ICEA S-89-648-1993, 
paragraph 7.2.5.
    (5) Attenuation. (i) The dry attenuation of the completed NMR aerial 
service wire shall comply with the requirement specified in ANSI/ICEA S-
89-648-1993, paragraph 7.2.7.
    (ii) The wet attenuation of the completed NMR aerial service wire 
shall comply with the requirement specified in ANSI/ICEA S-89-648-1993, 
paragraph 7.2.8.
    (6) Insulation resistance. (i) The dry insulation resistance of the 
completed NMR aerial service wire shall comply with the requirement 
specified in ANSI/ICEA S-89-648-1993, paragraph 7.2.9.
    (ii) The wet insulation resistance of the completed NMR aerial 
service wire shall comply with the requirement specified in ANSI/ICEA S-
89-648-1993, paragraph 7.2.10.
    (7) Wet dielectric strength. The wet dielectric strength between 
conductors and between each conductor of the completed NMR aerial 
service wire and the surrounding water shall comply with the requirement 
specified in ANSI/ICEA S-89-648-1993, paragraph 7.2.11.
    (8) Fusing coordination. The completed NMR aerial service wire shall 
comply with the fusing coordination requirement specified in ANSI/ICEA 
S-89-648-1993, paragraph 7.2.13.
    (9) Crosstalk loss. (i) The output-to-output far-end crosstalk loss 
(FEXT) for any pair of completed NMR aerial service wire shall comply 
with the requirement specified in ANSI/ICEA S-89-648-1993, paragraph 
7.2.14.
    (ii) The input-to-input near-end crosstalk loss (NEXT) for any pair 
of completed NMR aerial service wire shall comply with the requirement 
specified in ANSI/ICEA S-89-648-1993, paragraph 7.2.14.
    (h) Mechanical requirements--(1) Impact test. (i) All NMR aerial 
service wires manufactured in accordance with this section shall comply 
with the unaged impact test specified in Sec. 1755.702(f)(1)(i).
    (ii) All NMR aerial service wires manufactured in accordance with 
this section shall comply with the aged impact test specified in 
Sec. 1755.702(f)(1)(ii).
    (2) Abrasion resistance test. All NMR aerial service wires 
manufactured in accordance with this section shall comply with the 
abrasion resistance test specified in Sec. 1755.702(f)(2).
    (3) Static load test. All NMR aerial service wires manufactured in 
accordance with this section shall comply with the static load test 
specified in Sec. 1755.702(f)(3).
    (4) Elongation test. All NMR aerial service wires manufactured in 
accordance with this section shall comply with the elongation test 
specified in ANSI/ICEA S-89-648-1993, paragraph 8.1.7.
    (5) Plasticizer compatibility test. All NMR aerial service wires 
manufactured in accordance with this section shall comply with the 
plasticizer compatibility test specified in Sec. 1755.702(f)(4).
    (i) Environmental requirements.--(1) Cold temperature handling test. 
(i) All NMR aerial service wires manufactured in accordance with this 
section shall comply with the unaged cold temperature handling test 
specified in Sec. 1755.702(g)(1)(i).
    (ii) All NMR aerial service wires manufactured in accordance with 
this section shall comply with the aged cold temperature handling test 
specified in Sec. 1755.702(g)(1)(ii).
    (2) Light absorption test. All NMR aerial service wires manufactured 
in accordance with this section shall comply with the light absorption 
test specified in Sec. 1755.702(g)(2).
    (3) Flammability test. All NMR aerial service wires manufactured in 
accordance with this section shall comply with the flammability test 
specified in Sec. 1755.702(g)(4).
    (4) Wire listing. All NMR aerial service wires manufactured in 
accordance with this section shall comply with the listing requirements 
specified in Sec. 1755.702(g)(5).
    (j) Ripcord (optional). (1) A ripcord may be used in the NMR aerial 
service wire structure at the option of the manufacturer unless 
specified by the end user.
    (2) When a ripcord is used it shall comply with the requirements 
specified

[[Page 765]]

in ANSI/ICEA S-89-648-1993, paragraphs 4.2 through 4.2.3.
    (k) Identification marker. Each length of NMR aerial service wire 
shall be identified in accordance with ANSI/ICEA S-89-648-1993, 
paragraphs 9.1 through 9.1.4. When surface marking is employed, the 
color of the initial marking shall be either white or silver.
    (l) Length marking (optional). (1) Sequentially numbered length 
marking of the completed NMR aerial service wire may be used at the 
option of the manufacturer unless specified by the end user.
    (2) When sequentially numbered length markings are used, the length 
markings shall be in accordance with in accordance with 
Sec. 1755.702(i)(2).
    (m) Durability of marking. The durability of the marking of the NMR 
aerial service wire shall comply with the requirements specified in 
Sec. 1755.702(j).

[61 FR 26076, May 24, 1996]



Sec. 1755.704   Requirements applicable to both CCSR and NMR aerial service wires.

    (a) Acceptance testing. (1) The tests described in Secs. 1755.700 
through 1755.704 are intended for acceptance of wire designs and major 
modifications of accepted designs. What constitutes a major modification 
is at the discretion of RUS. These tests are intended to show the 
inherent capability of the manufacturer to produce wire products having 
long life and stability.
    (2) For initial acceptance, the manufacturer shall:
    (i) Certify that the product fully complies with each paragraph in 
Secs. 1755.700 through 1755.704;
    (ii) Agree to periodic plant inspections by RUS;
    (iii) Certify whether the product complies with the domestic origin 
manufacturing provisions of the ``Buy American'' requirements of the 
Rural Electrification Act of 1938 (7 U.S.C. 903 note), as amended (the 
``REA Buy-American provision'');
    (iv) Submit at least three written user testimonials concerning 
field performance of the product; and
    (v) Provide any other nonpropriety data deemed necessary by the 
Chief, Outside Plant Branch (Telecommunications).
    (3) In order for RUS to consider a manufacturer's request that a 
product be requalified, the manufacturer shall certify not later than 
June 30 of the year in which requalification is required, that the 
product:
    (i) Fully complies with each paragraph in Secs. 1755.700 through 
1755.704; and
    (ii) Does or does not comply with the domestic origin manufacturing 
provisions of the REA Buy American provisions.The required 
certifications shall be dated within 90 days of the submission.
    (4) Initial and requalification acceptance requests should be 
addresses to: Chairman, Technical Standards Committee ``A'' 
(Telecommunications), Telecommunications Standards Division, Rural 
Utilities Service, AG Box 1598, Washington, DC 20250-1598.
    (b) Extent of testing--(1) Tests on 100 percent of completed wire. 
(i) Each conductor in the completed CCSR and NMR aerial service wire 
shall be tested for continuity in accordance with ANSI/ICEA S-89-648-
1993, paragraphs 7.1.1 and 7.2.1, respectively. The ANSI/ICEA S-89-648-
1993 Standard For Telecommunications Aerial Service Wire, Technical 
Requirements (approved by ANSI July 11, 1994) is incorporated by 
reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies 
of ANSI/ICEA S-89-648-1993 are available for inspection during normal 
business hours at RUS, room 2845, U.S. Department of Agriculture, 
Washington, DC 20250-1500 or at the Office of the Federal Register, 800 
North Capitol Street, NW., suite 700, Washington, DC. Copies are 
available from ICEA, P. O. Box 440, South Yarmouth, MA 02664, telephone 
number (508) 394-4424.
    (ii) Each conductor in the completed CCSR and NMR aerial service 
wire shall be tested for shorts in accordance with ANSI/ICEA S-89-648-
1993, paragraphs 7.1.1 and 7.2.1, respectively.
    (iii) Each length of completed CCSR and NMR aerial service wire 
shall be tested for insulation imperfections in accordance with 
Sec. 1755.702(e)(7) and Sec. 1755.703(b)(5), respectively.
    (2) Capability tests. Tests on a quality assurance basis shall be 
made as frequently as is required for each manufacturer to determine and 
maintain compliance with:

[[Page 766]]

    (i) Performance of the conductors;
    (ii) Performance of the conductor insulation and jacket material;
    (iii) Sequential marking and lettering;
    (iv) Mutual capacitance, capacitance unbalance, attenuation, and 
crosstalk;
    (v) Conductor resistance, resistance unbalance, and insulation 
resistance;
    (vi) Dielectric strength and fusing coordination;
    (vii) Impact, abrasion, static load, elongation, and plasticizer 
compatibility tests; and
    (viii) Cold temperature handling, light absorption, low temperature 
separation, and flammability tests.
    (c) Summary of records of electrical and physical tests. (1) Each 
manufacturer shall maintain suitable summary records for a period of at 
least 3 years of all electrical and physical tests required on completed 
wire as set forth in paragraph (b) of this section. The test data for a 
particular lot of aerial service wire shall be in a form such that it 
may be readily available to the purchaser or to RUS upon request.
    (2) Measurements and computed values shall be rounded off to the 
number of places or figures specified for the requirement according to 
ANSI/ICEA S-89-648-1993, paragraph 1.3.
    (d) Manufacturing irregularities. (1) Repairs to the insulation of 
CCSR aerial service wires are not permitted in wires supplied to end 
users under Secs. 1755.700 through 1755.704.
    (2) Repairs to the jacket of NMR aerial service wires are not 
permitted in wires supplied to end users under Secs. 1755.700 through 
1755.704.
    (e) Splicing. Splicing of completed CCSR and NMR aerial service 
wires shall comply with the requirement specified in ANSI/ICEA S-89-648-
1993, paragraph 8.1.1.
    (f) Preparation for shipment. (1) CCSR and NMR aerial service wire 
shall be shipped either in coils or on reels.
    (2) When CCSR and NMR aerial service wires are shipped on reels the 
following provisions shall apply:
    (i) The diameter of the drum shall be large enough to prevent damage 
to the wire from reeling or unreeling. The reels shall be substantial 
and so constructed as to prevent damage to the wire during shipment and 
handling;
    (ii) A waterproof corrugated board or other suitable means of 
protection accepted by RUS prior to its use may be applied to the reel. 
If the waterproof corrugated board or other suitable material is used 
for protection, it shall be suitably secured in place to prevent damage 
to the wire during storage and handling. The use of the waterproof 
corrugated board or other suitable means of protection shall be at the 
option of the manufacturer unless specified by the end user;
    (iii) The outer end of the wire shall be securely fastened to the 
reel head so as to prevent the wire from becoming loose in transit. The 
inner end of the wire shall be securely fastened in such a way as to 
make it readily available if required for electrical testing. Spikes, 
staples, or other fastening devices which penetrate the conductor 
insulation of the CCSR aerial service wire and the jacket of the NMR 
aerial service wire shall not be used. The method of fastening the wire 
ends shall be accepted by RUS prior to their use;
    (iv) Each length of wire shall be wound on a separate reel;
    (v) Each reel shall be plainly marked to indicate the direction in 
which it should be rolled to prevent loosening of the wire on the reel; 
and
    (vi) Each reel shall be stenciled or labeled on either one or both 
sides with the following information:
    (A) Customer order number;
    (B) Manufacturer's name and product code;
    (C) Factory reel number and year of manufacture;
    (D) Gauge of conductors and pair size of wire;
    (E) Length of wire; and
    (F) RUS designation letter ``K.''
    (3) When CCSR and NMR aerial service wires are shipped in coils the 
following provisions shall apply:
    (i) The diameter of the coil shall be large enough to prevent damage 
to the wire from coiling or uncoiling;
    (ii) The nominal length of the wire in a coil shall be 305 meters 
(1,000 feet). No coil shall be less than 290 meters (950 feet) long or 
more than 460 meters (1,500 feet) long; however, 25 percent of the total 
number of coils may be less than 305 meters (1,000 feet);

[[Page 767]]

    (iii) The coils of wire shall be wound securely with strong tape in 
four separate evenly spaced places;
    (iv) The coils may be protected from damage by wrapping the coil 
with heavy paper, burlap, or other suitable material accepted by RUS 
prior to its use. The use of the heavy paper, burlap, or other suitable 
means of protection shall be at the option of the manufacturer unless 
specified by the end user; and
    (v) Each coil shall be tagged with the following information:
    (A) Customer order number;
    (B) Manufacturer's name and product code;
    (C) Year of manufacture;
    (D) Gauge of conductors and pair size of wire;
    (E) Length of wire; and
    (F) RUS designation letter ``K.''
    (4) In lieu of wrapping the coil with heavy paper, burlap, or other 
suitable material, the coil may be packaged in a moisture resistant 
carton.
    (5) When the coils are shipped in moisture resistant cartons, each 
carton shall be marked with the information specified in paragraphs 
(f)(3)(v)(A) through (f)(3)(v)(F) of this section.
    (6) Other methods of shipment may be used if accepted by RUS prior 
to their use.
    (7) When NMR aerial service wire is shipped, the ends of the wire 
shall be sealed in accordance with ANSI/ICEA S-89-648-1993, paragraph 
9.2.

[61 FR 26077, May 24, 1996]
Secs. 1755.705--1755.859  [Reserved]



Sec. 1755.860  RUS specification for filled buried wires.

    (a) Scope. (1) This section covers the requirements for filled 
buried wires intended for direct burial as a subscriber drop and/or 
distribution wire.
    (i) The conductors are solid copper, individually insulated with an 
extruded solid insulating compound.
    (ii) The insulated conductors are twisted into pairs (a star-quad 
configuration is permitted for the two pair wires) which are then 
stranded or oscillated to form a cylindrical core.
    (iii) A moisture resistant filling compound is applied to the 
stranded conductors completely covering the insulated conductors and 
filling the interstices between the pairs.
    (iv) The wire structure is completed by the application of an 
optional core wrapping material, an inner jacket, a flooding compound, a 
shield, a flooding compound, and an overall plastic jacket.
    (2) The number of pairs and gauge size of conductors which are used 
within the RUS program are provided in the following table:

American Wire Gauge (AWG)         22................  24                
Pairs                             2.................  2                 
                                  3.................  3                 
------------------------------------------------------------------------

    (3) All wires sold to RUS borrowers for projects involving RUS loan 
funds under this section must be accepted by RUS Technical Standards 
Committee ``A'' (Telephone). For wires manufactured to the specification 
of this section, all design changes to an accepted design must be 
submitted for acceptance. RUS will be the sole authority on what 
constitutes a design change.
    (4) Materials, manufacturing techniques, or wire designs not 
specifically addressed by this section may be allowed if accepted by 
RUS. Justification for acceptance of modified materials, manufacturing 
techniques, or wire designs must be provided to substantiate product 
utility and long term stability and endurance.
    (5) The American National Standards Institute/Electronic Industries 
Association (ANSI/EIA) 359-A-84, EIA Standard Colors for Color 
Identification and Coding, referenced in this section is incorporated by 
reference by RUS. This incorporation by reference was approved by the 
Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 
1 CFR part 51. Copies of ANSI/EIA 359-A-84 are available for inspection 
during normal business hours at RUS, room 2845, U.S Department of 
Agriculture, Washington, DC 20250-1500 or at the Office of the Federal 
Register, 800 North Capitol Street, NW., suite 700, Washington, DC. 
Copies are available from EIA, 2001 Pennsylvania Avenue, NW., suite 900, 
Washington, DC 20006, telephone number (202) 457-4966.
    (6) American Society for Testing and Materials specifications (ASTM) 
A 505-87, Standard Specification for Steel,

[[Page 768]]

Sheet and Strip, Alloy, Hot-Rolled and Cold-Rolled, General Requirements 
for; ASTM B 3-90, Standard Specification for Soft or Annealed Copper 
Wire; ASTM B 193-87, Standard Test Method for Resistivity of Electrical 
Conductor Materials; ASTM B 224-91, Standard Classification of Coppers; 
ASTM B 694-86, Standard Specification for Copper, Copper Alloy, and 
Copper-Clad Stainless Steel Sheet and Strip for Electrical Cable 
Shielding; ASTM D 150-87, Standard Test Methods for A-C Loss 
Characteristics and Permittivity (Dielectric Constant) of Solid 
Electrical Insulating Materials; ASTM D 257-91, Standard Test Methods 
for D-C Resistance or Conductance of Insulating Materials; ASTM D 1238-
90b, Standard Test Method for Flow Rates of Thermoplastics by Extrusion 
Plastometer; ASTM D 1248-84(1989), Standard Specification for 
Polyethylene Plastics Molding and Extrusion Materials; ASTM D 1535-89, 
Standard Test Method for Specifying Color by the Munsell System; ASTM D 
3349-86, Standard Test Method for Absorption Coefficient of Carbon Black 
Pigmented Ethylene Plastic; ASTM D 4101-82(1988), Standard Specification 
for Propylene Plastic Injection and Extrusion Materials; ASTM D 4565-
90a, Standard Test Methods for Physical and Environmental Performance 
Properties of Insulations and Jackets for Telecommunications Wire and 
Cable; ASTM D 4566-90, Standard Test Methods for Electrical Performance 
Properties of Insulations and Jackets for Telecommunications Wire and 
Cable; ASTM D 4568-86, Standard Test Methods for Evaluating 
Compatibility between Cable Filling and Flooding Compounds and 
Polyolefin Cable Materials; ASTM D 4872-88, Standard Test Method for 
Dielectric Testing of Wire and Cable Filling Compounds; ASTM E 8-91, 
Standard Test Methods of Tension Testing of Metallic Materials; and ASTM 
E 29-90, Standard Practice for Using Significant Digits in Test Data to 
Determine Conformance with Specifications, referenced in this section 
are incorporated by reference by RUS. These incorporations by references 
were approved by the Director of the Federal Register in accordance with 
5 U.S.C. 552(a) and 1 CFR part 51. Copies of the ASTM standards are 
available for inspection during normal business hours at RUS, room 2845, 
U.S. Department Agriculture, Washington, DC 20250-1500 or at the Office 
of the Federal Register, 800 North Capitol Street, NW., suite 700, 
Washington, DC. Copies are available from ASTM, 1916 Race Street, 
Philadelphia, Pennsylvania 19103-1187, telephone number (215) 299-5585.
    (b) Conductors and conductor insulation. (1) Each conductor must be 
a solid round wire of commercially pure annealed copper. Conductors must 
meet the requirements of the American Society for Testing and Materials 
(ASTM) B 3-90 except that requirements for Dimensions and Permissible 
Variations are waived and elongation requirements are superseded by this 
section.
    (2) The minimum conductor elongation in the final wire must comply 
with the following limits when tested in accordance with ASTM E 8-91.

------------------------------------------------------------------------
                                                     Minimum Elongation--
                   Conductor--AWG                          Percent      
------------------------------------------------------------------------
22                                                             20       
24                                                             16       
------------------------------------------------------------------------

    (3) Joints made in conductors during the manufacturing process may 
be brazed, using a silver alloy solder and nonacid flux, or they may be 
welded using either an electrical or cold welding technique. In joints 
made in uninsulated conductors, the two conductor ends must be butted. 
Splices made in insulated conductors need not be butted but may be 
joined in a manner acceptable to RUS.
    (4)(i) The tensile strength of any section of a conductor containing 
a factory joint must not be less than 85 percent of the tensile strength 
of an adjacent section of the solid conductor of equal length without a 
joint.
    (ii) Engineering Information: The sizes of wire used and their 
nominal diameters shall be as shown in the following table:

[[Page 769]]



------------------------------------------------------------------------
                                               Nominal Diameter         
                AWG                 ------------------------------------
                                      Millimeters (mm)    (Inches (in.))
------------------------------------------------------------------------
22                                   0.643               (0.0253)       
24                                   0.511               (0.0201)       
------------------------------------------------------------------------

    (5) Each conductor must be insulated with either a colored, solid, 
insulating grade, high density polyethylene or crystalline propylene/
ethylene copolymer or with a solid natural primary layer and a colored, 
solid outer skin using one of the insulating materials listed in 
paragraphs (b)(5)(i) through (b)(5)(ii) of this section.
    (i) The polyethylene raw material selected to meet the requirements 
of this section must be Type III, Class A, Category 4 or 5, Grade E9, in 
accordance with ASTM D 1248-84(1989).
    (ii) The crystalline propylene/ethylene raw material selected to 
meet the requirements of this section must be Class PP 200B 40003 E11 in 
accordance with ASTM D 4101-82(1988).
    (iii) Raw materials intended as conductor insulation furnished to 
these requirements must be free from dirt, metallic particles, and other 
foreign matter.
    (iv) All insulating raw materials must be accepted by RUS prior to 
their use.
    (6) All conductors in any single length of wire must be insulated 
with the same type of material.
    (7) A permissible overall performance level of faults in conductor 
insulation must average not greater than one fault per 12,000 conductor 
meters (40,000 conductor feet) for each gauge of conductor.
    (i) All insulated conductors must be continuously tested for 
insulation faults during the twinning operation with the method of test 
acceptable to RUS. The length count and number of faults must be 
recorded. The information must be retained for a period of 6 months and 
be available for review by RUS when requested.
    (ii) The voltages for determining compliance with the requirements 
of this section are as follows:

------------------------------------------------------------------------
                                               Direct Current Voltages  
                    AWG                              (Kilovolts)        
------------------------------------------------------------------------
22                                          6.0                         
24                                          5.0                         
------------------------------------------------------------------------

    (8) Repairs to the conductor insulation during manufacturing are 
permissible. The method of repair must be accepted by RUS prior to its 
use. The repaired insulation must be capable of meeting the relevant 
electrical requirements of this section.
    (9) All repaired sections of insulation must be retested in the same 
manner as originally tested for compliance with paragraph (b)(7) of this 
section.
    (10) Colored insulating material removed from or tested on the 
conductor, from a finished wire, must be capable of meeting the 
following performance requirements:

------------------------------------------------------------------------
                                                           Crystalline  
                                                           Propylene/   
             Property                  Polyethylene         Ethylene    
                                                            Copolymer   
------------------------------------------------------------------------
Melt Flow Rate                                                          
  Percent increase from raw                                             
   material, Maximum.                                                   
  <0.5 (Initial Melt Index).......  50                      --          
  0.5-2.00 (Initial Melt Index)...  25                      --          
  5.0 (Initial Melt          --              110             
   Index).                                                              
                                                                        
Tensile Strength--Minimum                                               
  Megapascals (MPa)...............  16.5                21.0            
  (Pounds per Square Inch (psi))..  (2,400)             (3,000)         
                                                                        
Ultimate Elongation                                                     
  Minimum, Percent................  300                 300             
Cold Bend                                                               
  Failures, Maximum...............  0/10                0/10            
Shrinkback                                                              
  Maximum, mm (in.)...............  10 (0.375)          10 (0.375)      
Oxygen Induction Time                                                   
  Minimum, Minutes................  20                  20              
------------------------------------------------------------------------


[[Page 770]]

    (11) Testing procedures. The procedures for testing the insulation 
samples for compliance with paragraph (b)(10) of this section must be as 
follows.
    (i) Melt flow rate. The melt flow rate must be determined as 
described in ASTM D 1238-90b. Condition E must be used for polyethylene. 
Condition L must be used for crystalline propylene/ethylene copolymer. 
The melt flow test must be conducted prior to the filling operation.
    (ii) Tensile strength and ultimate elongation. Samples of the 
insulation material, removed from the conductor, must be tested in 
accordance with ASTM D 4565-90a using the following conditions. The 
minimum length of unclamped specimen must be 50 mm (2.0 in.). The 
minimum speed of jaw separation must be 25 mm (1.0 in.) per minute per 
25 mm (1.0 in.) of unclamped specimen. The temperature of specimens and 
surrounding shall be 23  1 deg.C.

    Note: Quality assurance testing at a jaw separation speed of 500 mm/
min (20 in./min) is permissible. Failures at this rate must be retested 
at the 50 mm/min (2 in./min) rate to determine section compliance.

    (iii) Cold bend. Samples of the insulation material on the conductor 
must be tested in accordance with ASTM D 4565-90a at a temperature of 
-40  1 deg.C with a mandrel diameter equal to 3 times the 
outside diameter of the insulated conductor. There must be no cracks 
visible to normal or corrected-to-normal vision.
    (iv) Shrinkback. Samples of insulation must be tested for four hours 
in accordance with ASTM D 4565-90a. The temperature for the type of 
material is listed as follows:

------------------------------------------------------------------------
                 Material                            Temperature        
------------------------------------------------------------------------
Polyethylene                                115  1C         
Crystalline propylene/ethylene Copolymer    130  1C         
------------------------------------------------------------------------

    (v) Oxygen induction time. Samples of insulation, which have been 
conditioned in accordance with paragraph 17.3 of ASTM D 4565-90a, must 
be tested in accordance with the procedures of ASTM D 4565-90a using 
copper pans and a test temperature of 199  1 deg.C.
    (12) Other methods of testing may be used if acceptable to RUS.
    (c) Identification of pairs and twisting of pairs. (1) The 
insulation must be colored to identify:
    (i) The tip and ring conductor of each pair; and
    (ii) Each pair in the completed wire.
    (2) The colors to be used to provide identification of the tip and 
ring conductor of each pair are shown in the following table:

------------------------------------------------------------------------
                                                      Color             
               Pair No.                ---------------------------------
                                              Tip              Ring     
------------------------------------------------------------------------
1                                       White            Blue           
2                                       White            Orange         
3                                       White            Green          
------------------------------------------------------------------------

    (3) Standards of color. The colors of the insulated conductors 
supplied in accordance with this section are specified in terms of the 
Munsell Color System (ASTM D 1535-89) and must comply with the ``Table 
of Wire and Cable Limit Chips'' as defined in ANSI/EIA-359-A-84. (Visual 
color standards meeting these requirements may be obtained directly from 
the Munsell Color Company, Inc., 2441 North Calvert Street, Baltimore, 
Maryland 21218).
    (4) Positive identification of the tip and ring conductors of each 
pair by marking each conductor of a pair with the color of its mate is 
permissible. The method of marking must be accepted by RUS prior to its 
use.
    (5) Other methods of providing positive identification of the tip 
and ring conductors of each pair may be employed if accepted by RUS 
prior to its use.
    (6) The insulated conductors must be twisted into pairs.
    (7) In order to provide sufficiently high crosstalk isolation, the 
pair twists must be designed to enable the wire to meet the capacitance 
unbalance and the crosstalk loss requirements of paragraphs (m)(2), 
(m)(3), and (m)(4) of this section.
    (8) The average length of pair twists in any pair in the finished 
wire, when measured on any 3 meter (m) (10 foot(ft)) length, must not 
exceed 152 mm (6 in.).
    (9) An alternative method of forming the two pair wire is the use of 
a star-quad configuration.
    (i) The assembly of the star-quad must be such as to enable the wire 
to

[[Page 771]]

meet the capacitance unbalance and the crosstalk loss requirements of 
paragraphs (m)(2), (m)(3), and (m)(4) of this section.
    (ii) The four individual insulated conductors must be twisted 
together to form a star-quad configuration with the tip and ring 
conductors of each pair diagonally opposite each other in the quad.
    (iii) The average length of twist for the star-quad in the finished 
wire, when measured on any 3 m (10 ft) length, must not exceed 152 mm (6 
in.).
    (iv) The following color scheme must be used to provide 
identification of the tip and ring conductor of each pair in the star-
quad:

------------------------------------------------------------------------
                                                   Color                
            Pair No.             ---------------------------------------
                                          Tip                Ring       
------------------------------------------------------------------------
1                                 White with blue     Blue              
                                   stripe.                              
2                                 White with orange   Orange            
                                   stripe.                              
------------------------------------------------------------------------

    (v) If desired, the blue and orange conductors may contain a white 
stripe. The stripes in this case must be narrow enough so that the tip 
and ring identification is obvious.
    (d) Forming of the wire core. (1) Twisted pairs or star-quad 
configuration must be assembled in such a way as to form a substantially 
cylindrical group.
    (2) The filling compound must be applied to the wire core in such a 
way as to provide a completely filled core as is commercially practical.
    (3) If desired for manufacturing reasons, white or colored binders 
of nonhygroscopic and nonwicking material may be applied over the core.
    (e) Filling compound. (1) After or during the stranding operation 
and prior to application of the optional core wrap and inner jacket, a 
homogeneous filling compound free of agglomerates must be applied to the 
wire core. The compound must be as nearly colorless as is commercially 
feasible and consistent with the end product requirements and pair 
identification.
    (2) The filling compound must be free from dirt, metallic particles, 
and other foreign matter. It must be applied in such a way as to fill 
the space within the wire core.
    (3) The filling compound must be nontoxic and present no dermal 
hazards.
    (4) The filling compound must exhibit the following dielectric 
properties at a temperature of 23  3 deg.C when measured in 
accordance with ASTM D 150-87 or ASTM D 4872-88.
    (i) The dissipation factor must not exceed 0.0015 at a frequency of 
1 megahertz (MHz).
    (ii) The dielectric constant must not exceed 2.30.
    (5) The volume resistivity must not be less than 1012 
ohm-cm at a temperature of 23  3 deg.C when measured in 
accordance with ASTM D 257-91 or ASTM D 4872-88.
    (6) The individual wire manufacturer must satisfy RUS that the 
filling compound selected for use is suitable for its intended 
application. The filling compound must be compatible with the wire 
components when tested in accordance with ASTM D 4568-86 at a 
temperature of 80 deg.C.
    (f) Core wrap (optional). (1) When a core wrap is used, it must 
consist of a layer of nonhygroscopic and nonwicking dielectric material. 
The wrap must be applied with an overlap.
    (2) The core wrap must provide a sufficient heat barrier to prevent 
visible evidence of conductor insulation deformation or adhesion between 
conductors, caused by adverse heat transfer during the inner jacketing 
operation.
    (3) If required for manufacturing reasons, white or colored binders 
of nonhygroscopic and nonwicking material may be applied over the core 
wrap.
    (4) Sufficient filling compound must be applied to the core wrap 
that voids or air spaces existing between the core and inner side of the 
core wrap are minimized.
    (g) Inner jacket. (1) An inner jacket must be applied over the core 
and/or core wrap.
    (2) The jacket must be free from holes, splits, blisters, or other 
imperfections and must be as smooth and concentric as is consistent with 
the best commercial practice.
    (3) The inner jacket material and test requirements must be as 
specified for the outer jacket material per paragraphs (j)(3) through 
(j)(5)(iv) of this section.

[[Page 772]]

    (4) The inner jacket thickness at any point must not be less than 
0.5 mm (0.020 in.). The thickness must be determined from measurements 
on 50 mm (2 in.) samples taken not less than 0.3 m (1 ft) from either 
end of the wire. The average must be determined from 4 readings taken 
approximately 90 deg. apart on any cross section of the samples. The 
maximum and minimum points must be determined by exploratory 
measurements. The maximum thickness minus the minimum thickness at any 
cross section must not exceed 43 percent of the average thickness at 
that cross section.
    (h) Flooding compound. (1) Sufficient flooding compound must be 
applied on all sheath interfaces so that voids and air spaces in these 
areas are minimized.
    (2) The flooding compound must be compatible with the jacket when 
tested in accordance with ASTM D 4568-86 at a temperature of 80 deg.C. 
The floodant must exhibit adhesive properties sufficient to prevent 
jacket slip when tested in accordance with the requirements of appendix 
A, paragraph (III)(5), of this section.
    (3) The individual wire manufacturer must satisfy RUS that the 
flooding compound selected for use is acceptable for the application.
    (i) Shield. (1) A shield must be applied either longitudinally or 
helically over the inner jacket.
    (i) If the shield is applied longitudinally, it must be corrugated.
    (ii) If the shield is applied helically, it must be smooth.
    (2) The overlap for longitudinally applied shields must be a minimum 
of 2 mm (0.075 in.) The overlap for helically applied shields must be a 
minimum of 23 percent of the tape width.
    (3) General requirements for application of the shielding material 
are as follows:
    (i) Successive lengths of shielding tapes may be joined during the 
manufacturing process by means of cold weld, electric weld, soldering 
with a nonacid flux, or other acceptable means;
    (ii) Where two ends of a metal shield are to be joined together, 
care shall be taken to clean the metal surfaces in order to provide for 
a good mechanical and electrical connection;
    (iii) The shields of each length of wire must be tested for 
continuity. A one meter (3 ft) section of shield containing a factory 
joint must exhibit not more than 110 percent of the resistance of a 
shield of equal length without a joint;
    (iv) The breaking strength of any section of a shield tape 
containing a factory joint must not be less than 80 percent of the 
breaking strength of an adjacent section of the shield of equal length 
without a joint;
    (v) The reduction in thickness of the shielding material due to the 
corrugating or application process must be kept to a minimum and must 
not exceed 10 percent at any spot; and
    (vi) The shielding material must be applied in such a manner as to 
enable the wire to pass the bend test as specified in paragraph (n)(3) 
of this section.
    (4) The following materials are acceptable for use as wire 
shielding:

------------------------------------------------------------------------
               Standard Wire                    Gopher Resistant Wire   
------------------------------------------------------------------------
Copper Alloy 220 (Bronze).................  Copper-Clad Stainless Steel 
(0.1016  0.0076 mm)...........  0.1270  0.0127  
                                             mm                         
(0.0040  0.0003 in.)..........  (0.0050  0.0005 
                                             in.)                       
                                                                        
Copper Alloy 220 (Bronze).................  Copper Alloy 664            
0.1270  0.0127 mm.............  0.1397  0.0127  
                                             mm                         
(0.0050  0.0005 in.)..........  (0.0055  0.0005 
                                             in.)                       
                                                                        
------------------------------------------------------------------------

    (i) The copper-clad steels and copper alloy 664 shielding tapes must 
be capable of meeting the following performance requirements prior to 
application to the wire:

------------------------------------------------------------------------
                 Property                            Requirement        
------------------------------------------------------------------------
Tensile Strength                                                        
  Minimum, MPa (psi)......................  379 (55,000)                
Tensile Yield                                                           
  Minimum, MPa (psi)......................  241 (35,000)                
Elongation                                                              
  Minimum, percent in 50 mm (2 in.).......  15                          
------------------------------------------------------------------------

    (ii) Copper alloy 220. The shielding material, prior to application 
to the wire, must be in the fully annealed

[[Page 773]]

condition and shall conform to the requirements of ASTM B 694-86 for 
C22000 commercial bronze.
    (iii) Copper-clad stainless steel. In addition to meeting the 
requirements of paragraph (i)(4)(i) of this section, the shielding 
material, prior to application to the wire, must be in the fully 
annealed condition and must conform to the requirements of ASTM B 694-
86, with a cladding ratio of 16/68/16 and must have a minimum electrical 
conductivity of 28 percent IACS when measured in accordance with ASTM B 
193-87.
    (iv) Copper alloy 664. In addition to meeting the requirements of 
paragraph (i)(4)(i) of this section, the shielding material, prior to 
application to the wire, must be annealed temper and must conform to the 
requirements of ASTM B 694-86 and must have a minimum electrical 
conductivity of 28 percent IACS when measured in accordance with ASTM B 
193-87.
    (v) Copper-clad alloy steel. In addition to meeting the requirements 
of paragraph (i)(4)(i) of this section, the shielding material, prior to 
application to the wire, must be in the fully annealed condition and the 
copper component must conform to the requirements of ASTM B 224-91 and 
the alloy steel component must conform to the requirements of ASTM A 
505-87, with a cladding ratio of 16/68/16, and must have a minimum 
electrical conductivity of 28 percent IACS when measured in accordance 
with ASTM B 193-87.
    (j) Outer jacket. (1) The outer jacket must provide the wire with a 
tough, flexible, protective covering which can withstand exposure to 
sunlight, to atmospheric temperatures and stresses reasonably expected 
in normal installation and service.
    (2) The jacket must be free from holes, splits, blisters, or other 
imperfections and must be as smooth and concentric as is consistent with 
the best commercial practice.
    (3) The raw material used for the outer jacket must be one of the 
five types listed in paragraphs (j)(3)(i) through (j)(3)(v) of this 
section. The raw material must contain an antioxidant to provide long 
term stabilization and the materials must contain a 2.60  
0.25 percent concentration of furnace black to provide ultraviolet 
shielding. Both the antioxidant and furnace black must be compounded 
into the material by the raw material supplier.
    (i) Low density, high molecular weight polyethylene (LDHMW) must 
conform to the requirements of ASTM D 1248-84(1989), Type I, Class C, 
Category 4 or 5, Grade J3.
    (ii) Low density, high molecular weight ethylene copolymer (LDHMW) 
must conform to the requirements of ASTM D 1248-84 (1989), Type I, Class 
C, Category 4 or 5, Grade J3.
    (iii) Linear low density, high molecular weight polyethylene 
(LLDHMW) must conform to the requirements of ASTM D 1248-84(1989), Type 
I, Class C, Category 4 or 5, Grade J3.
    (iv) High density polyethylene (HD) must conform to the requirements 
of ASTM D 1248-84(1989), Type III, Class C, Category 4 or 5, Grade J4.
    (v) Medium density polyethylene (MD) must conform to the 
requirements of ASTM D 1248-84(1989), Type II, Class C, Category 4 or 5, 
Grade J4.
    (vi) Particle size of the carbon selected for use must not average 
greater than 20 nanometers.
    (vii) Absorption coefficient must be a minimum of 400 in accordance 
with the procedures of ASTM D 3349-86.
    (4) The outer jacketing material removed from or tested on the wire 
must be capable of meeting the following performance requirements:

----------------------------------------------------------------------------------------------------------------
                                                                      LLDHMW,                                   
                            Property                                 Ethylene          LDHMW         HD or MD   
                                                                     Copolymer     Polyethylene    Polyethylene 
----------------------------------------------------------------------------------------------------------------
Melt Flow Rate Percent increase from raw material Maximum.......                              50              50
<0.41 (Initial Melt Index)......................................             100              --              --
0.41-2.00 (Initial Melt Index)..................................              50              --              --
Tensile Strength Minimum, MPa (psi).............................    12.0 (1,700)    12.0 (1,700)    16.5 (2,400)
Ultimate Elongation Percent, Minimum............................             400             400             300
Shrinkback Percent of Length, Maximum...........................               5               5               5

[[Page 774]]

                                                                                                                
Impact Failures, Maximum........................................            2/10            2/10            2/10
----------------------------------------------------------------------------------------------------------------

    (5) Testing procedures. The procedures for testing the jacket 
samples for compliance with paragraph (j)(4) of this section must be as 
follows:
    (i) Melt flow rate. The melt flow rate must be as determined by ASTM 
D 1238-90b, Condition E. Jacketing material must be free from flooding 
and filling compound.
    (ii) Tensile strength and ultimate elongation. Test in accordance 
with ASTM D 4565-90a, using a jaw separation speed of 500 mm/min (20 
in./min) for low density material and 50 mm/min (2 in./min) for high and 
medium density materials.
    (iii) Shrinkback. Test in accordance with the procedures specified 
in ASTM D 4565-90a using a test temperature of 100  1 deg.C 
for low density material and a test temperature of 115  
1 deg.C for high and medium density materials.
    (iv) Impact. The test must be performed in accordance with ASTM D 
4565-90a using an impact force of 4 newton-meter (3 pound force-foot) at 
a temperature of -20  2 deg.C. The cylinder must strike the 
sample at the shield overlap. A crack or split in the jacket constitutes 
failure.
    (6) Jacket thickness. The minimum jacket thickness must be 0.64 mm 
(0.025 in.) except that the minimum thickness over the sheath slitting 
cord, if present, must be 0.46 mm (0.018 in.). The minimum point must be 
determined by exploratory measurements. The average thickness at any 
cross section must be determined from four readings including the 
minimum point, taken approximately 90 deg. apart. The thickness 
measurement must exclude any jacket material that has formed into the 
corrugation. The maximum thickness at any cross section must not be 
greater than 155 percent of the minimum thickness.
    (7) Eccentricity. The eccentricity of the jacket must not exceed 43 
percent when calculated using the formula as follows:

                                                                        
   Maximum Thickness - Minimum Thickness                                
-------------------------------------------         x  100 Percent      
             Average Thickness                                          
                                            ............................

    (k) Sheath slitting cord (optional). (1) Sheath slitting cords may 
be used in the wire structure at the option of the manufacturer.
    (2) When a sheath slitting cord is used it must be nonhygroscopic 
and nonwicking, continuous throughout a length of wire, and of 
sufficient strength to open the sheath without breaking the cord.
    (3) Sheath slitting cords must be capable of consistently slitting 
the jacket(s) and/or shield for a continuous length of 0.6 m (2 ft) when 
tested in accordance with the procedure specified in appendix B of this 
section.
    (l) Identification marker and length marker. (1) Each length of wire 
must be permanently identified as to manufacturer and year of 
manufacture.
    (2) The number of conductor pairs and their gauge size must be 
marked on the jacket.
    (3) The marking must be printed on the jacket at regular intervals 
of not more than 1.5 m (5 ft).
    (4) An alternative method of marking may be used if accepted by RUS 
prior to its use.
    (5) The completed wire must have sequentially numbered length 
markers in FEET OR METERS at regular intervals of not more than 1.5 m (5 
ft) along the outside of the jacket.
    (6) The method of length marking must be such that for any single 
length of wire, continuous sequential numbering must be employed.
    (7) The numbers must be dimensioned and spaced to produce good 
legibility and must be approximately 3 mm (0.125 in.) in height. An 
occasional illegible marking is permissible if there is a legible 
marking located not more than 1.5 m (5 ft) from it.

[[Page 775]]

    (8) The method of marking must be by means of suitable surface 
markings producing a clear, distinguishable, contrasting marking 
acceptable to RUS. Where direct or transverse printing is employed, the 
characters should be indented to produce greater durability of marking. 
Any other method of length marking must be acceptable to RUS as 
producing a marker suitable for the field. Size, shape and spacing of 
numbers, durability, and overall legibility of the marker will be 
considered in acceptance of the method.
    (9) The accuracy of the length marking must be such that the actual 
length of any wire section is never less than the length indicated by 
the marking and never more than one percent greater than the length 
indicated by the marking.
    (10) The color of the initial marking must be white or silver. If 
the initial marking fails to meet the requirements of the preceding 
paragraphs, it will be permissible to either remove the defective 
marking and re-mark with the white or silver color or leave the 
defective marking on the wire and re-mark with yellow. No further re-
marking is permitted. Any re-marking must be on a different portion of 
the wire circumference than any existing marking when possible and have 
a numbering sequence differing from any other existing marking by at 
least 5,000.
    (11) Any reel of wire which contains more than one set of sequential 
markings must be labeled to indicate the color and sequence of marking 
to be used. The labeling must be applied to the reel and also to the 
wire.
    (m) Electrical requirements--(1) Mutual capacitance and conductance. 
(i) The average mutual capacitance (corrected for length) of all pairs 
in any reel must not exceed 52  4 nanofarad/ kilometer (nF/
km) (83  7 nanofarad/mile (nF/mile)) when tested in 
accordance with ASTM D 4566-90 at a frequency of 1.0  0.1 
kilohertz (kHz) and a temperature of 23  3 deg.C.
    (ii) The mutual conductance (corrected for length and gauge) of any 
pair must not exceed 2 micromhos/kilometer (micromhos/km) (3.3 
micromhos/mile) when tested in accordance with ASTM D 4566-90 at a 
frequency of 1.0  0.1 kHz and a temperature of 23 
 3 deg.C.
    (2) Pair-to-pair capacitance unbalance. The capacitance unbalance 
between any pair of the completed wire must not exceed 145 picofarad/
kilometer (pF/km) (80 picofarad/1000 ft (pF/1000 ft)) when tested in 
accordance with ASTM D 4566-90 at a frequency of 1.0  0.1 
kHz and a temperature of 23  3 deg.C.
    (3) Pair-to-ground capacitance unbalance--(i) Pair-to-ground. The 
capacitance unbalance as measured on the individual pairs of the 
completed wire must not exceed 2625 pF/km (800 pF/1000 ft) when tested 
in accordance with ASTM D 4566-90 at a frequency of 1.0  0.1 
kHz and a temperature of 23  3 deg.C.
    (ii) When measuring pair-to-ground capacitance unbalance, all pairs, 
except the pair under test, are grounded to the shield.
    (iii) Pair-to-ground capacitance unbalance may vary directly with 
the length of the wire.
    (4) Far-end crosstalk loss. (i) The output-to-outputfar-end 
crosstalk loss (FEXT) between any pair combination of a completed wire 
when measured in accordance with ASTM D 4566-90 at a test frequency of 
150 kHz must not be less than 58 decibel/ kilometer (dB/km) (63 decibel/
1000 ft). If the loss Ko at a frequency Fo for 
length Lo is known, then Kx can be determined for 
any other frequency Fx or length Lx by:

[GRAPHIC] [TIFF OMITTED] TR19NO93.004


    (5) Attenuation. The attenuation of any individual pair on any reel 
of wire must not exceed the following limits when measured at or 
corrected to a temperature of 20  1 deg.C and a test 
frequency of 150 kHz. The test must be conducted in accordance with ASTM 
D 4566-90.


------------------------------------------------------------------------
                                       Individual Pair Attenuation dB/km
                                           (decibel/mile (dB/mile))     
            Conductor AWG            -----------------------------------
                                           Maximum           Minimum    
------------------------------------------------------------------------
22                                    6.8 (11.0)        5.0 (8.1)       
24                                    8.7 (14.0)        6.6 (10.7)      
------------------------------------------------------------------------



[[Page 776]]

    (6) Insulation resistance. Each insulated conductor in each length 
of completed wire, when measured with all other insulated conductors and 
the shield grounded, must have an insulation resistance of not less than 
1600 megohm-kilometer (1000 megohm-mile) at 20  1 deg.C. The 
measurement must be made in accordance with the procedures of ASTM D 
4566-90.
    (7) High voltage test. (i) In each length of completed wire, the 
insulation between conductors when tested in accordance with ASTM D 
4566-90 must withstand for 3 seconds a direct current (dc) potential 
whose value is not less than:
    (A) 5.0 kilovolts for 22-gauge conductors; and
    (B) 4.0 kilovolts for 24-gauge conductors.
    (ii) In each length of completed wire, the dielectric strength 
between the shield and all conductors in the core must be tested in 
accordance with ASTM D 4566-90 and must withstand, for 3 seconds, a dc 
potential whose value is not less than 20 kilovolts.
    (8) Conductor resistance. The dc resistance of any conductor must be 
measured in the completed wire in accordance with ASTM D 4566-90 and 
must not exceed the following values when measured at or corrected to a 
temperature of 20  1 deg.C.


------------------------------------------------------------------------
                                               Maximum Resistance       
                 AWG                  ----------------------------------
                                         ohms/kilometer   (ohms/1000 ft)
------------------------------------------------------------------------
22                                     57.1               (17.4)        
24                                     90.2               (27.5)        
------------------------------------------------------------------------


    (9) Resistance unbalance. (i) The difference in dc resistance 
between the two conductors of any pair in the completed wire must not 
exceed 5.0 percent when measured in accordance with the procedures of 
ASTM D 4566-90.
    (ii) The resistance unbalance between tip and ring conductors shall 
be random with respect to the direction of unbalance. That is, the 
resistance of the tip conductors shall not be consistently higher with 
respect to the ring conductors and vice versa.
    (n) Mechanical requirements--(1) Defective wire. Pairs in each 
length of wire will not be permitted to have either a ground, cross, 
short or open circuit condition.
    (2) Wire breaking strength. The breaking strength of the completed 
wire must not be less than 890 newtons (200 pound-force) when tested in 
accordance with ASTM D 4565-90a using a jaw separation speed of 25 mm/
min (1.0 in./min).
    (3) Wire bending test. The completed wire must be capable of meeting 
the requirements of ASTM D 4565-90a after conditioning at -20 
 2 deg.C and at 23  2 deg.C.
    (4) Water penetration test. (i) A one meter (3 ft) length of 
completed wire must be stabilized at 23  2 deg.C and tested 
in accordance with ASTM D 4565-90a using a one meter (3 ft) water head 
over the sample or placed under the equivalent continuous pressure for 
one hour.
    (ii) After the one hour period, there must be no water leakage in 
the sheath interfaces, under the core wrap or between any insulated 
conductors in the core.
    (iii) If water leakage is detected in the first sample, one 3 m (10 
ft) additional adjacent sample from the same reel of wire must be tested 
in accordance with paragraph (n)(4)(ii) of this section. If the second 
sample exhibits water leakage, the entire reel of wire is to be 
rejected. If the second sample exhibits no leakage, the entire reel of 
wire is considered acceptable.
    (5) Compound flow test. The completed wire must be capable of 
meeting the compound flow test specified in ASTM D 4565-90a when exposed 
for a period of 24 hours at a temperature of 80  1 deg.C. At 
the end of this test period, there must be no evidence of flowing or 
dripping of compound from either the core or sheath interfaces.
    (o) Acceptance testing and extent of testing. (1) The tests 
described in appendix A of this section are intended for acceptance of 
wire designs and major modifications of accepted designs. RUS decides 
what constitutes a major modification. These tests are intended to show 
the inherent capability of the manufacturer to produce wire products 
having long life and stability.
    (2) For initial acceptance, the manufacturer must submit:

[[Page 777]]

    (i) An original signature certification that the product fully 
complies with each requirement of this section;
    (ii) Qualification Test Data, per appendix A of this section;
    (iii) To periodic plant inspections;
    (iv) A certification that the product does or does not comply with 
the domestic origin manufacturing provisions of the ``Buy American'' 
requirements of the Rural Electrification Act of 1938 (7 U.S.C. 901 et 
seq.);
    (v) Written user testimonials concerning performance of the product; 
and
    (vi) Other nonproprietary data deemed necessary by the Chief, 
Outside Plant Branch (Telephone).
    (3) For requalification acceptance, the manufacturer must submit an 
original signature certification that the product fully complies with 
each section of the specification, excluding the Qualification Section, 
and a certification that the product does or does not comply with the 
domestic origin manufacturing provisions of the ``Buy American'' 
requirements of the Rural Electrification Act of 1938 (7 U.S.C. 901 et 
seq.) for acceptance by June 30 every three years. The required data and 
certification must have been gathered within 90 days of the submission.
    (4) Initial and requalification acceptance requests should be 
addressed to: Chairman, Technical Standards, Committee ``A'' 
(Telephone), Telecommunications Standards Division, Rural Utilities 
Service, Washington, DC 20250-1500.

    (5) Tests on 100 percent of completed wire. (i) The shield of each 
length of wire must be tested for continuity using the procedures of 
ASTM D 4566-90.
    (ii) Dielectric strength between all conductors and the shield must 
be tested to determine freedom from grounds in accordance with paragraph 
(m)(7)(ii) of this section.
    (iii) Each conductor in the completed wire must be tested for 
continuity using the procedures of ASTM D 4566-90.
    (iv) Dielectric strength between conductors must be tested to ensure 
freedom from shorts and crosses in accordance with paragraph (m)(7)(i) 
of this section.
    (v) The average mutual capacitance must be measured on all wires.
    (6) Capability tests. Tests on a quality assurance basis must be 
made as frequently as is required for each manufacturer to determine and 
maintain compliance with:
    (i) Performance requirements for conductor insulation and jacket 
material;
    (ii) Performance requirements for filling and flooding compounds;
    (iii) Sequential marking and lettering;
    (iv) Capacitance unbalance and crosstalk;
    (v) Insulation resistance;
    (vi) Conductor resistance and resistance unbalance;
    (vii) Wire bending and wire breaking strength tests;
    (viii) Mutual conductance and attenuation; and
    (ix) Water penetration and compound flow tests.
    (p) Summary of records of electrical and physical tests. (1) Each 
manufacturer must maintain suitable summary of records for a period of 
at least 3 years for all electrical and physical tests required on 
completed wire by this section as set forth in paragraphs (o)(5) and 
(o)(6) of this section. The test data for a particular reel shall be in 
a form that it may be readily available to the purchaser or to RUS upon 
request.
    (2) Measurements and computed values must be rounded off to the 
number of places of figures specified for the requirement according to 
ASTM E 29-90.
    (q) Manufacturing irregularities. (1) Repairs to the inner jacket 
and shield are not permitted in wire supplied to the end user under this 
section.
    (2) Minor defects in the outer jackets (defects having a dimension 
of 3 mm (0.125 in.) or less in any direction) may be repaired by means 
of heat fusing in accordance with good commercial practices utilizing 
sheath grade compound.
    (r) Preparation for shipment. (1) The wire must be shipped on reels. 
The diameter of the drum must be large enough to prevent damage to the 
wire from reeling or unreeling. The reels must be substantial and so 
constructed as to prevent damage to the wire during shipment and 
handling.

[[Page 778]]

    (2) The thermal wrap must comply with the requirements of appendix C 
of this section. When a thermal reel wrap is supplied, the wrap must be 
applied to the reel and must be suitably secured in place to minimize 
thermal exposure to the wire during storage and shipment. The use of the 
thermal reel wrap as a means of reel protection will be at the option of 
the manufacturer unless specified by the end user.
    (3) The outer end of the wire must be securely fastened to the reel 
head so as to prevent the wire from becoming loose in transit. The inner 
end of the wire must be securely fastened in such a way as to make it 
readily available if required for electrical testing. Spikes, staples, 
or other fastening devices which penetrate the wire jacket must not be 
used. The method of fastening the wire ends must be accepted by RUS 
prior to it being used.
    (4) Each length of wire must be wound on a separate reel unless 
otherwise specified or agreed to by the purchaser.
    (5) Each reel must be plainly marked to indicate the direction in 
which it should be rolled to prevent loosening of the wire on the reel.
    (6) Each reel must be stenciled or labeled on either one or both 
sides with the name of the manufacturer, year of manufacture, actual 
shipping length, an inner and outer end sequential length marking, 
description of the wire, reel number and the RUS wire designation:

    Wire Designation

    BFW
    Wire Construction
    Pair Count
    Conductor Gauge

    N = Copper Alloy 220 (Bronze) Shield
    Y = Gopher Resistant Shields

    Example: BFWY 3-24

Buried Filled Wire, Gopher Resistant Shield, 3 pair, 24 AWG

    (7) Both ends of the filled buried wire, manufactured to the 
requirements of this section, must be equipped with end caps which are 
acceptable to RUS.

(The information and recordkeeping requirements of this section have 
been approved by the Office of Management and Budget (OMB) under the 
control number 0572-0059)

        Appendix A to 7 CFR 1755.860--Qualification Test Methods

    (I) The test procedures described in this appendix are for 
qualification of initial designs and major modifications of accepted 
designs. Included in (V) of this appendix are suggested formats that may 
be used in submitting test results to RUS.
    (II) Sample Selection and Preparation. (1) All testing must be 
performed on lengths removed sequentially from the same 3 pair, 22 gauge 
jacketed wire. This wire must not have been exposed to temperatures in 
excess of 38 deg.C since its initial cool down after sheathing. The 
lengths specified are minimum lengths and if desirable from a laboratory 
testing standpoint longer lengths may be used.
    (a) Length A shall be 10  0.2 meters (33  
0.5 feet) long and must be maintained at 23  3 deg.C. One 
length is required.
    (b) Length B shall be 12  0.2 meters (40  
0.5 feet) long. Prepare the test sample by removing the inner and outer 
jacket, shield, and core wrap, if present, for a sufficient distance on 
both ends to allow the insulated conductors to be flared out. Remove 
sufficient conductor insulation so that appropriate electrical test 
connections can be made at both ends. Coil the specimen with a diameter 
of 15 to 20 times its sheath diameter. Three lengths are required.
    (c) Length C shall be one meter (3 feet) long. Four lengths are 
required.
    (d) Length D shall be 300 millimeters (1 foot) long. Four lengths 
are required.
    (e) Length E shall be 600 millimeters (2 feet) long. Four lengths 
are required.
    (f) Length F shall be 3 meters (10 feet) long and must be maintained 
at 23  3 deg.C for the duration of the test. Two lengths are 
required.
    (2) Data Reference Temperature. Unless otherwise specified, all 
measurements shall be made at 23  3 deg.C.
    (III) Environmental Tests--(1) Heat Aging Test--(a) Test Samples. 
Place one sample each of lengths B, C, D, and E in an oven or 
environmental chamber. The ends of sample B must exit from the chamber 
or oven for electrical tests. Securely seal the oven exit holes.
    (b) Sequence of Tests. After conditioning the samples are to be 
subjected to the following tests:
    (i) Water Immersion Test outlined in (III)(2) of this appendix;
    (ii) Water Penetration Test outlined in (III)(3) of this appendix; .
    (iii) Insulation Compression Test outlined in (III)(4) of this 
appendix; and
    (iv) Jacket Slip Strength Test outlined in (III)(5) of this 
appendix.
    (c) Initial Measurements. (i) For sample B, measure the open circuit 
capacitance and

[[Page 779]]

conductance for each pair at 1 and 150 kilohertz and the attenuation at 
150 kilohertz after conditioning the sample at the data reference 
temperature for 24 hours. Calculate the average and standard deviation 
for the data of the 3 pairs on a per kilometer (per mile) basis.
    (ii) The attenuation at 150 kilohertz may be calculated from open 
circuit admittance (Yoc) and short circuit impedance (Zsc) or may be 
obtained by direct measurement of attenuation.
    (iii) Record on suggested formats attached in (V) of this appendix 
or on other easily readable formats.
    (d) Heat Conditioning. (i) Immediately after completing the initial 
measurements, condition the sample for 14 days at a temperature of 65 
 2 deg.C.
    (ii) At the end of this period note any exudation of filling 
compound. Measure and calculate the parameters given in (III)(1)(c) of 
this appendix. Record on suggested formats attached in (V) of this 
appendix or on other easily readable formats.
    (iii) Cut away and discard a one meter (3 foot) section from each 
end of length B.
    (e) Overall Electrical Deviation. (i) Calculate the percent change 
in all average parameters between the final parameters after 
conditioning with the initial parameters in (III)(1)(c) of this 
appendix.
    (ii) The stability of the electrical parameters after completion of 
this test must be within the following prescribed limits:
    (A) Capacitance. The average mutual capacitance must be within 5 
percent of its original value;
    (B) The change in average mutual capacitance must be less than 5 
percent over the frequency range of 1 to 150 kilohertz;
    (C) Conductance. The average mutual conductance must not exceed 2 
micromhos/kilometer (3.3 micromhos/mile) at a frequency of 1 kilohertz; 
and
    (D) Attenuation. The attenuation must not have increased by more 
than 5 percent over its original value.
    (2) Water Immersion Electrical Test--(a) Test Sample Selection. The 
10 meter (33 foot) section of length B must be tested.
    (b) Test Sample Preparation. Prepare the sample by removing the 
inner and outer jacket, shield, and core wrap, if present, for a 
sufficient distance to allow one end to be accessed for test 
connections. Cut out a series of 2.5 millimeter by 13 millimeter (0.1 
inch by 0.5 inch) rectangular slots along the test sample, at 300 
millimeter (1 foot) intervals progressing successively 90 degrees around 
the circumference of the wire. Assure that the wire core is exposed at 
each slot by slitting the inner jacket and core wrap if present. Place 
the prepared sample in a dry vessel which when filled will maintain a 
one meter (3 foot) head of water over 6 meters (20 feet) of uncoiled 
wire. Extend and fasten the ends of the wire so they will be above the 
water line and the pairs are rigidly held for the duration of the test.
    (c) Capacitance and Conductance Testing. Measure the initial values 
of mutual capacitance and conductance of all pairs in each wire at a 
frequency of 1 kilohertz before filling the vessel with water. Be sure 
the wire shield is grounded to the test equipment. Fill the vessel until 
there is a one meter (3 foot) head of water on the wires.
    (i) Remeasure the mutual capacitance and conductance after the wires 
have been submerged for 24 hours and again after 30 days.
    (ii) Record each sample separately on the suggested formats attached 
in (V) of this appendix or on other easily readable formats.
    (d) Overall Electrical Deviation. (i) Calculate the percent change 
in all average parameters between the final parameters after 
conditioning with the initial parameters in (III)(2)(c) of this 
appendix.
    (ii) The stability of the electrical parameters after of the test 
must be within the following prescribed limits:
    (A) Capacitance. The average mutual capacitance must be within 5 
percent of its original value; and
    (B) Conductance. The average mutual conductance must not exceed 2 
micromhos/kilometer (3.3 micromhos/mile) at a frequency of 1 kilohertz.
    (3) Water Penetration Testing. (a) A watertight closure must be 
placed over the jacket of length C. The closure must not be placed over 
the jacket so tightly that the flow of water through preexisting voids 
or air spaces is restricted. The other end of the sample must remain 
open.
    (b) Test per Option A or Option B. (i) Option A. Weigh the sample 
and closure prior to testing. Fill the closure with water and place 
under a continuous pressure of 10  0.7 kilopascals (1.5 
 0.1 pounds per square inch gauge) for one hour. Collect the 
water leakage from the end of the test sample during the test and weigh 
to the nearest 0.1 gram. Immediately after the one hour test, seal the 
ends of the wire with a thin layer of grease and remove all visible 
water from the closure, being careful not to remove water that 
penetrated into the core during the test. Reweigh the sample and 
determine the weight of water that penetrated into the core. The weight 
of water that penetrated into the core must not exceed 1 gram.
    (ii) Option B. Fill the closure with a 0.2 gram sodium fluorscein 
per liter water solution and apply a continuous pressure of 10 
 0.7 kilopascals (1.5  0.1 pounds per square 
inch gauge) for one hour. Catch and weigh any water that leaks from the 
end of the wire during the one hour period. If no water leaks from the 
sample, carefully remove the water from the closure. Then carefully 
remove the outer jacket, shield, inner jacket

[[Page 780]]

and core wrap, if present, one at a time, examining with an ultraviolet 
light source for water penetration. After removal of the inner jacket 
and core wrap, if present, carefully dissect the core and examine for 
water penetration within the core. Where water penetration is observed, 
measure the penetration distance. The distance of water penetration into 
the core must not exceed 127 millimeters (5.0 inches).
    (4) Insulation Compression Test. (a) Test Sample D. Remove inner and 
outer jacket, shield, and core wrap, if present, being careful not to 
damage the conductor insulation. Remove one pair from the core and 
carefully separate, wipe off core filler and straighten the insulated 
conductors. Retwist the two insulated conductors together under 
sufficient tension to form 10 evenly spaced 360 degree twists in a 
length of 100 millimeters (4 inches).
    (b) Sample Testing. Center the mid 50 millimeters (2 inches) of the 
twisted pair between two smooth rigid parallel metal plates measuring 50 
millimeters (2 inches) in length or diameter. Apply a 1.5 volt direct 
current potential between the conductors, using a light or buzzer to 
indicate electrical contact between the conductors. Apply a constant 
load of 67 newtons (15 pound-force) on the sample for one minute and 
monitor for evidence of contact between the conductors. Record results 
on suggested formats attached in (V) of this appendix or on other easily 
readable formats.
    (5) Jacket Slip Strength Test--(a) Sample Selection. Test sample E 
from (III)(1)(a) of this appendix.
    (b) Sample Preparation. Prepare test sample in accordance with the 
procedures specified in ASTM D 4565-90a.
    (c) Sample Conditioning and Testing. Remove the sample from the 
tensile tester prior to testing and condition for one hour at 50 
 2 deg.C. Test immediately in accordance with the procedure 
specified in ASTM D 4565-90a. A minimum outer jacket slip strength of 67 
newtons (15 pound-force) is required. Record the load attained.
    (6) Humidity Exposure. (a) Repeat steps (III)(1)(a) through 
(III)(1)(c)(iii) of this appendix for separate set of samples B, C, D 
and E which have not been subjected to prior environmental conditioning.
    (b) Immediately after completing the measurements, expose the test 
sample to 100 temperature cyclings. Relative humidity within the chamber 
must be maintained at 90  2 percent. One cycle consists of 
beginning at a stabilized chamber and test sample temperature of 52 
 1 deg.C, increasing the temperature to 57  
1 deg.C, allowing the chamber and test samples to stabilize at this 
level, then dropping the temperature back to 52  1 deg.C.
    (c) Repeat steps (III)(1)(d)(ii) through (III)(5)(c) of this 
appendix.
    (7) Temperature Cycling. (a) Repeat steps (III)(1)(a) through 
(III)(1)(c)(iii) of this appendix for separate set of samples B, C, D 
and E which have not been subjected to prior environmental conditioning.
    (b) Immediately after completing the measurements, subject the test 
sample to 10 cycles of temperature between -40 deg.C and +60 deg.C. The 
test sample must be held at each temperature extreme for a minimum of 1 
1/2 hours during each cycle of temperature. The air within the 
temperature cycling chamber must be circulated throughout the duration 
of the cycling.
    (c) Repeat steps (III)(1)(d)(ii) through (III)(5)(c) of this 
appendix.
    (IV) Control Sample--(1) Test Samples. A separate set of lengths for 
samples A, C, D, and E must have been maintained at 23  
3 deg.C for at least 48 hours before the testing.
    (2) Repeat steps (III)(2) through (III)(5)(c) of this appendix 
except use length A instead of length B.
    (3) Surge Test. (a) One length of sample F must be used to measure 
the breakdown between conductors while the other length of F must be 
used to measure core to shield breakdown.
    (b) The samples must be capable of withstanding, without damage, a 
single surge voltage of 20 kilovolts peak between conductors, and 35 
kilovolts peak between conductors and the shield as hereinafter 
described. The surge voltage must be developed from a capacitor 
discharge through a forming resistor connected in parallel with the 
dielectric of the test sample. The surge generator constants must be 
such as to produce a surge of 1.5  x  40 microseconds wave shape.
    (c) The shape of the generated wave must be determined at a reduced 
voltage by connecting an oscilloscope across the forming resistor with 
the wire sample connected in parallel with the forming resistor. The 
capacitor bank is charged to the test voltage and then discharged 
through the forming resistor and test sample. The test sample will be 
considered to have passed the test if there is no distinct change in the 
wave shape obtained with the initial reduced voltage compared to that 
obtained after the application of the test voltage.
    (V) The following suggested formats may be used in submitting the 
test results to RUS:

[[Page 781]]



                                    Environmental Conditioning ______________                                   
                                              FREQUENCY 1 kilohertz                                             
----------------------------------------------------------------------------------------------------------------
                                                  CAPACITANCE                           CONDUCTANCE             
                                    ----------------------------------------------------------------------------
            PAIR NUMBER                    nF/km            (nF/mile)         micromhos/km     (micromhos/mile) 
                                    ----------------------------------------------------------------------------
                                          Initial             Final             Initial              Final      
----------------------------------------------------------------------------------------------------------------
1                                    ________           ________           ________           ________          
2                                    ________           ________           ________           ________          
3                                    ________           ________           ________           ________          
                                                                                                                
Average x                            ________           ________           ________           ________          
----------------------------------------------------------------------------------------------------------------
Overall Percent Difference in Average x          Capacitance:____________________________          Conductance: 
  ____________________________                                                                                  


                               Environmental Conditioning ________________________                              
                                             FREQUENCY 150 kilohertz                                            
----------------------------------------------------------------------------------------------------------------
                                        CAPACITANCE                 CONDUCTANCE                 ATTENUATION     
                                --------------------------------------------------------------------------------
                                    nF/km      (nF/mile)    micromhos/km    (micromhos/      dB/km     (dB/mile)
          PAIR NUMBER           -----------------------------------------      mile)     -----------------------
                                                                         ----------------                       
                                   Initial       Final        Initial          Final        Initial      Final  
----------------------------------------------------------------------------------------------------------------
1                                ______       ______       ______         ______          ______      ______    
2                                ______       ______       ______         ______          ______      ______    
3                                ______       ______       ______         ______          ______      ______    
                                                                                                                
Average x                        ______       ______       ______         ______          ______      ______    
----------------------------------------------------------------------------------------------------------------
Overall Percent Difference in Average x       Capacitance:______________________      Conductance:              
  ______________________      Attenuation:______________________                                                


                            Environmental Conditioning ______________________________                           
                                       WATER IMMERSION TEST (1 kilohertz)                                       
----------------------------------------------------------------------------------------------------------------
                                               CAPACITANCE                             CONDUCTANCE              
                                 -------------------------------------------------------------------------------
           PAIR NUMBER               nF/km             (nF/mile)          micromhos/km      (micromhos/mile)    
                                 -------------------------------------------------------------------------------
                                    Initial      24 hours      Final        Initial       24 hours      Final   
----------------------------------------------------------------------------------------------------------------
1                                 ______       ______       ______       ______         ______       ______     
2                                 ______       ______       ______       ______         ______       ______     
3                                 ______       ______       ______       ______         ______       ______     
                                                                                                                
Average x                         ______       ______       ______       ______         ______       ______     
----------------------------------------------------------------------------------------------------------------
Overall Percent Difference in Average x          Capacitance:____________________________          Conductance: 
  ____________________________                                                                                  


                                             Water Penetration Test                                             
----------------------------------------------------------------------------------------------------------------
                                                  Option A                                Option B              
                                  ------------------------------------------------------------------------------
                                                                                                 Penetration mm 
                                    End Leakage grams   Weight Gain grams   End Leakage grams        (in.)      
----------------------------------------------------------------------------------------------------------------
Control..........................  __________          __________          __________          __________       
Heat Age.........................  __________          __________          __________          __________       
Humidity Exposure................  __________          __________          __________          __________       
Temperature Cycling..............  __________          __________          __________          __________       
----------------------------------------------------------------------------------------------------------------


[[Page 782]]


                         Insulation Compression                         
------------------------------------------------------------------------
                                                      Failures          
------------------------------------------------------------------------
Control...................................  ________________            
Heat Age..................................  ________________            
Humidity Exposure.........................  ________________            
Temperature Cycling.......................  ________________            
------------------------------------------------------------------------


                       Jacket Slip Strength @ 50C                       
------------------------------------------------------------------------
                                               Load in newtons (pound-  
                                                       force)           
------------------------------------------------------------------------
Control...................................  ________________            
Heat Age..................................  ________________            
Humidity Exposure.........................  ________________            
Temperature Cycling.......................  ________________            
------------------------------------------------------------------------


                        Filler Exudation (grams)                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Heat Age..................................  ________________            
Humidity Exposure.........................  ________________            
Temperature Cycle.........................  ________________            
------------------------------------------------------------------------


                         Surge Test (kilovolts)                         
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Conductor to Conductor....................  ________________            
Shield to Conductors......................  ________________            
------------------------------------------------------------------------

    Appendix B to 7 CFR 1755.860--Sheath Slitting Cord Qualification

    (I) The test procedures described in this appendix are for 
qualification of initial and subsequent changes in sheath slitting 
cords.
    (II) Sample Selection. All testing must be performed on two 1.2 
meters (4 feet) lengths of wire removed sequentially from the same 3 
pair, 22 gauge jacketed wire. This wire must not have been exposed to 
temperatures in excess of 38 deg.C since its initial cool down after 
sheathing.
    (III) Test Procedure. (1) Using a suitable tool, expose enough of 
sheath slitting cord to permit grasping with needle nose pliers.
    (2) The prepared test specimens must be maintained at a temperature 
of 23  1 deg.C for at least 4 hours immediately prior to and 
during the test.
    (3) Wrap the sheath slitting cord around the plier jaws to ensure a 
good grip.
    (4) Grasp and hold the wire in a convenient position while gently 
and firmly pulling the sheath slitting cord longitudinally in the 
direction away from the wire end. The angle of pull may vary to any 
convenient and functional degree. A small starting notch is permissible.
    (5) The sheath slitting cord is considered acceptable if the cord 
can slit the jacket and/or shield for a continuous length of 0.6 meter 
(2 feet) without breaking the cord.

      Appendix C to 7 CFR 1755.860--Thermal Reel Wrap Qualification

    (I) The test procedures described in this appendix are for 
qualification of initial and subsequent changes in thermal reel wraps.
    (II) Sample Selection. All testing must be performed on two 450 
millimeter (18 inch) lengths of wire removed sequentially from the same 
3 pair, 22 gauge jacketed wire. This wire must not have been exposed to 
temperatures in excess of 38 deg.C since its initial cool down after 
sheathing.
    (III) Test Procedure. (1) Place the two samples on an insulating 
material such as wood, etc.
    (2) Tape thermocouples to the jackets of each sample to measure the 
jacket temperature.
    (3) Cover one sample with the thermal reel wrap.
    (4) Expose the samples to a radiant heat source capable of heating 
the uncovered jacket sample to a minimum of 71 deg.C. A 600 watt 
photoflood lamp or an equivalent lamp having the light spectrum 
approximately that of the sun shall be used.
    (5) The height of the lamp above the jacket shall be 380 millimeters 
(15 inches) or a height that produces the 71 deg.C jacket temperature on 
the unwrapped sample.
    (6) After the samples have stabilized at the temperature, the jacket 
temperatures of the samples must be recorded after one hour of exposure 
to the heat source.
    (7) Compute the temperature difference between the jackets.
    (8) For the thermal reel wrap to be acceptable to RUS, the 
temperature differences between the jacket with the thermal reel wrap 
and the jacket without the reel wrap must be greater than or equal to 
17 deg.C.

[58 FR 61004, Nov. 19, 1993, as amended at 60 FR 1711, Jan. 5, 1995]
Secs. 1755.861--1755.869  [Reserved]



Sec. 1755.870  RUS specification for terminating cables.

    (a) Scope. (1) This section establishes the requirements for 
terminating cables used to connect incoming outside plant cables to the 
vertical side of the main distributing frame in a telephone central 
office.
    (i) The conductors are solid tinned copper, individually insulated 
with extruded solid dual insulating compounds.
    (ii) The insulated conductors are twisted into pairs which are then

[[Page 783]]

stranded or oscillated to form a cylindrical core.
    (iii) The cable structure is completed by the application of a core 
wrap, a shield, and a polyvinyl chloride jacket.
    (2) The number of pairs and gauge size of conductors which are used 
within the RUS program are provided in the following table:

------------------------------------------------------------------------
                 American Wire Gauge (AWG)                    22     24 
------------------------------------------------------------------------
Number of Pairs...........................................     12     12
                                                               50     50
                                                              100    100
                                                              200    200
                                                              300    300
                                                              400    400
                                                              600    600
                                                              800   800 
------------------------------------------------------------------------
Note: Cables larger in pair sizes from those shown in this table shall  
  meet all the requirements of this section.                            

    (3) All cables sold to RUS borrowers for projects involving RUS loan 
funds under this section must be accepted by RUS Technical Standards 
Committee ``A'' (Telephone). For cables manufactured to the 
specification of this section, all design changes to an accepted design 
must be submitted for acceptance. RUS will be the sole authority on what 
constitutes a design change.
    (4) Materials, manufacturing techniques, or cable designs not 
specifically addressed by this section may be allowed if accepted by 
RUS. Justification for acceptance of modified materials, manufacturing 
techniques, or cable designs shall be provided to substantiate product 
utility and long term stability and endurance.
    (5) The American National Standard Institute/Electronic Industries 
Association (ANSI/EIA) 359-A-84, EIA Standard Colors for Color 
Identification and Coding, referenced in this section is incorporated by 
reference by RUS. This incorporation by reference was approved by the 
Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 
1 CFR part 51. Copies of ANSI/EIA 359-A-84 are available for inspection 
during normal business hours at RUS, room 2845, U.S. Department of 
Agriculture, Washington, DC 20250-1500 or at the Office of the Federal 
Register, 800 North Capitol Street, NW., suite 700, Washington, DC. 
Copies are available from Global Engineering Documents, 15 Inverness Way 
East, Englewood, CO 80112, telephone number (303) 792-2181.
    (6) American Society for Testing and Materials Specifications (ASTM) 
B 33-91, Standard Specification for Tinned Soft or Annealed Copper Wire 
for Electrical Purposes; ASTM B 736-92a Standard Specification for 
Aluminum, Aluminum Alloy and Aluminum-Clad Steel Cable Shielding Stock; 
ASTM D 1248-84 (1989), Standard Specification for Polyethylene Plastics 
Molding and Extrusion Materials; ASTM D 1535-89, Standard Test Method 
for Specifying Color by the Munsell System; ASTM D 2287-81 (Reapproved 
1988), Standard Specification for Nonrigid Vinyl Chloride Polymer and 
Copolymer Molding and Extrusion Compounds; ASTM D 2436-85, Standard 
Specification for Forced-Convection Laboratory Ovens for Electrical 
Insulation; ASTM D 2633-82 (Reapproved 1989), Standard Methods of 
Testing Thermoplastic Insulations and Jackets for Wire and Cable; ASTM D 
4101-82 (1988), Standard Specification for Propylene Plastic Injection 
and Extrusion Materials; ASTM D 4565-90a, Standard Test Methods for 
Physical and Environmental Performance Properties of Insulations and 
Jackets for Telecommunications Wire and Cable; ASTM D 4566-90, Standard 
Test Methods for Electrical Performance Properties of Insulations and 
Jackets for Telecommunications Wire and Cable; and ASTM E 29-90, 
Standard Practice for Using Significant Digits in Test Data to Determine 
Conformance with Specifications, referenced in this section are 
incorporated by reference by RUS. These incorporations by references 
were approved by the Director of the Federal Register in accordance with 
5 U.S.C. 552(a) and 1 CFR part 51. Copies of the ASTM standards are 
available for inspection during normal business hours at RUS, room 2845, 
U.S. Department of Agriculture, Washington, DC 20250-1500 or at the 
Office of the Federal Register, 800 North Capitol Street, NW., suite 
700, Washington, DC. Copies are available from ASTM, 1916 Race Street, 
Philadelphia, Pennsylvania 19103-1187, telephone number (215) 299-5585.
    (7) American National Standards Institute/National Fire Protection 
Association (ANSI/NFPA), NFPA 70-1993

[[Page 784]]

National Electrical Code referenced in this section is incorporated by 
reference by RUS. This incorporation by reference was approved by the 
Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 
1 CFR part 51. A copy of the ANSI/NFPA standard is available for 
inspection during normal business hours at RUS, room 2845, U.S. 
Department of Agriculture, Washington, DC 20250-1500 or at the Office of 
the Federal Register, 800 North Capitol Street, NW., suite 700, 
Washington, DC. Copies are available from NFPA, Batterymarch Park, 
Quincy, Massachusetts 02269, telephone number 1 (800) 344-3555.
    (8) Underwriters Laboratories Inc. (UL) 1666, Standard Test for 
Flame Propagation Height of Electrical and Optical-Fiber Cables 
Installed Vertically in Shafts, dated January 22, 1991, referenced in 
this section is incorporated by reference by RUS. This incorporation by 
reference was approved by the Director of the Federal Register in 
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy of the UL 
standard is available for inspection during normal business hours at 
RUS, room 2845, U.S. Department of Agriculture, Washington, DC 20250-
1500 or at the Office of the Federal Register, 800 North Capitol Street, 
NW., suite 700, Washington, DC. Copies are available from UL Inc., 333 
Pfingsten Road, Northbrook, Illinois 60062-2096, telephone number (708) 
272-8800.
    (b) Conductors and conductor insulation. (1) Each conductor shall be 
a solid round wire of commercially pure annealed tin coated copper. 
Conductors shall meet the requirements of the American Society for 
Testing and Materials (ASTM) B 33-91 except that requirements for 
Dimensions and Permissible Variations are waived.
    (2) Joints made in conductors during the manufacturing process may 
be brazed, using a silver alloy solder and nonacid flux, or they may be 
welded using either an electrical or cold welding technique. In joints 
made in uninsulated conductors, the two conductor ends shall be butted. 
Splices made in insulated conductors need not be butted but may be 
joined in a manner acceptable to RUS.
    (3) The tensile strength of any section of a conductor, containing a 
factory joint, shall not be less than 85 percent of the tensile strength 
of an adjacent section of the solid conductor of equal length without a 
joint.
    (4) Engineering Information: The sizes of wire used and their 
nominal diameters shall be as shown in the following table:

------------------------------------------------------------------------
                                                    Nominal diameter    
                      AWG                      -------------------------
                                                 Millimeters   (Inches) 
------------------------------------------------------------------------
22............................................         0.643    (0.0253)
24............................................         0.511    (0.0201)
------------------------------------------------------------------------

    (5) Each conductor shall be insulated with a primary layer of 
natural or white solid, insulating grade, high density polyethylene or 
crystalline propylene/ethylene copolymer and an outer skin of colored, 
solid, insulating grade, polyvinyl chloride (PVC) using one of the 
insulating materials listed in paragraphs (b)(5)(i) through (iii) of 
this section.
    (i) The polyethylene raw material selected to meet the requirements 
of this section shall be Type III, Class A, Category 4 or 5, Grade E9, 
in accordance with ASTM D 1248-84 (1989).
    (ii) The crystalline propylene/ethylene raw material selected to 
meet the requirements of this section shall be Class PP 200B 40003 E11 
in accordance with ASTM D 4101-82 (1988).
    (iii) The PVC raw material selected to meet the requirements of this 
section shall be either Type PVC-64751E3XO, Type PVC-76751E3XO, or Type 
PVC-77751E3XO in accordance with ASTM D 2287-81 (1988).
    (iv) Raw materials intended as conductor insulation furnished to 
these requirements shall be free from dirt, metallic particles, and 
other foreign matter.
    (v) All insulating raw materials shall be accepted by RUS prior to 
their use.
    (6) All conductors in any single length of cable shall be insulated 
with the same type of material.
    (7) A permissible overall performance level of faults in conductor 
insulation when using the test procedures in paragraph (b)(8) of this 
section shall average not greater than one fault per 12,000 conductor 
meters (40,000 conductor feet) for each gauge of conductor.

[[Page 785]]

    (8) The test used to determine compliance with paragraph (b)(7) of 
this section shall be conducted as follows:
    (i) Samples tested shall be taken from finished cables selected at 
random from standard production cable. The samples tested shall contain 
a minimum of 300 conductor meters (1,000 conductor feet) for cables 
sizes less than 50 pairs and 1,500 conductor meters (5,000 conductor 
feet) for cables sizes greater than or equal to 50 pairs. No further 
sample need be taken from the same cable production run within 6,000 
cable meters (20,000 cable feet) of the original test sample from that 
run.
    (ii) The cable sample shall have its jacket, shield, and core wrap 
removed and its core shall be immersed in tap water for a minimum period 
of 6 hours. In lieu of removing the jacket, shield, and core wrap from 
the core, the entire cable may be tested. In this case, the core shall 
be completely filled with tap water, under pressure; then the cable 
assembly shall be immersed for a minimum period of 6 hours. With the 
cable core still fully immersed, except for end connections, the 
insulation resistance (IR) of all conductors to water shall be measured 
using a direct current (dc) voltage of 100 volts to 550 volts.
    (iii) An IR value of less than 500 megohms for any individual 
insulated conductor tested at or corrected to a temperature of 23  deg.C 
is considered a failure. If the cable sample is more than 7.5 meters (25 
feet) long, all failing conductors shall be retested and reported in 7.5 
meter (25 foot) segments.
    (iv) The pair count, gauge, footage, and number of insulation faults 
shall be recorded. This information shall be retained on a 6 month 
running basis for review by RUS when requested.
    (v) A fault rate, in a continuous length in any one reel, in excess 
of one fault per 3,000 conductor meters (10,000 conductor feet) due to 
manufacturing defects is cause for rejection. A minimum of 6,000 
conductor meters (20,000 conductor feet) is required to develop a 
noncompliance in a reel.
    (9) Repairs to the conductor insulation during manufacturing are 
permissible. The method of repair shall be accepted by RUS prior to its 
use. The repaired insulation shall be capable of meeting the relevant 
electrical requirements of this section.
    (10) All repaired sections of insulation shall be retested in the 
same manner as originally tested for compliance with paragraph (b)(7) of 
this section.
    (11) The colored composite insulating material removed from or 
tested on the conductor, from a finished cable, shall be capable of 
meeting the following performance requirements:

------------------------------------------------------------------------
                                                              Composite 
                          Property                            insulation
------------------------------------------------------------------------
Tensile Strength, Minimum Megapascals (MPa) (Pounds per                 
 square inch (psi))........................................  16.5 (2400)
Ultimate Elongation Percent, Minimum.......................          125
Cold Bend Failures, Maximum................................         0/10
Shrinkback, Maximum Millimeter (mm) (Inches (in.)).........    9.5 (3/8)
Adhesion, Maximum Newtons (N) (Pound-force (lbf))..........     13.3 (3)
Compression Minimum, N (lbf)...............................   1780 (400)
------------------------------------------------------------------------

    (12) Testing procedures. The procedures for testing the composite 
insulation samples for compliance with paragraph (b)(11) of this section 
shall be as follows:
    (i) Tensile strength and ultimate elongation. Samples of the 
insulation material, removed from the conductor, shall be tested in 
accordance with ASTM D 2633-82(1989), except that the speed of jaw 
separation shall be 50 millimeters/minute (50 mm/min) (2 inches/minute 
(2 in./min)).

    Note: Quality assurance testing at a jaw separation speed of 500 mm/
min (20 in./min) is permissible. Failures at this rate shall be retested 
at the 50 mm/min (2 in./min) rate to determine specification compliance.

    (ii) Cold bend. Samples of the insulation material on the conductor 
shall be tested in accordance with ASTM D 4565-90a at a temperature of 
-401  deg.C with a mandrel diameter of 6 mm (0.25 in.). 
There shall be no cracks visible to normal or corrected-to-normal 
vision.
    (iii) Shrinkback. Samples of insulation shall be tested for four 
hours at a temperature of 1151  deg.C in accordance with 
ASTM D 4565-90a.
    (iv) Adhesion. Samples of insulation material on the conductor shall 
be tested in accordance with ASTM D 4565-90a with a crosshead speed of 
50 mm/min (2 in./min).
    (v) Compression. Samples of the insulation material on the conductor 
shall be tested in accordance with ASTM D

[[Page 786]]

4565-90a with a crosshead speed of 5 mm/min (0.2 in./min).
    (13) Other methods of testing may be used if acceptable to RUS.
    (c) Identification of pairs and twisting of pairs. (1) The PVC skin 
shall be colored to identify:
    (i) The tip and ring conductor of each pair; and
    (ii) Each pair in the completed cable.
    (2) The colors used to provide identification of the tip and ring 
conductor of each pair shall be as shown in the following table:

------------------------------------------------------------------------
                                                     Color              
              Pair No.               -----------------------------------
                                            Tip               Ring      
------------------------------------------------------------------------
 1..................................  White            Blue             
 2..................................  White            Orange           
 3..................................  White            Green            
 4..................................  White            Brown            
 5..................................  White            Slate            
 6..................................  Red              Blue             
 7..................................  Red              Orange           
 8..................................  Red              Green            
 9..................................  Red              Brown            
10..................................  Red              Slate            
11..................................  Black            Blue             
12..................................  Black            Orange           
13..................................  Black            Green            
14..................................  Black            Brown            
15..................................  Black            Slate            
16..................................  Yellow           Blue             
17..................................  Yellow           Orange           
18..................................  Yellow           Green            
19..................................  Yellow           Brown            
20..................................  Yellow           Slate            
21..................................  Violet           Blue             
22..................................  Violet           Orange           
23..................................  Violet           Green            
24..................................  Violet           Brown            
25..................................  Violet           Slate            
------------------------------------------------------------------------

    (3) Standards of color. The colors of the insulated conductors 
supplied in accordance with this section are specified in terms of the 
Munsell Color System (ASTM D 1535-89) and shall comply with the ``Table 
of Wire and Cable Limit Chips'' as defined in ANSI/EIA-359-A-84. (Visual 
color standards meeting these requirements may be obtained directly from 
the Munsell Color Company, Inc., 2441 North Calvert Street, Baltimore, 
Maryland 21218).
    (4) Positive identification of the tip and ring conductors of each 
pair by marking each conductor of a pair with the color of its mate is 
permissible. The method of marking shall be accepted by RUS prior to its 
use.
    (5) Other methods of providing positive identification of the tip 
and ring conductors of each pair may be employed if accepted by RUS 
prior to its use.
    (6) The insulated conductors shall be twisted into pairs.
    (7) In order to provide sufficiently high crosstalk isolation, the 
pair twists shall be designed to enable the cable to meet the 
capacitance unbalance and the crosstalk loss requirements of paragraphs 
(h)(2), (h)(3), and (h)(4) of this section.
    (8) The average length of pair twists in any pair in the finished 
cable, when measured on any 3 meter (m) (10 foot (ft)) length, shall not 
exceed 152 mm (6 in.).
    (d) Forming of the cable core. (1) Twisted pairs shall be assembled 
in such a way as to form a substantially cylindrical group.
    (2) When desired for lay-up reasons, the basic group may be divided 
into two or more subgroups called units.
    (3) Each group, or unit in a particular group, shall be enclosed in 
bindings of the colors indicated for its particular pair count. The pair 
count, indicated by the color of insulation, shall be consecutive as 
indicated in paragraph (d)(5) of this section through units in a group.
    (4) Threads or tapes used as binders shall be nonhygroscopic and 
nonwicking. The threads shall consists of a suitable number of ends of 
each color arranged as color bands. When tapes are used as binders, they 
shall be colored. Binders shall be applied with a lay of not more than 
100 mm (4 in.). The colored binders shall be readily recognizable as the 
basic intended color and shall be distinguishable from all other colors.
    (5) The colors of the bindings and their significance with respect 
to pair count shall be as shown in the following table:

------------------------------------------------------------------------
       Group No.            Color of bindings        Group pair count   
------------------------------------------------------------------------
1.....................  White-Blue..............  1-25                  
2.....................  White-Orange............  26-50                 
3.....................  White-Green.............  51-75                 
4.....................  White-Brown.............  76-100                
5.....................  White-Slate.............  101-125               
6.....................  Red-Blue................  126-150               
7.....................  Red-Orange..............  151-175               
8.....................  Red-Green...............  176-200               
9.....................  Red-Brown...............  201-225               
10....................  Red-Slate...............  226-250               
11....................  Black-Blue..............  251-275               
12....................  Black-Orange............  276-300               

[[Page 787]]

                                                                        
13....................  Black-Green.............  301-325               
14....................  Black-Brown.............  326-350               
15....................  Black-Slate.............  351-375               
16....................  Yellow-Blue.............  376-400               
17....................  Yellow-Orange...........  401-425               
18....................  Yellow-Green............  426-450               
19....................  Yellow-Brown............  451-475               
20....................  Yellow-Slate............  476-500               
21....................  Violet-Blue.............  501-525               
22....................  Violet-Orange...........  526-550               
23....................  Violet-Green............  551-575               
24....................  Violet-Brown............  576-600               
------------------------------------------------------------------------

    (6) The use of the white unit binder in cables of 100 pair or less 
is optional.
    (7) When desired for manufacturing reasons, two or more 25 pair 
groups may be bound together with nonhygroscopic and nonwicking threads 
or tapes into super-units. The group binders and the super-unit binders 
shall be colored such that the combination of the two binders shall 
positively identify each 25 pair group from every other 25 pair group in 
the cable.
    (8) Super-unit binders shall be of the colors shown in the following 
table:

                        Super-Unit Binder Colors                        
------------------------------------------------------------------------
                 Pair No.                           Binder color        
------------------------------------------------------------------------
1-600.....................................  White                       
601-1200..................................  Red                         
------------------------------------------------------------------------

    (e) Core wrap. (1) The core shall be completely covered with a layer 
of nonhygroscopic and nonwicking dielectric material. The core wrap 
shall be applied with an overlap.
    (2) The core wrap shall provide a sufficient heat barrier to prevent 
visible evidence of conductor insulation deformation or adhesion between 
conductors, caused by adverse heat transfer during the jacketing 
operation.
    (3) Engineering Information: If required for manufacturing reasons, 
white or uncolored binders of nonhygroscopic and nonwicking material may 
be applied over the core and/or core wrap.
    (f) Shield. (1) An aluminum shield, plastic coated on one side, 
shall be applied longitudinally over the core wrap.
    (2) The shield may be applied over the core wrap with or without 
corrugations (smooth) and shall be bonded to the outer jacket.
    (3) The shield overlap shall be a minimum of 3 mm (0.125 in.) for 
cables with core diameters of 15 mm (0.625 in.) or less and a minimum of 
6 mm (0.25 in.) for cables with core diameters greater than 15 mm (0.625 
in.). The core diameter is defined as the diameter under the core wrap 
and binding.
    (4) General requirements for application of the shielding material 
shall be as follows:
    (i) Successive lengths of shielding tapes may be joined during the 
manufacturing process by means of cold weld, electric weld, soldering 
with a nonacid flux, or other acceptable means;
    (ii) The metal shield with the plastic coating shall have the 
coating removed prior to joining the metal ends together. After joining, 
the plastic coating shall be restored without voids using good 
manufacturing techniques;
    (iii) The shields of each length of cable shall be tested for 
continuity. A one meter (3 ft) section of shield containing a factory 
joint shall exhibit not more than 110 percent of the resistance of a 
shield of equal length without a joint;
    (iv) The breaking strength of any section of a shield tape 
containing a factory joint shall not be less than 80 percent of the 
breaking strength of an adjacent section of the shield of equal length 
without a joint;
    (v) The reduction in thickness of the shielding material due to the 
corrugating or application process shall be kept to a minimum and shall 
not exceed 10 percent at any spot; and
    (vi) The shielding material shall be applied in such a manner as to 
enable the cable to pass the bend test as specified in paragraph (i)(1) 
of this section.
    (5) The dimensions of the uncoated aluminum tape shall be 
0.20300.0254 mm (0.00800.0010 in.).
    (6) The aluminum tape shall conform to either Alloy AA-1100-0, AA-
1145-0, or AA-1235-0 as covered in the latest edition of Aluminum 
Standards and Data, issued by the Aluminum Association, except that 
requirements for tensile strength are waived.
    (7) The single-sided plastic coated aluminum shield shall conform to 
the requirements of ASTM B 736-92a, Type I Coating, Class 1 or 2, or 
Type II Coating, Class 1. The minimum thickness of the Type I Coating 
shall be 0.038 mm

[[Page 788]]

(0.0015 in.). The minimum thickness of the Type II Coating shall be 
0.008 mm (0.0003 in.).
    (8) The plastic coated aluminum shield shall be tested for 
resistance to water migration by immersing a one meter (3 ft) length of 
tape under a one meter (3 ft) head of water containing a soluble dye 
plus 0.25 percent (%) wetting agent.
    (i) After a minimum of 5 minutes, no dye shall appear between the 
interface of the shield tape and the plastic coating.
    (ii) The actual test method shall be acceptable to RUS.
    (9) The bond between the plastic coated shield and the jacket shall 
conform to the following requirements:
    (i) Prepare test strips approximately 200 mm (8 in.) in length. Slit 
the jacket and shield longitudinally to produce 4 strips evenly spaced 
and centered in 4 quadrants on the jacket circumference. One of the 
strips shall be centered over the overlapped edge of the shielding tape. 
The strips shall be 13 mm (0.5 in.) wide. For cable diameters less than 
19 mm (0.75 in.) make two strips evenly spaced.
    (ii) Separate the shield and jacket for a sufficient distance to 
allow the shield and jacket to be fitted in the upper and lower jaws of 
a tensile machine. Record the maximum force required to separate the 
shield and jacket to the nearest newton (pound-force). Repeat this 
action for each test strip.
    (iii) The force required to separate the jacket from the shield 
shall not be less than 9 N (2 lbf) for any individual strip when tested 
in accordance with paragraph (f)(9)(ii) of this section. The average 
force for all strips of any cable shall not be less than 18 N (4 lbf).
    (g) Cable jacket and extraneous material. (1) The jacket shall 
provide the cable with a tough, flexible, protective covering which can 
withstand stresses reasonably expected in normal installation and 
service.
    (2) The jacket shall be free from holes, splits, blisters, or other 
imperfections and shall be as smooth and concentric as is consistent 
with the best commercial practice.
    (3) The raw material used for the cable jacket shall be one of the 
following four types:
    (i) Type PVC-55554EOXO in accordance with ASTM D 2287-81(1988);
    (ii) Type PVC-65554EOXO in accordance with ASTM D 2287-81(1988);
    (iii) Type PVC-55556EOXO in accordance with ASTM D 2287-81(1988); or
    (iv) Type PVC-66554EOXO in accordance with ASTM D 2287-81(1988).
    (4) The jacketing material removed from or tested on the cable shall 
be capable of meeting the following performance requirements:

------------------------------------------------------------------------
                                                               Jacket   
                         Property                            performance
------------------------------------------------------------------------
Tensile Strength-Unaged Minimum, MPa (psi)................   13.8 (2000)
Ultimate Elongation-Unaged Minimum, Percent (%)...........           200
Tensile Strength-Aged Minimum, % of original value........            80
Ultimate Elongation-Aged Minimum, % of original value.....            50
Impact Failures, Maximum..................................          2/10
------------------------------------------------------------------------

    (5) Testing procedures. The procedures for testing the jacket 
samples for compliance with paragraph (g)(4) of this section shall be as 
follows:
    (i) Tensile strength and ultimate elongation-unaged. The test shall 
be performed in accordance with ASTM D 2633-82(1989), using a jaw 
separation speed of 50 mm/min (2 in./min).

    Note: Quality assurance testing at a jaw separation speed of 500 mm/
min (20 in./min) is permissible. Failures at this rate shall be retested 
at the 50 mm/min (2 in./min) rate to determine specification compliance.

    (ii) Tensile strength and ultimate elongation-aged. The test shall 
be performed in accordance with paragraph (g)(5)(i) of this section 
after being aged for 7 days at a temperature of 1001  deg.C 
in a circulating air oven conforming to ASTM D 2436-85.
    (iii) Impact. The test shall be performed in accordance with ASTM D 
4565-90a using an impact force of 4 newton-meter (3 pound force-foot) at 
a temperature of -101  deg.C. The cylinder shall strike the 
sample at the shield overlap. A crack or split in the jacket constitutes 
failure.
    (6) Jacket thickness. The nominal jacket thickness shall be as 
specified in the following table. The test method used shall be either 
the End Sample Method (paragraph (g)(6)(i) of this section) or the 
Continuous Uniformity Thickness Gauge Method (paragraph (g)(6)(ii) of 
this section):

[[Page 789]]



------------------------------------------------------------------------
                                            Nominal jacket thickness mm 
               No. of pairs                            (in.)            
------------------------------------------------------------------------
25 or less...............................  1.4 (0.055)                  
50.......................................  1.5 (0.060)                  
100......................................  1.7 (0.065)                  
200......................................  1.9 (0.075)                  
300......................................  2.2 (0.085)                  
400......................................  2.4 (0.095)                  
600......................................  2.9 (0.115)                  
800 and over.............................  3.3 (0.130)                  
------------------------------------------------------------------------

    (i) End sample method. The jacket shall be capable of meeting the 
following requirements:

Minimum Average Thickness--90% of nominal thickness
Minimum Thickness--70% of nominal thickness

    (ii) Continuous uniformity thickness gauge method. (A) The jacket 
shall be capable of meeting the following requirements:

Minimum Average Thickness--90% of nominal thickness
Minimum (Min.) Thickness--70 % of nominal thickness
Maximum (Max.) Eccentricity--55%
Eccentricity=Max. Thickness--Min. Thickness (Average Thickness) x 100

    (B) Maximum and minimum thickness values. The maximum and minimum 
thickness values shall be based on the average of each axial section.
    (7) The color of the jacket shall be either black or dark grey in 
conformance with the Munsell Color System specified in ASTM D 1535-89.
    (8) There shall be no water or other contaminants in the finished 
cable which would have a detrimental effect on its performance or its 
useful life.
    (h) Electrical requirements--(1) Mutual capacitance and conductance. 
(i) The average mutual capacitance (corrected for length) of all pairs 
in any reel shall not exceed the following when tested in accordance 
with ASTM D 4566-90 at a frequency of 1.0 0.1 kilohertz 
(kHz) and a temperature of 233 deg.C:

------------------------------------------------------------------------
                                                   Mutual capacitance   
                                               -------------------------
             Number of cable pairs               Nanofarad/  (Nanofarad/
                                                 kilometer      mile)   
------------------------------------------------------------------------
12............................................  520.1 kHz and a temperature of 
233 deg.C.
    (2) Pair-to-pair capacitance unbalance. The capacitance unbalance as 
measured on the completed cable shall not exceed 45.3 picofarad/
kilometer (pF/km) (25 picofarad/1000 ft (pF/1000 ft)) rms when tested in 
accordance with ASTM D 4566-90 at a frequency of 1.00.1 kHz 
and a temperature of 233 deg.C.
    (3) Pair-to-ground capacitance unbalance. (i) The average 
capacitance unbalance as measured on the completed cable shall not 
exceed 574 pF/km (175 pF/1000 ft) when tested in accordance with ASTM D 
4566-90 at a frequency of 10.1 kHz and a temperature of 
233 deg.C.
    (ii) When measuring pair-to-ground capacitance unbalance all pairs 
except the pair under test are grounded to the shield except when 
measuring cable containing super-units in which case all other pairs in 
the same super-unit shall be grounded to the shield.
    (iii) Pair-to-ground capacitance unbalance may vary directly with 
the length of the cable.
    (4) Crosstalk loss. (i) The rms output-to-output far-end crosstalk 
loss (FEXT) measured on the completed cable in accordance with ASTM D 
4566-90 at a test frequency of 150 kHz shall not be less than 68 
decibel/kilometer (dB/km) (73 decibel/1000 ft (dB/1000 ft)). The rms 
calculation shall be based on the combined total of all adjacent and 
alternate pair combinations within the same layer and center to first 
layer pair combinations.
    (ii) The FEXT crosstalk loss between any pair combination of a cable 
shall not be less than 58 dB/km (63 dB/1000 ft) at a frequency of 150 
kHz. If the loss Ko at a frequency Fo for length 
Lo is known, then Kx can be determined for any 
other frequency Fx or length Lx by:

[[Page 790]]

[GRAPHIC] [TIFF OMITTED] TR14JN94.000


    (iii) The near-end crosstalk loss (NEXT) as measured within and 
between units of a completed cable in accordance with ASTM D 4566-90 at 
a frequency of 772 kHz shall not be less than the following mean minus 
sigma (M-S) crosstalk requirement for any unit within the cable:

------------------------------------------------------------------------
                                                                   M-S  
                           Unit size                             decibel
                                                                  (dB)  
------------------------------------------------------------------------
Within Unit:                                                            
  12 and 13 pairs.............................................        56
  18 and 25 pairs.............................................        60
Between Unit:                                                           
  Adjacent 13 pairs...........................................        65
  Adjacent 25 pairs...........................................        66
  Nonadjacent (all)...........................................        81
------------------------------------------------------------------------

Where M-S is the Mean near-end coupling loss based on the combined total 
of all pair combinations, less one Standard Deviation, Sigma, of the 
mean value.
    (5) Insulation resistance. Each insulated conductor in each length 
of completed cable, when measured with all other insulated conductors 
and the shield grounded, shall have an insulation resistance of not less 
than 152 megohm-kilometer (500 megohm-mile) at 201 deg.C. 
The measurement shall be made in accordance with the procedures of ASTM 
D 4566-90.
    (6) High voltage test. (i) In each length of completed cable, the 
dielectric strength of the insulation between conductors shall be tested 
in accordance with ASTM D 4566-90 and shall withstand, for 3 seconds, a 
direct current (dc) potential whose value is not less than:
    (A) 3.6 kilovolts for 22-gauge conductors; or
    (B) 3.0 kilovolts for 24-gauge conductors.
    (ii) In each length of completed cable, the dielectric strength 
between the shield and all conductors in the core shall be tested in 
accordance with ASTM D 4566-90 and shall withstand, for 3 seconds, a dc 
potential whose value is not less than 10 kilovolts.
    (7) Conductor resistance. The dc resistance of any conductor shall 
be measured in the completed cable in accordance with ASTM D 4566-90 and 
shall not exceed the following values when measured at or corrected to a 
temperature of 201 deg.C:

------------------------------------------------------------------------
                                                   Maximum resistance   
                                               -------------------------
                      AWG                          ohms/      (ohms/1000
                                                 kilometer       ft)    
------------------------------------------------------------------------
22............................................         60.7       (18.5)
24............................................         95.1       (29.0)
------------------------------------------------------------------------

    (8) Resistance unbalance. (i) The difference in dc resistance 
between the two conductors of a pair in the completed cable shall not 
exceed the values listed in this paragraph when measured in accordance 
with the procedures of ASTM D 4566-90:

------------------------------------------------------------------------
                                                 Resistance  Maximum for
                                                 unbalance     any reel 
                                               -------------------------
                      AWG                                     Individual
                                                  Average        pair   
                                                  percent      percent  
------------------------------------------------------------------------
22............................................          1.5          4.0
24............................................          1.5          5.0
------------------------------------------------------------------------

    (ii) The resistance unbalance between tip and ring conductors shall 
be random with respect to the direction of unbalance. That is, the 
resistance of the tip conductors shall not be consistently higher with 
respect to the ring conductors and vice versa.
    (9) Electrical variations. (i) Pairs in each length of cable having 
either a ground, cross, short, or open circuit condition shall not be 
permitted.
    (ii) The maximum number of pairs in a cable which may vary as 
specified in paragraph (h)(9)(iii) of this section from the electrical 
parameters given in this section are listed in this paragraph. These 
pairs may be excluded from the arithmetic calculation:

------------------------------------------------------------------------
                                                             Maximum No.
                                                               of pairs 
                                                                 with   
                     Nominal pair count                       allowable 
                                                              electrical
                                                              variation 
------------------------------------------------------------------------
12-100.....................................................            1
101-300....................................................            2
301-400....................................................            3
401-600....................................................            4

[[Page 791]]

                                                                        
601 and above..............................................            6
------------------------------------------------------------------------

    (iii) Parameter variations--(A) Capacitance unbalance-to-ground. If 
the cable fails either the maximum individual pair or average 
capacitance unbalance-to-ground requirement and all individual pairs are 
3280 pF/km (1000 pF/1000 ft) or less the number of pairs specified in 
paragraph (h)(9)(ii) of this section may be eliminated from the average 
and maximum individual calculations.
    (B) Resistance unbalance. Individual pair of not more than 7 percent 
for all gauges.
    (C) Far end crosstalk. Individual pair combination of not less than 
52 dB/km (57 dB/1000 ft).

    Note: RUS recognizes that in large pair count cables (600 pair and 
above) a cross, short, or open circuit condition occasionally may 
develop in a pair which does not affect the performance of the other 
cable pairs. In these circumstances rejection of the entire cable may be 
economically unsound or repairs may be impractical. In such 
circumstances the manufacturer may desire to negotiate with the customer 
for acceptance of the cable. No more than 0.5 percent of the pairs may 
be involved.

    (i) Mechanical requirements--(1) Cable cold bend test. The completed 
cable shall be capable of meeting the requirements of ASTM D 4565-90a 
after conditioning at -20  2  deg.C except the mandrel 
diameters shall be as specified below:

------------------------------------------------------------------------
           Cable outside diameter                  Mandrel diameter     
------------------------------------------------------------------------
<40 mm (1.5 in.)............................  15x                       
40 mm (1.5 in.)..................  20x                       
------------------------------------------------------------------------

    (2) Cable flame test. The completed cable shall be capable of 
meeting a maximum flame height of 3.7 m (12.0 ft) when tested in 
accordance with Underwriters Laboratories (UL) 1666 dated January 22, 
1991.
    (3) Cable listing. All cables manufactured to the specification of 
this section at a minimum shall be listed as Communication Riser Cable 
(Type CMR) in accordance with Sections 800-50 and 800-51(b) of the 1993 
National Electrical Code.
    (j) Sheath slitting cord (optional). (1) Sheath slitting cords may 
be used in the cable structure at the option of the manufacturer.
    (2) When a sheath slitting cord is used it shall be nonhygroscopic 
and nonwicking, continuous throughout a length of cable, and of 
sufficient strength to open the sheath without breaking the cord.
    (3) Sheath slitting cords shall be capable of consistently slitting 
the jacket and/or shield for a continuous length of 0.6 m (2 ft) when 
tested in accordance with the procedure specified in appendix B of this 
section.
    (k) Identification marker and length marker. (1) Each length of 
cable shall be permanently identified as to manufacturer and year of 
manufacture.
    (2) The number of conductor pairs and their gauge size shall be 
marked on the jacket.
    (3) The marking shall be printed on the jacket at regular intervals 
of not more than 1.5 m (5 ft).
    (4) An alternative method of marking may be used if accepted by RUS 
prior to its use.
    (5) The completed cable shall have sequentially numbered length 
markers in FEET OR METERS at regular intervals of not more than 1.5 m (5 
ft) along the outside of the jacket.
    (6) The method of length marking shall be such that for any single 
length of cable, continuous sequential numbering shall be employed.
    (7) The numbers shall be dimensioned and spaced to produce good 
legibility and shall be approximately 3 mm (0.125 in.) in height. An 
occasional illegible marking is permissible if there is a legible 
marking located not more than 1.5 m (5 ft) from it.
    (8) The method of marking shall be by means of suitable surface 
markings producing a clear, distinguishable, contrasting marking 
acceptable to RUS. Where direct or transverse printing is employed, the 
characters should be indented to produce greater durability of marking. 
Any other method of length marking shall be acceptable to RUS as 
producing a marker suitable for the field. Size, shape and spacing of 
numbers, durability, and overall legibility

[[Page 792]]

of the marker shall be considered in acceptance of the method.
    (9) The accuracy of the length marking shall be such that the actual 
length of any cable section is never less than the length indicated by 
the marking and never more than one percent greater than the length 
indicated by the marking.
    (10) The color of the initial marking for a black colored jacket 
shall be either white or silver. The color of the initial marking for a 
dark grey colored jacket shall be either red or black. If the initial 
marking of the black colored jacket fails to meet the requirements of 
the preceding paragraphs, it will be permissible to either remove the 
defective marking and re-mark with the white or silver color or leave 
the defective marking on the cable and re-mark with yellow. If the 
initial marking of the dark grey colored jacket fails to meet the 
requirements of the preceding paragraphs, it will be permissible to 
either remove the defective marking and re-mark with the red or black 
color or leave the defective marking on the cable and re-mark with 
yellow. No further re-marking is permitted. Any re-marking shall be on a 
different portion of the cable circumference than any existing marking 
when possible and have a numbering sequence differing from any other 
existing marking by at least 5,000.
    (11) Any reel of cable which contains more than one set of 
sequential markings shall be labeled to indicate the color and sequence 
of marking to be used. The labeling shall be applied to the reel and 
also to the cable.
    (l) Preconnectorized cable (optional). (1) At the option of the 
manufacturer and upon request by the purchaser, cables 100 pairs and 
larger may be factory terminated in 25 pair splicing modules.
    (2) The splicing modules shall meet the requirements of RUS Bulletin 
345-54, PE-52, RUS Specification for Telephone Cable Splicing Connectors 
(Incorporated by Reference at Sec. 1755.97), and be accepted by RUS 
prior to their use.
    (m) Acceptance testing and extent of testing. (1) The tests 
described in appendix A of this section are intended for acceptance of 
cable designs and major modifications of accepted designs. RUS decides 
what constitutes a major modification. These tests are intended to show 
the inherent capability of the manufacturer to produce cable products 
having long life and stability.
    (2) For initial acceptance, the manufacturer shall submit:
    (i) An original signature certification that the product fully 
complies with each section of the specification;
    (ii) Qualification Test Data, per appendix A of this section;
    (iii) To periodic plant inspections;
    (iv) A certification that the product does or does not comply with 
the domestic origin manufacturing provisions of the ``Buy American'' 
requirements of the Rural Electrification Act of 1938 (7 U.S.C. 901 et 
seq.);
    (v) Written user testimonials concerning performance of the product; 
and
    (vi) Other nonproprietary data deemed necessary by the Chief, 
Outside Plant Branch (Telephone).
    (3) For requalification acceptance, the manufacturer shall submit an 
original signature certification that the product fully complies with 
each section of the specification, excluding the Qualification Section, 
and a certification that the product does or does not comply with the 
domestic origin manufacturing provisions of the ``Buy American'' 
requirements of the Rural Electrification Act of 1938 (7 U.S.C. 901 et 
seq.) for acceptance by June 30 every three years. The required data and 
certification shall have been gathered within 90 days of the submission.
    (4) Initial and requalification acceptance requests should be 
addressed to: Chairman, Technical Standards Committee ``A'' (Telephone), 
Telecommunications Standards Division, Rural Utilities Service, 
Washington, DC 20250-1500.
    (5) Tests on 100 percent of completed cable. (i) The shield of each 
length of cable shall be tested for continuity using the procedures of 
ASTM D 4566-90.
    (ii) Dielectric strength between all conductors and the shield shall 
be tested to determine freedom from grounds in accordance with paragraph 
(h)(6)(ii) of this section.
    (iii) Each conductor in the completed cable shall be tested for 
continuity

[[Page 793]]

using the procedures of ASTM D 4566-90.
    (iv) Dielectric strength between conductors shall be tested to 
ensure freedom from shorts and crosses in accordance with paragraph 
(h)(6)(i) of this section.
    (v) Each conductor in the completed preconnectorized cable shall be 
tested for continuity.
    (vi) Each length of completed preconnectorized cable shall be tested 
for split pairs.
    (vii) The average mutual capacitance shall be measured on all 
cables. If the average mutual capacitance for the first 100 pairs tested 
from randomly selected groups is between 50 and 53 nF/km (80 to 85 nF/
mile), the remainder of the pairs need not to be tested on the 100 
percent basis. (See paragraph (h)(1) of this section).
    (6) Capability tests. Tests on a quality assurance basis shall be 
made as frequently as is required for each manufacturer to determine and 
maintain compliance with:
    (i) Performance requirements for conductor insulation and jacket 
material;
    (ii) Bonding properties of coated or laminated shielding materials;
    (iii) Sequential marking and lettering;
    (iv) Capacitance unbalance and crosstalk;
    (v) Insulation resistance;
    (vi) Conductor resistance and resistance unbalance;
    (vii) Cable cold bend and cable flame tests; and
    (viii) Mutual conductance.
    (n) Summary of records of electrical and physical tests. (1) Each 
manufacturer shall maintain a suitable summary of records for a period 
of at least 3 years for all electrical and physical tests required on 
completed cable by this section as set forth in paragraphs (m)(5) and 
(m)(6) of this section. The test data for a particular reel shall be in 
a form that it may be readily available to the purchaser or to RUS upon 
request.
    (2) Measurements and computed values shall be rounded off to the 
number of places of figures specified for the requirement according to 
ASTM E 29-90.
    (o) Manufacturing irregularities. (1) Repairs to the shield are not 
permitted in cable supplied to the end user under this section.
    (2) No repairs or defects in the jacket are allowed.
    (p) Preparation for shipment. (1) The cable shall be shipped on 
reels unless otherwise specified or agreed to by the purchaser. The 
diameter of the drum shall be large enough to prevent damage to the 
cable from reeling or unreeling. The reels shall be substantial and so 
constructed as to prevent damage to the cable during shipment and 
handling.
    (2) A waterproof corrugated board or other means of protection 
acceptable to RUS shall be applied to the reel and shall be suitably 
secured in place to prevent damage to the cable during storage and 
shipment.
    (3) The outer end of the cable shall be securely fastened to the 
reel head so as to prevent the cable from becoming loose in transit. The 
inner end of the cable shall be securely fastened in such a way as to 
make it readily available if required for electrical testing. Spikes, 
staples, or other fastening devices which penetrate the cable jacket 
shall not be used. The method of fastening the cable ends shall be 
accepted by RUS prior to it being used.
    (4) Each length of cable shall be wound on a separate reel unless 
otherwise specified or agreed to by the purchaser.
    (5) The arbor hole shall admit a spindle 63 mm (2.5 in.) in diameter 
without binding. Steel arbor hole liners may be used but shall be 
acceptable to RUS prior to their use.
    (6) Each reel shall be plainly marked to indicate the direction in 
which it should be rolled to prevent loosening of the cable on the reel.
    (7) Each reel shall be stenciled or labeled on either one or both 
sides with the name of the manufacturer, year of manufacture, actual 
shipping length, an inner and outer end sequential length marking, 
description of the cable, reel number and the RUS cable designation:

[[Page 794]]

                            Cable Designation

CT
Cable Construction
Pair Count
Conductor Gauge

A = Coated Aluminum Shield

P = Preconnectorized Cable

Example: CTAP 100-22

Terminating Cable, Coated Aluminum Shield, Preconnectorized, 100 pairs, 
22 AWG.

    (8) When preconnectorized cable is shipped, the splicing modules 
shall be protected to prevent damage during shipment and handling. The 
protection method shall be acceptable to RUS prior to its use.

(The information collection and recordkeeping requirements of this 
section have been approved by the Office of Management and Budget (OMB) 
under control number 0572-0059)

        Appendix A to 7 CFR 1755.870--Qualification Test Methods

    (I) The test procedures described in this appendix are for 
qualification of initial designs and major modifications of accepted 
designs. Included in paragraph (V) of this appendix are suggested 
formats that may be used in submitting test results to RUS.
    (II) Sample Selection and Preparation. (1) All testing shall be 
performed on lengths removed sequentially from the same 25 pair, 22 
gauge jacketed cable. This cable shall not have been exposed to 
temperatures in excess of 38  deg.C since its initial cool down after 
sheathing. The lengths specified are minimum lengths and if desirable 
from a laboratory testing standpoint longer lengths may be used.
    (a) Length A shall be 12  0.2 meters (40  
0.5 feet) long. Prepare the test sample by removing the jacket, shield, 
and core wrap for a sufficient distance on both ends to allow the 
insulated conductors to be flared out. Remove sufficient conductor 
insulation so that appropriate electrical test connections can be made 
at both ends. Coil the sample with a diameter of 15 to 20 times its 
sheath diameter. Two lengths are required.
    (b) Length B shall be 300 millimeters (1 foot) long. Three lengths 
are required.
    (c) Length C shall be 3 meters (10 feet) long and shall be 
maintained at 23  3  deg.C for the duration of the test. Two 
lengths are required.
    (2) Data Reference Temperature. Unless otherwise specified, all 
measurements shall be made at 23  3  deg.C.
    (III) Environmental Tests--(1) Heat Aging Test--(a) Test Samples. 
Place one sample each of lengths A and B in an oven or environmental 
chamber. The ends of sample A shall exit from the chamber or oven for 
electrical tests. Securely seal the oven exit holes.
    (b) Sequence of Tests. Sample B referenced in paragraph (III)(1)(a) 
of this appendix shall be subjected to the insulation compression test 
outlined in paragraph (III)(2) of this appendix.
    (c) Initial Measurements. (i) For sample A, measure the open circuit 
capacitance and conductance for each odd pair at 1, 150, and 772 
kilohertz after conditioning the sample at the data reference 
temperature for 24 hours. Calculate the average and standard deviation 
for the data of the 13 pairs on a per kilometer (per mile) basis.
    (ii) Record on suggested formats in paragraph (V) of this appendix 
or on other easily readable formats.
    (d) Heat Conditioning. (i) Immediately after completing the initial 
measurements, condition the sample for 14 days at a temperature of 65 
 2  deg.C.
    (ii) At the end of this period. Measure and calculate the parameters 
given in paragraph (III)(1)(c) of this appendix. Record on suggested 
formats in paragraph (V) of this appendix or on other easily readable 
formats.
    (e) Overall Electrical Deviation. (i) Calculate the percent change 
in all average parameters between the final parameters after 
conditioning with the initial parameters in paragraph (III)(1)(c) of 
this appendix.
    (ii) The stability of the electrical parameters after completion of 
this test shall be within the following prescribed limits:
    (A) Capacitance. The average mutual capacitance shall be within 10 
percent of its original value;
    (B) The change in average mutual capacitance shall be less than 10 
percent over the frequency range of 1 to 150 kilohertz; and
    (C) Conductance. The average mutual conductance shall not exceed 3.7 
micromhos/kilometer (6 micromhos/mile) at a frequency of 1 kilohertz.
    (2) Insulation Compression Test--(a) Test Sample B. Remove jacket, 
shield, and core wrap being careful not to damage the conductor 
insulation. Remove one pair from the core and carefully separate and 
straighten the insulated conductors. Retwist the two insulated 
conductors together under sufficient tension to form 10 evenly spaced 
360 degree twists in a length of 100 millimeters (4 inches).
    (b) Sample Testing. Center the mid 50 millimeters (2 inches) of the 
twisted pair between two smooth rigid parallel metal plates measuring 50 
millimeters (2 inches) in length or diameter. Apply a 1.5 volt direct 
current potential between the conductors, using a light or buzzer to 
indicate electrical contact between the conductors. Apply a constant 
load of 67 newtons (15 pound-force) on the sample for one minute and 
monitor for evidence of contact between the conductors. Record results 
on suggested formats in paragraph (V)

[[Page 795]]

of this appendix or on other easily readable formats.
    (3) Temperature Cycling. (a) Repeat paragraphs (III)(1)(a) through 
(III)(1)(c)(ii) of this appendix for a separate set of samples A and B 
which have not been subjected to prior environmental conditioning.
    (b) Immediately after completing the measurements, subject the test 
samples to 10 cycles of temperature between -40  deg.C and +60  deg.C. 
The test samples shall be held at each temperature extreme for a minimum 
of 1.5 hours during each cycle of temperature. The air within the 
temperature cycling chamber shall be circulated throughout the duration 
of the cycling.
    (c) Repeat paragraphs (III)(1)(d)(ii) through (III)(2)(b) of this 
appendix.
    (IV) Control Sample--(1) Test Samples. One length of sample B shall 
have been maintained at 23  3  deg.C for at least 48 hours 
before the testing.
    (2) Repeat paragraphs (III)(2) through (III)(2)(b) of this appendix.
    (3) Surge Test. (a) One length of sample C shall be used to measure 
the breakdown between conductors while the other length of C shall be 
used to measure core to shield breakdown.
    (b) The samples shall be capable of withstanding, without damage, a 
single surge voltage of 20 kilovolts peak between conductors, and 35 
kilovolts peak between conductors and the shield as hereinafter 
described. The surge voltage shall be developed from a capacitor 
discharge through a forming resistor connected in parallel with the 
dielectric of the test sample. The surge generator constants shall be 
such as to produce a surge of 1.5  x  40 microseconds wave shape.
    (c) The shape of the generated wave shall be determined at a reduced 
voltage by connecting an oscilloscope across the forming resistor with 
the cable sample connected in parallel with the forming resistor. The 
capacitor bank is charged to the test voltage and then discharged 
through the forming resistor and test sample. The test sample shall be 
considered to have passed the test if there is no distinct change in the 
wave shape obtained with the initial reduced voltage compared to that 
obtained after the application of the test voltage.
    (V) The following suggested formats may be used in submitting the 
test results to RUS:


             ENVIRONMENTAL CONDITIONING ____________________

                                              Frequency 1 Kilohertz                                             
----------------------------------------------------------------------------------------------------------------
                                                               Capacitance nF/km  (nF/  Conductance micromhos/km
                                                                        mile)               (micromhos/mile)    
                          Pair No.                           ---------------------------------------------------
                                                                Initial       Final       Initial       Final   
----------------------------------------------------------------------------------------------------------------
 1..........................................................  ...........  ...........  ...........  ...........
 3..........................................................  ...........  ...........  ...........  ...........
 5..........................................................  ...........  ...........  ...........  ...........
 7..........................................................  ...........  ...........  ...........  ...........
 9..........................................................  ...........  ...........  ...........  ...........
11..........................................................  ...........  ...........  ...........  ...........
13..........................................................  ...........  ...........  ...........  ...........
15..........................................................  ...........  ...........  ...........  ...........
17..........................................................  ...........  ...........  ...........  ...........
19..........................................................  ...........  ...........  ...........  ...........
21..........................................................  ...........  ...........  ...........  ...........
23..........................................................  ...........  ...........  ...........  ...........
25..........................................................  ...........  ...........  ...........  ...........
Average x...................................................  ...........  ...........  ...........  ...........
Overall Percent Difference in                                                                                   
    Average x...............................................  ...........  ...........  ...........  ...........
----------------------------------------------------------------------------------------------------------------

             ENVIRONMENTAL CONDITIONING ____________________

                                             Frequency 150 Kilohertz                                            
----------------------------------------------------------------------------------------------------------------
                                                               Capacitance nF/km  (nF/  Conductance micromhos/km
                                                                        mile)               (micromhos/mile)    
                          Pair No.                           ---------------------------------------------------
                                                                Initial       Final       Initial       Final   
----------------------------------------------------------------------------------------------------------------
 1..........................................................  ...........  ...........  ...........  ...........
 3..........................................................  ...........  ...........  ...........  ...........
 5..........................................................  ...........  ...........  ...........  ...........
 7..........................................................  ...........  ...........  ...........  ...........
 9..........................................................  ...........  ...........  ...........  ...........

[[Page 796]]

                                                                                                                
11..........................................................  ...........  ...........  ...........  ...........
13..........................................................  ...........  ...........  ...........  ...........
15..........................................................  ...........  ...........  ...........  ...........
17..........................................................  ...........  ...........  ...........  ...........
19..........................................................  ...........  ...........  ...........  ...........
21..........................................................  ...........  ...........  ...........  ...........
23..........................................................  ...........  ...........  ...........  ...........
25..........................................................  ...........  ...........  ...........  ...........
Average x...................................................  ...........  ...........  ...........  ...........
    Overall Percent Difference in Average x.................  ...........  ...........  ...........  ...........
----------------------------------------------------------------------------------------------------------------

             ENVIRONMENTAL CONDITIONING ____________________

                                             Frequency 772 Kilohertz                                            
----------------------------------------------------------------------------------------------------------------
                                                               Capacitance nF/km  (nF/  Conductance micromhos/km
                                                                        mile)               (micromhos/mile)    
                          Pair No.                           ---------------------------------------------------
                                                                Initial       Final       Initial       Final   
----------------------------------------------------------------------------------------------------------------
 1..........................................................  ...........  ...........  ...........  ...........
 3..........................................................  ...........  ...........  ...........  ...........
 5..........................................................  ...........  ...........  ...........  ...........
 7..........................................................  ...........  ...........  ...........  ...........
 9..........................................................  ...........  ...........  ...........  ...........
11..........................................................  ...........  ...........  ...........  ...........
13..........................................................  ...........  ...........  ...........  ...........
15..........................................................  ...........  ...........  ...........  ...........
17..........................................................  ...........  ...........  ...........  ...........
19..........................................................  ...........  ...........  ...........  ...........
21..........................................................  ...........  ...........  ...........  ...........
23..........................................................  ...........  ...........  ...........  ...........
25..........................................................  ...........  ...........  ...........  ...........
Average x...................................................  ...........  ...........  ...........  ...........
    Overall Percent Difference in...........................                                                    
    Average x...............................................  ...........  ...........  ...........  ...........
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                                                Failures
------------------------------------------------------------------------
Insulation Compression:                                                 
  Control.....................................................  ........
  Heat Age....................................................  ........
  Temperature Cycling.........................................  ........
Surge Test (kilovolts):                                                 
  Conductor-to-Conductor......................................  ........
  Shield-to-Conductors........................................  ........
------------------------------------------------------------------------


    Appendix B to 7 CFR 1755.870--Sheath Slitting Cord Qualification

    (I) This test procedure described in this appendix is for 
qualification of initial and subsequent changes in sheath slitting 
cords.
    (II) Sample selection. All testing shall be performed on two 1.2 m 
(4 ft) lengths of cable removed sequentially from the same 25 pair, 22 
gauge jacketed cable. This cable shall not have been exposed to 
temperatures in excess of 38  deg.C since its initial cool down after 
sheathing.
    (III) Test procedure. (1) Using a suitable tool, expose enough of 
the sheath slitting cord to permit grasping with needle nose pliers.
    (2) The prepared test specimens shall be maintained at a temperature 
of 23  1  deg.C for at least 4 hours immediately prior to 
and during the test.
    (3) Wrap the sheath slitting cord around the plier jaws to ensure a 
good grip.
    (4) Grasp and hold the cable in a convenient position while gently 
and firmly pulling the sheath slitting cord longitudinally in the 
direction away from the cable end. The angle of pull may vary to any 
convenient and functional degree. A small starting notch is permissible.
    (5) The sheath slitting cord is considered acceptable if the cord 
can slit the jacket and/or shield for a continuous length of 0.6 m (2 
ft) without breaking the cord.

[59 FR 30507, June 14, 1994; 59 FR 34899, July 7, 1994, as amended at 60 
FR 1711, Jan. 5, 1995]

[[Page 797]]

Secs. 1755.871--1755.889  [Reserved]



Sec. 1755.890  RUS specification for filled telephone cables with expanded insulation.

    (a) Scope. (1) This section covers the requirements for filled 
telephone cables intended for direct burial installation either by 
trenching or by direct plowing, for underground application by placement 
in a duct, or for aerial installation by attachment to a support strand.
    (i) The conductors are solid copper, individually insulated with an 
extruded cellular insulating compound which may be either totally 
expanded or expanded with a solid skin coating.
    (ii) The insulated conductors are twisted into pairs which are then 
stranded or oscillated to form a cylindrical core.
    (iii) For high frequency applications, the cable core may be 
separated into compartments with screening shields.
    (iv) A moisture resistant filling compound is applied to the 
stranded conductors completely covering the insulated conductors and 
filling the interstices between pairs and units.
    (v) The cable structure is completed by the application of suitable 
core wrapping material, a flooding compound, a shield or a shield/armor, 
and an overall plastic jacket.
    (2) The number of pairs and gauge size of conductors which are used 
within the RUS program are provided in the following table:

AWG                                              19     22     24     26
                                                                        
Pairs                                             6      6      6       
                                                 12     12     12       
                                                 18     18     18       
                                                 25     25     25     25
                                                        50     50     50
                                                        75     75     75
                                                       100    100    100
                                                       150    150    150
                                                       200    200    200
                                                       300    300    300
                                                       400    400    400
                                                       600    600    600
                                                       900    900    900
                                                      1000   1000   1000
                                                             1200   1200
                                                             1500   1500
                                                             1800   1800
                                                                    2100
                                                                    2400
                                                                    2700
------------------------------------------------------------------------
Note: Cables larger in pair sizes than those shown in this table must   
  meet all requirements of this section.                                

    (3) Screened cable, when specified, must meet all requirements of 
this section. The pair sizes of screened cables used within the RUS 
program are referenced in paragraph (e)(2)(i) of this section.
    (4) All cables sold to RUS borrowers for projects involving RUS loan 
funds under this section must be accepted by RUS Technical Standards 
Committee ``A'' (Telephone). For cables manufactured to the 
specification of this section, all design changes to an accepted design 
must be submitted for acceptance. RUS will be the sole authority on what 
constitutes a design change.
    (5) Materials, manufacturing techniques, or cable designs not 
specifically addressed by this section may be allowed if accepted by 
RUS. Justification for acceptance of modified materials, manufacturing 
techniques, or cable designs must be provided to substantiate product 
utility and long-term stability and endurance.
    (6) The American National Standard Institute/Insulated Cable 
Engineers Association, Inc. (ANSI/ICEA) S-84-608-1988, Standard For 
Telecommunications Cable, Filled, Polyolefin Insulated, Copper Conductor 
Technical Requirements referenced throughout this section is 
incorporated by reference by RUS. This incorporation by reference was 
approved by the Director of the Federal Register in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. Copies

[[Page 798]]

of ANSI/ICEA S-84-608-1988 are available for inspection during normal 
business hours at RUS, room 2845, U.S. Department of Agriculture, 
Washington, DC 20250 or at the Office of the Federal Register, 800 North 
Capitol Street, NW., suite 700, Washington, DC. Copies are available 
from ICEA, P. O. Box 440, South Yarmouth, MA 02664, telephone number 
(508) 394-4424.
    (7) American Society for Testing and Materials specifications (ASTM) 
A 505-87, Standard Specification for Steel, Sheet and Strip, Alloy, Hot-
Rolled and Cold-Rolled, General Requirements For; ASTM B 193-87, 
Standard Test Method for Resistivity of Electrical Conductor Materials; 
ASTM B 224-80, Standard Classification of Coppers; ASTM B 694-86, 
Standard Specification for Copper, Copper Alloy, and Copper-Clad 
Stainless Steel Sheet and Strip for Electrical Cable Shielding; ASTM D 
4565-90a, Standard Test Methods for Physical and Environmental 
Performance Properties of Insulations and Jackets for Telecommunications 
Wire and Cable; and ASTM D 4566-90, Standard Test Methods for Electrical 
Performance Properties of Insulations and Jackets for Telecommunications 
Wire and Cable referenced in this section are incorporated by reference 
by RUS. These incorporations by references were approved by the Director 
of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR 
part 51. Copies of the ASTM standards are available for inspection 
during normal business hours at RUS, room 2845, U.S. Department of 
Agriculture, Washington, DC 20250 or at the Office of the Federal 
Register, 800 North Capitol Street, NW., suite 700, Washington, DC. 
Copies area available from ASTM, 1916 Race Street, Philadelphia, PA 
19103-1187, telephone number (215) 299-5585.
    (b) Conductors and conductor insulation. (1) The gauge sizes of the 
copper conductors covered by this section must be 19, 22, 24, and 26 
American Wire Gauge (AWG).
    (2) Each conductor must comply with the requirements specified in 
ANSI/ICEA S-84-608-1988, paragraph 2.1.
    (3) Factory joints made in conductors during the manufacturing 
process must comply with the requirements specified in ANSI/ICEA S-84-
608-1988, paragraph 2.2.
    (4) The raw materials used for conductor insulation must comply with 
the requirements specified in ANSI/ICEA S-84-608-1988, paragraphs 3.1 
through 3.1.3.
    (5) The finished conductor insulation must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraphs 3.2.2, 
3.2.3, and 3.3.
    (6) Insulated conductor must not have an overall diameter greater 
than 2 millimeters (mm) (0.081 inch (in.)).
    (7) A permissible overall performance level of faults in conductor 
insulation must average not greater than one fault per 12,000 conductor 
meters (40,000 conductor feet) for each gauge of conductor.
    (i) All insulated conductors must be continuously tested for 
insulation faults during the twinning operation with a method of testing 
acceptable to RUS. The length count and number of faults must be 
recorded. The information must be retained for a period of 6 months and 
be available for review by RUS when requested.
    (ii) The voltages for determining compliance with the requirements 
of this section are as follows:

------------------------------------------------------------------------
                AWG                  Direct Current Voltages (kilovolts)
------------------------------------------------------------------------
19                                                       4.5            
22                                                       3.6            
24                                                       3.0            
26                                                       2.4            
------------------------------------------------------------------------

    (8) Repairs to the conductor insulation during manufacture are 
permissible. The method of repair must be accepted by RUS prior to its 
use. The repaired insulation must be capable of meeting the relevant 
electrical requirements of this section.
    (9) All repaired sections of insulation must be retested in the same 
manner as originally tested for compliance with paragraph (b)(7) of this 
section.
    (10) The colored insulating material removed from or tested on the 
conductor, from a finished cable, must meet the performance requirements 
specified in ANSI/ICEA S-84-608-1988, paragraphs 3.4.1 through 3.4.6.
    (c) Identification of pairs and twisting of pairs. (1) The 
insulation must be colored to identify:

[[Page 799]]

    (i) The tip and ring conductor of each pair; and
    (ii) Each pair in the completed cable.
    (2) The colors to be used in the pairs in the 25 pair group, 
together with the pair numbers must be in accordance with the table 
specified in ANSI/ICEA S-84-608-1988, paragraph 3.5.
    (3) Positive identification of the tip and ring conductors of each 
pair by marking each conductor of a pair with the color of its mate is 
permissible. The method of marking must be accepted by RUS prior to its 
use.
    (4) Other methods of providing positive identification of the tip 
and ring conductors of each pair may be employed if accepted by RUS 
prior to its use.
    (5) The insulated conductors must be twisted into pairs.
    (6) In order to provide sufficiently high crosstalk isolation, the 
pair twists must be designed to enable the cable to meet the capacitance 
unbalance and crosstalk loss requirements of paragraphs (k)(5), (k)(6), 
and (k)(8) this section.
    (7) The average length of pair twists in any pair in the finished 
cable, when measured on any 3 meter (10 foot) length, must not exceed 
the requirement specified in ANSI/ICEA S-84-608-1988, paragraph 3.5.
    (d) Forming of the cable core. (1) Twisted pairs must be assembled 
in such a way as to form a substantially cylindrical group.
    (2) When desired for lay-up reasons, the basic group may be divided 
into two or more subgroups called units.
    (3) Each group, or unit in a particular group, must be enclosed in 
bindings of the colors indicated for its particular pair count. The pair 
count, indicated by the colors of insulation, must be consecutive as 
indicated in paragraph (d)(6) of this section through units in a group.
    (4) The filling compound must be applied to the cable core in such a 
way as to provide as near a completely filled core as is commercially 
practical.
    (5) Threads and tapes used as binders must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraphs 4.2 and 
4.2.1.
    (6) The colors of the bindings and their significance with respect 
to pair count must be as follows:

------------------------------------------------------------------------
Group                                                                   
 No.                Color of Bindings                 Group Pair Count  
------------------------------------------------------------------------
1      White-Blue.................................           1-25       
2      White-Orange...............................          26-50       
3      White-Green................................          51-75       
4      White-Brown................................          76-100      
5      White-Slate................................         101-125      
6      Red-Blue...................................         126-150      
7      Red-Orange.................................         151-175      
8      Red-Green..................................         176-200      
9      Red-Brown..................................         201-225      
10     Red-Slate..................................         226-250      
11     Black-Blue.................................         251-275      
12     Black-Orange...............................         276-300      
13     Black-Green................................         301-325      
14     Black-Brown................................         326-350      
15     Black-Slate................................         351-375      
16     Yellow-Blue................................         376-400      
17     Yellow-Orange..............................         401-425      
18     Yellow-Green...............................         426-450      
19     Yellow-Brown...............................         451-475      
20     Yellow-Slate...............................         476-500      
21     Violet-Blue................................         501-525      
22     Violet-Orange..............................         526-550      
23     Violet-Green...............................         551-575      
24     Violet-Brown...............................         576-600      
------------------------------------------------------------------------

    (7) The use of the white unit binder in cables of 100 pairs or less 
is optional.
    (8) When desired for manufacturing reasons, two or more 25 pair 
groups may be bound together with nonhygroscopic and nonwicking threads 
or tapes into a super-unit. Threads or tapes must meet the requirements 
specified in paragraph (d)(5) of this section. The group binders and the 
super-unit binders must be color coded such that the combination of the 
two binders must positively identify each 25 pair group from every other 
25 pair group in the cable. Super-unit binders must be of the color 
shown in the following table:

                        Super-Unit Binder Colors                        
------------------------------------------------------------------------
            Pair Numbers                         Binder Color           
------------------------------------------------------------------------
1-600                                                  White            
601-1200                                                 Red            
1201-1800                                              Black            
1801-2400                                             Yellow            
2401-3000                                             Violet            
3001-3600                                               Blue            
3601-4200                                             Orange            
4201-4800                                              Green            
4801-5400                                              Brown            
5401-6000                                              Slate            
------------------------------------------------------------------------

    (9) Color binders must not be missing for more than 90 meters (300 
feet) from any 25 pair group or from any subgroup used as part of a 
super-unit. At any cable cross-section, no adjacent 25 pair groups and 
no more than one subgroup

[[Page 800]]

of any super-unit may have missing binders. In no case must the total 
number of missing binders exceed three. Missing super-unit binders must 
not be permitted for any distance.
    (10) Any reel of cable which contains missing binders must be 
labeled indicating the colors and location of the binders involved. The 
labeling must be applied to the reel and also to the cable.
    (e) Screened cable. (1) Screened cable must be constructed such that 
a metallic, internal screen(s) must be provided to separate and provide 
sufficient isolation between the compartments to meet the requirements 
of this section.
    (2) At the option of the user or manufacturer, identified service 
pairs providing for voice order and fault location may be placed in 
screened cables.
    (i) The number of service pairs provided must be one per twenty-five 
operating pairs plus two for a cable size up to and including 400 pairs, 
subject to a minimum of four service pairs.The pair counts for screened 
cables are as follows:

                       Screened Cable Pair Counts                       
------------------------------------------------------------------------
   Carrier Pair Count          Service Pairs          Total Pair Count  
------------------------------------------------------------------------
24                                    4                      28         
50                                    4                      54         
100                                   6                     106         
150                                   8                     158         
200                                  10                     210         
300                                  14                     314         
400                                  18                     418         
------------------------------------------------------------------------

    (ii) The service pairs must be equally divided among the 
compartments. The color sequence must be repeated in each compartment.
    (iii) The electrical and physical characteristics of each service 
pair must meet all the requirements set forth in this section.
    (iv) The colors used for the service pairs must be in accordance 
with the requirements of paragraph (b)(5) of this section. The color 
code used for the service pairs together with the service pair number 
are shown in the following table:

[[Page 801]]



                      Color Code For Service Pairs                      
------------------------------------------------------------------------
                                                   Color                
        Service Pair No.         ---------------------------------------
                                          Tip                Ring       
------------------------------------------------------------------------
1                                 White.............  Red               
2                                   ``..............  Black             
3                                   ``..............  Yellow            
4                                   ``..............  Violet            
5                                 Red...............  Black             
6                                   ``..............  Yellow            
7                                   ``..............  Violet            
8                                 Black.............  Yellow            
9                                   ``..............  Violet            
------------------------------------------------------------------------

    (3) The screen tape must comply with the requirements specified in 
ANSI/ICEA S-84-608-1988, paragraphs 5.1 through 5.4.
    (4) The screen tape must be tested for dielectric strength by 
completely removing the protective coating from one end to be used for 
grounding purposes.
    (i) Using an electrode, over a 30 centimeter (1 foot) length, apply 
a direct current (dc) voltage at the rate of rise of 500 volts/second 
until failure.
    (ii) No breakdown should occur below 8 kilovolts.
    (f) Filling compound. (1) After or during the stranding operation 
and prior to application of the core wrap, filling compound must be 
applied to the cable core. The compound must be as nearly colorless as 
is commercially feasible and consistent with the end product 
requirements and pair identification.
    (2) The filling compound must comply with the requirements specified 
in ANSI/ICEA S-84-608-1988, paragraphs 4.4 through 4.4.4.
    (3) The individual cable manufacturer must satisfy RUS that the 
filling compound selected for use is suitable for its intended 
application. The filling compound must be applied to the cable in such a 
manner that the cable components will not be degraded.
    (g) Core wrap. (1) The core wrap must comply with the requirements 
specified in ANSI/ICEA-S-84-608-1988, paragraph 4.3.
    (2) If required for manufacturing reasons, white or colored binders 
of nonhygroscopic and nonwicking material may be applied over the core 
and/or wrap. When used, binders must meet the requirements specified in 
paragraph (d)(5) of this section.
    (3) Sufficient filling compound must have been applied to the core 
wrap so that voids or air spaces existing between the core and the inner 
side of the core wrap are minimized.
    (h) Flooding compound. (1) Sufficient flooding compound must be 
applied on all sheath interfaces so that voids and air spaces in these 
areas are minimized. When the optional armored design is used, the 
flooding compound must be applied between the core wrap and shield, 
between the shield and armor, and between the armor and the jacket so 
that voids and air spaces in these areas are minimized. The use of 
floodant over the outer metallic substrate is not required if uniform 
bonding, per paragraph (i)(7) of this section, is achieved between the 
plastic-clad metal and the jacket.
    (2) The flooding compound must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 4.5 and the jacket slip 
test requirements of appendix A, paragraph (III)(5) of this section.
    (3) The individual cable manufacturer must satisfy RUS that the 
flooding compound selected for use is acceptable for the application.
    (i) Shield and optional armor. (1) A single corrugated shield must 
be applied longitudinally over the core wrap.
    (2) For unarmored cable the shield overlap must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 6.3.2. Core 
diameter is defined as the diameter under the core wrap and binding.
    (3) For cables containing the coated aluminum shield/coated steel 
armor (CACSP) sheath design, the coated aluminum shield must be applied 
in accordance with the requirements specified in ANSI/ICEA S-84-608-
1988, paragraph 6.3.2, Dual Tape Shielding System.
    (4) General requirements for application of the shielding material 
are as follows:
    (i) Successive lengths of shielding tapes may be joined during the 
manufacturing process by means of cold weld, electric weld, soldering 
with a nonacid flux or other acceptable means.
    (ii) Shield splices must comply with the requirements specified in 
ANSI/ICEA S-84-608-1988, paragraph 6.3.3.

[[Page 802]]

    (iii) The corrugations and the application process of the coated 
aluminum and copper bearing shields must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 6.3.1.
    (iv) The shielding material must be applied in such a manner as to 
enable the cable to pass the cold bend test specified in paragraph 
(l)(3) of this section.
    (5) The following is a list of acceptable materials for use as cable 
shielding. Other types of shielding materials may also be used provided 
they are accepted by RUS prior to their use.

------------------------------------------------------------------------
              Standard Cable                   Gopher Resistant Cable   
------------------------------------------------------------------------
8-mil Coated Aluminum1                      10-mil Copper               
5-mil Copper                                6-mil Copper-Clad           
                                            Stainless Steel             
                                            5 mil Copper-Clad           
                                            Stainless Steel             
                                            5 mil Copper-Clad Alloy     
                                            Steel                       
                                            7-mil Alloy 194             
                                            6-mil Alloy 194             
                                            8-mil Coated Aluminum1      
                                            and 6-mil Coated Steel1     
------------------------------------------------------------------------
\1\Dimensions of uncoated metal.                                        

    (i) The 8-mil aluminum tape must be plastic coated on both sides and 
must comply with the requirements of ANSI/ICEA S-84-608-1988, paragraph 
6.2.2.
    (ii) The 5-mil copper tape must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 6.2.3.
    (iii) The 10-mil copper tape must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 6.2.4.
    (iv) The 6-mil copper clad stainless steel tape must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 6.2.5.
    (v) The 5-mil copper clad stainless steel tape must be in the fully 
annealed condition and must conform to the requirements of American 
Society for Testing and Materials (ASTM) B 694-86, with a cladding ratio 
of 16/68/16.
    (A) The electrical conductivity of the clad tape must be a minimum 
of 28 percent of the International Annealed Copper Standard (IACS) when 
measured per ASTM B 193-87.
    (B) The tape must be nominally 0.13 millimeter (0.005 inch) thick 
with a minimum thickness of 0.11 millimeter (0.0045 inch).
    (vi) The 5-mil copper clad alloy steel tape must be in the fully 
annealed condition and the copper component must conform to the 
requirements of ASTM B 224-80 and the alloy steel component must conform 
to the requirements of ASTM A 505-87, with a cladding ratio of 16/68/16.
    (A) The electrical conductivity of the copper clad alloy steel tape 
must comply with the requirement specified in (5)(v)(A) of this section.
    (B) The thickness of the copper clad alloy steel tape must comply 
with the requirements specified in (5)(v)(B) of this section.
    (vii) The 6-mil and 7-mil 194 copper alloy tapes must comply with 
the requirements specified in ANSI/ICEA S-84-608-1988, paragraph 6.2.6.
    (6) The corrugation extensibility of the coated aluminum shield must 
comply with the requirements specified in ANSI/ICEA S-84-608-1988, 
paragraph 6.4.
    (7) When the jacket is bonded to the plastic coated aluminum shield, 
the bond between the jacket and shield must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 7.2.6.
    (8) A single plastic coated steel corrugated armor must be applied 
longitudinally directly over the coated aluminum shield listed in 
paragraph (i)(5) of this section with an overlap complying with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 6.3.2, 
Outer Steel Tape.
    (9) Successive lengths of steel armoring tapes may be joined during 
the manufacturing process by means of cold weld, electric weld, 
soldering with a nonacid flux or other acceptable means. Armor splices 
must comply with the breaking strength and resistance requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 6.3.3.
    (10) The corrugations and the application process of the coated 
steel armor must comply with the requirements specified in ANSI/ICEA S-
84-608-1988, paragraph 6.3.1.
    (i) The corrugations of the armor tape must coincide with the 
corrugations of the coated aluminum shield.
    (ii) Overlapped portions of the armor tape must be in register 
(corrugations must coincide at overlap) and in contact at the outer 
edge.

[[Page 803]]

    (11) The armoring material must be so applied to enable the cable to 
pass the cold bend test specified in paragraph (l)(3) of this section.
    (12) The 6-mil steel tape must be electrolytic chrome coated steel 
(ECCS) plastic coated on both sides and must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 6.2.8.
    (13) When the jacket is bonded to the plastic coated steel armor, 
the bond between the jacket and armor must comply with the requirement 
specified in ANSI/ICEA-S-84-608-1988, paragraph 7.2.6.
    (j) Cable jacket. (1) The jacket must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 7.2.
    (2) The raw materials used for the cable jacket must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 7.2.1.
    (3) Jacketing material removed from or tested on the cable must meet 
the performance requirements specified in ANSI/ICEA S-84-608-1988, 
paragraphs 7.2.3 and 7.2.4.
    (4) The thickness of the jacket must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 7.2.2.
    (k) Electrical requirements--(1) Conductor resistance. The direct 
current resistance of any conductor in a completed cable and the average 
resistance of all conductors in a Quality Control Lot must comply with 
the requirements specified in ANSI/ICEA S-84-608-1988, paragraph 8.1.
    (2) Resistance unbalance. (i) The direct current resistance 
unbalance between the two conductors of any pair in a completed cable 
and the average resistance unbalance of all pairs in a completed cable 
must comply with the requirements specified in ANSI/ICEA S-84-608-1988, 
paragraph 8.2.
    (ii) The resistance unbalance between tip and ring conductors shall 
be random with respect to the direction of unbalance. That is, the 
resistance of the tip conductors shall not be consistently higher with 
respect to the ring conductors and vice versa.
    (3) Mutual capacitance. The average mutual capacitance of all pairs 
in a completed cable and the individual mutual capacitance of any pair 
in a completed cable must comply with the requirements specified in 
ANSI/ICEA S-84-608-1988, paragraph 8.3.
    (4) Capacitance difference. (i) The capacitance difference for 
completed cables having 75 pairs or greater must comply with the 
requirement specified in ANSI/ICEA S-84-608-1988, paragraph 8.4.
    (ii) When measuring screened cable, the inner and outer pairs must 
be selected from both sides of the screen.
    (5) Pair-to-pair capacitance unbalance--(i) Pair-to-pair. The 
capacitance unbalance as measured on the completed cable must comply 
with the requirements specified in ANSI/ICEA S-84-608-1988, paragraph 
8.5.
    (ii) Screened cable. In cables with 25 pairs or less and within each 
group of multigroup cables, the pair-to-pair capacitance unbalance 
between any two pairs in an individual compartment must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 8.5. The 
pair-to-pair capacitance unbalances to be considered must be:
    (A) Between pairs adjacent in a layer in an individual compartment;
    (B) Between pairs in centers of 4 pairs or less in an individual 
compartment; and
    (C) Between pairs in adjacent layers in an individual compartment 
when the number of pairs in the inner (smaller) layer is 6 or less. The 
center is counted as a layer.
    (iii) In cables with 25 pairs or less, the root-mean-square (rms) 
value is to include all the pair-to-pair unbalances measured for each 
compartment separately.
    (iv) In cables containing more than 25 pairs, the rms value must 
include the pair-to-pair unbalances in the separate compartments.
    (6) Pair-to-ground capacitance unbalance--(i) Pair-to-ground. The 
capacitance unbalance as measured on the completed cable must comply 
with the requirements specified in ANSI/ICEA S-84-608-1988, paragraph 
8.6.
    (ii) When measuring pair-to-ground capacitance unbalance all pairs 
except the pair under test are grounded to the shield and/or shield/
armor except when measuring cables containing super

[[Page 804]]

units in which case all other pairs in the same super unit must be 
grounded to the shield.
    (iii) The screen tape must be left floating during the test.
    (iv) Pair-to-ground capacitance unbalance may vary directly with the 
length of the cable.
    (7) Attenuation. (i) For nonscreened and screened cables, the 
average attenuation of all pairs on any reel when measured at 150 and 
772 kilohertz must comply with the requirements specified in ANSI/ICEA 
S-84-608-1988, paragraph 8.7, Foam and/or Foam-Skin Column.
    (ii) For T1C type cables over 12 pairs, the maximum average 
attenuation of all pairs on any reel must not exceed the values listed 
below when measured at a frequency of 1576 kilohertz at or corrected to 
a temperature of 20  1 deg.C. The test must be conducted in 
accordance with ASTM D 4566-90.

------------------------------------------------------------------------
                                                         Maximum Average
                                                           Attenuation  
                                                             decibel/   
                          AWG                             kilometer (dB/
                                                          km) (decibel/ 
                                                              mile)     
------------------------------------------------------------------------
19.....................................................    14.9 (24.0)  
22.....................................................    21.6 (34.8)  
24.....................................................    27.2 (43.8)  
------------------------------------------------------------------------

    (8) Crosstalk loss. (i) The equal level far-end power sum crosstalk 
loss (FEXT) as measured on the completed cable must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 8.8, FEXT 
Table.
    (ii) The near-end power sum crosstalk loss (NEXT) as measured on 
completed cable must comply with the requirements specified in ANSI/ICEA 
S-84-608-1988, paragraph 8.8, NEXT Table.
    (iii) Screened cable. (A) For screened cables the NEXT as measured 
on the completed cable must comply with the requirements specified in 
ANSI/ICEA S-84-608-1988, paragraphs 8.9 and 8.9.1.
    (B) For T1C screened cable the NEXT as measured on the completed 
cable must comply with the requirements specified in ANSI/ICEA S-84-608-
1988, paragraphs 8.9 and 8.9.2.
    (9) Insulation resistance. The insulation resistance of each 
insulated conductor in a completed cable must comply with the 
requirement specified in ANSI/ICEA S-84-608-1988, paragraph 8.11.
    (10) High voltage test. (i) In each length of completed cable, the 
insulation between conductors must comply with the requirements 
specified in ANSI/ICEA S-84-608-1988, paragraph 8.12, Foam and/or Foam-
Skin Column.
    (ii) In each length of completed cable, the dielectric between the 
shield and/or armor and conductors in the core must comply with the 
requirements specified in ANSI/ICEA S-84-608-1988, paragraph 8.13, 
Single Jacketed, Foam and/or Foam-Skin Column. In screened cable the 
screen tape must be left floating.
    (iii) Screened cable. (A) In each length of completed screened 
cable, the dielectric between the screen tape and the conductors in the 
core must comply with the requirement specified in ANSI/ICEA S-84-608-
1988, paragraph 8.14.
    (B) In this test, the cable shield and/or armor must be left 
floating.
    (11) Electrical variations. (i) Pairs in each length of cable having 
either a ground, cross, short, or open circuit condition will not be 
permitted.
    (ii) The maximum number of pairs in a cable which may vary as 
specified in paragraph (k)(11)(iii) of this section from the electrical 
parameters given in this section are listed below. These pairs may be 
excluded from the arithmetic calculation.

------------------------------------------------------------------------
                                                               Maximum  
                                                              Number of 
                                                              Pairs With
                     Nominal Pair Count                       Allowable 
                                                              Electrical
                                                              Variation 
------------------------------------------------------------------------
6-100......................................................      1      
101-300....................................................      2      
301-400....................................................      3      
401-600....................................................      4      
601 and above..............................................      6      
------------------------------------------------------------------------

    (iii) Parameter variations. (A) Capacitance unbalance-to-ground. If 
the cable fails either the maximum individual pair or average 
capacitance unbalance-to-ground requirement and all individual pairs are 
3937 picofarad/kilometer (1200 picofarad/1000 feet) or less, the number 
of pairs specified in paragraph (k)(11)(ii) of this section may be 
eliminated from the average and maximum individual calculations.
    (B) Resistance unbalance. Individual pair of 7 percent for all 
gauges.

[[Page 805]]

    (C) Conductor resistance, maximum. The following table shows maximum 
conductor resistance:

------------------------------------------------------------------------
                                                                 (ohms/ 
                        AWG                            ohms/      1000  
                                                     kilometer    feet) 
------------------------------------------------------------------------
19                                                      29.9     ( 9.1) 
22                                                      60.0     (18.3) 
24                                                      94.5     (28.8) 
26                                                     151.6     (46.2) 
------------------------------------------------------------------------
Note: RUS recognizes that in large pair count cable (600 pair and above)
  a cross, short, or open circuit condition occasionally may develop in 
  a pair which does not affect the performance of the other cable pairs.
  In these circumstances rejection of the entire cable may be           
  economically unsound or repairs may be impractical. In such           
  circumstances the manufacturer may desire to negotiate with the       
  customer for acceptance of the cable. No more than 0.5 percent of the 
  pairs may be involved.                                                

    (l) Mechanical requirements--(1) Compound flow test. All cables 
manufactured in accordance with the requirements of this section must be 
capable of meeting the compound flow test specified in ANSI/ICEA S-84-
608-1988, paragraph 9.1 using a test temperature of 80  
1 deg.C.
    (2) Water penetration test. All cables manufactured in accordance 
with the requirements of this section must be capable of meeting the 
water penetration test specified in ANSI/ICEA S-84-608-1988, paragraph 
9.2.
    (3) Cable cold bend test. All cables manufactured in accordance with 
the requirements of this section must be capable of meeting the cable 
cold bend test specified in ANSI/ICEA S-84-608-1988, paragraph 9.3.
    (4) Cable impact test. All cables manufactured in accordance with 
the requirements of this section must be capable of meeting the cable 
impact test specified in ANSI/ICEA S-84-608-1988, paragraph 9.4.
    (5) Jacket notch test (CACSP sheath only). All cables utilizing the 
coated aluminum/coated steel sheath (CACSP) design manufactured in 
accordance with the requirements of this section must be capable of 
meeting the jacket notch test specified in ANSI/ICEA S-84-608-1988, 
paragraph 9.5.
    (6) Cable torsion test (CACSP sheath only). All cables utilizing the 
coated aluminum/coated steel sheath (CACSP) design manufactured in 
accordance with the requirements of this section must be capable of 
meeting the cable torsion test specified in ANSI/ICEA S-84-608-1988, 
paragraph 9.6.
    (m) Sheath slitting cord (optional). (1) Sheath slitting cord may be 
used in the cable structure at the option of the manufacturer unless 
specified by the end user.
    (2) When a sheath slitting cord is used it must be nonhygroscopic 
and nonwicking, continuous throughout a length of cable and of 
sufficient strength to open the sheath without breaking the cord.
    (n) Identification marker and length marker. (1) Each length of 
cable must be identified in accordance with ANSI/ICEA S-84-608-1988, 
paragraphs 10.1 through 10.1.4. The color of the ink used for the 
initial outer jacket marking must be either white or silver.
    (2) The markings must be printed on the jacket at regular intervals 
of not more than 0.6 meter (2 feet).
    (3) The completed cable must have sequentially numbered length 
markers in accordance with ANSI/ICEA S-84-608-1988, paragraph 10.1.5. 
The color of the ink used for the initial outer jacket marking must be 
either white or silver.
    (o) Preconnectorized cable (optional). (1) At the option of the 
manufacturer and upon request by the purchaser, cables 100 pairs and 
larger may be factory terminated in 25 pair splicing modules.
    (2) The splicing modules must meet the requirements of RUS Bulletin 
345-54, PE-52, RUS Specification for Telephone Cable Splicing Connectors 
(Incorporated by Reference at Sec. 1755.97), and be accepted by RUS 
prior to their use.
    (p) Acceptance testing and extent of testing. (1) The tests 
described in appendix A of this section are intended for acceptance of 
cable designs and major modifications of accepted designs. What 
constitutes a major modification is at the discretion of RUS. These 
tests are intended to show the inherent capability of the manufacturer 
to produce cable products having long life and stability.
    (2) For initial acceptance, the manufacturer must submit:
    (i) An original signature certification that the product fully 
complies with each section of the specification;
    (ii) Qualification Test Data, per appendix A of this section;
    (iii) To periodic plant inspections;

[[Page 806]]

    (iv) A certification that the product does or does not comply with 
the domestic origin manufacturing provisions of the ``Buy American'' 
requirements of the Rural Electrification Act of 1938 (7 U.S.C. 901 et 
seq.);
    (v) Written user testimonials concerning field performance of the 
product; and
    (vi) Other nonproprietary data deemed necessary by the Chief, 
Outside Plant Branch (Telephone).
    (3) For requalification acceptance, the manufacturer must submit an 
original signature certification that the product fully complies with 
each section of the specification, excluding the Qualification Section, 
and a certification that the product does or does not comply with the 
domestic origin manufacturing provisions of the ``Buy American'' 
requirements of the Rural Electrification Act of 1938 (7 U.S.C. 901 et 
seq.), for acceptance by August 30 of each year. The required data must 
have been gathered within 90 days of the submission. If the initial 
acceptance of a product to this specification was within 180 days of 
August 30, then requalification for that product will not be required 
for that year.
    (4) Initial and requalification acceptance requests should be 
addressed to:

    Chairman, Technical Standards Committee ``A'' (Telephone), 
Telecommunications Standard Division, Rural Utilities Service, 
Washington, DC 20250-1500.

    (5) Tests on 100 percent of completed cable. (i) The shield and/or 
armor of each length of cable must be tested for continuity in 
accordance with ANSI/ICEA S-84-608-1988, paragraph 8.16.
    (ii) The screen tape of each length of screened cable must be tested 
for continuity in accordance with ANSI/ICEA S-84-608-1988, paragraph 
8.16.
    (iii) Dielectric strength between conductors and shield and/or armor 
must be tested to determine freedom from grounds in accordance with 
paragraph (k)(10)(ii) of this section.
    (iv) Dielectric strength between conductors and screen tape must be 
tested to determine freedom from grounds in accordance with paragraph 
(k)(10)(iii) of this section.
    (v) Each conductor in the completed cable must be tested for 
continuity in accordance with ANSI/ICEA S-84-608-1988, paragraph 8.16.
    (vi) Dielectric strength between conductors, in each length of 
completed cable, must be tested to insure freedom from shorts and 
crosses in each length of completed cable in accordance with paragraph 
(k)(10)(i) of this section.
    (vii) Each conductor in the completed preconnectorized cable must be 
tested for continuity.
    (viii) Each length of completed preconnectorized cable must be 
tested for split pairs.
    (ix) The average mutual capacitance must be measured on all cables. 
If the average mutual capacitance for the first 100 pairs tested from 
randomly selected groups is between 50 and 53 nanofarads/kilometer (nF/
km) (80 and 85 nanofarad/mile), the remainder of the pairs need not be 
tested on the 100 percent basis (See paragraph (k)(3) of this section).
    (6) Capability tests. Tests on a quality assurance basis must be 
made as frequently as is required for each manufacturer to determine and 
maintain compliance with:
    (i) Performance requirements for conductor insulation, jacketing 
material, and filling and flooding compounds;
    (ii) Bonding properties of coated or laminated shielding and 
armoring materials and performance requirements for screen tape;
    (iii) Sequential marking and lettering;
    (iv) Capacitance difference, capacitance unbalance, crosstalk, and 
attenuation;
    (v) Insulation resistance, conductor resistance, and resistance 
unbalance;
    (vi) Cable cold bend and cable impact tests;
    (vii) Water penetration and compound flow tests; and
    (viii) Jacket notch and cable torsion tests.
    (q) Summary of records of electrical and physical tests. (1) Each 
manufacturer must maintain suitable summary records for a period of at 
least 3 years of all electrical and physical tests required on completed 
cable by this section as set forth in paragraphs (p)(5) and (p)(6) of 
this section. The test data for a particular reel must be in a form

[[Page 807]]

that it may be readily available to the purchaser or to RUS upon 
request.
    (2) Measurements and computed values must be rounded off to the 
number of places or figures specified for the requirement according to 
ANSI/ICEA S-84-608-1988, paragraph 1.3.
    (r) Manufacturing irregularities. (1) Repairs to the shield and/or 
armor are not permitted in cable supplied to end users under this 
section.
    (2) Minor defects in jackets (defects having a dimension of 3 
millimeters (0.125 inch.) or less in any direction) may be repaired by 
means of heat fusing in accordance with good commercial practices 
utilizing sheath grade compounds.
    (s) Preparation for shipment. (1) The cable must be shipped on 
reels. The diameter of the drum must be large enough to prevent damage 
to the cable from reeling or unreeling. The reels must be substantial 
and so constructed as to prevent damage to the cable during shipment and 
handling.
    (2) The thermal wrap must comply with the requirements of ANSI/ICEA 
S-84-608-1988, paragraph 10.3. When a thermal reel wrap is supplied, the 
wrap must be applied to the reel and must be suitably secured in place 
to minimize thermal exposure to the cable during storage and shipment. 
The use of the thermal reel wrap as a means of reel protection will be 
at the option of the manufacturer unless specified by the end user.
    (3) The outer end of the cable must be securely fastened to the reel 
head so as to prevent the cable from becoming loose in transit. The 
inner end of the cable must be securely fastened in such a way as to 
make it readily available if required for electrical testing. Spikes, 
staples, or other fastening devices which penetrate the cable jacket 
must not be used. The method of fastening the cable ends must be 
acceptable to RUS and accepted prior to its use.
    (4) Each length of cable must be wound on a separate reel unless 
otherwise specified or agreed to by the purchaser.
    (5) The arbor hole must admit a spindle 63 millimeters (2.5 inches) 
in diameter without binding. Steel arbor hole liners may be used but 
must be accepted by RUS prior to their use.
    (6) Each reel must be plainly marked to indicate the direction in 
which it should be rolled to prevent loosening of the cable on the reel.
    (7) Each reel must be stenciled or labeled on either one or both 
sides with the information specified in ANSI/ICEA S-84-608-1988, 
paragraph 10.4 and the RUS cable designation:

    Cable Designation

    BFCE
    Cable Construction
    Pair Count
    Conductor Gauge

    E = Expanded Insulation
    A = Coated Aluminum Shield
    C = Copper Shield
    Y = Gopher Resistant Shield
    X = Armored, Separate Shield
    H = T1 Screened Cable
    H1C = T1C Screened Cable
    P = Preconnectorized

        Example: BFCEXH100-22

Buried Filled Cable, Expanded Insulation, Armored (w/separate shield), 
T1 Screened Cable, 100 pair, 22 AWG.

    (8) When cable manufactured to the requirements of this 
specification is shipped, both ends must be equipped with end caps 
acceptable to RUS.
    (9) When preconnectorized cables are shipped, the splicing modules 
must be protected to prevent damage during shipment and handling. The 
protection method must be acceptable to RUS and accepted prior to its 
use.
    (10) All cables ordered for use in underground duct applications 
must be equipped with a factory-installed pulling-eye on the outer end 
in accordance with ANSI/ICEA S-84-608-1988, paragraph 10.5.2.

(The information and recordkeeping requirements of this section have 
been approved by the Office of Management and Budget (OMB) under the 
control number 0572-0059)

        Appendix A to 7 CFR 1755.890--Qualification Test Methods

    (I) The test procedures described in this appendix are for 
qualification of initial cable designs and major modifications of 
accepted designs. Included in (V) of this appendix are suggested formats 
that may to be used in submitting test results to RUS.
    (II) Sample selection and preparation. (1) All testing must be 
performed on lengths removed sequentially from the same 25 pair, 22 
gauge jacketed cable. This cable must not have been exposed to 
temperatures in excess of 38 deg.C since its initial cool down after

[[Page 808]]

sheathing. The lengths specified are minimum lengths and if desirable 
from a laboratory testing standpoint longer lengths may be used.
    (a) Length A must be 10  0.2 meters (33  0.5 
feet) long and must be maintained at 23  3 deg.C. One length 
is required.
    (b) Length B must be 12  0.2 meters (40  0.5 
feet) long. Prepare the test sample by removing the jacket, shield or 
shield/armor, and core wrap for a sufficient distance on both ends to 
allow the insulated conductors to be flared out. Remove sufficient 
conductor insulation so that appropriate electrical test connections can 
be made at both ends. Coil the sample with a diameter of 15 to 20 times 
its sheath diameter. Three lengths are required.
    (c) Length C must be one meter (3 feet) long. Four lengths are 
required.
    (d) Length D must be 300 millimeters (1 foot) long. Four lengths are 
required.
    (e) Length E must be 600 millimeters (2 feet) long. Four lengths are 
required.
    (f) Length F must be 3 meters (10 feet) long and must be maintained 
at 23  3 deg.C for the duration of the test. Two lengths are 
required.
    (2) Data reference temperature. Unless otherwise specified, all 
measurements must be made at 23  3 deg.C.
    (III) Environmental tests--(1) Heat aging test--(a) Test samples. 
Place one sample each of lengths B, C, D, and E in an oven or 
environmental chamber. The ends of Sample B must exit from the chamber 
or oven for electrical tests. Securely seal the oven exit holes.
    (b) Sequence of tests. The samples are to be subjected to the 
following tests after conditioning:
    (i) Water Immersion Test outlined in (III)(2) of this appendix;
    (ii) Water Penetration Test outlined in (III)(3) of this appendix;
    (iii) Insulation Compression Test outlined in (III)(4) of this 
appendix; and
    (iv) Jacket Slip Strength Test outlined in (III)(5) of this 
appendix.
    (c) Initial Measurements. (i) For Sample B measure the open circuit 
capacitance for each odd numbered pair at 1, 150, and 772 kilohertz, and 
the attenuation at 150 and 772 kilohertz after conditioning the sample 
at the data reference temperature for 24 hours. Calculate the average 
and standard deviation for the data of the 13 pairs on a per kilometer 
or (on a per mile) basis.
    (ii) The attenuation at 150 and 772 kilohertz may be calculated from 
open circuit admittance (Yoc) and short circuit impedance (Zsc) or may 
be obtained by direct measurement of attenuation.
    (iii) Record on suggested formats in (V) of this appendix or on 
other easily readable formats.
    (d) Heat conditioning. (i) Immediately after completing the initial 
measurements, condition the sample for 14 days at a temperature of 65 
 2 deg.C.
    (ii) At the end of this period note any exudation of cable filler. 
Measure and calculate the parameters given in (III)(1)(c) of this 
appendix. Record on suggested formats in (V) of this appendix or other 
easily readable formats.
    (iii) Cut away and discard a one meter (3 foot) section from each 
end of length B.
    (e) Overall electrical deviation. (i) Calculate the percent change 
in all average parameters between the final parameters after 
conditioning and the initial parameters in (III)(1)(c) of this appendix.
    (ii) The stability of the electrical parameters after completion of 
this test must be within the following prescribed limits:
    (A) Capacitance. The average mutual capacitance must be within 5 
percent of its original value;
    (B) The change in average mutual capacitance must be less than 5 
percent over frequency 1 to 150 kilohertz; and
    (C) Attenuation. The 150 and 772 kilohertz attenuation must not have 
increased by more than 5 percent over their original values.
    (2) Water immersion electrical test--(a) Test sample selection. The 
10 meter (33 foot) section of length B must be tested.
    (b) Test sample preparation. Prepare the sample by removing the 
jacket, shield or shield/armor, and core wrap for sufficient distance to 
allow one end to be accessed for test connections. Cut out a series of 6 
millimeter (0.25 inch.) diameter holes along the test sample, at 30 
centimeters (1 foot) intervals progressing successively 90 degrees 
around the circumference of the cable. Assure that the cable core is 
exposed at each hole by slitting the core wrapper. Place the prepared 
sample in a dry vessel which when filled will maintain a one meter (3 
foot) head of water over 6 meters (20 feet) of uncoiled cable. Extend 
and fasten the ends of the cable so they will be above the water line 
and the pairs are rigidly held for the duration of the test.
    (c) Capacitance testing. Measure the initial values of mutual 
capacitance of all odd pairs in each cable at a frequency of 1 kilohertz 
before filling the vessel with water. Be sure the cable shield or 
shield/armor is grounded to the test equipment. Fill the vessels until 
there is a one meter (3 foot) head of water on the cables.
    (i) Remeasure the mutual capacitance after the cables have been 
submerged for 24 hours and again after 30 days.
    (ii) Record each sample separately on suggested formats attached or 
on other easily readable formats.
    (d) Overall electrical deviation. (i) Calculate the percent change 
in all average parameters

[[Page 809]]

between the final parameters after conditioning with the initial 
parameters in (III)(2)(c) of this appendix.
    (ii) The average mutual capacitance must be within 5 percent of its 
original value.
    (3) Water penetration testing. (a) A watertight closure must be 
placed over the jacket of length C. The closure must not be placed over 
the jacket so tightly that the flow of water through pre-existing voids 
of air spaces is restricted. The other end of the sample must remain 
open.
    (b) Test per Option A or Option B--(i) Option A. Weigh the sample 
and closure prior to testing. Fill the closure with water and place 
under a continuous pressure of 10  0.7 kilopascals (1.5 
 0.1 pounds per square inch gauge) for one hour. Collect the 
water leakage from the end of the test sample during the test and weigh 
to the nearest 0.1 gram. Immediately after the one hour test, seal the 
ends of the cable with a thin layer of grease and remove all visible 
water from the closure, being careful not to remove water that 
penetrated into the core during the test. Reweigh the sample and 
determine the weight of water that penetrated into the core. The weight 
of water that penetrated into the core must not exceed 6 grams.
    (ii) Option B. Fill the closure with a 0.2 gram sodium fluorscein 
per liter water solution and apply a continuous pressure 10  
0.7 kilopascals (1.5  0.1 pounds per square inch gauge) for 
one hour. Catch and weigh any water that leaks from the end of the cable 
during the one hour period. If no water leaks from the sample, carefully 
remove the water from the closure. Then carefully remove the jacket, 
shield or shield/ armor, and core wrap one at a time, examining with an 
ultraviolet light source for water penetration. After removal of the 
core wrap, carefully dissect the core and examine for water penetration 
within the core. Where water penetration is observed, measure the 
penetration distance. The distance of water penetration into the core 
must not exceed 127 millimeters (5.0 inches).
    (4) Insulation compression test--(a) Test sample D. Remove jacket, 
shield or shield/armor, and core wrap being careful not to damage the 
conductor insulation. Remove one pair from the core and carefully 
separate, wipe off core filler and straighten the insulated conductors. 
Retwist the two insulated conductors together under sufficient tension 
to form 10 evenly spaced 360 degree twists in a length of 10 centimeters 
(4 inches).
    (b) Sample testing. Center the mid 50 millimeters (2 inches) of the 
twisted pair between 2 smooth rigid parallel metal plates that are 50 
millimeters  x  50 millimeters (2 inches  x  2 inches). Apply a 1.5 volt 
direct current potential between the conductors, using a light or buzzer 
to indicate electrical contact between the conductors. Apply a constant 
load of 67 newtons (l5 pound-force) on the sample for one minute and 
monitor for evidence of contact between the conductors. Record results 
on suggested formats in (V) of this appendix or on other easily readable 
formats.
    (5) Jacket slip strength test--(a) Sample selection. Test Sample E 
from (III)(1)(a) of this appendix.
    (b) Sample preparation. Prepare test sample in accordance with the 
procedures specified in ASTM D 4565-90a.
    (c) Sample conditioning and testing. Remove the sample from the 
tensile tester prior to testing and condition for one hour at 50 
 2 deg.C. Test immediately in accordance with the procedures 
specified in ASTM D 4565-90a. A minimum jacket slip strength of 67 
newtons (15 pound-force) is required. Record the highest load attained.
    (6) Humidity exposure. (a) Repeat steps (III)(1)(a) through 
(III)(1)(c)(iii) of this appendix for separate set of samples B, C, D, 
and E which have not been subjected to prior environmental conditioning.
    (b) Immediately after completing the measurements, expose the test 
sample to 100 temperature cyclings. Relative humidity within the chamber 
must be maintained at 90  2 percent. One cycle consists of 
beginning at a stabilized chamber and test sample temperature of 52 
 1 deg.C, increasing the temperature to 57  
1 deg.C, allowing the chamber and test samples to stabilize at this 
level, then dropping the temperature back to 52  1 deg.C.
    (c) Repeat steps (III)(1)(d)(ii) through (III)(5)(c) of this 
appendix.
    (7) Temperature cycling. (a) Repeat steps (III)(1)(a) through 
(III)(1)(c)(iii) of this appendix for separate set of samples B, C, D, 
and E which have not been subjected to prior environmental conditioning.
    (b) Immediately after completing the measurements, subject the test 
sample to the 10 cycles of temperature between a minimum of -40 deg.C 
and +60 deg.C. The test sample must be held at each temperature extreme 
for a minimum of 1 1/2 hours during each cycle of temperature. The air 
within the temperature cycling chamber must be circulated throughout the 
duration of the cycling.
    (c) Repeat steps (III)(1)(d)(ii) through (III)(5)(c) of this 
appendix.
    (IV) Control sample--(1) Test samples. A separate set of lengths A, 
C, D, E, and F must have been maintained at 23  3 deg.C for 
at least 48 hours before the testing.
    (2) Repeat steps (III)(2) through (III)(5)(c) of this appendix 
except use length A instead of length B.
    (3) Surge test. (a) One length of sample F must be used to measure 
the breakdown between conductors while the other length of F must be 
used to measure the core to shield breakdown.
    (b) The samples must be capable of withstanding without damage, a 
single surge

[[Page 810]]

voltage of 15 kilovolts peak between conductors, and a 25 kilovolts peak 
surge voltage between conductors and the shield or shield/armor as 
hereinafter described. The surge voltage must be developed from a 
capacitor discharged through a forming resistor connected in parallel 
with the dielectric of the test sample. The surge generator constants 
must be such as to produce a surge of 1.5  x  40 microsecond wave shape.
    (c) The shape of the generated wave must be determined at a reduced 
voltage by connecting an oscilloscope across the forming resistor with 
the cable sample connected in parallel with the forming resistor. The 
capacitor bank is charged to the test voltage and then discharged 
through the forming resistor and test sample. The test sample will be 
considered to have passed the test if there is no distinct change in the 
wave shape obtained with the initial reduced voltage compared to that 
obtained after the application of the test voltage.
    (V) The following suggested formats may be used in submitting the 
test results to RUS:

                Environmental Conditioning______________                
                          Frequency 1 kilohertz                         
------------------------------------------------------------------------
                                                  Capacitance           
                                      ----------------------------------
             Pair Number                     nF/km (nanofarad/mile)     
                                      ----------------------------------
                                            Initial           Final     
------------------------------------------------------------------------
1                                      ____________      ____________   
3                                      ____________      ____________   
5                                      ____________      ____________   
7                                      ____________      ____________   
9                                      ____________      ____________   
11                                     ____________      ____________   
13                                     ____________      ____________   
15                                     ____________      ____________   
17                                     ____________      ____________   
19                                     ____________      ____________   
21                                     ____________      ____________   
23                                     ____________      ____________   
25                                     ____________      ____________   
Average x                              ____________      ____________   
                                                                        
------------------------------------------------------------------------
Overall Percent Difference in Average x ______________                  


                Environmental Conditioning______________                
                         Frequency 150 kilohertz                        
------------------------------------------------------------------------
                                    Capacitance          Attenuation    
                               -----------------------------------------
                                 nF/km (nanofarad/     dB/km (decibel/  
          Pair Number                  mile)                mile)       
                               -----------------------------------------
                                 Initial     Final    Initial     Final 
------------------------------------------------------------------------
1                               ______     ______    ______     ______  
3                               ______     ______    ______     ______  
5                               ______     ______    ______     ______  
7                               ______     ______    ______     ______  
9                               ______     ______    ______     ______  
11                              ______     ______    ______     ______  
13                              ______     ______    ______     ______  
15                              ______     ______    ______     ______  
17                              ______     ______    ______     ______  
19                              ______     ______    ______     ______  
21                              ______     ______    ______     ______  
23                              ______     ______    ______     ______  
25                              ______     ______    ______     ______  
Average x                       ______     ______    ______     ______  
------------------------------------------------------------------------
Overall Percent Difference in Average x        Capacitance:____________ 
      Conductance:____________                                          


                Environmental Conditioning______________                
                         Frequency 772 kilohertz                        
------------------------------------------------------------------------
                                    Capacitance          Attenuation    
                               -----------------------------------------
                                 nF/km (nanofarad/     dB/km (decibel/  
          Pair Number                  mile)                mile)       
                               -----------------------------------------
                                 Initial     Final    Initial     Final 
------------------------------------------------------------------------
1                               ______     ______    ______     ______  
3                               ______     ______    ______     ______  
5                               ______     ______    ______     ______  
7                               ______     ______    ______     ______  
9                               ______     ______    ______     ______  
11                              ______     ______    ______     ______  
13                              ______     ______    ______     ______  
15                              ______     ______    ______     ______  
17                              ______     ______    ______     ______  
19                              ______     ______    ______     ______  
21                              ______     ______    ______     ______  
23                              ______     ______    ______     ______  
25                              ______     ______    ______     ______  
Average x                       ______     ______    ______     ______  
------------------------------------------------------------------------
Overall Percent Difference in Average x        Capacitance:____________ 
      Conductance:____________                                          


[[Page 811]]


                Environmental Conditioning______________                
                   Water Immersion Test (1 kilohertz)                   
------------------------------------------------------------------------
                                                Capacitance             
                                  --------------------------------------
           Pair Number                     nF/km (nanofarad/mile)       
                                  --------------------------------------
                                      Initial      24 Hours      Final  
------------------------------------------------------------------------
1                                  ______        ______       ______    
3                                  ______        ______       ______    
5                                  ______        ______       ______    
7                                  ______        ______       ______    
9                                  ______        ______       ______    
11                                 ______        ______       ______    
13                                 ______        ______       ______    
15                                 ______        ______       ______    
17                                 ______        ______       ______    
19                                 ______        ______       ______    
21                                 ______        ______       ______    
23                                 ______        ______       ______    
25                                 ______        ______       ______    
Average x                          ______        ______       ______    
------------------------------------------------------------------------
Overall Percent Difference in Average x ______________                  


                                             Water Penetration Test                                             
----------------------------------------------------------------------------------------------------------------
                                                  Option A                                Option B              
                                  ------------------------------------------------------------------------------
                                                                                                 Penetration mm 
                                    End Leakage grams   Weight Gain grams   End Leakage grams        (in.)      
----------------------------------------------------------------------------------------------------------------
Control..........................                                                                               
                                  ------------------------------------------------------------------------------
Heat Age.........................                                                                               
                                  ------------------------------------------------------------------------------
Humidity Exposure................                                                                               
                                  ------------------------------------------------------------------------------
Temperature Cycling..............                                                                               
                                  ------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------


                         Insulation Compression                         
------------------------------------------------------------------------
                                                      Failures          
------------------------------------------------------------------------
Control...................................  ________________            
Heat Age..................................  ________________            
Humidity Exposure.........................  ________________            
Temperature Cycling.......................  ________________            
------------------------------------------------------------------------

      

                       Jacket Slip Strength @ 50C                       
------------------------------------------------------------------------
                                               Load in newtons (pound-  
                                                       force)           
------------------------------------------------------------------------
Control...................................  ________________            
Heat Age..................................  ________________            
Humidity Exposure.........................  ________________            
Temperature Cycling.......................  ________________            
------------------------------------------------------------------------


                        Filler Exudation (grams)                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Heat Age..................................  ________________            
Humidity Exposure.........................  ________________            
Temperature Cycling.......................  ________________            
------------------------------------------------------------------------


                         Surge Test (kilovolts)                         
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Conductor to Conductor....................  ________________            
Shield to Conductors......................  ________________            
------------------------------------------------------------------------


[58 FR 29328, May 20, 1993, as amended at 60 FR 1711, Jan. 5, 1995]



Sec. 1755.900  RUS specification for filled fiber optic cables.

    (a) Scope. (1) This section covers the requirement for filled fiber 
optic cables intended for aerial installation either by attachment to a 
support strand or by an integrated self-supporting arrangement, for 
underground application by placement in a duct, or for buried 
installations either by trenching or by direct plowing.
    (i) The optical waveguides are glass fibers having directly-applied 
protective coatings, and are called ``fibers'', herein. These fibers may 
be assembled in either loose fiber bundles with a protective core tube, 
encased in several

[[Page 812]]

protective buffer tubes, or in tight buffer tubes.
    (ii) Fillers, strength members, core wraps, and bedding tapes may 
complete the cable core.
    (iii) The core or buffer tubes containing the fibers and the 
interstices between the buffer tubes, fillers, and strength members in 
the core structure are filled with a suitable material to exclude water.
    (iv) The cable structure is completed by an extruded overall plastic 
jacket. This jacket may have strength members embedded in it, in some 
designs.
    (v) Buried installation requires an armor under the outer jacket.
    (vi) For self-supporting cable the outer jacket may be extruded over 
the support messenger and cable core.
    (2) The cable is fully color coded so that each fiber is 
distinguishable from every other fiber. A basic color scheme of twenty-
four colors allows individual fiber identification. Colored tubes, 
binders, threads, stripings, or markings provide fiber group 
identification.
    (3) Cable manufactured to this section must demonstrate compliance 
with the qualification testing requirements to ensure satisfactory end-
use performance characteristics for the intended applications.
    (4) Optical cable designs not specifically addressed by this section 
may be allowed if accepted by RUS. Justification for acceptance of a 
modified design must be provided to substantiate product utility and 
long term stability and endurance.
    (5) All cables sold to RUS borrowers for projects involving RUS loan 
funds under this section must be accepted by RUS Technical Standards 
Committee ``A'' (Telephone). For cables manufactured to the 
specification of this section, all design changes to an accepted design 
must be submitted for acceptance. RUS will be the sole authority on what 
constitutes a design change.
    (6) The American National Standard Institute/Institute of Electrical 
and Electronics Engineers, Inc (ANSI/IEEE), 1993 National Electrical 
Safety Code (NESC) referenced in this section is incorporated by 
reference by RUS. This incorporation by reference was approved by the 
Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 
1 CFR part 51. Copies of ANSI/IEEE 1993 NESC are available for 
inspection during normal business hours at RUS, room 2845, U.S. 
Department of Agriculture, Washington, DC 20250-1500 or at the Office of 
the Federal Register, 800 North Capitol Street, NW., suite 700, 
Washington, DC. Copies are available from IEEE Service Center, 445 Hoes 
Lane, Piscataway, NJ 08854, telephone number 1 (800) 678-4333.
    (7) American Society for Testing and Materials Specifications (ASTM) 
A 640-91, Standard Specification for Zinc-Coated Steel Strand for 
Messenger Support of Figure 8 Cable; ASTM B 736-92a, Standard 
Specification for Aluminum, Aluminum Alloy, and Aluminum-Clad Steel 
Cable Shielding Stock; ASTM D 1238-90b, Standard Test Method for Flow 
Rates of Thermoplastics by Extrusion Plastometer; ASTM D 1248-84 (1989), 
Standard Specification for Polyethylene Plastic Molding and Extrusion 
Materials, ASTM D 1535-89, Standard Test Method for Specifying Color by 
the Munsell System; ASTM D 3349-86, Standard Test Method for Absorption 
Coefficient of Carbon Black Pigmented Ethylene Plastic; ASTM D 4565-90a, 
Standard Test Methods for Physical and Environmental Performance 
Properties of Insulations and Jackets for Telecommunications Wire and 
Cable; ASTM D 4566-90, Standard Test Methods for Electrical Performance 
Properties of Insulations and Jackets for Telecommunications Wire and 
Cable; ASTM D 4568-86, Standard Test Methods for Evaluating 
Compatibility Between Cable Filling and Flooding Compounds and 
Polyolefin Cable Materials; and ASTM E 29-90, Standard Practice for 
Using Significant Digits in Test Data to Determine Conformance with 
Specifications, referenced in this section are incorporated by reference 
by RUS. These incorporations by references were approved by the Director 
of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR 
part 51. Copies of ASTM standards are available for inspection during 
normal business hours at RUS, room 2845, U.S. Department of Agriculture, 
Washington, DC 20250-1500 or at the Office of the Federal Register, 800 
North Capitol Street, NW., suite 700, Washington, DC.

[[Page 813]]

Copies are available from ASTM, 1916 Race Street, Philadelphia, 
Pennsylvania 19103-1187, telephone number (215) 299-5585.
    (8) Electronic Industries Association Standards (EIA)-455-20, 
Measurement of Change in Optical Transmittance; EIA-455-41, Compressive 
Loading Resistance of Fiber Optic Cables; EIA-455-86, Fiber Optic Cable 
Jacket Shrinkage; EIA-455-89A, Fiber Optic Cable Jacket Elongation And 
Tensile Strength; and EIA-455-174, Mode Field Diameter of Single-Mode 
Optical Fiber by Knife-Edge Scanning in the Far Field, referenced in 
this section are incorporated by reference by RUS. These incorporations 
by references were approved by the Director of the Federal Register in 
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies of EIA 
standards are available for inspection during normal business hours at 
RUS, room 2845, U.S. Department of Agriculture, Washington, DC 20250-
1500 or at the Office of the Federal Register, 800 North Capitol Street, 
NW., suite 700, Washington, DC. Copies are available from Global 
Engineering Documents, 15 Inverness Way East, Englewood, CO 80112, 
telephone number (303) 792-2181.
    (9) Electronic Industries Association/Telecommunications Industries 
Association Standards (EIA/TIA)-455-25A, Repeated Impact Testing of 
Fiber Optic Cables and Cable Assemblies; EIA/TIA-455-30B, Frequency 
Domain Measurement of Multimode Optical Fiber Information Transmission 
Capacity; EIA/TIA-455-31B, Fiber Tensile Proof Test Method; EIA/TIA-455-
37A, Low or High Temperature Bend Test for Fiber Optic Cable; EIA/TIA-
455-45B, Method for Measuring Optical Fiber Geometry Using a Laboratory 
Microscope; EIA/TIA-455-46A, Spectral Attenuation Measurement for Long-
Length, Graded-Index Optical Fibers; EIA/TIA-455-48B, Measurement of 
Optical Fiber Cladding Diameter Using Laser-Based Instruments; EIA/TIA-
455-51A, Pulse Distortion Measurement of Multimode Glass Optical Fiber 
Information Transmission Capacity; EIA/TIA-455-53A, Attenuation by 
Substitution Measurement for Multimode Graded-Index Optical Fibers or 
Fiber Assemblies Used in Long Length Communications Systems; EIA/TIA-
455-55B, End-View Methods for Measuring Coating and Buffer Geometry of 
Optical Fibers; EIA/TIA-455-58A, Core Diameter Measurement of Graded-
Index Optical Fibers; EIA/TIA-455-59, Measurement of Fiber Point Defects 
Using an OTDR; EIA/TIA-455-61, Measurement of Fiber or Cable Attenuation 
Using an OTDR; EIA/TIA-455-78A, Spectral-Attenuation Cutback Measurement 
for Single-Mode Optical Fibers; EIA/TIA-455-81A, Compound Flow (Drip) 
Test for Filled Fiber Optic Cable; EIA/TIA-455-82B, Fluid Penetration 
Test for Fluid-Blocked Fiber Optic Cable; EIA/TIA-455-85A, Fiber Optic 
Cable Twist Test; EIA/TIA-455-104A, Fiber Optic Cable Cyclic Flexing 
Test; EIA/TIA-455-164A, Single-Mode Fiber, Measurement of Mode Field 
Diameter by Far-Field Scanning; EIA/TIA-455-165A, Mode Field Diameter 
Measurement Near Field Scanning Technique; EIA/TIA-455-167A, Mode Field 
Diameter, Variable Aperture in the Far Field; EIA/TIA-455-168A, 
Chromatic Dispersion Measurement of Multimode Graded-Index and Single-
Mode Optical Fibers by Spectral Group Delay Measurement in the Time 
Domain; EIA/TIA-455-169A, Chromatic Dispersion Measurement of Single-
Mode Optical Fibers by the Phase-Shift Method; EIA/TIA-455-170, Cable 
Cutoff Wavelength of Single-Mode Fiber by Transmitted Power; EIA/TIA-
455-173, Coating Geometry Measurement for Optical Fiber Side-View 
Method; EIA/TIA-455-175A, Chromatic Dispersion Measurement of Single-
Mode Optical Fibers by the Differential Phase Shift Method; EIA/TIA-455-
176, Method for Measuring Optical Fiber Cross-Sectional Geometry by 
Automated Grey-Scale Analysis; EIA/TIA-455-177A, Numerical Aperture 
Measurement of Graded-Index Optical Fibers; EIA/TIA-455-178, 
Measurements of Strip Force Required for Mechanically Removing Coatings 
from Optical Fibers; and EIA/TIA-598, Color Coding of Fiber Optic 
Cables, referenced in this section are incorporated by reference by RUS. 
These incorporations by references were approved by the Director of the 
Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. 
Copies of EIA/TIA standards

[[Page 814]]

are available for inspection during normal business hours at RUS, room 
2845, U.S. Department of Agriculture, Washington, DC 20250-1500 or at 
the Office of the Federal Register, 800 North Capitol Street, NW., suite 
700, Washington, DC. Copies are available from Global Engineering 
Documents, 15 Inverness Way East, Englewood, CO 80112, telephone number 
(303) 792-2181.
    (10) RUS intends that the optical fibers contained in the cables 
manufactured in accordance with this section have characteristics that 
will allow signals, having a range of wavelengths, to be carried 
simultaneously.
    (b) Optical fibers. (1) The solid glass optical fibers must consist 
of a cylindrical core and cladding covered by either an ultraviolet-
cured acrylate or other suitable coating.
    (2) The optical fiber types must be one of the following:
    (i) Dispersion-unshifted single mode fiber EIA Class IVa;
    (ii) Dispersion-shifted single mode fiber EIA Class IVb;
    (iii) 50/125 micrometer multimode fiber EIA Class Ia; or
    (iv) 62.5/125 micrometer multimode fiber EIA Class Ia.
    (3) The dispersion-unshifted single mode fiber core must have either 
a matched or depressed clad step refractive index profile with a mode-
field diameter of 9.01.0 micrometers when measured at 1300 
nanometers and 10.5+1.0 micrometers/-1.5 micrometers when measured at 
1550 nanometers in accordance with any one of the following test 
methods:
    (i) EIA/TIA-455-164A;
    (ii) EIA/TIA-455-165A;
    (iii) EIA/TIA-455-167A; or
    (iv) EIA-455-174.
    (4) The dispersion-shifted single mode fiber core must have either a 
segmented core design or depressed clad step refractive index profile 
with a mode-field diameter of 7.5+1.5 micrometers/-1.3 micrometers when 
measured at 1550 nanometers in accordance with any one of the test 
procedures specified in paragraph (b)(3) of this section.
    (5) The core clad off-set of the dispersion-unshifted and 
dispersion-shifted single mode fibers must not be greater than 1.0 
micrometer when measured in accordance with either EIA/TIA-455-45B or 
EIA/TIA-455-176.
    (6) The multimode fiber cores must have graded (parabolic) 
refractive index profiles with core diameters of 50.03.0 
micrometers or 62.53.0 micrometers when measured in 
accordance with either EIA/TIA-455-58A, or EIA/TIA-455-176.
    (7) The core noncircularity of multimode fibers must not exceed 6 
percent when measured in accordance with either EIA/TIA-455-45B or EIA/
TIA-455-176.
    (8) The outside diameter of the glass fiber for both single mode and 
multimode fibers must be 1252.0 micrometers when measured in 
accordance with any one of the following test methods:
    (i) EIA/TIA-455-45B;
    (ii) EIA/TIA-455-176; or
    (iii) EIA/TIA-455-48B, Methods A or B.
    (9) The outside diameter of the glass fiber must be nominally 
concentric with the fiber core as is consistent with the best commercial 
practice.
    (10) The individual fibers must be proof tested at a minimum tensile 
stress of 0.35 gigapascal for approximately one second when measured in 
accordance with EIA/TIA-455-31B.
    (11) Factory splices of fibers are allowed provided that prior 
acceptance from RUS is obtained for the splice technique, that all 
splices are documented and reported to the customer and that the spliced 
fiber meets all requirements of this section.
    (12) The optical fiber must be coated with a suitable material to 
preserve the intrinsic strength of the glass having an outside diameter 
of 25015 micrometers when measured in accordance with either 
EIA/TIA-455-55B or EIA/TIA-455-173.
    (13) The maximum force required to remove 25 millimeters of 
protective fiber coating must not exceed 13 newtons when measured in 
accordance with EIA/TIA-455-178.
    (14) All optical fibers in any single length of cable must be of the 
same type.
    (c) Buffer/coating. (1) The optical fibers contained in a tube 
buffer (loose tube), an inner jacket (unit core), a channel or otherwise 
loosely packaged

[[Page 815]]

must have a clearance between the fibers and the inside of the container 
sufficient to allow for thermal expansions without constraining the 
fibers. The protective container must be manufactured from a material 
having a coefficient of friction sufficiently low to allow the fibers 
free movement.
    (2) Optical fibers covered in near contact with an extrusion (tight 
tube) must have an intermediate soft buffer to allow for thermal 
expansions and minor pressures.
    (3) All protective coverings in any single length of cable must be 
continuous and be of the same material except at splice locations.
    (4) The protective coverings must be free from holes, splits, 
blisters, and other imperfections and must be as smooth and concentric 
as is consistent with the best commercial practice.
    (5) Repairs to the fiber coatings are not allowed except at splice 
locations.
    (6) Both loose tube and tight tube coverings of each color and other 
fiber package types removed from the finished cable must meet the 
following shrinkback and cold bend performance requirements. The fibers 
may be left in the tubes.
    (i) Shrinkback. Testing must be conducted in accordance with ASTM D 
4565-90a, paragraph 14.1, using a talc bed at a temperature of 95 
deg.C. Shrinkback must not exceed 5 percent of the original 150 
millimeter length of the specimen. The total shrinkage of the specimen 
must be measured.
    (ii) Cold bend. Testing must be conducted on at least one tube from 
each color in the cable. Stabilize the specimen to -201 
deg.C for a minimum of four hours. While holding the specimen and 
mandrel at the test temperature, wrap the tube in a tight helix ten 
times around a mandrel with a diameter not greater than five times the 
tube diameter. The tube must show no evidence of cracking when observed 
with normal or corrected-to-normal vision.

    Note: Channel cores and similar slotted single component core 
designs need not be tested for cold bend.

    (d) Fiber and buffer tube identification. (1) The colors designated 
for identification of loose buffer tubes, tight tube buffer fibers and 
individual fibers in multifiber tubes, slots or bundles are shown in the 
following table:

------------------------------------------------------------------------
    Buffer tube and fiber No.                      Color                
------------------------------------------------------------------------
1................................  Blue.                                
2................................  Orange.                              
3................................  Green.                               
4................................  Brown.                               
5................................  Slate.                               
6................................  White.                               
7................................  Red.                                 
8................................  Black.                               
9................................  Yellow.                              
10...............................  Violet.                              
11...............................  Rose.                                
12...............................  Aqua.                                
13...............................  Blue/Black Tracer.                   
14...............................  Orange/Black Tracer.                 
15...............................  Green/Black Tracer.                  
16...............................  Brown/Black Tracer.                  
17...............................  Slate/Black Tracer.                  
18...............................  White/Black Tracer.                  
19...............................  Red/Black Tracer.                    
20...............................  Black/Yellow Tracer.                 
21...............................  Yellow/Black Tracer.                 
22...............................  Violet/Black Tracer.                 
23...............................  Rose/Black Tracer.                   
24...............................  Aqua/Black Tracer.                   
------------------------------------------------------------------------

    (2) Standards of color. Except for the aqua color, the colors of 
fibers and tubes supplied in accordance with this section are specified 
in terms of the Munsell Color System (ASTM D 1535-89) and must comply 
with the color limits as defined in EIA/TIA-598. (A visual color 
standard meeting these requirements and entitled ``Munsell Color Charts 
for Color Coding,'' may be obtained from the Munsell Color Company, 
Inc., 2441 North Calvert Street, Baltimore, Maryland 21218. The latest 
edition of the color standard should be used.)
    (i) The aqua color limits using the Munsell Color System must be as 
follows:

                            Munsell Notation                            
------------------------------------------------------------------------
                   Symbol                             Aqua color        
------------------------------------------------------------------------
Centroid...................................  10BG 7/6                   
H++........................................  5B 7/6                     
H--........................................  5BG 7/6                    
V++........................................  10BG 8/4                   
V--........................................  10BG 6/6                   
C++........................................  None                       
C--........................................  10BG 7/4                   
------------------------------------------------------------------------

    (ii) Other coloring schemes used for providing identification of 
buffer tubes and optical fibers which deviate from the requirements of 
paragraph (d)(1) of this section will not be accepted by RUS.

[[Page 816]]

    (e) Strength members. (1) Strength members must be an integral part 
of the cable construction, but are not considered part of the support 
messenger for self-supporting optical cable.
    (2) The combined strength of all the strength members must be 
sufficient to support the stress of installation and to protect the 
cable in service.
    (3) Strength members may be incorporated into the core as a central 
support member or filler, as fillers between the fiber packages, as an 
annular serving over the core, as an annular serving over the 
intermediate jacket, embedded in the outer jacket or as a combination of 
any of these methods.
    (4) The central support member or filler must contain no more than 
one splice per kilometer of cable. Individual fillers placed between the 
fiber packages and placed as annular servings over the core must contain 
no more than one splice per kilometer of cable. Cable sections having 
central member or filler splices must meet the same physical 
requirements as unspliced cable sections.
    (5) Strength member materials and splicing techniques must be 
accepted by RUS prior to their use.
    (6) In each length of completed cable having a metallic central 
member, the dielectric strength between the armor and the metallic 
center member must withstand at least 15 kilovolts direct current for 3 
seconds.
    (f) Forming the cable core. (1) Protected fibers must be assembled 
with the optional central support member, fillers and strength members 
in such a way as to form a cylindrical group.
    (2) The standard cylindrical group or core designs shall consist of 
4, 6, 8, 10, 12, 16, 18, 20, or 24 fibers. Cylindrical groups or core 
designs larger than the sizes shown above must meet all the requirements 
of this section.
    (3) When threads or tapes are used as core binders, they must be 
colored either white or natural and must be a nonhygroscopic and 
nonwicking dielectric material.
    (4) When threads or tapes are used as unit binders to define optical 
fiber units in loose tube, tight tube, slotted, or bundled cored 
designs, they must be colored in accordance with the table listed below 
and must be a nonhygroscopic and nonwicking dielectric material or be 
rendered such by the filling compound. The colors of the binders must be 
in accordance with paragraphs (d)(2) introductory text and (d)(2)(i) of 
this section.

------------------------------------------------------------------------
             Unit No.                           Binder color            
------------------------------------------------------------------------
1................................  Blue.                                
2................................  Orange.                              
3................................  Green.                               
4................................  Brown.                               
5................................  Slate.                               
6................................  White.                               
7................................  Red.                                 
8................................  Black.                               
9................................  Yellow.                              
10...............................  Violet.                              
11...............................  Rose.                                
12...............................  Aqua.                                
13...............................  Blue-Black.                          
14...............................  Orange-Black.                        
15...............................  Green-Black.                         
16...............................  Brown-Black.                         
17...............................  Slate-Black.                         
18...............................  White-Black.                         
19...............................  Red-Black.                           
20...............................  Black-Black-Yellow.                  
21...............................  Yellow-Yellow-Black.                 
22...............................  Violet-Black.                        
23...............................  Rose-Black.                          
24...............................  Aqua-Black.                          
------------------------------------------------------------------------

    (g) Filling compound. (1) To prevent the ingress of water into the 
core, a filling compound must be applied into the interior of the loose 
fiber tubes and into the interstices of the core. When a core wrap is 
used, the filling compound must also be applied to the core wrap, over 
the core wrap and between the core wrap and inner jacket when required.
    (2) The materials must be homogeneous and uniformly mixed; free from 
dirt, metallic particles and other foreign matter; easily removed; 
nontoxic and present no dermal hazards.
    (3) The individual cable manufacturer must satisfy RUS that the 
filling compound selected for use is suitable for its intended 
application. The filling compound must be compatible with the cable 
components when tested in accordance with ASTM D 4568-86 at a 
temperature of 80 deg. C.
    (h) Core wrap (optional). (1) At the option of the manufacturer, one 
or more layers of nonhygroscopic and nonwicking dielectric material may 
be applied over the core.
    (2) The core wrap(s) can be used to provide a heat barrier to 
prevent deformation or adhesion between the fiber

[[Page 817]]

tubes or can be used to contain the core.
    (3) When core wraps are used, sufficient filling compound must be 
applied to the core wraps so that voids or air spaces existing between 
the core wraps and between the core the inner side of the core wrap are 
minimized.
    (i) Inner jacket. (1) Inner jackets may be applied directly over the 
core or over the strength members.
    (i) For armored cable an inner jacket is optional but recommended. 
The inner jacket may absorb stresses in the cable core that may be 
introduced by armor application or by armored cable installation.
    (ii) For unarmored cable an inner jacket is optional.
    (2) The inner jacket material and test requirements must be as for 
the outer jacket material per paragraphs (m)(3) introductory text 
through (m)(3)(v) of this section, except that either black or natural 
polyethylene may be used. In the case of natural polyethylene, the 
requirements for absorption coefficient and the inclusion of furnace 
black are waived.
    (j) Flooding compound. (1) Sufficient flooding compound must be 
applied between the inner jacket and armor and between the armor and 
outer jacket so that voids and air spaces in these areas are minimized. 
The use of floodant between the armor and outer jacket is not required 
when uniform bonding, per paragraph (k)(10) of this section, is achieved 
between the plastic-clad armor and the outer jacket.
    (2) The flooding compound must be compatible with the jacket when 
tested in accordance with ASTM D 4568-86 at a temperature of 80 deg. C. 
The floodant must exhibit adhesive properties sufficient to prevent 
jacket slip when tested in accordance with the requirements of appendix 
A, paragraph (III)(3), of this section.
    (3) The individual cable manufacturer must satisfy RUS that the 
flooding compound selected for use is acceptable for the application.
    (4) In lieu of a flooding compound, water blocking tapes may be 
applied between the inner jacket and armor and between the armor and 
outer jacket to prevent water migration. The use of the water blocking 
tape between the armor and outer jacket is not required when uniform 
bonding, per paragraph (k)(10) of this section, is achieved between the 
plastic-clad armor and the outer jacket.
    (k) Armor. (1) A steel armor, plastic coated on both sides, is 
required for direct buried cable manufactured under the provisions of 
this section. An armor is optional for duct and aerial cable as required 
by the purchaser. The plastic coated steel armor must be applied 
longitudinally directly over the core wrap or the intermediate jacket 
and have a minimum overlap of 3.0 millimeters.
    (2) The uncoated steel tape must be electrolytic chrome coated steel 
(ECCS) with a thickness of 0.155  0.015 millimeters.
    (3) The reduction in thickness of the armoring material due to the 
corrugating or to the application process must be kept to a minimum and 
must not exceed 10 percent at any spot.
    (4) The armor of each length of cable must be electrically 
continuous with no more than one joint or splice allowed per kilometer 
of cable. This requirement does not apply to a joint or splice made in 
the raw material by the raw material manufacturer.
    (5) The breaking strength of any section of an armor tape, 
containing a factory splice joint, must not be less than 80 percent of 
the breaking strength of an adjacent section of the armor of equal 
length without a joint.
    (6) For cables containing no floodant over the armor, the overlap 
portions of the armor tape must be bonded in cables having a flat, 
noncorrugated armor to meet the requirements of paragraphs (q)(1) 
through (q)(7)(ii) of this section. If the tape is corrugated, the 
overlap portions of the armor tape must be sufficiently bonded and the 
corrugations must be sufficiently in register to meet the requirements 
of paragraphs (q)(1) through (q)(7)(ii) of this section.
    (7) The armor tape must be so applied as to enable the cable to pass 
the bend test as specified in paragraph (q)(1) of this section.
    (8) The protective coating on the steel armor must meet the Bonding-
to-Metal, Heat Sealability, Lap-Shear and Moisture Resistance 
requirements of

[[Page 818]]

Type I, Class 2 coated metals in accordance with ASTM B 736-92a.
    (9) The ability of the plastic-clad metal to resist the flooding 
compound must be determined as required by ASTM D 4568-86 using a one 
meter length of coated steel which must be aged for 7 days at 
681  deg.C. There must be no delamination of the coating 
from the steel at the conclusion of the test.
    (10) When the jacket is bonded to the plastic coated armor, the bond 
between the plastic coated armor and the outer jacket must not be less 
than 525 newtons per meter over at least 90 percent of the cable 
circumference when tested in accordance with ASTM D 4565-90a. For cables 
with strength members embedded in the jacket, and residing directly over 
the armor, the area of the armor directly under the strength member is 
excluded from the 90 percent calculation.
    (l) Optional support messenger (aerial cable). (1) When a self-
supporting aerial cable containing an integrated support messenger is 
supplied, the support messenger must comply with the requirements 
specified in paragraphs (l)(2) introductory text through (l)(6) of this 
section.
    (2) The fully flooded, stranded support messenger must be 6.35 
millimeters diameter, 7 wire, extra high strength grade, Class A 
galvanized steel strand conforming to ASTM A 640-91 with exceptions and 
additional provisions as follows:
    (i) The maximum lay of the individual wires of the strand must be 
140 millimeters.
    (ii) Any section of a completed strand containing a joint must have 
minimum tensile strength and elongation of 29,500 newtons and 3.5 
percent, respectively, when tested in accordance with the procedures 
specified ASTM A 640-91.
    (iii) The individual wires from a completed strand which contain 
joints must not fracture when tested according to the ``Ductility of 
Steel'' procedures specified in ASTM A 640-91 except that the mandrel 
diameter must be equal to 5 times the nominal diameter of the individual 
wires.
    (3) The support strand must be completely covered with a corrosion 
protective floodant. The floodant must be homogeneous and uniformly 
mixed.
    (4) The floodant must be nontoxic and present no dermal hazard.
    (5) The floodant must be free from dirt, metallic particles, and 
other foreign matter that may interfere with the performance of the 
cable.
    (6) The floodant must be compatible with the polyethylene outer 
jacket and must be acceptable to RUS.
    (7) Other methods of providing self-supporting cable specifically 
not addressed in this section may be allowed if accepted by RUS. 
Justification for acceptance of a modified design must be provided to 
substantiate product utility and long term stability and endurance.
    (m) Outer jacket. (1) The outer jacket must provide the cable with a 
tough, flexible, protective covering which can withstand exposure to 
sunlight, to atmosphere temperatures and to stresses reasonably expected 
in normal installation and service.
    (2) The jacket must be free from holes, splits, blisters, or other 
imperfections and shall be as smooth and concentric as is consistent 
with the best commercial practice.
    (3) The raw material used for the outer jacket must be one of the 
five types listed in paragraphs (m)(3)(i) through (m)(3)(v) of this 
section. The raw material must contain an antioxidant to provide long 
term stabilization and the materials must contain a 2.600.25 
percent concentration of furnace black to provide ultraviolet shielding. 
Both the antioxidant and furnace black must be compounded into the 
material by the raw material supplier.
    (i) Low density, high molecular weight polyethylene (LDHMW) must 
conform to the requirements of ASTM D 1248-84(1989), Type I, Class C, 
Category 4 or 5, Grade J3.
    (ii) Low density, high molecular weight ethylene copolymer (LDHMW) 
must conform to the requirements of ASTM D 1248-84(1989), Type I, Class 
C, Category 4 or 5, Grade J3.
    (iii) Linear low density, high molecular weight polyethylene 
(LLDHMW) must conform to the requirements of ASTM D 1248-84(1989), Type 
I, Class C, Category 4 or 5, Grade J3.

[[Page 819]]

    (iv) High density polyethylene (HD) must conform to the requirements 
of ASTM D 1248-84(1989), Type III, Class C, Category 4 or 5, Grade J4.
    (v) Medium density polyethylene (MD) must conform to the 
requirements of ASTM D 1248-84(1989), Type II, Class C, Category 4 or 5, 
Grade J4.
    (vi) Particle size of the carbon selected for use must not average 
greater than 20 nanometers.
    (vii) Absorption coefficient must be a minimum of 400 in accordance 
with the procedures of ASTM D 3349-86.
    (4) The outer jacketing material removed from or tested on the cable 
must be capable of meeting the following performance requirements:

------------------------------------------------------------------------
                                   LLDHMW,                              
            Property               ethylene       LDHMW       HD or MD  
                                  copolymer   polyethylene  polyethylene
------------------------------------------------------------------------
Melt Flow Rate:                                                         
    Percent increase from raw                                           
     material, Maximum.........  ...........            50            50
    <0.41 (Initial Melt Index).          100                            
    0.41-2.00 (Initial Melt                                             
     Index)....................                         50  ............
Tensile Strength:                                                       
    Minimum, Megapascals.......           12            12          16.5
Ultimate Elongation:                                                    
    Minimum, Percent...........          400           400           300
Environmental Stress Cracking:                                          
    Maximum, Failures..........         0/10          2/10          2/10
Shrinkback:                                                             
    Maximum, Percent...........            5             5             5
Impact:                                                                 
    Maximum, Failures..........         2/10          2/10          2/10
------------------------------------------------------------------------

    (5) Testing procedures. The procedures for testing jacket specimens 
for compliance with paragraph (m)(4) of this section must be as follows:
    (i) Melt flow rate. The melt flow rate must be determined by ASTM D 
1238-90b, Condition E. Jacketing material must be free from flooding and 
filling compound.
    (ii) Tensile strength and ultimate elongation. Test in accordance 
with EIA-455-89A, using a jaw separation speed of 500 millimeters per 
minute for low density material and 50 millimeters per minute for high 
and medium density materials.
    (iii) Environmental stress cracking. Test in accordance with ASTM D 
4565-90a.
    (iv) Shrinkback. Test in accordance with the procedures specified in 
EIA-455-86 using a temperature of 100  1 deg. C for a 4 hour 
period for low density material and a test temperature of 115 
 1 deg. C for a 4 hour period for high and medium density 
materials.
    (v) Impact. The test must be performed in accordance with ASTM D 
4565-90a using an impact force of 4 newton-meters at a temperature of 
-20  2 deg. C. A cracked or split jacket constitutes 
failure.
    (6) Jacket thickness. The nominal outer jacket thickness must not be 
less than 1.3 millimeters. The test method used must either be the End 
Sample Method (paragraph (m)(6)(i) of this section) or the Continuous 
Uniformity Thickness Gauge Method (paragraph (m)(6)(ii) of this 
section).
    (i) End sample method. The jacket must be capable of meeting the 
following requirements:

Minimum Average Thickness: 90 percent (%) of nominal thickness
Minimum Spot Thickness: 70 % of nominal thickness

    (ii) Continuous uniformity thickness gauge. (A) The jacket must be 
capable of meeting the following requirements:

Minimum Average Thickness: 75 % of nominal thickness
Minimum Thickness: 70 % of nominal thickness
Maximum Eccentricity: 40 % of nominal thickness

[[Page 820]]

[GRAPHIC] [TIFF OMITTED] TR05JY94.000


    (B) The maximum and minimum thickness values shall be based on the 
average of each axial section.
    (7) For jackets having embedded strength members, the jacket 
thickness must meet the requirements of paragraph (m)(6) of this section 
except that the jacket thickness over the strength members must not be 
less than 0.50 millimeters.
    (8) The minimum jacket thickness at any point over the support 
messenger for self-supporting aerial cable utilizing such an element 
must be 1.1 millimeters.
    (9) The web dimension for self-supporting aerial cable utilizing 
such a feature must be as follows:
[GRAPHIC] [TIFF OMITTED] TR05JY94.001

    (n) Sheath slitting cord (optional). (1) A sheath slitting cord is 
optional.
    (2) When a sheath slitting cord is used it must be nonhygroscopic 
and nonwicking or be rendered such by the filling or flooding compound, 
continuous throughout a length of cable and of sufficient strength to 
open the sheath over at least a one meter length without breaking the 
cord at a temperature of 235  deg.C.
    (o) Identification marker and length marker. (1) Each length of 
cable must be permanently labeled either Optical Cable, OC, Optical 
Fiber Cable, or OF on the outer jacket and identified as to manufacturer 
and year of manufacture.
    (2) Each length of cable intended for direct burial installation 
shall be marked with a telephone handset in compliance with Rule 350G of 
the 1993 National Electrical Safety Code (NESC).
    (3) Mark the number of fibers on the jacket.
    (4) The markings must be printed on the jacket at regular intervals 
of not more than 2 meters.
    (5) An alternative method of marking may be used if acceptable to 
RUS.
    (6) The completed cable must have sequentially numbered length 
markers in Meters or Feet at regular intervals of not more than 2 meters 
along the outside of the jacket.
    (7) Continuous sequential numbering must be employed in a single 
length of cable.
    (8) The numbers must be dimensioned and spaced to produce good 
legibility and must be approximately 3 millimeters in height. An 
occasional illegible marking is permissible if there is a legible 
marking located not more than 2 meters from it.
    (9) The method of marking must be by means of suitable surface 
markings producing a clear distinguishable contrasting marking 
acceptable to RUS. Where direct or transverse printing is employed, the 
characters should be indented to produce greater durability of marking. 
Any other method of length marking must be acceptable to RUS as 
producing a marker suitable for the field. Size, shape and spacing of 
numbers, durability and overall legibility of the marker will be 
considered in acceptance of the method.
    (10) Agreement between the actual length of the cable and the length 
marking on the cable jacket must be within the limits of +1 percent, -0 
percent.
    (11) The color of the initial marking must be white or silver. If 
the initial marking fails to meet the requirements of the preceding 
paragraphs, it will be permissible to either remove the defective 
marking and re-mark with the white or silver color or leave the 
defective marking on the cable and re-mark with yellow. No further re-
marking is permitted. Any re-marking must be on a different portion of 
the cable circumference than any existing marking when possible and have 
a numbering sequence differing from any other existing marking by at 
least 3,000.
    (12) Any reel of cable that contains more than one set of sequential 
markings must be labeled to indicate the

[[Page 821]]

color and sequence of marking to be used. The labeling must be applied 
to the reel and also to the cable.
    (p) Optical performance. (1) The optical performance of the single 
mode fibers must be in accordance with the requirements specified in 
paragraphs (p)(1)(i) through (p)(1)(viii) of this section.
    (i) The attenuation values of the single mode fibers within the 
cable must not exceed 0.5 decibel per kilometer (dB/km) for dispersion-
unshifted single mode fiber at 1310 and 1550 nanometers and must not 
exceed 0.5 dB/km for dispersion-shifted single mode fiber at 1550 
nanometers. The test method used for measuring the attenuation must be 
in accordance with either:
    (A) EIA/TIA-455-78A; or
    (B) EIA/TIA-455-61.
    (ii) The attenuation values for wavelengths between 1285 and 1330 
nanometers and between 1525 and 1575 nanometers for dispersion-unshifted 
fibers must not exceed the attenuation at 1310 and 1550 nanometers by 
more than 0.1 dB/km. The attenuation values for wavelengths between 1525 
and 1575 nanometers for dispersion-shifted fibers must not exceed the 
attenuation at 1550 nanometers by more than 0.1 dB/km. The test method 
used for measuring the attenuation must be in accordance with any one of 
the methods specified in paragraph (p)(1)(i) of this section.
    (iii) Attenuation discontinuities in the fiber's length must not 
exceed 0.1 decibel (dB) for dispersion-unshifted fiber at 
131020 and 155020 nanometers and must not exceed 
0.1 dB for dispersion-shifted fiber at 155020 nanometers 
when measured in accordance with EIA/TIA-455-59.
    (iv) Measurement of the attenuation must be conducted at the 
wavelength specified for application and must be expressed in decibels 
per kilometer.
    (v) Because the accuracy of attenuation measurements for single mode 
fibers becomes questionable when measured on short cable lengths, 
attenuation measurements are to be made utilizing characterization cable 
lengths. If the ship length of cable is less than one kilometer, the 
attenuation values measured on longer lengths of cable (characterization 
length of cable) before cutting to the ship lengths of cable may be 
applied to the ship lengths.
    (vi) For dispersion-unshifted fiber the zero dispersion wavelength 
must be between 1300 and 1322 nanometers, and the value of the 
dispersion slope at the zero-dispersion wavelength must not be greater 
than 0.092 picosecond per nanometer squared times kilometer (ps/
(nm2km) when measured in accordance with either:
    (A) EIA/TIA-455-168A;
    (B) EIA/TIA-455-169A; or
    (C) EIA/TIA-455-175A.
    (vii) For dispersion-shifted fiber, the dispersion over the 
wavelength range between 1525 and 1575 nanometers must not exceed 3.5 
picosecond per nanometer times kilometer (ps/(nmkm)) and must 
have a maximum dispersion slope of 0.095 ps/(nm2km) 
at the zero dispersion wavelength when measured in accordance with any 
one of the test procedures specified in paragraph (p)(1)(vi) of this 
section.
    (viii) The cut off wavelength of the dispersion-unshifted and the 
dispersion-shifted fibers in a cable must be less than 1260 nanometers 
when measured in accordance with EIA/TIA-455-170.
    (2) The optical performance of the multimode fibers must be in 
accordance with the requirements specified in paragraphs (p)(2)(i) 
through (p)(2)(vi) of this section.
    (i) The attenuation values of the 50/125 and 62.5/125 micrometer 
multimode fibers within the cable must not exceed 1.5 dB/km at 1300 
nanometers when measured in accordance with either:
    (A) EIA/TIA-455-46A;
    (B) EIA/TIA-455-53A; or
    (C) EIA/TIA-455-61.
    (ii) Attenuation discontinuities in the fiber's length must not 
exceed 0.2 dB for both multimode fiber types at 130020 
nanometers when measured in accordance with EIA/TIA-455-59.
    (iii) Measurement of the attenuation must be conducted at the 
wavelength specified for application and must be expressed in decibels 
per kilometer.
    (iv) Because the accuracy of attenuation measurements for multimode 
fibers becomes questionable when measured on short cable lengths, 
attenuation measurements are to be made

[[Page 822]]

utilizing characterization cable lengths. If the ship length of cable is 
less than one kilometer, the attenuation values measured on longer 
lengths of cable (characterization length of cable) before cutting to 
the ship lengths of cable may be applied to the ship lengths.
    (v) The bandwidth of the multimode fibers at the -3 dB optical power 
of the optical fibers within the cable must be within the limits 
prescribed in the purchase order.
    (vi) The test methods used to measure bandwidth must be in 
accordance with either EIA/TIA-455-30B or EIA/TIA-455-51A.
    (3) Numerical aperture (NA) for each multimode optical fiber in the 
cable must be 0.200.015 for the 50/125 micrometer design and 
0.2750.015 for the 62.5/125 micrometer design when measured 
in accordance with EIA/TIA-455-177A.
    (q) Mechanical requirements--(1) Cable bend test. (i) All cables 
manufactured in accordance with the requirements of this section must be 
capable of meeting the following bend test without exhibiting an 
increase in fiber attenuation greater than 0.10 dB for single mode 
fibers and 0.40 dB for multimode fibers.
    (ii) Measure the attenuation of dispersion-unshifted single mode 
fibers at 131020 and 155020 nanometers, 
dispersion-shifted single mode fibers at 155020 nanometers 
and multimode fibers at 130020 nanometers.
    (iii) After measuring the attenuation of the optical fibers, test 
the cable sample in accordance with EIA/TIA-455-37A, Test Condition E, 
Turns Test Level 3. The following detailed test conditions shall apply:
    (A) Section 4.2--Mandrel diameter must be 20 times the cable 
diameter.
    (B) Section 4.5--Measure the attenuation increase of the wound 
sample at the test temperature and specified wavelengths in accordance 
with EIA-455-20.
    (C) For armored cable, the armor overlap must be on the outside of 
the bend.
    (D) For self-supporting cable, the jacketed support messenger and 
connection web must be removed prior to testing.
    (iv) The cable may be allowed to warm to room temperature before 
visual inspection. The bent area of the cable must show neither visible 
evidence of fracture of the jacket nor delamination of the bond at the 
overlap and to the outer jacket in nonflooded cable. After removal of 
the jacket, there must be no visible evidence of fracture of the armor, 
when present, and of the components in the core.
    (2) Cable impact test. (i) All cables manufactured in accordance 
with the requirements of this section must be capable of meeting the 
following impact test without exhibiting an increase in fiber 
attenuation greater than 0.10 dB for single mode fibers and 0.40 dB for 
multimode fibers, and without cracking or splitting of the cable jacket.
    (ii) Measure the attenuation of the optical fibers in accordance 
with paragraph (q)(1)(ii) of this section.
    (iii) After measuring the attenuation of the optical fibers, test 
the cable in accordance with EIA/TIA-455-25A.
    (3) Cable compression test. (i) All cables manufactured in 
accordance with the requirements of this section must be capable of 
meeting the following compressive strength test without exhibiting an 
increase in fiber attenuation greater than 0.10 dB for single mode 
fibers and 0.4 dB for multimode and without cracking or splitting of the 
cable jacket when subjected to a minimum compressive load of 440 newtons 
per centimeter for armored cable and 220 newtons per centimeter for 
nonarmored cable.
    (ii) Measure the attenuation of the optical fibers in accordance 
with paragraph (q)(1)(ii) of this section.
    (iii) After measuring the attenuation of the optical fibers, test 
the cable in accordance with EIA-455-41 using a rate of 3 millimeters to 
20 millimeters per minute and maintaining the load for 10 minutes.
    (4) Cable twist test. (i) All cables manufactured in accordance with 
the requirements of this section must be capable of meeting the 
following twist test without exhibiting an increase in fiber attenuation 
greater than 0.10 dB for single mode fibers and 0.40 dB for

[[Page 823]]

multimode fibers, and without cracking or splitting of the cable jacket.
    (ii) Measure the attenuation of the optical fibers in accordance 
with paragraph (q)(1)(ii) of this section.
    (iii) After measuring the attenuation of the optical fibers, test 
the cable in accordance with EIA/TIA-455-85A, using a maximum cable 
twisting length of 4 meters.
    (5) Cable flex test. (i) All cables manufactured in accordance with 
the requirements of this section must be capable of meeting the 
following flex test without exhibiting an increase in fiber attenuation 
greater than 0.10 dB for single mode fibers and 0.40 dB for multimode 
fibers.
    (ii) Measure the attenuation of the optical fibers in accordance 
with paragraph (q)(1)(ii) of this section.
    (iii) After measuring the attenuation of the optical fibers, test 
the cable in accordance with EIA/TIA-455-104A, Test Conditions I and II, 
flexed for 25 cycles using a sheave diameter not less than 20 times the 
cable diameter (Test condition letter B).
    (iv) After completion of the test, the bent area of the cable must 
show neither visible evidence of fracture of the jacket nor delamination 
of the bond at the overlap and to the outer jacket in nonflooded cable. 
After removal of the jacket, there must be no visible evidence of 
fracture of the armor, when present, and of the components in the core.
    (6) Water penetration test. (i) A one meter length of completed 
fiber optic cable must be preconditioned for 24 hours at 235 
 deg.C and then tested in accordance with EIA/TIA-455-82B using a one 
meter water head over the sample or placed under the equivalent 
continuous pressure for one hour.
    (ii) After the one hour period, there must be no water leakage 
through the sheath interfaces, under the core wrap, between the cable 
core interstices or through the fiber buffers.
    (iii) If water leakage is detected in the first sample, one 
additional 3 meter sample from EACH END of the same reel must be tested 
in accordance with paragraph (q)(6)(i) of this section. If either sample 
exhibits water leakage, the entire reel of cable is to be rejected. If 
the samples exhibit no leakage, the entire reel of cable is considered 
acceptable.
    (7) Compound flow test. (i) Three 300 millimeter long test samples 
must be preconditioned for 24 hours at 235  deg.C and then 
tested in accordance with EIA/TIA-455-81A using a test temperature of 80 
 1  deg.C.
    (ii) The amount of filling or flooding compounds that flowed or 
dripped from any of the suspended cable specimens must be less than or 
equal to 0.5 grams of material. The measurement of an amount greater 
than 0.5 grams for any of the suspended cable specimens constitutes 
failure.
    (r) Preconnectorized cable (optional). (1) At the option of the 
manufacturer and upon request by the purchaser, the cable may be factory 
terminated with connectors acceptable to RUS.
    (2) All connectors must be accepted by RUS prior to their use.
    (s) Acceptance testing and extent of testing. (1) The tests 
described in appendix A of this section are intended for acceptance of 
cable designs and major modifications of accepted designs. What 
constitutes a major modification is at the discretion of RUS. These 
tests are intended to show the inherent capability of the manufacturer 
to produce cable products that have satisfactory performance 
characteristics, long life and long-term optical stability but are not 
intended as field tests.
    (2) For initial acceptance, the manufacturer must submit:
    (i) An original signature certification that the product fully 
complies with each section of the specification;
     (ii) Qualification Test Data, per appendix A of this section;
     (iii) A set of instructions for handling the cable;
     (iv) OSHA Material Safety Data Sheets for all components;
     (v) Agree to periodic plant inspections;
     (vi) A certification that the product does or does not comply with 
the domestic origin manufacturing provisions, of the ``Buy American'' 
requirements of the Rural Electrification Act of 1938 (52 Stat. 818);
     (vii) Written user testimonials concerning field performance of the 
product; and

[[Page 824]]

     (viii) Other nonproprietary data deemed necessary by the Chief, 
Outside Plant Branch (Telephone).
     (3) For requalification acceptance, the manufacturer must submit an 
original signature certification that the product fully complies with 
each section of the specification, excluding the Qualification Section, 
and a certification that the product does or does not comply with the 
domestic origin manufacturing provisions of the ``Buy American'' 
requirements of the Rural Electrification Act of 1938 (52 Stat. 818), 
for acceptance by September 30 every three years. The required data and 
certification must have been gathered within 90 days of the submission.
     (4) Initial and requalification acceptance requests should be 
addressed to: Chairman, Technical Standards Committee ``A'' (Telephone), 
Telecommunications Standards Division, Rural Utilities Service, 
Washington, DC 20250-1500.
     (5) Tests on 100 percent of completed cable. (i) The armor for each 
length of cable must be tested for continuity using the procedures of 
ASTM D 4566-90.
     (ii) Attenuation for each optical fiber in the cable must be 
measured.
     (iii) Optical discontinuities must be isolated and their location 
and amplitude recorded.
     (6) Capability tests. Tests on a quality assurance basis must be 
made as frequently as is required for each manufacturer to determine and 
maintain compliance with:
     (i) Numerical aperture and bandwidth of multimode fibers;
     (ii) Cut off wavelength of single mode fibers;
     (iii) Dispersion of single mode fibers;
     (iv) Shrinkback and cold testing of loose tube and tight tube 
buffers;
     (v) Adhesion properties of the protective fiber coating;
     (vi) Dielectric strength between the armor and the metallic central 
member;
     (vii) Performance requirements for the inner and outer jacketing 
materials;
     (viii) Performance requirements for the filling and flooding 
compounds;
     (ix) Bonding properties of the coated armoring material;
     (x) Sequential marking and lettering;
     (xi) Cable bend and cable impact tests;
     (xii) Water penetration and compound flow tests;
     (xiii) Cable twist, cable flex, and cable compression tests; and
     (xiv) Performance requirements of support messenger.
     (t) Records of optical and physical tests. (1) Each manufacturer 
must maintain suitable summary records for a period of at least 3 years 
of all optical and physical tests required on completed cable by this 
section as set forth in paragraphs (s)(5) and (s)(6) of this section. 
The test data for a particular reel must be in a form that it may be 
readily available to RUS upon request. The optical data must be 
furnished to the purchaser on a suitable and easily readable form.
     (2) Measurements and computed values must be rounded off to the 
number of places or figures specified for the requirement according to 
ASTM E 29-90.
     (u) Manufacturing irregularities. (1) Repairs to the armor, when 
present, are not permitted in cable supplied to end users under this 
section.
     (2) Minor defects in the inner and outer jacket (defects having a 
dimension of 3 millimeter or less in any direction) may be repaired by 
means of heat fusing in accordance with good commercial practices 
utilizing sheath grade compounds.
     (3) Buffer tube repair is permitted only in conjunction with fiber 
splicing.
     (v) Packaging and preparation for shipment. (1) The cable must be 
shipped on reels. The diameter of the drum must be large enough to 
prevent damage to the cable from reeling and unreeling. The reels must 
be substantial and so constructed as to prevent damage during shipment 
and handling.
     (2) A circumferential thermal wrap or other means of protection 
complying with the requirements of appendix B of this section must be 
secured between the outer edges of the reel flange to protect the cable 
against damage during storage and shipment.
     (3) Cable manufactured to the requirements of this section must be 
sealed at the ends to prevent entrance of moisture. The method of 
sealing

[[Page 825]]

must be accepted by RUS prior to its use.
     (4) The end-of-pull (outer end) of the cable must be securely 
fastened to prevent the cable from coming loose during transit. The 
start-of-pull (inner end) of the cable must project through a slot in 
the flange of the reel, around an inner riser, or into a recess on the 
reel flange near the drum and fastened in such a way to prevent the 
cable from becoming loose during installation.
     (5) Spikes, staples or other fastening devices must be used in a 
manner which will not result in penetration of the cable.
     (6) The arbor hole must admit a spindle 63.5 millimeters in 
diameter without binding. Steel arbor hole liners may be used but must 
be accepted by RUS prior to their use.
     (7) Each reel must be plainly marked to indicate the direction in 
which it should be rolled to prevent loosening of the cable on the reel.
     (8) Each reel must be stenciled or lettered with the name of the 
manufacturer.
     (9) The following information must be either stenciled on the reel 
or on a tag firmly attached to the reel:

Optical Cable
Number of Fibers
Armored or Nonarmored
Year of Manufacture
Name of Cable Manufacturer
Length of Cable
Reel Number
RUS 7 CFR 1755.900

Example:

Optical Cable
4 fiber
Armored
1988
XYZ Company
1050 meters
 Reel Number 3
RUS 7 CFR 1755.900

     (10) When preconnectorized cable is shipped, the splicing modules 
must be protected to prevent damage during shipment and handling. The 
protection method must be accepted by RUS prior to its use.

(The information collection and recordkeeping requirements of this 
section have been approved by the Office of Management and Budget (OMB) 
under control number 0572-0059)

        Appendix A to 7 CFR 1755.900--Qualification Tests Methods

    (I) The test procedures described in this appendix are for 
qualification of initial cable designs and major modifications of 
accepted designs. Included in (V) of this appendix are suggested formats 
that may be used in submitting test results to RUS.
    (II) Sample selection and preparation. (1) All testing must be 
performed on lengths removed sequentially from any of the same cables 
listed below. The cables must not have been exposed to temperatures in 
excess of 38 deg.C since their initial cool downs after sheathing. The 
lengths specified are minimum lengths and if desirable from a laboratory 
testing standpoint longer lengths may be used:
    (a) 12 single mode fiber jacketed cable consisting of 6 single mode 
dispersion-unshifted fibers and 6 single mode dispersion-shifted fibers.
    (b) 12 multimode fiber jacketed cable consisting of 6 50/125 
micrometer multimode fibers and 6 62.5/125 micrometer multimode fibers.
    (c) 24 fiber jacketed combination cable consisting of 6 single mode 
dispersion-unshifted fibers; 6 single mode dispersion-shifted fibers; 6 
50/125 micrometer multimode fibers; and 6 62.5/125 micrometer multimode 
fibers.
    (2) Length A shall be a minimum of 500 meters long. Coil the sample 
with a diameter of 50 to 75 times its sheath diameter. Three lengths are 
required if only requesting acceptance for either single mode fiber 
cable (a), multimode fiber cable (b), or using the combination fiber 
cable (c). Six lengths, 3 lengths of single mode fiber cable (a), and 3 
lengths of multimode fiber cable (b), are required if requesting 
acceptance for both single mode and multimode fiber cables.
    (3) Length B shall be one meter long. Four lengths of either single 
mode fiber cable (a), multimode fiber cable (b) or the combination fiber 
cable (c) are required.
    (4) Length C shall be 600 millimeters long. Four lengths of either 
single mode fiber cable (a), multimode fiber cable (b) or the 
combination fiber cable (c) are required.
    (5) Data reference temperature. Unless otherwise specified, all 
measurement shall be made at 235 deg.C.
    (III) Environmental tests--(1) Heat aging test. (a) Test samples. 
Place one or two samples of length A and one sample each of lengths B 
and C in an oven or environmental chamber. The ends of sample A must 
exit from the chamber or oven for optical tests. Securely seal the oven 
exit holes.
    (b) Sequence of tests. The samples are to be subjected to the 
following tests after conditioning:
    (i) Water Penetration Test outlined in paragraph (III ) (2) of this 
appendix; and

[[Page 826]]

    (ii) Jacket Slip Strength Test outlined in paragraph (III) (3) of 
this appendix. (For Flooded Designs Only)
    (c) Initial measurements. (i) For sample(s) A measure the 
attenuation for the single mode dispersion-unshifted fibers at 1310 and 
1550 nanometers, for single mode dispersion-shifted fibers at 1550 
nanometers and/or for multimode fibers at 1300 nanometers at a 
temperature of 235 deg.C. Also measure the bandwidth of the 
multimode fibers. Calculate the attenuation data on a per kilometer 
basis. Calculate the bandwidth data on a megahertz-kilometer (MHz-km) 
basis.
    (ii) Record on suggested formats in (V) of this appendix or on other 
easily readable formats.
    (d) Heat conditioning. (i) Immediately after completing the initial 
measurements, condition the sample(s) for 14 days at a temperature of 
652 deg.C.
    (ii) At the end of this period note any exudation of cable filler. 
Measure the parameters given in paragraph (III)(1)(c) of this appendix. 
Record on suggested formats in (V) of this appendix or on other easily 
readable formats.
    (e) Overall optical deviation. (i) Calculate the change in all 
parameters between the final parameters after conditioning with initial 
parameters in paragraph (III)(1)(c) of this appendix.
    (ii) The stability of the optical parameters after completion of 
this test must be within the following prescribed limits:
    (A) Attenuation. The attenuation of each multimode fiber must not 
change by more than 0.3 db/km and the attenuation of each single mode 
fiber must not change by more than 0.1 dB/km.
    (B) Bandwidth. The bandwidth of each multimode fiber must not change 
by more than 15 percent from their original values.
    (2) Water penetration testing. (a) A watertight closure must be 
placed over the jacket of length B from paragraph (III)(1)(a) of this 
appendix. The closure must not be placed over the jacket so tightly that 
the flow of water through pre-existing voids or air spaces is 
restricted. The other end of the sample must remain open.
    (b) Test per Option A or Option B. (i) Option A. Weigh the sample 
and closure prior to testing. Fill the closure with water and place 
under a continuous pressure of 10  0.7 kilopascals for one 
hour. Collect the water leakage from the end of the test sample during 
the test and weigh to the nearest 0.1 gram. Immediately after the one 
hour test, seal the ends of the cable with a thin layer of grease and 
remove all visible water from the closure, being careful not to remove 
water that penetrated into the core during the test. Reweigh the sample 
and determine the weight of water that penetrated into the core.
    (ii) Option B. Fill the closure with a 0.2 gram sodium fluorscein 
per liter water solution and apply a continuous pressure of 10 
 0.7 kilopascals for one hour. Catch and weigh any water 
that leaks from the end of the cable during the one hour period. If no 
water leaks from the sample, carefully remove the water from the 
closure. Then carefully remove the outer jacket, armor, if present, 
inner jacket, if present, and core wrap one at a time, examining with an 
ultraviolet light source for water penetration. After removal of the 
core wrap, carefully dissect the core and examine for water penetration 
within the core. Where water penetration is observed, measure the 
penetration distance.
    (3) Jacket slip strength test. (For Flooded Design Only) (a) Sample 
selection. Test sample C from paragraph (III)(1)(a) of this appendix.
    (b) Sample preparation. Prepare test sample in accordance with the 
procedures specified in ASTM D 4565-90a.
    (c) Sample conditioning and testing. Remove the sample from the 
tensile tester prior to testing and condition for one hour at 50 
 2 deg.C. Test immediately in accordance with the procedures 
specified in ASTM D 4565-90a. A minimum jacket slip strength of 67 
newtons is required. Record the load attained on the suggested formats 
in (V) of this appendix or on other easily readable formats.
    (4) Temperature and humidity exposure. (a) Repeat paragraphs 
(III)(1)(a) through (III)(1)(c)(ii) of this appendix for separate set of 
samples A, B and C which have not been subjected to prior environmental 
conditioning.
    (b) Immediately after completing the measurements, expose the test 
sample to 100 temperature cyclings. Relative humidity within the chamber 
shall be maintained at 90  2 percent. One cycle consists of 
beginning at a stabilized chamber and test sample temperature of 52 
 2 deg.C, increasing the temperature to 57  
2 deg.C, allowing the chamber and test samples to stabilize at this 
level, then dropping the temperature back to 52  2 deg.C.
    (c) Repeat paragraphs (III)(1)(d)(ii) through (III)(3)(c) of this 
appendix.
    (5) Temperature cycling. (a) Repeat paragraphs (III)(1)(a) through 
(III)(1)(c)(ii) of this appendix for separate set of samples A, B, and C 
which have not been subjected to prior environmental conditioning.
    (b) Immediately after completing the measurements, subject the test 
sample to 10 cycles of temperature between -40 deg.C and +60 deg.C. The 
test sample must be held at each temperature extreme for a minimum of 
1\1/2\ hours during each cycle of temperature. The air within the 
temperature cycling chamber must be circulated throughout the duration 
of the cycling.
    (c) Repeat paragraphs (III)(1)(d)(ii) through (III)(3)(c) of this 
appendix.
    (IV) Control sample--(a) Test samples. A separate set of lengths B 
and C must have been

[[Page 827]]

maintained at 23  5 deg.C for at least 48 hours before the 
testing.
    (b) Repeat paragraphs (III)(2) through (III)(3)(c) of this appendix 
for these samples.
    (V) The following suggested formats may be used in submitting the 
test results to RUS:

                   Heat Aging Test--Single Mode Cable                   
------------------------------------------------------------------------
               Attenuation--1310 nm  dB/km   Attenuation--1550 nm  dB/km
  Fiber No.  -----------------------------------------------------------
               Initial    Final    Change    Initial    Final    Change 
------------------------------------------------------------------------
1                                                                       
------------------------------------------------------------------------
2                                                                       
------------------------------------------------------------------------
3                                                                       
------------------------------------------------------------------------
4                                                                       
------------------------------------------------------------------------
5                                                                       
------------------------------------------------------------------------
6                                                                       
------------------------------------------------------------------------
7                                                                       
------------------------------------------------------------------------
8                                                                       
------------------------------------------------------------------------
9                                                                       
------------------------------------------------------------------------
10                                                                      
------------------------------------------------------------------------
11                                                                      
------------------------------------------------------------------------
12                                                                      
------------------------------------------------------------------------


                    Heat Aging Test--Multimode Cable                    
------------------------------------------------------------------------
               Attenuation--1300 nm  dB/km        Bandwidth  dB/km      
             -----------------------------------------------------------
  Fiber No.                                                      Change 
               Initial    Final    Change    Initial    Final      (%)  
------------------------------------------------------------------------
1                                                                       
------------------------------------------------------------------------
2                                                                       
------------------------------------------------------------------------
3                                                                       
------------------------------------------------------------------------
4                                                                       
------------------------------------------------------------------------
5                                                                       
------------------------------------------------------------------------
6                                                                       
------------------------------------------------------------------------
7                                                                       
------------------------------------------------------------------------
8                                                                       
------------------------------------------------------------------------
9                                                                       
------------------------------------------------------------------------
10                                                                      
------------------------------------------------------------------------
11                                                                      
------------------------------------------------------------------------
12                                                                      
------------------------------------------------------------------------


[[Page 828]]


                                       Heat Aging Test--Combination Cable                                       
----------------------------------------------------------------------------------------------------------------
                    Attenuation--1310 nm  dB/km      Attenuation--1550 nm  dB/km         Bandwidth  MHz-km      
                ------------------------------------------------------------------------------------------------
   Fiber No.                                                                                             Change 
                   Initial     Final      Change     Initial     Final    Change    Initial     Final      (%)  
----------------------------------------------------------------------------------------------------------------
1                                                                                                               
----------------------------------------------------------------------------------------------------------------
2                                                                                                               
----------------------------------------------------------------------------------------------------------------
3                                                                                                               
----------------------------------------------------------------------------------------------------------------
4                                                                                                               
----------------------------------------------------------------------------------------------------------------
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----------------------------------------------------------------------------------------------------------------
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[[Page 829]]


              Temperature/Humidity Test--Single Mode Cable              
------------------------------------------------------------------------
               Attenuation--1310 nm  dB/km   Attenuation--1550 nm  dB/km
  Fiber No.  -----------------------------------------------------------
               Initial    Final    Change    Initial    Final    Change 
------------------------------------------------------------------------
1                                                                       
------------------------------------------------------------------------
2                                                                       
------------------------------------------------------------------------
3                                                                       
------------------------------------------------------------------------
4                                                                       
------------------------------------------------------------------------
5                                                                       
------------------------------------------------------------------------
6                                                                       
------------------------------------------------------------------------
7                                                                       
------------------------------------------------------------------------
8                                                                       
------------------------------------------------------------------------
9                                                                       
------------------------------------------------------------------------
10                                                                      
------------------------------------------------------------------------
11                                                                      
------------------------------------------------------------------------
12                                                                      
------------------------------------------------------------------------


               Temperature/Humidity Test--Multimode Cable               
------------------------------------------------------------------------
               Attenuation--1300 nm  dB/km        Bandwidth  MHz-km     
  Fiber No.  -----------------------------------------------------------
               Initial    Final    Change    Initial    Final    Change 
------------------------------------------------------------------------
1                                                                       
------------------------------------------------------------------------
2                                                                       
------------------------------------------------------------------------
3                                                                       
------------------------------------------------------------------------
4                                                                       
------------------------------------------------------------------------
5                                                                       
------------------------------------------------------------------------
6                                                                       
------------------------------------------------------------------------
7                                                                       
------------------------------------------------------------------------
8                                                                       
------------------------------------------------------------------------
9                                                                       
------------------------------------------------------------------------
10                                                                      
------------------------------------------------------------------------
11                                                                      
------------------------------------------------------------------------
12                                                                      
------------------------------------------------------------------------


                                  Temperature/Humidity Test--Combination Cable                                  
----------------------------------------------------------------------------------------------------------------
                    Attenuation--1310 nm dB/km       Attenuation--1550 nm  dB/km         Bandwidth  MHz-km      
                ------------------------------------------------------------------------------------------------
   Fiber No.                                                                                             Change 
                   Initial     Final      Change     Initial     Final    Change    Initial     Final      (%)  
----------------------------------------------------------------------------------------------------------------
1                                                                                                               
----------------------------------------------------------------------------------------------------------------
2                                                                                                               
----------------------------------------------------------------------------------------------------------------
3                                                                                                               
----------------------------------------------------------------------------------------------------------------

[[Page 830]]

                                                                                                                
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[[Page 831]]


               Temperature Cycling Test--Single Mode Cable              
------------------------------------------------------------------------
               Attenuation--1310 nm  dB/km   Attenuation--1550 nm  dB/km
  Fiber No.  -----------------------------------------------------------
               Initial    Final    Change    Initial    Final    Change 
------------------------------------------------------------------------
1                                                                       
------------------------------------------------------------------------
2                                                                       
------------------------------------------------------------------------
3                                                                       
------------------------------------------------------------------------
4                                                                       
------------------------------------------------------------------------
5                                                                       
------------------------------------------------------------------------
6                                                                       
------------------------------------------------------------------------
7                                                                       
------------------------------------------------------------------------
8                                                                       
------------------------------------------------------------------------
9                                                                       
------------------------------------------------------------------------
10                                                                      
------------------------------------------------------------------------
11                                                                      
------------------------------------------------------------------------
12                                                                      
------------------------------------------------------------------------


                  Temperature Cycling--Multimode Cable                  
------------------------------------------------------------------------
               Attenuation--1300 nm  dB/km        Bandwidth  MHz-km     
             -----------------------------------------------------------
  Fiber No.                                                      Change 
               Initial    Final    Change    Initial    Final      (%)  
------------------------------------------------------------------------
1                                                                       
------------------------------------------------------------------------
2                                                                       
------------------------------------------------------------------------
3                                                                       
------------------------------------------------------------------------
4                                                                       
------------------------------------------------------------------------
5                                                                       
------------------------------------------------------------------------
6                                                                       
------------------------------------------------------------------------
7                                                                       
------------------------------------------------------------------------
8                                                                       
------------------------------------------------------------------------
9                                                                       
------------------------------------------------------------------------
10                                                                      
------------------------------------------------------------------------
11                                                                      
------------------------------------------------------------------------
12                                                                      
------------------------------------------------------------------------


                                   Temperature Cycling Test Combination Cable                                   
----------------------------------------------------------------------------------------------------------------
                    Attenuation--1310 nm dB/km       Attenuation--1550 nm  dB/km         Bandwidth  MHz-km      
                ------------------------------------------------------------------------------------------------
   Fiber No.                                                                                             Change 
                   Initial     Final      Change     Initial     Final    Change    Initial     Final      (%)  
----------------------------------------------------------------------------------------------------------------
1                                                                                                               
----------------------------------------------------------------------------------------------------------------
2                                                                                                               
----------------------------------------------------------------------------------------------------------------
3                                                                                                               
----------------------------------------------------------------------------------------------------------------

[[Page 832]]

                                                                                                                
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                         Water Penetration Test                         
------------------------------------------------------------------------
                                      Option A            Option B      
                                 ---------------------------------------
                                    End     Weight    End               
                                  leakage    gain   leakage  Penetration
                                   grams    grams    grams   millimeters
------------------------------------------------------------------------
Control.........................                                        
Heat Age........................                                        
Humidity Exposure...............                                        
Temperature Cycling.............                                        
------------------------------------------------------------------------


                     Jacket Slip Strength @ 50 deg.C                    
                                                                        
                                                                        
                                  Load in Newtons                       
Control............                                                     
Heat Age...........                                                     
Humidity Exposure..                                                     
Temperature Cycling                                                     
                                                                        
                             Filler Exudation (grams)                   
Heat Age...........                                                     
Humidity Exposure..                                                     
Temperature Cycle..                                                     

      Appendix B to 7 CFR 1755.900--Thermal Reel Wrap Qualification

    (I) The test procedures described in this appendix are only for 
qualification of initial and subsequent changes in thermal reel wraps.
    (II) Sample selection.  All testing must be performed on two 450 
millimeter lengths of cable removed sequentially from the same fiber 
jacketed cable. This cable must not have been exposed to temperatures in 
excess

[[Page 833]]

of 38  deg.C since its initial cool down after sheathing.
    (III) Test procedure. (1) Place the two samples on an insulating 
material such as wood.
    (2) Tape thermocouples to the jackets of each sample to measure the 
jacket temperature.
    (3) Cover one sample with the thermal reel wrap.
    (4) Expose the samples to a radiant heat source capable of heating 
the uncovered jacket sample to a minimum of 71  deg.C. A GE 600 watt 
photoflood lamp or an equivalent lamp having the light spectrum 
approximately that of the sun shall be used.
    (5) The height of the lamp above the jacket shall be 380 millimeters 
or an equivalent height that produces the 71  deg.C jacket temperature 
on the unwrapped sample shall be used.
    (6) After the samples have stabilized at the temperature, the jacket 
temperatures of the samples shall be recorded after one hour of exposure 
to the heat source.
    (7) Compute the temperature difference between jackets.
    (8) For the thermal reel wrap to be acceptable to RUS, the 
temperature difference between the jacket with the thermal reel wrap and 
the jacket without the reel wrap shall be greater than or equal to 17 
deg.C.

[59 FR 34360, July 5, 1994; 59 FR 44795, Aug. 30, 1994, as amended at 60 
FR 1711, Jan. 5, 1995]



Sec. 1755.910  RUS specification for outside plant housings and serving area interface systems.

    (a) Scope. (1) The purpose of this specification is to inform 
manufacturers and users of outside plant housings and serving area 
interface (SAI) systems of the engineering and technical requirements 
that are considered necessary for satisfactory performance in outside 
plant environments. Included are the mechanical, electrical, and 
environmental requirements, desired design features, and test methods 
for evaluation of the product.
    (2) The housing and terminal requirements reflect the best 
engineering judgment available at the present time and may be subject to 
change due to advances in technology, economic conditions, or other 
factors.
    (3) The test procedures described in this section are required by 
RUS to demonstrate the functional reliability of the product. However, 
other standard or unique test procedures may serve the same function. In 
such cases, RUS shall evaluate the test procedures and results on an 
individual basis.
    (4) The test procedures specified herein satisfy the requirements of 
housings as well as the requirements of terminals that may be installed 
within housings. Some of the requirements are interrelated to several 
tests designed to determine the performance aspects of terminals and are 
directly affected by testing required for housings. Therefore, the 
manufacturer should carefully review all the test requirements in order 
to develop a testing schedule that is comprehensive, efficient in terms 
of the number of test specimens required and can be accomplished in an 
orderly and logical sequence.
    (5) The specified tests may require special facilities to comply 
with Federal, State, or local regulatory requirements. Some test 
procedures are potentially hazardous to personnel because of the high 
voltages and mechanical forces involved. Safety precautions are 
necessary to prevent injury.
    (6) Underwriters Laboratories, Inc. (UL) 94, Tests for Flammability 
of Plastic Materials for Parts in Devices and Appliances, fourth 
edition, dated June 18, 1991, referenced in this section is incorporated 
by reference by RUS. This incorporation by reference was approved by the 
Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 
1 CFR part 51. A copy of the UL standard is available for inspection 
during normal business hours at RUS, room 2845-S, U.S. Department of 
Agriculture, Washington, DC 20250-1500 or at the Office of the Federal 
Register, 800 North Capitol Street, NW., suite 700, Washington, DC. 
Copies are available from UL Inc., 333 Pfingsten Road, Northbrook, 
Illinois 60062-2096, telephone number (708) 272-8800.
    (7) The American Society for Testing and Materials Specifications 
(ASTM) A 109-91, Standard Specification for Steel, Strip, Carbon, Cold-
Rolled; ASTM A 153-82 (Reapproved 1987), Standard Specification for Zinc 
Coating (Hot-Dip) on Iron and Steel Hardware; ASTM A 366/A 366M-91, 
Standard Specification for Steel, Sheet, Carbon, Cold-Rolled, Commercial 
Quality; ASTM A 525-91b, Standard Specification for General Requirements 
for Steel Sheet, Zinc-Coated (Galvanized) by the Hot-Dip Process; ASTM A 
526/A

[[Page 834]]

526M-90, Standard Specification for Steel Sheet, Zinc-Coated 
(Galvanized) by the Hot-Dip Process, Commercial Quality; ASTM A 569/A 
569M-91a, Standard Specification for Steel, Carbon (0.15 Maximum, 
Percent), Hot-Rolled Sheet and Strip Commercial Quality; ASTM A 621/A 
621M-92, Standard Specification for Steel, Sheet and Strip, Carbon, Hot-
Rolled, Drawing Quality; ASTM B 117-90, Standard Test Method of Salt 
Spray (Fog) Testing; ASTM B 539-90, Standard Test Methods for Measuring 
Contact Resistance of Electrical Connections (Static Contacts); ASTM B 
633-85, Standard Specification for Electrodeposited Coatings of Zinc on 
Iron and Steel; ASTM D 523-89, Standard Test Method for Specular Gloss; 
ASTM D 610-85 (Reapproved 1989), Standard Test Method for Evaluating 
Degree of Rusting on Painted Steel Surfaces; ASTM D 822-89, Standard 
Practice for Conducting Tests on Paint and Related Coatings and 
Materials using Filtered Open-Flame Carbon-Arc Light and Water Exposure 
Apparatus; ASTM D 1535-89, Standard Test Method for Specifying Color by 
the Munsell System; ASTM D 1654-92, Standard Test Method for Evaluation 
of Painted or Coated Specimens Subjected to Corrosive Environments; ASTM 
D 1693-70 (Reapproved 1988), Standard Test Method for Environmental 
Stress-Cracking of Ethylene Plastics; ASTM D 2197-86 (Reapproved 1991), 
Standard Test Method for Adhesion of Organic Coatings by Scrape 
Adhesion; ASTM D 2247-92, Standard Practice for Testing Water Resistance 
of Coatings in 100% Relative Humidity; ASTM D 2565-92, Standard Practice 
for Operating Xenon Arc-Type Light-Exposure Apparatus With and Without 
Water for Exposure of Plastics; ASTM D 2794-92, Standard Test Method for 
Resistance of Organic Coatings to the Effects of Rapid Deformation 
(Impact); ASTM D 3928-89, Standard Test Method for Evaluation of Gloss 
or Sheen Uniformity; ASTM D 4568-86, Standard Test Methods for 
Evaluating Compatibility Between Cable Filling and Flooding Compounds 
and Polyolefin Cable Materials; ASTM G 21-90, Standard Practice for 
Determining Resistance of Synthetic Polymeric Materials to Fungi; and 
ASTM G 23-90, Standard Practice for Operating Light-Exposure Apparatus 
(Carbon-Arc Type) With and Without Water for Exposure of Nonmetallic 
Materials, referenced in this section are incorporated by reference by 
RUS. These incorporations by references were approved by the Director of 
the Federal Register in accordance with 5 U.S.C. 552(a) and 7 CFR part 
51. Copies of the ASTM standards are available for inspection during 
normal business hours at RUS, room 2845-S, U.S. Department of 
Agriculture, Washington, DC 20250-1500 or at the Office of the Federal 
Register, 800 North Capitol Street, NW., suite 700, Washington, DC. 
Copies are available from ASTM, 1916 Race Street, Philadelphia, 
Pennsylvania 19103-1187, telephone number (215) 299-5585.
    (b) General information. (1) Outside plant housings are fabricated 
of either metallic or nonmetallic materials in different sizes and 
configurations to suit a variety of applications. The purpose of a 
housing is to protect its contents from environmental elements, rodents, 
insects, or vandalism and unauthorized access. Housings are designed 
with internal brackets for accommodating splicing, bonding and grounding 
connections, cable terminals, cross-connect facilities, load coils, and 
optical and electronic equipment.
    (2) Pedestals are housings primarily intended to house, organize, 
and protect cable terminations incorporating terminal blocks, splice 
connectors and modules, ground lugs and load coils. Activities typically 
performed in a pedestal are cable splicing, shield bonding and 
grounding, inductive loading, and connection of subscriber drops.
    (3) Serving area interface (SAI) cabinets are housings intended to 
perform some of the same functions as pedestals but are primarily 
intended to serve as the connecting terminal between feeder cable and 
distribution cables.
    (4) Outside plant housings shall be manufactured in accordance with 
National Electrical Code (NEC) requirements, Underwriters' Laboratories 
(UL) requirements, Department of Labor, Occupational Safety and Health 
Administration Standards (OSHA), and all other applicable Federal, 
State, and local requirements including, but not

[[Page 835]]

limited to, statutes, rules, regulations, orders, or ordinances 
otherwise imposed by law.
    (c) General documentation requirements--(1) Installation and 
maintenance instructions. (i) Each product shall have available a set of 
instructions designed to provide sufficient information for the 
successful installation of the housing, cables, auxiliary equipment, and 
the associated splice preparation. The instructions shall be of 
sufficient size to be easily read and shall be printed using waterproof 
ink. Pedestal instruction sheets shall include a list of miscellaneous 
replacement parts that may be purchased locally. SAI systems shall be 
supplied with complete instructions for installation and use.
    (ii) When requested by RUS, or an RUS borrower, the manufacturer 
shall prepare a training package for the purpose of training technicians 
in the use and installation of the product and its auxiliary equipment.
    (iii) The manufacturer shall provide ordering information for repair 
parts. Repair parts shall be obtainable through a local distributor or 
shall be easily obtainable. Information describing equivalent parts and 
their sources should be provided for those parts that may also be 
obtained from other sources.
    (2) Quality assurance. The manufacturer shall demonstrate the 
existence of an ongoing quality assurance program that includes 
controls, procedures, and standards used for vendor certification, 
source inspection, incoming inspection, manufacture, in process testing, 
calibration and maintenance of tools and test equipment, final product 
inspection and testing, periodic qualification testing and control of 
nonconforming materials and products. The manufacturer shall maintain 
quality assurance records for five years.
    (3) RUS acceptance applications. (i) The tests described in this 
specification are required for acceptance of product designs and major 
modifications of accepted designs. All modifications shall be considered 
major unless otherwise declared by RUS. The tests are intended to show 
the inherent capability of the manufacturer to produce products which 
have an expected service life of 30 years.
    (ii) For initial acceptance the manufacturer shall:
    (A) Submit an original signature certification that the product 
complies with each section of the specification;
    (B) Provide qualification test data;
    (C) Provide OSHA Material Safety Data Sheets for the product;
    (D) Provide a detailed explanation concerning the intended use and 
capacity of the product;
    (E) Provide a complete set of instructions, recommendations for 
equipment organization and splicing;
    (F) Agree to periodic plant inspections;
    (G) Provide a certification that the product does or does not comply 
with the domestic origin manufacturing provisions of the ``Buy 
American'' requirements of the Rural Electrification Act of 1938 (52 
Stat. 818);
    (H) Provide user testimonials concerning field performance of the 
product;
    (I) Provide product samples if requested by RUS; and
    (J) Provide any other data required by the Chief, Outside Plant 
Branch (Telephone).
    (iii) Each requirement of this section must be addressed in 
submissions for acceptance. The designation N/A may be entered when the 
requirements do not apply.
    (iv) Acceptance requests should be addressed to: Chairman, Technical 
Standards, Committee ``A'' (Telephone), Telecommunications Standards 
Division, Rural Utilities Service, Washington, DC 20250-1500.
    (d) Functional design criteria for housings--(1) General 
requirements. (i) The functional requirements for housings concern 
materials, finishes, environmental factors, and design features that are 
applicable to most above ground housings used in the outside plant.
    (ii) Housings shall be of sufficient size to permit easily managed 
installation, operational, testing, and maintenance operations. The 
general shape of outside plant housings is usually comparable to that of 
a rectangular column or cylinder, with the shape of any particular 
housing being left to the manufacturer's discretion. Each design is 
subject to acceptance by RUS.

[[Page 836]]

    (2) Housing types and capacities. (i) Housings used in outside plant 
are either the smaller housings generally known as pedestals or larger 
housings known as equipment or splice cabinets. Both categories may have 
designs intended for stake mounting, pole mounting, or pad mounting.
    (ii) The classifications of pedestals are the general purpose 
channel Type (H) and the dome Type (M). The Type H pedestal has either 
front only access or back and front access while the Type M pedestal has 
top only access. Pedestals are further designated as follows:

------------------------------------------------------------------------
                                                          Pole mounted  
  Stake mounted           Type          Pole mounted      (extra high)  
------------------------------------------------------------------------
BD3                H                  BD3A                              
BD4                H                  BD4A                              
BD5                H                  BD5A                              
BD7                H                  BD7A                              
BD14               M                  BD14A             BD14AG          
BD15               M                  BD15A             BD15AG          
BD16               M                  BD16A             BD16AG          
------------------------------------------------------------------------

    (iii) The minimum volume associated with the pedestal designations 
shall be as shown in the following table:

------------------------------------------------------------------------
                                                      Minimum volume    
                                                 -----------------------
        Pedestal \1\  housing designation            Cubic       (Cubic 
                                                  centimeters   Inches) 
                                                     cm \3\     (in.\3\)
------------------------------------------------------------------------
BD3, BD3A  \2\ .................................       9,000       (550)
BD4, BD4A \2\ ..................................      15,000       (900)
BD5, BD5A \2\ ..................................      35,000     (2,100)
BD7( \2\ )......................................      72,000     (4,400)
BD14, BD14A, BD14AG \3\ ........................       9,000       (550)
BD15, BD15A, BD15AG \3\ ........................      27,000     (1,600)
BD16, BD16A, BD16AG \3\ ........................      38,000    (2,300) 
------------------------------------------------------------------------
Note 1: Housings designed for unique purposes will be evaluated on a    
  case-by-case basis.                                                   
Note 2: For Type H pedestals, the minimum volume is that space as       
  measured 5 centimeters (cm) (2 inches (in.)) below the top of the     
  housing to a point 40 cm (16 in.) above the bottom of the lower cover 
  plate.                                                                
Note 3: The minimum volume of the Type M pedestals shall be the space   
  within the dome measured from the lower edge of the dome to a point 5 
  cm (2 in.) from the top.                                              

    (iv) Equipment cabinets intended for use as SAI housings shall be 
assigned size designations according to their maximum pair termination 
capacities. The capacity will vary depending on the type of terminating 
equipment used. SAI cabinets shall be suffix designated with an ``A'' 
for pole mounting, ``X'' for pad mounting, and ``S'' for stake mounting.
    (v) Large pair count splice cabinets are classified according to 
their splice capacity. Approximately 48 cm\3\ (3.0 in.\3\) of splice 
area per pair straight spliced shall be permitted.
    (vi) The minimum volume associated with large pair count splice 
cabinets shall be as shown in the following table:

------------------------------------------------------------------------
                                             Minimum volume      Maximum
                                        -----------------------  splice 
     Splice cabinet \1\ designation                             capacity
                                          (cm.\3\)   (in.\3\)    (pairs)
------------------------------------------------------------------------
BD6000                                     295,000    (18,000)     6,000
BD8000                                     393,000    (24,000)     8,000
BD10000                                    491,000    (30,000)    10,000
------------------------------------------------------------------------
Note 1: Additional sizes of splice cabinets shall be considered by RUS  
  on a case-by-case basis.                                              

    (3) Design and fabrication requirements for housings. (i) Type H 
pedestal housings may consist of an enclosed channel incorporating an 
integrally mounted stake that serves as a backplate, or they may be 
designed for universal mounting on stakes or poles. The body of the 
housing shall have two major components; an upper cover and a base 
cover. The upper cover shall have a top, front and back plate with the 
front cover removable to permit entry and provide increased work space. 
The base cover shall consist of a front plate and back plate. The base 
cover back plate may be an extension of the upper back plate cover.
    (ii) Type M pedestal housings shall consist of a one piece upper 
sleeve designed to fit over the base cover trapping air to prohibit 
water from entering the splice area when installed in locations prone to 
temporary flooding. Pedestals designed to be mounted extra high on poles 
for locations susceptible to deep snow shall have a bottom close-off 
option available to prohibit the ingress of birds, rodents and insects.
    (iii) The external housing components on all outside plant housings 
shall provide reasonable protection against accidental removal or 
vandalism. Housings shall be equipped with a cover plate retaining bolt 
and cup washer that may be opened only with an industry accepted socket 
type can wrench. Housings may be equipped with provisions to allow the 
purchaser to install a padlock.
    (iv) Installed housings shall resist the disassembling force of 
frost heaving applied to the bottom of ground line cover plates. The 
base cover must

[[Page 837]]

remain stationary to stabilize the contents of the housing cavity.
    (v) In an effort to provide protection against dust penetration, 
blowing snow, rain, and ultraviolet light degradation of internal 
components, all mechanical gaps shall be restricted. The use of seals, 
overlaps, gaskets, and/or dovetailing is required to assure satisfactory 
protection of housed equipment.
    (vi) Knockouts, cutouts, or notches designed to accommodate aerial 
service drops shall not be permitted. A design option for housings 
intended to accommodate service drops shall include a separate channel 
or equivalent in the base cover to allow future additions of service 
drops without the removal of gravel or the moisture barrier in the base 
of the housing. Service wire channels must be designed to prevent the 
entry of birds, reptiles, rodents and insects.
    (vii) Minimal venting of SAI housings may be necessary to relieve 
internal pressure and condensation.
    (viii) There shall be no aluminum housing components that will 
become buried in the soil when the housing is properly installed.
    (ix) Housing components may be assembled using rivets, welds, glue, 
bolts and nuts, or other techniques suitable for the materials involved.
    (x) Housings and their components that require field assembly must 
be capable of being assembled with tools normally available to outside 
plant technicians.
    (xi) Hinged doors on SAI housings and large pair count splice 
housings shall be equipped with a device that restrains the doors in the 
open position.
    (xii) Outside plant housings shall be free of sharp edges, burrs, 
etc., that could present a safety hazard to personnel involved in 
installation and use of the product or to the general public. Surfaces 
inside housings must not allow pinching of conductors during 
installation of cover plates or the opening and closing of doors.
    (xiii) A ground line mark shall be provided, approximately 15 cm (6 
in.) below the top edge of the housing base cover plate on housings 
intended for ground level mounting. Base cover plates shall have a 
minimum height of 31 cm (12 in.).
    (xiv) Any housing, which weighs in excess of 91 kilograms (kg) (200 
pounds (lb)), including its contents, shall be equipped with lifting 
brackets for attaching hoisting cables or chains.
    (xv) Housing stakes shall be a minimum of 107 cm (42 in.) in length. 
If fabricated from steel, they shall have a minimum thickness of No. 13 
gauge as measured according to American Society for Testing and 
Materials (ASTM) A 525-91b. Stakes shall be formed into a ``U'' channel 
with a minimum depth of 2 cm (0.75 in.). The stake shall be a single 
part of suitable design strength for driving 91 cm (36 in.) into the 
soil with hand tools without damage such as bending or warping. The 
stake shall have adequate mounting holes having a minimum separation of 
15 cm (6 in.) for mounting the housing baseplate. The stake material 
must resist corrosion and deterioration when exposed to soil and 
atmospheric conditions.
    (xvi) The housing design must permit a logical progression of 
installation steps that would normally be encountered in typical field 
installations.
    (xvii) Provisions for attaching housings to stakes, poles, walls, 
other housings, or pads shall be provided for each design intended for 
those purposes. Locations of holes for mounting attachments may be 
provided by knockouts on above ground components. Mounting hole 
locations for below ground components may be predrilled.
    (xviii) Pole mounting hardware shall provide at least 1.3 cm (0.5 
in.) clearance from the pole to the housing. Pole mounting brackets 
shall accommodate the wide range of pole sizes used in the telephone 
industry.
    (xix) Pad-mounted housings shall have hardware available for 
anchoring the housing base to the pad. A template may be provided to 
assist in the location of mounting attachment details for pad 
preparation.
    (xx) Housings equipped with stub cables shall have strain relief 
devices to permit shipping and handling of the housing without damage to 
the housing or stub cables. Only RUS accepted cable shall be used for 
stub cables. The cable manufacturer's recommendations

[[Page 838]]

concerning minimum bend radius shall be observed. The minimum bend 
radius for most copper cables is 10 times the cable diameter.
    (xxi) Cable supports shall be provided near the top of the ground 
line cover and other appropriate locations within the housing to provide 
cable stability consistent with the intended use and capacity of the 
housing. Cable supports shall be capable of holding a minimum load of 23 
kg (50 lb).
    (xxii) An adequate supply of nonmetallic retainer clips or tie wraps 
capable of supporting a minimum load of 23 kg (50 lb) shall be provided 
with the housing. Adequate spaces for installation of the clips or tie 
wraps must be provided on the housing backplate and cable supports.
    (xxiii) Housing chambers designed for splicing operations shall be 
equipped with insulated supporting straps or rods suitable for 
supporting splice bundles. The insulation on the straps or rods shall 
extend for the entire length of the device and shall have a dielectric 
strength of 15 kilovolts (kv) direct current (dc) minimum. Housings 
having an ``H'' frame design where both front and rear covers may be 
removed may incorporate insulated tie bars to be used as cable supports.
    (xxiv) Housings designed to contain equipment in addition to splices 
shall be equipped with a device for physically separating the splice 
area from the service area of the housing.
    (xxv) A dielectric shield rated at 15 kv dc shall be provided to 
enclose the cable splice area. The shield shall extend from the lower 
cable supports to within 2.5 cm (1 in.) of the top of the housing. The 
shield shall be equipped with Velcro or equivalent fastening devices 
designed to hold the shield in both the open or closed positions. The 
fastening devices shall extend along the entire vertical edge of the 
dielectric shield.
    (xxvi) Mounting arrangements for a variety of terminal blocks and 
other equipment shall be provided by means of good housekeeping panels 
or other devices that may enhance the service aspect of the housing.
    (xxvii) Housings designed for SAI cabinets may be shipped with 
terminal blocks installed and stub cables attached. If this option is 
exercised, the stub cables and terminal blocks must be RUS accepted. In 
all cases, SAI cabinets must be equipped with appropriate mounting 
devices for installing the peripheral equipment required for a serving 
area interface.
    (xxviii) SAI cabinets shall be designed to provide physical 
separation between the splicing area and the area provided for running 
cross-connect jumpers.
    (xxix) SAI cabinets and large splice housings must have an external 
feature for attaching a padlock to prevent unauthorized entry.
    (xxx) Each housing shall have a tinned or zinc electroplated copper 
alloy or equivalent connector plate or bar to be used for terminating 
ground and cable shield bond connections. The device shall be equipped 
with captive studs and nuts with captive lock washers designed for 
attaching 6 American Wire Gauge (AWG) copper bonding harness wire or 
braid and a 6 AWG copper ground wire. Connector plates shall be equipped 
with enough studs and nuts to provide individual connections equivalent 
to the maximum number of cable sheaths recommended for the housing. 
Housings shall incorporate design features that enable the field 
installation of at least one additional connector plate for service 
conditions that require numerous connections. A bonding and grounding 
system capable of providing support and strain relief for service wires 
shall be provided for housings intended for use as distribution points. 
The bonding system shall be designed to provide sheath continuity as 
cable and service wires are installed, and prior to any other operation 
being performed. The bonding arrangement shall provide electrical 
continuity between all bonds and the ground connector plate. The bonding 
and grounding arrangement shall permit the lifting of individual cable 
ground connections for testing and cable locating activities without 
jeopardizing the grounding potential of other cables that may enter the 
housing. The bonding and grounding system shall be capable of conducting 
a current of 1000 amperes for at least 20 seconds.

[[Page 839]]

    (4) Warning sign. (i) A buried cable warning sign shall be securely 
attached to the outside of each housing. The lettering information on 
the sign shall be permanent.
    (ii) For pedestals, the sign shall be centered horizontally on the 
front cover and the top of the sign shall be not more than 10 cm (4 in.) 
from the top of the housing.
    (iii) For SAI cabinets, the sign shall be centered horizontally and 
vertically on the door. If there are two doors, the sign shall be 
mounted on the left door.
    (iv) Deviations from warning sign location requirements are 
permitted only for housing design constraints. Alternate sign locations 
will be considered by RUS.
    (v) The RUS standard sign design is shown in Figure 1.
    (5) Housing materials. (i) Materials used in housings shall present 
no environmental or safety hazard as defined by industry standards or 
Federal, State, or local laws and regulations. Figure 1 is as follows:

[[Page 840]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.000



[[Page 841]]

    (ii) All materials are required to have fire resistance ratings 
consistent with recognized industry standards. External materials must 
be flame resistant.
    (iii) All materials used in the manufacture of housings or component 
parts must achieve the required strength properties, resist 
deterioration when exposed to outdoor conditions, and be acceptable to 
RUS for the specific application. New materials or materials not 
familiar to the RUS staff shall be supported by test and performance 
data which demonstrates their suitability for the intended use.
    (iv) Nonmetallic housing materials shall have a fungus growth rating 
no greater than one according to ASTM G 21-90.
    (v) Metallic components shall be either corrosion resistant or 
protected against corrosion and must not produce galvanic corrosion in 
wet or humid conditions on other metals that may be present in the 
housing environment.
    (vi) Mill galvanized steel used in the manufacture of housings shall 
comply with the appropriate requirements of one of the following 
standards:
    (A) ASTM A 109-91;
    (B) ASTM A 366/A 366M-91;
    (C) ASTM A 525-91b; or
    (D) ASTM A 526/A 526M-90.
    (vii) Hot rolled steel shall comply with the appropriate 
requirements of one of the following standards:
    (A) ASTM A 569/A 569M-91a; or
    (B) ASTM A 621/A 621M-92.
    (viii) Cold rolled steel shall comply with the appropriate 
requirements of one of the following standards:
    (A) ASTM A l09-91; or
    (B) ASTM A 366/A 366M-91.
    (ix) Steel parts used for internal housing brackets shall be 
hexavalent chromate coated or zinc plated in accordance with ASTM B 633-
85.
    (x) Hardware items used for assembling or fastening housing 
components shall be 300 series or passivated 400 series stainless steel 
or hot dip galvanized in accordance with ASTM A l53-82 (1987). Other 
materials will be considered by RUS on an individual basis.
    (xi) Aluminum components shall be fabricated from alloy types 5052 
or 6061 or other types that have been recognized as having acceptable 
corrosion resistance and formability and weldability features.
    (xii) Nonmetallic parts must be resistant to solvents and stress 
cracking and shall be compatible with metals and other materials such as 
conductor insulations and filling compounds used in the manufacture of 
cable. Plastic materials must be noncorrosive to metals and resist 
deterioration when exposed to industrial chemical pollutants, ultra-
violet rays, road salts, cleaning agents, insecticides, fertilizers, or 
other detrimental elements normally encountered in the outdoor 
environment.
    (xiii) Housing door seals and gaskets may be manufactured from 
rubber or synthetic rubber-like elastomer materials. Seals and gaskets 
shall exhibit a high degree of weatherability with an effective life of 
at least 30 years in the outdoor environment. The material shall be tear 
resistant and have a low compression set.
    (6) Housing finish requirements. (i) All interior and exterior 
surfaces of housings shall be free from blisters, wrinkles, cracks, 
scratches, dents, heat marks, and other defects.
    (ii) There shall be inherent design provisions to prevent 
objectionable deterioration of the housing such as rusting, exposure of 
fiber or delamination. Secondary protection, such as galvanizing over 
steel per ASTM A 526/A 526M-90 or anodizing over aluminum, shall be 
provided to ensure reliability over the projected 30 year design life of 
the housing.
    (iii) Painted metal housings shall have a minimum gloss of 60 
(60 deg. specular) in accordance with ASTM D 523-89.
    (iv) All painted surfaces shall have a uniform color and texture in 
accordance with ASTM D 3928-89. Nonmetallic housings shall meet 
recognized industry standards concerning optical appearance for gloss 
and haze as applicable for the material.
    (v) The colors of housings that RUS will consider for acceptance 
shall be as follows:

------------------------------------------------------------------------
                Color                              Standard             
------------------------------------------------------------------------
Gray-Green..........................  Munsell 6.5 GY 6.03/1.6           
                                      Munsell 4.4 GY 6.74/1.5           
Green...............................  Munsell 8.8 G 2.65/5.3            
Orange..............................  Federal Standard 595A             
                                      Color Number l2246                

[[Page 842]]

                                                                        
                                      Munsell 0.15YR 5.26/13.15         
Chocolate...........................  Munsell 5.27YR 2.40/2.60          
                                      Color Number 835                  
------------------------------------------------------------------------

    (7) Installation requirements. (i) The design of the housing must 
provide for a logical and normal installation sequence, i.e., 
excavation, installation of a foundation or base and anchoring devices, 
addition of hardware, installation and bonding of cables, splicing, 
addition of service, and final closing.
    (ii) No special tools or equipment other than that usually carried 
by outside plant technicians and construction crews must be required for 
installation of the housing. Security devices are the exception to this 
requirement.
    (iii) Installation hardware shall maintain housings in an erect and 
stable position when subjected to normal storm loads. Pad-mounted 
designs must accommodate precast or cast-in-place reinforced concrete or 
other suitable prefabricated material. Brackets, inserts for fastening, 
conduit openings, or other items necessary for a pad-mounted 
installation must be provided. The manufacturer shall provide detailed 
drawings or a template for locating inserts, conduit openings, or slots 
for cast-in-place pad construction.
    (e) Performance criteria and test procedures for housings--(1) 
General information. (i) The housing manufacturer shall perform adequate 
inspections and tests to demonstrate that housings and housing 
components comply with RUS requirements.
    (ii) Testing shall be performed at a room temperature of 
243  deg.C (755  deg.C). Temperatures for 
testing performed at other than room temperature shall be determined as 
near the center of the product under test as practical.
    (2) Description of test housing. (i) Each distinctly designed and 
configured family of housings intended to perform a particular function 
shall be tested.
    (ii) The typical test sample shall consist of the exterior housing 
components such as covers, backplates, good housekeeping panels, cap 
assembly, anchor posts, decals, etc. Interior components must include 
the bonding and grounding hardware for cables and service wires and the 
dielectric shield. The housing may include terminal blocks or cross-
connect modules, cable splices, or the typical outside plant equipment 
the housing is designed to contain and protect.
    (3) Environmental requirement for housings--(i) Thermal shock. The 
test housing shall be placed in a test chamber and exposed to the 
temperature cycle of Figure 2 for five complete cycles. The step 
function nature of the temperature changes may be achieved by insertion 
and removal of the test housing from the chamber. The soak time at each 
temperature shall be four hours. The housing shall be removed from the 
test chamber at the conclusion of the five-cycle period. After the test 
housing temperature has stabilized to room temperature, the housing must 
be inspected for deterioration of materials and satisfactory operation 
of mechanical functions. Figure 2 is as follows:

[[Page 843]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.001



[[Page 844]]

    (ii) Thermal shock and humidity. The test housing shall be placed in 
an environmental test chamber at 95  3 percent (%) relative 
humidity (RH) and temperature cycled per Figure 3 for a period of 30 
days. At the end of the test there shall be no rust or corrosion of any 
closure components. Minor corrosion due to surface scratches, nicks, 
etc. is permitted. If the closure is made of a nonmetallic material, 
there shall be no signs of degradation. Figure 3 is as follows:

[[Page 845]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.002



[[Page 846]]

    (iii) Humidity and condensation. Test panels shall be placed in an 
environmental chamber and subjected to 1,008 hours (42 cycles) of 
exposure per ASTM D 2247-92. One cycle consists of 24 hours of 100% 
humidity (with condensation on the panels) at a cabinet temperature of 
381  deg.C (1002  deg.F) and an ambient 
temperature of 251  deg.C (772  deg.F) without 
heat input. Upon completion of cycling, the test panels shall be 
subjected to an 11 newton-meter (N-m) (100 pound-inches (lb-in.)) impact 
test using the Gardner-Impact Tester or equivalent. Test panels shall 
show no substrate or coating cracking or loss of coating adhesion on 
either side.
    (iv) Weatherability. Three test panels shall be tested for 
weatherability in accordance with the appropriate procedures of either 
ASTM D 822-89 or ASTM G 23-90. Total exposure time shall be a minimum of 
800 hours. Failure is defined as fading, cracking, blistering, or 
delamination on any of the three test panels.
    (v) Low temperature durability. Low temperature durability shall be 
proven by exposing the three test panels from (e)(3)(iv) of this section 
to at least 25 continuous cycles of the following test sequence:
    (A) To insure complete saturation of the three test panels, soak 
them for 96 hours in a container of distilled water 222 
deg.C (71.64  deg.F);
    (B) Lower the temperature of the water and the immersed test panels 
to -282  deg.C (-18.44  deg.F) and stabilize for 
24 hours;
    (C) Thaw the water with the samples to 222  deg.C 
(71.64  deg.F) and stabilize for 24 hours;
    (D) Repeat the procedure 24 times. Any cracking, crazing, deforming, 
or delaminating on any of the three test panels shall be considered a 
failure; and
    (E) Remove the samples from the water and impact test the three 
panels by delivering a force of 11.3 N-m (100 lb-in.) using a Gardner-
Impact Tester to each specimen at 71, 22, and -282  deg.C 
(159.8, 71.6, and -18.44  deg.F), after stabilizing them at 
those temperatures for at least two hours. Visual inspection shall 
reveal no deformation or perforations on any of the test panels.
    (vi) Corrosion resistance. Corrosivity shall be tested in accordance 
with the requirements of ASTM B 117-90. Both scribed and unscribed 
panels shall be evaluated following the procedures of ASTM D 1654-92. 
Scribed panels shall have a rating of at least six, following 500 hours 
of exposure to salt fog, and the unscribed panels shall have a rating no 
lower than 10, after 1,000 hours exposure. Visual rust inspection shall 
confirm no more than 0.03% rusting (rust grade 9) of the surface area of 
the test sample when evaluated in accordance with ASTM D 610-85(1989). 
The unscribed samples shall be impacted with an 11.3 N-m (100 lb-in.) 
force, using a Gardner-Impact Tester or equivalent. Visual inspection of 
the impacted samples shall reveal no loss of adhesion between the base 
material and the coating or cracking at the finish on the test panels.
    (vii) Fungi resistance. Fungi resistance of nonmetallic housing 
materials shall be tested according to the procedures of ASTM G 21-90. 
Any rating greater than one shall be considered a failure.
    (viii) Stress crack resistance. The stress cracking characteristics 
of nonmetallic housing components shall be tested in accordance with 
ASTM D 1693-70 (Reapproved 1988). The tests shall be performed at 
492\1/2\ C (1204\1/2\ F) for 14 days and exposed 
to the following materials:
    (A) Industry recognized filling compounds;
    (B) Isopar M;
    (C) Industry recognized solvents;
    (D) Industry recognized encapsulants; and
    (E) Commonly used insect, pest, and weed control products and 
agricultural fertilizers.
    (ix) Chemical resistance. (A) Chemical resistance shall be 
determined by immersing representative nonmetallic material samples in 
each of the following solutions for 72 hours at 222  deg.C 
(71.64  deg.F):
    (1) 3% sulfuric acid;
    (2) 100 parts per million (ppm) trichloroethane in water;
    (3) 0.2 N sodium hydroxide; and
    (4) Unleaded high octane gasoline.
    (B) There shall be no swelling, deformation, or softening of the 
material

[[Page 847]]

samples or any discoloration of the solution.
    (x) Ultraviolet resistance. Test panels of metallic and nonmetallic 
outer housing materials shall be subjected to 700 hours exposure per 
ASTM D 2565-92 using the type BH apparatus. The panels shall not exhibit 
fading, blistering, checking, or delamination.
    (xi) Weathertightness. The housing shall be mounted in its typical 
field installation position and sprayed with water. The temperature of 
the water shall be adjusted to be equal to or warmer than the 
temperature of the cabinet interior to avoid the possibility of 
condensation. A water spray head shall be used to direct water at the 
housing so that the water stream will strike the assembly at a downward 
angle of 45 degrees. The flow of the water shall be 3.8 liters per 
minute (one gallon per minute), with 276 kilopascals (40 pounds per 
square inch) head of pressure. The spray head shall be held 1.8 meters 
(m) (6 feet (ft)) from the test cabinet. The spray head shall be 
adjusted so that water impinges uniformly over the housing surface. The 
duration of the test shall be five minutes. All vertical cabinet 
surfaces shall be tested by this procedure. The exterior of the cabinet 
shall be thoroughly dried with towels (no heat drying) prior to 
examination of the housing interior. The interior of the housing shall 
be checked for presence of water. Wetting of over-lapping surfaces is 
permitted. There shall be no presence of water inside the housing.
    (xii) Wind Resistance. (A)(1) Stub pole or wall mounted SAI and 
large pair count splice housings shall be subjected to a load (F) as 
shown in Figure 4 and the following table to simulate the turning moment 
equivalent to a uniform wind load of 161 kilometers per hour (km/h) (100 
miles per hour (mi/h)) perpendicular to the largest surface area.

------------------------------------------------------------------------
                                                             Load       
 Maximum area of largest surface square centimeters  -------------------
            cm 2  (Square inches) (in.2)                 kg       (lb)  
------------------------------------------------------------------------
5,200 (800) or less.................................        18      (40)
5,201 to 9,100 (801 to 1,400).......................        32      (70)
9,101 to 13,000 (1,401 to 2,000)....................        45     (100)
13,001 to 16,200 (2,001 to 2,500)...................        57    (125) 
------------------------------------------------------------------------
Note: The procedures for housings with larger surface area will be      
  evaluated by RUS on a case-by-case basis.                             

    (2) The housing shall remain in its original mounting position 
throughout the test and exhibit no mechanical deformation.
    (3) Figure 4 is as follows:

[[Page 848]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.003



[[Page 849]]

    (B)(1) Pad or ground mounted SAI or splice housings shall be 
subjected to a load (F) as shown in Figure 5 and the following table to 
simulate the overturning moment equivalent to a uniform wind load of 161 
km/h (100 mi/h) perpendicular to the largest surface area.

------------------------------------------------------------------------
                                 Maximum area of            Load        
       Height cm (in.)         largest surface cm2 ---------------------
                                     (in.2)             kg        (lb)  
------------------------------------------------------------------------
122 (48) or less............  11,000 (1,700) or            91      (200)
                               less.                                    
                              11,001-13,000 (1,701-       104      (230)
                               2,000).                                  
                              13,001-14,900 (2,001-       118      (260)
                               2,300).                                  
123-152 (49-60).............  11,700 (1,800) or            91      (200)
                               less.                                    
                              11,701-14,300 (1,801-       109      (240)
                               2,200).                                  
                              14,301-16,200 (2,201-       127      (280)
                               2,500).                                  
                              16,201-18,800 (2,501-       145      (320)
                               2,900).                                  
                              18,801-20,800 (2,901-       163      (360)
                               3,200).                                  
                              20,801-23,400 (3,201-       181      (400)
                               3,600).                                  
153-183 (61-72).............  14,300 (2,200) or           109      (240)
                               less.                                    
                              14,301-16,900 (2,201-       127      (280)
                               2,600).                                  
                              16,901-19,500 (2,601-       150      (330)
                               3,000).                                  
                              19,501-22,700 (3,001-       172      (380)
                               3,500).                                  
                              22,701-25,300 (3,501-       190      (420)
                               3,900).                                  
                              25,301-27,900 (3,901-       213     (470) 
                               4,300).                                  
------------------------------------------------------------------------
Note: The procedures for housings with larger surface areas will be     
  evaluated by RUS on a case-by-case basis                              

    (2) The housing shall remain in its original mounting position 
throughout the test and exhibit no mechanical deformation.
    (3) Figure 5 is as follows:

[[Page 850]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.004



[[Page 851]]

    (xiii) Fire resistance. (A) The test housing shall be installed in a 
manner typical of field installation. U.S. No. 1 wheat straw shall be 
placed on the ground around the housing base in an one meter (3 ft) 
radius at an approximate depth of 10 cm (4 in.). The straw shall be 
ignited and permitted to burn fully. After the housing has cooled, its 
contents shall be inspected for evidence of ignition, melting, burning, 
or structural damage. Damage sufficient to impair service constitutes 
failure.
    (B) Polymeric materials shall be tested in accordance with the 
Underwriters Laboratories Publication (UL) 94, dated June 18, 1991. 
Materials used in housing components shall have a rating of 94V-0 or 
94V-1 and shall not sustain combustion when an open flame source is 
removed.
    (4) Mechanical requirements for housings--(i) Impact resistance. The 
test housing shall be subjected to the following impacts according to 
its minimum volume or minimum width and depth as shown in the following 
table:

------------------------------------------------------------------------
                                                           Impact force 
    Minimum volume cm3 (in.3)        Minimum width or   ----------------
                                      depth cm (in.)       N-m   (lb-ft)
------------------------------------------------------------------------
Less than 35,000 (2,100).........  Less than 13 (5)....      68     (50)
35,000 (2,100) or greater........  13 (5) or greater...     136    (100)
------------------------------------------------------------------------

    (A) The impact force shall be delivered to the front, back, and top 
surfaces. Circular housings shall be impacted on side surfaces 180 deg. 
apart and on the top. The device used to deliver the force shall be 
spherical and approximately 25 to 31 cm (10 to 12 in.) in diameter. A 
typical test procedure may include the use of a hard rubber bowling 
ball, weighing 6 to 7 kg (13 to 16 lb), enclosed in a mesh bag, attached 
to a rope with a metal ring. The load shall be dropped vertically on the 
top surface and applied to the sides with a pendulum motion using the 
appropriate height and extension arm to achieve the required impact 
force. The housing must be impacted at the approximate mid-point of the 
surface area.
    (B) Housings shall be conditioned for a minimum of eight hours at 
-40 deg.C (-40 deg.F) in an environmental chamber prior to testing. If 
the chamber is insufficient in size to conduct tests within the chamber, 
the housing may be removed and shall be tested within 10 minutes after 
removal.
    (C) After impact testing, the housing shall not exhibit fractured or 
ruptured surfaces sufficient to allow the ingress of moisture or dust. 
The housing shall not exhibit mechanical damage that would impair the 
functioning of hinges, latches, locks, etc.
    (ii) Load deflection. Free standing buried plant housings shall be 
tested for load deflection in accordance with Figure 6. The assembled 
housing shall be rigidly held in place by a mechanical means to simulate 
a normal field installation. A length of wire or cable, or other 
suitable material, shall be placed around the top section of the housing 
and deadended. The wire or cable shall be initially tensioned to 23 kg 
(50 lb). A measurement shall then be taken of the deflection of the 
housing at the top as shown in Figure 6. The deflection shall be 
recorded at incremental loads of 23 kg (50 lb) until destruction of the 
housing occurs. The average load for the three directions shall not be 
less than 136 kg (300 lb) and the minimum load in any direction shall be 
113 kg (250 lb). Failure is defined as housing component fracture or 
crazing of the housing's surface finish. Figure 6 is as follows:

[[Page 852]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.005



[[Page 853]]

    (iii) Vibration requirements. The test housing and its contents 
shall be subjected to acceleration at a sine wave frequency sweep rate 
as shown in Figure 7 for a housing packaged for shipment and Figure 8 
for an unpackaged housing. The frequency sweep may be performed 
continually or sequentially. The test shall be conducted once along each 
of three mutually perpendicular axes of the housing. There shall be no 
mechanical or electrical degradation of the housing or its contents. 
Noticeable damage to the housing constitutes failure. Figure 7 and 
Figure 8 are as follows:

[[Page 854]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.006



[[Page 855]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.007



[[Page 856]]

    (iv) Drop test requirements. Housings shall be subjected to 
appropriate drop tests according to their weight. The drop tests shall 
be performed on housings and their contents as normally packaged as well 
as on unpackaged housings. The tests shall be conducted on a smooth 
level concrete floor or similar unyielding surface. For corner drops, 
the packaged housing and its contents shall be oriented at impact such 
that a straight line drawn through the struck corner and package 
geometric center is approximately perpendicular to the impact surface.
    (A) Packaged housings and their contents weighing 91 kg (200 lb) or 
less shall be capable of enduring a single drop on each face or corner 
without damage from a height specified as follows:

------------------------------------------------------------------------
                                                                  Drop  
      Packaged housing including contents weight kg (lb)       height cm
                                                                 (in.)  
------------------------------------------------------------------------
0 to 9 (0 to 20).............................................    76 (30)
10 to 23 (21 to 50)..........................................    61 (24)
24 to 45 (51 to 100).........................................    53 (21)
46 to 91 (101 to 200)........................................    46 (18)
------------------------------------------------------------------------

    (B) Packaged housings and their contents weighing more than 91 kg 
(200 lb) shall be capable of enduring a single drop on each of two 
diagonally opposite corners of the package without significant damage 
from a height specified as follows:

------------------------------------------------------------------------
                                                                  Drop  
      Packaged housing including contents weight kg (lb)       height cm
                                                                 (in.)  
------------------------------------------------------------------------
92 to 453 (201 to 1000)......................................    30 (12)
Over to 453 (1000)...........................................     15 (6)
------------------------------------------------------------------------

    (1) The packaged housing and contents shall be placed on its normal 
shipping base with one corner supported 15 cm (6 in.) above the floor 
and the other corner of the same end supported 30 cm (12 in.) above the 
floor as shown in Figure 9. The unsupported end of the package shall be 
raised so that the lowest corner reaches the height listed above and 
then allowed to fall freely. Figure 9 is as follows:

[[Page 857]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.008



[[Page 858]]

    (2) The procedure of paragraph (e)(4)(iv)(B)(1) of this section 
shall be repeated for the diagonally opposite corner.
    (3) The packaged housing and contents shall be capable of enduring a 
single drop on each edge of the base of its normal shipping position 
from the required height without damage and shall remain operational 
without function impairment. The packaged housing and contents shall be 
placed on its base with one edge supported on a sill 15 cm (6 in.) high 
and the unsupported edge raised to the required height as shown in 
Figure 10 and allowed to fall freely. Figure 10 is as follows:

[[Page 859]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.009



[[Page 860]]

    (4) The procedure of (e)(4)(iv)(B)(3) of this section shall be 
repeated for all edges of the base.
    (C) Unpackaged housings and their contents weighing 23 kg (50 lb) or 
less shall be capable of enduring a single drop on each face and 
adjacent corners without significant damage from a height specified as 
follows:

------------------------------------------------------------------------
                                                                  Drop  
      Packaged housing including contents weight kg (lb)       height cm
                                                                 (in.)  
------------------------------------------------------------------------
0 to 9 (0 to 20).............................................     10 (4)
10 to 23 (21 to 50)..........................................      8 (3)
------------------------------------------------------------------------

    (D)(1) Unpackaged housings and their contents weighing more than 23 
kg (50 lb) shall be capable of enduring a single drop without 
significant damage when lifted by its normal hoisting supports as shown 
in Figure 11 and with its lowest point at a height specified as follows:

------------------------------------------------------------------------
                                                                  Drop  
      Packaged housing including contents weight kg (lb)       height cm
                                                                 (in.)  
------------------------------------------------------------------------
23 to 45 (51 to 100).........................................      5 (2)
------------------------------------------------------------------------

    (2) Figure 11 is as follows:

[[Page 861]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.010



[[Page 862]]

    (v) Firearms resistance. All housings shall be tested for resistance 
to penetration by direct impact from a 12 gauge shotgun equipped with a 
modified choke and the use of a 3\3/4\ dram equivalent powder charge and 
35 grams #6 lead shot fired from a distance of 15 m (50 ft). The 12 
gauge shotgun shall be fired from a normal standing position at the 
front side of the housing. Penetration through the housing wall by the 
lead shot shall constitute failure.
    (vi) Lifting hardware requirements. The lifting hardware on housings 
and their contents that weigh more than 91 kg (200 lb) shall be tested. 
The housing shall be fastened to a restraining device such as a concrete 
slab and subjected to loading through the lifting attachments to 
simulate the lifting load. For the first test a lifting line equipped 
with a dynamometer shall be attached to the housing lifting hardware and 
a load applied equal to three times the weight of a fully equipped 
housing. Deformation or damage to the housing or lifting hardware 
constitutes failure. A second test shall be conducted with the same 
arrangements as for the first except that a load shall be applied equal 
to six times the weight of a fully equipped housing. There shall be no 
catastrophic failure of the lifting hardware or housing.
    (vii) Stub cable strain relief tests. Housings equipped with cable 
stubs and cable shipping retainer shall be tested by lifting a test 
housing, with the maximum length and weight of cable orderable, in a 
manner causing the full weight of the cable to be supported by the 
cabinet. Examination of the cable sheath after lifting shall reveal no 
tearing, rupturing, or other damage. The cable conductors and shield 
shall be tested for shorts and opens. Electrical defects to the stub 
cable or damage to the housing constitutes failure.
    (viii) Door restrainer evaluation. (A) The housing shall be 
positioned with the door held in the open position by the door 
restraining device. A load, determined in accordance with the following 
table, shall be applied to the center of the door, perpendicular to the 
door and in each of the opening and closing directions.

------------------------------------------------------------------------
                                                               Load  kg 
          Maximum area of door surface cm2 (in.2)                (lb)   
------------------------------------------------------------------------
5,200 (800) or less........................................     72 (160)
5,201 to 9,100 (801 to 1,400)..............................    127 (280)
9,101 to 13,000 (1,401 to 2,000)...........................   181 (400) 
------------------------------------------------------------------------
Note: Test procedures for housings with larger doors will be evaluated  
  by RUS on a case-by-case basis.                                       

    (B) There shall be no functional failure of the restraining device 
nor mechanical damage to the housing.
    (ix) Security evaluation. The security locking device shall be 
capable of withstanding a maximum torque of 2.8 N-m (25 lb-in.) without 
incurring physical damage to the closure, thereby resulting in a 
condition where the closure cannot be either accessed or locked.
    (5) Electrical requirements for housings. Each bonding stud and nut 
location shall be evaluated by attaching one lead from a dc or 
alternating current (ac) power source to a bonding stud with the nut 
torqued as specified by its manufacturer and the other power source lead 
connected to the closure grounding conductor connector. The current path 
thus established must be capable of sustaining a current of 1,000 
amperes root-mean-square for at least 20 seconds without fusing or 
causing any damage to the closure or its contents.
    (6) Finish requirements--(i) Impact resistance. The finish on 
painted metal surfaces shall not exhibit radial cracking on the impact 
surface (intrusion) when indented at 18 N-m (160 lb-in.) with a 1.6 cm 
(0.6 in.) diameter spherical indentor. This test shall be performed in 
accordance with ASTM D 2794-92 with the exception that the test panel 
shall be of the same material, thickness, and finish as the pedestal 
housing being evaluated.
    (ii) Finish adhesion. Painted finishes shall be tested for adhesion 
of finish in accordance with ASTM D 2197-86 (Reapproved 1991), Method A. 
There shall be no gouging in the top coat when tested with an 8 kg (17.7 
lb) load. Gouging is defined as removal or separation of paint particles 
or breaking of the finish by the scraping loop to the extent of exposing 
base metal.
    (iii) Color evaluation. The color of the housing finish should be 
compared against the Munsell system of color notation, as described in 
ASTM D 1535-89

[[Page 863]]

to determine color consistency with that desired.
    (iv) Gloss evaluation. The finish on painted housings shall be 
tested on two approximately 20 cm  x  20 cm (8 in.  x  8 in.) samples 
for each color used in accordance with the procedures of ASTM D 523-89. 
The finish shall have a minimum gloss of 60 (60 deg. Specular).
    (v) Secondary finish evaluation. Evidence of secondary protection 
shall be required for RUS acceptance. Typical secondary protection is 
galvanizing per ASTM A 526/A 526M-90 for steel surfaces.
    (f) Functional design criteria for binding post terminal blocks used 
in SAI cabinets--(1) General description. A conventional binding post 
terminal consists of a metallic element or post, one end of which is 
configured for the permanent connection of 22, 24, or 26 AWG solid 
copper conductors and the opposite end is configured for recurring 
connections and disconnections of solid copper cross-connect wire using 
a threaded screw or stud and nut combination for gripping the wire. The 
terminal is usually housed in a SAI cabinet. However, the terminal may 
receive limited use in smaller pedestal-type housings and pole mounted 
cabinets in the outside plant environment.
    (2) Design and fabrication requirements. (i) Terminal blocks used in 
outside plant housings are expected to perform satisfactorily for a 
nominal design life of 30 years.
    (ii) All individual terminals or terminal fields must be enclosed 
and the terminal enclosure must be totally filled with an encapsulating 
grease or gel which prevents connection degradation caused by moisture 
and corrosion. The encapsulant must provide complete encapsulation of 
terminal metallic connections and surfaces and totally fill all voids 
and cavities within individual terminal enclosures or terminal field 
enclosures to prevent ingress of moisture. The encapsulant must not 
restrict access to the terminal or restrict craft personnel from making 
connections. The encapsulant must be compatible with the standard 
materials used in cross-connect hardware and wiring.
    (iii) Binding post terminals shall not be susceptible to damage 
under normal use of standard tools used by outside plant technicians 
such as screwdrivers and test set clips. In addition, use of other tools 
such as scissors, diagonal cutters and long nose pliers for tightening 
and loosening screws shall not result in damage to the terminal.
    (iv) Terminals shall be designed so that a typical technician using 
customary tools shall be able to terminate cross-connect wire on a pair 
of terminals, or to remove it, without causing an electrical short 
between any two terminals or any other adjacent terminals.
    (v) The terminal count sequence shall be indicated using numerals of 
at least 0.25 cm (0.10 in.) in height.
    (vi) A means shall be provided to distinguish feeder terminals from 
distribution terminals.
    (vii) A means shall be provided to identify tip terminals and ring 
terminals in a terminal field. The identification convention shall 
indicate tip on the left with ring on the right for horizontal spacing 
and tip on the top with ring on the bottom for vertical spacing.
    (viii) The preferred height of the highest terminal in the connector 
field in a ground mounted SAI unit shall be 168 cm (66 in.) or less as 
measured from the top surface of the mounting pad. The bottom or lowest 
terminals in the connector field shall be at least 46 cm (18 in.) from 
the top surface of the pad.
    (ix) Pole mounted aerial units shall be 84 cm (33 in.) or less in 
width. The maximum allowable height of the highest terminals in a pole 
mounted aerial unit is 168 cm (66 in.) as measured from the top surface 
of the standard balcony seat used with the interface. For computation 
purposes, 15 cm (6 in.) shall be allowed for the distance between the 
bottom of the interface and the top of the balcony seat.
    (3) Auxiliary features. (i) SAI cabinets with terminal designs which 
do not permit direct attachment of common test instrument clips to 
terminal pairs without the occurrence of shorts shall be equipped with 
single pair auxiliary test contacts. The auxiliary test contacts shall 
attach to a terminal pair and provide a set of secondary terminals which 
will accept typical test instrument clips without the occurrence of 
shorts. Wire used to connect the

[[Page 864]]

auxiliary test contacts to the secondary terminals shall be 20 gauge 
minimum stranded conductor copper wire with a minimum dielectric 
strength between conductors of 15 kv. The test connector shall be 
functional on all terminal pairs.
    (ii) A 25 or 50 pair test connector shall be available which can be 
used to make reliable electrical contact to terminals associated with 
discrete 25 pair binder groups. The multi-pair test connector shall be 
provided with a minimum of 1.8 m (6 ft) of suitable cabling terminated 
to a connector, for interfacing with test sets common to the industry. 
The multi-pair test connector shall be functional on all terminal 
groups.
    (iii) A special service marker shall be available which must attach 
to a binding post terminal to identify special circuits and insulate 
exposed metal parts from accidental shorts from tools and wires. A 
supply of 25 special service markers shall be provided with each SAI 
cabinet. The color of special service markers shall be red.
    (iv)(A) A supply of twisted pair cross-connect wire shall be 
supplied with housings that are equipped with cross-connect terminals or 
that have provisions for mounting cross-connect terminals. The minimum 
length of cross-connect wire supplied is dependent on the SAI cabinet 
terminal capacity as follows:

------------------------------------------------------------------------
         Cabinet termination capacity (pairs)             Wire length   
------------------------------------------------------------------------
  1 to 600...........................................      60 m (200 ft)
601 to 1200..........................................     120 m (400 ft)
Over 1200............................................     180 m (600 ft)
------------------------------------------------------------------------

    (B) The cabinet shall be equipped to store the length of wire in a 
manner designed for convenient dispensing. The cross-connect wire supply 
shall be easily replaceable.
    (g) Performance criteria and test procedures for binding post 
terminal blocks used in SAI cabinets--(1) General. Many of the tests 
described in this section require that the terminal block be installed 
in an appropriate housing in its typical field configuration.
    (2) Environmental requirements--(i) Insulation resistance/high 
humidity and salt fog exposure. A test specimen shall consist of a 
standard ground or pole mounted housing equipped with a full complement 
of binding post terminals equipped with 25 special service markers. The 
minimum number of terminals to be tested shall be 100 pair (100 tips and 
100 associated rings). The test terminals shall be selected to form a 
terminal array of approximate square dimensions. A 1 cm (36 in.) length 
of cross-connect wire shall be installed on each test terminal. All tips 
shall be joined together and all rings shall be joined together with a 
48 volt dc potential applied as shown in Figure 12 during the high 
humidity/salt fog and simulated rain exposures. The 48 volt dc may be 
temporarily removed from the test samples during the measurement process 
and the ring terminal being measured shall be isolated from the 
remaining ring terminals. The terminal insulation resistance shall be 
measured at a potential of 100 volts dc using suitable instrumentation 
with a minimum measurement range of 10\4\ to 10\12\ ohms. Figure 12 is 
as follows:

[[Page 865]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.011



[[Page 866]]

    (A) High humidity. The test housing shall be placed in an 
environmental test chamber at 953% RH and the temperature 
cycled as shown in Figure 3 in paragraph (e)(3)(ii) of this section for 
a period of 30 days. The cabinet doors shall remain in the fully open 
position. The insulation resistance between the ring terminal of each 
sample and all the common tip terminals shall be measured each 24 hours 
when the temperature is between 38 and 57  deg.C (100 and 135  deg.F) 
and increasing. The minimum insulation resistance when measured in 
accordance with paragraph (g)(2)(i) of this section shall not be less 
than 1 x 106 ohms.
    (B) Salt fog. A test housing with its doors closed shall be placed 
in a salt fog 35  deg.C (95  deg.F) test chamber and exposed to a salt 
fog spray per ASTM B 117-90 for a period of 30 days. The insulation 
resistance should be measured every 24 hours as indicated in paragraph 
(g)(2)(i) of the section and shall not be less than 1 x 106 
ohms. The special service markers shall exhibit no sign of fading, 
corrosion, swelling, warping, running color, or other signs of 
deterioration.
    (ii) Insulation resistance/simulated rain exposure. (A) A test 
housing as described in paragraph (g)(2)(i) of this section shall be 
tested for water infiltration. The test shall be conducted using the 
method described in paragraph (e)(3)(xi) of this section. The cabinet 
doors shall remain closed for the duration of the test. The insulation 
resistance between the ring terminals and the common tip terminals shall 
be measured during and immediately following the spray application as 
indicated in paragraph (g)(2)(i) of this section and shall not be less 
than 1 x 10\6\ ohms.
    (B) With the cabinet doors open, a spray of tap water at a rate of 
3.8 liters per minute (1 gallon per minute) at 276 kilo-pascals (40 
pounds per square inch) shall be directed on the terminal array for a 
period of 1 minute saturating all of the terminals. Following the spray 
application the doors shall be closed. The cabinet shall be maintained 
in a temperature environment of 26 to 28  deg.C (78 to 82  deg.F) at 
953% RH for 6 hours. The insulation resistance shall then be 
measured as specified in paragraph (g)(2)(i) of this section. The 
minimum insulation resistance shall not be less than 1 x 106 
ohms.
    (iii) Contact resistance. A minimum of 100 terminals equipped with 
cross-connect wire that has been installed in a manner typical of that 
used in the industry shall be temperature cycled.
    (A) The test shall consist of eight-hour temperature cycles with 
one-hour dwells at extreme temperatures of
-40  deg.C to +60  deg.C (-40  deg.F to +140  deg.F), and temperature 
changes at an average rate of 16  deg.C (60  deg.F) per hour between the 
extremes. The relative humidity shall be maintained at 953%. 
The eight-hour test shall be conducted for 512 cycles. Millivolt drop 
measurements shall be made initially and after 2, 8, 16, 32, 64, 256, 
and 512 cycles with the samples at room temperature. The resistance 
measurement technique must conform to ASTM B 539-90. The measurement 
method must have an accuracy of at least 30 microohms for 
resistances less than 50 milliohms. The change in contact resistance 
shall not exceed 2 milliohms.
    (B) A minimum of 100 terminals equipped with cross-connect wire 
installed in a manner typical of the industry shall be maintained at 118 
 deg.C (245  deg.F) during the test period, except during disturbance 
measurement periods where each wire connection to the terminals shall 
have a 0.23 kg (0.5 lb) force momentarily applied in a manner to stress 
the connection. Initial millivolt measurements shall be made without 
disturbing the joints in accordance with paragraph (g)(2)(iii)(A) of 
this section with the samples at room temperature. After initial 
measurement each sample shall be disturbed followed by a millivolt drop 
measurement after 1, 2, 4, 8, 16, and 33 days. The change in contact 
resistance should be less than 2 milliohms when compared to the initial 
measurement.
    (iv) Fire resistance. A fully equipped cabinet including a full 
complement of cross-connect jumpers shall be installed in the standard 
field arrangement and tested for fire resistance in accordance with 
paragraphs (e)(3)(xiii) introductory text through (e)(3)(xiii)(B) of 
this section. After cooling, the cabinet, terminals, and associated 
wiring shall be inspected for

[[Page 867]]

signs of ignition, melting, burning, or structural damage of sufficient 
consequences such that the results are service affecting.
    (v) Encapsulant material compatibility. The terminal connection 
encapsulant compound must be compatible with the standard materials used 
in cross-connect hardware and wiring when aged in accordance with ASTM D 
4568-86 at a temperature of 801  deg.C (176 2 
deg.F). The conductor insulation shall retain a minimum of 85% of its 
unaged tensile strength and elongation values. The cross-connect 
hardware shall exhibit no visible material degradation.
    (vi) Encapsulant flow test. Terminal connection encapsulant must 
remain stable at 801  deg.C (1762  deg.F) when 
tested in an environmental chamber. Test specimens shall be suspended in 
a preheated oven over a glass dish or other drip-catching medium for a 
period of 24 hours. At the end of the test period, the glass dish shall 
be examined for evidence of flowing or dripping of encapsulant from the 
cross-connect terminal. More than 0.5 gram of encapsulant in the dish at 
the end of the test constitutes failure.
    (3) Mechanical requirements--(i) Vibration. A test housing equipped 
with a full complement of cross-connect terminals and jumper wiring 
shall be subjected to vibration testing in accordance with paragraph 
(e)(4)(iii) of this section.
    (ii) Torsional capacity of binding posts. The test specimens shall 
consist of the complete binding post terminal consisting of the screw or 
nut, washers if required, and threaded post or stud respectively.
    (A) Test specimens shall include the terminals along the matrix edge 
at mid-span locations as well as centrally located terminals. Tests 
shall be conducted using a torque indicating screwdriver, or wrench, 
with an accuracy of 0.17 N-m (1.5 lb-in.) or 
better. The torque indicating device shall be used to tighten a screw or 
nut until failure of the screw or nut is achieved. Tests shall be 
conducted while the test specimen is stabilized at temperatures of -40 
deg.C, 20  deg.C, and 71  deg.C (-40  deg.F, +68  deg.F, and at +160 
deg.F). Record the torques at terminal failure. At least 10 test 
specimens shall be tested at each temperature. The failure torque shall 
not be less than 2.8 N-m (25.0 lb-in.) for each temperature.
    (B) The post or stud of the binding post terminal shall not fail 
before the screw or nut when increasing torque. The faceplate or 
receptacle restraining the post or stud shall not fail before the screw 
or nut when increasing torque.
    (iii) Lateral loading capacity of binding posts. A minimum of three 
sets of 25 terminals shall be tested with the test specimens stabilized 
at temperatures of -40  deg.C, 20  deg.C and 71  deg.C (-40  deg.F, +68 
deg.F, and 100  deg.F). The test arrangement shall include the terminals 
along the matrix edge at mid-span locations as well as centrally located 
terminals. A force measuring device, such as a dynamometer, shall be 
attached to the end of a binding post terminal and a 16 kg (35 lb) force 
applied orthogonally to the terminal axis in 4 perpendicular directions 
as shown in Figure 13. Permanent deformation in excess of 0.08 cm (0.03 
in.) or any structural damage in either the terminal or faceplate 
constitutes a failure. Figure 13 is as follows:

[[Page 868]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.012



[[Page 869]]

    (iv) Axial pullout resistance. A minimum of three sets of 25 
terminals shall be tested with the test specimens stabilized at 
temperatures of -40  deg.C,
20  deg.C, and 71  deg.C (-40  deg.F, +68  deg.F, and 100  deg.
F). The test arrangement shall include the terminals along the matrix 
edge at mid-span locations as well as centrally located terminals. A 
force measuring device, such as a dynamometer, shall be attached to a 
terminal and a force of 16 kg (35 lb) applied on axis as shown in Figure 
14. There shall be no permanent deformation in excess of 0.08 cm (0.03 
in.), any structural damage, or terminal pull-out in either the terminal 
or the faceplate. Figure 14 is as follows:

[[Page 870]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.013



[[Page 871]]

    (v) Test connector reliability. (A) A single pair connector shall be 
capable of making a minimum of 100 successive connections to binding 
post terminals without the occurrence of an open circuit. The test shall 
include terminals along the matrix edge, center, top, and bottom.
    (B) A multi-pair test connector shall be attached to the binding 
post terminal field and tests for opens between the binding post 
terminals and the test connector shall be conducted. All circuits must 
prove good. The test shall be repeated along the terminal matrix edges, 
center, top, and bottom.
    (vi) Service cycle reliability. A torque indicating device or wrench 
with an accuracy of 0.17 N-m (1.5 lb-in.) or 
better shall be used to tighten the terminal screw or nut as appropriate 
to 1.7 N-m (15.0 lb-in.). The terminal nut or screw is then loosened and 
retightened to 1.7 N-m (15 lb-in.). After 50 repeated connections and 
disconnections, the terminal shall be placed in an environmental chamber 
at 95% RH where the temperature shall be cycled as indicated in Figure 3 
in paragraph (e)(3)(ii) of this section for a duration of 72 hours. The 
terminal shall then be momentarily removed from the chamber and the test 
procedure repeated. After a total of 250 loosening and retightening 
cycles have accumulated, the terminal must be capable of withstanding a 
torque of 1.7 N-m (15 lb-in.).
    (4) Dielectric strength. All housing components in the vicinity of 
unsheathed field cable conductors, unsheathed housing stub cable or 
harness conductors, terminals, or cross-connect wire paths shall have a 
minimum dielectric strength of 500 volts ac to the cabinet grounding and 
bonding bracket. Dielectric strength is tested by connecting one lead 
from a 500-volt ac at 0.5 ampere source to the cabinet ground connector 
and the other lead is passed along the surfaces of all cabinet 
components in the vicinity of unsheathed cable or harness conductors, 
cross-connect wire paths, and in the splice area where unsheathed field 
cable conductors may be located. Sparkover constitutes failure.
    (5) Operational requirements--(i) Durability. In order to verify the 
durability requirements while minimizing the number of test housings 
required to complete the test program, the binding posts selected for 
tests shall be separately identified and then checked to establish 
compliance after the various tests have been conducted.
    (ii) Twenty-five jumper connections shall be made on each of two 
binding post connectors chosen at random from a representative sample in 
an assembled interface unit. After exposure to this test, these and 
adjacent connectors shall be inspected for damage such as cracks or 
chips in metal or plastic parts. Failure consists of structural damage, 
open circuits through the connector, or inability to pass the torsional, 
lateral loading, or axial pullout tests described in paragraphs 
(g)(3)(ii) through (g)(3)(iv) of this section.
    (iii) Select six binding posts at random in a representative 
interface. On each connector, attach any test cord included with the 
unit and then remove the test cord as follows. On binding post sample 1, 
remove the cord normally ten times. On binding post sample 2, remove the 
cord ten times by jerking the test leads straight out. In these and the 
remaining tests, do this without releasing any manual attachment 
mechanisms. On sample 3, remove ten times by jerking downward at 45 deg. 
from horizontal; sample 4, upward at 45 deg. ten times; sample 5, left 
45 deg. ten times; sample 6, right 45 deg. ten times. Check for opens 
and damage in the test cord, clips, and connectors. Failure consists of 
structural damage, open circuits through the connector, or inability of 
the terminal blocks to pass the torsional, lateral loading, axial 
pullout, test connector reliability, or dielectric strength tests 
described in paragraphs (g)(3)(ii) through (g)(3)(v)(B), and paragraph 
(g)(4) of this section.
    (iv) Use craft tools such as scissors, diagonal cutters, and long 
nose pliers to loosen and tighten screws where the binding post design 
does not prohibit the possibility. Failure consists of severe structural 
damage.
    (h) Functional design criteria for insulation displacement type 
cross-connect modules used in SAI cabinets--(1) General

[[Page 872]]

description. Cross-connect modules normally consist of multiple metallic 
contact elements that are retained by nonmetallic fixtures. The contact 
elements are spliced with permanent wire leads compatible for splicing 
to 22, 24, or 26 gauge cable on one side and configured for the 
acceptance of recurring connections and disconnections of plastic 
insulated cross-connect wire on the other side. Cross-connect modules 
are usually housed in a SAI cabinet. However, modules may receive 
limited usage in smaller pedestal-type housings and cabinets in the 
outside plant environment.
    (2) Design and fabrication requirements. (i) All individual 
terminals or terminal fields must be enclosed and the terminal 
enclosures must be totally filled with an encapsulating grease or gel 
which prevents connection degradation caused by moisture and corrosion. 
The encapsulant must provide complete encapsulation of terminal metallic 
connections and surfaces and totally fill all voids and cavities within 
individual terminal enclosures or terminal field enclosures to prevent 
ingress of moisture. The encapsulant must not restrict access to the 
terminal or restrict craft personnel from making connections. The 
encapsulant must be compatible with the standard materials used in 
cross-connect hardware and wiring.
    (ii) The cross-connect module manufacturer shall make available any 
nonstandard tools and test apparatus which are required for splicing, 
placing of jumpers, and the performance of maintenance operations.
    (iii) The module shall be designed so that a typical outside plant 
technician using tools shall be able to terminate cross-connect wire on 
terminals, or to remove them without causing electrical shorts between 
any other terminals.
    (iv) The pair count sequence terminated on a module shall be easily 
visible and shall have numerals of at least 0.25 cm (0.10 in.) in 
height.
    (v) Feeder terminations shall be easily distinguished from 
distribution terminations.
    (vi) Tip and ring terminations shall be easily visible and shall be 
identifiable as described in paragraph (f)(2)(vi) of this section.
    (vii) The preferred locations for cross-connect modules to be 
mounted inside a housing is the same as those for terminals and are 
described in paragraphs (f)(2)(vii) and (f)(2)(viii) of this section.
    (3) Auxiliary features. (i) Housings equipped with cross-connect 
modules shall be equipped with auxiliary test contacts as described in 
paragraphs (f)(3)(i) and (f)(3)(ii) of this section.
    (ii) Special service markers shall be available for cross-connect 
modules as described in paragraph (f)(3)(iii) of this section.
    (iii) Housings equipped with, or designed for, cross-connect modules 
shall contain a supply of cross-connect wire as described in paragraph 
(f)(3)(iv) of this section.
    (i) Performance criteria and test procedures for insulation 
displacement type cross-connect modules--(1) General. Many of the tests 
described in this section require that the cross-connect module be 
installed in an appropriate housing in its typical field configuration 
for testing. Resistance measurements should be made with an electrical 
device which measures changes in resistance for each test parameter 
measured. The tests specified provide an indication of the stability of 
the electrical connections under the test conditions encountered.
    (2) Environmental requirements. (i) A fully equipped arrangement of 
cross-connect modules having approximately 25 special service markers 
shall successfully complete environmental testing in accordance with 
paragraphs (e)(3) introductory text through (e)(3)(xiii)(B) of this 
section.
    (ii) Insulation resistance/high humidity and salt fog exposure. 
Insulation resistance measurements shall not be less than 1 x 10\6\ ohms 
when cross-connect modules are tested by a procedure similar to that 
described in paragraphs (g)(2)(i) introductory text through (g)(2)(i)(B) 
of this section.
    (iii) Insulation resistance/simulated rain exposure. Insulation 
resistance measurements shall not be less than 1 x 10\6\ ohms when 
cross-connect modules are tested by a procedure similar to that 
described in and paragraphs

[[Page 873]]

(g)(2)(ii) introductory text through (g)(2)(ii)(B) of this section.
    (iv) Contact resistance. The change in contact resistance should not 
exceed 2 milliohms when cross-connect modules are tested by a procedure 
similar to that described in paragraphs (g)(2)(iii) introductory text 
through (g)(2)(iii)(B) of this section.
    (v) Fire resistance. A housing fully equipped with cross-connect 
modules and jumper wiring shall be tested for fire resistance by a 
procedure similar to that described in paragraph (g)(2)(iv) of this 
section.
    (vi) Encapsulant material compatibility. Cross-connect wire 
insulation and cross-connect hardware shall exhibit no visible material 
degradation when tested by the procedure described in paragraph 
(g)(2)(v) of this section.
    (vii) Encapsulant flow test. The cross-connect contact encapsulant 
shall drip no more than 0.5 gram when tested by the procedure described 
in paragraph (g)(2)(vi) of this section.
    (3) Mechanical requirements--(i) Vibration. A housing fully equipped 
with cross-connect modules shall be vibration tested in accordance with 
paragraph (g)(3)(i) of this section.
    (ii) Test connector reliability. The test connectors supplied with 
housings intended for cross-connect modules shall successfully complete 
100 successive connections as described in paragraphs (g)(3)(v) 
introductory text through (g)(3)(v)(B) of this section.
    (iii) Service cycle reliability. A combination of multiple 
insertions of jumper wires, vibration, and temperature cycling shall be 
performed on cross-connect modules. The multiple insertions on 
approximately 100 connections shall be accomplished by 300 operations 
consisting of insertion, removal and reinsertion of new jumper wire. 
Contact resistance shall be measured and the final insertion of jumper 
wire shall not be removed from the connectors but must be subjected to 
vibration testing in accordance with paragraph (g)(3)(i) of this section 
and temperature cycled as indicated in Figure 3 in paragraph (e)(3)(ii) 
of this section for a duration of 72 hours. After vibration and 
temperature cycling, the average change in contact resistance shall be 
no greater than 2 milliohms.
    (iv) Jumper wire pull-out resistance. Test modules that have 
received no prior conditioning shall be equipped with 100 38 cm (15 in.) 
jumper connections of the gauges recommended for use with the module 
using the insertion tool recommended by the cross-connect module 
manufacturer. With the test samples suitably supported, wires from each 
sample shall be pulled, one at a time, by a tensile machine at a cross-
head speed of 6 centimeters per minute (cm/min) (2.4 inches per minute 
(in./min)). Wires shall be pulled both perpendicular and parallel to the 
plane of the cross-connect field and shall withstand a load of at least 
1.1 kg (2.5 lb) before pulling out.
    (v) Cable conductor pull-out resistance. Test modules that have 
received no prior conditioning shall be equipped with 100 26, 24, and 22 
AWG 38 cm (15 in.) cable conductors using the insertion tool recommended 
by the cross-connect module manufacturer. With the test samples suitably 
supported, conductors from each sample shall be pulled, one at a time, 
by a tensile machine at a cross-head speed of 6 cm/min (2.4 in./min). 
Wires shall be pulled both perpendicular and parallel to the plane of 
the face of the splice module and shall withstand a load of at least 1.1 
kg (2.5 lb) before pulling out.
    (4) Electrical requirements--(i) Dielectric strength. A housing 
fully equipped with cross-connect modules shall be tested for dielectric 
strength in accordance with (g)(4) of this section.
    (ii) The dielectric strength of a contact within the cross-connect 
module to contacts on either side shall be tested. The module shall be 
tested in a dry environment with an ac power source capable of supplying 
8 kv at a rate of increase of 500 volts per second, a circuit breaker to 
open at breakdown, and a voltmeter to record the breakdown potential. 
Cross-connect modules shall be prepared in accordance with industry 
accepted splicing techniques with leads trimmed to approximately 38 cm 
(15 in.). The dielectric strength of each contact to the contacts on 
either side shall have an average dielectric strength of approximately 
5.0 kv.
    (5) Operational requirements--(i) Durability. In order to verify the 
durability requirements while minimizing the

[[Page 874]]

number of test housings required to complete the test program, the 
contacts selected for tests shall be separately identified and then 
checked to establish compliance after the various tests have been 
conducted.
    (ii) Twenty-five jumper connections shall be made on each of two 
contacts chosen at random from a representative sample in an assembled 
interface unit. After this test, these and surrounding contacts shall be 
inspected for damage such as cracks or chips in metal or plastic parts. 
Failure consists of structural damage, open circuits through the 
connector, or inability to pass the jumper wire pullout tests described 
in paragraph (i)(3)(iv) of this section.
    (iii) Select six contacts at random in a representative interface. 
On each of these contacts attach any test cord included with the unit as 
specified under normal use of that cord and then remove the test cord as 
follows. On sample 1, remove the cord normally ten times. On sample 2, 
remove the clip ten times by jerking the test leads straight out. In 
these and the remaining tests, do this without releasing any manual 
attachment mechanisms. On sample 3, remove ten times by jerking downward 
at 45 deg. from horizontal; sample 4, upward 45 deg. ten times; sample 
5, left 45 deg. ten times; sample 6, right 45 deg. ten times. Check for 
opens and damage in the test cord, clips, and cross-connect modules. 
Failure consists of structural damage, open circuits through the 
connector, or inability of module to pass the test connector 
reliability, jumper wire pullout, and dielectric strength tests 
described in paragraphs (i)(3)(ii), (i)(3)(iv), and (i)(4)(ii) of this 
section.
    (j) Packaging and identification requirements--(1) Product 
identification. (i) Each housing, terminal block, or cross-connect 
module shall be permanently marked with the manufacturer's name or trade 
mark.
    (ii) The date of manufacture, model number, serial number and RUS 
assigned designations shall be placed on a decal inside housings. The 
product identification nomenclature must correspond with the 
nomenclature used in the manufacturer's quality assurance program.
    (2) Packaging requirements. (i) Buried plant housings shall be 
packaged securely in an environmentally safe container to prevent either 
deterioration or physical damage to the unit during shipment, handling 
and storage.
    (ii) The product with all the necessary parts shall be shipped in 
one container unless significant advantages to the user can be obtained 
otherwise. Packaging of parts in the carton shall be such that the parts 
become available in the order in which they are needed. The package 
should be clearly marked as to which end to open. Packages shall be 
clearly labeled, and correspond to the names given in the instructions.
    (iii) Products packed in shipping containers shall be cushioned, 
blocked, braced, and anchored to prevent movement and damage.
    (iv) All products shall be secured to pallets with non-metallic 
strapping. The strapping and the manner employed shall be of sufficient 
quantity, width, and thickness to preclude failure during transit and 
handling.
    (v) The use of shrink or stretch film to secure the load to the 
pallet is permitted. However, such film must be applied over the 
required strapping.
    (vi) Containers that are too large or heavy to be palletized, such 
as crates, shall be shipped in their own containers. When practical, 
these containers shall be provided with skids to facilitate fork-lift 
handling.
    (vii) When packaged, the outer cartons shall meet the requirements 
of the Uniform Freight Classification and the National Motor Freight 
Classification.
    (3) Container marking requirements. (i) The package shall be readily 
identifiable as to the manufacturer, model number, date of manufacture, 
and serial number.
    (ii) The RUS assigned housing designation shall be stamped or marked 
on the outside of the package container with letter and number sizes 
large enough for easy identification.
    (iii) Each package shall be marked with its approximate gross 
weight.
    (iv) All containers carrying delicate or fragile items shall be 
marked to clearly identify this condition.

[[Page 875]]

    (v) All marking shall be clear, legible, and as large as space 
permits.

(The information and recordkeeping requirements of this section have 
been approved by the Office of Management and Budget under control 
number 0572-0059)

[59 FR 53044, Oct. 21, 1994]



   PART 1757--TELEPHONE SYSTEMS OPERATIONS AND MAINTENANCE  [RESERVED]






PART 1767--ACCOUNTING REQUIREMENTS FOR RUS ELECTRIC BORROWERS--Table of Contents




                     Subpart A--General  [Reserved]

1767.1--1767.9  [Reserved]

                  Subpart B--Uniform System of Accounts

1767.10  Definitions.
1767.11  Purpose.
1767.12  Accounting system requirements.
1767.13  Departures from the prescribed RUS Uniform System of Accounts.
1767.14  Interpretations of the RUS Uniform System of Accounts.
1767.15  General instructions.
1767.16  Electric plant instructions.
1767.17  Operating expense instructions
1767.18  Assets and other debits.
1767.19  Liabilities and other credits.
1767.20  Plant accounts.
1767.21  Operating income.
1767.22  Other income and deductions.
1767.23  Interest charges.
1767.24  Extraordinary items.
1767.25  Retained earnings.
1767.26  Operating revenue.
1767.27  Operation and maintenance expenses.
1767.28  Customer accounts expenses.
1767.29  Customer service and informational expenses.
1767.30  Sales expenses.
1767.31  Administrative and general expenses.
1767.32--1767.40  [Reserved]
1767.41  Accounting methods and procedures required of all RUS 
          borrowers.
1767.42--1767.45  [Reserved]

        Subpart C--Depreciation Rates and Procedures  [Reserved]

1767.46--1767.65  [Reserved]

             Subpart D--Preservation of Records  [Reserved]

1767.66--1767.85  [Reserved]

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source:  58 FR 59825, Nov. 10, 1993, unless otherwise noted.



                     Subpart A--General  [Reserved]

Secs. 1767.1--1767.9  [Reserved]



                  Subpart B--Uniform System of Accounts



Sec. 1767.10  Definitions.

    As used in this part:
    Accounting borrower is an RUS borrower.
    Accounts are the accounts prescribed in this system of accounts.
    Actually issued as applied to securities issued or assumed by the 
utility, are those which have been sold to bona fide purchasers for a 
valuable consideration, those issued as dividends on stock, and those 
which have been issued in accordance with contractual requirements 
direct to trustees of sinking funds.
    Actually outstanding as applied to securities issued or assumed by 
the utility, are those which have been actually issued and are neither 
retired nor held by or for the utility; provided, however, that 
securities held by trustees shall be considered as actually outstanding.
    Amortization is the gradual extinguishment of an amount in an 
account by distributing such amount over a fixed period, over the life 
of the asset or liability to which it applies, or over the period during 
which it is anticipated the benefit will be realized.
    Associated (affiliated) companies are companies or persons that 
directly, or indirectly through one or more intermediaries, control, or 
are controlled by, or under common control with, the accounting company.
    Book Cost means the amount at which property is recorded in these 
accounts without deduction of related provisions for accrued 
depreciation, amortization, or for other purposes.
    Capital lease is a lease of property used in utility or nonutility 
operations, which meets one or more of the criteria stated in 
Sec. 1767.15 (s).

[[Page 876]]

    CFC is the National Rural Utilities Cooperative Finance Corporation.
    Continuing Property Records are company plant records for retirement 
units and mass property that provide, as either a single record, or in 
separate records readily obtainable by references made in a single 
record, the following information:
    (1) For each retirement unit:
    (i) The name or description of the unit, or both;
    (ii) The location of the unit;
    (iii) The date the unit was placed in service;
    (iv) The cost of the unit as set forth in Sec. 1767.16 (b) and (c); 
and
    (v) The plant control account to which the cost of the unit is 
charged.
    (2) For each category of mass property:
    (i) A general description of the property and quantity;
    (ii) The quantity placed in service by vintage year;
    (iii) The average cost as set forth in Sec. 1767.16 (b) and (c); and
    (iv) The plant control account to which the costs are charged.
    Control (including the terms controlling, controlled by, and under 
common control with) is 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, and whether such power is established through a majority 
or minority ownership or through voting of securities; common directors, 
officers, or stockholders; voting trusts; holding trusts; associated 
companies; contracts; or any other direct or indirect means.
    Cost is the amount of money actually paid for property or services. 
When the consideration given is other than cash in a purchase and sale 
transaction, as distinguished from a transaction involving the issuance 
of common stock in a merger or a pooling of interest, the value of such 
consideration shall be determined on a cash basis.
    Cost of removal is the cost of demolishing, dismantling, tearing 
down or otherwise removing electric plant, including the cost of 
transportation and handling incidental thereto.
    Customer is a consumer or patron.
    Debt expense includes all expenses incurred in connection with the 
issuance and initial sale of evidence of debt, such as fees for drafting 
mortgages and trust deeds; fees and taxes for issuing or recording 
evidences of debt; costs of engraving and printing bonds and 
certificates of indebtedness; fees paid to trustees; specific costs of 
obtaining governmental authority; fees for legal services; fees and 
commissions paid underwriters, brokers, and salesmen for marketing such 
evidences of debt; fees and expenses of listing on exchanges; and other 
like costs.
    Depreciation, as applied to depreciable electric plant, is the loss 
in service value, not restored by current maintenance, incurred in 
connection with the consumption or prospective retirement of electric 
plant in the course of service from causes which are known to be in 
current operation and against which the utility is not protected by 
insurance. Among the causes to be given consideration are wear and tear, 
decay, action of the elements, inadequacy, obsolescence, changes in the 
art, changes in demand and requirements of public authorities.
    Discount, as applied to the securities issued or assumed by the 
utility, is the excess of the par (stated value of no-par stocks) or 
face value of the securities plus interest or dividends accrued at the 
date of the sale over the cash value of the consideration received from 
their sale.
    FASB is the Financial Accounting Standards Board.
    G&T is a generation and transmission cooperative.
    Investment advances are advances, represented by notes or by book 
accounts only, with respect to which it is mutually agreed or intended 
between the creditor and debtor that they shall be settled by the 
issuance of securities or shall not be subject to current settlement.
    Minor items of property are the associated parts or items of which 
retirement units are composed.
    Net salvage value is the salvage value of property retired less the 
cost of removal.

[[Page 877]]

    Nominally issued, as applied to securities issued or assumed by the 
utility, are those which have been signed, certified, or otherwise 
executed, and placed with the proper officer for sale and delivery, or 
pledged, or otherwise placed in some special funds of the utility, but 
which have not been sold, or issued direct to trustees of sinking funds 
in accordance with contractual requirements.
    Nominally outstanding, as applied to securities issued or assumed by 
the utility, are those which, after being actually issued, have been 
reacquired by or for the utility under circumstances which require them 
to be considered as held alive and not retired, provided, however, that 
securities held by trustees shall be considered as actually outstanding.
    NRECA is the National Rural Electric Cooperative Association.
    Operating lease is a lease of property used in utility or nonutility 
operations, which does not meet any of the criteria stated in 
Sec. 1767.15 (s).
    Original cost, as applied to electric plant, is the cost of such 
property to the person first devoting it to public service.
    Person is an individual, a corporation, a partnership, an 
association, a joint stock company, a business trust, or any organized 
group of persons, whether incorporated or not, or any receiver or 
trustee.
    Premium, as applied to securities issued or assumed by the utility, 
is the excess of the cash value of the consideration received from their 
sale over the sum of their par (stated value of no-par stocks) or face 
value and interest or dividends accrued at the date of sale.
    Project is a complete unit of improvement or development, consisting 
of a power house, all water conduits, all dams and appurtenant works and 
structures (including navigation structures) which are a part of said 
unit, and all storage, diverting, or forebay reservoirs directly 
connected therewith, the primary line or lines transmitting power 
therefrom to the point of junction with the distribution system or with 
the interconnected primary transmission system, all miscellaneous 
structures used and useful in connection with said unit or any part 
thereof, and all water rights, rights of way, ditches, dams, reservoirs, 
lands, or interest in lands the use and occupancy of which are necessary 
or appropriate in the maintenance and operation of such unit.
    Property retired, as applied to electric plant, is property which 
has been removed, sold, abandoned, destroyed, or which for any cause has 
been withdrawn from service.
    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.
    Regulatory Assets and Liabilities are assets and liabilities that 
result from rate actions of regulatory agencies. Regulatory assets and 
liabilities arise from specific revenues, expenses, gains, or losses 
that would have been included in net income determinations in one period 
under the general requirements of the Uniform System of Accounts but for 
it being probable:
    (1) That such items will be included in a different period(s) for 
purposes of developing the rates the utility is authorized to charge for 
its utility services; or
    (2) In the case of regulatory liabilities, that refunds to 
customers, not provided for in the other accounts, will be required.
    Replacing (including replacement) when not otherwise indicated in 
the context, is the construction or installation of electric plant in 
place of property retired, together with the removal of the property 
retired.
    Research, Development, and Demonstration (RD&D) includes all 
expenditures incurred by borrowers either directly or through another 
person or organization (such as a research institute, industry 
association, foundation, university, engineering company or similar 
contractor) in pursuing research, development, and demonstration 
activities including experiment, design, installation, construction, or 
operation. This definition includes expenditures for the implementation 
or development of new and/or existing concepts until technically 
feasible and commercially feasible operations are

[[Page 878]]

verified. Such research, development, and demonstration costs should be 
reasonably related to the existing or future utility business, broadly 
defined, of the borrower or in the environment in which it operates or 
expects to operate. The term includes, but is not limited to, all such 
costs incidental to the design, development or implementation of an 
experimental facility, a plant process, a product, a formula, an 
invention, a system or similar items, and the improvement of already 
existing items of a like nature; amounts expended in connection with the 
proposed development and/or proposed delivery of alternate sources of 
electricity; and the costs of obtaining its own patent, such as 
attorney's fees expended in making and perfecting a patent application. 
The term includes preliminary investigations and detailed planning of 
specific projects for securing for customers non-conventional electric 
power supplies that rely on technology that has not been verified 
previously to be feasible. The term does not include expenditures for 
efficiency surveys; studies of management, management techniques, and 
organization; or consumer surveys, advertising, promotions, or items of 
a like nature.
    Retirement units are those items of electric plant which, when 
retired with or without replacement, are accounted for by crediting the 
book cost thereof to the electric plant accounts in which included.
    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 Form 7 is the August 1988 revision (or the revision of any other 
date which may be specified) of such RUS Form 7, Financial and 
Statistical Report, or any later revision which shall have been at the 
time prescribed for use by RUS.
    RUS Form 12 is the November 1979 revision (or the revision of any 
other date which may be specified) of such RUS Form 12, Operating 
Report--Financial, or any later revision which shall have been at the 
time prescribed for use by RUS.
    RUS USoA is the USoA prescribed in this subpart.
    Salvage value is the amount received for property retired, less any 
expenses incurred in connection with the sale or in preparing the 
property for sale; or, if retained, the amount at which the material 
recovered is chargeable to materials and supplies, or other appropriate 
accounts.
    Service life is the time between the date electric plant is 
includible in electric plant in service, or electric plant leased to 
others, and the date of its retirement. If depreciation is accounted for 
on a production basis rather than on a time basis, service life should 
be measured in terms of the appropriate unit of production.
    Service value is the difference between original cost and net 
salvage value of electric plant.
    State is a State admitted to the Union, the District of Columbia, 
and any organized Territory of the United States.
    Subsidiary company is a company which is controlled by the utility 
through ownership of voting stock. (See the definition of control in 
Sec. 1767.10.) A corporate joint venture in which a corporation is owned 
by a small group of businesses as a separate and specific business or 
project for the mutual benefit of the members of the group is a 
subsidiary company for the purposes of this system of accounts.
    Utility is an RUS borrower.
    Work order is an order authorizing the construction of utility 
plant. It serves as the basis for the accounts or subaccounts in which 
costs are recorded.

[58 FR 59825, Nov. 10, 1993, as amended at 59 FR 66440, Dec. 27, 1994]



Sec. 1767.11  Purpose.

    (a) The standard form of RUS loan documents for electric borrowers 
requires that the borrower keep books, records, and accounts in which 
full and true entries will be made of all of the dealings, business and 
affairs of the borrower in accordance with the methods and principles of 
accounting of this part.

[[Page 879]]

    (b) This subpart implements these provisions of the RUS loan 
documents by prescribing the RUS USoA for electric borrowers and by 
providing accounting methodologies and procedures which are applicable 
to particular situations.



Sec. 1767.12  Accounting system requirements.

    (a) Each RUS electric borrower must maintain and keep its books of 
accounts and all other books and records that support the entries in 
such books of accounts in accordance with Secs. 1767.18-1767.31.
    (b) Each RUS electric borrower shall maintain and keep its books of 
accounts and all other books and records which support the entries in 
such books of accounts in accordance with Sec. 1767.41, Accounting 
Methods and Procedures Required of All RUS Borrowers, herein, which 
prescribes accounting principles to be applied to specific factual 
circumstances.



Sec. 1767.13  Departures from the prescribed RUS Uniform System of Accounts.

    (a) No departures are to be made to the prescribed RUS USoA without 
the prior written approval of RUS. Requests for departures from the RUS 
USoA shall be addressed, in writing, to the Director, Borrower 
Accounting Division (BAD).
    (b) RUS borrowers subject to the jurisdiction of a state regulatory 
authority with jurisdiction over rates and/or accounting for electric 
utilities will not:
    (1) Request approval of such authority to use accounting 
methodologies and principles that depart from the provisions herein; or
    (2) File with such authority, any documents or information, 
including without limitation, any filings associated with the borrower's 
rates, based upon accounting methods and principles inconsistent with 
the provisions of this part.
    (c) If any state regulatory authority with jurisdiction over an RUS 
borrower prescribes accounting methods or principles for the borrower 
that are inconsistent with the provisions of this part, the borrower 
must immediately notify the Director, BAD, and provide such documents, 
information, and reports as RUS may request to evaluate the impact that 
such accounting methods or principles may have on the interests of RUS.
    (1) If RUS determines that the accounting methods and principles do 
not adversely impact RUS interests, RUS will permit the borrower to use 
the accounting methods and principles as prescribed by the state 
regulatory authority to comply with the provisions of the RUS loan 
documents.
    (2) If RUS determines that the accounting methods and principles may 
adversely impact RUS's interests, RUS may require that, for the purposes 
of complying with provisions of RUS loan documents, including, without 
limitation, those provisions relating to financial coverage standards 
(e.g. ``TIER''), the borrower continue to maintain books, records, and 
accounts in accordance with this subpart.
    (i) RUS may, however, approve requests by the borrower to maintain 
such additional books, records, and accounts as necessary to comply with 
the requirements of the state regulatory authority.
    (ii) Such approval will not waive, modify or amend the requirements 
of the RUS loan documents or of this subpart.
    (d) RUS borrowers will not implement the provisions of Statement of 
Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects 
of Certain Types of Regulation, SFAS No. 90, Regulated Enterprises--
Accounting for Abandonments and Disallowances of Plant Costs, SFAS No. 
92, Regulated Enterprises--Accounting for Phase-in Plans, without the 
prior written approval of RUS. Requests for approval shall be addressed, 
in writing, to the Director, BAD.
    (e) RUS will consider approval of specific departures from this part 
upon submission of:
    (1) A detailed description of the proposed departure;
    (2) The specific accounting journal entries that will be used 
including the account number and title, and the dollar amounts where 
appropriate;
    (3) The total dollar amount of the departure and the impact on 
margins

[[Page 880]]

during the time period of the departure; and
    (4) Any additional information RUS may deem necessary to adequately 
evaluate the borrower's request.
    (f) RUS will, within 90 days of final receipt of this information, 
render a decision on the borrower's request for a departure from the 
prescribed RUS USoA.
    (1) If, due to extenuating circumstances, RUS is unable to reach a 
decision within the required time period, RUS will notify the borrower 
of the delay within this same 90-day period, and provide a projected 
decision date.
    (2) The requested departure from the prescribed RUS USoA must not be 
implemented until final approval is granted by RUS.

[58 FR 59825, Nov. 10, 1993, as amended at 60 FR 55429, Nov. 1, 1995]



Sec. 1767.14  Interpretations of the RUS Uniform System of Accounts.

    To maintain uniformity in accounting, borrowers must submit 
questions concerning interpretations of the RUS USoA, in writing, to the 
Director, BAD, for consideration and decision.

(Approved by the Office of Management and Budget under control number 
0572-0002)

[60 FR 55429, Nov. 1, 1995]



Sec. 1767.15  General instructions.

    (a) Records. (1) Each utility shall keep its books of account, and 
all other books, records, and memoranda which support the entries in 
such books of account so as to be able to furnish readily full 
information as to any item included in any account.
    (2) Each entry shall be supported by such detailed information as 
will permit ready identification, analysis, and verification of all 
facts relevant thereto.
    (3) The books and records referred to herein include not only 
accounting records in a limited technical sense, but all other records, 
such as minute books, stock books, reports, correspondence, memoranda, 
etc., which may be useful in developing the history of or facts 
regarding any transaction.
    (4) No utility shall destroy any such books or records unless the 
destruction thereof is permitted by the rules and regulations of RUS in 
7 CFR chapter XVII.
    (5) In addition to the prescribed accounts, clearing accounts, 
temporary or experimental accounts, and subdivisions of any accounts, 
may be kept, provided the integrity of the prescribed accounts is not 
impaired.
    (6) All amounts included in the accounts prescribed herein for 
electric plant and operating expenses shall be just and reasonable and 
any payments or accruals by the utility in excess of just and reasonable 
charges shall be included in Account 426.5, Other Deductions.
    (7) The arrangement or sequence of the accounts prescribed herein 
shall not be controlling as to the arrangement or sequence in report 
forms which may be prescribed by RUS.
    (b) Numbering system. (1) The account numbering plan used herein 
consists of a system of three-digit whole numbers as follows:

100-199  Assets and other debits.
200-299  Liabilities and other credits.
300-399  Plant accounts.
400-432, 434-435  Income accounts.
433, 436-439  Retained earnings accounts.
440-459  Revenue accounts.
500-599  Production, transmission, and distribution expenses.
900-949  Customer accounts, customer service and informational, sales, 
          and general and administrative expenses.

    (2) In certain instances, numbers have been skipped in order to 
allow for possible later expansion or to permit better coordination with 
the numbering system for other utility departments.
    (3) The numbers prefixed to account titles are to be considered as 
parts of the titles.
    (i) Each utility, however, may adopt, for its own purposes, a 
different system of account numbers provided that the numbers herein 
prescribed shall appear in the descriptive headings of the ledger 
accounts and in the various sources of original entry.
    (ii) If a utility uses a different group of account numbers and it 
is not practicable to show the prescribed account numbers in the various 
sources of original entry, such reference to the prescribed account 
numbers may be

[[Page 881]]

omitted from the various sources of original entry.
    (iii) Each utility using different account numbers for its own 
purposes shall keep readily available, a list of such account numbers 
which it uses and a reconciliation of such account numbers with the 
account numbers provided herein.
    (iv) The utility's records shall be so kept as to permit ready 
analysis by prescribed accounts (by direct reference to sources of 
original entry to the extent practicable) and to permit preparation of 
financial and operating statements directly from such records at the end 
of each accounting period according to the prescribed accounts.
    (c) Accounting period. (1) Each utility shall keep its books on a 
monthly basis so that for each month, all transactions applicable 
thereto, as nearly as may be ascertained, shall be entered in the books 
of the utility.
    (2) Amounts applicable or assignable to specific utility departments 
shall be so segregated monthly.
    (3) Each utility shall close its books at the end of each fiscal 
year unless otherwise authorized by RUS.
    (d) Submission of questions. To maintain uniformity of accounting, 
utilities shall submit questions of doubtful interpretation to RUS for 
consideration and decision.
    (e) Item lists. (1) Lists of ``items'' appearing in the texts of the 
accounts or elsewhere herein are for the purpose of more clearly 
indicating the application of the prescribed accounting.
    (2) The lists are intended to be representative, but not exhaustive.
    (3) The appearance of an item in a list warrants the inclusion of 
the item in the account mentioned only when the text of the account also 
indicates inclusion inasmuch as the same item frequently appears in more 
than one list.
    (4) The proper entry in each instance must be determined by the 
texts of the accounts.
    (f) Extraordinary items. (1) Net income shall reflect all items of 
profit and loss during the period with the exception of prior period 
adjustments as described in Sec. 1767.15 (g) and long-term debt as 
described in Sec. 1767.15 (q).
    (2) Those items related to the effects of events and transactions 
which have occurred during the current period and which are not typical 
or customary business activities of the company shall be considered 
extraordinary items.
    (3) They will be events and transactions of significant effect which 
would not be expected to recur frequently and which would not be 
considered as recurring factors in any evaluation of the ordinary 
operating processes of business.
    (i) In determining significance, items of a similar nature should be 
considered in the aggregate.
    (ii) Dissimilar items should be considered individually; however, if 
they are few in number, they may be considered in the aggregate.
    (iii) To be considered as extraordinary under the above guidelines, 
an item should be more than approximately 5 percent of income, computed 
before extraordinary items.
    (iv) RUS approval must be obtained to treat an item of less than 5 
percent, as extraordinary. (See Accounts 434 and 435.)
    (g) Prior period items. (1) Items of profit and loss related to the 
following shall be accounted for as prior period adjustments and 
excluded from the determination of net income for the current year:
    (i) Correction of an error in the financial statements of a prior 
year
    (ii) Adjustments that result from realization of income tax benefits 
of preacquisition operating loss carryforwards of purchased 
subsidiaries.
    (2) All other items of profit and loss recognized during the year 
shall be included in the determination of net income for that year.
    (h) Unaudited items. (1) Whenever a financial statement is required 
by RUS, if it is known that a transaction has occurred which affects the 
accounts but the amount involved in the transaction and its effect upon 
the accounts cannot be determined with absolute accuracy, the amount 
shall be estimated and such estimated amount included in the proper 
accounts.

[[Page 882]]

    (2) The utility is not required to anticipate minor items which 
would not appreciably affect the accounts.
    (i) Distribution of pay and expenses of employees. Charges to 
electric plant, operating expense, and other accounts for services and 
expenses of employees engaged in activities chargeable to various 
accounts, such as construction, maintenance, and operations, shall be 
based upon the actual time engaged in the respective classes of work, or 
in case that method is impracticable, upon the basis of a study of the 
time actually engaged during a representative period.
    (j) Payroll distribution. (1) Underlying accounting data shall be 
maintained so that the distribution of the cost of labor charged direct 
to the various accounts will be readily available.
    (2) Such underlying data shall permit a reasonably accurate 
distribution to be made of the cost of labor charged initially to 
clearing accounts so that the total labor cost may be classified among 
construction, cost of removal, electric operating functions (steam 
generation, nuclear generation, hydraulic generation, transmission, 
distribution, etc.) and nonutility operations.
    (k) Accounting on an accrual basis. (1) The utility is required to 
keep its accounts on the accrual basis.
    (i) This requires the inclusion, in its accounts, of all known 
transactions of appreciable amount which affect the accounts.
    (ii) If bills covering such transactions have not been received or 
rendered, the amounts shall be estimated and appropriate adjustments 
made when the bills are received.
    (2) When payments are made in advance for items such as insurance, 
rents, taxes, or interest, the amount applicable to future periods shall 
be charged to Account 165, Prepayments, and spread over the periods to 
which applicable, by credits to Account 165, and charges to the accounts 
appropriate for the expenditure.
    (l) Records for each plant. (1) Separate records shall be maintained 
by electric plant accounts of the book cost of each plant owned, 
including additions by the utility to plant leased from others, and of 
the cost of operating and maintaining each plant owned or operated.
    (2) The term ``plant'' as used herein includes each generating 
station and each transmission line or appropriate group of transmission 
lines.
    (m) Accounting for other departments. (1) If the utility also 
operates other utility departments, such as gas or water, it shall keep 
such accounts for the other departments as may be prescribed by proper 
authority and in the absence of prescribed accounts, it shall keep such 
accounts as are proper or necessary to reflect the results of operating 
each such department.
    (2) It is not intended that proprietary and similar accounts which 
apply to the utility as a whole shall be departmentalized.
    (n) Transactions with associated companies. (1) Each utility shall 
keep its accounts and records so as to be able to furnish accurately and 
expeditiously statements of all transactions with associated companies.
    (2) The statements may be required to show the general nature of the 
transactions, the amounts involved therein and the amounts included in 
each account prescribed herein with respect to such transactions. 
Transactions with associated companies shall be recorded in the 
appropriate accounts for transactions of the same nature. Nothing herein 
contained, however, shall be construed as restraining the utility from 
subdividing accounts for the purpose of recording separately 
transactions with associated companies.
    (o) Contingent assets and liabilities. (1) Contingent assets 
represent a possible source of value to the utility contingent upon the 
fulfillment of conditions regarded as uncertain.
    (2) Contingent liabilities include items which may, under certain 
conditions, become obligations of the utility but which are neither 
direct nor assumed liabilities at the date of the balance sheet. The 
utility shall be prepared to give a complete statement of significant 
contingent assets and liabilities (including cumulative dividends on 
preference stock) in its audited financial statements; its RUS Form 7, 
Financial and Statistical Report, or its RUS Form 12, Operating

[[Page 883]]

Report--Financial; and at such other times as may be requested by RUS.
    (p) Separate accounts or records for each licensed project. The 
accounts or records of each borrower shall be so kept as to show for 
each project (including pumped storage) under license:
    (1) The actual legitimate original cost of the project, including 
the original cost of the original project, the original cost of 
additions thereto and betterments thereof, and credits for property 
retired from service, as determined under RUS's regulations in 7 CFR 
chapter XVII;
    (2) The charges for operation and maintenance of the project 
property directly assignable to the project;
    (3) The credits and debits to the depreciation and amortization 
accounts, and the balances in such accounts; and
    (4) The credits and debits to the operating revenue, income, and 
retained earnings accounts that can be identified with and directly 
assigned to the project.

    Note: The purpose of this instruction is to insure that accounts or 
records are currently maintained by each borrower from which reports may 
be made to RUS for use in determining the net investment in each 
licensed project. The instruction covers only the debit and credit items 
appearing in the borrower's accounts which may be identified with and 
assigned directly to any project. In the determination of the net 
investment, allocations of items affecting the net investment may be 
required where direct assignment is not practicable.

    (q) Long-term debt: premium, discount and expense, and gain or loss 
on reacquisition--(1) Premium, discount and expense. (i) A separate 
premium, discount and expense account shall be maintained for each class 
and series of long-term debt (including receivers' certificates) issued 
or assumed by the utility.
    (ii) The premium will be recorded in Account 225, Unamortized 
Premium on Long-Term Debt, the discount will be recorded in Account 226, 
Unamortized Discount on Long-Term Debt--Debit, and the expense of 
issuance shall be recorded in Account 181, Unamortized Debt Expense.
    (iii) The premium, discount and expense shall be amortized over the 
life of the respective issues under a plan which will distribute the 
amounts equitably over the life of the securities.
    (A) The amortization shall be charged or credited on a monthly basis 
with the amounts relating to discount and expense charged to Account 
428, Amortization of Debt Discount and Expense.
    (B) The amounts relating to premium shall be credited to Account 
429, Amortization of Premium on Debt--Credit.
    (2) Reacquisition, without refunding. (i) When long-term debt is 
reacquired or redeemed without being converted into another form of 
long-term debt and when the transaction is not in connection with a 
refunding operation (primarily redemptions for sinking fund purposes), 
the difference between the amount paid upon reacquisition and the face 
value; plus any unamortized premium less any related unamortized debt 
expense and reacquisition costs; or less any unamortized discount, 
related debt expense and reacquisition costs applicable to the debt 
redeemed, retired and cancelled, shall be included in Account 189, 
Unamortized Loss on Reacquired Debt, or Account 257, Unamortized Gain on 
Reacquired Debt, as appropriate.
    (ii) The utility shall amortize the recorded amounts equally on a 
monthly basis over the remaining life of the respective security issues 
(old original debt).
    (iii) The amount so amortized shall be charged to Account 428.1, 
Amortization of Loss on Reacquired Debt, or credited to Account 429.1, 
Amortization of Gain on Reacquired Debt--Credit, as appropriate.
    (3) Reacquisition, with refunding. (i) When the redemption of one 
issue or series of bonds or other long-term obligations is financed by 
another issue or series before the maturity date of the first issue, the 
difference between the amount paid upon refunding and the face value; 
plus any unamortized premium less related debt expense or less any 
unamortized discount and related debt expense, applicable to the debt 
refunded, shall be included in Account 189, Unamortized Loss on 
Reacquired Debt, or Account 257, Unamortized Gain on Reacquired Debt, as 
appropriate.
    (ii) The utility may elect to account for such amounts as follows:

[[Page 884]]

    (A) Write them off immediately when the amounts are insignificant;
    (B) Amortize them by equal monthly amounts over the remainder of the 
original life of the issue retired; or
    (C) Amortize them by equal monthly amounts over the life of the new 
issue.
    (iii) Once an election is made, it shall be applied on a consistent 
basis.
    (iv) The amounts in paragraphs (q)(3)(ii)(A), (B), or (C) of this 
section shall be charged to Account 428.1, Amortization of Loss on 
Reacquired Debt, or credited to Account 429.1, Amortization of Gain on 
Reacquired Debt--Credit, as appropriate.
    (4) Under methods in paragraphs (q)(3)(ii)(B) and (C) of this 
section, the increase or reduction in current income taxes resulting 
from the reacquisition should be apportioned over the remainder of the 
original life of the issued retired or over the life of the new issue, 
as appropriate, as directed more specifically in paragraphs (q)(5) and 
(6) of this section.
    (5) When the utility recognizes the loss in the year of 
reacquisition as a tax deduction, Account 410.1, Provision for Deferred 
Income Taxes, Utility Operating Income, shall be debited and Account 
283, Accumulated Deferred Income Taxes--Other, shall be credited with 
the amount of the related tax effect, such amount to be allocated to the 
periods affected in accordance with the provisions of Account 283.
    (6) When the utility chooses to recognize the gain in the year of 
reacquisition as a taxable gain, Account 411.1, Provision for Deferred 
Income Taxes--Credit, Utility Operating Income, shall be debited with 
the amount of the related tax effect, such amount to be allocated to the 
periods affected in accordance with the provisions of Account 190, 
Accumulated Deferred Income Taxes.
    (7) When the utility chooses to use the optional privilege of 
deferring the tax on the gain attributable to the reacquisition of debt 
by reducing the depreciable basis of utility property for tax purposes, 
pursuant to Section 108 of the Internal Revenue Code (26 U.S.C. 108), 
the related tax effects shall be deferred as the income is recognized 
for accounting purposes, and the deferred amounts shall be amortized 
over the life of the associated property on a vintage year basis.
    (i) Account 410.1, Provision for Deferred Income Taxes, Utility 
Operating Income, shall be debited, and Account 282, Accumulated 
Deferred Income Taxes--Other Property, shall be credited with an amount 
equal to the estimated income tax effect applicable to the portion of 
the income, attributable to reacquired debt, recognized for accounting 
purposes during the period.
    (ii) Account 282 shall be debited and Account 411.1, Provision for 
Deferred Income Taxes--Credit, Utility Operating Income, shall be 
credited with an amount equal to the estimated income tax effects, 
during the life of the property, attributable to the reduction in the 
depreciable basis for tax purposes.
    (8) The tax effects relating to gain or loss shall be allocated as 
above to utility operations except in cases where a portion of the debt 
reacquired is directly applicable to nonutility operations.
    (i) In that event, the related portion of the tax effects shall be 
allocated to nonutility operations.
    (ii) Where it can be established that reacquired debt is generally 
applicable to both utility and nonutility operations, the tax effects 
shall be allocated between utility and nonutility operations based on 
the ratio of net investment in utility plant to net investment in 
nonutility plant.
    (9) Premium, discount, or expense on debt shall not be included as 
an element in the cost of construction or acquisition of property 
(tangible or intangible), except under the provisions of Account 432, 
Allowance for Borrowed Funds Used During Construction--Credit.
    (10) Alternate method. Where a regulatory authority or a group of 
regulatory authorities having prime rate jurisdiction over the utility 
specifically disallows the rate principle of amortizing gains or losses 
on reacquisition of long-term debt without refunding, and does not apply 
the gain or loss to reduce interest charges in computing the allowed 
rate of return for rate purposes, the following alternate method may be 
used to account for gains or losses relating to reacquisition of long-
term debt, with or without refunding:

[[Page 885]]

    (i) The difference between the amount paid upon reacquisition of any 
long-term debt and the face value, adjusted for unamortized discount, 
expenses or premium, as the case may be, applicable to the debt redeemed 
shall be recognized currently in income and recorded in Account 421, 
Miscellaneous Nonoperating Income, or Account 426.5, Other Deductions.
    (ii) When this alternate method of accounting is used, the utility 
shall include a footnote to each financial statement, prepared for 
public use, explaining why this method is being used along with the 
treatment given for ratemaking purposes.
    (r) Comprehensive interperiod income tax allocation. (1) Where there 
are timing differences between the periods in which transactions affect 
taxable income and the periods in which they enter into the 
determination of pretax accounting income, the income tax effects of 
such transactions are to be recognized in the periods in which the 
differences between book accounting income and taxable income arise and 
in the periods in which the differences reverse using the deferred tax 
method.
    (2) Comprehensive interperiod tax allocation should be followed 
whenever transactions enter into the determination of pretax accounting 
income for the period even though some transactions may affect the 
determination of taxes payable in a different period.
    (3) Utilities are not required to utilize comprehensive interperiod 
income tax allocation until the deferred income taxes are included as an 
expense in the rate level by the regulatory authority having rate 
jurisdiction over the utility.
    (4) Where comprehensive interperiod tax allocation accounting is not 
practiced the utility shall include as a note to each financial 
statement, prepared for public use, a footnote explanation setting forth 
the utility's accounting policies with respect to interperiod tax 
allocation and describing the treatment for rate making purposes of the 
tax timing differences by regulatory authorities having rate 
jurisdiction.
    (5) Should the utility be subject to more than one agency having 
rate jurisdiction, its accounts shall appropriately reflect the 
ratemaking treatment (deferral or flow through) of each jurisdiction.
    (6) Once comprehensive interperiod tax allocation has been initiated 
either in whole or in part it shall be practiced on a consistent basis 
and shall not be changed or discontinued without prior RUS approval.
    (7) Tax effects deferred currently will be recorded as deferred 
debits or deferred credits in Accounts 190, Accumulated Deferred Income 
Taxes; 281, Accumulated Deferred Income Taxes--Accelerated Amortization 
Property; 282, Accumulated Deferred Income Taxes--Other Property, and 
283, Accumulated Deferred Taxes--Other, as appropriate.
    (8) The resulting amounts recorded in these accounts shall be 
disposed of as prescribed in this system of accounts or as otherwise 
authorized by RUS.
    (s) Criteria for classifying leases. (1) If, at its inception, a 
lease meets one or more of the following criteria, the lease shall be 
classified as a capital lease:
    (i) The lease transfers ownership of the property to the lessee by 
the end of the lease term.
    (ii) The lease contains a bargain purchase option.
    (iii) The lease term is equal to 75 percent or more of the estimated 
economic life of the leased property. However, if the beginning of the 
lease term falls within the last 25 percent of the total estimated 
economic life of the leased property, including earlier years of use, 
this criterion shall not be used for purposes of classifying the lease.
    (iv) The present value at the beginning of the lease term of the 
minimum lease payments, excluding that portion of the payments 
representing executory costs such as insurance, maintenance, and taxes 
to be paid by the lessor, including any profit thereon, equals or exceed 
90 percent of the excess of the fair value of the leased property to the 
lessor at the inception of the lease over any related investment tax 
credit retained by the lessor and expected to be realized by lessor.
    (A) However, if the beginning of the lease term falls within the 
last 25 percent of the total estimated economic life of the leased 
property, including earlier years of use, this criterion shall

[[Page 886]]

not be used for purposes of classifying the lease.
    (B) The lessee utility shall compute the present value of the 
minimum lease payments using its incremental borrowing rate, unless it 
is practicable for the utility to learn the implicit rate computed by 
the lessor, and the implicit rate computed by the lessor is less than 
the lessee's incremental borrowing rate. If both of those conditions are 
met, the lessee shall use the implicit rate.
    (2) If, at any time, the lessee and lessor agree to change the 
provisions of the lease, other than by renewing the lease or extending 
its term, in a manner that would have resulted in a different 
classification of the lease under the criteria in paragraph (s)(1) of 
this section had the changed terms been in effect at the inception of 
the lease, the revised agreement shall be considered as a new agreement 
over its term, and the criteria in paragraph (s)(1) of this section 
shall be applied for purposes of the expiration of the existing lease 
term, such as the exercise of a lease renewal option other than those 
already included in the lease term, shall be considered as a new 
agreement and shall be classified according to the above provision. 
Changes in estimates (for example, changes in estimates of the economic 
life or of the residual value of the leased property) or changes in 
circumstances (for example, default by the lessee) shall not give rise 
to a new classification of a lease for accounting purposes.
    (t) Accounting for leases. (1) All leases shall be classified as 
either capital or operating leases.
    (2) The utility shall record a capital lease as an asset in Account 
101.1, Property Under Capital Leases, and Account 120.6, Nuclear Fuel 
Under Capital Leases; as appropriate, and an obligation in Account 227, 
Obligations Under Capital Leases--Noncurrent, or Account 243, 
Obligations Under Capital Leases--Current, at an amount equal to the 
present value at the beginning of the lease term of minimum lease 
payments during the lease term, excluding that portion of the payments 
representing executory costs such as insurance, maintenance, and taxes 
to be paid by the lessor, together with any profit thereon. However, if 
the amount so determined exceeds the fair value of the leased property 
at the inception of the lease, the amount recorded as the asset and 
obligation shall be the fair value.
    (3) Rental payments on all leases shall be charged to rent expense, 
fuel expense, construction work in progress, or other appropriate 
accounts as they become payable.
    (4) For a capital lease, for each period during the lease term, the 
amounts recorded for the asset and obligation shall be reduced by an 
amount equal to the portion of each lease payment that would have been 
allocated to the reduction of the obligation, if the payment had been 
treated as a payment on an installment obligation (liability) and 
allocated between interest expense and a reduction of the obligation so 
as to produce a constant periodic rate of interest on the remaining 
balance.
    (u) Allowances. (1) Title IV of the Clean Air Act Amendments of 
1990, Pub. L. 101-549, 104 Stat. 2399, 2584 (42 U.S.C. 7407 and 42 
U.S.C. 7651), provides for the issuance of allowances as a means to 
limit the emissions of certain airborne pollutants by various entities, 
including utilities. Utilities owning allowances, other than those 
acquired for speculative purposes, shall account for such allowances at 
cost in Account 158.1, Allowance Inventory, or Account 158.2, Allowances 
Withheld, as appropriate. Allowances acquired for speculative purposes 
and identified as such in contemporaneous records at the time of 
purchase shall be accounted for in Account 124, Other Investments.
    (2) When purchased, allowances become eligible for use in different 
years, and the allocation of the purchase cost cannot be determined by 
fair value, the purchase cost allocated to allowances of each vintage 
shall be determined through use of a present-value based measurement. 
The interest rate used in the present-value measurement shall be the 
utility's incremental borrowing rate, in the month in which the 
allowances are acquired, for a loan with a term similar to the period 
that it will hold the allowances and in an amount equal to the purchase 
price.
    (3) The underlying records supporting Account 158.1 and Account 
158.2 shall

[[Page 887]]

be maintained in sufficient detail so as to provide the number of 
allowances and the related cost by vintage year.
    (4) Issuances from inventory included in Account 158.1 and Account 
158.2 shall be accounted for on a vintage basis using a monthly 
weighted-average method of cost determination. The cost of eligible 
allowances not used in the current year shall be transferred to the 
vintage for the immediately following year.
    (5) Account 158.1 shall be credited and Account 509, Allowances, 
debited so that the cost of the allowances to be remitted for the year 
is charged to expense monthly based on each month's emissions. This may, 
in certain circumstances, require allocation of the cost of an allowance 
between months on a fractional basis.
    (6) In any period in which actual emissions exceed the amount 
allowable based on eligible allowances owned, the utility shall estimate 
the cost to acquire the additional allowances needed and charge Account 
158.1 with the estimated cost. This estimated cost of future allowance 
acquisitions shall be credited to Account 158.1 and charged to Account 
509 in the same accounting period as the related charge to Account 
158.1. Should the actual cost of these allowances differ from the 
estimated cost, the differences shall be recognized in the then-current 
period's inventory issuance cost.
    (7) Any penalties assessed by the Environmental Protection Agency 
for the emission of excess pollutants shall be charged to Account 426.3, 
Penalties.
    (8) Gains on dispositions of allowances, other than allowances held 
for speculative purposes, shall be accounted for as follows. First, if 
there is uncertainty as to the regulatory treatment, the gain shall be 
deferred in Account 254, Other Regulatory Liabilities, pending 
resolution of the uncertainty. Second, if there is certainty as to the 
existence of a regulatory liability, the gain will be credited to 
Account 254, with subsequent recognition in income when reductions in 
charges to customers occur or the liability is otherwise satisfied. 
Third, all other gains will be credited to Account 411.8, Gains from 
Disposition of Allowances. Losses on disposition of allowances, other 
than allowances held for speculative purposes, shall be accounted for as 
follows. Losses that qualify as regulatory assets shall be charged 
directly to Account 182.3, Other Regulatory Assets. All other losses 
shall be charged to Account 411.9, Losses from Disposition of 
Allowances. (See the definition of regulatory assets and liabilities.) 
Gains or losses on disposition of allowances held for speculative 
purposes shall be recognized in Account 421, Miscellaneous Nonoperating 
Income, or Account 426.5, Other Deductions, as appropriate.
    (9) The costs and benefits of exchange-traded allowance futures 
contracts used to protect the utility from the risk of unfavorable price 
changes (``hedging transactions'') shall be deferred in Account 186, 
Miscellaneous Deferred Debits, or Account 253, Other Deferred Credits, 
as appropriate. Such deferred amounts shall be included in Account 
158.1, Allowance Inventory, in the month in which the related allowances 
are acquired, sold or otherwise disposed of. Where the costs or benefits 
of hedging transactions are not identifiable with specific allowances, 
the amounts shall be included in Account 158.1 when the futures contract 
is closed. The costs and benefits of exchange-traded allowance futures 
contracts entered into as a speculating activity shall be charged or 
credited to Account 421, Miscellaneous Nonoperating Income, or Account 
426.5, Other Deductions, as appropriate.



Sec. 1767.16  Electric plant instructions.

    (a) Classification of electric plant at effective date of system of 
accounts. (1) The electric plant accounts provided herein are the same 
as those contained in the prior system of accounts except for inclusion 
of accounts for nuclear production plant and some changes in 
classification in the general equipment accounts. Except for these 
changes, the balances in the various plant accounts, as determined under 
the prior system of accounts, should be carried forward. Any remaining 
balance of plant which has not yet been classified, pursuant to the 
requirements of the prior system, shall be classified in accordance with 
the following instructions.

[[Page 888]]

    (2) The cost to the utility of its unclassified plant shall be 
ascertained by analysis of the utility's records. Adjustments shall not 
be made to record in utility plant accounts amounts previously charged 
to operating expenses or to income deductions in accordance with the 
USoA in effect at the time or in accordance with the discretion of 
management as exercised under a USoA, or under accounting practices 
previously followed.
    (3) The detailed electric plant accounts (301 to 399, inclusive) 
shall be stated on the basis of cost to the utility of plant constructed 
by it and the original cost, estimated if not known, of plant acquired 
as an operating unit or system. The difference between the original 
cost, as above, and the cost to the utility of electric plant after 
giving effect to any accumulated provision for depreciation or 
amortization shall be recorded in Account 114, Electric Plant 
Acquisition Adjustments. The original cost of electric plant shall be 
determined by analysis of the utility's records or those of the 
predecessor or vendor companies with respect to electric plant 
previously acquired as operating units or systems and the difference 
between the original cost so determined, less accumulated provisions for 
depreciation and amortization and the cost to the utility with necessary 
adjustments for retirements from date of acquisition, shall be entered 
in Account 114, Electric Plant Acquisition Adjustments. Any difference 
between the cost of electric plant and its book cost, when not properly 
includible in other accounts, shall be recorded in Account 116, Other 
Electric Plant Adjustments.
    (b) Electric plant to be recorded at cost. (1) All amounts included 
in the accounts for electric plant acquired as an operating unit or 
system, except as otherwise provided in the texts of the intangible 
plant accounts, shall be stated at the cost incurred by the person who 
first devoted the property to utility service. All other electric plant 
shall be included in the accounts at the cost incurred by the utility 
except for property acquired by lease which qualifies as capital lease 
property under Sec. 1767.15 (s), Criteria for Classifying Leases, and is 
recorded in Account 101.1, Property Under Capital Lease, or Account 
120.6, Nuclear Fuel Under Capital Leases. Where the term ``cost'' is 
used in the detailed plant accounts, it shall have the meaning stated in 
this paragraph (b).
    (2) When the consideration given for property is other than cash, 
the value of such consideration shall be determined on a cash basis 
(see, however, the definition of cost in Sec. 1767.10). In the entry 
recording such transition, the actual consideration shall be described 
with sufficient particularity to identify it. The utility shall be 
prepared to furnish RUS the particulars of its determination of the cash 
value of the consideration if other than cash.
    (3) When property is purchased under a plan involving deferred 
payments, no charge shall be made to the electric plant accounts for 
interest, insurance, or other expenditures occasioned solely by such 
form of payment.
    (4) The electric plant accounts shall not include the cost or other 
value of electric plant contributed to the company. Contributions in the 
form of money or its equivalent toward the construction of electric 
plant shall be credited to accounts charged with the cost of such 
construction. Plant constructed from contributions of cash or its 
equivalent shall be shown as a reduction to gross plant constructed when 
assembling cost data in work orders for posting to plant ledgers of 
accounts. The accumulated gross costs of plant accumulated in the work 
order shall be recorded as a debit in the plant ledger of accounts along 
with the related amount of contributions concurrently be recorded as a 
credit.
    (c) Components of construction cost. The cost of construction 
properly includible in the electric plant accounts shall include, where 
applicable, the direct and overhead costs as listed and defined 
hereunder:
    (1) Contract work includes amounts paid for work performed under 
contract by other companies, firms, or individuals, costs incident to 
the award of such contracts, and the inspection of such work.
    (2) Labor includes the pay and expenses of employees of the utility 
engaged on construction work, and related workmen's compensation 
insurance,

[[Page 889]]

payroll taxes, and similar items of expense. It does not include the pay 
and expenses of employees which are distributed to construction through 
clearing accounts nor the pay and expenses included in other items 
hereunder.
    (3) Materials and supplies includes the purchase price at the point 
of free delivery plus customs duties, excise taxes, the cost of 
inspection, loading and transportation, the related stores expenses, and 
the cost of fabricated materials from the utility's shop. In determining 
the cost of materials and supplies used for construction, proper 
allowance shall be made for unused materials and supplies, for materials 
recovered from temporary structures used in performing the work 
involved, and for discounts allowed and realized in the purchase of 
materials and supplies.

    Note: The cost of individual items of equipment of small value (for 
example, $500 or less) or of short life, including small portable tools 
and implements, shall not be charged to utility plant accounts unless 
the correctness of the accounting therefor is verified by current 
inventories. The cost shall be charged to the appropriate operating 
expense or clearing accounts, according to the use of such items, or, if 
such items are consumed directly in construction work, the cost shall be 
included as part of the cost of the construction.

    (4) Transportation includes the cost of transporting employees, 
materials and supplies, tools, purchased equipment, and other work 
equipment (when not under own power) to and from points of construction. 
It includes amounts paid to others as well as the cost of operating the 
utility's own transportation equipment. (See Item in paragraph (c)(5) of 
this section.)
    (5) Special machine service includes the cost of labor (optional), 
materials and supplies, depreciation, and other expenses incurred in the 
maintenance, operation and use of special machines, such as steam 
shovels, pile drivers, derricks, ditchers, scrapers, material unloaders, 
and other labor saving machines; also expenditures for rental, 
maintenance and operation of machines of others. It does not include the 
cost of small tools and other individual items of small value or short 
life which are included in the cost of materials and supplies. (See Item 
in paragraph (c)(3) of this section.) When a particular construction job 
requires the use for an extended period of time of special machines, 
transportation or other equipment, the net book cost thereof, less the 
appraised or salvage value at time of release from the job, shall be 
include in the cost of construction.
    (6) Shop service includes the proportion of the expense of the 
utility's shop department assignable to construction work except that 
the cost of fabricated materials from the utility's shop shall be 
included in ``materials and supplies.''
    (7) Protection includes the cost of protecting the utility's 
property from fire or other casualties and the cost of preventing 
damages to others, or to the property of others, including payments for 
discovery or extinguishment of fires, cost of apprehending and 
prosecuting incendiaries, witness fees in relation thereto, amounts paid 
to municipalities and others for fire protection, and other analogous 
items of expenditures in connection with construction work.
    (8) Injuries and damages includes expenditures or losses in 
connection with construction work on account of injuries to persons and 
damages to the property of others; also the cost of investigation of and 
defense against actions for such injuries and damages. Insurance 
recovered or recoverable on account of compensation paid for injuries to 
persons incident to construction shall be credited to the account or 
accounts to which such compensation is charged. Insurance recovered or 
recoverable on account of property damages incident to construction 
shall be credited to the account or accounts charged with the cost of 
the damages.
    (9) Privileges and permits includes payments for and expenses 
incurred in securing temporary privileges, permits or rights in 
connection with construction work, such as for the use of private or 
public property, streets, or highways, but it does not include rents, or 
amounts chargeable as franchises and consents for which see Account 302, 
Franchises and Consents.
    (10) Rents includes amounts paid for the use of construction 
quarters and office space occupied by construction forces and amounts 
properly includible

[[Page 890]]

in construction costs for such facilities jointly used.
    (11) Engineers and supervision includes the portion of the pay and 
expenses of engineers, surveyors, draftsmen, inspectors, superintendents 
and their assistants applicable to construction work.
    (12) General administration capitalized includes the portion of the 
pay and expenses of the general officers and administrative and general 
expenses applicable to construction work.
    (13) Engineering services includes amounts paid to other companies, 
firms, or individuals engaged by the utility to plan, design, prepare 
estimates, supervise, inspect, or give general advice and assistance in 
connection with construction work.
    (14) Insurance includes premiums paid or amounts provided or 
reserved as self-insurance for the protection against loss and damages 
in connection with construction, by fire or other casualty, injuries or 
deaths of persons other than employees, damages to property of others, 
defalcation of employees and agents, and the nonperformance of 
contractual obligations of others. It does not include workmen's 
compensation or similar insurance on employees included as ``labor'' in 
Item in paragraph (c)(2) of this section.
    (15) Law expenditures includes the general law expenditures incurred 
in connection with construction and the court and legal costs directly 
related thereto, other than law expenses included in ``Protection,'' 
Item in paragraph (c)(7) of this section, and in Injuries and damages, 
Item in paragraph (c)(8) of this section.
    (16) Taxes includes taxes on physical property (including land) 
during the period of construction and other taxes properly includible in 
construction costs before the facilities become available for service.
    (17) Allowance for funds used during construction includes the net 
cost for the period of construction of borrowed funds used for 
construction purposes and a reasonable rate on other funds when so used, 
not to exceed, without prior approval of RUS, allowances computed in 
accordance with the formula prescribed in Item in paragraph (c)(17)(i) 
of this section. No allowance for funds used during construction charges 
shall be included in these accounts upon expenditures for construction 
projects which have been abandoned.
    (i) The formula and elements for the computation of the allowance 
for funds used during construction shall be:
[GRAPHIC] [TIFF OMITTED] TC16SE91.004

Where:

Ai = Gross allowance for borrowed funds used during 
          construction rate.
Ac = Allowance for other funds used during construction rate.
S = Average short-term debt.
s = Short-term debt interest rate.
D = Long-term debt.
d = Long-term debt interest rate.
P = Preferred stock.
p = Preferred stock cost rate.
C = Patronage capital assigned.
c = Entity's incremental borrowing rate.
W = Average balance in construction work in progress plus nuclear fuel 
          in process of refinement, conversion, enrichment, and 
          fabrication.

    (ii) The rate shall be determined annually.
    (A) The balance for long-term debt, preferred stock, and patronage 
capital assigned shall be the actual book balances as of the end of the 
prior year.

[[Page 891]]

    (B) The cost rate for long-term debt and preferred stock shall be 
the weighted average cost.
    (C) The cost rate for patronage capital assigned shall be the 
entity's incremental borrowing rate.
    (D) The short-term debt balances and related cost and the average 
balance for construction work in progress plus nuclear fuel in process 
of refinement, conversion, enrichment, and fabrication shall be 
estimated for the current year with appropriate adjustments as actual 
data becomes available.

    Note: When only a portion of a plant or project is placed in 
operation or is completed and ready for service but the construction 
work as a whole is incomplete, that part of the cost of the property 
placed in operation or ready for service shall be treated as ``Electric 
Plant in Service,'' and an allowance for funds used during construction 
thereon as a charge to construction shall cease. Allowance for funds 
used during construction on that part of the cost of the plant which is 
incomplete may continue to be charged to construction until such time as 
it is placed in operation or is ready for service, except as limited in 
Item in paragraph (c)(17) of this section.

    (18) Earnings and expenses during construction. The earnings and 
expenses during construction shall constitute a component of 
construction costs.
    (i) The earnings shall include revenues received or earned for power 
produced by generating plants during the construction period and sold or 
used by the utility.
    (A) Where such power is sold to an independent purchaser before 
intermingling with power generated by other plants, the credit shall 
consist of the selling price of the energy.
    (B) Where the power generated by a plant under construction is 
delivered to the utility's electric system for distribution and sale, or 
is delivered to an associated company, or is delivered to and used by 
the utility for purposes other than distribution and sale (for 
manufacturing or industrial use, for example), the credit shall be the 
fair value of the energy so delivered.
    (C) Revenue shall also include rentals for lands, buildings, and 
other property, and miscellaneous receipts not properly includible in 
other accounts.
    (ii) Expenses shall consist of the cost of operating the power 
plant, and other costs incident to the production and delivery of the 
power for which construction is credited under paragraph (c)(18)(i) of 
this section, including the cost of repairs and other expenses of 
operating and maintaining lands, buildings, and other property, and 
other miscellaneous and like expenses not properly includible in other 
accounts.
    (19) Training costs. (i) When it is necessary that employees be 
trained to operate or maintain plant facilities that are being 
constructed and such facilities are not conventional in nature, or are 
new to the company's operations, these costs may be capitalized as a 
component of construction cost.
    (ii) Once plant is placed in service, the capitalization of training 
costs shall cease and subsequent training costs shall be expensed. (See 
Sec. 1767.17 (d).)
    (20) Studies. (i) Studies include the costs of studies such as 
nuclear operational, safety, or seismic studies, or environmental 
studies mandated by regulatory bodies relative to plant under 
construction.
    (ii) Studies relative to facilities in service shall be charged to 
Account 183, Preliminary Survey and Investigation Charges.
    (d) Overhead construction costs. (1) All overhead construction 
costs, such as engineering, supervision, general office salaries and 
expenses, construction engineering and supervision performed by others 
than the accounting utility, law expenses, insurance, injuries and 
damages, relief and pensions, taxes and interest, shall be charged to 
particular jobs or units on the basis of the amounts of such overheads 
reasonably applicable thereto, to the end that each job or unit shall 
bear its equitable proportion of such costs and that the entire cost of 
the unit, both direct and overhead, shall be deducted from the plant 
accounts as the time the property is retired.
    (2) As far as practicable, the determination of payroll charges 
includible in construction overheads shall be based on time card 
distributions thereof.
    (i) Where this procedure is impractical, special studies shall be 
made periodically of the time of supervisory

[[Page 892]]

employees devoted to construction activities to the end that only such 
overhead costs as have a definite relation to construction shall be 
capitalized.
    (ii) The addition to direct construction cost of arbitrary 
percentages or amounts to cover assumed overhead costs is not permitted.
    (3) The records supporting the entries for overhead constructions 
costs shall be so kept as to show:
    (i) The total amount of each overhead for each year;
    (ii) The nature and amount of each overhead expenditure charged to 
each construction work order and to each electric plant account; and
    (iii) The bases of distribution of such costs.
    (e) Electric plant purchased or sold. (1) When electric plant 
constituting an operating unit or system is acquired by purchase, 
merger, consolidation, liquidation, or otherwise, after the effective 
date of this system of accounts, the costs of acquisition, including 
expenses incidental thereto properly includible in electric plant, shall 
be charged to Account 102, Electric Plant Purchased or Sold.
    (2) The accounting for the acquisition shall then be completed as 
follows:

    (i) The original cost of plant, estimated if not known, shall be 
credited to Account 102, Electric Plant Purchased or Sold, and 
concurrently charged to the appropriate electric plant in service 
accounts and to Account 104, Electric Plant Leased to Others; Account 
105, Electric Plant Held for Future Use; and Account 107, Construction 
Work in Progress--Electric, as appropriate.
    (ii) The depreciation and amortization applicable to the original 
cost of the properties purchased shall be charged to Account 102, 
Electric Plant Purchased or Sold, and concurrently credited to the 
appropriate account for accumulated provision for depreciation or 
amortization.
    (iii) The cost to the utility of any property includible in Account 
121, Nonutility Property, shall be transferred thereto.
    (iv) The amount remaining in Account 102, Electric Plant Purchased 
or Sold, shall then be closed to Account 114, Electric Plant Acquisition 
Adjustments.
    (3) If property acquired in the purchase of an operating unit or 
system is in such physical condition when acquired that it is necessary 
to substantially rehabilitate it in order to bring the property up to 
the standards of the utility, the cost of such work, except 
replacements, shall be accounted for as a part of the purchase price of 
the property.
    (4) When any property acquired as an operating unit or system 
includes duplicate or other plant which will be retired by the 
accounting utility in the reconstruction of the acquired property or its 
consolidation with previously owned property, the proposed accounting 
for such property shall be presented to RUS.
    (5) In connection with the acquisition of electric plant 
constituting an operating unit or system, the utility shall procure, if 
possible, all existing records relating to the property acquired or 
certified copies thereof, and shall preserve such records in conformity 
with regulations or practices governing the preservation of records of 
its own construction.
    (6) When electric plant constituting an operating unit or system is 
sold, conveyed, or transferred to another by sale, merger, 
consolidation, or otherwise, the book cost of the property sold or 
transferred to another shall be credited to the appropriate utility 
plant accounts, including amounts carried in Account 114, Electric Plant 
Acquisition Adjustments, and the amounts (estimated if not known) 
carried with respect thereto in the accounts for accumulated provision 
for depreciation and amortization and in Account 252, Customer Advances 
for Construction, shall be charged to such accounts and contra entries 
made to Account 102, Electric Plant Purchased or Sold. Unless otherwise 
ordered by RUS, the difference, if any, between:
    (i) The net amount of debits and credits, and
    (ii) The consideration received for the property (less commissions 
and other expenses of making the sale) shall be included in Account 
421.1, Gain on Disposition of Property, or Account 421.2, Loss on 
Disposition of Property.

[[Page 893]]

(See Account 102, Electric Plant Purchased or Sold.)

    Note: In cases where existing utilities merge or consolidate because 
of financial or operating reasons or statutory requirements rather than 
as a means of transferring title of purchased properties to a new owner, 
the accounts of the constituent utilities, with the approval of RUS, may 
be combined. In the event original cost has not been determined, the 
resulting utility shall proceed to determine such cost as outlined 
herein.

    (f) Expenditures on leased property. (1) The cost of substantial 
initial improvements (including repairs, rearrangements, additions, and 
betterments) made in the course of preparing for utility service 
property leased for a period of more than one year, and the cost of 
subsequent substantial additions, replacements, or betterments to such 
property, shall be charged to the electric plant account appropriate for 
the class of property leased.
    (i) If the service life of the improvements is terminable by action 
of the lease, the cost, less net salvage, of the improvements shall be 
spread over the life of the lease by charges to Account 404, 
Amortization of Limited-Term Electric Plant.
    (ii) If the service life is not terminated by action of the lease 
but by depreciation proper, the cost of the improvements, less net 
salvage, shall be accounted for as depreciable plant. The provisions of 
(1) are applicable to property leased under either capital leases or 
operating leases.
    (2) If improvements made to property leased for a period of more 
than one year are of relatively minor cost, or if the lease is for a 
period of not more than one year, the cost of the improvements shall be 
charged to the account in which the rent is included, either directly or 
by amortization thereof.
    (g) Land and land rights. (1) The accounts for land and land rights 
shall include the cost of land owned in fee by the utility and rights, 
interests, and privileges held by the utility in land owned by others, 
such as leaseholds, easements, water and water power rights, diversion 
rights, submersion rights, rights-of-way, and other like interests in 
land.
    (i) Do not include in the accounts for land and land rights and 
rights-of-way costs incurred in connection with first clearing and 
grading of land and rights-of-way and the damage costs associated with 
the construction and installation of plant.
    (ii) Such costs shall be included in the appropriate plant accounts 
directly benefited.
    (2) Where special assessments for public improvements provide for 
deferred payments, the full amount of the assessments shall be charged 
to the appropriate land account and the unpaid balance shall be carried 
in an appropriate liability account.
    (i) Interest on unpaid balances shall be charged to the appropriate 
interest account.
    (ii) If any part of the cost of public improvements is included in 
the general tax levy, the amount thereof shall be charged to the 
appropriate tax account.
    (3) The net profit from the sale of timber, cord wood, sand, gravel, 
other resources or other property acquired with the rights-of-way or 
other lands shall be credited to the appropriate plant accounts to which 
related. Where land is held for a considerable period of time and timber 
and other natural resources on the land at the time of purchase increase 
in value, the net profit (after giving effect to the cost of the natural 
resources) from the sale of timber or its products or other natural 
resources shall be credited to the appropriate utility operating income 
account when such land has been recorded in Account 105, Electric Plant 
Held for Future Use, or classified as plant in service, otherwise to 
Account 421, Miscellaneous Nonoperating Income.
    (4) Separate entries shall be made for the acquisition, transfer, or 
retirement of each parcel of land, and each land right (except rights-
of-way for distribution lines), or water right, having a life of more 
than one year.
    (i) A record shall be maintained showing the nature of ownership, 
full legal description, area, map reference, purpose for which used, 
city, county, and tax district on which situated, from whom purchased or 
to whom sold, payment given or received, other costs, contract date and 
number, date of recording of deed, and book and page of record.

[[Page 894]]

    (ii) Entries transferring or retiring land or land rights shall 
refer to the original entry recording its acquisition.
    (5) Any difference between the amount received from the sale of land 
or land rights, less agents' commissions and other costs incident to the 
sale, and the book cost of such land or rights, shall be included in 
Account 411.6, Gains from Disposition of Utility Plant, or 411.7, Losses 
from Disposition of Utility Plant, when such property has been recorded 
in Account 105, Electric Plant Held for Future Use, otherwise to Account 
421.1, Gain on Disposition of Property, or 421.2, Loss on Disposition of 
Property, as appropriate, unless a reserve therefor has been authorized 
and provided. Appropriate adjustments of the accounts shall be made with 
respect to any structures or improvements located on land sold.
    (6) The cost of buildings and other improvements (other than public 
improvements) shall not be included in the land accounts. If, at the 
time of acquisition of an interest in land, such interest extends to 
buildings or other improvements (other than public improvements) which 
are then devoted to utility operations, the land and improvements shall 
be separately appraised and a cost allocated to land and buildings or 
improvements on the basis of the appraisals. If the improvements are 
removed or wrecked without being used in operations, the cost of 
removing or wrecking shall be charged and the salvage credited to the 
account in which the cost of land is recorded.
    (7) When the purchase of land for electric operations requires the 
purchase of more land than needed for such purposes, the charge to the 
specific land account shall be based upon the cost of the land 
purchased, less the fair market value of that portion of the land which 
is not to be used in utility operations. The portion of the cost 
measured by the fair market value of the land not to be used shall be 
included in Account 105, Electric Plant Held for Future Use, or Account 
121, Nonutility Property, as appropriate.
    (8) Provisions shall be made for amortizing amounts carried in the 
accounts for limited-term interest in land so as to apportion equitably 
the cost of each interest over the life thereof. (See Account 111, 
Accumulated Provision for Amortization of Electric Utility Plant, and 
Account 404, Amortization of Limited-Term Electric Plant.)
    (9) The items of cost to be included in the accounts for land and 
land rights are as follows:
    (i) Bulkheads, buried, not requiring maintenance or replacement;
    (ii) First cost of acquisition including mortgages and other liens 
assumed (but not subsequent interest thereon);
    (iii) Condemnation proceedings, including court and counsel costs;
    (iv) Consents and abutting damages;
    (v) Conveyancers' and notaries' fees;
    (vi) Fees, commissions, and salaries to brokers, agents, and other 
in connection with the acquisition of the land or land rights;
    (vii) Leases, cost of voiding upon purchase to secure possession of 
land;
    (viii) Removing, relocating, or reconstructing property of others, 
such as buildings, highways, railroads, bridges, cemeteries, churches, 
telephone and power lines, etc., in order to acquire quiet possession;
    (ix) Retaining walls unless identified with structures;
    (x) Special assessments levied by public authorities for public 
improvements on the basis of benefits for new roads, new bridges, new 
sewers, new curbing, new pavements, and other public improvements, but 
not taxes levied to provide for the maintenance of such improvements;
    (xi) Surveys in connection with the acquisition, but not amounts 
paid for topographical surveys and maps where such costs are 
attributable to structures or plant equipment erected or to be erected 
or installed on such land;
    (xii) Taxes assumed, accrued to date of transfer of title;
    (xiii) Title, examining, clearing, insuring, and registering in 
connection with the acquisition and defending against claims relating to 
the period prior to the acquisition;
    (xiv) Appraisals prior to closing title;
    (xv) Cost of dealing with distributees or legatees residing outside 
of the state or county, such as recording power of

[[Page 895]]

attorney, recording will or exemplification of will, recording 
satisfaction of state tax;
    (xvi) Filing satisfaction of mortgage;
    (xvii) Documentary stamps;
    (xviii) Photographs of property at acquisition;
    (xix) Fees and expenses incurred in the acquisition of water rights 
and grants;
    (xx) Cost of fill to extend bulkhead line over land under water, 
where riparian rights are held, which is not occasioned by the erection 
of a structure;
    (xxi) Sidewalks and curbs constructed by the utility on public 
property; and
    (xxii) Labor and expenses in connection with securing rights of way, 
where performed by company employees and company agents.
    (h) Structures and improvements. (1) The accounts for structures and 
improvements shall include the cost of all buildings and facilities to 
house, support, or safeguard property or persons, including all fixtures 
permanently attached to and made a part of buildings and which cannot be 
removed therefrom without cutting into the walls, ceilings, or floors, 
or without in some way impairing the buildings, and improvements of a 
permanent character on or to land.
    (2) Also include those costs incurred in connection with the first 
clearing and grading of land and rights-of-way and the damage costs 
associated with construction and installation of plant.
    (3) The cost of specially provided foundations not intended to 
outlast the machinery or apparatus for which provided, and the cost of 
angle irons, and castings installed at the base of an item of equipment, 
shall be charged to the same account as the cost of the machinery, 
apparatus, or equipment.
    (4) Minor buildings and structures, such as valve towers, 
patrolmen's towers, telephone stations, fish and wildlife, and 
recreation facilities which are used directly in connection with or form 
a part of a reservoir, dam or waterway shall be considered a part of the 
facility in connection with which constructed or operated and the cost 
thereof accounted for accordingly.
    (5) Where furnaces and boilers are used primarily for furnishing 
steam for some particular department and only incidentally for 
furnishing steam for heating a building and operating the equipment 
therein, the entire cost of such furnaces and boilers shall be charged 
to the appropriate plant account, and no part to the building account.
    (6) Where the structure of a dam forms also the foundation of the 
power plant building, such foundation shall be considered a part of the 
dam.
    (7) The cost of disposing of materials excavated in connection with 
construction of structures shall be considered as a part of the cost of 
such work, except when such material is used for filling, the cost of 
loading, hauling, and dumping shall be equitably apportioned between the 
work in connection with which the removal occurs and the work in 
connection with which the material is used; and when such material is 
sold, the net amount realized from such sales shall be credited to the 
work in connection with which the removal occurs. If the amount realized 
from the sale of excavated materials exceeds the removal costs and the 
costs in connection with the sale, the excess shall be credited to the 
land account in which the site is carried.
    (8) Lighting or other fixtures temporarily attached to building for 
purposes of display or demonstration shall not be included in the cost 
of the building but in the appropriate equipment account.
    (9) The items of cost to be included in the accounts for structures 
and improvements are as follows:
    (i) Architects' plans and specifications including supervision;
    (ii) Ash pits (when located within the building);
    (iii) Athletic field structures and improvements;.
    (iv) Boilers, furnaces, piping, wiring, fixtures, and machinery for 
heating, lighting, signaling, ventilating, and air conditioning systems, 
plumbing, vacuum cleaning systems, incinerator and smoke pipe, flues, 
etc;
    (v) Bulkheads, including dredging, riprap fill, piling, decking, 
concrete, fenders, etc., when exposed and subject to maintenance and 
replacement;
    (vi) Chimneys;
    (vii) Coal bins and bunkers;

[[Page 896]]

    (viii) Commissions and fees to brokers, agents, architects and 
others;
    (ix) Conduit (not to be removed) with its contents;
    (x) Damages to abutting property during construction;
    (xi) Docks;
    (xii) Door checks and door stops;
    (xiii) Drainage and sewerage systems;
    (xiv) Elevators, cranes, hoists, etc., and the machinery for 
operating them;
    (xv) Excavation, including shoring, bracing, bridging, refill and 
disposal of excess excavated material, cofferdams around foundation, 
pumping water from cofferdams during construction and test borings;
    (xvi) Fences and fence curbs (not including protective fences 
isolating items of equipment, which shall be charged to the appropriate 
equipment accounts);
    (xvii) Fire protection systems when forming a part of a structure;
    (xviii) Flagpole;
    (xix) Floor covering (permanently attached);
    (xx) Foundations and piers for machinery, constructed as a permanent 
part of a building or other item listed herein;
    (xxi) Grading and clearing when directly occasioned by the building 
of a structure;
    (xxii) Intrasite communication system, poles, pole fixtures, wires, 
and cable;
    (xxiii) Landscaping, lawns, shrubbery, etc.;
    (xxiv) Leases, voiding upon purchase to secure possession of 
structures;
    (xxv) Leased property, expenditures on;
    (xxvi) Lighting fixtures and outside lighting system;
    (xxvii) Mailchutes when part of a building;
    (xxviii) Marquee, permanently attached to the building;
    (xxix) Painting, first cost;
    (xxx) Permanent paving, concrete, brick, flagstone, asphalt, etc., 
within the property lines;
    (xxxi) Partitions, including movable;
    (xxxii) Permits and privileges;
    (xxxiii) Platforms, railings and gratings when constructed as a part 
of a structure;
    (xxxiv) Power boards for services to a building;
    (xxxv) Refrigerating systems for general use;
    (xxxvi) Retaining walls except when identified with land;
    (xxxvii) Roadways, railroads, bridges, and trestles intrasite except 
railroads provided for in equipment accounts;
    (xxxviii) Roofs;
    (xxxix) Scales, connected to and forming a part of a structure;
    (xl) Screens;
    (xli) Sewer systems, for general use;
    (xlii) Sidewalks, culverts, curbs and streets constructed by the 
utility on its property;
    (xliii) Sprinkling systems;
    (xliv) Sump pumps and pits;
    (xlv) Stacks--brick, steel, or concrete, when set on foundation 
forming part of general foundation and steelwork of a building;
    (xlvi) Steel inspection during construction;
    (xlvii) Storage facilities constituting a part of a building;
    (xlviii) Storm doors and windows;
    (xlix) Subways, areaways, and tunnels, directly connected to and 
forming part of a structure;
    (l) Tanks, constructed as part of a building or as a distinct 
structural unit;
    (li) Temporary heating during construction (net cost);
    (lii) Temporary water connection during construction (net cost);
    (liii) Temporary shanties and other facilities used during 
construction (net cost);
    (liv) Topographical maps;
    (lv) Tunnels, intake and discharge, when constructed as part of a 
structure, including sluice gates, and those constructed to house mains;
    (lvi) Vaults constructed as part of a building;
    (lvii) Watchmen's sheds and clock systems (net cost when used during 
construction only);
    (lviii) Water basins or reservoirs;
    (lix) Water front improvements;
    (lx) Water meters and supply system for a building or for general 
company purposes;
    (lxi) Water supply piping, hydrants, and wells;
    (lxii) Wharves;

[[Page 897]]

    (lxiii) Window shades and ventilators;
    (lxiv) Yard drainage system;
    (lxv) Yard lighting system; and
    (lxvi) Yard surfacing, gravel, concrete, or oil (First cost only).

    Note: Structures and improvements accounts shall be credited with 
the cost of coal bunkers, stacks, foundations, subways, and tunnels, the 
use of which has terminated with the removal of the equipment with which 
they are associated even though they have not been physically removed.

    (i) Equipment. (1) The cost of equipment chargeable to the electric 
plant accounts, unless otherwise indicated in the text of an equipment 
account, includes the net purchase price thereof, sales taxes, 
investigation and inspection expenses necessary to such purchase, 
expenses of transportation when borne by the utility, labor employed, 
materials, and supplies consumed, and expenses incurred by the utility 
in unloading and placing the equipment in readiness to operate.
    (2) Also include those costs incurred in connection with the first 
clearing and grading of land and rights-of-way and the damage costs 
associated with construction and installation of plant.
    (3) Exclude from equipment accounts hand and other portable tools, 
which are likely to be lost or stolen or which have relatively small 
value (for example, $500 or less) or short life, unless the correctness 
of the accounting therefor as electric plant is verified by current 
inventories.
    (i) Special tools acquired and included in the purchase price of 
equipment shall be included in the appropriate plant accounts.
    (ii) Portable drills and similar tool equipment when used in 
connection with the operation and maintenance of a particular plan or 
department, such as production, transmission, or distribution or in 
``stores'', shall be charged to the plant accounts appropriate for their 
use.
    (4) The equipment accounts shall include angle irons and similar 
items which are installed at the base of an item of equipment, but piers 
and foundations which are designed to be as permanent as the buildings 
which house the equipment, or which are constructed as a part of the 
building and which cannot be removed without cutting into the walls, 
ceilings, or floors or, without in some way impairing the building, 
shall be included in the building accounts.
    (5) The equipment accounts shall include the necessary costs of 
testing or running a plant or parts thereof during an experimental or 
test period prior to such plant becoming ready for or placed in service.
    (i) The utility shall furnish RUS with full particulars of and 
justification for any test or experimental run extending beyond a period 
of 120 days for nuclear plant, and a period of 90 days for all other 
plant.
    (ii) Such particulars shall include a detailed operational and 
downtime log showing days of production, gross kilowatts generated by 
hourly increments, types, and periods of outages by hours with 
explanation thereof, beginning with the first date the equipment was 
either tested or synchronized on the line to the end of the test period.
    (6) The cost of efficiency or other tests made subsequent to the 
date equipment becomes available for service shall be charged to the 
appropriate expense accounts, except that tests to determine whether 
equipment meets the specifications and requirements as to efficiency, or 
performance guaranteed by manufacturers, made after operations have 
commenced and within the period specified in the agreement or contract 
of purchase, may be charged to the appropriate electric plant accounts.
    (j) Additions and retirements of electric plant. (1) For the purpose 
of avoiding undue refinement in accounting for additions to and 
retirements and replacements of electric plant, all property shall be 
considered as consisting of retirement units and minor items of 
property.
    (2) The addition and retirement of retirement units shall be 
accounted for as follows:
    (i) When a retirement unit is added to electric plant, the cost 
thereof shall be added to the appropriate electric plant account, except 
that when units are acquired in the acquisition of any electric plant 
constituting an operating system, they shall be accounted for as 
provided in paragraph (e) of this section.

[[Page 898]]

    (ii) When a retirement unit is retired from electric plant, with or 
without replacement, the book cost thereof shall be credited to the 
electric plant account in which it is included, determined in the manner 
set forth in Item in paragraph (j)(4) of this section. If the retirement 
unit is of a depreciable class, the book cost of the unit retired and 
credited to electric plant shall be charged to the accumulated provision 
for depreciation applicable to such property. The cost of removal and 
the salvage shall be charged or credited, as appropriate, to such 
depreciation account.
    (3) The addition and retirement of minor items of property shall be 
accounted for as follows:
    (i) When a minor item of property which did not previously exist is 
added to plant, the cost thereof shall be accounted for in the same 
manner as for the addition of a retirement unit, as set forth in Item in 
paragraph (j)(2)(i) of this section, if a substantial addition results, 
otherwise the charge shall be to the appropriate maintenance expense 
account.
    (ii) When a minor item of property is retired and not replaced, the 
book cost thereof shall be credited to the electric plant account in 
which it is included; and, in the event the minor item is a part of 
depreciable plant, the account for accumulated provision for 
depreciation shall be charged with the book cost and cost of removal and 
credited with the salvage. If, however, the book cost of the minor item 
retired and not replaced has been or will be accounted for by its 
inclusion in the retirement unit of which it is a part when such unit is 
retired, no separate credit to the property account is required when 
such minor item is retired.
    (iii) When a minor item of depreciable property is replaced 
independently of the retirement unit of which it is a part, the cost of 
replacement shall be charged to the maintenance account appropriate for 
the item, except that if the replacement effects a substantial 
betterment (the primary aim of which is to make the property affected 
more useful, more efficient, of greater durability, or of greater 
capacity), the excess cost of the replacement over the estimated cost at 
current prices of replacing without betterment shall be charged to the 
appropriate electric plant accounts.
    (4) The book cost of electric plant retired shall be the amount at 
which such property is included in the electric plant accounts, 
including all components of construction costs. The book cost shall be 
determined from the utility's records and if this cannot be done, it 
shall be estimated. When it is impracticable to determine the book cost 
of each unit, due to the relatively large number or small cost thereof, 
an appropriate average book cost of the units with due allowance for any 
differences in size and character, shall be used as the book cost of the 
units retired.
    (5) The book cost of land retired shall be credited to the 
appropriate land accounts. If the land is sold, the difference between 
the book cost (less any accumulated provision for depreciation or 
amortization therefore which has been authorized and provided) and the 
sale price of the land (less commissions and other expenses of making 
the sale) shall be recorded in Account 411.6, Gains from Disposition of 
Utility Plant, or Account 411.7, Losses from Disposition of Utility 
Plant, when the property has been recorded in Account 105, Electric 
Plant Held for Future Use, otherwise to Accounts 421.1, Gain on 
Disposition of Property, or 421.2, Loss on Disposition of Property, as 
appropriate. If the land is not used in utility service but is retained 
by the utility, the book cost shall be charged to Account 105, Electric 
Plant Held for Future Use, or Account 121, Nonutility Property, as 
appropriate.
    (6) The book cost less net salvage of depreciable electric plant 
retired shall be charged in its entirety to Account 108, Accumulated 
Provision for Depreciation of Electric Utility Plant in Service. Any 
amounts which, by approval or order of RUS, are charged to Account 
182.1, Extraordinary Property Losses, shall be credited to Account 108.
    (7) The accounting for the retirement of amounts included in Account 
302, Franchises and Consents, and Account 303, Miscellaneous Intangible 
Plant, and the items of limited-term interest in land included in the 
accounts for

[[Page 899]]

land and land rights, shall be as provided for in the text of Account 
111, Accumulated Provision for Amortization of Electric Utility Plant in 
Service; Account 404, Amortization of Limited-Term Electric Plant; and 
Account 405, Amortization of Other Electric Plant.
    (k) Work order and property record system required. (1) Each utility 
shall record all construction and retirements of electric plant by means 
of work orders or job orders. Separate work orders may be opened for 
additions to and retirements of electric plant or the retirements may be 
included with the construction work order, provided, however, that all 
items relating to the retirements shall be kept separate from those 
relating to construction and provided, further, that any maintenance 
costs involved in the work shall likewise be segregated.
    (2) Each utility shall keep its work order system so as to show the 
nature of each addition to or retirement of electric plant, the total 
cost thereof, the source or sources of costs, and the electric plant 
account or accounts to which charged or credited. Work orders covering 
jobs of short duration may be cleared monthly.
    (3) Each utility shall maintain records in which, for each plant 
account, the amounts of the annual additions and retirements are 
classified so as to show the number and cost of the various record units 
or retirement units.
    (l) Transfers of property. When property is transferred from one 
electric plant account to another, from one utility department to 
another, such as from electric to gas, from one operating division or 
area to another, to or from Account 101, Electric Plant in Service; 
Account 104, Electric Plant Leased to Others; Account 105, Electric 
Plant Held for Future Use, and Account 121, Nonutility Property, the 
transfer shall be recorded by transferring the original cost thereof 
from the one account, department, or location to the other. Any related 
amounts carried in the accounts for accumulated provision for 
depreciation or amortization shall be transferred in accordance with the 
segregation of such accounts.
    (m) Common utility plant. (1) If the utility is engaged in more than 
one utility service, such as electric, gas, and water, and any of its 
utility plant is used in common for several utility services or for 
other purposes to such an extent and in such manner that it is 
impracticable to segregate it by utility services currently in the 
accounts, such property, with the approval of RUS, may be designated and 
classified as ``common utility plant.''
    (2) The book amount of utility plant designated as common plant 
shall be included in Account 118, Other Utility Plant, and if applicable 
in part to the electric department, shall be segregated and accounted 
for in subaccounts as electric plant is accounted for in Accounts 101 to 
107, inclusive, and electric plant adjustments in Account 116, Other 
Electric Plant Adjustments; any amounts classifiable as common plant 
acquisition adjustments or common plant adjustments shall be subject to 
disposition as provided in Paragraphs C and B of Accounts 114 and 116, 
respectively, for amounts classified in those accounts. The original 
cost of common utility plant in service shall be classified according to 
the detailed utility plant accounts appropriate for the property.
    (3) The utility shall be prepared to show, at any time, and to 
report to RUS annually, or more frequently, if required, and by utility 
plant accounts (301 to 399) the book cost of common utility plant, the 
allocation of such cost to the respective departments using the common 
utility plant, and the basis of the allocation.
    (4) The accumulated provision for depreciation and amortization of 
the utility shall be segregated so as to show the amount applicable to 
the property classified as common utility plant.
    (5) The expenses of operation, maintenance, rents, depreciation and 
amortization of common utility plant shall be recorded in the accounts 
prescribed herein, but designated as common expenses, and the allocation 
of such expenses to the departments using the common utility plant shall 
be supported in such manner as to reflect readily the basis of 
allocation used.
    (n) Transmission and distribution plant. For the purpose of this 
system of accounts:

[[Page 900]]

    (1) Transmission system is all land, conversion structures, and 
equipment employed at a primary source of supply (i.e. generating 
station, or point of receipt in the case of purchased power) to change 
the voltage or frequency of electricity for the purpose of its more 
efficient or convenient transmission; all land, structures, lines, 
switching and conversion stations, high tension apparatus, and their 
control and protective equipment between a generating or receiving point 
and the entrance to a distribution center or wholesale point; and all 
lines and equipment whose primary purpose is to augment, integrate or 
tie together the sources of power supply.
    (2) Distribution system is all land, structures, conversion 
equipment, lines, line transformers, and other facilities employed 
between the primary source of supply (i.e. generating station, or point 
of receipt in the case of purchased power) and of delivery to customers, 
which are not includible in transmission system, as defined in Item in 
paragraph (n)(1) of this section, whether or not such land, structures, 
and facilities are operated as part of a transmission system or as part 
of a distribution system.

    Note: Stations which change electricity from transmission to 
distribution voltage shall be classified as distribution stations.

    (3) Where poles or towers support both transmission and distribution 
conductors, the poles, towers, anchors, guys, and rights-of-way shall be 
classified as transmission system. The conductors, cross-arms, braces, 
grounds, tiewire, and insulators shall be classified as transmission or 
distribution facilities, according to the purpose for which used.
    (4) Where underground conduit contains both transmission and 
distribution conductors, the underground conduit and right-of-way shall 
be classified as distribution system. The conductors shall be classified 
as transmission or distribution facilities according to the purpose for 
which used.
    (5) Land (other than rights-of-way) and structures used jointly for 
transmission and distribution purposes shall be classified as 
transmission or distribution according to the major use thereof.
    (o) Hydraulic production plant. For purpose of this system of 
accounts hydraulic production plant is all land and land rights, 
structures and improvements used in connection with hydraulic power 
generation, reservoirs, dams and waterways, water wheels, turbines, 
generators, accessory electric equipment, roads, railroads, and bridges 
and structures and improvements used in connection with fish and 
wildlife, and recreation.
    (p) Nuclear fuel records required. Each utility shall keep all the 
necessary records to support the entries to the various nuclear fuel 
plant accounts classified under ``Assets and Other Debits,'' Utility 
Plant Accounts 120.1 through 120.5, inclusive; Account 518, Nuclear Fuel 
Expense; and Account 157, Nuclear Materials Held for Sale. These records 
shall be so kept as to readily furnish the basis of the computation of 
the net nuclear fuel costs.



Sec. 1767.17  Operating expense instructions.

    (a) Supervision and engineering. The supervision and engineering 
includible in the operating expense accounts shall consist of the pay 
and expenses of superintendents, engineers, clerks, other employees, and 
consultants engaged in supervising and directing the operation and 
maintenance of each utility function. Whenever allocations are necessary 
in order to arrive at the amount to be included in any account, the 
method and basis of allocation shall be reflected by underlying records.
    (1) Labor items:
    (i) Special tests to determine efficiency of equipment operation;
    (ii) Preparing or reviewing budgets, estimates, and drawings 
relating to operation or maintenance for departmental approval;
    (iii) Preparing instructions for operations and maintenance 
activities;
    (iv) Reviewing and analyzing operating results;
    (v) Establishing organizational setup of departments and executing 
changes therein;
    (vi) Formulating and reviewing routines of departments and executing 
changes therein;
    (vii) General training and instruction of employees by supervisors 
whose pay

[[Page 901]]

is chargeable hereto. Specific instructions and training in a particular 
type of work is chargeable to the appropriate functional account (See 
Sec. 1767.16 (c) (19));
    (viii) Secretarial work for supervisory personnel, but not general 
clerical and stenographic work chargeable to other accounts.
    (2) Expense items:
    (i) Consultants' fees and expenses;
    (ii) Meals, traveling and incidental expenses.
    (b) Maintenance. (1) The cost of maintenance chargeable to the 
various operating expense and clearing accounts includes labor, 
materials, overheads and other expenses incurred in maintenance work. A 
list of work operations applicable generally to utility plant is 
included hereunder. Other work operations applicable to specific classes 
of plant are listed in functional maintenance expense accounts.
    (2) Materials recovered in connection with the maintenance of 
property shall be credited to the same account to which the maintenance 
cost was charged.
    (3) If the book cost of any property is carried in Account 102, 
Electric Plant Purchased or Sold, the cost of maintaining such property 
shall be charged to the accounts for maintenance of property of the same 
class and use, the book cost of which is carried in other electric plant 
in service accounts. Maintenance of property leased from others shall be 
treated as provided in paragraph (c) of this section.
    (4) Items:
    (i) Direct field supervision of maintenance;
    (ii) Inspecting, testing, and reporting on condition of plant 
specifically to determine the need for repairs, replacements, 
rearrangements and changes and inspecting and testing the adequacy of 
repairs which have been made;
    (iii) Work performed specifically for the purpose of preventing 
failure, restoring serviceability or maintaining life of plant;
    (iv) Rearranging and changing the location of plant not retired;
    (v) Repairing for reuse materials recovered from plant;
    (vi) Testing for, locating, and clearing trouble;
    (vii) Net cost of installing, maintaining, and removing temporary 
facilities to prevent interruptions in service; and
    (viii) Replacing or adding minor items of plant which do not 
constitute a retirement unit.
    (c) Rents. (1) The rent expense accounts provided under the several 
functional groups of expense accounts shall include all rents, including 
taxes paid by the lessee on leased property, for property used in 
utility operations, except minor amounts paid for occasional or 
infrequent use of any property or equipment and all amounts paid for use 
of equipment that, if owned, would be includible in plant Accounts 391 
to 398 inclusive, which shall be treated as an expense item and included 
in the appropriate function account and rents which are chargeable to 
clearing accounts, and distributed therefrom to the appropriate account.
    (2) If rents cover property used for more than one function such as 
production and transmission, or by more than one department, the rents 
shall be apportioned to the appropriate rent expense or clearing 
accounts of each department on an actual, or if necessary, an estimated 
basis.
    (3) When a portion of property or equipment rented from others for 
use in connection with utility operations is subleased, the revenue 
derived from such subleasing shall be credited to the rent revenue 
account in operating revenues; provided, however, that in case the rent 
was charged to a clearing account, amounts received from subleasing the 
property shall be credited to such clearing account.
    (4) The cost, when incurred by the lessee, of operating and 
maintaining leased property, shall be charged to the accounts 
appropriate for the expense if the property were owned.
    (5) The cost incurred by the lessee of additions and replacements to 
electric plant leased from others shall be account for as provided in 
Sec. 1767.16 (f).
    (d) Training costs. (1) When it is necessary that employees be 
trained to specifically operate or maintain plant facilities that are 
being constructed, the related costs shall be accounted for as a current 
operating and maintenance expense.

[[Page 902]]

    (2) These expenses shall be charged to the appropriate functional 
accounts currently as they are incurred.
    (3) When the training costs involved relate to facilities which are 
not conventional in nature, or are new to the company's operations, see 
Sec. 1767.16 (c) (19), for the accounting.



Sec. 1767.18  Assets and other debits.

    The asset and other debits accounts identified in this section shall 
be used by all RUS borrowers.

                         Assets and Other Debits

                              Utility Plant

101  Electric Plant in Service
101.1  Property Under Capital Leases
102  Electric Plant Purchased or Sold
103  Experimental Electric Plant Unclassified
104  Electric Plant Leased to Others
105  Electric Plant Held for Future Use
106  Completed Construction not Classified--Electric
107  Construction Work in Progress--Electric
107.1  Construction Work in Progress--Contract
107.2  Construction Work in Progress--Force Account
107.3  Construction Work in Progress--Special Equipment
108  Accumulated Provision for Depreciation of Electric Utility Plant
108.1  Accumulated Provision for Depreciation of Steam Production Plant
108.2  Accumulated Provision for Depreciation of Nuclear Production 
          Plant
108.3  Accumulated Provision for Depreciation of Hydraulic Production 
          Plant
108.4  Accumulated Provision for Depreciation of Other Production Plant
108.5  Accumulated Provision for Depreciation of Transmission Plant
108.6  Accumulated Provision for Depreciation of Distribution Plant
108.7  Accumulated Provision for Depreciation of General Plant
108.8  Retirement Work in Progress
109  [Reserved]
110  [Reserved]
111  Accumulated Provision for Amortization of Electric Utility Plant
112  [Reserved]
113  [Reserved]
114  Electric Plant Acquisition Adjustments
115  Accumulated Provision for Amortization of Electric Plant 
          Acquisition Adjustments
116  Other Electric Plant Adjustments
118  Other Utility Plant
119  Accumulated Provision for Depreciation and Amortization of Other 
          Utility Plant
120.1  Nuclear Fuel in Process of Refinement, Conversion, Enrichment, 
          and Fabrication
120.2  Nuclear Fuel Materials and Assemblies--Stock Account
120.3  Nuclear Fuel Assemblies in Reactor
120.4  Spent Nuclear Fuel
120.5  Accumulated Provision for Amortization of Nuclear Fuel Assemblies
120.6  Nuclear Fuel Under Capital Leases

                     Other Property and Investments

121  Nonutility Property
122  Accumulated Provision for Depreciation and Amortization of 
          Nonutility Property
123  Investment in Associated Companies
123.1  Patronage Capital from Associated Cooperatives
123.3  Investment in Associated Organizations--Federal Economic 
          Development Loans
123.4  Investment in Associated Organizations--Non-Federal Economic 
          Development Loans
123.11  Investment in Subsidiary Companies
123.21  Subscriptions to Capital Term Certificates--Supplemental 
          Financing
123.22  Investments in Capital Term Certificates--Supplemental Financing
123.23  Other Investments in Associated Organizations
124  Other Investments
124.1  Other Investments--Federal Economic Development Loans
124.2  Other Investments--Non-Federal Economic Development Loans
125  Sinking Funds
126  Depreciation Fund
128  Other Special Funds

                       Current and Accrued Assets

131  Cash
131.1  Cash--General
131.2  Cash--Construction Fund--Trustee
131.3  Cash--Installation Loan and Collection Fund
131.4  Transfer of Cash
131.12  Cash--General--Economic Development Loan Funds
131.13  Cash--General--Economic Development Grant Funds
131.14  Cash--General--Economic Development Non-Federal Revolving Funds
132  Interest Special Deposits
133  Dividend Special Deposits
134  Other Special Deposits
135  Working Funds
136  Temporary Cash Investments
141  Notes Receivable
141.1  Accumulated Provision for Uncollectible Notes--Credit
142  Customer Accounts Receivable
142.1  Customer Accounts Receivable--Electric
142.2  Customer Accounts Receivable--Other
143  Other Accounts Receivable

[[Page 903]]

144  Accumulated Provision for Uncollectible Accounts--Credit
144.1  Accumulated Provision for Uncollectible Customer Accounts--Credit
144.2  Accumulated Provision for Uncollectible Merchandising Accounts--
          Credit
144.3  Accumulated Provision for Uncollectible Accounts, Officers and 
          Employees--Credit
144.4  Accumulated Provision for Other Uncollectible Accounts--Credit 
          145 Notes Receivable from Associated Companies
145  Notes Receivable from Associated Companies
146  Accounts Receivable from Associated Companies
151  Fuel Stock
152  Fuel Stock Expenses Undistributed
153  Residuals
154  Plant Materials and Operating Supplies
155  Merchandise
156  Other Materials and Supplies
157  Nuclear Materials Held for Sale
158.1  Allowance Inventory
158.2  Allowances Withheld
163  Stores Expense Undistributed
165  Prepayments
165.1  Prepayments--Insurance
165.2  Other Prepayments
171  Interest and Dividends Receivable
172  Rents Receivable
173  Accrued Utility Revenues
174  Miscellaneous Current and Accrued Assets

                             Deferred Debits

181  Unamortized Debt Expense
182.1  Extraordinary Property Losses
182.2  Unrecovered Plant and Regulatory Study Costs
182.3  Other Regulatory Assets
183  Preliminary Survey and Investigation Charges
184  Clearing Accounts
184.1  Transportation Expense--Clearing
184.2  Clearing Accounts--Other
185  Temporary Facilities
186  Miscellaneous Deferred Debits
187  Deferred Losses from Disposition of Utility Plant
188  Research, Development, and Demonstration Expenditures
189  Unamortized Loss on Reacquired Debt
190  Accumulated Deferred Income Taxes

                         Assets and Other Debits

                              Utility Plant

                     101   Electric Plant in Service

    A. This account shall include the original cost of electric plant, 
included in Accounts 301 to 399, prescribed herein, owned and used by 
the utility in its electric utility operations, and having an 
expectation of life in service of more than one year from date of 
installation, including such property owned by the utility but held by 
nominees.
    B. (See also Account 106 for unclassified construction costs of 
completed plant actually in service.)
    C. The cost of additions to and betterments of property leased from 
others, which are includible in this account, shall be recorded in 
subdivisions separate and distinct from those relating to owned 
property. (See Sec. 1767.16 (f).)

                  101.1   Property Under Capital Leases

    A. This account shall include the amount recorded under capital 
leases for plant leased from others and used by the utility in its 
utility operations.
    B. The electric property included in this account shall be 
classified separately according to the detailed accounts (301 to 399) 
prescribed for electric plant in service.
    C. Records shall be maintained with respect to each capital lease 
reflection: (1) name of lessor, (2) basic details of lease, (3) terminal 
date, (4) original cost or fair market value of property leased, (5) 
future minimum lease payments, (6) executory costs, (7) present value of 
minimum lease payments, (8) the amount representing interest and the 
interest rate used, and (9) expenses paid.

                 102   Electric Plant Purchased or Sold

    A. This account shall be charged with the cost of electric plant 
acquired as an operating unit or system by purchase, merger, 
consolidation liquidation, or otherwise, and shall be credited with the 
selling price of like property transferred to others pending the 
distribution to appropriate accounts in accordance with Sec. 1767.16 
(e).
    B. Within 6 months from the date of acquisition or sale of property 
recorded herein, the borrower shall file with RUS the proposed journal 
entries to clear from this account the amounts recorded herein.

[[Page 904]]

             103   Experimental Electric Plant Unclassified

    A. This account shall include the cost of electric plant which was 
constructed as a research, development, and demonstration plant under 
the provisions of Paragraph C, Account 107, Construction Work in 
Progress--Electric, and due to the nature of the plant, it is desirous 
to operate it for a period of time in an experimental status.
    B. Amounts in this account shall be transferred to Account 101, 
Electric Plant in Service, or Account 121, Nonutility Property, as 
appropriate when the project is no longer considered as experimental.
    C. The depreciation on property in this account shall be charged to 
Account 403, Depreciation Expense, and credited to Account 108, 
Accumulated Provision for Depreciation of Electric Utility Plant. The 
amounts herein shall be depreciated over a period which would correspond 
to the estimated useful life of the relevant project considering the 
characteristics involved. However, when projects are transferred to 
Account 101, Electric Plant in Service, a new depreciation rate based 
upon the remaining service life and undepreciated amounts, will be 
established.
    D. Records shall be maintained with respect to each unit of 
experiment so that full details may be obtained as to the cost, 
depreciation, and the experimental status.
    E. Should it be determined that experimental plant recorded in this 
account will fail to satisfactorily perform its function, the costs 
thereof shall be accounted for as directed or authorized by RUS.

                  104   Electric Plant Leased to Others

    A. This account shall include the original cost of electric plant 
owned by the utility, but leased to others as operating units or 
systems, where the lessee has exclusive possession.
    B. The property included in this account shall be classified 
according to the detailed accounts (301 to 399) prescribed for electric 
plant in service and this account shall be maintained in such detail as 
though the property were used by the owner in its utility operations.

                105   Electric Plant Held for Future Use

    A. This account shall include the original cost of electric plant 
(except land and land rights) owned and held for future use in electric 
service under a definite plan for such use, to include: (1) Property 
acquired (except land and land rights) but never used by the utility in 
electric service, but held for such service in the future under a 
definite plan, and (2) property (except land and land rights) previously 
used by the utility in service but retired from such service and held 
pending its reuse in the future, under a definite plan, in electric 
service.
    B. This account shall also include the original cost of land and 
land rights owned and held for future use in electric service under a 
plan for such use, to include land and land rights: (1) Acquired but 
never used by the utility in electric service, but held for such service 
in the future under a plan, and (2) previously held by the utility in 
service, but retired from such service and held pending its reuse in the 
future under a plan, in electric service. (See Sec. 1767.16 (g).)
    C. In the event that property recorded in this account shall no 
longer be needed or appropriate for future utility operations, the 
borrower shall notify RUS of such condition and request approval of 
journal entries to remove such property from this account.
    D. Gains or losses from the sale of land and land rights or other 
disposition of such property previously recorded in this account and not 
placed in utility service shall be recorded directly in Accounts 411.6 
or 411.7, as appropriate, except when determined to be significant by 
RUS. Upon such a determination, the amounts shall be transferred to 
Account 256, Deferred Gains from Disposition of Utility Plant, or 
Account 187, Deferred Losses from Disposition of Utility Plant, and 
amortized to Account 411.6, Gains from Disposition of Utility Plant, or 
Account 411.7, Losses from Disposition of Utility Plant, as appropriate.
    E. The property included in this account shall be classified 
according to

[[Page 905]]

the detail accounts (301 to 399) prescribed for electric plant in 
service and the account shall be maintained in such detail as though the 
property were in service.

    Note: Materials and supplies, meters and transformers held in 
reserve, and normal spare capacity of plant in service shall not be 
included in this account.

          106   Completed Construction not Classified--Electric

    At the end of the year or such other date as a balance sheet may be 
required by RUS, this account shall include the total of the balances of 
work orders for electric plant which has been completed and placed in 
service but which work orders have not been classified for transfer to 
the detailed electric plant accounts.

    Note: For the purpose of reporting to RUS, the classification of 
electric plant in service by accounts is required, the utility shall 
also report the balance in this account tentatively classified as 
accurately as practicable according to prescribed account 
classifications. The purpose of this provision is to avoid any 
significant omissions in reported amounts of electric plant in service.

              107   Construction Work in Progress--Electric

    A. This account shall include the total of the balances of work 
orders for electric plant in process of construction.
    B. Work orders shall be cleared from this account as soon as 
practicable, after completion of the job. Further, if a project, such as 
a hydroelectric project, a steam station, or a transmission line, is 
designed to consist of two or more units or circuits which may be placed 
in service at different dates, any expenditures which are common to and 
which will be used in the operation of the project as a whole shall be 
included in electric plant in service upon the completion and the 
readiness for service of the first unit. Any expenditures which are 
identified exclusively with units of property not yet in service shall 
be included in this account.
    C. Expenditures on research, development, and demonstration projects 
for construction of utility facilities are to be included in a separate 
subdivision in this account. Records must be maintained to show 
separately each project along with complete detail of the nature and 
purpose of the research, development, and demonstration project together 
with the related costs.
    D. Account 107 shall be subaccounted as follows:

107.1  Construction Work in Progress--Contract
107.2  Construction Work in Progress--Force Account
107.3  Construction Work in Progress--Special Equipment

 108   Accumulated Provision for Depreciation of Electric Utility Plant

    A. This account shall be credited with the following:
    1. Amounts charged to Account 403, Depreciation Expense, or to 
clearing accounts for current depreciation expense for electric plant in 
service.
    2. Amounts charged to Account 421, Miscellaneous Nonoperating 
Income, for depreciation expense on property included in Account 105, 
Electric Plant Held for Future Use. Include, also, the balance of 
accumulated provision for depreciation on property when transferred to 
Account 105, Electric Plant Held for Future Use, from other property 
accounts. Normally, Account 108 will not be used for current 
depreciation provision because, as provided herein, the service life 
during which depreciation is computed commences with the date property 
is includible in electric plant in service; however, if special 
circumstances indicate the propriety of current accruals for 
depreciation, such charges shall be made to Account 421, Miscellaneous 
Nonoperating Income.
    3. Amounts charged to Account 413, Expenses of Electric Plant Leased 
to Others, for electric plant included in Account 104, Electric Plant 
Leased to Others.
    4. Amounts charged to Account 416, Costs and Expenses of 
Merchandising, Jobbing, and Contract Work, or to clearing accounts for 
current depreciation expense.
    5. Amounts of depreciation applicable to electric properties 
acquired as operating units or systems. (See Sec. 1767.16 (e).)

[[Page 906]]

    6. Amounts charged to Account 182.1, Extraordinary Property Losses, 
when authorized by RUS.
    7. Amounts of depreciation applicable to electric plant donated to 
the utility.
    The utility shall maintain separate subaccounts for depreciation 
applicable to electric plant in service, electric plant leased to 
others, and electric plant held for future use.)
    B. At the time of retirement of depreciable electric utility plant, 
this account shall be charged with the book cost of the property retired 
and the cost of removal and shall be credited with the salvage value and 
any other amounts recovered, such as insurance. When retirement, costs 
of removal and salvage are entered originally in retirement work orders, 
the net total of such work orders may be included in a separate 
subaccount hereunder. Upon completion of the work order, the proper 
distribution to subdivisions of this account shall be made as provided 
in the following paragraph.
    C. Account 108 shall be subaccounted as follows:

108.1  Accumulated Provision for Depreciation of Steam Production Plant
108.2  Accumulated Provision for Depreciation of Nuclear Production 
          Plant
108.3  Accumulated Provision for Depreciation of Hydraulic Production 
          Plant
108.4  Accumulated Provision for Depreciation of Other Production Plant
108.5  Accumulated Provision for Depreciation of Transmission Plant
108.6  Accumulated Provision for Depreciation of Distribution Plant
108.7  Accumulated Provision for Depreciation of General Plant
108.8  Retirement Work in Progress

    These subsidiary records shall reflect the current credits and 
debits to this account in sufficient detail to show separately for each 
such functional classification: (1) the amount of accrual for 
depreciation, (2) the book cost of property retired, (3) cost of 
removal, (4) salvage, and (5) other items, including recoveries from 
insurance.
    D. When transfers of plant are made from one electric plant account 
to another, or from or to another utility department, of from or to 
nonutility property accounts, the accounting for depreciation shall be 
as provided in Sec. 1767.16 (l).
    E. The utility is restricted in its use of the accumulated provision 
for depreciation to the purposes set forth above. It shall not transfer 
any portion of this account to retained earnings or make any other use 
thereof without authorization by RUS.

                             109  [Reserved]

                             110  [Reserved]

 111   Accumulated Provision for Amortization of Electric Utility Plant

    A. This account shall be credited with the following:
    1. Amounts charged to Account 404, Amortization of Limited-Term 
Electric Plant, for the current amortization of limited-term electric 
plant investments.
    2. Amounts charged to Account 421, Miscellaneous Nonoperating 
Income, for amortization expense on property included in Account 105, 
Electric Plant Held for Future Use. Include also the balance of 
accumulated provision for amortization on property when transferred to 
Account 105, Electric Plant Held for Future Use, from other property 
accounts. See also Paragraph A(2), Account 108, Accumulated Provision 
for Depreciation of Electric Utility Plant.
    3. Amounts charged to Account 405, Amortization of Other Electric 
Plant.
    4. Amounts charged to Account 413, Expenses of Electric Plant Leased 
to Others, for the current amortization of limited-term or other 
investments subject to amortization included in Account 104, Electric 
Plant Leased to Others.
    5. Amounts charged to Account 425, Miscellaneous Amortization, for 
the amortization of intangible or other electric plant which does not 
have a definite or terminable life and is not subject to charges for 
depreciation expense, with RUS approval.
    (The utility shall maintain subaccounts of this account for the 
amortization applicable to electric plant in service, electric plant 
leased to others and electric plant held for future use.)
    B. When any property to which this account applies is sold, 
relinquished, or otherwise retired from service, this account shall be 
charged with the amount previously credited in respect

[[Page 907]]

to such property. The book cost of the property so retired less the 
amount chargeable to this account and less the net proceeds realized at 
retirement shall be included in Account 421.1, Gain on Disposition of 
Property, or Account 421.2, Loss on Disposition of Property, as 
appropriate.
    C. For general ledger and balance sheet purposes, this account shall 
be regarded and treated as a single composite provision for 
amortization. For purposes of analysis, however, each utility shall 
maintain subsidiary records in which this account is segregated 
according to the following functional classification for electric plant: 
(1) Steam production, (2) Nuclear production, (3) Hydraulic production, 
(4) Other production, (5) Transmission, (6) Distribution, and (7) 
General. These subsidiary records shall reflect the current credits and 
debits to this account in sufficient detail to show separately for each 
such functional classification: (1) the amount of accrual for 
amortization, (2) the book cost of property retired, (3) cost of 
removal, (4) salvage, and (5) other items, including recoveries from 
insurance.
    D. The utility is restricted in its use of the accumulated provision 
for amortization to the purposes set forth above. It shall not transfer 
any portion of this account to retained earnings or make any other use 
thereof without authorization by RUS.

                             112  [Reserved]

                             113  [Reserved]

              114   Electric Plant Acquisition Adjustments

    A. This account shall include the difference between the cost to the 
accounting utility of electric plant acquired as an operating unit or 
system by purchase, merger, consolidation, liquidation, or otherwise, 
and the original cost, estimated, if not known, of such property, less 
the amount or amounts credited by the accounting utility at the time of 
acquisition to accumulated provisions for depreciation and amortization 
and contributions in aid of construction with respect to such property.
    B. With respect to acquisitions after the effective date of this 
system of accounts, this account shall be subdivided so as to show the 
amounts included herein for each property acquisition and to electric 
plant in service, electric plant held for future use, and electric plant 
leased to others. (See Sec. 1767.16 (e).)
    C. Debit amounts recorded in this account related to plant and land 
acquisition may be amortized to Account 425, Miscellaneous Amortization, 
over a period not longer than the estimated remaining life of the 
properties to which such amounts relate. Amounts related to the 
acquisition of land only may be amortized to Account 425 over a period 
of not more than 15 years. Should a utility wish to account for debit 
amounts in this account in any other manner, it shall petition RUS for 
authority to do so. Credit amounts recorded in this account shall be 
accounted for as directed by RUS.

     115   Accumulated Provision for Amortization of Electric Plant 
                         Acquisition Adjustments

    This account shall be credited or debited with amounts which are 
includible in Account 406, Amortization of Electric Plant Acquisition 
Adjustments, or Account 425, Miscellaneous Amortization, for the purpose 
of providing for the extinguishment of amounts in Account 114, Electric 
Plant Acquisition Adjustments, in instances where the amortization of 
Account 114 is not being made by direct write-off of the account.

                 116   Other Electric Plant Adjustments

    A. This account shall include the difference between the original 
cost, estimated if not known, and the book cost of electric plant to the 
extent that such difference is not properly includible in Account 114, 
Electric Plant Acquisition Adjustments. (See Sec. 1767.16 (a) (3))
    B. Amounts included in this account shall be classified in such 
manner as to show the origin of each amount and shall be disposed of as 
RUS may approve or direct.

    Note: The provisions of this account shall not be construed as 
approving or authorizing

[[Page 908]]

the recording of appreciation of electric plant.

                        118   Other Utility Plant

    This account shall include the balances in accounts for utility 
plant, other than electric plant, such as gas, or railway.

 119   Accumulated Provision for Depreciation and Amortization of Other 
                              Utility Plant

    This account shall include the accumulated provision for 
depreciation and amortization applicable to utility property other than 
electric plant.

 120.1   Nuclear Fuel in Process of Refinement, Conversion, Enrichment, 
                             and Fabrication

    A. This account shall include the original cost to the utility of 
nuclear fuel materials while in process of refinement, conversion, 
enrichment, and fabrication into nuclear fuel assemblies and components, 
including processing, fabrication, and necessary shipping costs. This 
account shall also include the salvage value of nuclear materials which 
are actually being reprocessed for use and were transferred from Account 
120.5, Accumulated Provision for Amortization of Nuclear Fuel 
Assemblies. (See Sec. 1767.10 (a) (27).)
    B. This account shall be credited and Account 120.2, Nuclear Fuel 
Materials and Assemblies--Stock Account, shall be debited for the cost 
of completed fuel assemblies delivered for use in refueling or to be 
held as spares. In the case of the initial core loading, the transfer 
shall be made directly to Account 120.3, Nuclear Fuel Assemblies in 
Reactor, upon the conclusion of the experimental or test period of the 
plant prior to its becoming available for service.

                                  Items

    1. Cost of natural uranium, uranium ores concentrates or other 
nuclear fuel sources, such as thorium, plutonium, and U-233.
    2. Value of recovered nuclear materials being reprocessed for use.
    3. Milling process costs.
    4. Sampling and weighing, and assaying costs.
    5. Purification and conversion process costs.
    6. Costs of enrichment by gaseous diffusion or other methods.
    7. Costs of fabrication into fuel forms suitable for insertion in 
the reactor.
    8. All shipping costs of materials and components, including 
shipping of fabricated fuel assemblies to the reactor site.
    9. Use charges on leased nuclear materials while in process of 
refinement, conversion, enrichment, and fabrication.

      120.2   Nuclear Fuel Materials and Assemblies--Stock Account

    A. This account shall be debited and Account 120.1, Nuclear Fuel in 
Process of Refinement, Conversion, Enrichment and Fabrication, shall be 
credited with the cost of fabricated fuel assemblies delivered for use 
in refueling or to be carried in stock as spares. It shall also include 
the original cost of fabricated fuel assemblies purchased in completed 
form. This account shall also include the original cost of partially 
irradiated fuel assemblies being held in stock for reinsertion in a 
reactor which had been transferred from Account 120.3, Nuclear Fuel 
Assemblies in Reactor.
    B. When fuel assemblies included in this account are inserted in a 
reactor, this account shall be credited and Account 120.3, Nuclear Fuel 
Assemblies in Reactor, debited for the cost of such assemblies.
    C. This account shall also include the cost of nuclear materials and 
byproduct materials being held for future use and not actually in 
process in Account 120.1, Nuclear Fuel in Process of Refinement, 
Conversion, Enrichment and Fabrication.

               120.3   Nuclear Fuel Assemblies in Reactor

    A. This account shall include the cost of nuclear fuel assemblies 
when inserted in a reactor for the production of electricity. The 
amounts included herein shall be transferred from Account 120.2, Nuclear 
Fuel Materials and Assemblies--Stock Account, except for the initial 
core loading which will be transferred directly from Account

[[Page 909]]

120.1, Nuclear Fuel in Process of Refinement, Conversion, Enrichment and 
Fabrication.
    B. Upon removal of fuel assemblies from a reactor, the original cost 
of the assemblies removed shall be transferred to Account 120.4, Spent 
Nuclear Fuel, or Account 120.2, Nuclear Fuel Materials and Assemblies--
Stock Account, as appropriate.

                       120.4   Spent Nuclear Fuel

    A. This account shall include the original cost of nuclear fuel 
assemblies, in the process of cooling, transferred from Account 120.3, 
Nuclear Fuel Assemblies in Reactor, upon removal from a reactor pending 
reprocessing.
    B. This account shall be credited and Account 120.5, Accumulated 
Provision for Amortization of Nuclear Fuel Assemblies, debited for fuel 
assemblies, after the cooling period is over, at the cost recorded in 
this account.

     120.5   Accumulated Provision for Amortization of Nuclear Fuel 
                               Assemblies

    A. This account shall be credited and Account 518, Nuclear Fuel 
Expense, shall be debited for the amortization of the net cost of 
nuclear fuel assemblies used in the production of energy. The net cost 
of nuclear fuel assemblies subject to amortization shall be the original 
cost of nuclear fuel assemblies, plus or less the expected net salvage 
value of uranium, plutonium, and other by-products.
    B. This account shall be credited with the net salvage value of 
uranium, plutonium, and other nuclear by-products when such items are 
sold, transferred or otherwise disposed. Account 120.1, Nuclear Fuel in 
Process of Refinement, Conversion, Enrichment and Fabrication, shall be 
debited with the net salvage value of nuclear materials to be 
reprocessed. Account 157, Nuclear Materials Held for Sale, shall be 
debited for the net salvage value of nuclear materials not to be 
reprocessed but to be sold or otherwise disposed of and Account 120.2, 
Nuclear Fuel Materials and Assemblies--Stock Account, will be debited 
with the net salvage value of nuclear materials that will be held for 
future use and not actually in process, in Account 120.1, Nuclear Fuel 
in Process of Refinement, Conversion, Enrichment, and Fabrication.
    C. This account shall be debited and Account 120.4, Spent Nuclear 
Fuel, shall be credited with the cost of fuel assemblies at the end of 
the cooling period.

                120.6   Nuclear Fuel Under Capital Leases

    A. This account shall include the amount recorded under capital 
leases for nuclear fuel leased from others for use by the utility in its 
utility operations.
    B. Records shall be maintained with respect to each capital lease 
reflecting: (1) name of lessor, (2) basic details of lease, (3) terminal 
date, (4) original cost or fair market value of nuclear fuel leased, (5) 
future minimum lease payments, (6) the amount representing interest and 
the interest rate used, and (7) expenses paid.

                     Other Property and Investments

                        121   Nonutility Property

    A. This account shall include the book cost of land, structures, 
equipment, or other tangible or intangible property owned by the 
utility, but not used in utility service and not properly includible in 
Account 105, Electric Plant Held for Future Use.
    B. This account shall also include the amount recorded under capital 
leases for property leased from others and used by the utility in its 
nonutility operations. Records shall be maintained with respect to each 
lease reflecting: (1) name of lessor, (2) basic details of lease, (3) 
terminal date, (4) original cost or fair market value of property 
leased, (5) future minimum lease payments, (6) executory costs, (7) 
present value of minimum lessee payments, (8) the amount representing 
interest and the interest rate used, and (9) expenses paid.
    C. This account shall be subdivided so as to show the amount of 
property used in operations which are nonutility in character but 
nevertheless constitute a distinct operating activity of the company 
(such as operation of an ice department where such activity is not 
classed as a utility) and the amount of miscellaneous property not

[[Page 910]]

used in operations. The records in support of each subaccount shall be 
maintained so as to show an appropriate classification of the property.

    Note: The gain from the sale or other disposition of property 
included in this account which had been previously recorded in Account 
105, Electric Plant Held for Future Use, shall be accounted for in 
accordance with Paragraph C of Account 105.

    122   Accumulated Provision for Depreciation and Amortization of 
                           Nonutility Property

    This account shall include the accumulated provision for 
depreciation and amortization applicable to nonutility property.

                123   Investment in Associated Companies

    A. This account shall include the book cost of investments in 
securities issued or assumed by associated companies and investment 
advances to such companies, including interest accrued thereon when such 
interest is not subject to current settlement, provided that the 
investment does not relate to a subsidiary company. (If the investment 
relates to a subsidiary company, it shall be included in Account 123.11, 
Investment in Subsidiary Companies.) Include herein the offsetting entry 
to the recording of amortization of discount or premium on interest 
bearing investments. (See Account 419, Interest and Dividend Income.)
    B. This account shall be maintained in such manner as to show the 
investment in securities of, and advances to, each associated company 
together with full particulars regarding any of such investments that 
are pledged.

    Note A: Securities and advances of associated companies owned and 
pledged shall be included in this account, but such securities, if held 
in special deposits or in special funds, shall be included in the 
appropriate deposit or fund account. A complete record of securities 
pledged shall be maintained.

    Note B: Securities of associated companies held as temporary cash 
investments are includible in Account 136, Temporary Cash Investments.

    Note C: Balances in open accounts with associated companies, which 
are subject to current settlement, are includible in Account 146, 
Accounts Receivable from Associated Companies.

    Note D: The utility may write down the cost of any security in 
recognition of a decline in the value thereof. Securities shall be 
written off or written down to a nominal value if there is no reasonable 
prospect of substantial value. Fluctuations in market value shall not be 
recorded but a permanent impairment in the value of securities shall be 
recognized in the accounts. When securities are written off or written 
down, the amount of the adjustment shall be charged to Account 426.5, 
Other Deductions, or to an appropriate account for accumulated 
provisions for loss in value established as a separate subdivision of 
this account.

    C. Account 123 shall be subaccounted as follows:

123.1  Patronage Capital from Associated Cooperatives
123.3  Investment in Associated Organizations--Federal Economic 
          Development Loans
123.4  Investment in Associated Organizations--Non-Federal Economic 
          Development Loans
123.11  Investment in Subsidiary Companies
123.21  Subscriptions to Capital Term Certificates--Supplemental 
          Financing
123.22  Investment in Capital Term Certificates--Supplemental Financing
123.23  Other Investments in Associated Organizations

         123.1   Patronage Capital from Associated Cooperatives

    This account shall include patronage capital credits allocated to 
the accounting borrower by G&T cooperatives. It shall also include 
capital credits, deferred patronage refunds, or like items from other 
associated cooperatives. The account shall be maintained so as to 
reflect separately, the allocations of patronage capital and patronage 
refunds from each organization that makes such allocations to the 
borrower.

    123.3   Investment in Associated Organizations--Federal Economic 
                            Development Loans

    This account shall include investment advances of Federal funds 
received from a Rural Economic Development Grant to associated 
organizations for authorized rural economic development projects.

[[Page 911]]

  123.4   Investment in Associated Organizations--Non-Federal Economic 
                            Development Loans

    This account shall include investment advances of non-Federal funds 
from the Rural Economic Development Grant revolving fund to associated 
organizations for authorized rural economic development projects.

               123.11   Investment in Subsidiary Companies

    A. This account shall include the cost of investments in securities 
issued or assumed by subsidiary companies and investment advances to 
such companies, including interest accrued thereon when such interest is 
not subject to current settlement, plus the equity in undistributed 
earnings or losses of such subsidiary companies since acquisition. This 
account shall be credited with any dividends declared by such 
subsidiaries.
    B. This account shall be maintained in such a manner as to show 
separately for each subsidiary: the cost of such investments in the 
securities of the subsidiary at the time of acquisition; the amount of 
equity in the subsidiary's undistributed net earnings or net losses 
since acquisition; advances or loans to such subsidiary; and full 
particulars regarding any such investments that are pledged.

   123.21   Subscriptions to Capital Term Certificates--Supplemental 
                                Financing

    This account shall include the total subscriptions to capital term 
certificates of CFC. When subscriptions are paid, this account shall be 
credited and Account 123.22, Investments in Capital Term Certificates--
Supplemental Financing, debited.

    123.22   Investments in Capital Term Certificates--Supplemental 
                                Financing

    This account shall include paid subscriptions in capital term 
certificates of CFC or other supplemental lenders.

         123.23   Other Investments in Associated Organizations

    This account shall include investments in capital stock, securities, 
membership fees, and investment advances to associated organizations 
other than provided for elsewhere. This account shall be maintained in 
such a manner as to show the investment in stock and securities of and 
advances to each associated organization.

                                  Items

    1. Investments in capital stock of associated organizations.
    2. Investments in securities issued by associated organizations.
    3. Membership fees in associated organizations, including NRECA, and 
Statewide associations of RUS-financed borrowers.
    4. Investment advances to associated organizations.

                         124   Other Investments

    A. This account shall include the book cost of investments in 
securities issued or assumed by nonassociated companies, investment 
advances to such companies, and any investments not accounted for 
elsewhere. Include also the offsetting entry to the recording of 
amortization of discount or premium on interest bearing investments. 
(See Account 419, Interest and Dividend Income.)
    B. The records shall be maintained in such manner as to show the 
amount of each investment and the investment advances to each person.
    C. Account 124 shall be subaccounted as follows:

124.1  Other Investments--Federal Economic Development Loans
124.2  Other Investments--Non-Federal Economic Development Loans

    Note A: Securities owned and pledged shall be included in this 
account, but securities held in special deposits or in special funds 
shall be included in appropriate deposit or fund accounts. A complete 
record of securities pledged shall be maintained.

    Note B: Securities held as temporary cash investments shall not be 
included in this account.


[[Page 912]]


    Note C: See Note D of Account 123.

      124.1   Other Investments--Federal Economic Development Loans

    This account shall include investment advances of Federal funds 
received from a Rural Economic Development Grant to nonassociated 
organizations for authorized rural economic development projects.

    124.2   Other Investments--Non-Federal Economic Development Loans

    This account shall include investment advances of non-Federal funds 
from the Rural Economic Development Grant revolving fund to 
nonassociated organizations for authorized rural economic development 
projects.

                           125   Sinking Funds

    This account shall include the amount of cash and book cost of 
investments held in sinking funds. A separate account, with appropriate 
title, shall be kept for each sinking fund. Transfers from this account 
to special deposit accounts, may be made as necessary for the purpose of 
paying matured sinking fund obligations, or obligations called for 
redemption but not presented, or the interest thereon.

                         126   Depreciation Fund

    This account shall include the amount of cash and the book cost of 
investments which have been segregated in a special fund for the purpose 
of identifying such assets with the accumulated provisions for 
depreciation.

                        128   Other Special Funds

    This account shall include the amount of cash and book cost of 
investments which have been segregated in special funds for insurance, 
employee pensions, savings, relief, hospital, and other purposes not 
provided for elsewhere. A separate account, with appropriate title, 
shall be kept for each fund.

    Note: Amounts deposited with a trustee under the terms of an 
irrevocable trust agreement for pensions or other employee benefits 
shall not be included in this account.

                       Current and Accrued Assets

    Current and accrued assets are cash, those assets which are readily 
convertible into cash or are held for current use in operations or 
construction, current claims against others, payment of which is 
reasonably assured, and amounts accruing to the utility which are 
subject to current settlement, except such items for which accounts 
other than those designated as current and accrued assets are provided. 
There shall not be included in the category of accounts designated as 
current and accrued assets any item, the amount or collectibility of 
which is not reasonably assured, unless an adequate provision for 
possible loss has been made therefor. Items of current character but of 
doubtful value may be written down, and for record purposes carried in 
these accounts at nominal value.

                               131   Cash

    A. This account shall include the amount of current cash funds 
except working funds.
    B. Account 131 shall be subaccounted as follows:

131.1  Cash--General
131.2  Cash--Construction Fund--Trustee
131.3  Cash--Installation Loan and Collection Fund
131.4  Transfer of Cash
131.12  Cash--General--Economic Development Loan Funds
131.13  Cash--General--Economic Development Grant Funds
131.14  Cash--General--Economic Development Non-Federal Revolving Funds

                          131.1   Cash--General

    This account shall include all cash of the organization not provided 
for elsewhere. Separate subaccounts may be maintained for each bank 
account in which general cash is maintained. Funds held by others for 
current obligations shall be recorded in Account 134, Other Special 
Deposits.

                131.2   Cash--Construction Fund--Trustee

    This account shall include the cash received from the Rural 
Utilities Service, CFC, and any other source of supplemental financing 
for financing the construction, purchase, and operation

[[Page 913]]

of electric facilities. RUS construction loan fund advances shall be 
charged to this account and credited to Account 224.4, RUS Notes 
Executed--Construction--Debit. CFC and other supplemental lender 
construction loan fund advances shall be charged to this account and 
credited to Account 224.13, Supplemental Financing Notes Executed--
Debit.

           131.3   Cash--Installation Loan and Collection Fund

    A. This account shall include the cash advanced on installation 
loans made subsequent to September 13, 1957. Such advances shall be 
debited to this account as received and credited to Account 224.10, RUS 
Notes Executed--Installation--Debit. This account shall also include 
interest and principal collections received on consumers' loans financed 
from RUS loans made subsequent to September 13, 1957.
    B. Payments shall be made from this account solely for financing 
consumers' loans for the purpose of wiring of consumers' premises, and 
the acquisition and installation of electrical and plumbing appliances 
and equipment by consumers. The cash in this account is also used for 
the payment of principal and interest on installation loans made by RUS, 
subsequent to September 13, 1957, in accordance with the terms of the 
loan agreement.

                        131.4   Transfer of Cash

    This account shall be used in transferring funds from one bank 
account to another. This account is charged when the check is drawn for 
the transfer and entered in the check register, and credited when the 
amount transferred is entered in the cash receipts book. This account is 
to be used as a clearing account and should not have a balance at the 
end of an accounting period.

           131.12   Cash--General--Economic Development Funds

    This account shall include the cash received from the Rural 
Utilities Service for Rural Economic Development Loans. Economic 
development loan advances shall be charged to this account and credited 
to Account 224.17, RUS Notes Executed--Economic Development--Debit.

        131.13   Cash--General--Economic Development Grant Funds

    This account shall include cash received from the Rural Utilities 
Service for Rural Economic Development Grants. Economic development 
grant funds shall be charged to this account and credited to Account 
224.18, Other Long-Term Debt--Grant Funds; Account 208, Donated Capital; 
or Account 421, Miscellaneous Nonoperating Income, as appropriate. This 
account shall be credited and either Account 123.3, Investment in 
Associated Organizations--Federal Economic Development Loans, or Account 
124.1, Other Investments--Federal Economic Development Loans, shall be 
debited, as appropriate, with the amount of an economic development 
revolving fund loan.

131.14   Cash--General--Economic Development Non-Federal Revolving Funds

    This account shall include all non-Federal funds comprising the 
economic development revolving fund. It shall include all funds supplied 
by the borrower as well as all cash received from the repayment of loans 
made from the economic development revolving fund. This account shall be 
credited and either Account 123.4, Investment in Associated 
Organizations--Non-Federal Economic Development Loans, or Account 124.2, 
Other Investments--Non-Federal Economic Development Loans, shall be 
debited, as appropriate, with the amount of an economic development 
revolving fund loan.

                     132   Interest Special Deposits

    This account shall include special deposits with fiscal agents or 
others for the payment of interest.

                     133   Dividend Special Deposits

    This account shall include special deposits with fiscal agents or 
others for the payment of dividends.

                      134   Other Special Deposits

    This account shall include deposits with fiscal agents or others for 
special

[[Page 914]]

purposes other than the payment of interest and dividends. Such special 
deposits may include cash deposited with Federal, state, or municipal 
authorities as a guaranty for the fulfillment of obligations; cash 
deposited with trustees to be held until mortgaged property sold, 
destroyed, or otherwise disposed of is replaced; and cash realized from 
the sale of the accounting utility's securities and deposited with 
trustees to be held until invested in property of the utility. Entries 
to this account shall specify the purpose for which the deposit is made.

    Note: Assets available for general corporate purposes shall not be 
included in this account. Further, deposits for more than one year, 
which are not offset by current liabilities, shall not be charged to 
this account but to Account 128, Other Special Funds.

                           135   Working Funds

    This account shall include cash advanced to officers, agents, 
employees, and others as petty cash or working funds.

                    136   Temporary Cash Investments

    A. This account shall include the book cost of investments, such as 
demand and time loans, bankers' acceptances, United States Treasury 
certificates, marketable securities, and other similar investments, 
acquired for the purpose of temporarily investing cash.
    B. This account shall be so maintained as to show separately 
temporary cash investments in securities of associated companies and of 
others. Records shall be kept of any pledged investments.

                         141   Notes Receivable

    A. This account shall include the book cost, not includible 
elsewhere, of all collectible obligations in the form of notes 
receivable and similar evidences (except interest coupons) of money due 
on demand or within one year from the date of issue, except, however, 
notes receivable from associated companies. (See Account 136, Temporary 
Cash Investments, and Account 145, Notes Receivable from Associated 
Companies.)

    Note: The face amount of notes receivable discounted, sold, or 
transferred without releasing the utility from liability as endorser 
thereon, shall be credited to a separate subdivision of this account and 
appropriate disclosure shall be made in the financial statements of any 
contingent liability arising from such transactions.

    B. Account 141 shall be subaccounted as follows:

141.1  Accumulated Provision for Uncollectible Notes--Credit

      141.1   Accumulated Provision for Uncollectible Notes--Credit

    This account shall be credited with amounts provided for losses on 
notes receivable which may become uncollectible, and also with 
collections on notes previously charged hereto. Concurrent charges shall 
be made to Account 904, Uncollectible Accounts.

                   142   Customer Accounts Receivable

    A. This account shall include amounts due from customers for utility 
service and for merchandising, jobbing, and contract work. This account 
shall not include amounts due from associated companies.
    B. This account shall be maintained so as to permit ready 
segregation of the amounts due for merchandising, jobbing, and contract 
work.
    C. Account 142 shall be subaccounted as follows:

142.1  Customer Accounts Receivable--Electric
142.2  Customer Accounts Receivable--Other

             142.1   Customer Accounts Receivable--Electric

    This account shall include amounts due from customers for utility 
service.

               142.2   Customer Accounts Receivable--Other

    This account shall include amounts due from customers for 
merchandising, jobbing, and contract work.

                     143   Other Accounts Receivable

    A. This account shall include amounts due the utility upon open 
accounts, other than amounts due from associated companies and from 
customers for utility services and merchandising, jobbing and contract 
work.
    B. This account shall be maintained so as to show separately amounts 
due on subscriptions to capital stock and

[[Page 915]]

from officers and employees. The account shall not include amounts 
advanced to officers or others as working funds. (See Account 135, 
Working Funds.)

     144   Accumulated Provision for Uncollectible Accounts--Credit

    A. This account shall include amounts provided for losses on 
accounts receivable which may become uncollectible, and also with 
collections on accounts previously charged hereto. Concurrent charges 
shall be made to Account 904, Uncollectible Accounts, for amounts 
applicable to utility operations, and to corresponding accounts for 
other operations. Records shall be maintained so as to show the write-
offs of accounts receivable for each utility department.
    B. Account 144 shall be subaccounted as follows:

144.1  Accumulated Provision for Uncollectible Customer Accounts--Credit
144.2  Accumulated Provision for Uncollectible Merchandising Accounts--
          Credit
144.3  Accumulated Provision for Uncollectible Accounts, Officers and 
          Employees--Credit
144.4  Accumulated Provision for Other Uncollectible Accounts--Credit

   144.1   Accumulated Provision for Uncollectible Customer Accounts--
                                 Credit

    This account shall be credited with amounts provided for losses on 
accounts receivable which may become uncollectible, and also with 
collections on accounts previously charged hereto. Concurrent charges 
shall be made to Account 904, Uncollectible Accounts.

144.2   Accumulated Provision for Uncollectible Merchandising Accounts--
                                 Credit

    This account shall be credited with amounts provided for losses on 
merchandising, jobbing, and contract work which may become 
uncollectible, and also with collections on accounts previously charged 
hereto. Concurrent charges shall be made to Account 904, Uncollectible 
Accounts, for amounts applicable to utility operations, and to 
corresponding accounts for other operations.

 144.3   Accumulated Provision for Uncollectible Accounts, Officers and 
                            Employees--Credit

    This account shall be credited with amounts provided for losses on 
accounts receivable from officers and employees which may become 
uncollectible and also with collections on accounts previously charged 
hereto. Concurrent charges shall be made to Account 904, Uncollectible 
Accounts.

 144.4   Accumulated Provision for Other Uncollectible Accounts--Credit

    This account shall be credited with amounts provided for losses on 
accounts receivable which may become uncollectible and for which the 
recording of this credit has not been provided for elsewhere. This 
account shall also be credited with collections on accounts previously 
charged hereto. Concurrent charges shall be made to Account 904, 
Uncollectible Accounts, for amounts applicable to utility operations and 
to corresponding accounts for other operations.

            145   Notes Receivable from Associated Companies

    This account shall include notes upon which associated companies are 
liable, and which mature and are expected to be paid in full not later 
than one year from the date of issue, together with any interest 
thereon, and debit balances subject to current settlement in open 
accounts with associated companies. Items which do not bear a specified 
due date but which have been carried for more than twelve months and 
items which are not paid within twelve months from due date shall be 
transferred to Account 123, Investment in Associated Companies.

    Note: The face amount of notes receivable discounted, sold or 
transferred without releasing the utility from liability as endorser 
thereon, shall be credited to a separate subdivision of this account and 
appropriate disclosure shall be made in the financial statements of any 
contingent liability arising from such transactions.

[[Page 916]]

           146   Accounts Receivable from Associated Companies

    This account shall include drafts upon which associated companies 
are liable, and which mature and are expected to be paid in full not 
later than one year from the date of issue, together with any interest 
thereon, and debit balances subject to current settlement in open 
accounts with associated companies. Items which do not bear a specified 
due date but which have been carried for more than twelve months and 
items which are not paid within twelve months from due date shall be 
transferred to Account 123, Investment in Associated Companies.

    Note: On the balance sheet, accounts receivable from an associated 
company may be offset against accounts payable to the same company.

                            151   Fuel Stock

    This account shall include the book cost of fuel on hand.

                                  Items

    1. Invoice price of fuel less any cash or other discounts.
    2. Freight, switching, demurrage, and other transportation charges, 
not including, however, any charges for unloading from the shipping 
medium.
    3. Excise taxes, purchasing agents' commissions, insurance, and 
other expenses directly assignable to cost of fuel.
    4. Operating, maintenance and depreciation expenses, and ad valorem 
taxes on utility-owned transportation equipment used to transport fuel 
from the point of acquisition to the unloading point.
    5. Lease or rental costs of transportation equipment used to 
transport fuel from the point of acquisition to the unloading point.

                 152   Fuel Stock Expenses Undistributed

    A. This account may include the cost of labor and of supplies used 
and expenses incurred in unloading fuel from the shipping medium and in 
the handling thereof prior to its use, if such expenses are sufficiently 
significant in amount to warrant being treated as a part of the cost of 
fuel inventory rather than being charged direct to expense as incurred.
    B. Amounts included herein shall be charged to expense as the fuel 
is used to the end that the balance herein shall not exceed the expenses 
attributable to the inventory of fuel on hand.

                                  Items

    Labor:
    1. Procuring and handling of fuel.
    2. All routine fuel analyses.
    3. Unloading from shipping facility and placing in storage.
    4. Moving of fuel in storage and transferring from one station to 
another.
    5. Handling from storage or shipping facility to first bunker, 
hopper, bucket, tank, or holder of boiler house structure.
    6. Operation of mechanical equipment such as locomotives, trucks, 
cars, boats, barges, and cranes.
    Supplies and Expenses:
    1. Tools, lubricants and other supplies.
    2. Operating supplies for mechanical equipment.
    3. Transportation and other expenses in moving fuel.
    4. Stores expenses applicable to fuel.

                             153   Residuals

    This account shall include the book cost of any residuals produced 
in the production or manufacturing processes.

              154   Plant Materials and Operating Supplies

    A. This account shall include the cost of materials purchased 
primarily for use in the utility business for construction, operation 
and maintenance purposes. It shall also include the book cost of 
materials recovered in connection with construction, maintenance, or the 
retirement of property, such materials being credited to construction, 
maintenance, or accumulated depreciation provision, respectively, and 
included herein as follows:
    1. Reusable materials consisting of large individual items shall be 
included in this account at original cost, estimated if not known. The 
cost of repairing such items shall be charged to the

[[Page 917]]

maintenance account appropriate for the previous use.
    2. Reusable materials consisting of relatively small items, the 
identity of which (from the date of original installation to the final 
abandonment or sale thereof) cannot be ascertained without undue 
refinement in accounting, shall be included in this account at current 
prices new for such items. The cost of repairing such items shall be 
charged to the appropriate expense account as indicated by previous use.
    3. Scrap and nonusable materials included in this account shall be 
carried at the estimated net amount realizable therefrom. The difference 
between the amounts realized for scrap and nonusable materials sold and 
the net amount at which the materials were carried in this account, as 
far as practicable, shall be adjusted to the accounts credited when the 
materials were charged to this account.
    B. Materials and supplies issued shall be credited hereto and 
charged to the appropriate construction, operating expense, or other 
account on the basis of a unit price determined by the use of cumulative 
average, first-in-first-out, or such other method of inventory 
accounting as conforms with accepted accounting standards consistently 
applied.

                                  Items

    1. Invoice price of materials less cash or other discounts.
    2. Freight, switching, or other transportation charges when 
practicable to include as part of the cost of particular materials to 
which they relate.
    3. Customs duties and excise taxes.
    4. Costs of inspection and special tests prior to acceptance.
    5. Insurance and other directly assignable charges.

    Note: Where expenses applicable to materials purchased cannot be 
directly assigned to particular purchases, they shall be charged to 
Account 163, Stores Expense Undistributed.

                            155   Merchandise

    This account shall include the book cost of materials and supplies 
and appliances and equipment held primarily for merchandising, jobbing, 
and contract work. The principles prescribed in accounting for utility 
materials and supplies shall be observed with respect to items carried 
in this account.

                   156   Other Materials and Supplies

    This account shall include the book cost of materials and supplies 
held primarily for nonutility purposes. The principles prescribed in 
accounting for utility materials and supplies shall be observed with 
respect to items carried in this account.

                  157   Nuclear Materials Held for Sale

    This account shall include the net salvage value of uranium, 
plutonium, and other nuclear materials held by the company for sale or 
other disposition that are not to be reused by the company in its 
electric utility operations. This account shall be debited and Account 
120.5, Accumulated Provision for Amortization of Nuclear Fuel 
Assemblies, credited for such net salvage value. Any difference between 
the amount recorded in this account and the actual amount realized from 
the sale of materials shall be debited or credited, as appropriate, to 
Account 518, Nuclear Fuel Expense, at the time of such sale.

                       158.1   Allowance Inventory

    A. This account shall include the cost of allowances owned by the 
utility and not withheld by the Environmental Protection Agency. See 
Sec. 1767.15 (u) and Account 158.2, Allowances Withheld.
    B. This account shall be credited and Account 509, Allowances, shall 
be debited concurrent with the monthly emission of sulfur dioxide.
    C. Separate subdivisions of this account shall be maintained so as 
to separately account for those allowances usable in the current year 
and in each subsequent year. The underlying records of these 
subdivisions shall be maintained in sufficient detail so as to identify 
each allowance included; the origin of each allowance; and the 
acquisition cost, if any, of the allowance.

                       158.2   Allowances Withheld

    A. This account shall include the cost of allowances owned by the 
utility but withheld by the Environmental Protection Agency. (See 
Sec. 1767.15 (u).)

[[Page 918]]

    B. The inventory cost of the allowances released by the 
Environmental Protection Agency for use by the utility shall be 
transferred to Account 158.1, Allowance Inventory.
    C. The underlying records of this account shall be maintained in 
sufficient detail so as to identify each allowance included; the origin 
of each allowance; and the acquisition cost, if any, of the allowances.

                   163   Stores Expense Undistributed

    A. This account shall include the cost of supervision, labor, and 
expenses incurred in the operation of general storerooms, including 
purchasing, storage, handling, and distribution of materials and 
supplies.
    B. This account shall be cleared by adding to the cost of materials 
and supplies issued, a suitable loading charge which will distribute the 
expense equitably over stores issues. The balance in the account at the 
close of the year shall not exceed the amount of stores expenses 
reasonably attributable to the inventory of materials and supplies, 
exclusive of fuel, as any amount applicable to fuel costs should be 
included in Account 152, Fuel Stock Expenses Undistributed.

                                  Items

    Labor:

    1. Inspecting and testing materials and supplies when not assignable 
to specific items.
    2. Unloading from shipping facility and placing in storage.
    3. Supervision of purchasing and stores department to extent 
assignable to materials handled through stores.
    4. Getting materials from stock and in readiness to go out.
    5. Inventorying stock received or stock on hand by stores employees 
but not including inventories by general department employees as part of 
internal or general audits.
    6. Purchasing department activities in checking material needs, 
investigating sources of supply, analyzing prices, preparing and placing 
orders, and related activities to extent applicable to materials handled 
through stores. (Optional: Purchasing department expenses may be 
included in administrative and general expenses.)
    7. Maintaining stores equipment.
    8. Cleaning and tidying storerooms and stores offices.
    9. Keeping stock records, including the recording and posting of 
material receipts and issues and maintaining inventory records of stock.
    10. Collecting and handling scrap materials in stores.

    Supplies and Expenses:

    1. Adjustments of inventories of materials and supplies but not 
including large differences which can readily be assigned to important 
classes of materials and equitably distributed among the accounts to 
which such classes of materials have been charged since the previous 
inventory.
    2. Cash and other discounts not practically assignable to specific 
materials.
    3. Freight and express charges when not assignable to specific 
items.
    4. Heat, light, and power for storerooms and store offices.
    5. Brooms, brushes, sweeping compounds and other supplies used in 
cleaning and tidying storerooms and stores offices.
    6. Injuries and damages.
    7. Insurance on materials and supplies and on stores equipment.
    8. Losses due to breakage, leakage, evaporation, fire or other 
causes, less credits for amounts received from insurance, transportation 
companies, or others in compensation of such losses.
    9. Postage, printing, stationery, and office supplies.
    10. Rent of storage space and facilities.
    11. Communication service.
    12. Excise and other similar taxes not assignable to specific 
materials.
    13. Transportation expense on inward movement of stores and on 
transfer between storerooms but not including charges on materials 
recovered from retirements which shall be accounted for as part of the 
cost of removal.

    Note: A physical inventory of each class of materials and supplies 
shall be made at least every two years.

                            165   Prepayments

    A. This account shall include amounts representing prepayments of 
insurance, rents, taxes, interest, and

[[Page 919]]

miscellaneous items, and shall be kept or supported in such manner as to 
disclose the amount of each class of prepayment.
    B. Account 165 shall be subaccounted as follows:

165.1  Prepayments--Insurance
165.2  Other Prepayments

                 171   Interest and Dividends Receivable

    This account shall include the amount of interest on bonds, 
mortgages, notes, commercial paper, loans, open accounts, and deposits, 
the payment of which is reasonably assured, and the amount of dividends 
declared or guaranteed on stocks owned.

    Note A: Interest which is not subject to current settlement shall 
not be included herein but in the account in which the associated 
principle is recorded.

    Note B: Interest and dividends receivable from associated companies 
shall be included in Account 146, Accounts Receivable from Associated 
Companies.

                         172   Rents Receivable

    This account shall include rents receivable or accrued on property 
rented or leased by the utility to others.

    Note: Rents receivable from associated companies shall be included 
in Account 146, Accounts Receivable from Associated Companies.

                     173   Accrued Utility Revenues

    At the option of the utility, the estimated amount accrued for 
service rendered, but not billed at the end of any accounting period, 
may be included herein. If accruals are made for unbilled revenues, 
accruals shall also be made for unbilled expenses, such as the purchase 
of energy.

             174   Miscellaneous Current and Accrued Assets

    This account shall include the book cost of all other current and 
accrued assets, appropriately designated and supported so as to show the 
nature of each asset included herein.

                             Deferred Debits

                     181   Unamortized Debt Expense

    This account shall include expenses related to the issuance or 
assumption of debt securities. Amounts recorded in this account shall be 
amortized over the life of each respective issue under a plan which will 
distribute the amount equitably over the life of the security. The 
amortization shall be on a monthly basis, and the amounts thereof shall 
be charged to Account 428, Amortization of Debt Discount and Expense. 
Any unamortized amounts outstanding at the time that the related debt is 
prematurely reacquired shall be accounted for as indicated in 
Sec. 1767.15 (q).

                  182.1   Extraordinary Property Losses

    A. When authorized or directed by RUS, this account shall include 
extraordinary losses which could not reasonably have been anticipated 
and which are not covered by insurance or other provisions, such as 
unforeseen damages to property.
    B. Application to RUS for permission to use this account shall be 
accompanied by a statement giving a complete explanation with respect to 
the items which it is proposed to include herein, the period over which, 
and the accounts to which it is proposed to write off the charges, and 
other pertinent information.

          182.2   Unrecovered Plant and Regulatory Study Costs

    A. This account shall include: (1) nonrecurring costs of studies and 
analyses mandated by regulatory bodies related to plants in service, 
transferred from Account 183, Preliminary Survey and Investigations 
Charges, and not resulting in construction; and (2) when authorized by 
RUS, significant unrecovered costs of plant facilities where 
construction has been cancelled or which have been prematurely retired.
    B. This account shall be credited and Account 407, Amortization of 
Property Losses, Unrecovered Plant and Regulatory Study Costs, shall be 
debited over the period specified by RUS.
    C. Any additional costs incurred, relative to the cancellation or 
premature retirement, may be included in this account and amortized over 
the remaining period of the original amortization period. Should any 
gains or recoveries be realized relative to the cancelled or prematurely 
retired plant, such amounts shall be used to reduce the

[[Page 920]]

unamortized amount of the costs recorded herein.
    D. In the event that the recovery of costs included herein is 
disallowed in the rate proceedings, the disallowed costs shall be 
charged to Account 426.5, Other Deductions, in the year of such 
disallowance.

                     182.3   Other Regulatory Assets

    A. This account shall include the amounts of regulatory-created 
assets, not includable in other accounts, resulting from the ratemaking 
actions of regulatory agencies. (See the definition of regulatory assets 
and liabilities.)
    B. The amounts included in this account are to be established by 
those charges which would have been included in net income 
determinations in the current period under the general requirements of 
the Uniform System of Accounts but for it being probable that such items 
will be included in a different period(s) for purposes of developing the 
rates that the utility is authorized to charge for its utility services. 
When specific identification of the particular source of a regulatory 
asset cannot be made, such as in plant phase-ins, rate moderation plans, 
or rate levelization plans, Account 407.4, Regulatory Credits, shall be 
credited. The amounts recorded in this account are generally to be 
charged, concurrently with the recovery of the amounts in rates, to the 
same account that would have been charged if included in income when 
incurred, except all regulatory assets established through the use of 
Account 407.4 shall be charged to Account 407.3, Regulatory Debits, 
concurrent with the recovery of the amounts in rates.
    C. If rate recovery of all or part of an amount included in this 
account is disallowed, the disallowed amount shall be charged to Account 
426.5, Other Deductions, or Account 435, Extraordinary Deductions, in 
the year of the disallowance.
    D. The records supporting the entries to this account shall be kept 
so that the utility can furnish full information as to the nature and 
amount of each regulatory asset included in this account, including 
justification for inclusion of such amounts in this account.

           183   Preliminary Survey and Investigation Charges

    A. This account shall be charged with all expenditures for 
preliminary surveys, plans, and investigations made for the purpose of 
determining the feasibility of utility projects under contemplation. If 
construction results, this account shall be credited and the appropriate 
utility plant account charged. If the work is abandoned, the charge 
shall be made to Account 426.5, Other Deductions, or to the appropriate 
operating expense account.
    B. This account shall also include costs of studies and analyses 
mandated by regulatory bodies related to plant in service. If 
construction results from such studies, this account shall be credited 
and the appropriate utility plant account charged with an equitable 
portion of such study costs directly attributable to new construction. 
The portion of such study costs not attributable to new construction or 
the entire cost if construction does not result shall be charged to 
Account 182.2, Unrecovered Plant and Regulatory Study Costs, or the 
appropriate operating expense account. The costs of such studies 
relative to plant under construction shall be included directly 
inAccount 107, Construction Work in Progress--Electric.
    C. The records supporting the entries to this account shall be so 
kept that the utility can furnish complete information as to the nature 
and the purpose of the survey, plans, or investigations, and the nature 
and amounts of the several charges.

    Note: The amount of preliminary survey and investigation charges 
transferred to utility plant shall not exceed the expenditures which may 
reasonably be determined to contribute directly and immediately and 
without duplication to utility plant.

                         184   Clearing Accounts

    A. This caption shall include undistributed balances in clearing 
accounts at the date of the balance sheet. Balances in clearing account 
shall be substantially cleared not later than the end of the calendar 
year unless items held therein relate to a future period.
    B. Account 184 shall be subaccounted as follows:


[[Page 921]]


184.1  Transportation Expense--Clearing
184.2  Clearing Accounts--Other

                       185   Temporary Facilities

    This account shall include amounts shown by work orders for plant 
installed for temporary use in utility service for periods of less than 
one year. Such work orders shall be charged with the cost of temporary 
facilities and credited with payments received from customers and net 
salvage realized on removal of the temporary facilities. Any net credit 
or debit resulting shall be cleared to Account 451, Miscellaneous 
Service Revenues.

                   186   Miscellaneous Deferred Debits

    This account shall include all debits not elsewhere provided for, 
such as miscellaneous work in progress, and unusual or extraordinary 
expenses, not included in other accounts, which are in process of 
amortization and items the proper final disposition of which is 
uncertain.

         187   Deferred Losses from Disposition of Utility Plant

    This account shall include losses from the sale or other disposition 
of property previously recorded in Account 105, Electric Plant Held for 
Future Use, under the provisions of Paragraphs B, C, and D thereof, 
where such losses are significant and are to be amortized over a period 
of 5 years, unless otherwise authorized by RUS. The amortization of the 
amounts in this account shall be made by debits to Account 411.7, Losses 
from Disposition of Utility Plant. (See Account 105, Electric Plant Held 
for Future Use.)

       188   Research, Development, and Demonstration Expenditures

    A. This account shall be charged with the cost of all expenditures 
coming within the meaning of Research, Development, and Demonstration 
(RD&D) of this USoA (See Sec. 1767.10 (a) (34)) except those 
expenditures properly chargeable to Account 107, Construction Work in 
Progress--Electric.
    B. Costs that are minor or of a general or recurring nature shall be 
transferred from this account to the appropriate operating expense 
function or if such costs are common to the overall operations or cannot 
be feasibly allocated to the various operating accounts, such costs 
shall be recorded in Account 930.2, Miscellaneous General Expenses.
    C. In certain instances, a company may incur large and significant 
research, development, and demonstration expenditures which are 
nonrecurring and which would distort the annual research, development, 
and demonstration charges for the period. In such a case, the portion of 
such amounts that cause the distortion may be amortized to the 
appropriate operating expense account over a period not to exceed 5 
years unless otherwise authorized by RUS.
    D. The entries in this account must be so maintained as to show 
separately each project along with complete detail of the nature and 
purpose of the research, development, and demonstration project together 
with the related costs.

                189   Unamortized Loss on Reacquired Debt

    This account shall include the losses on long-term debt reacquired 
or redeemed. The amounts in this account shall be amortized in 
accordance with Sec. 1767.15 (q).

                 190   Accumulated Deferred Income Taxes

    A. This account shall be debited and Account 411.1, Provision for 
Deferred Income Taxes--Credit, Utility Operating Income, or Account 
411.2, Provision for Deferred Income Taxes--Credit, Other Income and 
Deductions, as appropriate, shall be credited with an amount equal to 
that by which income taxes payable for the year are higher because of 
the inclusion of certain items in income for tax purposes, which items 
for general accounting purposes will not be fully reflected in the 
utility's determination of annual net income until subsequent years.
    B. This account shall be credited and Account 410.1, Provision for 
Deferred Income Taxes, Utility Operating Income, or Account 410.2, 
Provision for Deferred Income Taxes, Other Income and Deductions, as 
appropriate, shall be debited with an amount equal to

[[Page 922]]

that by which income taxes payable for the year are lower because of 
prior payment of taxes as provided by Paragraph A above, because of 
difference in timing for tax purposes of particular items of income or 
income deductions from that recognized by the utility for general 
accounting purposes. Such credit to this account and debit to Account 
410.1 or Account 410.2 shall, in general, represent the effect on taxes 
payable in the current year of the smaller amount of book income 
recognized for tax purposes as compared to the amount recognized in the 
utility's current accounts with respect to the item or class of items 
for which deferred tax accounting by the utility was authorized by RUS.
    C. Vintage year records with respect to entries to this account, as 
described above, and the account balance, shall be so maintained as to 
show the factor of calculation with respect to each annual amount of the 
item or class of items for which deferred tax accounting by the utility 
is utilized.
    D. The utility is restricted in its use of this account to the 
purpose set forth above. It shall not make use of the balance in this 
account or any portion thereof except as provided in the text of this 
account, without prior approval of RUS. Any remaining deferred tax 
account balance with respect to an amount for any prior year's tax 
deferral, the amortization of which or other recognition in the 
utility's income accounts has been completed, or other disposition made, 
shall be debited to Account 410.1, Provision for Deferred Income Taxes, 
Utility Operating Income, or Account 410.2, Provision for Deferred 
Income Taxes, Other Income and Deductions, as appropriate, or otherwise 
disposed of as RUS may authorize or direct. (See Sec. 1767.15 (t).)

[58 FR 59825, Nov. 10, 1993, as amended at 59 FR 27436, May 27, 1994; 60 
FR 55429, 55430, Nov. 1, 1995]



Sec. 1767.19  Liabilities and other credits.

    The liabilities and other credit accounts identified in this section 
shall be used by all RUS borrowers.

                      Liabilities and Other Credits

                          Margins and Equities

200  Memberships
200.1  Memberships Issued
200.2  Memberships Subscribed But Unissued
201  Patronage Capital
201.1  Patronage Capital Credits
201.2  Patronage Capital Assignable
202  [Reserved]
203  [Reserved]
204  [Reserved]
205  [Reserved]
206  [Reserved]
207  [Reserved]
208  Donated Capital
209  [Reserved]
210  [Reserved]
211  Consumers' Contributions for Debt Service
212  [Reserved]
213  [Reserved]
214  [Reserved]
215  Appropriated Margins
215.1  Unrealized Gains and Losses--Debt and Equity Securities
216  [Reserved]
216.1  Unappropriated Undistributed Subsidiary Earnings
217  Retired Capital Credits--Gain
218  Capital Gains and Losses
219  Other Margins and Equities
219.1  Operating Margins
219.2  Nonoperating Margins
219.3  Other Margins
219.4  Other Margins and Equities--Prior Periods

                             Long-Term Debt

221  Bonds
222  Reacquired Bonds
223  Advances from Associated Companies
224  Other Long-Term Debt
224.1  Long-Term Debt--RUS Construction Loan Contract
224.2  RUS Loan Contract--Construction--Debit
224.3  Long-Term Debt--RUS Construction Notes Executed
224.4  RUS Notes Executed--Construction--Debit
224.5  Interest Accrued--Deferred--RUS Construction
224.6  Advance Payments Unapplied--RUS Long-Term Debt--Debit
224.7  Long-Term Debt--Installation Loan Contract
224.8  RUS Loan Contract--Installation--Debit
224.9  Long-Term Debt--Installation Notes Executed
224.10  RUS Notes Executed--Installation--Debit
224.11  Other Long-Term Debt--Subscriptions
224.12  Other Long-Term Debt--Supplemental Financing

[[Page 923]]

224.13  Supplemental Financing Notes Executed--Debit
224.14  Other Long-Term Debt--Miscellaneous
224.15  Notes Executed--Other--Debit
224.16  Long-Term Debt--RUS Economic Development Notes Executed
224.17  RUS Notes Executed--Economic Development--Debit
225  Unamortized Premium on Long-Term Debt
226  Unamortized Discount on Long-Term Debt--Debit

                      Other Noncurrent Liabilities

227  Obligations Under Capital Leases--Noncurrent
228.1  Accumulated Provision for Property Insurance
228.2  Accumulated Provision for Injuries and Damages
228.3  Accumulated Provision for Pensions and Benefits
228.4  Accumulated Miscellaneous Operating Provisions
229  Accumulated Provision for Rate Refunds

                     Current and Accrued Liabilities

231  Notes Payable
232  Accounts Payable
232.1  Accounts Payable--General
232.2  Accounts Payable--RUS Construction
232.3  Accounts Payable--Other
233  Notes Payable to Associated Companies
234  Accounts Payable to Associated Companies
235  Customer Deposits
236  Taxes Accrued
236.1  Accrued Property Taxes
236.2  Accrued U.S. Social Security Tax--Unemployment
236.3  Accrued U.S. Social Security Tax--F.I.C.A.
236.4  Accrued State Social Security Tax--Unemployment
236.5  Accrued State Sales Tax--Consumers
236.6  Accrued Gross Revenue or Gross Receipts Tax
236.7  Accrued Taxes--Other
237  Interest Accrued
238  Patronage Capital and Patronage Refunds Payable
238.1  Patronage Capital Payable
238.2  Patronage Refunds Payable
239  Matured Long-Term Debt
240  Matured Interest
241  Tax Collections Payable
242  Miscellaneous Current and Accrued Liabilities
242.1  Accrued Rentals
242.2  Accrued Payroll
242.3  Accrued Employees' Vacations and Holidays
242.4  Accrued Insurance
242.5  Other Current and Accrued Liabilities
243  Obligations Under Capital Leases--Current

                            Deferred Credits

251  [Reserved]
252  Customer Advances for Construction
253  Other Deferred Credits
253.1  Other Deferred Credits--Consumers' Energy Prepayments
254  Other Regulatory Liabilities
255  Accumulated Deferred Investment Tax Credits
256  Deferred Gains from Disposition of Utility Plant
257  Unamortized Gain on Reacquired Debt
281  Accumulated Deferred Income Taxes--Accelerated Amortization 
          Property
282  Accumulated Deferred Income Taxes--Other Property
283  Accumulated Deferred Income Taxes--Other

                      Liabilities and Other Credits

                          Margins and Equities

                            200   Memberships

    A. This account shall include the total amount of memberships issued 
and subscribed.
    B. Account 200 shall be subaccounted as follows:

200.1  Memberships Issued
200.2  Memberships Subscribed But Unissued

                       200.1   Memberships Issued

    A. This account shall include the face value of membership 
certificates outstanding. A detailed record shall be maintained to show 
for each member, the name, address, date of payment, amount paid, and 
certificate number.
    B. If membership fees are applied against energy bills, this account 
shall be debited for the full amount of the membership with the 
offsetting credit to the appropriate accounts receivable, and to 
accounts payable for any refundable amounts. Any balances that cannot be 
refunded, due to inability to locate the member or because of bylaw 
restrictions, shall be credited to Account 208, Donated Capital. If 
determination of the ultimate disposition of the fees cannot be made 
immediately, the amount involved should be transferred to Account 253, 
Other Deferred Credits, until the determination is made.
    C. When a transfer fee is collected, the transaction shall be 
recorded by

[[Page 924]]

debiting Account 131.1, Cash--General, and crediting Account 451, 
Miscellaneous Service Revenues, with the fee collected.

               200.2   Memberships Subscribed But Unissued

    This account shall include the face value of memberships subscribed 
for but not issued. When certificates are issued, the amount of the 
memberships shall be transferred to Account 200.1, Memberships Issued.

                         201   Patronage Capital

    A. This account shall include the total amount of patronage capital 
assignable and assigned.
    B. Account 201 shall be subaccounted as follows:

201.1  Patronage Capital Credits
201.2  Patronage Capital Assignable

                    201.1   Patronage Capital Credits

    A. This account shall include the amounts of patronage capital which 
have been assigned to individual patrons. A subsidiary record, 
``patronage capital ledger,'' shall be maintained, containing an account 
for each patron who has furnished capital under a capital credits plan.
    B. When the return of patrons' capital to individual patrons has 
been authorized by the board of directors (or trustees), the amounts 
authorized shall be transferred to Account 238.1, Patronage Capital 
Payable. (See also Account 217, Retired Capital Credits-Gain.)

                  201.2   Patronage Capital Assignable

    A. This account shall include all amounts transferred from Account 
219.1, Operating Margins; Account 219.2, Nonoperating Margins; Account 
219.3, Other Margins; and Account 219.4, Other Margins and Equities--
Prior Periods, which are assignable to individual patrons' capital 
accounts.
    B. Entries to this account shall be made so as to clearly disclose 
the nature and source of each transaction. Amounts so assigned shall be 
transferred to Account 201.1, Patronage Capital Credits.

                             202  [Reserved]

                             203  [Reserved]

                             204  [Reserved]

                             205  [Reserved]

                             206  [Reserved]

                             207  [Reserved]

                          208   Donated Capital

    This account shall include credits arising from forfeiture of 
membership fees and from donations of capital not otherwise provided 
for. Entries to this account shall be made so as to clearly disclose the 
nature and source of each transaction.

                             209  [Reserved]

                             210  [Reserved]

             211   Consumers' Contributions for Debt Service

    This account shall include the amounts billed to consumers as 
``amortization charges'' for the purpose of servicing long-term debt.

                             212  [Reserved]

                             213  [Reserved]

                             214  [Reserved]

                        215  Appropriated Margins

    This account shall include all amounts appropriated as reserves from 
margins. The account shall be so maintained as to show the amount of 
each separate reserve and the nature and amounts of the debits and 
credits thereto.

     215.1  Unrealized Gains and Losses--Debt and Equity Securities

    This account shall include the unrealized holding gains and losses 
for available-for-sale securities.

[[Page 925]]

                             216  [Reserved]

         216.1  Unappropriated Undistributed Subsidiary Earnings

    This account shall include the balances, either debit or credit, of 
undistributed retained earnings of subsidiary companies since their 
acquisition. When dividends are received from subsidiary companies 
relating to amounts included in this account, this account shall be 
debited and Account 219.2, Nonoperating Margins, credited.

                   217   Retired Capital Credits--Gain

    A. This account shall include credits resulting from the retirement 
of patronage capital through settlement of individual patrons' capital 
credits at less than 100 percent of the capital assigned to the patron. 
The portion of patronage capital not returned to the patrons, under such 
settlements, shall be debited to Account 201.1, Patronage Capital 
Credits, and credited to this account.
    B. This account shall also include amounts representing patronage 
capital authorized to be retired to patrons who cannot be located. 
Returned checks issued for retirements of patronage capital, after an 
appropriate waiting period, shall be credited to this account, and a 
record maintained adequate to enable the cooperative to make payment to 
the patron if and when a claim has been established by the consumer.

                     218   Capital Gains and Losses

    No entries shall be made to this account without the prior approval 
of RUS unless it is to distribute past capital gains and losses as 
capital credits or to eliminate accumulated capital losses in 
conformance with the bylaws of the cooperative.

                    219   Other Margins and Equities

    A. This account shall include total amount of margins and equities 
from all sources.
    B. Account 219 shall be subaccounted as follows:

219.1   Operating Margins
219.2   Nonoperating Margins
219.3   Other Margins
219.4   Other Margins and Equities--Prior Periods

                        219.1   Operating Margins

    This account shall be debited or credited with the balances arising 
from transactions, the details of which have been recorded in Accounts 
400, 401, 402, 403, 404, 405, 406, 407, 408, 412, 413, 414, 423, 424, 
425, 426, 427, 428, and 431. Accounts 400, 401, and 402 are control 
accounts and, at the option of the borrower may or may not be used. If 
they are not used, the detailed revenue and expense accounts shall be 
closed directly to this account.

                      219.2   Nonoperating Margins

    This account shall be debited or credited with the balances arising 
from transactions, the details of which have been recorded in Accounts 
415, 416, 417, 417.1, 418, 419, 419.1, 421, 421.1, 421.2, 422, 434, and 
435.

                          219.3   Other Margins

    No entries shall be made to this account unless it is to distribute 
or eliminate prior balances in conformance with the bylaws of the 
cooperative.

            219.4   Other Margins and Equities--Prior Periods

    A. This account shall include significant nonrecurring transactions 
relating to prior periods. To be significant, the transaction must be of 
sufficient magnitude to justify redistribution of patronage capital 
credits already allocated for such prior periods.
    B. All entries to this account must receive RUS prior approval.
    C. These transactions are limited to items to (1) correct an error 
in the financial statements of a prior year, and (2) make adjustments 
that result from realization of income tax benefits of preacquisition 
operating loss carryforwards. This account shall also include the 
related income taxes (state and Federal) on items included herein.
    D. Amounts in this account shall be transferred at the end of the 
year to Account 219.1, Operating Margins, or Account 219.2, Nonoperating 
Margins, as appropriate. Also, at the end of the

[[Page 926]]

year, these amounts should be transferred from Account 219.1, or Account 
219.2 to Account 201.2, Patronage Capital Assignable, when appropriate.

                             Long-Term Debt

                               221   Bonds

    This account shall include, in a separate subdivision for each class 
and series of bonds, the face value of the actually issued and unmatured 
bonds which have not been retired or cancelled; also the face value of 
such bonds issued by others, the payment of which has been assumed by 
the utility.

                         222   Reacquired Bonds

    A. This account shall include the face value of bonds actually 
issued or assumed by the utility and reacquired by it and not retired or 
cancelled. The account for reacquired debt shall not include securities 
which are held by trustees in sinking or other funds.
    B. When bonds are reacquired, the difference between face value, 
adjusted for unamortized discount, expenses or premium, and the amount 
paid upon reacquisition, shall be included in Account 189, Unamortized 
Loss on Reacquired Debt, or Account 257, Unamortized Gain on Reacquired 
Debt, as appropriate. (See Sec. 1767.15 (q).)

                223   Advances from Associated Companies

    A. This account shall include the face value of notes payable to 
associated companies and the amount of open book accounts representing 
advances from associated companies. It does not include notes and open 
accounts representing indebtedness subject to current settlement which 
are includible in Account 233, Notes Payable to Associated Companies, or 
Account 234, Accounts Payable to Associated Companies.
    B. The records supporting the entries to this account shall be so 
kept that the utility can furnish complete information concerning each 
note and open account.

                       224   Other Long-Term Debt

    A. This account shall include, until maturity, all long-term debt 
not otherwise provided for. This covers such items as receivers' 
certificates, real estate mortgages executed or assumed, assessments for 
public improvements, notes and unsecured certificates of indebtedness 
not owned by associated companies, receipts outstanding for long-term 
debt, and other obligations maturing more than one year from the date of 
issue or assumption.
    B. Account 224 shall be subaccounted as follows:

224.1  Long-Term Debt--RUS Construction Loan Contract
224.2  RUS Loan Contract--Construction--Debit
224.3  Long-Term Debt--RUS Construction Notes Executed
224.4  RUS Notes Executed--Construction--Debit
224.5  Interest Accrued--Deferred--RUS Construction
224.6  Advance Payments Unapplied--RUS Long-Term Debt--Debit
224.7  Long-Term Debt--Installation Loan Contract
224.8  RUS Loan Contract--Installation--Debit
224.9  Long-Term Debt--Installation Notes Executed
224.10  RUS Notes Executed--Installation--Debit
224.11  Other Long-Term Debt--Subscriptions
224.12  Other Long-Term Debt--Supplemental Financing
224.13  Supplemental Lender Notes Executed--Debit
224.14  Other Long-Term Debt--Miscellaneous
224.15  Notes Executed--Other--Debit
224.16  Long-Term Debt--RUS Economic Development Notes Executed
224.17  RUS Notes Executed--Economic Development--Debit

         224.1   Long-Term Debt--RUS Construction Loan Contract

    A. This account shall include the contractual obligation to RUS on 
construction loans covered by loan contract but not by executed notes.
    B. This account is to be used at the option of the borrower.

             224.2   RUS Loan Contract--Construction--Debit

    A. This account shall include the total loans (for construction 
purposes) which are covered by loan contract but not by executed notes.

[[Page 927]]

    B. This account is to be used at the option of the borrower.

         224.3   Long-Term Debt--RUS Construction Notes Executed

    This account shall include the contractual liability to RUS on 
construction notes executed. Records shall be maintained to show 
separately for each class of obligation all details as to the date of 
obligation, date of maturity, interest date and rate, and securities for 
the obligation.

             224.4   RUS Notes Executed--Construction--Debit

    This account shall include the total amount of the unadvanced RUS 
loans for construction purposes, which are covered by executed notes. 
When advances are received from the RUS for construction, this account 
shall be credited and Account 131.2, Cash--Construction Fund--Trustee, 
debited with the amount of cash advanced.

          224.5   Interest Accrued--Deferred--RUS Construction

    This account shall include interest on RUS construction obligations 
deferred by the terms of mortgage notes or extension agreements.

      224.6   Advance Payments Unapplied--RUS Long-Term Debt--Debit

    A. This account shall include principal payments on mortgage notes 
paid in advance of the date due and not applied to a specific note. 
Also, include in this account interest savings which are accrued and 
added to the advance payment unapplied.
    B. At such time as these payments are applied to a specific note or 
loan balances, this account shall be credited and the long-term debt 
account debited with the amount so applied.

           224.7   Long-Term Debt--Installation Loan Contract

    A. This account shall include the contractual obligation to RUS on 
installation loans covered by loan contract but not covered by executed 
notes.
    B. This account is to be used at the option of the borrower.

             224.8   RUS Loan Contract--Installation--Debit

    A. This account shall include the total loans for installation 
purposes which are covered by loan contract but not by executed notes.
    B. This account is to be used at the option of the borrower.

           224.9   Long-Term Debt--Installation Notes Executed

    This account shall include the contractual liability to RUS on 
installation notes executed.

            224.10   RUS Notes Executed--Installation--Debit

    This account shall include the total amount of unadvanced loans for 
installation purposes, which are covered by executed note. When advances 
are received from RUS, this account shall be credited and Account 131.3, 
Cash--Installation Loan and Collection Fund, debited with the amount of 
cash advanced.

              224.11   Other Long-Term Debt--Subscriptions

    This account shall include the contractual obligation to purchase 
CFC Capital Term Certificates and any other similar obligation relating 
to supplemental financing.

          224.12   Other Long-Term Debt--Supplemental Financing

    This account shall include the contractual liability to CFC or other 
supplemental lenders for that portion of funds borrowed which mature in 
more than one year.

          224.13   Supplemental Financing Notes Executed--Debit

    This account shall include the total amount of the unadvanced loans 
for construction purposes, which are covered by executed notes to CFC or 
other supplemental lender. This account shall be debited with the face 
amount of notes executed. When advances are received from a supplemental 
lender for construction, this account shall be credited and Account 
131.2, Cash--Construction Fund--Trustee, debited with the amount of cash 
advanced.

[[Page 928]]

              224.14   Other Long-Term Debt--Miscellaneous

    This account shall include the amount of other long-term debt not 
provided for elsewhere.

                  224.15   Notes Executed--Other--Debit

    This account shall include the total amount of the unadvanced loans 
for construction purposes, which are covered by executed notes to others 
not included in the foregoing accounts. When advances are received from 
such supplemental lender, this account shall be credited and Account 
131.2, Cash--Construction Fund--Trustee, debited with the amount of cash 
so advanced.

    224.16   Long-Term Debt--RUS Economic Development Notes Executed

    This account shall include the contractual liability to RUS on rural 
economic development notes executed. Records shall be maintained to show 
separately for each class of obligation all details as to the date of 
obligation, date of maturity, interest date and rate, and securities for 
the obligation.

        224.17   RUS Notes Executed--Economic Development--Debit

    This account shall include the total amount of the unadvanced RUS 
loans for rural economic development purposes, which are covered by 
executed notes. When advances are received from the RUS for rural 
economic development projects, this account shall be credited and 
Account 131.12, Cash--General--Economic Development Funds, debited with 
the amount of cash advanced.

               225   Unamortized Premium on Long-Term Debt

    A. This account shall include the excess of the cash value of 
consideration received over the face value upon the issuance or 
assumption of long-term debt securities.
    B. Amounts recorded in this account shall be amortized over the life 
of each respective issue under a plan which will distribute the amount 
equitably over the life of the security. The amortization shall be on a 
monthly basis, with the amounts thereof to be credited to Account 429, 
Amortization of Premium on Debt--Credit. (See Sec. 1767.15 (q).)

           226   Unamortized Discount on Long-Term Debt--Debit

    A. This account shall include the excess of the face value of long-
term debt securities over the cash value of consideration received 
therefor, related to the issue or assumption of all types and classes of 
debt.
    B. Amounts recorded in this account shall be amortized over the life 
of the respective issues under a plan which will distribute the amount 
equitably over the life of the securities. The amortization shall be on 
a monthly basis, wit the amounts thereof charged to Account 428, 
Amortization of Debt Discount and Expense. (See Sec. 1767.15 (q).)

                      Other Noncurrent Liabilities

           227   Obligations Under Capital Leases--Noncurrent

    This account shall include the portion not due within one year, of 
the obligations recorded for the amounts applicable to leased property 
recorded as assets in Account 101.1, Property Under Capital Leases; 
Account 120.6, Nuclear Fuel Under Capital Leases; or Account 121, 
Nonutility Property.

                          Special Instructions

    No amounts shall be credited to Accounts 228.1 through 228.4 unless 
authorized by a regulatory authority or authorities to be collected in 
the utility's rates.

          228.1   Accumulated Provision for Property Insurance

    A. This account shall include amounts reserved by the utility for 
losses through accident, fire, flood, or other hazards to its own 
property or property leased from others, not covered by insurance. The 
amounts charged to Account 924, Property Insurance, or other appropriate 
accounts to cover such risks shall be credited to this account. A 
schedule of risks covered shall be maintained, giving a description of 
the property involved, the character of the risks covered and the rates 
used.

[[Page 929]]

    B. Charges shall be made to this account for losses covered, not to 
exceed the account balance. Details of these charges shall be maintained 
according to the year the casualty occurred which gave rise to the loss.

         228.2   Accumulated Provision for Injuries and Damages

    A. This account shall be credited with amounts charged to Account 
925, Injuries and Damages, or other appropriate accounts, to meet the 
probable liability, not covered by insurance, for deaths or injuries to 
employees and others and for damages to property neither owned nor held 
under lease by the utility.
    B. When liability for any injury or damage is admitted by the 
utility either voluntarily or because of the decision of a court or 
other lawful authority, such as a workmen's compensation board, the 
admitted liability shall be charged to this account and credited to the 
appropriate current liability account. Details of these charges shall be 
maintained according to the year the casualty occurred which gave rise 
to the loss.

    Note: Recoveries or reimbursements for losses charged to this 
account shall be credited hereto; the cost of repairs to property of 
others, if provided for herein, shall be charged to this account.

         228.3   Accumulated Provision for Pensions and Benefits

    A. This account shall include provisions made by the utility and 
amounts contributed by employees for pensions, accident and death 
benefits, savings, relief, hospital, and other provident purposes, where 
the funds are included in the assets of the utility either in general or 
in segregated fund accounts.
    B. Amounts paid by the utility for the purpose for which this 
liability is established shall be charged hereto.
    C. A separate account shall be kept for each kind of provision 
included herein.

    Note: If employee pension or benefit plan funds are not included 
among the assets of the utility but are held by outside trustees, 
payments into such funds, or accruals therefor, shall not be included in 
this account.

         228.4   Accumulated Miscellaneous Operating Provisions

    A. This account shall include all operating provisions which are not 
provided for elsewhere.
    B. This account shall be maintained in such a manner as to show the 
amount of each separate provision and the nature and amounts of the 
debits and credits thereto.

    Note: This account includes only provisions as may be created for 
operating purposes and does not include any reservations of income, the 
credits for which should be recorded in Account 215, Appropriated 
Margins.

              229   Accumulated Provision for Rate Refunds

    A. This account shall be credited with amounts charged to Account 
449.1, Provision for Rate Refunds, to provide for estimated refunds 
where the utility is collecting amounts in rates subject to refund.
    B. When a refund of any amount recorded in this account is ordered 
by a regulatory authority, such amount shall be charged hereto and 
credited to Account 242, Miscellaneous Current and Accrued Liabilities.
    C. Records supporting the entries to this account shall be kept so 
as to identify each amount recorded by the respective rate filing docket 
number.

                     Current and Accrued Liabilities

    Current and accrued liabilities are those obligations which have 
either matured or which become due within 1 year from the date thereof; 
except however, bonds, receivers' certificates, and similar obligations 
which shall be classified as long-term debt until date of maturity; 
accrued taxes, such as income taxes, which shall be classified as 
accrued liabilities even though payable more than one year from date; 
compensation awards, which shall be classified as current liabilities 
regardless of date due; and minor amounts payable in installments which 
may be classified as current liabilities. If a liability is due more 
than 1 year from the date of issuance or assumption by the utility, it 
shall be credited to a long-term debt account appropriate for the 
transaction; except however, the

[[Page 930]]

current liabilities previously mentioned.

                           231   Notes Payable

    This account shall include the face value of all notes, drafts, 
acceptances, or other similar evidences of indebtedness, payable on 
demand or within a time not exceeding 1 year from the date of issue, to 
other than associated companies.

                         232   Accounts Payable

    A. This account shall include all amounts payable by the utility 
within 1 year, which are not provided for in other accounts.
    B. Account 232 shall be subaccounted as follows:

232.1  Accounts Payable--General
232.2  Accounts Payable--RUS Construction
232.3  Accounts Payable--Other

               233   Notes Payable to Associated Companies

    This account shall include amounts owing to associated companies on 
notes, drafts, acceptances, or other similar evidences of indebtedness 
payable on demand or not more than 1 year from the date of issue or 
creation.

    Note: Notes which are includible in Account 223, Advances from 
Associated Companies, shall be excluded from this account.

             234   Accounts Payable to Associated Companies

    This account shall include amounts owing to associated companies on 
open accounts payable on demand.

    Note: Accounts which are includible in Account 223, Advances from 
Associated Companies, shall be excluded from this account.

                         235   Customer Deposits

    This account shall include all amounts deposited with the utility by 
its customers as security for the payment of bills.

                           236   Taxes Accrued

    A. This account shall be credited with the amount of taxes accrued 
during the accounting period, corresponding debits being made to the 
appropriate accounts for tax charges. Such credits may be based upon 
estimates, but from time to time during the year as the facts become 
known, the amount of the periodic credits shall be adjusted so as to 
include, as nearly as can be determined in each year, the taxes 
applicable thereto. Any amount representing a prepayment of taxes 
applicable to the period subsequent to the date of the balance sheet, 
shall be shown under Account 165, Prepayments.
    B. If accruals for taxes are found to be insufficient or excessive, 
correction therefor shall be made through current tax accruals.
    C. Accruals for taxes shall be based upon the net amounts payable 
after credit for any discounts, and shall not include any amounts for 
interest on tax deficiencies or refunds. Interest received on refunds 
shall be credited to Account 419, Interest and Dividend Income, and 
interest paid on deficiencies shall be charged to Account 431, Other 
Interest Expense.
    D. Account 236 shall be subaccounted as follows:

236.1  Accrued Property Taxes
236.2  Accrued U.S. Social Security Tax--Unemployment
236.3  Accrued U.S. Social Security Tax--F.I.C.A.
236.4  Accrued State Social Security Tax--Unemployment
236.5  Accrued State Sales Tax--Consumers
236.6  Accrued Gross Revenue or Gross Receipts Tax
236.7  Accrued Taxes--Other

                         237   Interest Accrued

    This account shall include the amount of interest accrued but not 
matured on all liabilities of the utility not including, however, 
interest which is added to the principal of the debt on which incurred. 
Supporting records shall be maintained so as to show the amount of 
interest accrued on each obligation.

          238   Patronage Capital and Patronage Refunds Payable

    A. This account shall include the total amount of patronage capital 
authorized to be returned and paid to patrons.
    B. Account 238 shall be subaccounted as follows:

238.1  Patronage Capital Payable
238.2  Patronage Refunds Payable

[[Page 931]]

                    238.1   Patronage Capital Payable

    This account shall include the amount of patronage capital which has 
been authorized to be returned to the patron.

                    238.2   Patronage Refunds Payable

    This account shall include the amount of patronage refunds which 
have been authorized to be paid to patrons.

                      239   Matured Long-Term Debt

    This account shall include the amount of long-term debt (including 
any obligation for premiums) matured and unpaid, without specific 
agreement for extension of the time of payment and bonds called for 
redemption but not presented.

                         240   Matured Interest

    This account shall include the amount of matured interest on long-
term debt or other obligations of the utility at the date of the balance 
sheet unless such interest is added to the principal of the debt on 
which incurred.

                      241   Tax Collections Payable

    This account shall include the amount of taxes collected by the 
utility through payroll deductions or otherwise, pending transmittal of 
such taxes to the proper taxing authority.

    Note: Do not include liabilities for taxes assessed directly against 
the utility which are accounted for as part of the utility's own tax 
expense.

           242   Miscellaneous Current and Accrued Liabilities

    A. This account shall include the amount of all other current and 
accrued liabilities not provided for elsewhere appropriately designated 
and supported so as to show the nature of each liability.
    B. Account 242 shall be subaccounted as follows:

242.1  Accrued Rentals
242.2  Accrued Payroll
242.3  Accrued Employees' Vacations and Holidays
242.4  Accrued Insurance
242.5  Other Current and Accrued Liabilities

                         242.1   Accrued Rentals

    This account shall include unpaid joint use pole rentals and other 
rentals. The records supporting the entries to this account shall be 
maintained so as to show for each class of rental, the amount accrued, 
the basis for the accrual, the accounts to which charged, and the amount 
of rentals paid.

                         242.2   Accrued Payroll

    This account shall include the accrued liability for salaries and 
wages at the end of an accounting period for which the appropriate 
expense or other accounts have been charged. This account is to be used 
whether salaries and wages are paid on a weekly, semimonthly, or monthly 
basis.

            242.3   Accrued Employees' Vacations and Holidays

    This account shall include the liability for accrued wages for 
employees' vacation, holidays, and sick leave.

                        242.4   Accrued Insurance

    A. This account shall most commonly be used in case of workmen's 
compensation and public liability insurance for recording the excess 
amounts of earned premium over the advance premiums. Earned premiums are 
computed each month by applying the insurance rates to the actual 
payrolls.
    B. Until the amount of the advance premiums is exhausted, the earned 
premium is credited to Account 165, Prepayments. Earned premiums in 
excess of the advance premiums are credited to this account.

              242.5   Other Current and Accrued Liabilities

    This account shall include current and accrued liabilities not 
provided for elsewhere.

             243   Obligations Under Capital Leases--Current

    This account shall include the portion, due within 1 year, of the 
obligations recorded for the amounts applicable to leased property 
recorded as assets in Account 101.1, Property Under Capital Leases; 
Account 120.6, Nuclear

[[Page 932]]

Fuel Under Capital Leases; or Account 121, Nonutility Property.

                            Deferred Credits

                             251  [Reserved]

                252   Customer Advances for Construction

    This account shall include consumer advances for construction which 
are to be refunded either wholly or in part. When a customer is refunded 
the entire amount to which he is entitled, according to the agreement or 
rule under which the advance was made, the balance, if any, remaining in 
this account shall be credited to the respective plant accounts.

                      253   Other Deferred Credits

    This account shall include advance billings and receipts and other 
deferred credit items, not provided for elsewhere, including amounts 
which cannot be entirely cleared or disposed of until additional 
information has been received.

      253.1   Other Deferred Credits--Consumers' Energy Prepayments

    This account shall include the amount of advance payments made by 
consumers in connection with electric service.

                   254   Other Regulatory Liabilities

    A. This account shall include the amounts of regulatory liabilities, 
not includible in other accounts, imposed on the utility by the 
ratemaking actions of regulatory agencies.
    B. The amounts included in this account are to be established by 
those credits which would have been included in net income 
determinations in the current period under the general requirements of 
the Uniform System of Accounts but for it being probable that: (1) such 
items will be included in a different period(s) for purposes of 
developing the rates that the utility is authorized to charge for its 
utility services; or (2) refunds to customers, not provided for in other 
accounts, will be required. When specific identification of the 
particular source of the regulatory liability cannot be made or when the 
liability arises from revenues collected pursuant to tariffs on file at 
a regulatory agency, Account 407.3, Regulatory Debits, shall be debited. 
The amounts recorded in this account generally are to be credited to the 
same account that would have been credited if included in income when 
earned except: (1) all regulatory liabilities established through the 
use of Account 407.3 shall be credited to Account 407.4, Regulatory 
Credits; and (2) in the case of refunds, a cash account or other 
appropriate account should be credited when the obligation is satisfied.
    C. If it is later determined that the amounts recorded in this 
account will not be returned to customers through rates or refunds, such 
amounts shall be credited to Account 421, Miscellaneous Nonoperating 
Income, or Account 434, Extraordinary Income, as appropriate, in the 
year such determination is made.
    D. The records supporting the entries to this account shall be kept 
in such a manner that the utility can furnish full information as to the 
nature and amount of each regulatory liability included in this account, 
including justification for inclusion of such amounts in this account.

            255   Accumulated Deferred Investment Tax Credits

    A. This account shall be credited with all investment tax credits 
deferred by companies which have elected to follow deferral accounting, 
partial or full, rather than recognizing, in the income statement, the 
total benefits of the tax credit as realized. After such election, a 
company may not transfer amounts from this account, except as authorized 
herein and in Account 411.4, Investment Tax Credit Adjustments, Utility 
Operations; Account 411.5, Investment Tax Credit Adjustments, Nonutility 
Operations; and Account 420, Investment Tax Credits, or with approval of 
RUS.
    B. Where the company's accounting provides that investment tax 
credits are to be passed on to customers, this account shall be debited 
and Account 411.4 credited with a proportionate amount determined in 
relation to the average useful life of electric utility

[[Page 933]]

property to which the tax credits relate or such lesser period of time 
as allowed by a regulatory agency having rate jurisdiction. If, however, 
the deferral procedure provides that investment tax credits are not to 
be passed on to customers, the proportionate restorations to income 
shall be credited to Account 420.
    C. Subdivisions of this account, by department, shall be maintained 
for deferred investment tax credits that are related to nonelectric 
utility or other operations. Contra entries affecting such account 
subdivisions shall be appropriately recorded in Account 413, Expenses of 
Electric Plant Leased to Others; or Account 414, Other Utility Operating 
Income. Use of deferral or nondeferral accounting procedures adopted for 
nonelectric utility or other operations are to be followed on a 
consistent basis.
    D. Separate records for electric and nonelectric utility or other 
operations shall be maintained identifying the properties giving rise to 
the investment tax credits for each year with the weighted-average 
service life of such properties and any unused balances of such credits. 
Such records are not necessary unless the tax credits are deferred.

         256   Deferred Gains from Disposition of Utility Plant

    This account shall include gains from the sale or other disposition 
of property previously recorded in Account 105, Electric Plant Held for 
Future Use, under the provisions of Paragraphs B, C, and D thereof, 
where such gains are significant and are to be amortized over a period 
of 5 years, unless otherwise authorized by RUS. The amortization of the 
amounts in this account shall be made by credits to Account 411.6, Gains 
from Disposition of Utility Plant. (See Account 105, Electric Plant Held 
for Future Use.)

                257   Unamortized Gain on Reacquired Debt

    This account shall include the amounts of discount realized upon 
reacquisition or redemption of long-term debt. The amounts in this 
account shall be amortized in accordance with Sec. 1767.15 (q).

                          Special Instructions

                    Accumulated Deferred Income Taxes

    Before using the deferred tax accounts provided below, refer to 
Sec. 1767.15 (r), Comprehensive Interperiod Income Tax Allocation. The 
text of these accounts are designed primarily to cover deferrals of 
Federal income taxes. However, they are also to be used when making 
deferrals of state and local income taxes. Utilities and licensees 
which, in addition to an electric utility department, have another 
utility department, gas or water and nonutility property, and which have 
deferred taxes on income with respect thereto shall separately classify 
such deferrals in the accounts provided below so as to allow ready 
identification of items relating to each utility deductions.

   281   Accumulated Deferred Income Taxes--Accelerated Amortization 
                                Property

    A. This account shall include tax deferrals resulting from adoption 
of the principles of comprehensive interperiod tax allocation described 
in Sec. 1767.15 (s) that relate to property for which the utility has 
availed itself of the use of accelerated (5-year) amortization of (1) 
certified defense facilities as permitted by Section 168 of the Internal 
Revenue Code, and (2) certified pollution control facilities as 
permitted by Section 169 of the Internal Revenue Code.
    B. This account shall be credited and Account 410.1, Provision for 
Deferred Income Taxes, Utility Operating Income, or Account 410.2, 
Provision for Deferred Income Taxes, Other Income and Deductions, as 
appropriate, shall be debited with tax effects related to property 
described in Paragraph A above where taxable income is lower than pretax 
accounting income due to differences between the periods in which 
revenue and expense transactions affect taxable income and the periods 
in which they enter into the determination of pretax accounting income.
    C. This account shall be debited and Account 411.1, Provision for 
Deferred Income Taxes--Credit, Utility Operating Income, or Account 
411.2, Provision for Deferred Income Taxes-Credit,

[[Page 934]]

Other Income and Deductions, as appropriate, shall be credited with 
taxes related to property described in Paragraph A above where taxable 
income is higher than pretax accounting income due to differences 
between the periods in which revenue and expense transactions affect 
taxable income and the periods in which they enter into the 
determination of pretax accounting income.
    D. The utility is restricted in its use of this account to the 
purposes set forth above. It shall not transfer the balance in this 
account or any portion thereof to retained earnings or make any use 
thereof except as provided in the text of this account without prior 
approval of RUS. Upon the disposition by sale, exchange, transfer, 
abandonment, or premature retirement of plant on which there is a 
related balance therein, this account shall be charged with an amount 
equal to the related income tax expense, if any, arising from such 
disposition and Account 411.1, Provision for Deferred Income Taxes--
Credit, Utility Operating Income, or Account 411.2, Provision for 
Deferred Income Taxes--Credit, Other Income and Deductions, as 
appropriate, shall be credited. When the remaining balance, after 
consideration of any related income tax expense, is less than $25,000, 
this account shall be charged and Account 411.1 or Account 411.2, as 
appropriate, credited with such balance. If after consideration of any 
related income tax expense, there is a remaining amount of $25,000 or 
more, RUS shall authorize or direct how such amount shall be accounted 
for at the time approval for the disposition of accounting is granted. 
When plant is disposed of by transfer to a wholly owned subsidiary, the 
related balance in this account shall also be transferred. When the 
disposition relates to retirement of an item or items under a group 
method of depreciation where there is no tax effect in the year of 
retirement, no entries are required in this account if it can be 
determined that the related balances would be necessary to be retained 
to offset future group item tax deficiencies.

         282   Accumulated Deferred Income Taxes--Other Property

    A. This account shall include the tax deferrals resulting from 
adoption of the principle of comprehensive interperiod income tax 
allocation described in Sec. 1767.15 (r) which are related to all 
property other than accelerated amortization property.
    B. This account shall be credited and Account 410.1, Provision for 
Deferred Income Taxes, Utility Operating Income, or Account 410.2, 
Provision for Deferred Income Taxes, Other Income and Deductions, as 
appropriate, shall be debited with tax effects related to property 
described in Paragraph A above where taxable income is lower than pretax 
accounting income due to differences between the periods in which 
revenue and expense transactions affect taxable income and the periods 
in which they enter into the determination of pretax accounting income.
    C. This account shall be debited and Account 411.1, Provision for 
Deferred Income Taxes--Credit, Utility Operating Income, or Account 
411.2, Provision for Deferred Income Taxes--Credit, Other Income and 
Deductions, as appropriate, shall be credited with tax effects related 
to property described in Paragraph A above where taxable income is 
higher than pretax accounting income due to differences between the 
periods in which revenue and expense transactions affect taxable income 
and the periods in which they enter into the determination of pretax 
accounting income.
    D. The utility is restricted in its use of this account to the 
purposes set forth above. It shall not transfer the balance in this 
account or any portion thereof to retained earnings or make any use 
thereof except as provided in the text of this account without prior 
approval of RUS. Upon the disposition by sale, exchange, transfer, 
abandonment, or premature retirement of plant on which there is a 
related balance herein, this account shall be charged with an amount 
equal to the related income tax expense, if any, arising from such 
disposition and Account 411.1, Provision for Deferred Income Taxes--
Credit, Utility Operating Income, or Account 411.2, Provision for 
Deferred

[[Page 935]]

Income Taxes--Credit, Other Income and Deductions, shall be credited. 
When the remaining balance after consideration of any related tax 
expenses, is less than $25,000, this account shall be charged and 
Account 411.1 or Account 411.2, as appropriate, credited with such 
balance. If after consideration any related income tax expense, there a 
remaining amount of $25,00 or more, RUS shall authorize or direct how 
such amount shall be accounted for at the time approval for the 
disposition of accounting is granted. When plant is disposed of by 
transfer to a wholly owned subsidiary, the related balance in this 
account shall also be transferred. When the disposition relates to 
retirement of an item or items under a group method of depreciation 
where there is no tax effect in the year of retirement, no entries are 
required in this account if it can be determined that the related 
balance would be necessary to be retained to offset future group item 
tax deficiencies.

             283   Accumulated Deferred Income Taxes--Other

    A. This account shall include all credit tax deferrals resulting 
from the adoption of the principles of comprehensive interperiod income 
tax allocation described in Sec. 1767.15 (r) other than those deferrals 
which are includible in Account 281, Accumulated Deferred Income Taxes--
Accelerated Amortization Property, and Account 282, Accumulated Deferred 
Income Taxes--Other Property.
    B. This account shall be credited and Account 410.1, Provision for 
Deferred Income Taxes, Utility Operating Income, or Account 410.2, 
Provision for Deferred Income Taxes, Other Income and Deductions, as 
appropriate, shall be debited with tax effects related to items 
described in Paragraph A above where taxable income is lower than pretax 
accounting income due to differences between the periods in which 
revenue and expense transactions affect taxable income and the periods 
in which they enter into the determination of pretax accounting income.
    C. This account shall be debited and Account 411.1, Provision for 
Deferred Income Taxes--Credit, Utility Operating Income or Account 
411.2, Provision for Deferred Income Taxes--Credit, Other Income and 
Deductions, as appropriate, shall be credited with tax effects related 
to items described in Paragraph A above where taxable income is higher 
than pretax accounting income due to differences between the periods in 
which revenue and expense transactions affect taxable income and the 
periods in which they enter into the determination of pretax accounting 
income.
    D. Records with respect to entries to this account, as described 
above, and the account balance, shall be so maintained as to show the 
factors of calculation with respect to each annual amount of the item or 
class of items.
    E. The utility is restricted in its use of this account to the 
purposes set forth above. It shall not transfer the balance in the 
account or any portion thereof to retained earnings or to any other 
account or make any use thereof except as provided in the text of this 
account, without prior approval of RUS. Upon the disposition by sale, 
exchange, transfer, abandonment, or premature retirement of items on 
which there is a related balance herein, this account shall be charged 
with an amount equal to the related income tax effect, if any, arising 
from such disposition and Account 411.1, Provision For Deferred Income 
Taxes--Credit, Utility Operating Income, or Account 411.2, Provision For 
Deferred Income Taxes-Credit, Other Income and Deductions, as 
appropriate, shall be credited. When the remaining balance, after 
consideration of any related tax expenses, is less than $25,000, this 
account shall be charged and Account 411.1 or Account 411.2, as 
appropriate, credited with such balance. If after consideration of any 
related income tax expense, there is a remaining amount of $25,000 or 
more, RUS shall authorize or direct how such amount shall be accounted 
for at the time approval for the disposition of accounting is granted.
    When plant is disposed of by transfer to a wholly owned subsidiary, 
the related balance in this account shall also be transferred. When the 
disposition relates to retirement of an item or items under a group 
method of depreciation where there is no tax effect in the year

[[Page 936]]

of retirement, no entries are required in this account if it can be 
determined that the related balance would be necessary to be retained to 
offset future group item tax deficiencies.

[58 FR 59825, Nov. 10, 1993, as amended at 59 FR 27436, May 27, 1994; 60 
FR 55430, Nov. 1, 1995]



Sec. 1767.20  Plant accounts.

    The plant accounts identified in this section shall be used by all 
RUS borrowers.

                            Intangible Plant

301  Organization
302  Franchises and Consents
303  Miscellaneous Intangible Plant

                            Production Plant

                            Steam Production

310  Land and Land Rights
311  Structures and Improvements
312  Boiler Plant Equipment
313  Engines and Engine Driven Generators
314  Turbogenerator Units
315  Accessory Electric Equipment
316  Miscellaneous Power Plant Equipment

                           Nuclear Production

320  Land and Land Rights
321  Structures and Improvements
322  Reactor Plant Equipment
323  Turbogenerator Units
324  Accessory Electric Equipment
325  Miscellaneous Power Plant Equipment

                          Hydraulic Production

330  Land and Land Rights
331  Structures and Improvements
332  Reservoirs, Dams and Waterways
333  Water Wheels, Turbines and Generators
334  Accessory Electric Equipment
335  Miscellaneous Power Plant Equipment
336  Roads, Railroads and Bridges

                            Other Production

340  Land and Land Rights
341  Structures and Improvements
342  Fuel Holders, Producers and Accessories
343  Prime Movers
344  Generators
345  Accessory Electric Equipment
346  Miscellaneous Power Plant Equipment

                           Transmission Plant

350  Land and Land Rights
351  [Reserved]
352  Structures and Improvements
353  Station Equipment
354  Tower and Fixtures
355  Poles and Fixtures
356  Overhead Conductors and Devices
357  Underground Conduit
358  Underground Conductors and Devices
359  Roads and Trails

                           Distribution Plant

360  Land and Land Rights
361  Structures and Improvements
362  Station Equipment
363  Storage Battery Equipment
364  Poles, Towers and Fixtures
365  Overhead Conductors and Devices
366  Underground Conduit
367  Underground Conductors and Devices
368  Line Transformers
369  Services
370  Meters
371  Installations on Customers' Premises
372  Leased Property on Customers' Premises
373  Street Lighting and Signal Systems

                              General Plant

389  Land and Land Rights
390  Structures and Improvements
391  Office Furniture and Equipment
392  Transportation Equipment
393  Stores Equipment
394  Tools, Shop and Garage Equipment
395  Laboratory Equipment
396  Power Operated Equipment
397  Communication Equipment
398  Miscellaneous Equipment
399  Other Tangible Property

                            Intangible Plant

                           301   Organization

    This account shall include all fees paid to Federal or state 
governments for the privilege of incorporation and expenditures incident 
to organizing the corporation, partnership, or other enterprise and 
putting it into readiness to do business.

                                  Items

    1. Cost of obtaining certificates authorizing an enterprise to 
engage in the public-utility business.
    2. Fees and expenses for incorporation.
    3. Fees and expenses for mergers or consolidations.
    4. Office expenses incident to organizing the utility.
    5. Stock and minute books and corporate seal.

    Note A: This account shall not include any discounts upon securities 
issued or assumed; nor shall it include any costs incident to 
negotiating loans, selling bonds or other evidences of debt or expenses 
in connection

[[Page 937]]

with the authorization, issuance, or sale of capital stock.

    Note B: Exclude from this account and include in the appropriate 
expense account the cost of preparing and filing papers in connection 
with the extension of the term of incorporation unless the first 
organization costs have been written off. When charges are made to this 
account for expenses incurred in mergers, consolidations, or 
reorganizations, amounts previously included herein or in similar 
accounts in the books of the companies concerned shall be excluded from 
this account.

                      302   Franchises and Consents

    A. This account shall include amounts paid to the Federal 
Government, to a state or to a political subdivision thereof in 
consideration for franchises, consents, water power licenses, or 
certificates, running in perpetuity or for a specified term of more than 
one year, together with necessary and reasonable expenses incident to 
procuring such franchises, consents, water power licenses, or 
certificates of permission and approval, including expenses of 
organizing and merging separate corporations, where statutes require, 
solely for the purpose of acquiring franchises.
    B. If a franchise, consent, water power license, or certificate is 
acquired by assignment, the charge to this account in respect thereof 
shall not exceed the amount paid therefor by the utility to the 
assignor, nor shall it exceed the amount paid by the original grantee, 
plus the expense of acquisition to such grantee. Any excess of the 
amount actually paid by the utility over the amount above specified 
shall be charged to Account 426.5, Other Deductions.
    C. When any franchise has expired, the book cost thereof shall be 
credited hereto and charged to Account 426.5, Other Deductions, or to 
Account 111, Accumulated Provision for Amortization of Electric Utility 
Plant, as appropriate.
    D. Records supporting this account shall be kept so as to show 
separately the book cost of each franchise or consent.
    Note: Annual or other periodic payments under franchises shall not 
be included herein but in the appropriate operating expense account.

                  303   Miscellaneous Intangible Plant

    A. This account shall include the cost of patent rights, licenses, 
privileges, and other intangible property necessary or valuable in the 
conduct of utility operations and not specifically chargeable to any 
other account.
    B. When any item included in this account is retired or expires, the 
book cost thereof shall be credited hereto and charged to Account 426.5, 
Other Deductions, or Account 111, Accumulated Provision for Amortization 
of Electric Utility Plant, as appropriate.
    C. This account shall be maintained in such a manner that the 
utility can furnish full information with respect to the amounts 
included herein.

                            Production Plant

                            Steam Production

                       310   Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with steam-power generation. (See Sec. 1767.16 (g).)

                    311   Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used in connection with steam-power generation. (See 
Sec. 1767.16 (h).)

    Note: Include steam production roads and railroads in this account.

                      312   Boiler Plant Equipment

    This account shall include the cost installed of furnaces, boilers, 
coal and ash handling and coal preparing equipment, steam and feed water 
piping, boiler apparatus, and accessories used in the production of 
steam, mercury, or other vapor, to be used primarily for generating 
electricity.

                                  Items

    1. Ash handling equipment, including hoppers, gates, cars, 
conveyors, hoists, sluicing equipment, including pumps and motors, 
sluicing water pipe and fittings, sluicing trenches and accessories, 
except sluices which are a part of a building.
    2. Boiler feed system, including feed water heaters, evaporator 
condensers, heater drain pumps, heater drainers,

[[Page 938]]

deaerators, and vent condensers, boiler feed pumps, surge tanks, feed 
water regulators, feed water measuring equipment, and all associated 
drives.
    3. Boiler plant cranes and hoists and associated drives.
    4. Boilers and equipment, including boilers and baffles, 
economizers, superheaters, soot blowers, foundations and settings, water 
walls, arches, grates, insulation, blowdown system, drying out of new 
boilers, also associated motors or other power equipment.
    5. Breeching and accessories, including breeching, dampers, soot 
spouts, hoppers and gates, cinder eliminators, breeching insulation, 
soot blowers and associated motors.
    6. Coal handling and storage equipment, including coal towers, coal 
lorries, coal cars, locomotives and tracks when devoted principally to 
the transportation of coal, hoppers, downtakes, unloading and hoisting 
equipment, skip hoists and conveyors, weighing equipment, magnetic 
separators, cable ways, and housings and supports for coal handling 
equipment.
    7. Draft equipment, including air preheaters and accessories, 
induced and forced draft fans, air ducts, combustion control mechanisms, 
and associated motors or other power equipment.
    8. Gas-burning equipment, including holders, burner equipment and 
piping, and control equipment.
    9. Instruments and devices, including all measuring, indicating, and 
recording equipment for boiler plant service together with mountings and 
supports.
    10. Lighting systems.
    11. Oil-burning equipment, including tanks, heaters, pumps with 
drive, burner equipment and piping, and control equipment.
    12. Pulverized fuel equipment, including pulverizers, accessory 
motors, primary air fans, cyclones and ducts, dryers, pulverized fuel 
bins, pulverized fuel conveyors and equipment, burners, burner piping, 
priming equipment, air compressors, and motors.
    13. Stacks, including foundations and supports, stack steel and 
ladders, stack brickwork, stack concrete, stack lining, stack painting 
(first), when set on separate foundations, independent of substructures 
or superstructures of building.
    14. Station piping, including pipe, valves, fittings, separators, 
traps, desuperheaters, hangers, excavation, and covering for station 
piping system, including all steam, condensate, boiler feed and water 
supply piping, but not condensing water, plumbing, building heating, 
oil, gas, air piping or piping specifically provided for in Account 313.
    15. Stoker or equivalent feeding equipment, including stokers and 
accessory motors, clinker grinders, fans and motors.
    16. Ventilating equipment.
    17. Water purification equipment, including softeners and 
accessories, evaporators and accessories, heat exchanges, filters, tanks 
for filtered or softened water, pumps, and motors.
    18. Water-supply systems, including pumps, motors, strainers, raw-
water storage tanks, boiler wash pumps, intake and discharge pipes, and 
tunnels not a part of a building.
    19. Wood fuel equipment, including hoppers, fuel hogs and 
accessories, elevators and conveyors, bins and gates, spouts, measuring 
equipment and associated drives.

    Note: When the system for supplying boiler or condenser water is 
elaborate, and when it includes a dam, reservoir, canal, pipe line, 
cooling ponds, or where gas or oil is used as a fuel for producing steam 
and is supplied through a pipe line system owned by the utility, the 
cost of such special facilities shall be charged to a subdivision of 
Account 311, Structures and Improvements.

               313   Engines and Engine Driven Generators

    This account shall include the cost installed of steam engines, 
reciprocating or rotary, and their associated auxiliaries; and engine-
driven main generators, except turbogenerator units.

                                  Items

    1. Air cleaning and cooling apparatus, including blowers, drive 
equipment, air ducts, not a part of building, louvers, pumps, and hoods.
    2. Belting, shafting, pulleys, and reduction gearing.
    3. Circulating pumps, including connections between condensers and 
intake and discharge tunnels.

[[Page 939]]

    4. Cooling system, including towers, pumps, tank, and piping.
    5. Condensers, including condensate pumps, air and vacuum pumps, 
ejector unloading valves and vacuum breakers, expansion devices, and 
screens.
    6. Cranes and hoists, including items wholly identified with items 
listed herein.
    7. Engines, reciprocating or rotary.
    8. Fire-extinguishing systems.
    9. Foundations and settings, especially constructed for and not 
expected to outlast the apparatus for which provided.
    10. Generators-Main, a.c. or d.c., including field rheostats and 
connections for self-excited units, and excitation systems when 
identified with the generating unit.
    11. Governors.
    12. Lighting systems.
    13. Lubricating systems, including gauges, filters, tanks, pumps, 
piping, and motors.
    14. Mechanical meters, including gauges, recording instruments, 
sampling and testing equipment.
    15. Piping-main exhaust, including connections between generator and 
condenser and between condenser and hotwell.
    16. Piping-main stream, including connections from main throttle 
valve to turbine inlet.
    17. Platforms, railings, steps, and gratings appurtenant to 
apparatus listed herein.
    18. Pressure oil system, including accumulators, pumps, piping, and 
motors.
    19. Throttle and inlet valve.
    20. Tunnels, intake and discharge, for condenser system, when not a 
part of a structure.
    21. Water screens and motors.

                       314   Turbogenerator Units

    This account shall include the cost installed of main turbine-driven 
units and accessory equipment used in generating electricity by steam.

                                  Items

    1. Air leaning and cooling apparatus, including blowers, drive 
equipment, air ducts not a part of building, louvers, pumps, and hoods.
    2. Circulating pumps, including connections between condensers and 
intake and discharge tunnels.
    3. Condensers, including condensate pumps, air and vacuum pumps, 
ejectors, unloading valves and vacuum breakers, expansion devices, and 
screens.
    4. Generator hydrogen, gas piping, and detrainment equipment.
    5. Cooling system, including towers, pumps, tanks, and piping.
    6. Cranes and hoists, including items wholly identified with items 
listed herein.
    7. Excitation system, when identified with main generating units.
    8. Fire-extinguishing systems.
    9. Foundations and settings, especially constructed for and not 
expected to outlast the apparatus for which provided.
    10. Governors.
    11. Lighting systems.
    12. Lubricating systems, including gauges, filters, water 
separators, tanks, pumps, piping, and motors.
    13. Mechanical meters, including gauges, recording instruments, 
sampling and testing equipment.
    14. Piping-main exhaust, including connections between 
turbogenerator and condenser and between condenser and hotwell.
    15. Piping-main steam, including connections from main throttle 
valve to turbine inlet.
    16. Platforms, railings, steps, and gratings appurtenant to 
apparatus listed herein.
    17. Pressure oil systems, including accumulators, pumps, and piping 
motors.
    18. Steelwork, specially constructed for apparatus listed herein.
    19. Throttle and inlet valve.
    20. Tunnels, intake and discharge, for condenser system, when not a 
part of structure, and water screens.
    21. Turbogenerators-main, including turbine and generator, field 
rheostats and electric connections for self-excited units.
    22. Water screens and motors.
    23. Moisture separator for turbine steam.
    24. Turbine lubricating oil (initial charge).

[[Page 940]]

                   315   Accessory Electric Equipment

    This account shall include the cost installed of auxiliary 
generating apparatus, conversion equipment, and equipment used primarily 
in connection with the control and switching of electric energy produced 
by steam power, and the protection of electric circuits and equipment, 
except electric motors used to drive equipment included in other 
accounts. Such motors shall be included in the account in which the 
equipment with which they are associated is included.

                                  Items

    1. Auxiliary generators, including boards, compartments, switching 
equipment, control equipment, and connections to auxiliary power bus.
    2. Excitation system, including motor, turbine and dual-drive 
exciter sets and rheostats, storage batteries and charging equipment, 
circuit breakers, panels and accessories, knife switches and 
accessories, surge arresters, instrument shunts, conductors and conduit, 
special supports for conduit, generator field and exciter switch panels, 
exciter bus tie panels, generator and exciter rheostats and special 
housing and protective screens.
    3. Generator main connections, including oil circuit breakers and 
accessories, disconnecting switches and accessories, operating 
mechanisms and interlocks, current transformers, potential transformers, 
protective relays, isolated panels and equipment, conductors and 
conduit, special supports for generator main leads, grounding switch, 
and special housings and protective screens.
    4. Station buses including main, auxiliary, transfer, synchronizing 
and fault ground buses, including oil circuit breakers and accessories, 
disconnecting switches and accessories, operating mechanisms and 
interlocks, reactors and accessories, voltage regulators and 
accessories, compensators, resistors, starting transformers, current 
transformers, potential transformers, protective relays, storage 
batteries and charging equipment, isolated panels and equipment, 
conductors and conduit, special supports, special housings, concrete 
pads, general station grounding system, special fire-extinguishing 
system, and test equipment.
    5. Station control system, including station switchboards with panel 
wiring, panels with instruments and control equipment only, panels with 
switching equipment mounted or mechanically connected, truck-type boards 
complete, cubicles, station supervisory control boards, generator and 
exciter signal stands, temperature recording devices, frequency-control 
equipment, master clocks, watt-hour meters and synchronoscope in the 
turbine room, station totalizing wattmeter, boiler-room load indicator 
equipment, storage batteries, panels and charging sets, instrument 
transformers for supervisory metering, conductors and conduit, special 
supports for conduit, switchboards, batteries, special housing for 
batteries, protective screens, and doors.

    Note A: Do not include in this account transformers and other 
equipment used for changing the voltage or frequency of electricity for 
the purposes of transmission or distribution.

    Note B: When any item of equipment listed herein is used wholly to 
furnish power to equipment included in another account, its cost shall 
be included in such other account.

                316   Miscellaneous Power Plant Equipment

    This account shall include the cost installed of miscellaneous 
equipment in and about the steam generating plant devoted to general 
station use, and which is not properly includible in any of the 
foregoing steam-power production accounts.

                                  Items

    1. Compressed air and vacuum cleaning systems, including tanks, 
compressors, exhausters, air filters, and piping.
    2. Cranes and hoisting equipment, including cranes, cars, crane 
rails, monorails, and hoists with electric and mechanical connections.
    3. Fire-extinguishing equipment for general station use.
    4. Foundations and settings specially constructed for and not 
expected to outlast the apparatus for which provided.
    5. Locomotive cranes not includible elsewhere.

[[Page 941]]

    6. Locomotives not includible elsewhere.
    7. Marine equipment, including boats and barges.
    8. Miscellaneous belts, pulleys, and countershafts.
    9. Miscellaneous equipment, including atmospheric and weather 
indicating devices, intrasite communication equipment, laboratory 
equipment, signal systems, callophones, emergency whistles and sirens, 
fire alarms, insect-control equipment, and other similar equipment.
    10. Railway cars not includible elsewhere.
    11. Refrigerating systems, including compressors, pumps, and cooling 
coils.
    12. Station maintenance equipment, including lathes, shapers, 
planers, drill presses, hydraulic presses, and grinders with motors, 
shafting, hangers, and pulleys.
    13. Ventilating equipment, including items wholly identified with 
apparatus listed herein.

    Note: When any item of equipment listed herein is wholly used in 
connection with equipment included in another account, its cost shall be 
included in such other account.

                           Nuclear Production

                       320   Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with nuclear power generation. (See Sec. 1767.16(g).)

                    321   Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used and useful in connection with nuclear power 
generation. (See Sec. 1767.16 (h).)

    Note: Include vapor containers and nuclear production roads and 
railroads in this account.

                      322   Reactor Plant Equipment

    This account shall include the installed cost of reactors, reactor 
fuel handling and storage equipment, pressurizing equipment, coolant 
charging equipment, purification and discharging equipment, radioactive 
waste treatment and disposal equipment, boilers, steam and feed water 
piping, reactor and boiler apparatus and accessories and other reactor 
plant equipment used in the production of steam to be used primarily for 
generating electricity, including auxiliary superheat boilers and 
associated equipment in systems which change temperatures or pressure of 
steam from the reactor system.

                                  Items

    1. Auxiliary superheat boilers and associated fuel storage handling 
preparation and burning equipment. (See Account 312, Boiler Plant 
Equipment, for items, but exclude water supply, water flow lines, and 
steam lines, as well as other equipment not strictly within the 
superheat function.)
    2. Boiler feed system, including feed water heaters, evaporator 
condensers, heater drain pumps, heater drainers, deaerators, and vent 
condensers, boiler feed pumps, surge tanks, feed water regulators, feed 
water measuring equipment, and all associated drivers.
    3. Boilers and heat exchangers.
    4. Instruments and devices, including all measuring, indicating, and 
recording equipment for reactor and boiler plant service together with 
mountings and supports.
    5. Lighting systems.
    6. Moderators, such as heavy water, and graphite, initial charge.
    7. Reactor coolant; primary and secondary systems, initial charge.
    8. Radioactive waste treatment and disposal equipment, including 
tanks, ion exchangers, incinerators, condensers, chimneys, and diluting 
fans and pumps.
    9. Foundations and settings, especially constructed for and not 
expected to outlast the apparatus for which provided.
    10. Reactor including shielding, control rods and mechanisms.
    11. Reactor fuel handling equipment, including manipulating and 
extraction tools, underwater viewing equipment, seal cutting and welding 
equipment, fuel transfer equipment, and fuel disassembly machinery.
    12. Reactor fuel element failure detection system.
    13. Reactor emergency poison container and injection system.
    14. Reactor pressuring and pressure relief equipment, including 
pressurizing tanks and immersion heaters.

[[Page 942]]

    15. Reactor coolant or moderator circulation charging, purification, 
and discharging equipment, including tanks, pumps, heat exchangers, 
demineralizers, and storage.
    16. Station piping, including pipes, valves, fittings, separators, 
traps, desuperheaters, hangers, excavation, and covering for station 
piping system, including all-reactor coolant, steam, condensate, boiler 
feed and water supply piping, but not condensing water, plumbing, 
building heating, oil, gas, or air piping.
    17. Ventilating equipment.
    18. Water purification equipment, including softeners, 
demineralizers and accessories, evaporators and accessories, heat 
exchangers, filters, tanks for filtered or softened water, pumps, and 
motors.
    19. Water supply systems, including pumps, motors, strainers, raw-
water storage tanks, boiler wash pumps, intake and discharge pipes and 
tunnels not a part of a building.
    20. Reactor plant cranes and hoists, and associated drives.

    Note: When the system for supplying boiler or condenser water is 
elaborate, as when it includes a dam, reservoir, canal, pipe lines, or 
cooling ponds, the cost of such special facilities shall be charged to a 
subdivision of Account 321, Structures and Improvements.

                       323   Turbogenerator Units

    This account shall include the cost installed of main turbine-driven 
units and accessory equipment used in generating electricity by steam.

                                  Items

    1. Air cleaning and cooling apparatus, including blowers, drive 
equipment, air ducts, not a part of building, louvers, pumps, and hoods.
    2. Circulating pumps, including connections between condensers, and 
intake and discharge tunnels.
    3. Condensers, including condensate pumps, air and vacuum pumps, 
ejectors, unloading valves and vacuum breakers, expansion devices, and 
screens.
    4. Generator hydrogen gas piping system and hydrogen detrainment 
equipment, and bulk hydrogen gas storage equipment.
    5. Cooling system, including towers, pumps, tanks, and piping.
    6. Cranes and hoists, including items wholly identified with items 
listed herein.
    7. Excitation system, when identified with main generating units.
    8. Fire extinguishing systems.
    9. Foundations and settings, especially constructed for and not 
expected to outlast the apparatus for which provided.
    10. Governors.
    11. Lighting systems.
    12. Lubricating systems, including gauges, filters, water 
separators, tanks, pumps, piping, and motors.
    13. Mechanical meters, including gauges, recording instruments, 
sampling and testing equipment.
    14. Piping-main steam, including connections between turbogenerator 
and condenser and between condenser and hotwell.
    15. Piping-main steam, including connections from main throttle 
valve to turbine inlet.
    16. Platforms, railings, steps, and gratings appurtenant to 
apparatus listed herein.
    17. Pressure oil systems, including accumulators, pumps, piping, and 
motors.
    18. Steelwork, specially constructed for apparatus listed herein.
    19. Throttle and inlet valve.
    20. Tunnels, intake and discharge, for condenser system, when not a 
part of structure, and water screens.
    21. Turbogenerators-main, including turbine and generator, field 
rheostats and electric connections for self-excited units.
    22. Water screens and motors.
    23. Moisture separators for turbine steam.
    24. Turbine lubricating oil, initial charge.

                   324   Accessory Electric Equipment

    This account shall include the cost installed of auxiliary 
generating apparatus, conversion equipment, and equipment used primarily 
in connection with the control and switching of electric energy produced 
by nuclear power, and the protection of electric circuits and equipment, 
except electric

[[Page 943]]

motors used to drive equipment included in other accounts. Such motors 
shall be included in the account in which the equipment with which they 
are associated is included.

    Note: Do not include in this account transformers and other 
equipment used for changing the voltage or frequency of electric energy 
for the purpose of transmission or distribution.

                                  Items

    1. Auxiliary generators, including boards, compartments, switching 
equipment, control equipment, and connections to auxiliary power bus.
    2. Excitation system, including motor, turbine and dual-drive 
exciter sets and rheostats, storage batteries, and charging equipment, 
circuit breakers, panels and accessories, knife switches and 
accessories, surge arresters, instrument shunts, conductors and conduit, 
special supports for conduit, generator field and exciter switch panels, 
exciter bus tie panels, generator and exciter rheostats and special 
housing and protective screens.
    3. Generator main connections, including oil circuit breakers and 
accessories, disconnecting switches and accessories, operating 
mechanisms and interlocks, current transformers, potential transformers, 
protective relays, isolated panels and equipment, conductors and 
conduit, special supports for generator main leads, grounding switch, 
special housings and protective screens.
    4. Station buses, including main, auxiliary, transfer, synchronizing 
and fault ground buses, including oil circuit breakers and accessories, 
operating mechanisms and interlocks, reactors and accessories, voltage 
regulators and accessories, compensators, resistors, starting 
transformers, current transformers, potential transformers, protective 
relays, storage batteries and charging equipment, isolated panels and 
equipment, conductors and conduit, special supports, special housings, 
concrete pads, general station grounding system, fire-extinguishing 
system, and test equipment.
    5. Station control system, including station switchboards with panel 
wiring, panels with instruments and control equipment only, panels with 
switching equipment mounted or mechanically connected, truck-type boards 
complete, cubicles, station supervisory control boards, generator and 
exciter signal stands, temperature recording devices, frequency-control 
equipment, master clocks, watt-hour meters and synchronoscope in the 
turbine room, station totalizing wattmeter, boiler-room load indicator 
equipment, storage batteries, panels and charging sets, instrument 
transformers for supervisory metering, conductors and conduit, special 
supports for conduit, switchboards, batteries, special housing for 
batteries, protective screens, and doors.

    Note: When any item of equipment listed herein is used wholly to 
furnish power to equipment included in another account, its cost shall 
be included in such other account.

                325   Miscellaneous Power Plant Equipment

    This account shall include the cost installed of miscellaneous 
equipment in and about the nuclear generating plant devoted to general 
station use, which is not properly includible in any of the foregoing 
nuclear-power production accounts.

                                  Items

    1. Compressed air and vacuum cleaning systems, including tanks, 
compressors, exhausters, air filters, and piping.
    2. Cranes and hoisting equipment, including cranes, cars, crane 
rails, monorails, and hoists with electric and mechanical connections.
    3. Fire-extinguishing equipment for general station and site use.
    4. Foundations and settings specially constructed for and not 
expected to outlast the apparatus for which provided.
    5. Locomotive cranes not includible elsewhere.
    6. Locomotives not included elsewhere.
    7. Marine equipment, including boats and barges.
    8. Miscellaneous belts, pulleys, and countershafts.
    9. Miscellaneous equipment, including atmospheric and weather 
recording devices, intrasite communication equipment, laboratory 
equipment, signal systems, callophones, emergency

[[Page 944]]

whistles and sirens, fire alarms, insect-control equipment, and other 
similar equipment.
    10. Railway cars or special shipping containers not includible 
elsewhere.
    11. Refrigerating systems, including compressors, pumps, and cooling 
coils.
    12. Station maintenance equipment, including lathes, shapers, 
planers, drill presses, hydraulic presses, and grinders with motors, 
shafting, hangers, and pulleys.
    13. Ventilating equipment, including items wholly identified with 
apparatus listed herein.
    14. Station and area radiation monitoring equipment.

    Note: When any item of equipment listed herein is wholly used in 
connection with equipment included in another account, its cost shall be 
included in such other account.

                          Hydraulic Production

                       330   Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with hydraulic power generation. (See Sec. 1767.16 (g).) It 
shall also include the cost of land and land rights used in connection 
with (1) the conservation of fish and wildlife, and (2) recreation. 
Separate subaccounts shall be maintained for each of the above.

                    331   Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used in connection with hydraulic power generation. (See 
Sec. 1767.16 (h).) It shall also include the cost, in place, of 
structures and improvements used in connection with (1) the conservation 
of fish and wildlife, and (2) recreation. Separate subaccounts shall be 
maintained for each of the above.

                  332   Reservoirs, Dams, and Waterways

    This account shall include the cost in place of facilities used for 
impounding, collecting, storage, diversion, regulation, and delivery of 
water used primarily for generating electricity. It shall also include 
the cost in place of facilities used in connection with (1) the 
conservation of fish and wildlife, and (2) recreation. Separate 
subaccounts shall be maintained for each of the above. (See Sec. 1767.16 
(h)(3).)

                                  Items

    1. Bridges and culverts, when not a part of roads or railroads.
    2. Clearing and preparing land.
    3. Dams, including wasteways, spillways, flash boards, spillway 
gates with operating and control mechanisms, tunnels, gate houses, and 
fish ladders.
    4. Dikes and embankments.
    5. Electric system, including conductors, control system, 
transformers, and lighting fixtures.
    6. Excavation, including shoring, bracing, bridging, refill, and 
disposal of excess excavated material.
    7. Foundations and settings specially constructed for and not 
expected to outlast the apparatus for which provided.
    8. Intakes, including trash racks, rack cleaners, control gates and 
valves with operating mechanisms, and intake house when not a part of 
station structure.
    9. Platforms, railings, steps, and gratings appurtenant to 
structures listed herein.
    10. Power line wholly identified with items included herein.
    11. Retaining walls.
    12. Water conductors and accessories, including canals, tunnels, 
flumes, penstocks, pipe conductors, forebays, tailraces, navigation 
locks and operating mechanisms, water-hammer and surge tanks, and 
supporting trestles and structures.
    13. Water storage reservoirs, including dams, flashboards, spillway 
gates and operating mechanisms, inlet and outlet tunnels, regulating 
valves and valve towers, silt and mud sluicing tunnels with valve or 
gate towers, and all other structures wholly identified with any of the 
foregoing items.

               333   Water Wheels, Turbines and Generators

    This account shall include the cost installed of water wheels and 
hydraulic turbines (from connection with penstock or flume to tailrace) 
and generators driven thereby devoted to the production of electricity 
by water power or for the production of power for industrial or other 
purposes, if the equipment used for such purposes is a

[[Page 945]]

part of the hydraulic power plant works.

                                  Items

    1. Exciter water wheels and turbines, including runners, gates, 
governors, pressure regulators, oil pumps, operating mechanisms, scroll 
cases, draft tubes, and draft-tube supports.
    2. Fire-extinguishing equipment.
    3. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    4. Generator cooling system, including air cooling and washing 
apparatus, air fans and accessories, and air ducts.
    5. Generators-main, a.c. or d.c., including field rheostats and 
connections for self-excited units and excitation system when identified 
with the generating unit.
    6. Lighting systems.
    7. Lubricating systems, including gauges, filters, tanks, pumps, and 
piping.
    8. Main penstock valves and appurtenances, including main valves, 
control equipment, bypass valves and fittings, and other accessories.
    9. Main turbines and water wheels, including runners, gates, 
governors, pressure regulators, oil pumps, operating mechanisms, scroll 
cases, draft tubes, and draft-tube supports.
    10. Mechanical meters and recording instruments.
    11. Miscellaneous water-wheel equipment, including gauges, 
thermometers, meters, and other instruments.
    12. Platforms, railings, steps, and gratings appurtenant to 
apparatus listed herein.
    13. Scroll case filling and drain system, including gates, pipe, 
valves, and fittings.
    14. Water-actuated pressure-regulator system, including tanks and 
housings, pipes, valves, fittings and insulators, piers and anchorage, 
and excavation and backfill.

                   334   Accessory Electric Equipment

    This account shall include the cost installed of auxiliary 
generating apparatus, conversion equipment, and equipment used primarily 
in connection with the control and switching of electric energy produced 
by hydraulic power and the protection of electric circuits and 
equipment, except electric motors used to drive equipment included in 
other accounts, such motors being included in the account in which the 
equipment with which they are associated is included.

                                  Items

    1. Auxiliary generators, including boards, compartments, switching 
equipment, control equipment, and connections to auxiliary power bus.
    2. Excitation system, including motor, turbine, and dual-drive 
exciter sets and rheostats, storage batteries and charging equipment, 
circuit breakers, panels and accessories, knife switches and 
accessories, surge arresters, instrument shunts, conductors and conduit, 
special supports for conduit, generator field and exciter switch panels, 
exciter bus tie panels, generator and exciter rheostats and special 
housings and protective screens.
    3. Generator main connections, including oil circuit breakers and 
accessories, disconnecting switches and accessories, operating 
mechanisms and interlocks, current transformers, potential transformers, 
protective relays, isolated panels and equipment, conductors and 
conduit, special supports for generator main leads, grounding switch, 
and special housings and protective screens.
    4. Station buses, including main, auxiliary, transfer, 
synchronizing, and fault ground buses, including oil circuit breakers 
and accessories, disconnecting switches and accessories, operating 
mechanisms and interlocks, reactors and accessories, voltage regulators 
and accessories, compensators, resistors starting transformers, current 
transformers, potential transformers, protective relays, storage 
batteries, and charging equipment, isolated panels and equipment, 
conductors and conduit, special supports, special fire-extinguishing 
system, and test equipment.
    5. Station control system, including station switchboards with panel 
wiring, panels with instruments and control equipment only, panels with 
switching equipment mounted for mechanically connected, truck-type

[[Page 946]]

boards complete, cubicles, station supervisory control devices, 
frequency control equipment, master clocks, watt-hour meter, station 
totalizing watt-meter, storage batteries, panels and charging sets, 
instrument transformers for supervisory metering, conductors and 
conduit, special supports for conduit, switchboards, batteries, special 
housings for batteries, protective screens, and doors.

    Note A: Do not include in this account transformers and other 
equipment used for changing the voltage or frequency of electricity for 
the purpose of transmission or distribution.

    Note B: When any item of equipment listed herein is used wholly to 
furnish power to equipment, it shall be included in such equipment 
account.

                335   Miscellaneous Power Plant Equipment

    This account shall include the cost installed of miscellaneous 
equipment in and about the hydroelectric generating plant which is 
devoted to general station use and is not properly includible in other 
hydraulic production accounts. It shall also include the cost of 
equipment used in connection with (1) the conservation of fish and 
wildlife, and (2) recreation. Separate subaccounts shall be maintained 
for each of the above.

                                  Items

    1. Compressed air and vacuum cleaning systems, including tanks, 
compressors, exhausters, air filters, and piping.
    2. Cranes and hoisting equipment, including cranes, cars, crane 
rails, monorails, and hoists with electric and mechanical connections.
    3. Fire-extinguishing equipment for general station use.
    4. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    5. Locomotive cranes not includible elsewhere.
    6. Locomotives not includible elsewhere.
    7. Marine equipment, including boats and barges.
    8. Miscellaneous belts, pulleys, and countershafts.
    9. Miscellaneous equipment, including atmospheric and weather 
indicating devices. Intrasite communication equipment, laboratory 
equipment, insect control equipment, signal systems, callophones, 
emergency whistles and sirens, fire alarms, and other similar equipment.
    10. Railway cars, not includible elsewhere.
    11. Refrigerating system, including compressors, pumps, and cooling 
coils.
    12. Station maintenance equipment, including lathes, shapers, 
planers, drill presses, hydraulic presses, and grinders with motors, 
shafting, hangers, and pulleys.
    13. Ventilating equipment, including items wholly identified with 
apparatus listed herein.

    Note: When any item of equipment, listed herein, is used wholly in 
connection with equipment included in another account, its cost shall be 
included in such other account.

                   336   Roads, Railroads, and Bridges

    This account shall include the cost of roads, railroads, trails, 
bridges, and trestles used primarily as production facilities. It also 
includes those roads necessary to connect the plant with highway 
transportation systems, except when such roads are dedicated to public 
use and maintained by public authorities.

                                  Items

    1. Bridges, including foundations, piers, girders, trusses, and 
flooring.
    2. Clearing land.
    3. Railroads, including grading, ballast, ties, rails, culverts, and 
hoists.
    4. Roads, including grading, surfacing, and culverts.
    5. Structures, constructed and maintained in connection with items 
listed herein.
    6. Trails, including grading, surfacing, and culverts.
    7. Trestles, including foundations, piers, girders, trusses, and 
flooring.

    Note A: Roads intended primarily for connecting employees' houses 
with the power plant, and roads used primarily in connection with fish 
and wildlife, and recreation activities, shall not be included herein 
but in Account 331, Structures and Improvements.


[[Page 947]]


    Note B: The cost of temporary roads and bridges necessary during the 
period of construction but abandoned or dedicated to public use upon 
completion of the plant, shall not be included herein but shall be 
charged to the accounts appropriate for the construction.

                            Other Production

                       340   Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with other power generation. (See Sec. 1767.16 (g).)

                    341   Structures and Improvements

    This account shall include the cost in place of structures and 
improvements used in connection with other power generation. (See 
Sec. 1767.16 (h).)

             342   Fuel Holders, Producers, and Accessories

    This account shall include the cost installed of fuel handling and 
storage equipment used between the point of fuel delivery to the station 
and the intake pipe through which fuel is directly drawn to the engine, 
also the cost of gas producers and accessories devoted to the production 
of gas for use in prime movers driving main electric generators.

                                  Items

    1. Blower and fans.
    2. Boilers and pumps.
    3. Economizers.
    4. Exhauster outfits.
    5. Flues and piping.
    6. Pipe system.
    7. Producers.
    8. Regenerators.
    9. Scrubbers.
    10. Steam injectors.
    11. Tanks for storage of oil and gasoline.
    12. Vaporizers.

                           343   Prime Movers

    This account shall include the cost installed of Diesel or other 
prime movers devoted to the generation of electric energy, together with 
their auxiliaries.

                                  Items

    1. Air-filtering system.
    2. Belting, shafting, pulleys, and reduction gearing.
    3. Cooling system, including towers, pumps, tanks, and piping.
    4. Cranes and hoists, including items wholly identified with 
apparatus listed herein.
    5. Engines, Diesel, gasoline, gas, or other internal combustion.
    6. Foundations and settings specially constructed for and not 
expected to outlast the apparatus for which provided.
    7. Governors.
    8. Ignition system.
    9. Inlet valve.
    10. Lighting systems.
    11. Lubricating systems, including filters, tanks, pumps, and 
piping.
    12. Mechanical meters, including gauges, recording instruments, 
sampling, and testing equipment.
    13. Mufflers.
    14. Piping.
    15. Starting systems, compressed air, or other, including 
compressors and drives, tanks, piping, motors, boards and connections, 
and storage tanks.
    16. Steelwork, specially constructed for apparatus listed herein.
    17. Waste heat boilers and antifluctuators.

                            344   Generators

    This account shall include the cost installed of Diesel or other 
power driven main generators.

                                  Items

    1. Cranes and hoists, including items wholly identified with such 
apparatus.
    2. Fire-extinguishing equipment.
    3. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    4. Generator cooling system, including air cooling and washing 
apparatus, air fans and accessories, and air ducts.
    5. Generators-main, a.c. or d.c., including field rheostats and 
connections for self-excited units and excitation system when identified 
with the generating unit.
    6. Lighting systems.

[[Page 948]]

    7. Lubricating system, including tanks, filters, strainers, pumps, 
piping, and coolers.
    8. Mechanical meters and recording instruments.
    9. Platforms, railings, steps, and gratings appurtenant to apparatus 
listed herein.

    Note: If prime movers and generators are so integrated that it is 
not practical to classify them separately, the entire unit may be 
included in Account 344, Generators.

                   345   Accessory Electric Equipment

    This account shall include the cost installed of auxiliary 
generating apparatus, conversion equipment, and equipment used primarily 
in connection with the control and switching of electric energy produced 
in other power generating stations, and the protection of electric 
circuits and equipment, except electric motors used to drive equipment 
included in other accounts. Such motors shall be included in the account 
in which the equipment with which it is associated is included.

                                  Items

    1. Auxiliary generators, including boards, compartments, switching 
equipment, control equipment, and connections to auxiliary power bus.
    2. Excitation system, including motor, turbine and dual-drive 
exciter sets and rheostats, storage batteries and charging equipment, 
circuit breakers, panels and accessories, knife switches and 
accessories, surge arresters, instrument shunts, conductors and conduit, 
special supports for conduit, generator field and exciter switch panels, 
exciter bus tie panels, generator and exciter rheostats and special 
housings and protective screens.
    3. Generator main connections, including oil circuit breakers and 
accessories, disconnecting switches and accessories, operating 
mechanisms and interlocks, current transformers, potential transformers, 
protective relays, isolated panels and equipment, conductors and 
conduit, special supports for generator main leads, grounding switch, 
and special housing and protective screens.
    4. Station control system, including station switchboards with panel 
wiring, panels with instruments and control equipment only, panels with 
switching equipment mounted or mechanically connected, trunk-type boards 
complete, cubicles, station supervisory control boards, generator and 
exciter signal stands, temperature-recording devices, frequency control 
equipment, master clocks, watt-hour meter, station totalizing wattmeter, 
storage batteries, panels and charging sets, instrument transformers for 
supervisory metering, conductors and conduit, special supports for 
conduit, switchboards, batteries, special housing for batteries, 
protective screens, and doors.
    5. Station buses, including main, auxiliary, transfer, synchronizing 
and fault ground buses, including oil circuit breakers and accessories, 
disconnecting switches and accessories, operating mechanisms and 
interlocks, reactors and accessories, voltage regulators and 
accessories, compensators, resistors, starting transformers, current 
transformers, potential transformers, protective relays, storage 
batteries and charging equipment, isolated panels and equipment, 
conductors and conduit, special supports, special housings, concrete 
pads, general station ground system, special fire-extinguishing system, 
and test equipment.

    Note A: Do not include in this account transformers and other 
equipment used for changing the voltage or frequency of electric energy 
for the purpose of transmission or distribution.

    Note B: When any item of equipment listed herein is used wholly to 
furnish power to equipment included in another account, its cost shall 
be included in such other account.

                346   Miscellaneous Power Plant Equipment

    This account shall include the cost installed of miscellaneous 
equipment in and about the other power generating plant, devoted to 
general station use, and not properly includible in any of the foregoing 
other power production accounts.

                                  Items

    1. Compressed air and vacuum cleaning systems, including tanks, 
compressors, exhausters, air filters, and piping.

[[Page 949]]

    2. Cranes and hoisting equipment, including cranes, cars, crane 
rails, monorails, and hoists with electric and mechanical connections.
    3. Fire-extinguishing equipment for general station use.
    4. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    5. Miscellaneous equipment, including atmospheric and weather 
indicating devices, intrasite communication equipment, laboratory 
equipment, signal systems, callophones, emergency whistles and sirens, 
fire alarms, and other similar equipment.
    6. Miscellaneous belts, pulleys, and countershafts.
    7. Refrigerating systems including compressors, pumps, and cooling 
coils.
    8. Station maintenance equipment, including lathes, shapers, 
planters, drill presses, hydraulic presses, and grinders with motors, 
shafting, hangers, or pulleys.
    9. Ventilating equipment, including items wholly identified with 
apparatus listed herein.

    Note: When any item of equipment, listed herein is used wholly in 
connection with equipment included in another account, its cost shall be 
included in such other account.

                           Transmission Plant

                       350   Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with transmission operations. (See Sec. 1767.16 (g).)

                             351  [Reserved]

                    352   Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used in connection with transmission operations. (See 
Sec. 1767.16 (h).)

                         353   Station Equipment

    This account shall include the cost installed of transforming, 
conversion, and switching equipment used for the purpose of changing the 
characteristics of electricity in connection with its transmission or 
for controlling transmission circuits.

                                  Items

    1. Bus compartments, concrete, brick, and sectional steel, including 
items permanently attached thereto.
    2. Conduit, including concrete and iron duct runs not a part of a 
building.
    3. Control equipment, including batteries, battery charging 
equipment, transformers, remote relay boards, and connections.
    4. Conversion equipment, including transformers, indoor and outdoor, 
frequency changers, motor generator sets, rectifiers, synchronous 
converters, motors, cooling equipment, and associated connections.
    5. Fences.
    6. Fixed and synchronous condensers, including transformers, 
switching equipment, blowers, motors and connections.
    7. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    8. General station equipment, including air compressors, motors, 
hoists, cranes, test equipment, and ventilating equipment.
    9. Platforms, railings, steps, and gratings appurtenant to apparatus 
listed herein.
    10. Primary and secondary voltage connections, including bus runs 
and supports, insulators, potheads, lightning arresters, cable and wire 
runs from and to outdoor connections or to manholes and the associated 
regulators, reactors, resistors, surge arresters, and accessory 
equipment.
    11. Switchboards, including meters, relays, and control wiring.
    12. Switching equipment, indoor and outdoor, including oil circuit 
breakers and operating mechanisms, truck switches, and disconnect 
switches.
    13. Tools and appliances.

                        354   Towers and Fixtures

    This account shall include the cost installed of towers and 
appurtenant fixtures used for supporting overhead transmission 
conductors.

                                  Items

    1. Anchors, guys, and braces.
    2. Brackets.
    3. Crossarms, including braces.

[[Page 950]]

    4. Excavation, backfill, and disposal of excess excavated material.
    5. Foundations.
    6. Guards.
    7. Insulator pins and suspension bolts.
    8. Ladder and steps.
    9. Railings.
    10. Towers.

                        355   Poles and Fixtures

    This account shall include the cost installed of transmission line 
poles, wood, steel, concrete, or other material, together with 
appurtenant fixtures used for supporting overhead transmission 
conductors.

                                  Items

    1. Anchors, head arm and other guys, including guy guards, guy 
clamps, strain insulators, and pole plates.
    2. Brackets.
    3. Crossarms and braces.
    4. Excavation and backfill, including disposal of excess excavated 
material.
    5. Extension arms.
    6. Gaining, roofing, stenciling, and tagging.
    7. Insulator pins and suspension belts.
    8. Paving.
    9. Pole steps.
    10. Poles, wood, steel, concrete, or other material.
    11. Racks complete with insulators.
    12. Reinforcing and stubbing.
    13. Settings.
    14. Shaving and painting.

                  356   Overhead Conductors and Devices

    This account shall include the cost installed of overhead conductors 
and devices used for transmission purposes.

                                  Items

    1. Circuit breakers.
    2. Conductors, including insulated and bare wires and cables.
    3. Ground wires and ground clamps.
    4. Insulators, including pin, suspension, and other types.
    5. Lightning arresters.
    6. Switches.
    7. Other line devices.

                        357   Underground Conduit

    This account shall include the cost installed of underground conduit 
and tunnels used for housing transmission cables or wires. (See 
Sec. 1767.16 (n).)

                                  Items

    1. Conduit, concrete, brick or tile, including iron pipe, fiber 
pipe, Murray duct, and standpipe on pole or tower.
    2. Excavation, including shoring, bracing, bridging, backfill, and 
disposal of excess excavated material.
    3. Foundations and settings specially constructed for and not 
expected to outlast the apparatus for which provided.
    4. Lighting systems.
    5. Manholes, concrete or brick, including iron or steel, frames and 
covers, hatchways, gratings, ladders, cable racks and hangers, 
permanently attached to manholes.
    6. Municipal inspection.
    7. Pavement disturbed, including cutting and replacing pavement, 
pavement base and sidewalks.
    8. Permits.
    9. Protection of street openings.
    10. Removal and relocation of subsurface obstructions.
    11. Sewer connections, including drains, traps, tide valves, and 
check valves.
    12. Sumps, including pumps.
    13. Ventilating equipment.

                358   Underground Conductors and Devices

    This account shall include the cost installed of underground 
conductors and devices used for transmission purposes.

                                  Items

    1. Armored conductors, buried, including insulators, insulating 
materials, splices, potheads, and trenching.
    2. Armored conductors, submarine, including insulators, insulating 
materials, splices in terminal chambers, and potheads.
    3. Cables in standpipe, including pothead and connection from 
terminal chamber of manhole to insulators on pole.
    4. Circuit breakers.

[[Page 951]]

    5. Fireproofing, in connection with any items listed herein.
    6. Hollow-core oil-filled cable, including straight or stop joints, 
pressure tanks, auxiliary air tanks, feeding tanks, terminals, potheads 
and connections, and ventilating equipment.
    7. Lead and fabric covered conductors, including insulators, 
compound filled, oil filled, or vacuum splices, and potheads.
    8. Lightning arresters.
    9. Municipal inspection.
    10. Permits.
    11. Protection of street openings.
    12. Racking of cables.
    13. Switches.
    14. Other line devices.

                         359   Roads and Trails

    This account shall include the cost of roads, trails, and bridges 
used primarily as transmission facilities.

                                  Items

    1. Bridges, including foundation piers, girders, trusses, and 
flooring.
    2. Clearing land.
    3. Roads, including grading, surfacing, and culverts.
    4. Structures, constructed and maintained in connection with items 
included herein.
    5. Trails, including grading, surfacing, and culverts.

    Note: The cost of temporary roads, and bridges necessary during the 
period of construction but abandoned or dedicated to public use upon 
completion of the plant, shall be charged to the accounts appropriate 
for the construction.

                           Distribution Plant

                       360   Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with distribution operations. (See Sec. 1767.16 (g).)

    Note: Do not include the cost of permits to erect poles, or towers 
or to trim trees in this account. (See Account 364, Poles, Towers and 
Fixtures, and Account 365, Overhead Conductors and Devices.)

                    361   Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used in connection with distribution operations. (See 
Sec. 1767.16 (h).)

                         362   Station Equipment

    This account shall include the cost installed of station equipment, 
including transformer banks, which are used for the purpose of changing 
the characteristics of electricity in connection with its distribution.

                                  Items

    1. Bus compartments, concrete, brick and sectional steel, including 
items permanently attached thereto.
    2. Conduit, including concrete and iron duct runs not part of 
building.
    3. Control equipment, including batteries, battery charging 
equipment, transformers, remote relay boards, and connections.
    4. Conversion equipment, indoor and outdoor, frequency changers, 
motor generator sets, rectifiers, synchronous converters, motors, 
cooling equipment, and associated connections.
    5. Fences.
    6. Fixed and synchronous condensers, including transformers, 
switching equipment, blowers, motors, and connections.
    7. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    8. General station equipment, including air compressors, motors, 
hoists, cranes, test equipment, and ventilating equipment.
    9. Platforms, railings, steps, and gratings appurtenant to apparatus 
listed herein.
    10. Primary and secondary voltage connections, including bus runs 
and supports, insulators, potheads, lightning arresters, cable and wire 
runs from and to outdoor connections or to manholes and the associated 
regulators, reactors, resistors, surge arresters, and accessory 
equipment.
    11. Switchboards, including meters, relays, and control wiring.
    12. Switching equipment, indoor and outdoor, including oil circuit 
breakers and operating mechanisms, truck switches, disconnect switches.

    Note: The cost of rectifiers, series transformers, and other special 
station equipment devoted exclusively to street lighting service

[[Page 952]]

shall not be included in this account, but in Account 373, Street 
Lighting and Signal Systems.

    363   Storage Battery Equipmentis account shall include the cost 
installed of storage battery equipment used for the purpose of supplying 
             electricity to meet emergency or peak demands.

                                  Items

    1. Batteries, including elements, tanks, and tank insulators.
    2. Battery room connections, including cable or bus runs and 
connections.
    3. Battery room flooring, when specially laid for supporting 
batteries.
    4. Charging equipment, including motor generator sets and other 
charging equipment and connections, and cable runs from generator or 
station bus to battery room connections.
    5. Miscellaneous equipment, including instruments, and water stills.
    6. Switching equipment, including endcell switches and connections, 
boards and panels, used exclusively for battery control, not part of 
general station switchboard.
    7. Ventilating equipment, including fans and motors, louvers, and 
ducts not part of building.

    Note: Storage batteries used for control and general station 
purposes shall not be included in this account but in the account 
appropriate for their use.

                    364   Poles, Towers and Fixtures

    This account shall include the cost installed of poles, towers, and 
appurtenant fixtures used for supporting overhead distribution 
conductors and service wires.

                                  Items

    1. Anchors, head arm, and other guys, including guy guards, guy 
clamps, strain insulators, and pole plates.
    2. Brackets.
    3. Crossarms and braces.
    4. Excavation and backfill, including disposal of excess excavated 
material.
    5. Extension arms.
    6. Foundations.
    7. Guards.
    8. Insulator pins and suspension bolts.
    9. Paving.
    10. Permits for construction.
    11. Pole steps and ladders.
    12. Poles, wood, steel, concrete, or other material.
    13. Racks complete with insulators.
    14. Railings.
    15. Reinforcing and stubbing.
    16. Settings.
    17. Shaving, painting, gaining, roofing, stenciling, and tagging.
    18. Towers.
    19. Transformer racks and platforms.

                  365   Overhead Conductors and Devices

    This account shall include the cost installed of overhead conductors 
and devices used for distribution purposes.

                                  Items

    1. Circuit breakers.
    2. Conductors, including insulated and bare wires and cables.
    3. Ground wires and clamps.
    4. Insulators, including pin, suspension, and other types, and tie 
wire or clamps.
    5. Lightning arresters.
    6. Railroad and highway crossing guards.
    7. Splices.
    8. Switches.
    9. Tree trimming, initial cost including the cost of permits 
therefor.
    10. Other line devices.
    11. Oil circuit reclosers (OCR).
    12. Sectionalizers.
    13. Labor costs for installation of OCRs and Sectionalizers, first 
only.

    Note: The cost of conductors used solely for street lighting or 
signal systems shall not be included in this account but in Account 373, 
Street Lighting and Signal Systems.

                        366   Underground Conduit

    This account shall include the cost installed of underground conduit 
and tunnels used for housing distribution cables or wires.

                                  Items

    1. Conduit, concrete, brick and tile, including iron pipe, fiber 
pipe, Murray duct, and standpipe on pole or tower.
    2. Excavation, including shoring, bracing, bridging, backfill, and 
disposal of excess excavated material.
    3. Foundations and settings specially constructed for and not 
expected to

[[Page 953]]

outlast the apparatus for which constructed.
    4. Lighting systems.
    5. Manholes, concrete or brick, including iron or steel frames and 
covers, hatchways, gratings, ladders, cable racks, and hangers 
permanently attached to manholes.
    6. Municipal inspection.
    7. Pavement disturbed, including cutting and replacing pavement, 
pavement base, and sidewalks.
    8. Permits.
    9. Protection of street openings.
    10. Removal and relocation of subsurface obstructions.
    11. Sewer connections, including drains, traps, tide valves, and 
check valves.
    12. Sumps, including pumps.
    13. Ventilating equipment.

    Note: The cost of underground conduit used solely for street 
lighting or signal systems shall be included in Account 373, Street 
Lighting and Signal Systems.

                367   Underground Conductors and Devices

    This account shall include the cost installed of underground 
conductors and devices used for distribution purposes.

                                  Items

    1. Armored conductors, buried, including insulators, insulating 
materials, splices, potheads, and trenching.
    2. Armored conductors, submarine, including insulators, insulating 
materials, splices in terminal chamber, and potheads.
    3. Cables in standpipe, including pothead and connection from 
terminal chamber or manhole to insulators on pole.
    4. Circuit breakers.
    5. Fireproofing, in connection with any items listed herein.
    6. Hollow-core oil-filled cable, including straight or stop joints, 
pressure tanks, auxiliary air tanks, feeding tanks, terminals, potheads 
and connections.
    7. Lead and fabric covered conductors, including insulators, 
compound-filled, oil-filled or vacuum splices, and potheads.
    8. Lightning arresters.
    9. Municipal inspection.
    10. Permits.
    11. Protection of street openings.
    12. Racking of cables.
    13. Switches.
    14. Other line devices.

    Note: The cost of underground conductors and devices used solely for 
street lighting or signal systems shall be included in Account 373, 
Street Lighting and Signal Systems.

                         368   Line Transformers

    A. This account shall include the cost installed of overhead and 
underground distribution line transformers and pole-type and underground 
voltage regulators owned by the utility, for use in transforming 
electricity to the voltage at which it is to be used by the customer, 
whether actually in service or held in reserve.
    B. When a transformer is permanently retired from service, the 
original installed cost thereof shall be credited to this account.
    C. The records covering line transformers shall be so kept that the 
utility can furnish the number of transformers of various capacities in 
service and those in reserve, and the location and the use of each 
transfer.

                                  Items

    1. Installation, labor of (first installation only).
    2. Transformer cut-out boxes.
    3. Transformer lightning arresters.
    4. Transformers, line and network.
    5. Capacitors.
    6. Network protectors.
    7. Voltage regulators.

    Note: The cost of removing and resetting line transformers shall not 
be charged to this account but to Account 583, Overhead Line Expenses, 
or Account 584, Underground Line Expenses, as appropriate. The cost of 
line transformers used solely for street lighting or signal systems 
shall be included in Account 373, Street Lighting and Signal Systems.

                             369   Services

    This account shall include the cost installed of overhead and 
underground conductors leading from a point where wires leave the last 
pole of the overhead system or the distribution box or manhole, or the 
top of the pole of the distribution line, to the point of connection 
with the customer's outlet or

[[Page 954]]

wiring. Conduit used for underground service conductors shall be 
included herein.

                                  Items

    1. Brackets.
    2. Cables and wires.
    3. Conduit.
    4. Insulators.
    5. Municipal inspection.
    6. Overhead to underground, including conduit or standpipe and 
conductor from last splice on pole to connection with customer's wiring.
    7. Pavement disturbed, including cutting and replacing pavement, 
pavement base, and sidewalks.
    8. Permits.
    9. Protection of street openings.
    10. Service switch.
    11. Suspension wire.

                              370   Meters

    A. This account shall include the cost installed of meters or 
devices and appurtenances thereto, for use in measuring the electricity 
delivered to its users, whether actually in service or held in reserve.
    B. When a meter is permanently retired from service, the installed 
cost included herein shall be credited to this account.
    C. The records covering meters shall be so kept that the utility can 
furnish information as to the number of meters of various capacities in 
service and in reserve as well as the location of each meter owned.

                                  Items

    1. Alternate current, watt-hour meters.
    2. Current limiting devices.
    3. Demand indicators.
    4. Demand meters.
    5. Direct current watt-hour meters.
    6. Graphic demand meters.
    7. Installation, labor of (first installation only).
    8. Instrument transformers.
    9. Maximum demand meters.
    10. Meter badges and their attachments.
    11. Meter boards and boxes.
    12. Meter fittings, connections, and shelves (first set).
    13. Meter switches and cut-outs.
    14. Prepayment meters.
    15. Protective devices.
    16. Testing new meters.

    Note A: This account shall not include meters for recording output 
of a generating station, or substation meters. It includes only those 
meters used to record energy delivered to customers.

    Note B: The cost of removing and resetting meters shall be charged 
to Account 586, Meter Expenses.

               371   Installations on Customers' Premises

    This account shall include the cost installed of equipment on the 
customer's side of a meter when the utility incurs such cost and when 
the utility retains title to and assumes full responsibility for 
maintenance and replacement of such property. This account shall not 
include leased equipment. (See Account 372, Leased Property on 
Customers' Premises.)

                                  Items

    1. Cable vaults.
    2. Commercial lamp equipment.
    3. Foundations and settings specially provided for equipment 
included herein.
    4. Frequency changer sets.
    5. Motor generator sets.
    6. Motors.
    7. Switchboard panels, high or low tension.
    8. Wire and cable connections to incoming cables.

    Note: Do not include in this account any costs incurred in 
connection with merchandising, jobbing, or contract work activities.

              372   Leased Property on Customers' Premises

    This account shall include the cost of electric motors, 
transformers, and other equipment on customers' premises (including 
municipal corporations), leased or loaned to customers, but not 
including property held for sale.

    Note A: The cost of setting and connecting such appliances or 
equipment on the premises of customers and the cost of resetting or 
removal shall not be charged to this account but to operating expenses, 
Account 587, Customer Installations Expenses.


[[Page 955]]


    Note B: Do not include in this account any costs incurred in 
connection with merchandising, jobbing, or contract work activities.

                373   Street Lighting and Signal Systems

    This account shall include the cost installed of equipment used 
wholly for public street and highway lighting or traffic, fire alarm, 
police, and other signal systems.

                                  Items

    1. Armored conductors, buried or submarine, including insulators, 
insulating materials, splices, and trenching.
    2. Automatic control equipment.
    3. Conductors, overhead or underground, including lead or fabric 
covered, parkway cables, including splices, and insulators.
    4. Lamps, arc, incandescent, or other types, including glassware, 
suspension fixtures, and brackets.
    5. Municipal inspection.
    6. Ornamental lamp posts.
    7. Pavement disturbed, including cutting and replacing pavement, 
pavement base, and sidewalks.
    8. Permits.
    9. Posts and standards.
    10. Protection of street openings.
    11. Relays or time clocks.
    12. Series contactors.
    13. Switches.
    14. Transformers, pole or underground.

                              General Plant

                       389   Land and Land Rights

    This account shall include the cost of land and land rights used for 
utility purposes, the cost of which is not properly includible in other 
land and land rights accounts. (See Sec. 1767.16 (g).)

                    390   Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used for utility purposes, the cost of which is not 
properly includible in other structures and improvements accounts. (See 
Sec. 1767.16 (h).)

                  391   Office Furniture and Equipment

    This account shall include the cost of office furniture and 
equipment owned by the utility and devoted to utility service, and not 
permanently attached to buildings, except the cost of such furniture and 
equipment which the utility elects to assign to other plant accounts on 
a functional basis.

                                  Items

    1. Bookcases and shelves.
    2. Desks, chairs, and desk equipment.
    3. Drafting-room equipment.
    4. Filing, storage, and other cabinets.
    5. Floor covering.
    6. Library and library equipment.
    7. Mechanical office equipment, such as accounting machines, and 
typewriters.
    8. Safes.
    9. Tables.

                     392   Transportation Equipment

    This account shall include the cost of transportation vehicles used 
for utility purposes.

                                  Items

    1. Airplanes.
    2. Automobiles.
    3. Bicycles.
    4. Electrical vehicles.
    5. Motor trucks.
    6. Motorcycles.
    7. Repair cars or trucks.
    8. Tractors and trailers.
    9. Other transportation vehicles.

                         393   Stores Equipment

    This account shall include the cost of equipment used for the 
receiving, shipping, handling, and storage of materials and supplies.

                                  Items

    1. Chain falls.
    2. Counters.
    3. Cranes (portable).
    4. Elevating and stacking equipment (portable).
    5. Hoists.
    6. Lockers.
    7. Scales.
    8. Shelving.
    9. Storage bins.
    10. Trucks, hand and power driven.

[[Page 956]]

    11. Wheelbarrows.

                 394   Tools, Shop and Garage Equipment

    This account shall include the cost of tools, implements, and 
equipment used in construction, repair work, general shops and garages 
and not specifically provided for or includible in other accounts.

                                  Items

    1. Air compressors.
    2. Anvils.
    3. Automobile repair shop equipment.
    4. Battery charging equipment.
    5. Belts, shafts and countershafts.
    6. Boilers.
    7. Cable pulling equipment.
    8. Concrete mixers.
    9. Drill presses.
    10. Derricks.
    11. Electric equipment.
    12. Engines.
    13. Forges.
    14. Furnaces.
    15. Foundations and settings specially constructed for and not 
expected to outlast the equipment for which provided.
    16. Gas producers.
    17. Gasoline pumps, oil pumps, and storage tanks.
    18. Greasing tools and equipment.
    19. Hoists.
    20. Ladders.
    21. Lathes.
    22. Machine tools.
    23. Motor-driven tools.
    24. Motors.
    25. Pipe threading and cutting tools.
    26. Pneumatic tools.
    27. Pumps.
    28. Riveters.
    29. Smithing equipment.
    30. Tool racks.
    31. Vises.
    32. Welding apparatus.
    33. Work benches.

                       395   Laboratory Equipment

    This account shall include the cost installed of laboratory 
equipment used for general laboratory purposes and not specifically 
provided for or includible in other departmental or functional plant 
accounts.

                                  Items

    1. Ammeters.
    2. Current batteries.
    3. Frequency changers.
    4. Galvanometers.
    5. Inductometers.
    6. Laboratory standard millivolt meters.
    7. Laboratory standard volt meters.
    8. Meter-testing equipment.
    9. Millivolt meters.
    10. Motor generator sets.
    11. Panels.
    12. Phantom loads.
    13. Portable graphic ammeters, voltmeters, and wattmeters.
    14. Portable loading devices.
    15. Potential batteries.
    16. Potentiometers.
    17. Rotating standards.
    18. Standard cell, reactance, resistor, and shunt.
    19. Switchboards.
    20. Synchronous timers.
    21. Testing panels.
    22. Testing resistors.
    23. Transformers.
    24. Voltmeters.
    25. Other testing, laboratory, or research equipment not provided 
for elsewhere.

                     396   Power Operated Equipment

    This account shall include the cost of power operated equipment used 
in construction or repair work exclusive of equipment includible in 
other accounts. Include, also, the tools and accessories acquired for 
use with such equipment and the vehicle on which such equipment is 
mounted.

                                  Items

    1. Air compressors, including driving unit and vehicle.
    2. Back filling machines.
    3. Boring machines.
    4. Bulldozers.
    5. Cranes and hoists.
    6. Diggers.
    7. Engines.
    8. Pile drivers.
    9. Pipe cleaning machines.
    10. Pipe coating or wrapping machines.
    11. Tractors-Crawler type.
    12. Trenchers.
    13. Other power operated equipment.


[[Page 957]]


    Note: It is intended that this account include only such large units 
as are generally self-propelled or mounted on movable equipment.

                      397   Communication Equipment

    This account shall include the cost installed of telephone, 
telegraph, and wireless equipment for general use in connection with 
utility operations.

                                  Items

    1. Antennae.
    2. Booths.
    3. Cables.
    4. Distributing boards.
    5. Extension cords.
    6. Gongs.
    7. Hand sets, manual and dial.
    8. Insulators.
    9. Intercommunicating sets.
    10. Loading coils.
    11. Operators' desks.
    12. Poles and fixtures used wholly for telephone or telegraph wire.
    13. Radio transmitting and receiving sets.
    14. Remote control equipment and lines.
    15. Sending keys.
    16. Storage batteries.
    17. Switchboards.
    18. Telautograph circuit connections.
    19. Telegraph receiving sets.
    20. Telephone and telegraph circuits.
    21. Testing instruments.
    22. Towers.
    23. Underground conduit used wholly for telephone or telegraph wires 
and cable wires.

                      398   Miscellaneous Equipment

    This account shall include the cost of equipment, and apparatus used 
in the utility operations, which is not includible in other accounts.

                                  Items

    1. Hospital and infirmary equipment.
    2. Kitchen equipment.
    3. Employees' recreation equipment.
    4. Radios.
    5. Restaurant equipment.
    6. Soda fountains.
    7. Operators' cottage furnishings.
    8. Other miscellaneous equipment.

    Note: Miscellaneous equipment of the nature indicated above wherever 
practicable, shall be included in the utility plant accounts on a 
functional basis.

                      399   Other Tangible Property

    This account shall include the cost of tangible utility plant not 
provided for elsewhere.



Sec. 1767.21  Operating income.

    The operating income accounts identified in this section shall be 
used by all RUS borrowers.

                        Utility Operating Income

400  Operating Revenues
401  Operation Expense
402  Maintenance Expense
403  Depreciation Expense
403.1  Depreciation Expense--Steam Production Plant
403.2  Depreciation Expense--Nuclear Production Plant
403.3  Depreciation Expense--Hydraulic Production Plant
403.4  Depreciation Expense--Other Production Plant
403.5  Depreciation Expense--Transmission Plant
403.6  Depreciation Expense--Distribution Plant
403.7  Depreciation Expense--General Plant
404  Amortization of Limited-Term Electric Plant
405  Amortization of Other Electric Plant
406  Amortization of Electric Plant Acquisition Adjustments
407  Amortization of Property Losses, Unrecovered Plant and Regulatory 
          Study Costs
407.3  Regulatory Debits
407.4  Regulatory Credits
408  Taxes Other than Income Taxes
408.1  Taxes--Property
408.2  Taxes--U.S. Social Security--Unemployment
408.3  Taxes--U.S. Social Security--F.I.C.A.
408.4  Taxes--State Social Security--Unemployment
408.5  Taxes--State Sales--Consumers
408.6  Taxes--Gross Revenue or Gross Receipts Tax
408.7  Taxes--Other
409  [Reserved]
409.1  Income Taxes, Utility Operating Income
409.2  Income Taxes, Other Income and Deductions
409.3  Income Taxes, Extraordinary Items
410  [Reserved]
410.1  Provision for Deferred Income Taxes, Utility Operating Income
410.2  Provision for Deferred Income Taxes, Other Income and Deductions
411  [Reserved]

[[Page 958]]

411.1  Provision for Deferred Income Taxes--Credit, Utility Operating 
          Income
411.2  Provision for Deferred Income Taxes--Credit, Other Income and 
          Deductions
411.3  [Reserved]
411.4  Investment Tax Credit Adjustments, Utility Operations
411.5  Investment Tax Credit Adjustments, Nonutility Operations
411.6  Gains from Disposition of Utility Plant
411.7  Losses from Disposition of Utility Plant
411.8  Gains from Disposition of Allowances
411.9  Losses from Disposition of Allowances
412  Revenues from Electric Plant Leased to Others
413  Expenses of Electric Plant Leased to Others
414  Other Utility Operating Income

                        Utility Operating Income

                        400   Operating Revenues

    There shall be shown under this caption the total amount included in 
the electric operating revenue accounts provided herein.

                         401   Operation Expense

    There shall be shown under this caption the total amount included in 
the electric operation expense accounts provided herein. (See note to 
Sec. 1767.17 (c).)

                        402   Maintenance Expense

    There shall be shown under this caption the total amount included in 
the electric maintenance expense accounts provided herein.

                       403   Depreciation Expense

    A. This account shall include the amount of depreciation expense for 
all classes of depreciable electric plant in service except such 
depreciation expense as is chargeable to clearing accounts or to Account 
416, Costs and Expenses of Merchandising, Jobbing and Contract Work.
    B. The utility shall keep such records of property and property 
retirements as will reflect the service life of property which has been 
retired and aid in estimating probable service life by mortality, 
turnover, or other appropriate methods; and also such records as will 
reflect the percentage of salvage and costs of removal for property 
retired from each account, or subdivision thereof, for depreciable 
electric plant.

    Note A: Depreciation expense applicable to property included in 
Account 104, Electric Plant Leased to Others, shall be charged to 
Account 413, Expenses of Electric Plant Leased to Others.

    Note B: Depreciation expenses applicable to transportation 
equipment, shop equipment, tools, work equipment, power operated 
equipment, and other general equipment may be charged to clearing 
accounts as necessary in order to obtain a proper distribution of 
expenses between construction and operation.

    Note C: Depreciation expense applicable to transportation equipment 
used for transportation of fuel from the point of acquisition to the 
unloading point shall be charged to Account 151, Fuel Stock.

    C. Account 403 shall be subaccounted as follows:

403.1  Depreciation Expense--Steam Production Plant
403.2  Depreciation Expense--Nuclear Production Plant
403.3  Depreciation Expense--Hydraulic Production Plant
403.4  Depreciation Expense--Other Production Plant
403.5  Depreciation Expense--Transmission Plant
403.6  Depreciation Expense--Distribution Plant
403.7  Depreciation Expense--General Plant

            404   Amortization of Limited-Term Electric Plant

    This account shall include amortization charges applicable to 
amounts included in the electric plant accounts for limited-term 
franchises, licenses, patent rights, limited-term interests in land, and 
expenditures on leased property where the service life of the 
improvements is terminable by action of the lease. The charges to this 
account shall be such as to distribute the book cost of each investment 
as evenly as may be over the period of its benefit to the utility. (See 
Account 111, Accumulated Provision for Amortization of Electric Utility 
Plant.)

               405   Amortization of Other Electric Plant

    A. When authorized by RUS, this account shall include charges for 
amortization of intangible or other electric

[[Page 959]]

utility plant which does not have a definite or terminable life and 
which is not subject to charges for depreciation expense.
    B. This account shall be supported in such detail as to show the 
amortization applicable to each investment being amortized, together 
with the book cost of the investment and the period over which it is 
being written off.

      406   Amortization of Electric Plant Acquisition Adjustments

    This account shall be debited or credited, as appropriate, with 
amounts includible in operating expenses, pursuant to approval or order 
of RUS, for the purpose of providing for the extinguishment of the 
amount in Account 114, Electric Plant Acquisition Adjustments.

 407   Amortization of Property Losses, Unrecovered Plant and Recovery 
                               Study Costs

    This account shall be charged with amounts credited to Account 
182.1, Extraordinary Property Losses, when RUS has authorized the amount 
in the latter account to be amortized by charges to electric operations.

                        407.3   Regulatory Debits

    This account shall be debited, when appropriate, with the amounts 
credited to Account 254, Other Regulatory Liabilities, to record 
regulatory liabilities imposed on the utility by the ratemaking actions 
of regulatory agencies. This account shall also be debited, when 
appropriate, with the amounts credited to Account 182.3, Other 
Regulatory Assets, concurrent with the recovery of such amounts in 
rates.

                       407.4   Regulatory Credits

    This account shall be credited, when appropriate, with the amounts 
debited to Account 182.3, Other Regulatory Assets, to establish 
regulatory assets. This account shall also be credited, when 
appropriate, with the amounts debited to Account 254, Other Regulatory 
Liabilities, concurrent with the return of such amounts to customers 
through rates.

                   408   Taxes Other Than Income Taxes

    A. This account shall include the amounts of ad valorem, gross 
revenue, or gross receipts taxes, state unemployment insurance, 
franchise taxes, Federal excise taxes, social security taxes, and all 
other taxes assessed by Federal, state, county, municipal, or other 
local governmental authorities, except income taxes.
    B. These accounts shall be charged in each accounting period with 
the amounts of taxes which are applicable thereto, with concurrent 
credits to Account 236, Taxes Accrued, or Account 165, Prepayments, as 
appropriate. When it is not possible to determine the exact amounts of 
taxes, the amounts shall be estimated and adjustments made in current 
accruals as the actual tax levies become known.
    C. The charges to these accounts shall be made or supported so as to 
show the amount of each tax and the basis upon which each charge is 
made. In the case of a utility rendering more than one utility service, 
taxes of the kind includible in these accounts shall be assigned 
directly to the utility department the operation of which gave rise to 
the tax, in so far as practicable. Where the tax is not attributable to 
a specific utility department, it shall be distributed among the utility 
departments or nonutility operations on an equitable basis after 
appropriate study to determine such basis.

    Note A: Special assessments for street and similar improvements 
shall be included in the appropriate utility plant or nonutility 
property account.

    Note B: Taxes specifically applicable to construction shall be 
included in the cost of construction.

    Note C: Gasoline and other sales taxes shall be charged as far as 
practicable to the same account as the materials on which the tax is 
levied.

    Note D: Social security and other forms of payroll taxes shall be 
distributed to utility departments and to nonutility functions on a 
basis related to payroll. Amounts applicable to construction shall be 
charged to the appropriate plant account.

    Note E: Interest on tax refunds or deficiencies shall not be 
included in these accounts but in Account 419, Interest and Dividend 
Income, or Account 431, Other Interest Expense, as appropriate.


[[Page 960]]


    D. Account 408 shall be subaccounted as follows:

408.1  Taxes--Property
408.2  Taxes--U.S. Social Security--Unemployment
408.3  Taxes--U.S. Social Security--F.I.C.A.
408.4  Taxes--State Social Security--Unemployment
408.5  Taxes--State Sales--Consumers
408.6  Taxes--Gross Revenue or Gross Receipts Tax
408.7  Taxes--Other

                             409  [Reserved]

                          Special Instructions

                    Accounts 409.1, 409.2, and 409.3

    A. These accounts shall include the amount of local, state, and 
Federal income taxes on income properly accruable during the period 
covered by the income statement to meet the actual liability for such 
taxes. Concurrent credits for the tax accruals shall be made to Account 
236, Taxes Accrued, and as the exact amounts of taxes become known, the 
current tax accruals shall be adjusted by charges or credits to these 
accounts.
    B. The accruals for income taxes shall be apportioned among utility 
departments and to Other Income and Deductions so that, as nearly as 
practicable, each tax shall be included in the expenses of the utility 
department or Other Income and Deductions, the income from which gave 
rise to the tax. The tax effects relating to interest charges shall be 
allocated between utility and nonutility operations. The basis for this 
allocation shall be the ratio of net investment in utility plant to net 
investment in nonutility plant.

    Note A: Taxes assumed by the utility on interest shall be charged to 
Account 431, Other Interest Expense.

    Note B: Interest on tax refunds or deficiencies shall not be 
included in these accounts but in Account 419, Interest and Dividend 
Income, or Account 431, Other Interest Expense, as appropriate.

             409.1   Income Taxes, Utility Operating Income

    This account shall include the amount of those local, state, and 
Federal income taxes which relate to utility operating income. This 
account shall be maintained so as to allow ready identification of tax 
effects (both positive and negative) relating to Utility Operating 
Income (by department), Utility Plant Leased to Others, and Other 
Utility Operating Income.

            409.2   Income Taxes, Other Income and Deductions

    This account shall include the amount of those local, state, and 
Federal income taxes (both positive and negative), which relate to Other 
Income and Deductions.

                409.3   Income Taxes, Extraordinary Items

    This account shall include the amount of those local, state, and 
Federal income taxes (both positive and negative), which relate to 
Extraordinary Items.

                             410  [Reserved]

                          Special Instructions

                 Accounts 410.1, 410.2, 411.1, and 411.2

    A. Accounts 410.1 and 410.2 shall be debited, and Accumulated 
Deferred Income Taxes, shall be credited, with amounts equal to any 
current deferrals of taxes on income or any allocations of deferred 
taxes originating in prior periods, as provided by the texts of Accounts 
190, 281, 282, and 283. There shall not be netted against entries 
required to be made to these accounts any credit amounts appropriately 
includible in Account 411.1 or Account 411.2.
    B. Accounts 411.1 or 411.2 shall be credited, and Accumulated 
Deferred Income Taxes, shall be debited, with amounts equal to any 
allocations of deferred taxes originating in prior periods or any 
current deferrals of taxes on income, as provided by the texts of 
Accounts 190, 281, 282, and 283. There shall not be netted against 
entries required to be made to these accounts any debit amounts 
appropriately includible in Account 410.1 or Account 410.2.

  410.1   Provision for Deferred Income Taxes, Utility Operating Income

    This account shall include the amounts of those deferrals of taxes 
and

[[Page 961]]

allocations of deferred taxes which relate to Utility Operating Income 
(by department).

410.2   Provision for Deferred Income Taxes, Other Income and Deductions

    This account shall include the amounts of those deferrals of taxes 
and allocations of deferred taxes which relate to Other Income and 
Deductions.

                             411  [Reserved]

 411.1   Provision for Deferred Income Taxes--Credit, Utility Operating 
                                 Income

    This account shall include the amounts of those allocations of 
deferred taxes and deferrals of taxes, credit, which relate to Utility 
Operating Income (by department).

 411.2   Provision for Deferred Income Taxes--Credit, Other Income and 
                               Deductions

    This account shall include the amounts of those allocations of 
deferred taxes and deferrals of taxes, credit, which relate to Other 
Income and Deductions.

                           411.3   [Reserved]

                          Special Instructions

                        Accounts 411.4 and 411.5

    A. Account 411.4 shall be debited with the amounts of investment tax 
credits related to electric utility property that are credited to 
Account 255, Accumulated Deferred Investment Tax Credits, by companies 
which do not apply the entire amount of the benefits of the investment 
credit as a reduction of the overall income tax expense in the year in 
which such credit is realized. (See Account 255).
    B. Account 411.4 shall be credited with the amounts debited to 
Account 255 for proportionate amounts of tax credit deferrals allocated 
over the average useful life of electric utility property to which the 
tax credits relate or such lesser period of time as may be adopted and 
consistently followed by the company.
    C. Account 411.5 shall be debited and credited as directed in 
paragraphs A and B, for investment tax credits related to nonutility 
property.

      411.4   Investment Tax Credit Adjustments, Utility Operations

    This account shall include the amount of those investment tax credit 
adjustments related to property used in Utility Operations (by 
department).

    411.5   Investment Tax Credit Adjustments, Nonutility Operations

    This account shall include the amount of those investment tax credit 
adjustments related to property used in Nonutility Operations.

             411.6   Gains from Disposition of Utility Plant

    This account shall include, as approved by RUS, amounts relating to 
gains from the disposition of future use utility plant including amounts 
which were previously recorded in and transferred from Account 105, 
Electric Plant Held for Future Use, under the Provisions of Paragraphs 
B, C, and D thereof. Income taxes relating to gains recorded in this 
account shall be recorded in Account 409.1, Income Taxes, Utility 
Operating Income.

            411.7   Losses from Disposition of Utility Plant

    This account shall include, as approved by RUS, amounts relating to 
losses from the disposition of future use utility plant including 
amounts which were previously recorded in and transferred from Account 
105, Electric Plant Held for Future Use, under the provisions of 
Paragraphs B, C, and D thereof. Income taxes relating to losses recorded 
in this account shall be recorded in Account 409.1, Income Taxes, 
Utility Operating Income.

              411.8   Gains from Disposition of Allowances

    This account shall be credited with the gain on the sale, exchange, 
or other disposition of allowances in accordance with Sec. 1767.15 
(u)(8). Income taxes relating to gains recorded in this account shall be 
recorded in Account 409.1, Income Taxes, Utility Operating Income.

[[Page 962]]

              411.9   Losses from Disposition of Allowances

    This account shall be debited with the loss on the sale, exchange, 
or other disposition of allowances in accordance with Sec. 1767.15 
(u)(8). Income taxes relating to losses recorded in this account shall 
be recorded in Account 409.1, Income Taxes, Utility Operating Income.

           412   Revenues from Electric Plant Leased to Others

    This account shall include revenues from electric property 
constituting a distinct operating unit or system leased by the utility 
to others, and which property is properly includible in Account 104, 
Electric Plant Leased to Others.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.1, Income Taxes, Utility Operating 
Income, as appropriate.

            413   Expenses of Electric Plant Leased to Others

    A. This account shall include expenses from electric property 
constituting a distinct operating unit or system leased by the utility 
to others, and which property is properly includible in Account 104, 
Electric Plant Leased to Others.
    B. The detail of expenses shall be kept or supported so as to show 
separately the following:

    1. Operation.
    2. Maintenance.
    3. Depreciation.
    4. Amortization.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.1, Income Taxes, Utility Operating 
Income, as appropriate.

                  414   Other Utility Operating Income

    A. This account shall include the revenues received and expenses 
incurred in connection with the operations of utility plant, the book 
cost of which is included in Account 118, Other Utility Plant.
    B. The expenses shall include every element of cost incurred in such 
operations, including depreciation, rents, and insurance.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.1, Income Taxes, Utility Operating 
Income, as appropriate.



Sec. 1767.22  Other income and deductions.

    The other income and deductions accounts identified in this section 
shall be used by all RUS borrowers.

                       Other Income and Deductions

415  Revenues from Merchandising, Jobbing, and Contract Work
416  Costs and Expenses of Merchandising, Jobbing, and Contract Work
417  Revenues from Nonutility Operations
417.1  Expenses of Nonutility Operations
418  Nonoperating Rental Income
418.1  Equity in Earnings of Subsidiary Companies
419  Interest and Dividend Income
419.1  Allowance for Funds Used During Construction
420  Investment Tax Credits
421  Miscellaneous Nonoperating Income
421.1  Gain on Disposition of Property
421.2  Loss on Disposition of Property
422  Nonoperating Taxes
423  Generation and Transmission Cooperative Capital Credits
424  Other Capital Credits and Patronage Capital Allocations
425  Miscellaneous Amortization
426  [Reserved]
426.1  Donations
426.2  Life Insurance
426.3  Penalties
426.4  Expenditures for Certain Civic, Political, and Related Activities
426.5  Other Deductions

                       Other Income and Deductions

      415   Revenues from Merchandising, Jobbing and Contract Work

    A. This account shall include all revenues derived from the sale of 
merchandise and jobbing or contract work, including any profit or 
commission accruing to the utility on jobbing work performed by it as 
agent under contracts whereby it does jobbing work for another for a 
stipulated profit or commission. Interest related income from 
installment sales shall be recorded in Account 419, Interest and 
Dividend Income.
    B. Records in support of this account shall be so kept as to permit 
ready summarization of revenues by such major items as are feasible.

    Note: The classification of revenues of merchandising, jobbing, and 
contract work as nonoperating, and thus included in this

[[Page 963]]

account, is for accounting purposes. It does not preclude consideration 
of justification to the contrary for ratemaking or other purposes.

                                  Items

    1. Revenues from sale of merchandise and from jobbing and contract 
work.
    2. Discounts and allowances made in settlement of bills for 
merchandise and jobbing work.

  416   Costs and Expenses of Merchandising, Jobbing and Contract Work

    A. This account shall include all expenses derived from the sale of 
merchandise and jobbing or contract work.
    B. Records in support of this account shall be so kept as to permit 
ready summarization of costs and expenses by such major items as are 
feasible.

    Note: The classification of costs and expenses of merchandising, 
jobbing, and contract work as nonoperating, and thus included in this 
account, is for accounting purposes. It does not preclude consideration 
of justification to the contrary for ratemaking or other purposes.

                                  Items

    Labor:

    1. Canvassing and demonstrating appliances in homes and other places 
for the purpose of selling appliances.
    2. Demonstrating and selling activities in sales rooms.
    3. Installing appliances on customer premises where such work is 
done only for purchasers of appliances from the utility.
    4. Installing wire, piping, or other property work, on a jobbing or 
contract basis.
    5. Preparing advertising materials for appliance sales purposes.
    6. Receiving and handling customer orders for merchandise or for 
jobbing services.
    7. Cleaning and tidying sales rooms.
    8. Maintaining display counters and other equipment used in 
merchandising.
    9. Arranging merchandise in sales rooms and decorating display 
windows.
    10. Reconditioning repossessed appliances.
    11. Bookkeeping and other clerical work in connection with 
merchandise and jobbing activities.
    12. Supervising merchandise and jobbing operations.
    13. Advertising in newspapers, periodicals, radio, and television.
    14. Cost of merchandise sold and of materials used in jobbing work.
    15. Stores expenses on merchandise and jobbing stocks.
    16. Fees and expenses of advertising and commercial artists' 
agencies.
    17. Printing booklets, dodgers, and other advertising data.
    18. Premiums given as inducement to buy appliances.
    19. Light, heat, and power.
    20. Depreciation on equipment used primarily for merchandise and 
jobbing operations.
    21. Rent of sales rooms or of equipment.
    22. Transportation expense in delivery and pick-up of appliances by 
utility's facilities or by others.
    23. Stationery and office supplies and expenses.
    24. Losses from uncollectible merchandise and jobbing accounts.

                417   Revenues from Nonutility Operations

    This account shall include revenues applicable to operations which 
are nonutility in character but nevertheless constitute a distinct 
operating activity of the enterprise as a whole, such as the operation 
of an ice department where applicable statutes do not define such 
operation as a utility, or the operation of a servicing organization for 
furnishing supervision, management, engineering, and similar services to 
others.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.2, Income Taxes, Other Income and 
Deductions, as appropriate.

                417.1   Expenses of Nonutility Operations

    A. This account shall include expenses applicable to operations 
which are nonutility in character but nevertheless constitute a distinct 
operating activity of the enterprise as a whole, such as the operation 
of an ice department where applicable statutes do not define such 
operation as a utility, or

[[Page 964]]

the operation of a servicing organization for furnishing supervision, 
management, engineering, and similar services to others.
    B. The expenses shall include all elements of costs incurred in such 
operations, and the accounts shall be maintained so as to permit ready 
summarization as follows:

    1. Operation.
    2. Maintenance.
    3. Rents.
    4. Depreciation.
    5. Amortization.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.2, Income Taxes, Other Income and 
Deductions, as appropriate.

                    418   Nonoperating Rental Income

    A. This account shall include all rent revenues and related expenses 
of land, buildings, or other property included in Account 121, 
Nonutility Property, which is not used in operations covered by Account 
417 or Account 417.1.
    B. The expenses shall include all elements of costs incurred in the 
ownership and rental of property and the accounts shall be maintained so 
as to permit ready summarization as follows:

    1. Operation.
    2. Maintenance.
    3. Rents.
    4. Depreciation.
    5. Amortization.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.2, Income Taxes, Other Income and 
Deductions, as appropriate.

           418.1   Equity in Earnings of Subsidiary Companies

    This account shall include the utility's equity in the earnings or 
losses of subsidiary companies for the year.

                   419   Interest and Dividend Income

    A. This account shall include interest revenues on securities, 
loans, notes, advances, special deposits, tax refunds, and all other 
interest-bearing assets, and dividends on stocks of other companies, 
whether the securities on which the interest and dividends are received 
are carried as investments or included in sinking or other special fund 
accounts.

    Note A: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.2, Income Taxes, Other Income and 
Deductions, as appropriate.

    Note B: Interest accrued, the payment of which is not reasonably 
assured, dividends receivable which have not been declared or 
guaranteed, and interest or dividends upon reacquired securities issued 
or assumed by the utility shall not be credited to this account.

          419.1   Allowance for Funds Used During Construction

    This account shall include concurrent credits for allowance for 
funds other than borrowed funds used for construction purposes during 
the period of construction, based upon a reasonable rate. (See 
Sec. 1767.16 (c)(17).)

                      420   Investment Tax Credits

    This account shall be credited as follows with investment tax credit 
amounts not passed on to customers:
    1. By amounts equal to debits to Account 411.4, Investment Tax 
Credit Adjustments, Utility Operations, and Account 411.5, Investment 
Tax Credit Adjustments, Nonutility Operations, for investment tax 
credits used in calculating income taxes for the year when the company's 
accounting provides for non-deferral of all or a portion of such 
credits.
    2. By amounts equal to debits to Account 255, Accumulated Deferred 
Investment Tax Credits, for proportionate amounts of tax credit 
deferrals allocated over the average useful life of the property to 
which the tax credits relate, or such lesser period of time as may be 
adopted and consistently used by the company.

                 421   Miscellaneous Nonoperating Income

    This account shall include all revenue and expense items, except 
taxes properly includible in the income account, not provided for 
elsewhere. Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.2, Income Taxes, Other Income and 
Deductions, as appropriate.

[[Page 965]]

                                  Items

    1. Profit on sale of timber. (See Sec. 1767.16 (g)(3).)
    2. Profits from operations of others realized by the utility under 
contracts.
    3. Gains on disposition of investments. Also, gains on reacquisition 
and resale or retirement of the utility's debt securities when the gain 
is not amortized or used by a jurisdictional regulatory agency to reduce 
embedded debt cost in establishing rates. (See Sec. 1767.15 (q).)

                 421.1   Gain on Disposition of Property

    This account shall be credited with the gain on the sale, 
conveyance, exchange, or transfer of utility or other property to 
another. Amounts relating to gains on land and land rights held for 
future use recorded in Account 105, Electric Plant Held for Future Use, 
will be accounted for as prescribed in Paragraphs B, C, and D thereof. 
(See Sec. 1767.16 (e)(6), (g)(5), and (j)(5).) Income taxes on gains 
recorded in this account shall be recorded in Account 409.2, Income 
Taxes, Other Income and Deductions.

                 421.2   Loss on Disposition of Property

    This account shall be charged with the loss on the sale, conveyance, 
exchange, or transfer of utility or other property to another. Amounts 
relating to losses on land and land rights held for future use recorded 
in Account 105, Electric Plant Held for Future Use, will be accounted 
for as prescribed in Paragraphs B, C, and D thereof. (See Sec. 1767.16 
(e)(6), (g)(5), and (j)(5).) The reduction in income taxes relating to 
losses recorded in this account shall be recorded in Account 409.2, 
Income Taxes, Other Income and Deductions.

                        422   Nonoperating Taxes

    This account shall be charged with taxes relating to nonoperating 
income.

      423   Generation and Transmission Cooperative Capital Credits

    This account shall be credited with the annual capital furnished the 
power supply cooperative through payment of power bills. The amount of 
capital furnished the power supply cooperative should be recorded in the 
applicable year even though, in most cases, the power supplier's notice 
of the allocation will not have been received until after the close of 
the year to which it relates.

      424   Other Capital Credits and Patronage Capital Allocations

    This account shall be credited with the capital furnished in 
connection with patronage of cooperative or mutual-type service 
organization such as CFC and other financing cooperatives, and 
insurance, oil product, telephone, and data processing cooperatives. 
This account should be credited in the year in which the notice of the 
capital credit or patronage capital allocation is received.

                    425   Miscellaneous Amortization

    This account shall include amortization charges not includible in 
other accounts which are properly deductible in determining the income 
of the utility before interest charges. Charges includible herein, if 
significant in amount, must be in accordance with an orderly and 
systematic amortization program.

                                  Items

    1. Amortization of utility plant acquisition adjustments, or of 
intangibles included in utility plant in service when not authorized to 
be included in utility operating expenses by RUS.
    2. Other miscellaneous amortization charges allowed to be included 
in this account by RUS.

                             426  [Reserved]

                          Special Instructions

             Accounts 426.1, 426.2, 426.3, 426.4, and 426.5

    These accounts shall include miscellaneous expense items which are 
nonoperating in nature but which are properly deductible before 
determining total income before interest charges.

    Note: The classification of expenses as nonoperating and their 
inclusion in these accounts is for accounting purposes. It does not 
preclude RUS consideration of proof to the contrary for ratemaking or 
other purposes.

[[Page 966]]

                            426.1   Donations

    This account shall include all payments or donations for charitable, 
social, or community welfare purposes.

                         426.2   Life Insurance

    This account shall include all payments for life insurance of 
officers and employees where the company is the beneficiary (net 
premiums less the increase in the cash surrender value of policies.)

                            426.3   Penalties

    This account shall include payments by the company for penalties or 
fines for violation of any regulatory statutes by the company or its 
officials.

     426.4   Expenditures for Certain Civic, Political, and Related 
                               Activities

    This account shall include expenditures for the purpose of 
influencing public opinion with respect to the election or appointment 
of public officials, referenda, legislation, or ordinances (either with 
respect to the possible adoption of new referenda, legislation or 
ordinances or repeal or modification of existing referenda, legislation 
or ordinances) or approval, modification, or revocation of franchises; 
or for the purpose of influencing the decisions of public officials, but 
shall not include such expenditures which are directly related to 
appearances before regulatory or other governmental bodies in connection 
with the reporting utility's existing or proposed operations.

                        426.5   Other Deductions

    This account shall include other miscellaneous expenses which are 
nonoperating in nature, but which are properly deductible before 
determining total income before interest charges.

                                  Items

    1. Loss relating to investments in securities written-off or 
written-down.
    2. Loss on sale of investments.
    3. Loss on reacquisition, resale, or retirement of the utility's 
debt securities, when the loss is not amortized and used by a 
jurisdictional regulatory agency to increase embedded debt cost in 
establishing rates. (See Sec. 1767.15 (q).)
    4. Preliminary survey and investigation expenses related to 
abandoned projects, when not written-off to the appropriate operating 
expense account.
    5. Costs of preliminary abandonment costs recorded in Account 182.1, 
Extraordinary Property Losses, and Account 182.2, Unrecovered Plant and 
Regulatory Study Costs, not allowed to be amortized to Account 407, 
Amortization of Property Losses, Unrecovered Plant and Regulatory Study 
Costs.



Sec. 1767.23  Interest charges.

    The interest charges accounts identified in this section shall be 
used by all RUS borrowers.

                            Interest Charges

427  Interest on Long-Term Debt
427.3  Interest Charged to Construction--Credit
428  Amortization of Debt Discount and Expense
428.1  Amortization of Loss on Reacquired Debt
429  Amortization of Premium on Debt--Credit
429.1  Amortization of Gain on Reacquired Debt--Credit
430  Interest on Debt to Associated Companies
431  Other Interest Expense
432  Allowance for Borrowed Funds Used During Construction--Credit

                            Interest Charges

                    427   Interest on Long-Term Debt

    A. This account shall include the amount of interest on outstanding 
long-term debt issued or assumed by the utility, the liability for which 
included in Account 221, Bonds, or Account 224, Other Long-Term Debt.
    B. This account shall be so kept or supported as to show the 
interest accruals on each class and series of long-term debt.

    Note: This account shall not include interest on nominally issued or 
nominally outstanding long-term debt, including securities assumed.

            427.3   Interest Charged to Construction--Credit

    This account shall include concurrent credits for interest charged 
to construction based upon the net cost

[[Page 967]]

for the period of construction of borrowed funds used for construction 
purposes.

             428   Amortization of Debt Discount and Expense

    A. This account shall include the amortization of unamortized debt 
discount and expense on outstanding long-term debt. Amounts charged to 
this account shall be credited concurrently to Account 181, Unamortized 
Debt Expense, and Account 226, Unamortized Discount on Long-Term Debt--
Debit.
    B. This account shall be so kept or supported as to show the debt 
discount and expense on each class and series of long-term debt.

             428.1   Amortization of Loss on Reacquired Debt

    A. This account shall include the amortization of the losses on 
reacquisition of debt. Amounts charged to this account shall be credited 
concurrently to Account 189, Unamortized Loss on Reacquired Debt.
    B. This account shall be maintained so as to allow ready 
identification of the loss amortized applicable to each class and series 
of long-term debt reacquired. (See Sec. 1767.15 (q).)

              429   Amortization of Premium on Debt--Credit

    A. This account shall include the amortization of unamortized net 
premium on outstanding long-term debt. Amounts credited to this account 
shall be charged concurrently to Account 225, Unamortized Premium on 
Long-Term Debt.
    B. This account shall be so kept or supported as to show the premium 
on each class and series of long-term debt.

         429.1   Amortization of Gain on Reacquired Debt--Credit

    A. This account shall include the amortization of the gains realized 
from reacquisition of debt. Amounts credited to this account shall be 
charged concurrently to Account 257, Unamortized Gain on Reacquired 
Debt.
    B. This account shall be maintained so as to allow ready 
identification of the amortized gains applicable to each class and 
series of long-term debt reacquired. (See Sec. 1767.15 (q).)

             430   Interest on Debt to Associated Companies

    A. This account shall include the interest accrued on amounts 
included in Account 223, Advances from Associated Companies, and on all 
other obligations to associated companies.
    B. The records supporting the entries to this account shall be so 
kept as to show to whom the interest is to be paid, the period covered 
by the accrual, the rate of interest, and the principal amount of the 
advances or other obligations on which the interest is accrued.

                      431   Other Interest Expense

    This account shall include all interest charges not provided for 
elsewhere.

                                  Items

    1. Interest on notes payable on demand or maturing one year or less 
from date and on open accounts, except notes and accounts with 
associated companies.
    2. Interest on customers' deposits.
    3. Interest on claims and judgments, tax assessments, and 
assessments for public improvements past due.
    4. Income and other taxes levied upon bondholders of the utility and 
assumed by it.

   432   Allowance for Borrowed Funds Used During Construction--Credit

    This account shall include concurrent credits for allowance for 
borrowed funds used during construction, not to exceed amounts computed 
in accordance with the formula prescribed in Sec. 1767.16 (c)(17).



Sec. 1767.24  Extraordinary items.

    The extraordinary items accounts identified in this section shall be 
used by all RUS borrowers.

                           Extraordinary Items

434  Extraordinary Income
435  Extraordinary Deductions
435.1  Cumulative Effect on Prior Years of a Change in Accounting 
          Principle

[[Page 968]]

                           Extraordinary Items

                       434   Extraordinary Income

    This account shall be credited with nontypical, noncustomary, 
infrequently recurring gains which would significantly distort the 
current year's income computed before extraordinary items, if reported 
other than as extraordinary items. Income tax relating to the amounts 
recorded in this account shall be recorded in Account 409.3, Income 
Taxes, Extraordinary Items. (See Sec. 1767.15 (g).)

                     435   Extraordinary Deductions

    This account shall be debited with nontypical, noncustomary, 
infrequently recurring losses which would significantly distort the 
current year's income computed before extraordinary items, if reported 
other than as extraordinary items. Income tax relating to the amounts 
recorded in this account shall be recorded in Account 409.3, Income 
Taxes, Extraordinary Items. (See Sec. 1767.15 (f).)

   435.1   Cumulative Effect on Prior Years of a Change in Accounting 
                                Principle

    This account shall include the cumulative effect on margins of prior 
periods as a result of a change in accounting principle from one that is 
no longer generally accepted to one that is generally accepted.



Sec. 1767.25  Retained earnings.

    The retained earnings accounts identified in this section shall be 
used by all RUS borrowers.

                            Retained Earnings

433  [Reserved]
436  [Reserved]
437  [Reserved]
438  [Reserved]
439  [Reserved]

                            Retained Earnings

                             433  [Reserved]

                             436  [Reserved]

                             437  [Reserved]

                             438  [Reserved]

                             439  [Reserved]



Sec. 1767.26  Operating revenue.

    The operating revenue accounts identified in this section shall be 
used by all RUS borrowers.

                            Operating Revenue

                          Sales of Electricity

440  Residential Sales
440.1  Residential Sales--Excluding Seasonal
440.2  Residential Sales--Seasonal
441  Irrigation Sales
442  Commercial and Industrial Sales
442.1  Commercial and Industrial Sales--1000 kVA or Less
442.2  Commercial and Industrial Sales--Over 1000 kVA
444  Public Street and Highway Lighting
445  Other Sales to Public Authorities
446  Sales to Railroads and Railways
447  Sales for Resale
447.1  Sales for Resale--RUS Borrowers
447.2  Sales for Resale--Other
448  Interdepartmental Sales
449.1  Provision for Rate Refunds

                        Other Operating Revenues

450  Forfeited Discounts
451  Miscellaneous Service Revenues
453  Sales of Water and Water Power
454  Rent from Electric Property
455  Interdepartmental Rents
456  Other Electric Revenues

                            Operating Revenue

                          Sales of Electricity

                         440   Residential Sales

    A. This account shall include the net billing for electricity 
supplied for residential or domestic purposes.

    Note: When electricity supplied through a single meter is used for 
both residential and commercial purposes, the total revenue shall be 
included in this account, or Account 442, Commercial and Industrial 
Sales, according to the rate schedule that is applied. If the same rate 
schedules apply to residential and commercial and industrial service, 
classification shall be made according to principal use.


[[Page 969]]


    B. Account 440 shall be subaccounted as follows:

440.1  Residential Sales--Excluding Seasonal
440.2  Residential Sales--Seasonal

              440.1   Residential Sales--Excluding Seasonal

    A. This account shall include the net billing for electricity 
supplied for residential and domestic purposes.
    B. This account shall also include net billings for single phase 
service to schools, churches, lodges, and other public buildings.
    C. Records shall be maintained so that the quantity of electricity 
sold and the revenue received under each rate schedule shall be readily 
available.

    Note: Net billings for multiphase service to schools, churches, 
lodges, and other public buildings shall be included in the appropriate 
subaccount of Account 442, Commercial and Industrial Sales.

                   440.2   Residential Sales--Seasonal

    This account shall include the net billings for electricity supplied 
for residential and domestic purposes to seasonal consumers.

                         441   Irrigation Sales

    This account shall include the net billings for electricity supplied 
for irrigation pumping. It need not be used unless such service is 
provided under a special irrigation rate.

                  442   Commercial and Industrial Sales

    A. This account shall include the net billing for electricity 
supplied to customers for commercial and industrial purposes.

    Note A: If the utility classifies large commercial and industrial 
customers and related revenues on a lesser basis than 1000 kilowatts of 
demand, or segregates industrial customers and related revenues 
according to a recognized definition of an industrial customer, such 
classifications are acceptable in lieu of those otherwise required by 
the text of this account on the basis of 1000 kilowatts of demand.

    Note B: When electricity supplied through a single meter is used for 
both commercial and residential purposes, the total revenue shall be 
included in this account, or Account 440, Residential Sales, according 
to the rate schedule that is applied. If the same rate schedules apply 
to residential and commercial and industrial service, classification 
shall be made according to principal use.

    B. Account 442 shall be subaccounted as follows:

442.1  Commercial and Industrial Sales--1000 kVA or Less
442.2  Commercial and Industrial Sales--Over 1000 kVA

        442.1   Commercial and Industrial Sales--1000 kVA or Less

    A. This account shall include the net billing for electricity 
supplied to consumers for commercial and industrial purposes requiring 
transformer capacity of 1000 kVA or less.
    B. Records shall be maintained so that the quantity of electricity 
sold and the revenue received under each rate schedule shall be readily 
available.

    Note: When electricity supplied through a single meter is used for 
both commercial and residential purposes, the total revenue shall be 
included in this account or in Account 440, Residential Sales, based 
upon primary use.

         442.2   Commercial and Industrial Sales--Over 1000 kVA

    A. This account shall include the net billing for electricity 
supplied to consumers for commercial and industrial purposes requiring 
transformer capacity in excess of 1000 kVA.
    B. Records shall be maintained so that the quantity of electricity 
sold and the revenue received under each rate schedule shall be readily 
available.

                444   Public Street and Highway Lighting

    A. This account shall include the net billing for electricity 
supplied and services rendered for the purposes of lighting streets, 
highways, parks, and other public places or for traffic or signal system 
service, for municipalities or other divisions or agencies of state of 
Federal Governments.
    B. Records shall be maintained so that the quantity of electricity 
sold and the revenue received from each customer shall be readily 
available. In addition, the records shall be maintained so as to show 
the revenues from

[[Page 970]]

(1) contracts which include both electricity and services, and (2) 
contracts which include sales of electricity only.

                 445   Other Sales to Public Authorities

    A. This account shall include the net billing for electricity 
supplied to municipalities or divisions or agencies of Federal or state 
governments, under special contracts or agreements or service 
classifications applicable only to public authorities, except such 
revenues as are includible in Account 444 and Account 447.
    B. Records shall be maintained so as to show the quantity of 
electricity sold and the revenues received from each customer.

                  446   Sales to Railroads and Railways

    A. This account shall include the net billing for electricity 
supplied to railroads and interurban and street railways, for general 
railroad use, including the propulsion of cars or locomotives, where 
such electricity is supplied under separate and distinct rate schedules.
    B. Records shall be maintained so that the quantity of electricity 
sold and the revenue received from each customer shall be readily 
available.

    Note: Revenues from incidental use of electricity furnished under a 
contract for propulsion of cars or locomotives shall be included herein.

                         447   Sales for Resale

    A. This account shall include the net billing for electricity 
supplied to other electric utilities or to public authorities for resale 
purposes.

    Note: Revenues from electricity supplied to other utilities for use 
by them and not for distribution, shall be included in Account 442, 
Commercial and Industrial Sales, unless supplied under the same 
contracts as and not readily separable from revenues includible in this 
account.

    B. Account 447 shall be subaccounted as follows:

447.1  Sales for Resale--RUS Borrowers
447.2  Sales for Resale--Other

                 447.1   Sales for Resale--RUS Borrowers

    A. This account shall include the net billing for electricity 
supplied to RUS borrowers for resale.
    B. Records shall be maintained so as to show the quantity of 
electricity sold and the revenue received from each customer.

    Note: Revenues from electricity supplied to other utilities for use 
by them and not for distribution, shall be included in Account 442, 
Commercial and Industrial Sales, unless supplied under the same contract 
as and not readily separable from revenues includible in this account.

                     447.2   Sales for Resale--Other

    A. This account shall include the net billing for electricity 
supplied for resale to utilities not financed by RUS.
    B. Records shall be maintained so as to show the quantity of 
electricity sold and the revenue received from each customer.

    Note: Revenues from electricity supplied to other utilities for use 
by them and not for distribution, shall be included in Account 442, 
Commercial and Industrial Sales, unless supplied under the same contract 
as and not readily separable from revenues includible in this account.

                      448   Interdepartmental Sales

    A. This account shall include amounts charged by the electric 
department at tariff or other specified rates for electricity supplied 
by it to other utility departments.
    B. Records shall be maintained so that the quantity of electricity 
supplied each other department and the charges therefor shall be readily 
available.

                   449.1   Provision for Rate Refunds

    A. This account shall be charged with provisions for the estimated 
pretax effects on net income of the portions of amounts being collected 
subject to refund which are estimated to be required to be refunded. 
Such provisions shall be credited to Account 229, Accumulated Provision 
for Rate Refunds.
    B. This account shall also be charged with amounts refunded when 
such amounts had not been previously accrued.
    C. Income tax effects relating to the amounts recorded in this 
account shall be recorded in Account 410.1, Provision for Deferred 
Income Taxes, Utility Operating Income, or Account 411.1, Provision for 
Deferred Income Taxes--

[[Page 971]]

Credit, Utility Operating Income, as appropriate.

                        Other Operating Revenues

                        450   Forfeited Discounts

    This account shall include the amount of discounts forfeited or 
additional charges imposed because of the failure of customers to pay 
their electric bills on or before a specified date.

                  451   Miscellaneous Service Revenues

    This account shall include revenues for all miscellaneous services 
and charges billed to customers which are not specifically provided for 
in other accounts.

                                  Items

    1. Fees for changing, connecting, or disconnecting service.
    2. Profit on maintenance of appliances, wiring, piping, or other 
installations on customers' premises.
    3. Net credit or debit (cost less net salvage and less payment from 
customers) on closing of work orders for plant installed for temporary 
service of less than one year. (See Account 185, Temporary Facilities.)
    4. Recovery of expenses in connection with current diversion cases 
(billing for the electricity consumed shall be included in the 
appropriate electric revenue account).

                  453   Sales of Water and Water Power

    A. This account shall include revenues derived from the sale of 
water for irrigation, domestic, industrial, or other uses or for the 
development by others of water power or for headwater benefits; also, 
revenues derived from furnishing water power for mechanical purposes 
when the investment in the property used in supplying such water or 
water power is carried as electric plant in service.
    B. The records for this account shall be kept in such manner as to 
permit an analysis of the rates charged and the purposes for which the 
water was used.

                    454   Rent from Electric Property

    A. This account shall include rents received for the use by others 
of land, buildings, and other property devoted to electric operations by 
the utility.
    B. When property owned by the utility is operated jointly with 
others under a definite arrangement for apportioning the actual expenses 
among the parties to the arrangement, any amount received by the utility 
for interest or return or in reimbursement of taxes or depreciation on 
the property shall be credited to this account.

    Note: Do not include in this account rents from property 
constituting an operating unit or system. (See Account 412, Revenues 
from Electric Plant Leased to Others.)

                      455   Interdepartmental Rents

    This account shall include rents credited to the electric department 
on account of rental charges made against other departments (gas, water, 
etc.) of the utility. In the case of property operated under a definite 
arrangement to allocate the costs among the departments using the 
property, any reimbursement to the electric department for interest or 
return and depreciation and taxes shall be credited to this account.

                      456   Other Electric Revenues

    This account shall include revenues derived from electric operations 
not includible in any of the foregoing accounts. It shall also include, 
in a separate subaccount, revenues received from operation of fish and 
wildlife and recreation facilities whether operated by the company or by 
contract concessionaires, such as revenues from leases or rentals of 
land for cottages, homes, or campsites.

                                  Items

    1. Commission on sale or distribution of electricity of others when 
sold under rates filed by such others.
    2. Compensation for minor or incidental services provided for others 
such as customer billing, and engineering.
    3. Profit or loss on the sale of material and supplies not 
ordinarily purchased for resale and not handled through merchandising 
and jobbing accounts.

[[Page 972]]

    4. Sale of steam, but not including sales made by a steamheating 
department or transfers of steam under joint facility operations.
    5. Revenues from transmission of electricity of others over 
transmission facilities of the utility.
    6. Include in a separate subaccount, revenues in payment for rights 
and/or benefits received from others which are realized through 
research, development, and demonstration ventures. In the event the 
amounts received are so large as to distort revenues for the year in 
which received (5 percent of net income before application of the 
benefit), the amounts shall be credited to Account 253, Other Deferred 
Credits, and amortized by credits to this account over a period not to 
exceed 5 years.



Sec. 1767.27  Operation and maintenance expense.

    The operation and maintenance expense accounts identified in this 
section shall be used by all RUS borrowers.

               Operation and Maintenance Expense Accounts

                        Power Production Expenses

                         Steam Power Generation

                               (Operation)

500  Operation Supervision and Engineering
501  Fuel
502  Steam Expenses
503  Steam from Other Sources
504  Steam Transferred--Credit
505  Electric Expenses
506  Miscellaneous Steam Power Expenses
507  Rents
509  Allowances

                              (Maintenance)

510  Maintenance Supervision and Engineering
511  Maintenance of Structures
512  Maintenance of Boiler Plant
513  Maintenance of Electric Plant
514  Maintenance of Miscellaneous Steam Plant

                        Nuclear Power Generation

                               (Operation)

517  Operation Supervision and Engineering
518  Nuclear Fuel Expense
519  Coolants and Water
520  Steam Expenses
521  Steam from Other Sources
522  Steam Transferred--Credit
523  Electric Expenses
524  Miscellaneous Nuclear Power Expenses
525  Rents

                              (Maintenance)

528  Maintenance Supervision and Engineering
529  Maintenance of Structures
530  Maintenance of Reactor Plant Equipment
531  Maintenance of Electric Plant
532  Maintenance of Miscellaneous Nuclear Plant

                       Hydraulic Power Generation

                               (Operation)

535  Operation Supervision and Engineering
536  Water for Power
537  Hydraulic Expenses
538  Electric Expenses
539  Miscellaneous Hydraulic Power Generation Expenses
540  Rents

                              (Maintenance)

541  Maintenance Supervision and Engineering
542  Maintenance of Structures
543  Maintenance of Reservoirs, Dams, and Waterways
544  Maintenance of Electric Plant
545  Maintenance of Miscellaneous Hydraulic Plant

                         Other Power Generation

                               (Operation)

546  Operation Supervision and Engineering
547  Fuel
548  Generation Expenses
549  Miscellaneous Other Power Generation Expenses
550  Rents

                              (Maintenance)

551  Maintenance Supervision and Engineering
552  Maintenance of Structures
553  Maintenance of Generating and Electric Equipment
554  Maintenance of Miscellaneous Other Power Generation Plant

                       Other Power Supply Expenses

555  Purchased Power
556  System Control and Load Dispatching
557  Other Expenses

                          Transmission Expenses

                               (Operation)

560  Operation Supervision and Engineering
561  Load Dispatching
562  Station Expenses

[[Page 973]]

563  Overhead Line Expenses
564  Underground Line Expenses
565  Transmission of Electricity by Others
566  Miscellaneous Transmission Expenses
567  Rents

                              (Maintenance)

568  Maintenance Supervision and Engineering
569  Maintenance of Structures
570  Maintenance of Station Equipment
571  Maintenance of Overhead Lines
572  Maintenance of Underground Lines
573  Maintenance of Miscellaneous Transmission Plant

                          Distribution Expenses

                               (Operation)

580  Operation Supervision and Engineering
581  Load Dispatching
582  Station Expenses
583  Overhead Line Expenses
584  Underground Line Expenses
585  Street Lighting and Signal System Expenses
586  Meter Expenses
587  Customer Installations Expenses
588  Miscellaneous Distribution Expenses
589  Rents

                              (Maintenance)

590  Maintenance Supervision and Engineering
591  Maintenance of Structures
592  Maintenance of Station Equipment
593  Maintenance of Overhead Lines
594  Maintenance of Underground Lines
595  Maintenance of Line Transformers
596  Maintenance of Street Lighting and Signal Systems
597  Maintenance of Meters
598  Maintenance of Miscellaneous Distribution Plant

               Operation and Maintenance Expense Accounts

                        Power Production Expenses

                         Steam Power Generation

                               (Operation)

               500   Operation Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of the operation of steam power 
generating stations. Direct supervision of specific activities, such as 
fuel handling, boiler-room operations, and generator operations shall be 
charged to the appropriate account. (See Sec. 1767.17 (a).)

                               501   Fuel

    A. This account shall include the cost of fuel used in the 
production of steam for the generation of electricity, including 
expenses in unloading fuel from the shipping media and handling thereof 
up to the point where the fuel enters the first boiler plant bunker, 
hopper, bucket, tank, or holder of the boiler-house structure. Records 
shall be maintained to show the quantity, B.t.u. content and cost of 
each type of fuel used.
    B. The cost of fuel shall be charged initially to Account 151, Fuel 
Stock, and cleared to this account on the basis of the fuel used. Fuel 
handling expenses may be charged to this account as incurred or charged 
initially to Account 152, Fuel Stock Expenses Undistributed. In the 
latter event, they shall be cleared to this account on the basis of the 
fuel used. Respective amounts of fuel stock and fuel stock expenses 
shall be readily available.

                                  Items

    Labor:

    1. Supervising, purchasing, and handling of fuel.
     2. All routine fuel analyses.
     3. Unloading from shipping facility and placing in storage.
     4. Moving of fuel in storage and transferring fuel from one station 
to another.
     5. Handling from storage or shipping facility to first bunker, 
hopper, bucket, tank, or holder of boiler-house structure.
     6. Operation of mechanical equipment, such as locomotives, trucks, 
cars, boats, barges, and cranes.

    Materials and Expenses:

    1. Operating, maintenance, and depreciation expenses and ad valorem 
taxes on utility-owned transportation equipment used to transport fuel 
from the point of acquisition to the unloading point.
    2. Lease or rental costs of transportation equipment used to 
transport fuel from the point of acquisition to the unloading point.

[[Page 974]]

    3. Cost of fuel including freight, switching, demurrage, and other 
transportation charges.
    4. Excise taxes, insurance, purchasing commissions, and similar 
items.
    5. Stores expenses to extent applicable to fuel.
    6. Transportation and other expenses in moving fuel in storage.
    7. Tools, lubricants, and other supplies.
    8. Operating supplies for mechanical equipment.
    9. Residual disposal expenses less any proceeds from sale of 
residuals.

    Note: Abnormal fuel handling expenses occasioned by emergency 
conditions shall be charged to expense as incurred.

                          502   Steam Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in production of steam for electric generation. This 
includes all expenses of handling and preparing fuel beginning at the 
point where the fuel enters the first boiler plant bunker, hopper, tank, 
or holder of the boiler-house structure.

                                  Items

    Labor:

    1. Supervising steam production.
     2. Operating fuel conveying, storage, weighing, and processing 
equipment within boiler plant.
     3. Operating boiler and boiler auxiliary equipment.
    4. Operating boiler feed water purification and treatment equipment.
     5. Operating ash-collecting and disposal equipment located inside 
the plant.
     6. Operating boiler plant electrical equipment.
     7. Keeping boiler plant log and records and preparing reports on 
boiler plant operations.
     8. Testing boiler water.
     9. Testing, checking, and adjusting meters, gauges, and other 
instruments and equipment in boiler plant.
    10. Cleaning boiler plant equipment when not incidental to 
maintenance work.
    11. Repacking glands and replacing gauge glasses where the work 
involved is of a minor nature and is performed by regular operating 
crews. Where the work is of a major character, such as that performed on 
high-pressure boilers, the item should be considered as maintenance.

    Materials and Expenses:

    1. Chemicals and boiler inspection fees.
    2. Lubricants.
    3. Boiler feed water purchased and pumping supplies.

                     503   Steam from Other Sources

    This account shall include the cost of steam purchased or 
transferred from another department of the utility or from others under 
a joint facility operating arrangement for use in prime movers devoted 
to the production of electricity.

    Note: The records shall be so kept as to show separately for each 
company from which stem is purchased, the point of delivery, the 
quantity, the price, and the total charge. When steam is transferred 
from another department or from others under a joint operating 
arrangement, the utility shall be prepared to show full details of the 
cost of producing such steam, the basis of the charge to electric 
generation, and the extent and manner of use by each department or party 
involved.

                     504   Steam Transferred--Credit

    A. This account shall include credits for expenses of producing 
steam which are charged to others or to other utility departments under 
a joint operating arrangement. Include also credits for steam expenses 
chargeable to other electric accounts outside of the steam generation 
group. Full details of the basis of determination of the cost of steam 
transferred shall be maintained.
    B. If the charges to others or to other departments of the utility 
include an amount for depreciation, taxes, and return on the joint steam 
facilities, such portion of the charge shall be credited, in the case of 
others, to Account 454, Rent from Electric Property, and in the case of 
other departments of the utility, to Account 455, Interdepartmental 
Rents.

                         505   Electric Expenses

    This account shall include the cost of labor and materials used, and 
expenses incurred in operating prime movers,

[[Page 975]]

generators, and their auxiliary apparatus, switch gear, and other 
electric equipment to the points where electricity leaves for conversion 
for transmission or distribution.

                                  Items

    Labor:

    1. Supervising electric production.
    2. Operating turbines, engines, generators, and exciters.
    3. Operating condensers, circulating water systems, and other 
auxiliary apparatus.
    4. Operating generator cooling system.
    5. Operating lubrication and oil control system, including oil 
purification.
    6. Operating switchboards, switch gear and electric control, and 
protective equipment.
    7. Keeping electric plant log and records and preparing reports on 
electric plant operations.
    8. Testing, checking, and adjusting meters, gauges, and other 
instruments, relays, controls, and other equipment in the electric 
plant.
    9. Cleaning electric plant equipment when not incidental to 
maintenance work.
    10. Repacking glands and replacing gauge glasses.

    Materials and Expenses:

    1. Lubricants and control system oils.
    2. Generator cooling gases.
     3. Circulating water purification supplies.
     4. Cooling water purchased.
     5. Motor and generator brushes.

                506   Miscellaneous Steam Power Expenses

    This account shall include the cost of labor and materials used and 
expenses incurred which are not specifically provided for or not readily 
assignable to other steam generation operation expense accounts.

                                  Items

    Labor:

    1. General clerical an stenographic work.
    2. Guarding and patrolling plant and yard.
    3. Building service.
    4. Care of grounds including snow removal, and grass cutting.
    5. Miscellaneous labor.

    Materials and Expenses:

    1. General operating supplies, such as tools, gaskets, packing 
waste, gauge glasses, hose, indicating lamps, record and report forms.
    2. First-aid supplies and safety equipment.
    3. Employees' service facilities expenses.
    4. Building service supplies.
    5. Communication service.
    6. Miscellaneous office supplies and expenses, printing, and 
stationery.
    7. Transportation expenses.
    8. Meals, traveling, and incidental expenses.
    9. Research, development, and demonstration expenses.

                               507   Rents

    This account shall include all rents of property of others used, 
occupied or operated in connection with steam power generation. (See 
Sec. 1767.17 (c).)

                            509   Allowances

    This account shall include the cost of allowances expensed 
concurrent with the monthly emission of sulfur dioxide. (See 
Sec. 1767.15 (u).)

                              (Maintenance)

              510   Maintenance Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of maintenance of steam 
generation facilities. Direct field supervision of specific jobs shall 
be charged to the appropriate maintenance account. (See Sec. 1767.17 
(a).)

                     511   Maintenance of Structures

    This account shall include the cost of labor and materials used and 
expenses incurred in the maintenance of steam structures, the book cost 
of which is includible in Account 311, Structures and Improvements. (See 
Sec. 1767.17 (b).)

[[Page 976]]

                    512   Maintenance of Boiler Plant

    A. This account shall include the cost of labor and materials used 
and expenses incurred in the maintenance of steam plant, the book cost 
of which is includible in Account 312, Boiler Plant Equipment. (See 
Sec. 1767.17 (b).)
    B. For the purpose of making charges hereto and to Account 513, 
Maintenance of Electric Plant, the point at which steam plant is 
distinguished from electric plant is defined as follows:
    1. Inlet flange of throttle valve on prime mover.
    2. Flange of all steam extraction lines on prime mover.
    3. Hotwell pump outlet on condensate lines.
    4. Inlet flange of all turbine-room auxiliaries.
    5. Connection to line side of motor starter for all boiler-plant 
equipment.

                   513   Maintenance of Electric Plant

    This account shall include the cost of labor and materials used and 
expenses incurred in the maintenance of electric plant, the book of 
which is includible in Account 313, Engines and Engine-Driven 
Generators; Account 314, Turbogenerator Units; and Account 315, 
Accessory Electric Equipment. (See Sec. 1767.17 (b) and Paragraph B of 
Account 512.)

             514   Maintenance of Miscellaneous Steam Plant

    This account shall include the cost of labor and materials used and 
expenses incurred in maintenance of miscellaneous steam generation 
plant, the book cost of which is includible in Account 316, 
Miscellaneous Power Plant Equipment. (See Sec. 1767.17 (b).)

                        Nuclear Power Generation

                               (Operation)

               517   Operation Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of the operation of nuclear 
power generating stations. Direct supervision of specific activities, 
such as fuel handling, reactor operations, and generator operations 
shall be charged to the appropriate account. (See Sec. 1767.17 (a).)

                       518   Nuclear Fuel Expense

    A. This account shall be debited and Account 120.5, Accumulated 
Provision for Amortization of Nuclear Fuel Assemblies, credited for the 
amortization of the net cost of nuclear fuel assemblies used in the 
production of energy. The net cost of nuclear fuel assemblies subject to 
amortization shall be the cost of nuclear fuel assemblies plus or less 
the expected net salvage of uranium, plutonium, and other byproducts and 
unburned fuel. The utility shall adopt the necessary procedures to 
assure that charges to this account are distributed according to the 
thermal energy produced in such periods.
    B. This account shall also include the costs involved when fuel is 
leased.
    C. This account shall also include the cost of other fuels, used for 
ancillary steam facilities, including superheat.
    D. This account shall be debited or credited as appropriate for 
significant changes in the amounts estimated as the net salvage value of 
uranium, plutonium, and other byproducts contained in Account 157, 
Nuclear Materials Held for Sale, and the amount realized upon the final 
disposition of the materials. Significant declines in the estimated 
realizable value of items carried in Account 157 may be recognized at 
the time of market price declines by charging this account and crediting 
Account 157. When the declining change occurs while the fuel is recorded 
in Account 120.3, Nuclear Fuel Assemblies in Reactor, the effect shall 
be amortized over the remaining life of the fuel.

                        519   Coolants and Water

    This account shall include the cost of labor and materials used and 
expenses incurred for heat transfer materials and water used for steam 
and cooling purposes.

                                  Items

    Labor:

    1. Operation of water supply facilities.

[[Page 977]]

    2. Handling of coolants and heat transfer materials.

    Materials and Expenses:

    1. Chemicals.
    2. Additions to or refining of, fluids used in reactor systems.
    3. Lubricants.
    4. Pumping supplies and expenses.
    5. Miscellaneous supplies and expenses.
    6. Purchased Water.

    Note: Do not include in this account water for general station use 
or the initial charge for coolants, heat transfer, or moderator fluids, 
chemicals, or other supplies capitalized.

                          520   Steam Expenses

    This account shall include the cost of labor and materials used and 
expenses incurred in production of steam through nuclear processes, and 
similar expenses for operation of any auxiliary superheat facilities.

                                  Items

    Labor:

    1. Supervising steam production.
    2. Fuel handling including removal, insertion, disassembly, and 
preparation for cooling operations and shipment.
    3. Testing instruments and gauges.
    4. Health, safety, monitoring, and decontamination activities.
    5. Waste disposal.
    6. Operating steam boilers and auxiliary steam, superheat 
facilities.

    Materials and Expenses:

    1. Chemical supplies.
    2. Charts, and logs.
    3. Health, safety, monitoring, and decontamination supplies.
    4. Boiler inspection fees.
    5. Lubricants.

                     521   Steam from Other Sources

    This account shall include the cost of steam purchased or 
transferred from another department of the utility or from others under 
a joint facility operating arrangement for use in prime movers devoted 
to the production of electricity.

    Note: The records shall be so kept as to show separately for each 
company from which steam is purchased, the point of delivery, the 
quantity, the price, and the total charge. When steam is transferred 
from another operating department, the utility shall be prepared to show 
full details of the cost of producing such steam, the basis of the 
charges to electric generation, and the extent and manner of use by each 
department involved.

                     522   Steam Transferred--Credit

    A. This account shall include credits for expenses of producing 
steam which are charged to others or to other utility departments under 
a joint operating arrangement. Include also credits for steam expenses 
chargeable to other electric accounts outside of the steam generation 
group. Full details of the basis of determination of the cost of steam 
transferred shall be maintained.
    B. If the charges to others or to other departments of the utility 
include an amount for depreciation, taxes, and return on the joint steam 
facilities, such portion of the charge shall be credited in the case of 
others, to Account 454, Rent from Electric Property, and in the case of 
other departments of the utility, to Account 455, Interdepartmental 
Rents.

                         523   Electric Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in operating turbogenerators, steam turbines and their 
auxiliary apparatus, switch gear, and other electric equipment to the 
points where electricity leaves for conversion for transmission or 
distribution.

                                  Items

    Labor:

    1. Supervising electric production.
    2. Operating turbines, engines, generators, and exciters.
    3. Operating condensers, circulating water systems, and other 
auxiliary apparatus.
    4. Operating generator cooling system.
    5. Operating lubrication and oil control system, including oil 
purification.
    6. Operating switchboards, switch gear, and electric control and 
protective equipment.
    7. Keeping plant log and records and preparing reports on electric 
plant operations.
    8. Testing, checking and adjusting meters, gauges, and other 
instruments,

[[Page 978]]

relays, controls, and other equipment in the electric plant.
    9. Cleaning electric plant equipment when not incidental to 
maintenance.
    10. Repacking glands and replacing gauge glasses.

    Materials and Expenses:

    1. Lubricants and control system oils.
    2. Generator cooling gases.
    3. Log sheets and charts.
    4. Motor and generator brushes.

               524   Miscellaneous Nuclear Power Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred which are not specifically provided for or are not 
readily assignable to other nuclear generation operation accounts.

                                  Items

    Labor:

    1. General clerical and stenographic work.
    2. Plant security.
    3. Building service.
    4. Care of grounds, including snow removal, and grass cutting
    5. Miscellaneous labor.

    Materials and Expenses:

    1. General operating supplies, such as tools, gaskets, hose, 
indicating lamps, records and reports forms.
    2. First-aid supplies and safety equipment.
    3. Employees' service facilities expenses.
    4. Building service supplies.
    5. Communication service.
    6. Miscellaneous office supplies and expenses, printing and 
stationery.
    7. Transportation expenses.
    8. Meals, traveling, and incidental expenses.
    9. Research, development, and demonstration expenses.

                               525   Rents

    This account shall include all rents of property of others used, 
occupied, or operated in connection with nuclear generation. (See 
Sec. 1767.17 (c).)

                              (Maintenance)

              528   Maintenance Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of maintenance of nuclear 
generation facilities. Direct field supervision of specific jobs shall 
be charged to the appropriate maintenance account. (See Sec. 1767.17 
(a).)

                     529   Maintenance of Structures

    This account shall include the cost of labor, materials used, and 
expenses incurred in the maintenance of structures, the book cost of 
which is includible in Account 321, Structures and Improvements. (See 
Sec. 1767.17 (b).)

              530   Maintenance of Reactor Plant Equipment

    This account shall include the cost of labor, materials used, and 
expenses incurred in the maintenance of reactor plant, the book cost of 
which is includible in Account 322, Reactor Plant Equipment. (See 
Sec. 1767.17 (b).)

                   531   Maintenance of Electric Plant

    This account shall include the cost of labor, materials used, and 
expenses incurred in the maintenance of electric plant, the book cost of 
which is includible in Account 323, Turbogenerator Units, and Account 
324, Accessory Electric Equipment. (See Sec. 1767.17 (b).)

            532   Maintenance of Miscellaneous Nuclear Plant

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of miscellaneous nuclear generating 
plant, the book cost of which is includible in Account 325, 
Miscellaneous Power Plant Equipment. (See Sec. 1767.17 (b).)

                       Hydraulic Power Generation

                               (Operation)

               535   Operation Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of the

[[Page 979]]

operation of hydraulic power generating stations. Direct supervision of 
specific activities, such as hydraulic operation, and generator 
operation shall be charged to the appropriate account. (See Sec. 1767.17 
(a).)

                          536   Water for Power

    This account shall include the cost of water used for hydraulic 
power generation.

                                  Items

    1. Cost of water purchased from others, including water tolls paid 
reservoir companies.
    2. Periodic payments for licenses or permits from any governmental 
agency for water rights, or payments based on the use of the water.
    3. Periodic payments for riparian rights.
    4. Periodic payments for headwater benefits or for detriments to 
others.
    5. Cloud seeding.

                        537   Hydraulic Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in operating hydraulic works including reservoirs, 
dams, and waterways, and in activities directly relating to the 
hydroelectric development outside the generating station. It shall also 
include the cost of labor, materials used, and other expenses incurred 
in connection with the operation of (1) fish and wildlife, and (2) 
recreation facilities. Separate subaccounts shall be maintained for each 
of the above.

                                  Items

    Labor:

    1. Supervising hydraulic operation.
    2. Removing debris and ice from trash racks, reservoirs, and 
waterways.
    3. Patrolling reservoirs and waterways.
    4. Operating intakes, spillways, sluiceways, and outlet works.
    5. Operating bubbler, heater, or other deicing systems.
    6. Ice and log jam work.
    7. Operating navigation facilities.
    8. Operations relating to conservation of game, fish, and forests.
    9. Insect control activities.

    Materials and Expenses:

    1. Insect control materials.
    2. Lubricants, packing, and other supplies used in the operation of 
hydraulic equipment.
    3. Transportation expense.

                         538   Electric Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in operating prime movers, generators, and their 
auxiliary apparatus, switchgear, and other electric equipment, to the 
point where electricity leaves for conversion for transmission or 
distribution.

                                  Items

    Labor:

    1. Supervising electric production.
    2. Operating prime movers, generators, and auxiliary equipment.
    3. Operating generator cooling system.
    4. Operating lubrication and oil control systems, including oil 
purification.
    5. Operating switchboards, switchgear, and electric control and 
protection equipment.
    6. Keeping plant log and records and preparing reports on plant 
operations.
    7. Testing, checking and adjusting meters, gauges, and other 
instruments, relays, controls, and other equipment in the plant.
    8. Cleaning plant equipment when not incidental to maintenance work.
    9. Repacking glands.

    Materials and Expenses:

    1. Lubricants and control system oils.
    2. Motor and generator brushes.

         539   Miscellaneous Hydraulic Power Generation Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred which are not specifically provided for or are not 
readily assignable to other hydraulic generation operation expense 
accounts.

                                  Items

    Labor:

    1. General clerical and stenographic work.
    2. Guarding and patrolling plant and yard.

[[Page 980]]

    3. Building service.
    4. Care of grounds including snow removal, and grass cutting.
    5. Snow removal from roads and bridges.
    6. Miscellaneous labor.

    Materials and Expenses:

    1. General operating supplies, such as tools, gaskets, packing, 
waste, hose, indicating lamps, record and report forms.
    2. First-aid supplies and safety equipment.
    3. Employees' service facilities expenses.
    4. Building service supplies.
    5. Communication service.
    6. Office supplies, printing and stationery.
    7. Transportation expenses.
    8. Fuel.
    9. Meals, traveling, and incidental expenses.
     10. Research, development, and demonstration expenses.

                               540   Rents

    This account shall include all rents of property of others used, 
occupied, or operated in connection with hydraulic power generation, 
including amounts payable to the United States for the occupancy of 
public lands and reservations for reservoirs, dams, flumes, forebays, 
penstocks, and power houses but not including transmission right-of-way. 
(See Sec. 1767.17 (c).)

                              (Maintenance)

              541   Maintenance Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of the maintenance of hydraulic 
power generating stations. Direct field supervision of specific jobs 
shall be charged to the appropriate maintenance account. (See 
Sec. 1767.17 (a).)

                     542   Maintenance of Structures

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of hydraulic structures, the book cost 
of which is includible in Account 331, Structures and Improvements. (See 
Sec. 1767.17 (b).) However, the cost of labor, materials used, and 
expenses incurred in the maintenance of fish and wildlife and recreation 
facilities, the book cost of which is includible in Account 331, 
Structures and Improvements, shall be charged to Account 545, 
Maintenance of Miscellaneous Hydraulic Plant.

          543   Maintenance of Reservoirs, Dams, and Waterways

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of plant includible in Account 332, 
Reservoirs, Dams, and Waterways. (See Sec. 1767.17 (b).) However, the 
cost of labor, materials used, and expenses incurred in the maintenance 
of fish and wildlife and recreation facilities, the book cost of which 
is includible in Account 332, Reservoirs, Dams, and Waterways, shall be 
charged to Account 545, Maintenance of Miscellaneous Hydraulic Plant.

                   544   Maintenance of Electric Plant

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of plant includible in Account 333, 
Water Wheels, Turbines and Generators, and Account 334, Accessory 
Electric Equipment, (See Sec. 1767.17 (b).)

           545   Maintenance of Miscellaneous Hydraulic Plant

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of plant, the book cost of which is 
includible in Account 335, Miscellaneous Power Plant Equipment, and 
Account 336, Roads Railroads and Bridges. (See Sec. 1767.17 (b).) It 
shall also include the cost of labor, materials used, and other expenses 
incurred in the maintenance of (1) fish and wildlife, and (2) recreation 
facilities. Separate subaccounts shall be maintained for each of the 
above.

[[Page 981]]

                         Other Power Generation

                               (Operation)

               546   Operation Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of the operation of other power 
generating stations. Direct supervision of specific activities, such as 
fuel handling and engine and generator operation shall be charged to the 
appropriate account. (See Sec. 1767.17 (a).)

                               547   Fuel

    This account shall include the cost delivered at the station (See 
Account 151, Fuel Stock) of all fuel, such as gas, oil, kerosene, and 
gasoline used in other power generation.

                        548   Generation Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in operating prime movers, generators, and electric 
equipment in other power generating stations, to the point where 
electricity leaves for conversion for transmission or distribution.

                                  Items

    Labor:

    1. Supervising other power generation operation.
    2. Operating prime movers, generators, and auxiliary apparatus and 
switching and other electric equipment.
    3. Keeping plant log and records and preparing reports on plant 
operations.
    4. Testing, checking, cleaning, oiling, and adjusting equipment.

    Materials and Expenses:

    1. Dynamo, motor, and generator brushes.
    2. Lubricants and control system oils.
    3. Water for cooling engines and generators.

           549   Miscellaneous Other Power Generation Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in the operation of other power generating stations 
which are not specifically provided for or are not readily assignable to 
other generation expense accounts.

                                  Items

    Labor:

    1. General clerical and stenographic work.
    2. Guarding and patrolling plant and yard.
    3. Building service.
    4. Care of grounds, including snow removal, and grass cutting.
    5. Miscellaneous labor.

    Materials and Expenses:

    1. Building service supplies.
    2. First-aid supplies and safety equipment.
    3. Communication service.
    4. Employees' service facilities expenses.
    5. Office supplies, printing and stationery.
    6. Transportation expense.
    7. Meals, traveling, and incidental expenses.
    8. Fuel for heating.
    9. Water for fire protection or general use.
    10. Miscellaneous supplies, such as hand tools, drills, saw blades, 
and files.
    11. Research, development, and demonstration expenses.

                               550   Rents

    This account shall include all rents of property of others used, 
occupied, or operated in connection with other power generation. (See 
Sec. 1767.17 (c).)

                              (Maintenance)

              551   Maintenance Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of the maintenance of other 
power generating stations. Direct field supervision of specific jobs 
shall be charged to the appropriate maintenance account. (See 
Sec. 1767.17 (a).)

[[Page 982]]

                     552   Maintenance of Structures

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of facilities used and expenses 
incurred in maintenance of facilities used in other power generation, 
the book cost of which is includible in Account 341, Structures and 
Improvements, and Account 342, Fuel Holders, Producers and Accessories. 
(See Sec. 1767.17 (b).)

         553   Maintenance of Generating and Electric Equipment

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of plant, the book cost of which is 
includible in Account 343, Prime Movers; Account 344, Generators; and 
Account 345, Accessory Electric Equipment. (See Sec. 1767.17 (b).)

     554   Maintenance of Miscellaneous Other Power Generation Plant

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of other power generation plant, the 
book cost of which is includible in Account 346, Miscellaneous Power 
Plant Equipment. (See Sec. 1767.17 (b).)

                       Other Power Supply Expenses

                          555   Purchased Power

    A. This account shall include the cost at point of receipt by the 
utility of electricity purchased for resale. It shall also include, net 
settlements for exchange of electricity or power, such as economy 
energy, off-peak energy for on-peak energy, and spinning reserve 
capacity. In addition, the account shall include the net settlements for 
transactions under pooling or interconnection agreements wherein there 
is a balancing of debits and credits for energy, or capacity. Distinct 
purchases and sales shall not be recorded as exchanges and net amounts 
only recorded merely because debit and credit amounts are combined in 
the voucher settlement.
    B. The records supporting this account shall show, by months, the 
demands and demand charges, kilowatt-hours and prices thereof under each 
purchase contract and the charges and credits under each exchange or 
power pooling contract.

                556   System Control and Load Dispatching

    This account shall include the cost of labor and expenses incurred 
in load dispatching activities for system control. Utilities having an 
interconnected electric system or operating under a central authority 
which controls the production and dispatching of electricity may 
apportion these costs to this account and Account 561, Load Dispatching, 
and Account 581, Load Dispatching.

                                  Items

    Labor:

    1. Allocating loads to plants and interconnections with others.
    2. Directing switching.
    3. Arranging and controlling clearances for construction, 
maintenance, test, and emergency purposes.
    4. Controlling system voltages.
    5. Recording loadings, and water conditions.
    6. Preparing operating reports and data for billing and budget 
purposes.
    7. Obtaining reports on the weather and special events.

    Expenses:

    1. Communication service provided for system control purposes.
    2. System record and report forms.
    3. Meals, traveling, and incidental expenses.
    4. Obtaining weather and special events reports.

                          557   Other Expenses

    A. This account shall be charged with any production expenses 
including expenses incurred directly in connection with the purchase of 
electricity, which are not specifically provided for in other production 
expense accounts. Charges to this account shall be supported so that a 
description of each type of charge will be readily available.
    B. Recoveries from insurance companies, under use and occupancy 
provisions of policies, of amounts in reimbursement of excessive or 
added productions costs for which the insurance company is liable under 
the terms of

[[Page 983]]

the policy shall be credited to this account.

                          Transmission Expenses

                               (Operation)

               560   Operation Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of the operation of the 
transmission system as a whole. Direct supervision of specific 
activities, such as station operation and line operation shall be 
charged to the appropriate account. (See Sec. 1767.17 (a).)

                         561   Load Dispatching

    This account shall include the cost of labor, materials used, and 
expenses incurred in load dispatching operations pertaining to the 
transmission of electricity.

                                  Items

    Labor:

    1. Direct switching.
    2. Arranging and controlling clearances for construction, 
maintenance, test, and emergency purposes.
    3. Controlling system voltages.
    4. Obtaining reports on the weather and special events.
    5. Preparing operating reports and data for billing and budget 
purposes.

    Expenses:

    1. Communication service provided for system control purposes.
    2. System record and report forms.
    3. Meals, traveling, and incidental expenses.
    4. Obtaining weather and special events reports.

                         562   Station Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in operating transmission substations and switching 
stations. If transmission station equipment is located in or adjacent to 
a generating station, the expenses applicable to transmission station 
operations shall nevertheless be charged to this account.

                                  Items

    Labor:

    1. Supervising station operation.
    2. Adjusting station equipment where such adjustment primarily 
affects performance, such as regulating the flow of cooling water, 
adjusting current in fields of a machine or changing voltage of 
regulators, changing station transformer taps.
    3. Inspecting, testing, and calibrating station equipment for the 
purpose of checking its performance.
    4. Keeping station log and records and preparing records on station 
operation.
    5. Operating switching and other station equipment.
    6. Standing watch, guarding, and patrolling station and station 
yard.
    7. Sweeping, mopping, and tidying station.
    8. Care of grounds, including snow removal, and grass cutting.

    Materials and Expenses:

    1. Building service expenses.
    2. Operating supplies, such as lubricants, commutator brushes, 
water, and rubber goods.
    3. Station meter and instrument supplies, such as ink and charts.
    4. Station record and report forms.
    5. Tool expense.
    6. Transportation expenses.
    7. Meals, traveling, and incidental expenses.

                      563   Overhead Line Expenses

                     564   Underground Line Expenses

    A. These accounts shall include the cost of labor, materials used, 
and expenses incurred in the operation of transmission lines.
    B. If the expenses are not substantial for both overhead and 
underground lines, these accounts may be combined.

                                  Items

    Labor:

    1. Supervising line operation.
    2. Inspecting and testing lightning arresters, circuit breakers, 
switches, and grounds.
    3. Load tests of circuits.
    4. Routine line patrolling.

[[Page 984]]

    5. Routine voltage surveys made to determine the condition or 
efficiency of transmission system.
    6. Transferring loads, switching and reconnecting circuits and 
equipment for operating purposes. (Switching for construction or 
maintenance purposes is not includible in this account.)
    7. Routine inspection and cleaning of manholes, conduit, network, 
and transformer vaults.
    8. Electrolysis surveys.
    9. Inspecting and adjusting line-testing equipment, such as 
voltmeters, ammeters, and wattmeters.
    10. Regulation and addition of oil or gas in high-voltage cable 
systems.

    Materials and Expenses:

    1. Transportation expenses.
    2. Meals, traveling, and incidental expenses.
    3. Tool expenses.
    4. Operating supplies, such as instrument charts, and rubber goods.

               565   Transmission of Electricity by Others

    This account shall include amounts payable to others for the 
transmission of the utility's electricity over transmission facilities 
owned by others.

                566   Miscellaneous Transmission Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in transmission map and record work, transmission 
office expenses, and other transmission expenses not provided for 
elsewhere.

                                  Items

    Labor:

    1. General records of physical characteristics of lines and 
stations, such as capacities.
    2. Ground resistance records.
    3. Janitor work at transmission office buildings, including care of 
grounds, snow removal, and grass cutting.
    4. Joint pole maps and records.
    5. Line load and voltage records.
    6. Preparing maps and prints.
    7. General clerical and stenographic work.
    8. Miscellaneous labor.

    Materials and Expenses:

    1. Communication service.
    2. Building service supplies.
    3. Map and record supplies.
    4. Transmission office supplies and expenses, printing and 
stationery.
    5. First-aid supplies.
    6. Research, development, and demonstration expenses.

                               567   Rents

    This account shall include rents of property of others used, 
occupied, or operated in connection with the transmission system, 
including payments to the United States and others for use of public or 
private lands and reservations for transmission line rights-of-way. (See 
Sec. 1767.17 (c).)

                              (Maintenance)

              568   Maintenance Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of maintenance of the 
transmission system. Direct field supervision of specific jobs shall be 
charged to the appropriate maintenance account. (See Sec. 1767.17 (a).)

                     569   Maintenance of Structures

    This account shall include the cost of labor, materials used, and 
expenses incurred in the maintenance of structures, the book cost of 
which is includible in Account 352, Structures and Improvements. (See 
Sec. 1767.17 (b).)

                 570   Maintenance of Station Equipment

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of station equipment, the book cost of 
which is includible in Account 353, Station Equipment. (See Sec. 1767.17 
(b).)

                   571   Maintenance of Overhead Lines

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of transmission plant, the book cost of 
which is includible in Accounts 354, Towers and Fixtures; 355, Poles and 
Fixtures; 356, Overhead Conductors and Devices; and 359, Roads and 
Trails. (See Sec. 1767.17 (b).)

[[Page 985]]

                                  Items

    1. Work of the following character on poles, towers, and fixtures:

    a. Installing or removing additional clamps or strain insulators on 
guys in place.
    b. Moving line or guy pole in relocation of the same pole or section 
of line.
    c. Painting poles, towers, crossarms, or pole extensions.
    d. Readjusting and changing position of guys or braces.
    e. Realigning and straightening poles, crossarms braces, and other 
pole fixtures.
    f. Reconditioning reclaimed pole fixtures.ocating crossarms, racks, 
brackets, and other fixtures on poles.
    h. Repairing or realigning pins, racks, or brackets.
    i. Repairing pole supported platform.
    j. Repairs by others to jointly owned poles.
    k. Shaving, cutting rot, or testing poles or crossarms in use or 
salvaged for reuse.
    l. Stubbing poles already in service.
    m. Supporting fixtures and conductors and transferring them to new 
poles during pole replacements.
    n. Maintenance of pole signs, stencils, and tags.

    2. Work of the following character on overhead conductors and 
devices:

    a. Overhauling and repairing line cutouts, line switches, and line 
breakers.
    b. Cleaning insulators and bushings.
    c. Refusing cutouts.
    d. Repairing line oil circuit breakers and associated relays and 
control wiring.
    e. Repairing grounds.
    f. Resagging, retyping, or rearranging position or spacing of 
conductors.
    g. Standing by phones, going to calls, cutting faulty lines clear, 
or similar activities at times of emergencies.
    h. Sampling, testing, changing, purifying, and replenishing 
insulating oil.
    i. Repairing line testing equipment.
    j. Transferring loads, switching and reconnecting circuits and 
equipment for maintenance purposes.
    k. Trimming trees and clearing brush.
    l. Chemical treatment of right of way areas when occurring 
subsequent to construction of line.

    3. Work of the following character on roads and trails:

    a. Repairing roadways and bridges.
    b. Trimming trees and brush to maintain previous roadway clearance.
    c. Snow removal from roads and trails.
    d. Maintenance work on publicly owned roads and trails when done by 
utility at its expense.

                 572   Maintenance of Underground Lines

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of transmission plant, the book cost of 
which is includible in Accounts 357, Underground Conduit, and Account 
358, Underground Conductors and Devices. (See Sec. 1767.17 (b).)

                                  Items

    1. Work of the following character on underground conduit:

    a. Cleaning ducts, manholes, and sewer connections.
    b. Minor alterations of handholes, manholes, or vaults.
    c. Refastening, repairing, or moving racks, ladders, hangers in 
manholes, or vaults.
    d. Plugging and shelving or replugging ducts.
    e. Repairs to sewers and drains, walls and floors, rings and covers.

    2. Work of the following character on underground conductors and 
devices:

    a. Repairing oil circuit breakers, switches, cutouts, and control 
wiring.
    b. Repairing grounds.
    c. Retraining and reconnecting cables in manholes, including 
transfer of cables from one duct to another.
    d. Repairing conductors and splices.
    e. Repairing or moving junction boxes and potheads.
    f. Refireproofing of cables and repairing supports.
    g. Repairing electrolysis preventive devices for cables.
    h. Repairing cable bonding systems.
    i. Sampling, testing, changing, purifying, and replenishing 
insulating oil.
    j. Transferring loads, switching and reconnecting circuits, and 
equipment for maintenance purposes.
    k. Repairing line testing equipment.

[[Page 986]]

    l. Repairs to oil or gas equipment in high-voltage cable system and 
replacement of oil or gas.

          573   Maintenance of Miscellaneous Transmission Plant

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of owned or leased plant which is 
assignable to transmission operations and is not provided for elsewhere. 
(See Sec. 1767.17 (b).)

                          Distribution Expenses

                               (Operation)

               580   Operation Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of the operation of the 
distribution system. Direct supervision of specific activities, such as 
station operation, line operation, and meter department operation shall 
be charged to the appropriate account. (See Sec. 1767.17 (a).)

                         581   Load Dispatching

    This account (the keeping of which is optional with the utility) 
shall include the cost of labor, materials used, and expenses incurred 
in load dispatching operations pertaining to the distribution of 
electricity.

                                  Items

    Labor:

    1. Direct switching.
    2. Arranging and controlling clearances for construction, 
maintenance, test, and emergency purposes.
    3. Controlling system voltages.
    4. Preparing operating reports.
    5. Obtaining reports on the weather and special events.

    Expenses:

    1. Communication service provided for system control purposes.
    2. System record and report forms.
    3. Meals, traveling, and incidental expenses.

                         582   Station Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in the operation of distribution substations.

                                  Items

    Labor:

    1. Supervising station operation.
    2. Adjusting station equipment where such adjustment primarily 
affects performance, such as regulating the flow of cooling water, 
adjusting current in fields of a machine, changing voltage of 
regulators, or changing station transformer taps.
    3. Keeping station log and records and preparing reports on station 
operation.
    4. Inspecting, testing, and calibrating station equipment for the 
purpose of checking its performance.
    5. Operating switching and other station equipment.
    6. Standing watch, guarding, and patrolling station and station 
yard.
    7. Sweeping, mopping, and tidying station.
    8. Care of grounds, including snow removal, and grass cutting.

    Materials and Expenses:

    1. Building service expenses.
    2. Operating, supplies, such as lubricants, commutator brushes, 
water, and rubber goods.
    3. Station meter and instrument supplies, such as ink and charts.
    4. Station record and report forms.
    5. Tool expense.
    6. Transportation expense.
    7. Meals, traveling, and incidental expenses.

    Note: If the utility owns storage battery equipment used for 
supplying electricity to customers in periods of emergency, the cost of 
operating labor and of supplies, such as acid, gloves, hydrometers, 
thermometers, soda, automatic cell fillers, and acid proof shoes shall 
be included in this account. If significant in amount, a separate 
subdivision shall be maintained for such expenses.

                      583   Overhead Line Expenses

                     584   Underground Line Expenses

    These accounts shall include, respectively, the cost of labor 
materials used, and expenses incurred in the operation of overhead and 
underground distribution lines.

[[Page 987]]

                                  Items

    Labor:

    1. Supervising line operation.
    2. Changing line transformer taps.
    3. Inspecting and testing lightning arresters, line circuit 
breakers, switches, and grounds.
    4. Inspecting and testing line transformers for the purpose of 
determining load, temperature, or operation performance.
    5. Patrolling lines.
    6. Load tests and voltage surveys of feeders, circuits, and line 
transformers.
    7. Removing line transformers and voltage regulators with or without 
replacement.
    8. Installing line transformers or voltage regulators with or 
without change in capacity provided that the cost of first installation 
of these items is included in Account 368, Line Transformers.
    9. Voltage surveys, either routine or upon request of customers, 
including voltage tests at customer's main switch.
    10. Transferring loads, switching and reconnecting circuits and 
equipment for operation purposes.
    11. Electrolysis surveys.
    12. Inspecting and adjusting line testing equipment.

    Materials and Expenses:

    1. Tool expense.
    2. Transportation expense.
    3. Meals, traveling, and incidental expenses.
    4. Operating supplies, such as instrument charts, and rubber goods.

            585   Street Lighting and Signal System Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in: (1) The operation of street lighting and signal 
system plant which is owned or leased by the utility; and (2) the 
operation and maintenance of such plant owned by customers where such 
work is done regularly as a part of the street lighting and signal 
system service.

                                  Items

    Labor:

    1. Supervising street lighting and signal systems operation.
    2. Replacing lamps and incidental cleaning of glassware and fixtures 
in connection therewith.
    3. Routine patrolling for lamp outages, extraneous nuisances, or 
encroachments.
    4. Testing lines and equipment including voltage and current 
measurement.
    5. Winding and inspection of time switch and other controls.

    Materials and Expenses:

    1. Street lamp renewals.
    2. Transportation and tool expense.
    3. Meals, traveling, and incidental expenses.

                          586   Meter Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in the operation of customer meters and associated 
equipment.

                                  Items

    Labor:
    1. Supervising meter operation.
    2. Clerical work on meter history and associated equipment record 
cards, test cards, and reports.
    3. Disconnecting and reconnecting, removing and reinstalling, 
sealing and unsealing meters and other metering equipment in connection 
with initiating or terminating services including the cost of obtaining 
meter readings, if incidental to such operation.
    4. Consolidating meter installations due to elimination of separate 
meters for different rates of service.
    5. Changing or relocating meters, instrument transformers, time 
switches, and other metering equipment.
    6. Resetting time controls, checking operation of demand meters and 
other metering equipment, when done as an independent operation.
    7. Inspecting and adjusting meter testing equipment.
    8. Inspecting and testing meters, instrument transformers, time 
switches, and other metering equipment on premises or in shops excluding 
inspecting and testing incidental to maintenance.

    Materials and Expenses:


[[Page 988]]


    1. Meter seals and miscellaneous meter supplies.
    2. Transportation expenses.
    3. Meals, traveling, and incidental expenses.
    4. Tool expenses.

    Note: The cost of the first setting and testing of a meter is 
chargeable to utility plant, Account 370, Meters.

                  587   Customer Installations Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in work on customer installations in inspecting 
premises and in rendering services to customers of the nature of those 
indicated by the list of items hereunder.

                                  Items

    Labor:

    1. Supervising customer installations work.
    2. Inspecting premises, including the check of wiring for code 
compliance.
    3. Investigating, locating, and clearing grounds on customers' 
wiring.
    4. Investigating service complaints, including load tests of motors 
and lighting and power circuits on customers' premises; field 
investigations of complaints on bills or of voltage.
    5. Installing, removing, renewing, and changing lamps and fuses.
    6. Radio, television, and similar interference work including 
erection of new aerials on customers' premises and patrolling of lines, 
testing of lightning arresters, inspection of pole hardware, and 
examination on or off premises of customers' appliances, wiring, or 
equipment to locate cause of interference.
    7. Installing, connecting, reinstalling, or removing leased property 
on customers' premises.
    8. Testing, adjusting, and repairing customers' fixtures and 
appliances in the shop or on premises.
    9. Cost of changing customers' equipment due to changes in service 
characteristics.
    10. Investigation of current diversion including setting and removal 
of check meters and securing special readings thereon; special calls by 
employees in connection with discovery and settlement of current 
diversion; changes in customer wiring; and any other labor cost 
identifiable as caused by current diversion.

    Materials and Expenses:

    1. Lamp and fuse renewals.
    2. Materials used in servicing customers' fixtures, appliances, and 
equipment.
    3. Power, light, heat, telephone, and other expenses of the 
appliance repair department.
    4. Tool expense.
    5. Transportation expense, including pickup and delivery charges.
    6. Meals, traveling, and incidental expenses.
    7. Rewards paid for discovery of current diversion.

    Note A: Amounts billed customers for any work, the cost of which is 
charged to this account, shall be credited to this account. Any excess 
over costs resulting therefrom, shall be transferred to Account 451, 
Miscellaneous Service Revenues.

    Note B: Do not include in this account expenses incurred in 
connection with merchandising, jobbing, and contract work.

                588   Miscellaneous Distribution Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in distribution system operation not provided for 
elsewhere.

                                  Items

    Labor:

    1. General records of physical characteristics of lines and 
substations, such as capacities.
    2. Ground resistance records.
    3. Joint pole maps and records.
    4. Distribution system voltage and load records.
    5. Preparing maps and prints.
    6. Service interruption and trouble records.
    7. General clerical and stenographic work except that chargeable to 
Account 586, Meter Expenses.

    Expenses:

    1. Operating records covering poles, transformers, manholes, cables, 
and other distribution facilities. Exclude meter records chargeable to 
Account 586, Meter Expenses, and station records chargeable to Account 
582, Station Expenses, and stores records

[[Page 989]]

chargeable to Account 163, Stores Expense Undistributed.
    2. Janitor work at distribution office buildings including snow 
removal and grass cutting.
    3. Communication service.
    4. Building service expenses.
    5. Miscellaneous office supplies and expenses, printing and 
stationery, maps and records, and first-aid supplies.
    6. Research, development, and demonstration expenses.

                               589   Rents

    This account shall include rents of property of others used, 
occupied, or operated in connection with the distribution system, 
including payments to the United States and others for the use and 
occupancy of public lands and reservations for distribution line rights 
of way. (See Sec. 1767.17 (c).)

                              (Maintenance)

              590   Maintenance Supervision and Engineering

    This account shall include the cost of labor and expenses incurred 
in the general supervision and direction of maintenance of the 
distribution system. Direct field supervision of specific jobs shall be 
charged to the appropriate maintenance account. (See Sec. 1767.17 (a).)

                     591   Maintenance of Structures

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of structures, the book cost of which 
is includible in Account 361, Structures and Improvements. (See 
Sec. 1767.17 (b).)

                 592   Maintenance of Station Equipment

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of plant, the book cost of which is 
includible in Account 362, Station Equipment, and Account 363, Storage 
Battery Equipment. (See Sec. 1767.17 (b).)

                   593   Maintenance of Overhead Lines

    This account shall include the cost of labor, materials used, and 
expenses incurred in the maintenance of overhead distribution line 
facilities, the book cost of which is includible in Account 364, Poles, 
Towers and Fixtures; Account 365, Overhead Conductors and Devices; and 
Account 369, Services. (See Sec. 1767.17 (b).)

                                  Items

    1. Work of the following character on poles, towers, and fixtures:

    a. Installing additional clamps or removing clamps or strain 
insulators on guys in place.
    b. Moving line or guy pole in relocation of pole or section of line.
    c. Painting poles, towers, crossarms, or pole extensions.
    d. Readjusting and changing position of guys or braces.
    e. Realigning and straightening poles, crossarms, braces, pins, 
racks, brackets, and other pole fixtures.
    f. Reconditioning reclaimed pole fixtures.
    g. Relocating crossarms, racks, brackets, and other fixtures on 
poles.
    h. Repairing pole supported platform.
    i. Repairs by others to jointly owned poles.
    j. Shaving, cutting rot, or treating poles or crossarms in use or 
salvaged for reuse.
    k. Stubbing poles already in service.
    l. Supporting conductors, transformers, and other fixtures and 
transferring them to new poles during pole replacements.
    m. Maintaining pole signs, stencils, and tags.

    2. Work of the following character on overhead conductors and 
devices:

    a. Overhauling and repairing line cutouts, line switches, line 
breakers, and capacitor installations.
    b. Cleaning insulators and bushings.
    c. Refusing line cutouts.
    d. Repairing line oil circuit breakers and associated relays and 
control wiring.
    e. Repairing grounds.
    f. Resagging, retying, or rearranging position or spacing of 
conductors.
    g. Standing by phones, going to calls, cutting faulty lines clear, 
or similar activities at times of emergency.
    h. Sampling, testing, changing, purifying, and replenishing 
insulating oil.

[[Page 990]]

    i. Transferring loads, switching, and reconnecting circuits and 
equipment for maintenance purposes.
    j. Repairing line testing equipment.
    k. Trimming trees and clearing brush.
    l. Chemical treatment of right-of-way area when occurring subsequent 
to construction of line.

    3. Work of the following character on overhead services:

    a. Moving position of service either on pole or on customers' 
premises.
    b. Pulling slack in service wire.
    c. Retying service wire.
    d. Refastening or tightening service bracket.

                 594   Maintenance of Underground Lines

    This account shall include the cost of labor, materials used, and 
expenses incurred in the maintenance of underground distribution line 
facilities, the book cost of which is includible in Account 366, 
Underground Conduit; Account 367, Underground Conductors and Devices; 
and Account 369, Services. (See Sec. 1767.17 (b).)

                                  Items

    1. Work of the following character on underground conduit:

    a. Cleaning ducts, manholes, and sewer connections.
    b. Moving or changing position of conduit or pipe.
    c. Minor alterations of handholes, manholes, or vaults.
    d. Refastening, repairing, or moving racks, ladders, or hangers in 
manholes or vaults.
    e. Plugging and shelving ducts.
    f. Repairs to sewers, drains, walls, and floors, rings, and covers.

    2. Work of the following character on underground conductors and 
devices:

    a. Repairing circuit breakers, switches, cutouts, network 
protectors, and associated relays and control wiring.
    b. Repairing grounds.
    c. Retraining and reconnecting cables in manholes including transfer 
of cables from one duct to another.
    d. Repairing conductors and splices.
    e. Repairing or moving junction boxes and potheads.
    f. Refireproofing cables and repairing supports.
    g. Repairing electrolysis preventive devices for cables.
    h. Repairing cable bonding systems.
    i. Sampling, testing, changing, purifying, and replenishing 
insulating oil.
    j. Transferring loads, switching and reconnecting circuits and 
equipment for maintenance purposes.
    k. Repairing line testing equipment.
    l. Repairing oil or gas equipment in high voltage cable systems and 
replacement of oil or gas.

    3. Work of the following character on underground services:

    a. Cleaning ducts.
    b. Repairing any underground service plant.

                 595   Maintenance of Line Transformers

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of distribution line transformers, the 
book cost of which is includible in Account 368, Line Transformers. (See 
Sec. 1767.17 (b).)

         596   Maintenance of Street Lighting and Signal Systems

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of plant, the book cost of which is 
includible in Account 373, Street Lighting and Signal Systems. (See 
Sec. 1767.17 (b).)

                       597   Maintenance of Meters

    This account shall include the cost of labor, materials used, and 
expenses incurred in the maintenance of meters and meter testing 
equipment, the book cost of which is includible in Account 370, Meters, 
and Account 395, Laboratory Equipment, respectively. (See Sec. 1767.17 
(b).)

          598   Maintenance of Miscellaneous Distribution Plant

    This account shall include the cost of labor, materials used, and 
expenses incurred in maintenance of plant, the book cost of which is 
includible in Accounts 371, Installations on Customers' Premises, and 
Account 372, Leased Property on Customers' Premises, and any other plant 
the maintenance of which is assignable to the distribution

[[Page 991]]

function and is not provided for elsewhere. (See Sec. 1767.17 (b).)

                                  Items

    1. Work of similar nature to that listed in other distribution 
maintenance accounts.
    2. Maintenance of office furniture and equipment used by 
distribution system department.



Sec. 1767.28  Customer accounts expenses.

    The customer accounts expense accounts identified in this section 
shall be used by all RUS borrowers.

                       Customer Accounts Expenses

                               (Operation)

901  Supervision
902  Meter Reading Expenses
903  Customer Records and Collection Expenses
904  Uncollectible Accounts
905  Miscellaneous Customer Accounts Expenses

                       Customer Accounts Expenses

                               (Operation)

                            901   Supervision

    This account shall include the cost of labor and expenses incurred 
in the general direction and supervision of customer accounting and 
collecting activities. Direct supervision of a specific activity shall 
be charged to Account 902, Meter Reading Expenses, or Account 903, 
Customer Records and Collection Expenses, as appropriate. (See 1767.17 
(a).)

                      902   Meter Reading Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in reading customer meters, and determining 
consumption when performed by employees engaged in reading meters.

                                  Items

    Labor:

    1. Addressing forms for obtaining meter readings by mail.
    2. Changing and collecting meter charts used for billing purposes.
    3. Inspecting time clocks and checking seals when performed by meter 
readers and the work represents a minor activity incidental to regular 
meter reading routine.
    4. Reading meters, including demand meters, and obtaining load 
information for billing purposes. Exclude and charge to Account 586, 
Meter Expenses, or to Account 903, Customer Records and Collection 
Expenses, as applicable, the cost of obtaining meter readings, first and 
final, if incidental to the operation of removing or resetting, sealing 
or locking, and disconnecting or reconnecting meters.
    5. Computing consumption from meter reader's book or from reports by 
mail when done by employees engaged in reading meters.
    6. Collecting from prepayment meters when incidental to meter 
reading.
    7. Maintaining record of customers' keys.
    8. Computing estimated or average consumption when performed by 
employees engaged in reading meters.

    Materials and Expenses:

    1. Badges, lamps, and uniforms.
    2. Demand charts, meter books and binders and forms for recording 
readings, but not the cost of preparation.
    3. Postage and supplies used in obtaining meter readings my mail.
    4. Transportation, meals, and incidental expenses.

              903 Customer Records and Collection Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in work on customer applications, contracts, orders, 
credit investigations, billing and accounting, collections and 
complaints.

                                  Items

    Labor:

    1. Receiving, preparing, recording, and handling routine orders for 
service, disconnections, transfers or meter tests initiated by the 
customer, excluding the cost of carrying out such orders, which is 
chargeable to the account appropriate for the work called for by such 
orders.
    2. Investigations of customers' credit and keeping of records 
pertaining thereto, including records of uncollectible accounts written 
off.

[[Page 992]]

    3. Receiving, refunding, or applying customer deposits and 
maintaining customer deposit, line extension, and other miscellaneous 
records.
    4. Checking consumption shown by meter readers' reports where 
incidental to preparation of billing date.
    5. Preparing address plates and addressing bills and delinquent 
notices.
    6. Preparing billing data.
    7. Operating billing and bookkeeping machines.
    8. Verifying billing records with contracts or rate schedules.
    9. Preparing bills for delivery and mailing or delivering bills.
    10. Collecting revenues, including collection from prepayment 
meters, unless incidental to meter-reading operations.
    11. Balancing collections, preparing collections for deposit, and 
preparing cash reports.
    12. Posting collections and other credits or charges to customer 
accounts and extending unpaid balances.
    13. Balancing customer accounts and controls.
    14. Preparing, mailing, or delivering delinquent notices and 
preparing reports of delinquent accounts.
    15. Final meter reading of delinquent accounts when done by 
collectors incidental to regular activities.
    16. Disconnecting and reconnecting service because of nonpayment 
bills.
    17. Receiving, recording, and handling of inquiries, complaints, and 
requests for investigations from customers, including preparation of 
necessary orders, but excluding the cost of carrying out such orders, 
which is chargeable to the account appropriate for the work called for 
by such orders.
    18. Statistical and tabulating work on customer accounts and 
revenues, but not including special analyses for sales department, rate 
department, or other general purposes, unless incidental to regular 
customer accounting routines.
    19. Preparing and periodically rewriting meter reading sheets.
    20. Determining consumption and computing estimated or average 
consumption when performed by employees other than those engaged in 
reading meters.

    Materials and Expenses:

    1. Address plates and supplies.
    2. Cash overages and shortages.
    3. Commissions or fees to others for collecting.
    4. Payments to credit organizations for investigations and reports.
    5. Postage.
    6. Transportation expenses, including transportation of customer 
bills and meter books under centralized billing procedures.
    7. Transportation, meals, and incidental expenses.
    8. Bank charges, exchange, and other fees for cashing and depositing 
customers' checks.
    9. Forms for recording orders for services, or removals.
    10. Rent of mechanical equipment.

    Note: The cost of work on meter history and meter location records 
is chargeable to Account 586, Meter Expenses.

                      904   Uncollectible Accounts

    This amount shall be charged with amounts sufficient to provide for 
losses from uncollectible utility revenues. Concurrent credits shall be 
made to Account 144, Accumulated Provision for Uncollectible Accounts--
Credit. Losses from uncollectible accounts shall be charged to Account 
144.

             905   Miscellaneous Customer Accounts Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred not provided for in other accounts.

                                  Items

    Labor:

    1. General clerical and stenographic work.
    2. Miscellaneous labor.

    Materials and Expenses:

    1. Communication service.
    2. Miscellaneous office supplies and expenses and stationery and 
printing other than those specifically provided for in Account 902 and 
Account 903.



Sec. 1767.29  Customer service and informational expenses.

    The customer service and informational expense accounts identified 
in this section shall be used by all RUS borrowers.

[[Page 993]]

               Customer Service and Informational Expenses

                               (Operation)

907  Supervision
908  Customer Assistance Expenses
909  Informational and Instructional Advertising Expenses
910  Miscellaneous Customer Service and Informational Expenses

               Customer Service and Informational Expenses

                               (Operation)

                            907   Supervision

    This account shall include the cost of labor and expenses incurred 
in the general direction and supervision of customer service activities, 
the object of which is to encourage safe, efficient, and economical use 
of the utility's service. Direct supervision of a specific activity 
within customer service and informational expense classification shall 
be charged to the account wherein the costs of such activity are 
included. (See Sec. 1767.17 (a).)

                   908   Customer Assistance Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in providing instructions or assistance to customers, 
the object of which is to encourage safe, efficient, and economical use 
of the utility's service.

                                  Items

    Labor:

    1. Direct supervision of department.
    2. Processing customer inquiries relating to the proper use of 
electric equipment, the replacement of such equipment, and information 
related to such equipment.
    3. Advice directed to customers as to how they may achieve the most 
efficient and safest use of electric equipment.
    4. Demonstrations, exhibits, lectures, and other programs designed 
to instruct customers in the safe, economical, or efficient use of 
electric service, and/or oriented toward conservation of energy.
    5. Engineering and technical advice to customers, the object of 
which is to promote safe, efficient, and economical use of the utility's 
service.

    Materials and Expenses:

    1. Supplies and expenses pertaining to demonstrations, exhibits, 
lectures, and other programs.
    2. Loss in value on equipment and appliances used for customer 
assistance programs.
    3. Office supplies and expenses.
    4. Transportation, meals, and incidental expenses.

    Note: Do not include in this account expenses that are provided for 
elsewhere, such as Accounts 416, Costs and Expenses of Merchandising, 
Jobbing, and Contract Work; 587, Customer Installations Expenses; and 
912, Demonstrating and Selling Expenses.

       909   Informational and Instructional Advertising Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in activities which primarily convey information as to 
what the utility urges or suggests customers should do in utilizing 
electric service to protect health and safety, to encourage 
environmental protection, to utilize their electric equipment safely and 
economically, or to conserve electric energy.

                                  Items

    Labor:

    1. Direct supervision of information activities.
    2. Preparing informational materials for newspapers, periodicals, 
and billboards and preparing and conducting informational motion 
pictures, radio and television programs.
    3. Preparing informational booklets and bulletins used in direct 
mailings.
    4. Preparing informational window and other displays.
    5. Employing agencies, selecting media, and conducting negotiations 
in connection with the placement and subject matter of information 
programs.

    Materials and Expenses:

    1. Use of newspapers, periodicals, billboards, and radio for 
informational purposes.
    2. Postage on direct mailings to customers exclusive of postage 
related to billings.

[[Page 994]]

    3. Printing of informational booklets, dodgers, and bulletins.
    4. Supplies and expenses in preparing informational materials by the 
utility.
    5. Office supplies and expenses.

    Note A: Exclude from this account and charge to Account 930.2, 
Miscellaneous General Expenses, the cost of publication of stockholder 
reports, dividend notices, bond redemption notices, financial 
statements, and other notices of a general corporate character. Also 
exclude all expenses of a promotional, institutional, goodwill, or 
political nature, which are includible in such accounts as 913, 
Advertising Expenses; 930.1, General Advertising Expenses; and 426.4, 
Expenditures for Certain Civic, Political and Related Activities.

    Note B: Entries relating to informational advertising included in 
this account shall contain or refer to supporting documents which 
identify the specific advertising message. If references are used, 
copies of the advertising message shall be readily available.

     910   Miscellaneous Customer Service and Informational Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in connection with customer service and informational 
activities which are not includible in other customer information 
expense accounts.

                                  Items

    Labor:

    1. General clerical and stenographic work not assigned to specific 
customer service and informational programs.
    2. Miscellaneous labor.

    Materials and Expenses:

    1. Communication service.
    2. Printing, postage, and office supplies expenses.



Sec. 1767.30  Sales expenses.

    The sales expense accounts identified in this section shall be used 
by all RUS borrowers.

                             Sales Expenses

                               (Operation)

911  Supervision
912  Demonstrating and Selling Expenses
913  Advertising Expenses
916  Miscellaneous Sales Expenses

                             Sales Expenses

                               (Operation)

                            911   Supervision

    This account shall include the cost of labor and expenses incurred 
in the general direction and supervision of sales activities, except 
merchandising. Direct supervision of a specific activity, such as 
demonstrating, selling, or advertising shall be charged to the account 
wherein the costs of such activity are included. (See Sec. 1767.17 (a).)

                912   Demonstrating and Selling Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in promotional, demonstrating, and selling activities, 
except by merchandising, the object of which is to promote or retain the 
use of utility services by present and prospective customers.

                                  Items

    Labor:

    1. Demonstrating uses of utility services.
    2. Conducting cooking schools, preparing recipes, and related home 
service activities.
    3. Exhibitions, displays, lectures, and other programs designed to 
promote use of utility services.
    4. Experimental and development work in connection with new and 
improved appliances and equipment, prior to general public acceptance.
    5. Solicitation of new customers or of additional business from old 
customers, including commissions paid employees.
    6. Engineering and technical advice to present or prospective 
customers in connection with promoting or retaining the use of utility 
services.
    7. Special customer canvasses when their primary purpose is the 
retention of business or the promotion of new business.

    Materials and Expenses:

    1. Supplies and expenses pertaining to demonstration, experimental, 
and development activities.
    2. Booth and temporary space rental.

[[Page 995]]

    3. Loss in value on equipment and appliances used for demonstration 
purposes.
    4. Transportation, meals, and incidental expenses.

                       913   Advertising Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in advertising designed to promote or retain the use 
of utility service, except advertising the sale of merchandise by the 
utility.

                                  Items

    Labor:
    1. Direct supervision of department.
    2. Preparing advertising material for newspapers, periodicals, and 
billboards, and preparing and conducting motion pictures, radio, and 
television programs.
    3. Preparing booklets and bulletins used in direct mail advertising.
    4. Preparing window and other displays.
    5. Clerical and stenographic work.
    6. Investigating advertising agencies and media and conducting 
negotiations in connection with the placement and subject matter of 
sales advertising.

    Materials and Expenses:

    1. Advertising in newspapers, periodicals, billboards, and radio for 
sales promotion purposes, but not including institutional or goodwill 
advertising includible in Account 930.1, General Advertising Expenses.
    2. Materials and services given as prizes or otherwise in connection 
with civic lighting contests, canning, or cooking contests, and bazaars 
in order to publicize and promote the use of utility services.
    3. Fees and expenses of advertising agencies and commercial artists.
    4. Novelties for general distribution.
    5. Postage on direct mail advertising.
    6. Premiums distributed generally, such as recipe books when not 
offered as inducement to purchase appliances.
    7. Printing booklets, dodgers, and bulletins.
    8. Supplies and expenses in preparing advertising material.
    9. Office supplies and expenses.

    Note A: The cost of advertisements which set forth the value or 
advantages of utility service without reference to specific appliances, 
or, if reference is made to appliances, invites the reader to purchase 
appliances from his dealer or refer to appliances not carried for sale 
by the utility, shall be considered sales promotion advertising and 
charged to this account. However, advertisements which are limited to 
specific makes of appliances sold by the utility and price and terms, 
thereof, without referring to the value or advantages of utility 
service, shall be considered as merchandise advertising and the cost 
shall be charged to Costs and Expenses of Merchandising, Jobbing and 
Contract Work, Account 416.

    Note B: Advertisements which substantially mention or refer to the 
value or advantages of utility service, together with specific reference 
to makes of appliance sold by the utility and the price, and terms, 
thereof, and designed for the joint purpose of increasing the use of 
utility service and the sales of appliances, shall be considered as a 
combination advertisement and the costs shall be distributed between 
this account and Account 416 on the basis of space, time, or other 
proportional factors.

    Note C: Exclude from this account and charge to Account 930.2, 
Miscellaneous General Expenses, the cost of publication of stockholder 
reports, dividend notices, bond redemption notices, financial 
statements, and other notices of a general corporate character. Also 
exclude all institutional or goodwill advertising. (See Account 930.1, 
General Advertising Expenses.)

                   916   Miscellaneous Sales Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in connection with sales activities, except 
merchandising, which are not includible in other sales expense accounts.

                                  Items

    Labor:

    1. General clerical and stenographic work not assigned to specific 
functions.
    2. Special analysis of customer accounts and other statistical work 
for sales purposes not a part of the regular customer accounting and 
billing routine.
    3. Miscellaneous labor.

    Materials and Expenses:

    1. Communication service.
    2. Printing, postage, office supplies, and expenses applicable to 
sales activities, except those chargeable to Account 913, Advertising 
Expenses.

[[Page 996]]



Sec. 1767.31  Administrative and general expenses.

    The administrative and general expense accounts identified in this 
section shall be used by all RUS borrowers.

                       Administrative and General

                               (Operation)

920  Administrative and General Salaries
921  Office Supplies and Expenses
922  Administrative Expenses Transferred--Credit
923  Outside Services Employed
924  Property Insurance
925  Injuries and Damages
926  Employee Pensions and Benefits
927  Franchise Requirements
928  Regulatory Commission Expenses
929  Duplicate Charges--Credit
930.1  General Advertising Expenses
930.2  Miscellaneous General Expenses
931   Rents

                              (Maintenance)

935  Maintenance of General Plant

                       Administrative and General

                               (Operation)

                920   Administrative and General Salaries

    A. This account shall include the compensation (salaries, bonuses, 
and other consideration for services, but not including directors' fees) 
of officers, executives, and other employees of the utility properly 
chargeable to utility operations and not chargeable directly to a 
particular operating function.
    B. This account may be subdivided in accordance with a 
classification appropriate to the departmental or other functional 
organization of the utility.

                   921   Office Supplies and Expenses

    A. This account shall include office supplies and expenses incurred 
in connection with the general administration of the utility's 
operations which are assignable to specific administrative or general 
departments and are not specifically provided for in other accounts. 
This includes the expenses of the various administrative and general 
departments, the salaries and wages of which are includible in Account 
920.
    B. This account may be subdivided in accordance with a 
classification appropriate to the departmental or other functional 
organization of the utility.

    Note: Office expenses which are clearly applicable to any category 
of operating expenses other than the administrative and general category 
shall be included in the appropriate account in such category. Further, 
general expenses which apply to the utility as a whole rather than to a 
particular administrative function, shall be included in Account 930.2, 
Miscellaneous General Expenses.

                                  Items

    1. Automobile service, including charges through clearing account.
    2. Bank messenger and service charges.
    3. Books, periodicals, bulletins, and subscriptions to newspapers, 
newsletters, and tax services.
    4. Building service expenses for customer accounts, sales, and 
administrative and general purposes.
    5. Communication service expenses.
    6. Cost of individual items of office equipment used by general 
departments which are of small value or short life.
    7. Membership fees and dues in trade, technical, and professional 
associations paid by a utility for employees. (Company memberships are 
includible in Account 930.2.)
    8. Office supplies and expenses.
    9. Payment of court costs, witness fees, and other expenses of legal 
department.
    10. Postage, printing, and stationery.
    11. Meals, traveling, and incidental expenses.

            922   Administrative Expenses Transferred--Credit

    This account shall be credited with administrative expenses recorded 
in Account 920 and Account 921 which are transferred to construction 
costs or to nonutility accounts. (See Sec. 1767.16 (d).)

                     923   Outside Services Employed

    A. This account shall include the fees and expenses of professional 
consultants and others for general services which are not applicable to 
a particular operating function or other accounts. It shall include also 
the pay

[[Page 997]]

and expenses of persons engaged for a special or temporary 
administrative or general purpose in circumstances where the person so 
engaged is not considered as an employee of the utility.
    B. This account shall be so maintained as to permit ready 
summarization according to the nature of service and the person 
furnishing the same.

                                  Items

    1. Fees, pay, and expenses of accountants and auditors, actuaries, 
appraisers, attorneys, engineering consultants, management consultants, 
negotiators, public relations counsel, and tax consultants.
    2. Supervision fees and expenses paid under contracts for general 
management services.

    Note: Do not include inspection and brokerage fees and commissions 
chargeable to other accounts or fees and expenses in connection with 
security issues which are includible in the expenses of issuing 
securities.

                        924   Property Insurance

    A. This account shall include the cost of insurance or reserve 
accruals to protect the utility against losses and damages to owned or 
leased property used in its utility operations. It shall also include 
the cost of labor and related supplies and expenses incurred in property 
insurance activities.
    B. Recoveries from insurance companies or others for property 
damages shall be credited to the account charged with the cost of the 
damage. If the damaged property has been retired, the credit shall be to 
the appropriate account for accumulated provision for depreciation.
    C. Records shall be kept so as to show the amount of coverage for 
each class of insurance carried, the property covered, and the 
applicable premiums. Any dividends distributed by mutual insurance 
companies shall be credited to the accounts to which the insurance 
premiums were charged.

                                  Items

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.

    Note A: The cost of insurance or reserve accruals capitalized, shall 
be charged to construction either directly or by transfer to 
construction work orders from this account.

    Note B: The cost of insurance or reserve accruals for the following 
classes of property shall be charged as indicated.

    1. Materials, supplies, and stores equipment to Account 163, Stores 
Expense Undistributed, or appropriate materials account.
    2. Transportation and other general equipment to appropriate 
clearing accounts that may be maintained.
    3. Electric plant leased to others to Account 413, Expenses of 
Electric Plant Leased to Others.
    4. Nonutility property to the appropriate nonutility income account.
    5. Merchandise and jobbing property to Account 416, Costs and 
Expenses of Merchandising, Jobbing and Contract Work.

    Note C: The cost of labor and related supplies and expenses of 
administrative and general employees who are only incidentally engaged 
in property insurance work may be included in Account 920 and Account 
921, as appropriate.

                       925   Injuries and Damages

    A. This account shall include the cost of insurance or reserve 
accruals to protect the utility against injuries and damages claims of 
employees or others, losses of such character not covered by insurance, 
and expenses incurred in settlement of injuries and damages claims. It 
shall also include the cost of labor, related supplies, and expenses 
incurred in injuries and damages activities.
    B. Reimbursements from insurance companies or others for expenses 
charged hereto on account of injuries, damages, and insurance dividends 
or refunds shall be credited to this account.

                                  Items

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by

[[Page 998]]

employees or others, such as public liability, property damages, 
casualty, employee liability, etc., and amounts credited to Account 
228.2, Accumulated Provision for Injuries and Damage, for similar 
protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

    Note A: Payments to or in behalf of employees for accident or death 
benefits, hospital expenses, medical expenses, or for salaries while 
incapacitated for service or on leave of absence beyond periods normally 
allowed, when not the result of occupational injuries, shall be charged 
to Account 926, Employee Pensions and Benefits. (See also Note B of 
Account 926.)

    Note B: The cost of injuries and damages or reserve accruals 
capitalized shall be charged to construction directly or by transfer to 
construction work orders from this account.

    Note C: Exclude herefrom the time and expenses of employees (except 
those engaged in injuries and damages activities) spent in attendance at 
safety and accident prevention educational meetings, if occurring during 
the regular work period.

    Note D: The cost of labor and related supplies and expenses of 
administrative and general employees who are only incidentally engaged 
in injuries and damages activities, may be included in Account 920 and 
Account 921, as appropriate.

                  926   Employee Pensions and Benefits

    A. This account shall include pensions paid to or on behalf of 
retired employees or accruals to provide for pensions or payments for 
the purchase of annuities for this purpose, when the utility has 
definitely, by contract, committed itself to a pension plan under which 
the pension funds are irrevocably devoted to pension purposes and 
payments for employee accident, sickness, hospital, and death benefits, 
or insurance therefor. Include, also, expenses incurred in medical, 
educational, or recreational activities for the benefit of employees and 
administrative expenses in connection with employee pensions and 
benefits.
    B. The utility shall maintain a complete record of accruals or 
payments for pensions and be prepared to furnish full information to RUS 
of the plan under which it has created or proposes to create a pension 
fund and a copy of the declaration of trust or resolution under which 
the pension plan is established.
    C. There shall be credited to this account the portion of pensions 
and benefits expenses which is applicable to nonutility operations or 
which is charged to construction unless such amounts are distributed 
directly to the accounts involved and are not included herein in the 
first instance.
    D. Records in support of this account shall be so kept that the 
total pensions expense, the total benefits expense, the administrative 
expenses included herein, and the amounts of pensions and benefits 
expenses transferred to construction or other accounts will be readily 
available.

                                  Items

    1. Payment of pensions under a nonaccrual or nonfunded basis.
    2. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    3. Group and life insurance premiums (credit dividends received).
    4. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    5. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    6. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    7. Expenses in connection with educational and recreational 
activities for the benefit of employees.


[[Page 999]]


    Note A: The cost of labor and related supplies and expenses of 
administrative and general employees who are only incidentally engaged 
in employee pension and benefit activities may be included in Account 
920 and Account 921, as appropriate.

    Note B: Salaries paid to employees during periods of nonoccupational 
sickness may be charged to the appropriate labor account rather than to 
employee benefits.

                      927   Franchise Requirements

    A. This account shall include payments to municipal or other 
governmental authorities and the cost of materials, supplies, and 
services furnished such authorities without reimbursement in compliance 
with franchise, ordinance, or similar requirements; provided, however, 
that the utility may charge to this account at regular tariff rates, 
instead of cost, utility service furnished without charge under 
provisions of franchises.
    B. When no direct outlay is involved, concurrent credit for such 
charges shall be made to Account 929, Duplicate Charges--Credit.
    C. The account shall be maintained so as to readily reflect the 
amounts of cash outlays, utility service supplied without charge, and 
other items furnished without charge.

    Note A: Franchise taxes shall not be charged to this account, but to 
Account 408.1, Taxes Other Than Income Taxes, Utility Operating Income.

    Note B: Any amount paid as initial consideration for a franchise 
running for more than one year shall be charged to Account 302, 
Franchises and Consents.

                  928   Regulatory Commission Expenses

    A. This account shall include all expense (except pay of regular 
employees only incidentally engaged in such work) properly includible in 
utility operating expenses, incurred by the utility in connection with 
formal cases before regulatory commissions or other regulatory bodies or 
cases in which such a body is a party, including payments made to a 
regulatory commission for fees assessed against the utility for pay and 
expenses of such commission, its officers, agents, and employees, and 
also including payments made to the United States for the administration 
of the Federal Power Act.
    B. Amounts of regulatory commission expenses which, by approval or 
direction of RUS, are to be spread over future periods shall be charged 
to Account 182.3, Other Regulatory Assets, and amortized by charges to 
this account.
    C. The utility shall be prepared to show the cost of each formal 
case.

                                  Items

    1. Salaries, fees, retainers, and expenses of counsel, solicitors, 
attorneys, accountants, engineers, clerks, attendants, witnesses, and 
others engaged in the prosecution of or defence against petitions or 
complaints presented to regulatory bodies or in the valuation of 
property owned or used by the utility in connection with such cases.
    2. Office supplies and expenses, payments to public service or other 
regulatory commissions, stationery and printing, traveling expenses, and 
other expenses incurred directly in connection with formal cases before 
regulatory commissions.

    Note A: Exclude from this account and include in other appropriate 
operating expense accounts, expenses incurred in the improvement of 
service, additional inspection, or rendering reports which are made 
necessary by the rules and regulations, or orders, of regulatory bodies.

    Note B: Do not include in this account amounts includible in Account 
302, Franchises and Consents; Account 181, Unamortized Debt Expense; or 
Account 214, Capital Stock Expense.

                     929   Duplicate Charges--Credit

    This account shall include concurrent credits for charges which may 
be made to operating expenses or to other accounts for the use of 
utility service from its own supply. Include, also, offsetting credits 
for any other charges made to operating expenses for which there is no 
direct money outlay.

                  930.1   General Advertising Expenses

    This account shall include the cost of labor, materials used, and 
expenses incurred in advertising and related activities, the cost of 
which by their content and purpose are not provided for elsewhere.

[[Page 1000]]

                                  Items

    Labor:

    1. Supervision.
    2. Preparing advertising material for newspapers, periodicals, and 
billboards and preparing or conducting motion pictures, radio, and 
television programs.
    3. Preparing booklets and bulletins used in direct mail advertising.
    4. Preparing window and other displays.
    5. Clerical and stenographic work.
    6. Investigating and employing advertising agencies, selecting 
media, and conducting negotiations in connection with the placement and 
subject matter of advertising.

    Materials and Expenses:

    1. Advertising in newspapers, periodicals, billboards, and radios.
    2. Advertising matter such as posters, bulletins, booklets, and 
related items.
    3. Fees and expenses of advertising agencies and commercial artists.
    4. Postage and direct mail advertising.
    5. Printing of booklets, dodgers, and bulletins.
    6. Supplies and expenses in preparing advertising materials.
    7. Office supplies and expenses.

    Note A: Properly includible in this account is the cost of 
advertising activities on a local or national basis of a goodwill or 
institutional nature, which is primarily designed to improve the image 
of the utility or the industry, including advertisements which inform 
the public concerning matters affecting the company's operations, such 
as, the cost of providing service, the company's efforts to improve the 
quality of service, and the company's efforts to improve and protect the 
environment. Entries relating to advertising included in this account 
shall contain or refer to supporting documents which identify the 
specific advertising message. If references are used, copies of the 
advertising message shall be readily available.

    Note B: Exclude from this account and include in Account 426.4, 
Expenditures for Certain Civic, Political and Related Activities, 
expenses for advertising activities, which are designed to solicit 
public support or the support of public officials in matters of a 
political nature.

                 930.2   Miscellaneous General Expenses

    This account shall include the cost of labor and expenses incurred 
in connection with the general management of the utility not provided 
for elsewhere.

                                  Items

    Labor:

    1. Miscellaneous labor not elsewhere provided for.

    Expenses:

    1. Industry association dues for company memberships.
    2. Contributions for conventions and meetings of the industry.
    3. Research, development, and demonstration expenses not charged to 
other operation and maintenance expense accounts on a functional basis.
    4. Communication service not chargeable to other accounts.
    5. Trustee, registrar, and transfer agent fees and expenses.
    6. Stockholders meeting expenses.
    7. Dividend and other financial notices.
    8. Printing and mailing dividend checks.
    9. Directors' fees and expenses.
    10. Publishing and distributing annual reports to stockholders.
    11. Public notices of financial, operating, and other data required 
by regulatory statutes, not including, however, notices required in 
connection with security issues or acquisitions of property.

                               931   Rents

    This account shall include rents properly includible in utility 
operating expenses for the property of others used, occupied, or 
operated in connection with the customer accounts, customer service and 
informational, sales, general, and administrative functions of the 
utility. (See Sec. 1767.17 (c).)

                              (Maintenance)

                   935   Maintenance of General Plant

    A. This account shall include the cost assignable to customer 
accounts, sales, administrative, and general functions of labor, 
materials used, and expenses incurred in the maintenance of

[[Page 1001]]

property, the book cost of which is includible in Account 390, 
Structures and Improvements; Account 391, Office Furniture and 
Equipment; Account 397, Communication Equipment; and Account 398, 
Miscellaneous Equipment. (See Sec. 1767.17 (b).)
    B. Maintenance expenses on office furniture and equipment used 
elsewhere than in general, commercial, and sales offices shall be 
charged to the following accounts:

    1. Steam Power Generation, Account 514
    2. Nuclear Power Generation, Account 532
    3. Hydraulic Power Generation, Account 545
    4. Other Power Generation, Account 554
    5. Transmission, Account 573
    6. Distribution, Account 598
    7. Merchandise and Jobbing, Account 416
    8. Garages, Shops, etc., Appropriate clearing account, if used.

    Note: Maintenance of plant included in other general equipment 
accounts shall be included herein unless charged to clearing accounts or 
to the particular functional maintenance expense account indicated by 
the use of the equipment.
Secs. 1767.32--1767.40  [Reserved]



Sec. 1767.41  Accounting methods and procedures required of all RUS borrowers.

    All RUS borrowers shall maintain and keep their books of accounts 
and all other books and records which support the entries in such books 
of accounts in accordance with the accounting principles prescribed in 
this section.

                             Numerical Index                            
                                                                        
             Number                                Title                
                                                                        
101                               Work Order Procedures                 
102                               Line Conversion                       
103                               Sacrificial Anodes and the Replacement
                                   of a Neutral                         
104                               Terminal Facilities                   
105                               Pole Top Disconnect Switch            
106                               Steel Pole Reinforcers                
107                               Mobile Substations                    
108                               Security Lights                       
109                               Joint Use                             
110                               First Clearing and Grading of Land and
                                   Rights of Way                        
111                               Engineering Contracts for System      
                                   Planning                             
112                               Determination of Availability of      
                                   Service                              
113                               Temporary Facilities (Services)       
114                               Construction Work-in-Progress Damaged 
                                   or Destroyed by Storm                
115                               Liquidated Damages                    
116                               Nonrefundable Payments for            
                                   Construction                         
117                               Refunds of Overpayments for Materials 
                                   and Equipment                        
118                               Load Control Equipment                
119                               Special Equipment                     
120                               Meter Sockets and Meters              
121                               Minimum--Maximum Voltmeters           
122                               Retrofitting Demand Meters            
123                               Transformer Conversions               
124                               Transclosures                         
125                               Retirement Units                      
126                               Establishment of Continuing Property  
                                   Records                              
127                               Continuing Property Records for       
                                   Buildings                            
128                               Sale of Property                      
129                               Gain or Loss on the Sale of an Office 
                                   Building                             
130                               Salvage and Obsolete Material         
131                               Plant Acquisition Adjustments         
132                               General Plant                         
133                               Plant Abandonments and Disallowances  
                                   of Plant Costs                       
134                               Utility Plant Phase-in Plans          
135                               Accounting for Removal or Relocation  
                                   of Electric Facilities Resulting from
                                   the Action of Others                 
136                               Storm Damage                          
201                               Supplemental Financing                
301                               Forfeited Customers' Deposits         
401                               Computer Software Costs               
402                               Legal Expenses                        
403                               Leases                                
404                               Consolidated Financial Statements     
501                               Patronage Capital Assignments         
502                               Patronage Capital Retirements         
503                               Operating and Nonoperating Margins    

[[Page 1002]]

                                                                        
504                               Patronage Capital from G&T            
                                   Cooperatives                         
505                               Patronage Capital Furnished by Other  
                                   Cooperative Service Organizations    
506                               Forfeited Membership Fees             
601                               Employee Benefits                     
602                               Compensated Absences                  
603                               Employee Retirement and Group         
                                   Insurance                            
604                               Deferred Compensation                 
605                               Life Insurance Premium on Life of a   
                                   Borrower Employee                    
606                               Pension Costs                         
607                               Unproductive Time                     
608                               Training Costs, Attendance at         
                                   Meetings, etc.                       
609                               Maintenance and Operations            
610                               Financial Forecast                    
611                               Advertising Expense                   
612                               Special Power Cost Study              
613                               Mapping Costs                         
614                               Member Relations Costs                
615                               Statewide Fees                        
616                               Power Supply/Distribution Cooperative 
                                   Borrowings                           
617                               Rate Discount Allowed by the Power    
                                   Cooperative to Distribution          
                                   Cooperative Owning Connecting        
                                   Transmission Lines                   
618                               Theft Losses not Covered by Insurance 
619                               Self Billing                          
620                               Purchase Rebates                      
621                               Integrity Fund                        
622                               In-Substance Defeasance               
623                               Satellite or Cable Television Services
624                               Pollution Control Bonds               
625                               Prepayment of Debt                    
626                               Rural Economic Development Loan and   
                                   Grant Program                        
627                               Postretirement Benefits               
628                               Postemployment Benefits               
629                               Investments in Debt and Equity        
                                   Securities                           
                                                                        


                          Subject Matter Index                          
                                                                        
                                                                  Number
                                                                        
                                A                                       
                                                                        
Abandonments--Plant.............................................     133
Acquisition Adjustments--Plant..................................     131
Advertising Expenses............................................     611
Assignments--Patronage Capital..................................     501
Attendance at Meetings..........................................     608
Availability of Service--Determination of.......................     112
                                B                                       
                                                                        
Benefits--Employee..............................................     601
Bonds--Pollution Control........................................     624
Borrowing--Power Supply Cooperative/Distribution Cooperative....     616
Buildings--Continuing Property Records..........................     127
Buildings, Office--Gain or Loss on Sale of......................     129
                                C                                       
                                                                        
Cable Television Services.......................................     623
Capital Credits--Assignment.....................................     501
Capital Credits--G&T Cooperative................................     504
Capital Credits--Other Service Cooperatives.....................     505
Capital Credits--Retirement.....................................     502
Compensated Absences............................................     602
Computer Software Costs.........................................     401
Consolidated Financial Statements...............................     404
Construction Work in Progress Damaged or Destroyed by Storm.....     114
Continuing Property Records--Buildings..........................     127
Continuing Property Records--Establishment of...................     126
Contributions--Nonrefundable....................................     116
Conversion--Line................................................     102
Conversion--Transformer.........................................     123
Customers' Deposits--Forfeited..................................     301
                                D                                       
                                                                        
Damaged or Destroyed Construction Work in Progress..............     114
Damages--Liquidated.............................................     115
Debt--Prepayment of.............................................     625
Debt Securities--Investments in.................................     629
Deferred Compensation...........................................     604
Demand Meters--Retrofitting.....................................     122
Determination of Availability of Service........................     113
Disallowances of Plant Costs....................................     133
Disconnect Switch--Pole Top.....................................     105

[[Page 1003]]

                                                                        
Discounts Allowed by Power Cooperative to Distribution                  
 Cooperative Owning Transmission Lines..........................     617
Distribution Cooperative/Power Supply Cooperative Borrowing.....     616
                                E                                       
                                                                        
Economic Development Loan and Grant Program.....................     626
Employee Benefits...............................................     601
Equity Securities--Investments in...............................     629
                                F                                       
                                                                        
Fees--Statewide.................................................     615
Financial Forecast..............................................     610
Financial Statements--Consolidated..............................     404
Financing--Supplemental.........................................     201
First Clearing and Grading of Land and Rights of Way............     110
Forfeited Customer Deposits.....................................     301
Forfeited Membership Fees.......................................     506
                                G                                       
                                                                        
Gain or Loss on Sale of Office Building.........................     129
General Plant...................................................     132
Generation and Transmission (G&T) Capital Credits...............     504
                                I                                       
                                                                        
In-substance Defeasance.........................................     622
Insurance--Employee Retirement and Group........................     603
Insurance--Premium on Life of a Borrower Employee...............     605
Integrity Fund..................................................     621
Investments in Debt and Equity Securities.......................     629
                                J                                       
                                                                        
Joint Use.......................................................     109
                                L                                       
                                                                        
Land--First Clearing and Grading................................     110
Leases..........................................................     403
Legal Expenses..................................................     402
Life Insurance Premiums on Life of a Borrower Employee..........     605
Line Conversion.................................................     102
Line Relocations................................................     135
Liquidated Damages..............................................     115
Load Control Equipment..........................................     118
                                M                                       
                                                                        
Maintenance and Operations......................................     609
Mapping Costs...................................................     613
Margins--Operating and Nonoperating.............................     503
Material--Salvage and Obsolete..................................     130
Materials and Supplies--Refund for Overpayments.................     117
Member Relation Costs...........................................     614
Membership Fees--Forfeited......................................     506
Meter Sockets and Meters........................................     120
Minimum--Maximum Voltmeters.....................................     121
Mobile Substations..............................................     107
                                N                                       
                                                                        
Neutral--Replacement of.........................................     103
Nonoperating Margins............................................     503
Nonrefundable Payments for Construction.........................     116
                                O                                       
                                                                        
Obsolete Material...............................................     130
Operating and Nonoperating Margins..............................     503
Operations Costs................................................     609
                                P                                       
                                                                        
Patronage Capital Assignments...................................     501
Patronage Capital Furnished by Other Cooperative Service                
 Organizations..................................................     505
Patronage Capital from G&T Cooperatives.........................     504
Patronage Capital Retirements...................................     502
Payments for Construction--Nonrefundable........................     116
Pension Costs...................................................     606
Phase-in Plans..................................................     134
Plant Abandonments..............................................     133
Plant Acquisition Adjustments...................................     131
Plant Costs--Disallowances......................................     133
Plant--General..................................................     132
Pole Reinforcers--Steel.........................................     106
Pole Top Disconnect Switch......................................     105
Pollution Control Bonds.........................................     624
Postemployment Benefits.........................................     628
Postretirement Benefits.........................................     627
Power Cost Study................................................     612
Power Supply/Distribution Cooperative Borrowing.................     616
Prepayment of Debt..............................................     625
Property--Sale of...............................................     128
Purchase Rebates................................................     620

[[Page 1004]]

                                                                        
                                R                                       
                                                                        
Rate Discount Allowed by Power Cooperative to a Distribution            
 Cooperative Owning Transmission Lines..........................     617
Rebates--Purchase...............................................     620
Refunds for Overpayments for Materials and Supplies.............     117
Reimbursement for Line Relocations..............................     135
Relocations of Lines............................................     135
Replacement of a Neutral........................................     103
Retirement Units................................................     125
Retirements--Patronage Capital..................................     502
Retrofitting Demand Meters......................................     122
Rights of Way--First Clearing and Grading.......................     110
Rural Economic Development Loan and Grant Program...............     626
                                S                                       
                                                                        
Sacrificial Anodes and the Replacement of a Neutral.............     103
Sale of an Office Building......................................     129
Sale of Property................................................     128
Salvage and Obsolete Material...................................     130
Satellite Television Services...................................     623
Securities--Investments in Debt and Equity......................     136
Security Lights.................................................     108
Self Billing....................................................     619
Software Costs..................................................     401
Special Equipment...............................................     119
Special Power Cost Study........................................     612
Statewide Fees..................................................     615
Steel Pole Reinforcers..........................................     106
Storm Damage....................................................     136
Substation--Mobile..............................................     107
Supplemental Financing..........................................     201
System Planning--Engineering Contracts..........................     111
                                T                                       
                                                                        
Temporary Facilities (Services).................................     113
Terminal Facilities.............................................     104
Theft Losses not Covered by Insurance...........................     618
Training Costs, Attendance at Meetings, etc.....................     608
Transclosures...................................................     124
Transformer Conversions.........................................     123
                                U                                       
                                                                        
Unproductive Time...............................................     607
                                V                                       
                                                                        
Voltmeters--Minimum/Maximum.....................................     121
                                W                                       
                                                                        
Work Order Procedures...........................................     101
                                                                        


                       101   Work Order Procedures

    When a minor item of property is removed from service and not 
replaced, a retirement work order is not required except in the case of 
a conductor. The cost of the minor item shall remain in the appropriate 
plant account until the retirement unit, of which it is a part, is 
retired. However, as conductor is recorded in feet and is not part of 
any specific retirement unit, conductor shall be retired even though the 
amount taken down and not replaced is less than a retirement unit (two 
spans).
    When minor items of plant are removed and not replaced, material 
salvaged shall be recorded on a material salvage ticket. Items of 
material recorded on this ticket shall be charged to the materials and 
supplies account and credited in the miscellaneous columns of the 
Materials Register to the Accumulated Provision for Depreciation. In 
this example, it is assumed that the cost of removal is nil. If, 
however, costs are incurred during the removal of minor items of plant, 
these costs shall reduce the credit to the Accumulated Provision for 
Depreciation.
    When a staking sheet supporting a single work order reflects a 
combination of new construction and replacements, or system 
improvements, the predominant cost shall be the governing factor in 
determining the amount of cost RUS will finance. To illustrate, assume 
that a service is to be run to a new home near the end of an existing 
line. On inspection, the pole from which the service is to be run is 
found to be in very poor physical condition and must be replaced. In 
addition, a single span of wire and a service are presently connected to 
this pole which serve no purpose. The home originally

[[Page 1005]]

served has been demolished and the existing span, pole, and service were 
retired. In other words, what started out to be simply the installation 
of a new service now includes the retirement of a span of wire, a pole, 
and a service; the replacement of a pole; and the running of a new 
service. Assuming the replacement of the pole is the costliest part of 
this project, the construction and retirement activity shall be 
classified as an ordinary replacement even though the work includes new 
construction and retirements without replacement.

                          102   Line Conversion

    If it is necessary to move a conductor from one location to another 
on a pole assembly during the conversion of a line from one phase to 
another phase, the cost of moving the conductor is capitalizable as a 
system improvement.

        103   Sacrificial Anodes and the Replacement of a Neutral

    Many utilities conduct studies to determine whether sacrificial 
anodes are needed to protect underground cable against corrosion. The 
following procedures shall be followed to account for sacrificial anodes 
and the replacement of a neutral:
    1. If the study results in the installation of sacrificial anodes, 
the cost of the study shall be capitalized to Account 367, Underground 
Conductors and Devices. If the study does not result in the installation 
of anodes, the cost shall be charged to Account 594, Maintenance of 
Underground Lines.
    2. Costs incurred in the first installation are capitalizable even 
though anodes are considered minor items of property. However, only the 
first costs of installation shall be capitalized. All subsequent 
replacements of anodes shall be expensed.
    3. Sacrificial anodes do not constitute a record unit; therefore, 
the cost of anodes shall be added to the cost of the underground cable 
unit.
    4. Because a neutral is part of an underground cable record unit, 
and is not, in and of itself, a record unit, the cost to replace a 
corroded neutral shall be charged to Account 594, Maintenance of 
Underground Lines.

                        104   Terminal Facilities

    Borrowers are sometimes required to construct terminal facilities in 
the transmission line of another utility in order to receive power from 
their power supplier. The document executed between the borrower and the 
utility is normally referred to as a ``License Agreement''. The license 
agreement may stipulate that certain items of the terminal facilities 
are to be transferred to, and become the property of, the other utility 
upon completion of the construction. The accounting for this type of 
transaction shall be as follows:

    1. All construction costs incurred shall be charged to a work order. 
Upon completion of the construction and accumulation of all costs, the 
cost of the facilities that become the property of another utility shall 
be transferred from construction work-in-progress to Account 186, 
Miscellaneous Deferred Debits. The cost of the plant for which the 
borrower retains title shall be charged to the appropriate plant 
accounts.
    2. The cost of the facilities recorded in Account 186, Miscellaneous 
Deferred Debits, shall be amortized to Account 557, Other Expenses, over 
the estimated useful service life of the plant. If the related contract 
or contracts for this power supply are terminated, the unamortized 
balance shall be expensed, in the current period, in Account 557.

                    105   Pole Top Disconnect Switch

    The installation of pole top service disconnect switches, where 
title is retained by the utility, shall be capitalized in Account 371, 
Installations on Customers' Premises. If a switch cabinet is purchased 
with a current transformer included as an integral part of the cabinet, 
the entire cost of the switch shall be charged to Account 371. If the 
current transformer is installed outside of the switch cabinet, the 
transformer, meter, and meter base, together with the first installation 
costs, shall be capitalized, upon purchase, in Account 370, Meters.
    Payments received from the customer toward construction costs shall 
be credited to Account 371, Installations on Customers' Premises. Such 
payments, together with any amount

[[Page 1006]]

not financed by RUS, shall be entered in column 9 of the RUS Form 219, 
Inventory of Work Orders. The associated maintenance costs shall be 
charged to Account 587, Customer Installations Expenses, or to Account 
597, Maintenance of Meters, as appropriate.
    When pole top disconnect switches are installed and title is held by 
the customer, the cost of the material shall be charged to Account 456, 
Other Electric Revenues and the receipts from the sale of line material 
shall be credited to Account 456. The portion of the receipts for resale 
material as well as that for installation shall be credited to Account 
415, Revenues from Merchandising, Jobbing, and Contract Work. The cost 
of resale material sold and the cost of installation shall be charged to 
Account 416, Costs and Expenses of Merchandising, Jobbing and Contract 
Work.
    Future maintenance costs incurred by the cooperative that are not 
billed to the customer shall be charged to Account 587, Customer 
Installations Expenses.

                      106   Steel Pole Reinforcers

    The cost associated with the purchase and installation of steel pole 
reinforcers shall be charged to Account 593, Maintenance of Overhead 
Lines.

                        107   Mobile Substations

    Mobile substations shall be accounted for in a manner similar to 
that for a spare and are, therefore, included as part of transmission or 
distribution station equipment, depending upon the use of the mobile 
substation. The mobile substation, together with the trailer on which it 
is permanently mounted, shall be capitalized upon purchase. A general 
purpose truck or tractor used to relocate a mobile substation and 
trailer shall be classified as transportation equipment.
    The composite depreciation rate used for transmission plant or 
distribution plant, as appropriate, shall be applied to the mobile 
substation.

                          108   Security Lights

    Where a pole supports both a secondary wire and a security light, 
the cost of the pole shall be charged to Account 364, Poles, Towers, and 
Fixtures, even though the plant investment in security lights is 
recorded in Account 371, Installations on Customers' Premises.

                             109   Joint Use

    There are many cases in which an electric utility and a 
communications utility enter into an agreement that provides for joint 
use of poles. Under the terms of these agreements, either utility may 
occupy the poles of the other upon payment of a stipulated annual 
rental. If such joint occupancy necessitates the use of a higher than 
standard pole, the new pole shall be provided at the expense of the 
utility having the need for the higher pole.
    When an electric utility replaces, at its own expense, a standard 
pole belonging to the communications utility with a higher pole, the 
cost of the higher pole, less net salvage (if any) of the pole replaced, 
shall be charged to the account in which the pole rental is included.
    Contributions made to an electric utility by a communications 
utility for the costs incurred in stubbing joint use electric poles 
shall be credited to Account 593, Maintenance of Overhead Lines. The 
cost of pole stubbing on electric plant distribution facilities shall be 
charged to Account 593.
    An investment in outside plant that is held in joint ownership shall 
be recorded in the appropriate plant accounts at its cost to the 
utility. For continuing property record purposes, jointly owned property 
units shall be priced at their cost to the utility and shall be 
appropriately segregated in the CPRs to indicate joint ownership.

       110   First Clearing and Grading of Land and Rights of Way

    Utility accounting practice requires the costs associated with the 
first clearing and grading of land and rights of way and any resulting 
damage thereto, to be included in the accounts for structures and 
improvements or equipment to which such costs relate. Since the first 
clearing, as well as clearing which is ``directly occasioned by the 
building of a structure,'' is done, not for the purpose of enhancing the 
value of the land or the rights of way, but for the purpose of 
constructing plant,

[[Page 1007]]

these costs are more directly related to the construction of plant than 
to the purchase of land or rights of way. The accounts shall be charged 
as follows:

    1. For overhead transmission pole lines, Account 356, Overhead 
Conductors and Devices;
    2. For overhead distribution lines, Account 365, Overhead Conductors 
and Devices; and
    3. For underground distribution lines, Account 366, Underground 
Conduit, for a conduit installation; or Account 367, Underground 
Conductors and Devices, for a direct burial installation.

             111   Engineering Contracts for System Planning

    Engineering costs for long-range system plans shall be charged to 
Account 183, Preliminary Survey and Investigation Charges, as incurred. 
The cost of engineering services incurred in preparing a long-range 
system plan represents a legitimate component of the total cost of 
construction of all system improvements detailed in the plan. The amount 
of engineering costs to be associated with any specific system 
improvement is the annual costs incurred up to the time of the 
allocation (not previously allocated), plus that portion of the initial 
cost which relates to the particular construction in question. If any 
major system improvement included in the engineering plan is not 
constructed, or if the study is superseded by another complete study, 
the cost of that portion of the original study not resulting in 
construction shall be charged to Account 182.2, Unrecovered Plant and 
Regulatory Study Costs, if the costs are to be recovered through future 
rates. Costs recorded in Account 182.2 shall be amortized to Account 
407, Amortization of Property Losses, Unrecovered Plant and Regulatory 
Study Costs, as the costs are recovered through the rates. Any costs 
included in Account 182.2 that are disallowed for rate-making purposes 
shall be charged to Account 426.5, Other Deductions.
    The allocation of engineering services to the various construction 
projects requires the exercise of judgment. In some cases, system 
improvements are continuous over a period of months or years, thus 
permitting the engineering cost to be spread monthly as overhead in 
relation to the direct costs incurred in construction. (If a substantial 
amount of retirement work is performed in connection with system 
improvements, a proportionate share of the engineering cost shall be 
allocated on the basis of direct retirement labor.) If the system 
improvements detailed in the plan are not performed in a continuous 
manner, the engineering cost shall be allocated on the basis of the 
estimated costs of the various larger system improvement projects which 
result from the long-range plan.
    If construction is performed by contract, the engineering cost 
applicable thereto shall be transferred from Account 183 to Account 107, 
Construction Work-in-Progress--Electric, and thereby spread to the 
appropriate plant accounts on the basis of contract costs.
    In the case of system improvement construction performed on the 
basis of work orders, engineering costs shall be transferred to Account 
107, Construction Work-in-Progress--Electric, and included in total work 
order costs as either overhead or special services. If engineering 
services are not readily identifiable with individual work orders, they 
shall be capitalized as overhead. If engineering costs for each work 
order are readily separable from the engineering costs for all other 
work orders, they shall be capitalized as special services.
    In summarizing system improvement work orders on the RUS Form 219, 
Inventory of Work Orders, the amount of engineering costs previously 
approved for advance on the long range plan, if any, shall be deducted 
to determine the balance of loan funds subject to advance by RUS.

             112   Determination of Availability of Service

    Costs relating to the determination of availability of service, 
rates, and similar items for individual applicants shall be charged to 
Account 912, Demonstrating and Selling Expenses. If it is expected that 
construction will result, the costs incurred to provide service, 
including staking, shall be charged to Account 107, Construction Work-
in-Progress--Electric. If construction does not result, Account 107 
shall be

[[Page 1008]]

credited and Account 426.5, Other Deductions, shall be charged.

                  113   Temporary Facilities (Services)

    Plant installed for temporary use, a period of less than 1.ar, shall 
be recorded in Account 185, Temporary Facilities, net of any payments 
received from customers. Upon retirement, this net cost plus cost of 
removal, less any salvage value, shall be cleared to Account 451, 
Miscellaneous Service Revenues.
    When a temporary service is installed at the site of a building 
under construction, the location of the permanent service entrance and 
the load and its characteristics are usually known. The temporary 
service is of the proper capacity and is so located or has sufficient 
slack, that it can be relocated to serve the new building as a permanent 
service. Under these conditions, the service shall be charged to Account 
369, Services, when first installed. The cost of moving and attaching 
the service to the permanent service entrance shall be charged to 
Account 593, Maintenance of Overhead Lines or Account 594, Maintenance 
of Underground Lines, as appropriate.

    114   Construction Work-in-Progress Damaged or Destroyed by Storm

    When installed plant, not yet completed or completed but not yet 
placed in service, has been damaged or destroyed by storm, the cost of 
the repair and restoration shall be added to the cost of construction 
and capitalized if the plant was constructed under force account or work 
order construction, and the utility paid for the cost of the repairs. If 
the plant was constructed under contract, the contractor is required to 
deliver the plant in new condition. Therefore, any repairs required 
prior to the completion of construction and acceptance by the utility, 
are ordinarily borne by the contractor.

                        115   Liquidated Damages

    Liquidated damages are amounts paid by or assessed against 
contractors for the completion of construction after an agreed upon 
date. Liquidated damages shall be credited to Account 107, Construction 
Work-in-Progress--Electric. Since these damages accrue during the 
construction period, they become one of the components of construction 
cost. Even though a portion of these damages may compensate the utility 
for costs which are not ``identifiable,'' no portion of the damages 
shall be credited to revenue or expense.
    When a contractor has been paid in full from loan funds or from 
funds to be reimbursed by loan funds without a deduction for liquidated 
damages, the amount of liquidated damages received shall be deposited in 
the Construction Fund. This amount shall be reflected by a decrease in 
column 5, ``Total Expenditures to Date,'' of the RUS Form 595, Financial 
Requirement and Expenditure Statement, and as an increase in column 6, 
``Cash Balance.'' If liquidated damages are obtained by withholding an 
equivalent amount from the contractor's payment, the net result will be 
the same.

              116   Nonrefundable Payments for Construction

    Nonrefundable payments (contributions) from customers and developers 
for underground construction shall first be credited to Account 107.2, 
Construction Work-in-Progress--Force Account. When the constructed plant 
is unitized and distributed to the individual plant accounts, the 
contributions shall be credited to those plant accounts which gave rise 
to the contribution.
    When a customer or developer furnishes a trench or other service in 
connection with buried plant, the cooperative shall debit Account 107.2 
with the actual or estimated cost of the service performed, and account 
for the credit as set forth above.

        117   Refunds of Overpayments for Materials and Equipment

    Refunds of overpayments for materials and equipment previously 
purchased are occasionally received as the result of legal action 
brought against electrical suppliers for price fixing in violation of 
antitrust laws. Such refunds shall be accounted for as follows:

    1. The refund shall first be applied to any litigation costs that 
were incurred.

[[Page 1009]]

    2. Refunds for special equipment items shall be accounted for, in 
detail, on the Summary of Special Equipment Costs and credited against 
the appropriate plant accounts.
    3. Other material or equipment items that were installed through 
work orders or a materials furnished contract shall be adjusted on an 
amended work order. The amended work order shall include full details of 
the refund.
    4. Continuing property records shall be adjusted to reflect the 
above transactions.
    5. Amounts approved for advance on the RUS Form 595, Financial 
Requirement and Expenditure Statement, and on the loan budget records, 
shall be adjusted. For special equipment items, the adjustment shall be 
requested in a letter to RUS. For materials installed by work order or 
contract, the adjustments shall be made through credits shown on the RUS 
Form 219, Inventory of Work Orders.
    6. Refunds for material currently in stock shall be credited to 
Account 154, Plant Materials and Operating Supplies.
    7. If the material was used in maintenance activities or operations, 
the refund shall be credited to the appropriate maintenance or 
operations expense account.
    8. Refunds for materials or equipment financed from loan funds shall 
be deposited in the Construction Fund--Trustee Account or remitted to 
RUS as a special payment on a note. Other refunds shall be deposited in 
the general funds.

                      118   Load Control Equipment

    The primary purpose of a Load Management System is to optimize load 
dispatch and to reduce or minimize system peaks in order to reduce 
purchases of power or to delay or eliminate the need for construction of 
new plant. A Load Management System may be used on integrated systems, 
or on generation, transmission, or distribution systems separately. The 
telemetry equipment used for data acquisition and interpretation may be 
included at various points on a system, such as generation, 
transmission, or distribution substation, switchyards or on consumers' 
premises.
    An effective load control program should be coordinated with the G&T 
and requires full participation of all member distribution systems. The 
G&T monitors the power load of the total member distribution system to 
predict the time of the system's peak load. An optimal load control 
strategy is developed by the G&T and is passed on from the G&T computer 
system to the load control computer systems of the member distribution 
cooperatives.
    The equipment at the member distribution system level is the type 
actually being used by an integrated power system to operate a load 
control program. The equipment used may vary from one integrated power 
system to another. The selection of equipment used is determined by the 
information needs of the integrated power system, and the method 
selected to operate the load control system.
    Some equipment performs only SCADA-type functions. This equipment is 
included with the equipment that performs only load control functions 
because SCADA-type equipment is an integral part of a load control 
program. An effective load control strategy requires current information 
on loads so that member distribution systems can determine the actual 
loads to be shed and the duration of the load control.
    The function and location of the load control equipment are the 
primary factors in determining the account in which the equipment shall 
be recorded. The following example depicts a common load control system 
and the associated accounting. Equipment type may vary, thereby 
necessitating the use of accounts not prescribed below. In all 
instances, however, the function and location of the equipment shall 
dictate the appropriate account classification.

                              G&T Borrower

    1. Coordinating System Equipment

    Coordinating System Equipment is the data acquisition, processing 
and control hardware and software used to coordinate the load control 
efforts of the member distribution system. Generally, this equipment is 
dedicated to load control use and is not shared with other electric 
utility activities.

[[Page 1010]]

    The purpose of the G&T load control computer system is to reduce or 
minimize the peak power requirements of the entire member distribution 
system. This involves load dispatching to control transmission circuits 
and breakers. The computer system for load control shall, therefore, be 
recorded in Account 353, Station Equipment, with the associated 
operating expenses recorded in Account 561, Load Dispatching, and 
maintenance expenses recorded in Account 570, Maintenance of Station 
Equipment.
    2. Coordinating System Communications Link

    The G&T load control computer system is usually linked to the load 
control computer system for each member distribution system by a radio 
or telephone link that is dedicated to that purpose and is not shared 
with other communication activities. Under such circumstances, 
communications equipment shall be classified in Account 353, Station 
Equipment. If the communications equipment is shared with general use or 
voice communications equipment, however, the equipment shall be 
classified in Account 397, Communication Equipment.

    3. Depreciation

    Load control equipment shall be recorded in separate subaccounts of 
the primary plant accounts detailed above and shall be depreciated based 
upon the owner's estimate of the equipment's useful service life.

                          Distribution Borrower

    1. Member System Equipment

    Member system equipment is the data acquisition, processing and 
control hardware and software used as a subset to the overall load 
control efforts by the integrated power system.
    The member system computer for each distribution member system 
accepts the control strategy from the G&T coordinating system and 
develops the tables that determine the control loads that are to be shed 
and the duration of the load control. The member system computer for 
each distribution system monitors the usage at each of its delivery 
points. This usage data is then transmitted to the G&T coordinating 
system for use in developing load projects and evaluating control 
strategies for the integrated power system. The member system computer 
is generally dedicated to load control use and is not shared with other 
electric utility operations.
    The member computer system shall be recorded in Account 362, Station 
Equipment. The associated operating expenses shall be recorded in 
Account 581, Load Dispatching, and maintenance expenses shall be 
recorded in Account 592, Maintenance of Station Equipment.

    2. Substation Remote Controllers

    Substation Remote Controllers are located at the distribution 
substation. They accept control signals from the member system computer 
and couple the signal to the portion of the distribution system to which 
it is connected. Substation Remote Controllers also serve as a receiver 
of inbound signals from transponders located in the distribution system. 
They also send data back to the member system computer.
    Substation Remote Controllers shall be recorded in Account 362, 
Station Equipment. The associated operating expenses shall be recorded 
in Account 582, Station Expenses, and maintenance expenses shall be 
recorded in Account 592, Maintenance of Station Equipment.

    3. Substation Injection Units

    Substation Injection Units are used only in power line based systems 
and are located in distribution substations. A major function of the 
Substation Injection Unit is to receive load control signals from the 
member system computer and inject them into the power line based system 
to be transmitted to the Load Control Receivers. Substation Injection 
Units can also perform control and SCADA functions similar to those 
performed by Substation Remote Controllers.
    Substation Injection Units shall be recorded in Account 362, Station 
Equipment. The associated operating expenses shall be recorded in 
Account 582, Station Expenses, and maintenance expenses shall be 
recorded in Account 592, Maintenance of Station Equipment.

    4. Remote Terminal Units


[[Page 1011]]


    Remote Terminal Units perform electric utility SCADA functions in a 
distribution substation or delivery point. These functions include 
monitoring equipment for abnormal operating conditions, monitoring 
analog quantities such as conductor voltage or substation load, and 
controlling of certain equipment within the substation.
    Remote Terminal Units shall be recorded in Account 362, Station 
Equipment. The associated operating expenses shall be recorded in 
Account 582, Station Expenses, and maintenance expenses shall be 
recorded in Account 592, Maintenance of Station Equipment.

    5. Line Device Transponder

    A Line Device Transponder directly controls a piece of distribution 
apparatus, such as a voltage regulator or a power factor correction 
capacitor, located on a distribution feeder and not accessible to a 
Remote Terminal Unit. The Line Device Transponder actuates the control 
functions and reports back to the member system computer upon completion 
of the requested action. This transponder is located at the site of the 
distribution apparatus being controlled.
    Line Device Transponders shall be recorded in Account 368, Line 
Transformers. The associated operating expense shall be recorded in 
Account 583, Overhead Line Expenses, or Account 584, Underground Line 
Expenses, as appropriate, and maintenance expenses shall be recorded in 
Account 595, Maintenance of Line Transformers.

    6. Communications Verification Transponders

    Communication Verification Transponders are used to respond to 
inquiries from Substation Remote Controllers. In power line based 
systems, these transponders are used to verify the performance of the 
communications system. They are also used during adverse system 
operations to isolate sections of the distribution system that are 
experiencing an outage.
    Communication Verification Transponders shall be recorded in Account 
362, Station Equipment. The associated operating expenses shall be 
recorded in Account 582, Station Expenses, and maintenance expenses 
shall be recorded in Account 592, Maintenance of Station Equipment.

    7. Load Control Receivers

    The Load Control Receiver, also known as a load control switch, is 
located at the site of the consumer's load. These receivers directly 
control the electric supply to an end-use appliance, such as an electric 
water heater, central air conditioning compressor, or irrigation pump. 
The amount of time that an appliance will be turned off by the load 
control receiver is preset. When the member system computer determines 
that load shedding is necessary, it sends a signal to the communication 
link which then sends signals directly to the Load Control Receivers. In 
a power line based system, the signal from the communications link is 
sent by radio or telephone line to the Substation Injection Units, which 
then signals the Load Control Receivers to shut down the appliances for 
the present time. In nonpower line based systems, the signal from the 
communications link is sent by radio directly to the Load Control 
Receivers.
    Load Control Receivers are located on the consumer's side of the 
meter. When the member distribution system retains title to the Load 
Control Receivers and assumes full responsibility for maintenance and 
replacement of the equipment, it shall be classified in Account 371, 
Installations on Customer's Premises. Load Control Receivers that are 
donated or given to consumers shall be charged to Account 908, Customer 
Assistance Expenses.
    Operating and maintenance expenses applicable to Load Control 
Receivers recorded in Account 371 shall be charged to Account 587, 
Customer Installations Expenses, and Account 598, Maintenance of 
Miscellaneous Distribution Plant, respectively. Expenses applicable to 
Load Control Receivers donated or given to consumers shall be recorded 
in Account 908, Customer Assistance Expenses.
    Load Control Receivers may be moved on a continual basis from one 
customer location to another and are, therefore, considered to be 
special equipment items. When ownership is maintained by the member 
distribution cooperative, Load Control Receivers shall be accounted for 
in accordance

[[Page 1012]]

with the special equipment procedures outlined in Accounting 
Interpretation No. 119 of this section.

    8.   Communication Links

    The communication link in the member distribution systems between 
the Member System Computer, the Substation Remote Controllers or 
Substation Injection Units, Remote Terminal Units, Line Device 
Transponders, Communication Verification Transponders, and Load Control 
Receivers is usually accomplished by radio, telephone line, or power 
line based system. The communication links are normally dedicated to the 
SCADA and load control functions being served. Under such circumstances, 
communications equipment shall be recorded in Account 362, Station 
Equipment. If, however, the communication equipment used is shared with 
general use or voice communications equipment, the equipment shall be 
charged to Account 397, Communication Equipment.

    9. Depreciation

    Load control equipment shall be recorded in separate subaccounts of 
the primary plant accounts detailed above and shall be depreciated based 
upon the manufacturer's estimate of the equipment's useful service life.

                         119   Special Equipment

    Special Equipment items are classified as such because they are 
continually being moved from one location to another due to load changes 
and maintenance practices. The USoA provides accounting that differs 
from that used for other types of materials. The cost, new, of special 
equipment items shall be capitalized at the time of purchase; it shall 
not be charged to Account 154 as is the case with other materials. The 
first installation cost, as well as all incidental costs necessary to 
prepare the equipment for use, shall be capitalized with the material 
upon purchase. All subsequent costs of removing, resetting, changing, 
renewing oil, and repairing constitute operations and maintenance 
expenses. The capitalized cost of special equipment items, including the 
first installation, shall be removed from the electric plant accounts 
only when the items are abandoned or retired from the system.
    Meters, line-type transformers, oil circuit reclosers, 
sectionalizers, current and potential transformers, meter sockets, and 
other metering equipment listed in Account 370, Meters, as well as pole-
type and underground voltage regulators in Account 368, Line 
Transformers, are considered to be special equipment items. Similarly, 
load control receivers (load control switches) recorded in Account 371, 
Installations on Customers' Premises, are considered to be items of 
special equipment. (See Interpretation No. 118.) Transformers, voltage 
regulators, metering equipment, and current and potential transformers 
for substations are not.
    Special equipment items which are classified as nonusable shall be 
segregated in the warehouse and retired from service. The Summary of 
Special Equipment Costs shall be retitled Summary of Special Equipment 
Costs Retired and used for this purpose. A journal entry reflecting this 
information shall be prepared and posted to the books. Since loan funds 
for special equipment, including first installation costs, are approved 
for advance by RUS upon receipt of the borrower's written estimate of 
funds required, and not on the basis of an Inventory of Work Orders, it 
is improper to take a credit for any salvage involved in the retirement 
of special equipment on the Inventory of Work Orders.

                     120   Meter Sockets and Meters

    When a utility furnishes meter sockets, ownership by the utility of 
the meter socket or base, as well as the meter itself, is established by 
virtue of them being furnished without cost to the consumer by the 
cooperative. While no agreement as to ownership between the cooperative 
and the property owner exists, cooperative ownership is implied by long 
standing practice and tradition in the electric utility industry.

                    121   Minimum--Maximum Voltmeters

    A minimum--maximum voltmeter is used to record the minimum and 
maximum voltages at a specific line location over a period of time. It 
is normally installed on a pole in connection with a 1\1/2\ kVA 
transformer, a meter base and connecting wires, and other small items of 
materials. Meter bases

[[Page 1013]]

are ordinarily set for these voltmeters throughout the system, and a 
lesser number of voltmeters are rotated among them periodically to 
obtain voltage readings. An average system may have one voltmeter to two 
installations, with a maximum of 20 or 25 voltmeters for the whole 
system.
    Minimum--maximum voltmeters shall be recorded, through work orders, 
in Account 370, Meters, when installed. The cost of the transformers 
shall remain in Account 368, Line Transformers, with the cost of the 
meter bases remaining in Account 370, Meters. The miscellaneous material 
used in installing the transformer and the meter base shall be charged 
to Account 370, Meters.
    Maintenance expense shall be charged to either Account 595, 
Maintenance of Line Transformers, or Account 597, Maintenance of Meters, 
as appropriate. Costs associated with reading the voltmeters shall be 
charged to Account 583, Overhead Line Expenses, and the cost of 
relocating or changing the complete installation or any part thereof, 
other than retirement of the meter base, shall be charged to Account 
583, Overhead Line Expenses, or Account 586, Meter Expenses.

                    122   Retrofitting Demand Meters

    A demand meter measures the amount of electricity used over a period 
of time in kilowatt-hours (kWh) and indicates the maximum kilowatts (kW) 
required at any one time by means of a pointer.
    Electronic or solid state demand meters have a direct readout which 
reads kilowatt demand to two decimal places. The use of a direct readout 
demand meter may result in increased revenues as pointer readings tend 
to register lower than actual usages.
    The process of retrofitting a demand meter replaces the pointer with 
a direct readout. The cost of such a replacement is usually expensed as 
a minor item of property; however, since the use of a direct readout 
results in a substantial betterment, the excess cost of the replacement 
over the estimated cost, at current prices, of replacing the pointer 
without the betterment is capitalized.

                      123   Transformer Conversions

    The conversion of an overhead transformer to an underground 
transformer constitutes a betterment and shall, therefore, be 
capitalized.

                           124   Transclosures

    Transclosures are enclosures or cabinets in which line transformers 
are mounted. The cost of transclosures that are purchased separately 
from the transformer shall be charged to Account 154, Plant Materials 
and Operating Supplies, when received, and capitalized, upon 
installation, to Account 368, Line Transformers, as a separate unit of 
property. If the case and the transformer are inseparable, the unit is 
considered a transformer and shall be capitalized upon purchase.

                         125   Retirement Units

                                Services

    A retirement unit shall consist of a complete service rather than 
the individual wires comprising that service. If each separate wire of a 
service were treated as a retirement unit, the retirement unit would 
represent a comparatively small cost. Such a small unit of property 
would substantially increase the number of retirement work orders. The 
complete service shall, therefore, be considered a retirement unit.

                               Minor Items

    When minor items of property are added separately from complete 
retirement units, the costs of these items shall be included in work 
orders, and by unitizing all costs of completed construction for a 
month, these minor items shall be spread to the retirement units of 
which they normally form a part. For example, to convert a two-phase 
line to a three-phase line requires the addition of a conductor, an 
insulator and a pole-top pin. A pole-top pin is typically capitalized as 
a component of the cost of the pole to which it is attached. Assuming 
this is the only work order for the month, the cost of this pin shall be 
charged to the conductor, so that its cost is included in the total cost 
of the project. In actual practice, however, this does not happen

[[Page 1014]]

as it is normal to have a number of work orders for a given month, which 
include the setting of poles. In allocating the cost of all construction 
projects for the month, part of the cost of pole-top pins shall be 
allocated to poles even though the work orders on which they were 
capitalized did not include poles.
    The retirement and replacement of isolated single retirement units 
cannot be charged to maintenance; a retirement and construction work 
order shall be used.

           126   Establishment of Continuing Property Records

    The costs of installing a system of continuing property records 
shall be charged to Account 930.2, Miscellaneous General Expenses, and 
may include:

    1. Labor and expenses incurred in developing an inventory of 
property;
    2. Labor and material costs incurred in connection with developing 
pole records including map preparation and pole cards; and
    3. Labor and material costs (ledger sheets, etc.) incurred in 
connection with the installation of the record system.

             127   Continuing Property Records for Buildings

    When establishing continuing property records for a building where 
there is no detailed breakdown of contract costs, it is necessary to 
estimate the cost of the each component part. It should be noted that 
the establishment of continuing property records is not required for 
buildings; however, if CPRs are not maintained, all repairs including 
the replacement of major component parts shall be expensed in the period 
incurred.

                         128   Sale of Property

    All proceeds deposited in the Construction Fund account from the 
sale of property, regardless of materiality, shall be reflected on the 
RUS Form 595, Financial Requirement and Expenditure Statement. Proceeds 
from the sale of property shall be reported on the Form 595, by budget 
purpose, as a reduction in total expenditures to date, column 5; and an 
increase in the cash balance, column 6.
    Proceeds from the sale of property shall not be used to maintain an 
``Employee Fund.'' A utility may, pursuant to board policy, use general 
funds for employee welfare equivalent in amount to proceeds received 
from the sale of scrap property. If general funds, in an amount 
equivalent to proceeds received from the sale of scrap property, are 
used for employee welfare, Account 926, Employee Pensions and Benefits, 
shall be charged.

          129   Gain or Loss on the Sale of an Office Building

    A gain on the sale of an office building shall be recorded in 
Account 421.1, Gain on the Disposition of Property, with a loss recorded 
in Account 421.2, Loss on the Disposition of Property. If the gain or 
loss will materially distort current year's net margins, such gain or 
loss is reportable as an extraordinary item in Account 434, 
Extraordinary Income, or Account 435, Extraordinary Deductions.

                   130   Salvage and Obsolete Material

    The value of material salvaged from the retirement of units of 
property reduces the loss on the retirement and shall be so applied. The 
value assigned to salvage shall be credited to Account 108.8, Retirement 
Work-in-Progress, which results in reducing net charges to the provision 
for depreciation when the work order is completed and cleared.
    If salvage is sold, any difference between the realized value and 
the estimated value of the salvaged material shall be charged or 
credited to the appropriate provision for depreciation.
    Salvage resulting from maintenance where no retirement units are 
involved shall be debited to the materials and supplies account, and 
credited to the appropriate maintenance account.
    Occasionally a utility will have a loss due to obsolescence of 
materials on hand. If the loss is due to obsolescence of new material, 
the loss shall be charged to Account 426.5, Other Deductions. If the 
loss is due to obsolescence of used material, the loss shall be charged 
to the appropriate subaccount

[[Page 1015]]

of Account 108, Accumulated Provision for Depreciation.

                   131   Plant Acquisition Adjustments

    Plant acquisition adjustments shall be amortized to the operating 
expense accounts. These adjustments are recorded in Account 114, 
Electric Plant Acquisition Adjustments, and amortized to Account 406, 
Amortization of Electric Plant Acquisition Adjustments, or Account 425, 
Miscellaneous Amortization, as required by the regulatory commission 
having jurisdiction. Accounts 406 and 425 shall be closed to operating 
margins.

                           132   General Plant

    When the unit method of depreciation is used for general plant 
items, gains and losses on sales, trades or disposals of equipment shall 
be recorded as such. If the composite method of depreciation is used, 
gains or losses on the disposal of general plant items shall be recorded 
in the appropriate depreciation reserve account.
    A truck which is used only for transporting power operated equipment 
mounted thereon shall be charged, together with the installed equipment, 
to Account 396, Power Operated Equipment. If the same type of truck is 
used for transporting materials and supplies, tools and work equipment, 
personnel, or other items, the cost of the truck shall be charged to 
Account 392, Transportation Equipment.
    Depreciation and other expenses relating to power operated equipment 
shall be accumulated in a subaccount of Account 184, Clearing Accounts, 
and distributed monthly on an equitable basis to the accounts properly 
chargeable.
    Depreciation expense on vehicles and other work equipment, furniture 
and office equipment, and other such plant used in the construction of 
utility plant, is a proper component of construction cost. To avoid a 
duplicate advance of funds, however, the amount of depreciation on such 
items that has previously been financed from loan funds shall be 
deducted from Inventories of Work Orders submitted to RUS. This amount 
shall be specifically identified, and shown either monthly or annually 
as a single item in column 9 on the RUS Form 219, Inventory of Work 
Orders.

        133   Plant Abandonments and Disallowances of Plant Costs

    In December 1986, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 90, Regulated 
Enterprises--Accounting for Abandonments (Statement No. 90) and 
Disallowances of Plant Costs. This section provides an overview of the 
requirements outlined in Statement No. 90 together with the specific 
accounts that shall be used to record a plant abandonment or a 
disallowance of plant costs.

                           Plant Abandonments

    When an abandonment becomes probable, the cost of the abandoned 
asset shall be removed from Construction Work-in-Progress or Plant-in-
Service, as applicable. Before making this transfer, however, a 
determination must be made as to whether recovery of the allowed cost is 
likely to be provided with a full return on the investment during the 
period from the time the abandonment becomes probable, to the time when 
recovery is completed, or with a partial or no return on the investment. 
This determination shall be made based upon the facts and circumstances 
of the specific abandonment, and past practices and current policies of 
regulatory jurisdiction.
    If a full return on the investment is likely to be provided, any 
disallowance of all or part of the cost of abandoned plant that is both 
probable and reasonably estimated shall be recognized as a loss in the 
current year with the carrying basis of the asset reduced by an equal 
amount. The remaining cost of abandoned plant shall be recorded as a 
separate new asset.
    If partial or no return on the investment is likely to be provided, 
any disallowance of abandoned plant costs that is both probable and 
reasonably estimated shall be recognized as a loss. The present value of 
the future revenues expected to be provided to recover the allowable 
cost of the abandoned plant and return on the investment, if any, shall 
be reported as a separate new asset. The discount rate used to compute 
the present value shall be the

[[Page 1016]]

borrower's incremental borrowing rate, which is the rate that the 
borrower would have to pay to borrow an equivalent amount for a period 
equal to the expected recovery period. In determining the value of 
expected future revenues, the borrower shall consider the probable time 
period before the recovery is expected to begin and the probable time 
period over which recovery is expected to be provided.
    The amount of the new asset shall be adjusted from time to time, as 
necessary, if new information indicates that the estimates used to 
record the new asset have changed. The carrying value of the new asset, 
however, shall not be adjusted for changes in the incremental borrowing 
rate. The amount of any adjustments shall be recorded as a gain or loss.
    During the period between the date on which a new asset is 
recognized and the date on which recovery begins, the carrying amount 
shall be increased by accruing a carrying charge. The rate used to 
accrue the carrying charge shall be:

    1. If a full return on the investment is likely, a rate equal to the 
allowed overall cost of capital in the jurisdiction in which recovery is 
expected to be provided shall be used.
    2. If partial or no return is likely, the asset shall be amortized 
in a manner that will produce a constant return on the unamortized 
investment in the new asset equal to the rate at which the expected 
revenues were discounted.

    Due to the nonprofit environment in which electric cooperatives 
operate, full recovery of interest expense on plant related long-term 
debt equates to full recovery of the rate of return for an investor-
owned utility. Therefore, if a cooperative is permitted full recovery of 
the interest expense incurred on the long-term debt borrowed to finance 
construction of an abandoned plant, no discounting of the asset is 
required nor is accrual of the carrying charge permitted.
    If, at the time the provisions of Statement No. 90 are first 
applied, the borrower elects to restate the financial statements, the 
financial statements for all periods presented shall be restated and the 
financial statements shall disclose the nature of the restatement and 
its effect on margins before extraordinary items, net margins, and 
patronage capital at the beginning of the earliest period presented. If 
the borrower elects not to restate the financial statements, the effect 
of applying Statement No. 90 shall be reported as a change in accounting 
principle and the financial statements shall disclose the nature of the 
change and the effect of applying Statement No. 90 on margins before 
extraordinary items and net margins.
    The specific accounts that shall be used to record transactions 
involving plant abandonments are as follows:

    1. In the year of the abandonment, the unrecoverable portion of the 
cost of abandoned plant included in construction work-in-progress shall 
be recognized as a loss by a charge to Account 426.5, Other Deductions, 
and a credit to Account 107, Construction Work-in-Progress.
    2. The balance of the cost remaining in the construction work-in-
progress account shall be credited to Account 107 and charged to Account 
182.2, Unrecovered Plant and Regulatory Study Costs.
    3. The difference between the charge to Account 182.2 and the 
present value of expected future revenues for recovery of the new asset, 
shall be recorded as a credit to Account 182.2 and a debit to Account 
426.5. The credit to Account 182.2 shall be segregated from the amount 
charged to Account 182.2 by the use of a separate subaccount. Statement 
No. 90 does not require this segregation; however, it is necessary under 
the USoA to provide for the appropriate segregation of operating and 
nonoperating income.
    4. During the waiting period for recovery of the new asset to begin, 
carrying charges shall be accrued by a debit toAccount 182.2 with a 
concurrent credit to Account 421, Miscellaneous Nonoperating Income. 
Debits to Account 182.2 shall be treated as reductions to the credit 
subaccount of Account 182.2.
    5. The borrower shall amortize the amount debited to Account 182.2 
by charges to operating income, consistent with the way the amortized 
amounts are recovered through rates. These charges to income shall be 
recorded in Account 407, Amortization of

[[Page 1017]]

Property Losses, Unrecovered Plant and Regulatory Study Costs.
    6. As the recoverable amount recorded in Account 182.2 is recovered 
through rates, the borrower shall accrue income by charges to Account 
182.2 and credits to Account 421, Miscellaneous Nonoperating Income. 
Accruals shall be computed by applying the same rate used to derive the 
present value of the asset established in Account 182.2, to the 
unamortized balance in that account. Accrued amounts charged to Account 
182.2 shall be treated as reductions to the credit subaccount 
withinAccount 182.2.
    Prior to implementing the accounting prescribed above, the borrower 
shall submit the details of each plant abandonment to RUS for approval.

           Disallowances of Costs of Recently Completed Plant

    When it becomes probable that a portion of the cost of recently 
completed plant will be disallowed for rate making purposes and a 
reasonable estimate of the amount of the disallowance can be made, the 
estimated amount of the probable disallowance shall be deducted from the 
reported cost of the plant and recognized as a loss. If a portion of the 
costs is explicitly, but indirectly disallowed, the equivalent amount of 
the cost shall be deducted from the reported cost of the plant and 
recognized as a loss.The specific accounts that shall be used to record 
transactions involving the disallowance of plant costs are as follows:

    1. Estimated disallowed plant costs which the borrower records as a 
credit to Account 101, Electric Plant-in-Service, shall be charged to 
Account 426.5, Other Deductions.
    2. If the loss qualifies as an extraordinary item under the criteria 
set forth in General Instruction No. 7 of the USoA, the borrower shall 
record the loss in Account 435, Extraordinary Deductions. To be 
considered extraordinary, an item shall be more than five percent of 
income computed before extraordinary items. If a borrower believes that 
a loss of less than five percent should be treated as an extraordinary 
item; the borrower shall, with commission approval, record the loss in 
Account 435 and report the loss as an extraordinary item. If the 
borrower is not subject to state commission jurisdiction, RUS approval 
is required.

                   134   Utility Plant Phase-in Plans

    In August 1987, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 92, Regulated 
Enterprises--Accounting for Phase-in Plans (Statement No. 92). This 
section provides an overview of the requirements outlined in Statement 
No. 92.
    The term phase-in plan is used to refer to any method of recognition 
of allowable costs in rates that meets all of the following criteria:

    1. The method was adopted by the regulator in connection with a 
major, newly completed plant of the regulated enterprise or one of its 
suppliers or a major plant scheduled for completion in the near future.
    2. The method defers the rates intended to recover allowable costs 
beyond the period in which those allowable costs would be charged to 
expense under generally accepted accounting principles applicable to 
enterprises in general.
    3. The method defers the rates intended to recover allowable costs 
beyond the period in which those rates would have been ordered under the 
rate-making methods routinely used prior to 1982 by that regulator for 
similar allowable costs of that regulated enterprise.

    If a phase-in plan is ordered by a regulator in connection with a 
plant on which no substantial physical construction had been performed 
before January 1, 1988, none of the allowable costs that are deferred 
for future recovery by the regulator under the plan for rate-making 
purposes, shall be capitalized for general-purpose financial reporting 
purposes (financial reporting).
    If a phase-in plan is ordered by a regulator in connection with a 
plant completed before January 1, 1988, or a plant on which substantial 
physical construction had been performed before January 1, 1988, the 
criteria specified below shall be applied to that plan. If

[[Page 1018]]

the phase-in plan meets all of those criteria, all allowable costs that 
are deferred for future recovery by the regulator under the plan shall 
be capitalized for financial reporting purposes as a separate asset (a 
deferred charge). If any one of those criteria is not met, none of the 
allowable costs that are deferred for future recovery by the regulator 
under the plan shall be capitalized for financial reporting. The 
criteria for determining whether capitalization is appropriate are:

    1. The allowable costs in question are deferred pursuant to a formal 
plan that has been agreed to by the regulator;
    2. The plan specifies the timing of recovery of all allowable costs 
that will be deferred under the plan;
    3. All allowable costs deferred under the plan are scheduled for 
recovery within 10 years of the date when the deferral began; and
    4. The percentage increase in rates scheduled under the plan for 
each future year is no greater than the percentage increase in rates 
scheduled under the plan for each immediately preceding year. That is, 
the scheduled percentage increase in year two is no greater than the 
percentage increase granted in year one, the scheduled percentage 
increase in year three is no greater than the percentage increase in 
year two, etc.

    By definition, a phase-in plan approved prior to 1982 that contains 
provisions contrary to those detailed above is not subject to the 
provisions of Statement No. 92. This exemption, however, only relates to 
a specific utility and a specific regulator. For example, a utility 
cannot use a phase-in plan approved by its regulator for a different 
utility as justification for its phase-in plan exceeding the 10-year 
limit imposed by Statement No. 92.
    A phase-in plan is a method of rate making intended to moderate a 
sudden increase in rates while providing the regulated enterprise with 
recovery of its investment and a return on that investment during the 
recovery period. A disallowance is a rate-making action that prevents 
the regulated enterprise from recovering either some amount of its 
investment or some amount of return on its investment. Statement No. 90 
specifies the accounting for disallowances of plant costs (see item 133 
of this regulation). If a method of rate making that meets the criteria 
for a phase-in plan includes an indirect disallowance of plant costs, 
that disallowance shall be accounted for in accordance with Statement 
No. 90. Cumulative amounts capitalized under phase-in plans shall be 
reported as a separate asset in the balance sheet. The net amount 
capitalized in each period or the net amount of previously capitalized 
allowable costs recovered during each period shall be reported as a 
separate item of other income or expense in the income statement. 
Allowable costs capitalized shall not be reported as reductions of other 
expenses.
    The terms of any phase-in plan in effect during the year or ordered 
for future years shall be disclosed in the financial statements. 
Statement No. 92 does not permit capitalization for financial reporting 
of allowable costs deferred for future recovery by the regulator 
pursuant to a phase-in plan that does not meet the criteria or a phase-
in plan related to plant on which substantial physical construction was 
not completed before January 1, 1988. Nevertheless, the financial 
statements shall include disclosures of the net amount deferred at the 
balance sheet date for rate-making purposes, and the net change in 
deferrals for rate-making purposes during the year for those plans.
    If the provisions of Statement No. 92 are applied retroactively, the 
financial statements of all periods presented shall be restated. In 
addition, the restated financial statements shall, in the year that 
Statement No. 92 is first applied, disclose the nature of any 
restatement and its effect on margins before extraordinary items, net 
margins, and on patronage capital at the beginning of the earliest 
period presented. If the financial statements for prior years are not 
restated, the effects of applying Statement No. 92 to existing phase-in 
plans shall be reported as a change in accounting principle and the 
financial statements shall disclose the effect of adopting Statement No. 
92 on margins before extraordinary items and net margins.

[[Page 1019]]

    The application of Statement No. 92 to an existing phase-in plan 
shall be delayed if both of the following conditions are met:

    1. The enterprise has filed a rate application to have the plan 
amended to meet the criteria of Statement No. 92 or intends to do so as 
soon as practicable; and
    2. It is reasonably possible that the regulator will change the 
terms of the phase-in plan so that it will meet the criteria of 
Statement No. 92.

    If the above conditions are met, the provisions of Statement No. 92 
shall be applied to the existing phase-in plan on the earlier of the 
date when one of the conditions ceases to be met or the date when the 
final rate order is received, amending or refusing to amend the phase-in 
plan. However, if the enterprise delays filing its application for the 
amendment or the regulator does not process the application in the 
normal period of time, the application of Statement No. 92 shall not be 
further delayed.
    In applying the criteria of Statement No. 92 to a plan that was in 
existence prior to the first fiscal year beginning after December 15, 
1987, and that was revised to meet that criteria, the 10-year criterion 
and the requirement concerning the percentage increase shall be measured 
from the date of the amendment rather than from the date of the first 
scheduled deferrals under the original plan. All phase-in plans must 
receive RUS approval prior to implementation.

   135   Accounting for Removal or Relocation of Electric Facilities 
                   Resulting from the Action of Others

    Under arrangements with another party, a borrower agrees, or is 
obliged, to remove, relocate, rearrange, or otherwise make changes in 
utility property, other than for the purpose of rendering utility 
service to the other party, for which the utility is reimbursed for all 
or a portion of the costs incurred.

                            Plant Accounting

    The relocation of the line shall be accounted for as follows:

    1. If all of the assemblies in the line are retired or completely 
removed and later reinstalled or if the line is constructed in a new 
location before the old line is removed, construction and retirement 
work orders shall be prepared except for the costs relating to special 
equipment items (transformers, oil circuit reclosers, etc.) which shall 
be charged to operations expense.
    2. If a line is moved in its entirety to a new location except for 
isolated retirement units (such as at the end of the line) or poles not 
suitable for resetting, the cost of moving the portion of line that is 
moved intact shall be charged to maintenance expense while the cost 
related to the change in isolated retirement units or the replacement of 
poles not suitable for resetting shall be accounted for through use of 
construction and retirement work orders.
    3. If a line is moved intact without any change in assemblies, the 
cost shall be charged to maintenance expense.

                              Reimbursement

    If the borrower receives reimbursement for the costs related to the 
relocation of the line, the reimbursement shall be accounted for by 
crediting operation and maintenance expenses to the extent of actual 
expenses occasioned by the plant changes and crediting the remainder to 
the accumulated provision for depreciation, unless contractual terms 
definitely characterize residual or specific amounts as applicable to 
the cost of replacement. In the latter event, appropriate credits shall 
be entered in the plant accounts.
    Reimbursement received from a telephone company for adding a pole or 
replacing a present pole with a taller pole under joint use contracts 
falls within this latter category. In this instance, appropriate credits 
are charged against the plant accounts.

                                Financing

    The total reimbursement, less any portion for operations and 
maintenance costs, shall be entered in the ``Contributions in Aid of 
Construction'' section at the bottom of the Construction Work Order. 
When the Inventory

[[Page 1020]]

of Work Orders (RUS Form 219) is prepared, enter only enough of the 
contribution in column 9 to reduce to zero the amount in column 10, 
``Loan Funds Subject to Advance by RUS.'' This entry is made although 
none of the reimbursement received is recorded in the accounting records 
as a contribution in aid of construction.

                           136   Storm Damage

    As a result of recent hurricane, flood, and ice storm damage, the 
Rural Utilities Service (RUS) has received several inquiries concerning 
the proper accounting for storm damage costs and the associated funds 
received from the Federal Emergency Management Administration (FEMA).
    Storm damage costs should be accounted for under the work order 
procedure. Units of property destroyed or otherwise removed from service 
must be reflected on retirement work orders and units of property 
installed must be shown on construction work orders. To ensure that the 
accounting for construction and retirement costs is as accurate as 
possible, an effort should be made to accurately accumulate material, 
labor, and overhead costs. Even when extreme care has been exercised, 
however, it may still be necessary to use estimates to develop the 
appropriate cost figures.
    When a storm occurs, a utility typically incurs a large retirement 
loss, all or a part of which should be charged to the accumulated 
provision for depreciation. Storm damage costs over and above 
construction and retirement costs represent maintenance expense. 
Maintenance costs include the costs of resagging lines, straightening 
poles, and replacing minor items of property. When extensive damage has 
occurred, the need to restore the property to an operating condition 
without delay usually results in excessive costs being incurred. 
Standard property unit costs may be used as a guide in determining the 
amount to be capitalized. It should be noted, however, that when 
standard property unit costs are used, all excess costs are charged to 
maintenance expense.
    Because of the storm's destruction, property is retired prematurely 
and as a result, extraordinary retirement losses occur. When such 
extraordinary losses occur, they should be recorded in the year in which 
the losses are incurred. If the recording of such losses will materially 
distort the income statement, such losses may be charged to Account 435, 
Extraordinary Deductions. These costs may be deferred and amortized to 
future periods only if the provisions of Statement of Financial 
Accounting Standards No. 71, Accounting for the Effects of Certain Types 
of Regulation (Statement No. 71), are applied. Under the provisions of 
Statement No. 71, a utility may defer certain costs, provided such costs 
are included in the utility's rate base and recovered through future 
rates. If an RUS borrower elects to apply the provisions of Statement 
No. 71, RUS approval is required. To obtain RUS approval, a borrower 
must submit:
    a. A detailed description of the plan including the nature of the 
expense item, the amount of the deferral, the specific time period for 
rate recovery, and justifying support for the time period selected;
    b. The accounting journal entries being used by the cooperative to 
record the expense deferral and amortization of the deferred costs;
    c. A copy of the state Commission order authorizing recovery of the 
deferred costs through future rates, or in the absence of commission 
jurisdiction, a resolution from the cooperative's board of directors 
authorizing such recovery; and
    d. A statement from the borrower's certified public accountant (CPA) 
or CPA firm indicating that the deferral and amortization of these costs 
is in accordance with generally accepted accounting principles.
    To assist in the restoration of the damaged facilities, the Federal 
government often provides assistance through FEMA. Under current FEMA 
procedures, FEMA provides funds for the restoration of facilities based 
upon the cost estimates submitted by the entity requesting assistance. 
If the FEMA grant is for less than 100 percent of the cost estimates, 
FEMA does not specify which costs are to be reimbursed. When the funds 
are received, therefore, they should be accounted for by crediting 
construction, retirement, maintenance

[[Page 1021]]

expense, and administrative expense in direct proportion to the total 
costs incurred. For example, if total storm damage costs are $1,000,000 
with $450,000 incurred for maintenance, $300,000 for retirement, 
$200,000 for construction, and $50,000 for administrative costs, the 
FEMA reimbursement should be accounted for by applying 45 percent of the 
funds received as a credit to maintenance expense, 30 percent as a 
credit to retirement costs, 20 percent as a credit to construction, and 
5 percent as a credit to administrative and general costs.

                       Accounting Journal Entries                       
Dr. 108.8X, Retirement Work in Progress--                               
 Storm Damage...........................       $1,015.17                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............       $1,015.17
                                                                        

    To transfer the removal costs recorded in Column 11 of Retirement 
Work Order #4401X to Account 108.8X.


Dr. 107.4, Construction Work in                                         
 Progress--Storm Damage.................       $4,141.55                
    Cr. 108.8X, Retirement Work in                                      
     Progress--Storm Damage.............  ..............       $4,141.55
                                                                        

    To remove material salvaged in the ____________________ rebuild from 
Account 107.4. The original entry debited Account 154, Plant Materials 
and Operating Supplies, and credited Account 107.4. (See Column 12 of 
Retirement Work Order #4401X.)


Dr. 108.8X, Retirement Work in Progress--                               
 Storm Damage...........................     $312,230.41                
    Cr. 364, Poles Towers and Fixtures..  ..............     $133,377.55
    Cr. 365, Overhead Conductors and                                    
     Devices............................  ..............       59,683.08
    Cr. 368, Lines Transformers.........  ..............       19,704.60
    Cr. 369, Services...................  ..............       97,651.23
    Cr. 373, Street Lighting and Signal                                 
     Systems............................  ..............        1,813.95
                                                                        

    To remove the original cost of property destroyed and retired from 
the classified plant accounts. This retirement is recorded, in detail, 
on Retirement Work Order #4401X. It is understood that this retirement 
covers all distribution property retired or destroyed in the 
____________________ area exclusive of substations and special equipment 
items (meters, meter sockets, current and potential transformers, 
transformers, voltage regulators, oil circuit reclosers (OCR), and 
sectionalizers).


Dr. 108.6, Accumulated Provision for                                    
 Depreciation of Distribution Plant.....     $309,104.03                
    Cr. 108.8X, Retirement Work in                                      
     Progress--Storm Damage.............  ..............     $309,104.03
                                                                        

    To record the net loss due to the retirement of distribution lines 
in the ____________________ area. (See Retirement Work Order #4401X.)


Dr. 364, Poles, Towers and Fixtures.....      $99,075.40                
Dr. 365, Overhead Conductors and Devices      104,142.22                
Dr. 368, Line Transformers..............       25,036.07                
Dr. 369, Services.......................       28,865.08                
Dr. 373, Street Lighting and Signal                                     
 Systems................................        2,101.60                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............     $259,220.37
                                                                        

    To record, in the proper classified plant accounts, Construction 
Work Order #4401 covering the ____________________ rebuild.

This entry includes:                                                    
                                                                        
    Material Issued.....................     $150,336.49                
    Less: Materials Returned............       15,631.39                
                                         -------------------------------
    Net Material Used...................      134,705.10                
    Labor and overhead estimated by                                     
     using standard record unit costs...      124,515.27                
                                         -------------------------------
      Total.............................      259,220.37                
                                         ===============================
Dr. 108.8X, Retirement Work in Progress--                               
 Storm Damage...........................        2,384.00                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............       $2,384.00
                                                                        


[[Page 1022]]

    To transfer the removal costs associated with the retirement of old 
transmission lines ($1,966) and substations ($418) to Account 107.4. 
This cost is shown in Column 11 of Retirement Work Order #4400X).


Dr. 107.4, Construction Work in                                         
 Progress--Storm Damage.................       $1,939.74                
    Cr. 108.8X, Retirement Work in                                      
     Progress--Storm Damage.............  ..............       $1,939.74
                                                                        

    To remove material salvaged from transmission lines ($1,545.74) and 
substations ($394.00) from Account 107.4. The original entry debited 
Account 154 and credited Account 107.4. (See Column 12 of Retirement 
Work Order #4400X.)


Dr. 108.8X, Retirement Work in Progress--                               
 Storm Damage...........................     $162,172.06                
    Cr. 355, Poles and Fixtures.........  ..............      $47,738.45
    Cr. 356, Overhead Conductors &                                      
     Devices............................  ..............       80,304.11
    Cr. 362, Station Equipment..........  ..............       34,129.50
                                                                        

    To remove the original cost of transmission lines and substations 
destroyed and retired from the classified plant accounts. (See 
Retirement Work Order #4400X.) (New substations were built and 
separately accounted for on Work Order #4406.)


Dr. 108.5, Accumulated Provision for                                    
 Depreciation of Transmission Plant.....     $128,462.82                
Dr. 108.6, Accumulated Provision for                                    
 Depreciation of Distribution Plant.....       34,153.50                
    Cr. 108.8X, Retirement Work in                                      
     Progress--Storm Damage.............  ..............     $162,616.32
                                                                        

    To record the net loss due to the retirement of transmission lines 
($128,462.82) and substations ($34,153.50). (See Retirement Work Order 
#4400X):

------------------------------------------------------------------------
                                                           Transmission 
                                            Substations        plant    
------------------------------------------------------------------------
Original Cost...........................      $34,129.50     $128,042.56
Add: Cost of Removal....................          418.00        1,966.00
                                         -------------------------------
                                               34,547.50      130,008.56
Less: Material Salvaged.................          394.00        1,545.74
                                         -------------------------------
      Total.............................       34,153.50      128,462.82
                                         ===============================
------------------------------------------------------------------------


Dr. 355, Poles and Fixtures.............     $161,784.05                
Dr. 356, Overhead Conductors and Devices      124,704.77                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............     $286,488.82
                                                                        

    To record, in the proper classified plant accounts, the costs of a 
69 kV transmission line (____________________) as detailed in Work Order 
#4400. This work order includes construction costs as follows:


Material Used (Net).....................     $171,665.62                
    Labor and overhead estimated by                                     
     using standard record unit costs...      114,823.20                
                                         -------------------------------
      Total.............................      286,488.82                
                                         ===============================
Dr. 107.4, Construction Work in                                         
 Progress--Storm Damage.................         $329.40                
    Cr. 108.8X, Retirement Work in                                      
     Progress--Storm Damage.............  ..............         $329.40
                                                                        

    To correct the journal entry for cash received from the sale of 
scrapped meters and transformers. The original entry credited Account 
107.4 at the time of receipt.


    Transformers........................         $318.00                
    Meters..............................           11.40                
                                         -------------------------------
    Net Materials Used..................          329.40                
                                         ===============================
Dr. 108.8X, Retirement Work in Progress--                               
 Storm Damage...........................  ..............     $137,671.22
    Cr. 365, Overhead Conductors and                                    
     Devices............................  ..............       $4,557.00
    Cr. 368, Line Transformers..........  ..............      112,815.22
    Cr. 370, Meters.....................  ..............       20,299.00
                                                                        


[[Page 1023]]

    To remove the cost of meters, transformers, and OCRs lost or 
destroyed from the primary plant accounts. (See Retirement Work Order 
#4402X.)


    737 Transformers....................     $112,815.22                
    31 OCRs.............................        4,557.00                
    1,532 Meters........................       20,299.00                
                                         -------------------------------
      Total.............................      137,671.22                
                                         ===============================
Dr. 108.6, Accumulated Provision for                                    
 Depreciation of Distribution Plant.....     $137,341.82                
    Cr. 108.8X, Retirement Work in                                      
     Progress...........................  ..............     $137,341.82
                                                                        

    To record the net loss due to the retirement of meters, 
transformers, and OCRs. (See Retirement Work Order #4402X.)

    Original Cost.......................     $137,671.22                
    Salvaged Realized...................          329.40                
                                         -------------------------------
      Total.............................      137,341.82                
                                         ===============================
Dr. 186, Miscellaneous Deferred Debits..       $1,319.85                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............       $1,319.85
                                                                        

    To record the engineering costs associated with future construction 
work in the ____________________ area.

Dr. 593, Maintenance of Overhead Lines..         $607.24                
Dr. 595, Maintenance of Line                                            
 Transformers...........................       19,365.86                
Dr. 597, Maintenance of Meters..........        6,595.56                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............      $26,568.66
                                                                        

    To charge the costs of repairing damaged meters, transformers, 
voltage regulators, and OCRs to the appropriate expense accounts. Repair 
costs were originally charged to Account 107.4.

----------------------------------------------------------------------------------------------------------------
                                                                        593             595             597     
----------------------------------------------------------------------------------------------------------------
Meters..........................................................  ..............  ..............       $6,595.56
Transformers....................................................  ..............      $18,869.95  ..............
Voltage Regulators..............................................  ..............          495.91  ..............
Oil Circuit Reclosers...........................................         $607.24  ..............  ..............
                                                                 -----------------------------------------------
      Total.....................................................          607.24       19,365.86        6,595.56
                                                                 ===============================================
----------------------------------------------------------------------------------------------------------------


Dr. 920, Administrative and General                                     
 Salaries...............................      $32,000.00                
Dr. 921, Office Supplies and Expenses...        4,421.69                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............      $36,421.69
                                                                        

    To charge the administrative costs incurred to obtain the FEMA grant 
to the appropriate expense accounts. Administrative costs were 
originally charged to Account 107.4.


    Salaries............................      $32,000.00                
    Office Supplies.....................        4,421.69                
                                         -------------------------------
      Total.............................      $36,421.69                
                                         ===============================
Dr. 571, Maintenance of Overhead Lines..       $3,675.60                
Dr. 593, Maintenance of Overhead Lines..       33,080.40                
    Cr. 107.4, Construction Work in                                     
     Progress Storm Damage..............  ..............      $36,756.00
                                                                        

    To allocate expenses remaining in Account 107.4 to distribution and 
transmission maintenance expense. It was estimated that only 10 percent 
is applicable to transmission.


Dr. 426.5, Other Deductions.............     $275,000.00                
Dr. 435, Extraordinary Deductions                                       
Dr. 182.1, Extraordinary Property Losses                                
    Cr. 108.5, Accumulated Provision for                                
     Depreciation of Transmission Plant.  ..............      $35,000.00
    Cr. 108.6, Accumulated Provision for                                
     Depreciation of Distribution Plant.  ..............      240,000.00
                                                                        


[[Page 1024]]

    To restore the accumulated provisions for depreciation to their 
appropriate levels based upon a study of plant currently in service.

    Note: Account 426.5, Other Deductions, should be used to record the 
retirement loss as a current period expense. Account 435, Extraordinary 
Deductions, may be used when the loss will materially distort the income 
statement. Account 182.1, Extraordinary Property Losses, should be used 
when such costs are being deferred under the provisions of Statement No. 
71. Costs recorded in this account should be amortized to Account 407, 
Amortization of Property Losses, as the costs are recovered through 
rates.


Dr. 131.1, Cash--General....................................................     $1,000,000.00                  
    Cr. 253, Other Deferred Credits.........................................  ................     $1,000,000.00
                                                                                                                

    To record the receipt of funds from the Federal Emergency Management 
Administration (FEMA).


Dr. 253, Other Deferred Credits...............................................     $1,000,000.00                
    Cr. 108.5, Accumulated Provision for Depreciation of Transmission Plant...  ................      $74,205.00
    Cr. 108.6, Accumulated Provision for Depreciation of Distribution Plant...  ................      191,575.00
    Cr. 186, Miscellaneous Deferred Debits....................................  ................          872.00
    Cr. 355, Poles and Fixtures...............................................  ................      129,056.00
    Cr. 356, Overhead Conductors and Devices..................................  ................       99,408.00
    Cr. 364, Poles, Towers and Fixtures.......................................  ................       78,916.00
    Cr. 365, Overhead Conductors and Devices..................................  ................       82,840.00
    Cr. 368, Line Transformers................................................  ................       20,056.00
    Cr. 369, Services.........................................................  ................       23,108.00
    Cr. 373, Street Lighting and Signal Systems...............................  ................        1,744.00
    Cr. 426.5, Other Deductions...............................................  ................      219,220.00
    Cr. 571, Maintenance of Overhead Lines....................................  ................        2,900.00
    Cr. 593, Maintenance of Overhead Lines....................................  ................       26,600.00
    Cr. 595, Maintenance of Line Transformers.................................  ................       15,300.00
    Cr. 597, Maintenance of Meters............................................  ................        5,200.00
    Cr. 920, Administrative and General Salaries..............................  ................       25,491.00
    Cr. 921, Office Supplies and Expenses.....................................  ................        3,509.00
                                                                                                                

    To allocate FEMA funds to the proper accounts.


                            Summary of Costs                            
                                                                        
Maintenance:                                                            
    Account 571, Maintenance of Overhead Lines..........       $3,675.60
    Account 593, Maintenance of Overhead Lines..........       33,687.24
    Account 595, Maintenance of Line Transformers.......       19,365.86
    Account 597, Maintenance of Meters..................        6,595.56
                                                         ---------------
      Total Maintenance Costs...........................       63,324.26
                                                         ===============
Retirement Loss:                                                        
    Account 108.5, Accumulated Provision for                            
     Depreciation of Transmission Plant.................       93,462.82
    Account 108.6, Accumulated Provision for                            
     Depreciation of Distribution Plant.................      240,599.35
    Account 426.5, Other Deductions.....................      275,000.00
                                                         ---------------
      Total Retirement Loss.............................      609,062.17
                                                         ===============
Construction:                                                           
    Account 186, Miscellaneous Deferred Debits..........        1,319.85
    Account 355, Poles and Fixtures.....................      161,784.05
    Account 356, Overhead Conductors and Devices........      124,704.77
    Account 364, Poles, Towers and Fixtures.............       99,075.40
    Account 365, Overhead Conductor and Devices.........      104,142.22
    Account 368, Line Transformers......................       25,036.07
    Account 369, Services...............................       28,865.08
    Account 373, Street Lighting and Signal Systems.....        2,101.60
                                                         ---------------
      Total Construction Cost...........................      547,029.04
                                                         ===============
Administrative:                                                         

[[Page 1025]]

                                                                        
    Account 920, Administrative and General Salaries....      $32,000.00
    Account 921, Office Supplies and Expenses...........        4,421.69
                                                         ---------------
      Total Administrative Cost.........................       36,421.69
                                                         ===============
    Maintenance.........................................       63,324.26
    Retirement Loss.....................................      609,062.17
    Construction........................................      547,029.04
    Administrative......................................       36,421.69
                                                         ---------------
      Total Costs.......................................    1,255,837.16
                                                         ===============
                                                                        


                       Distribution of FEMA Funds                       
                                                                        
 Maintenance: 63,324.261,255,837.16=.0504=5.0%                  
Retirement: 609,062.171,255,837.16=.4850=48.5%                  
Construction: 547,029.041,255,837.16=.4356=43.6%                
Administrative: 36,421.691,255,837.16=.0290=2.9%                
                                                                        
Maintenance: $1,000,000.00 x 5.0%=....................        $50,000.00
Retirement: $1,000,000.00 x 48.5%=....................        485,000.00
Construction: $1,000,000.00 x 43.6%=..................        436,000.00
Administrative: $1,000,000.00 x 2.9%=.................         29,000.00
                                                       -----------------
      Total...........................................      1,000,000.00
                                                       =================
                 Distribution of FEMA Funds--Maintenance                
                                                                        
Account 571: 3,675.6063,324.26=.0580=5.8%                       
Account 593: 33,687.2463,324.26=.5320=53.2%                     
Account 595: 19,365.8663,324.26=.3058=30.6%                     
Account 597: 6,595.5663,324.26=.1041=10.4%                      
                                                                        
Account 571: $50,000.00 x 5.8%=.......................         $2,900.00
Account 593: $50,000.00 x 53.2%=......................         26,600.00
Account 595: $50,000.00 x 30.6%=......................         15,300.00
Account 597: $50,000.00 x 10.4%=......................          5,200.00
                                                       -----------------
      Total...........................................         50,000.00
                                                       =================
                                                                        
               Distribution of FEMA Funds--Retirement Loss              
                                                                        
Account 108.5: 93,462.82609,062.17=.1535=15.3%                  
Account 108.6: 240,599.35609,062.17=.3950=39.5%                 
Account 426.5: 275,000.00609,062.17=.4515=45.2%                 
                                                                        
Account 108.5: $485,000.00 x 15.3%=...................        $74,205.00
Account 108.6: $485,000.00 x 39.5%=...................        191,575.00
Account 426.5: $485,000.00 x 45.2%=...................        219,220.00
                                                       -----------------
      Total...........................................        485,000.00
                                                       =================
                Distribution of FEMA Funds--Construction                
                                                                        
 Account 186: 1,319.85547,029.04=.0024=.2%                      
Account 355: 161,784.05547,029.04=.2958=29.6%                   
Account 356: 124,704.77547,029.04=.2280=22.8%                   
Account 364: 99,075.40547,029.04=.1811=18.1%                    
Account 365: 104,142.22547,029.04=.1904=19.0%                   
Account 368: 25,036.07547,029.04=.0457=4.6%                     
Account 369: 28,865.08547,029.04=.0528=5.3%                     
Account 373: 2,101.67547,029.04=.0038=.4%                       
                                                                        
Account 186: $436,000.00 x .2%=.......................           $872.00
Account 355: $436,000.00 x 29.6%=.....................        129,056.00
Account 356: $436,000.00 x 22.8%=.....................         99,408.00
Account 364: $436,000.00 x 18.1%=.....................         78,916.00
Account 365: $436,000.00 x 19.0%=.....................         82,840.00
Account 368: $436,000.00 x 4.6%=......................         20,056.00
Account 369: $436,000.00 x 5.3%=......................         23,108.00

[[Page 1026]]

                                                                        
Account 373: $436,000.00 x .4%=.......................          1,744.00
                                                       -----------------
      Total...........................................        436,000.00
                                                       =================
               Distribution of FEMA Funds--Administrative               
                                                                        
 Account 920: 32,000.0036,421.69=.8786=87.9%                    
Account 921: 4,421.6936,421.69=.1213=12.1%                      
                                                                        
Account 920: $29,000.00 x 87.9%=......................        $25,491.00
Account 921: $29,000.00 x 12.1%=......................          3,509.00
                                                       -----------------
      Total...........................................         29,000.00
                                                       =================
                                                                        

                      201   Supplemental Financing

    Many borrowers secure additional financing from sources other than 
RUS. CFC was established to provide a source of supplemental financing. 
Although the accounting provided in this section refers to CFC, it is 
applicable to other sources of supplemental financing as well.

    1. Membership Fees
    When a membership fee is paid to CFC, the payment shall be recorded 
as a debit to Account 123.23, Other Investments in Associated 
Organizations.
    2. Subscriptions
    The subscription agreement to purchase Capital Term Certificates 
(CTCs) is a binding obligation to pay an initial subscription in equal 
annual payments over the first three years and an additional annual 
subscription payable in the fourth through fifteenth years.
    The annual subscriptions to CFC for the fourth through fifteenth 
years is 2.0 percent of total operating revenues after deducting the 
cost of power. Using the best data available, each borrower shall 
estimate the amount of CTCs that are required to be purchased. Estimates 
are not expected to be precise and adjustments shall be made when future 
projections indicate a change is needed. When the agreement to purchase 
CTCs is made, an entry shall be recorded debiting Account 123.21, 
Subscriptions to Capital Term Certificates--Supplemental Financing, and 
crediting Account 224.11, Other Long-Term Debit--Subscriptions. When the 
CTCs are actually purchased, the following entries shall be recorded:
Dr. 224.11, Other Long-Term Debt--Subscriptions
    Cr. 131.1, Cash--General
Dr. 123.22, Investments in Capital Term Certificates--Supplemental 
          Financing
    Cr. 123.21, Subscriptions to Capital Term Certificates--Supplemental 
Financing

    3. Interest Receipts
    Interest accrues monthly to the holder of CTCs at a rate in 
accordance with the terms of the CFC Invitation to Subscribe. The 
accrual of interest and the receipt of interest proceeds shall be 
recorded as follows:

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income
To record the monthly accrual of interest.
Dr. 131.1, Cash--General
    Cr. 171, Interest and Dividends Receivable
To record the receipt of interest proceeds from the investment in CTCs.

    Note: Any amounts received in excess of the previous accruals shall 
be credited to Account 419.

    Interest penalties may be charged by CFC for late payments on any 
subscription from the date that the payment was due to the date that the 
payment was actually received. Such charges shall be expensed to Account 
431, Other Interest Expense.
    4. Notes
    If a note is due more than one year after the date of the note, the 
appropriate subaccount of Account 224, Other Long-Term Debt, shall be 
credited. If the note is due less than one year from the date of the 
note, Account 231, Notes Payable, shall be credited.
    When a loan from CFC has been consummated and a note is executed, 
Account 224.13, Supplemental Financing Notes Executed--Debit, shall be 
debited; and Account 224.12, Other Long-Term Debt--Supplemental 
Financing, credited. When a loan from another source has been 
consummated, Account 224.15, Notes Executed--Other--Debit,

[[Page 1027]]

shall be debited; and Account 224.14, Other Long-Term Debt--
Miscellaneous, credited.
    5. Loan Proceeds
    Cash proceeds from unsecured short-term loans shall be deposited 
into the General Fund Account. Cash proceeds from all secured loans 
shall be deposited into the Construction Fund Trustee Account.
    From two to seven percent, depending upon the class of borrower and 
its debt-equity ratio, of each CFC loan is applied to the purchase of 
Capital Term Certificates. At the time of a borrower's first requisition 
under the CFC loan, the following entry shall be recorded:

Dr. 131.2, Cash--Construction Fund--Trustee
Dr. 123.22, Investments in Capital Term Certificates--Supplemental 
          Financing
    Cr. 224.13, Supplemental Financing Notes Executed--Debit
To record the requisition of funds from CFC.

    6. Capital Credits
    As a result of borrowing from CFC or other lenders organized on a 
cooperative basis, a borrower may receive capital credit allocations. 
These allocations are usually based upon the borrower's participation in 
the lending program with participation measured by the amount of 
interest expense and conversion costs incurred.
    To account for patronage capital allocations from cooperative 
lenders, the following journal entries shall be recorded:

Dr. 123.1, Patronage Capital from Associated Cooperatives
    Cr. 424, Other Capital Credits and Patronage Capital Allocations
To record the allocation of capital credits from a cooperative lender.

    Note: If any portion of the interest expense was capitalized as a 
component of construction cost, a similar portion of the capital credit 
allocation shall be credited to construction rather than to Account 424. 
The portion credited to construction shall be determined by applying the 
percentage of interest expense charged to construction for that 
particular lender to the interest expense incurred for that lender.

Dr. 131.1, Cash--General
    Cr. 123.1, Patronage Capital from Associated Cooperatives
To record the cash receipt of patronage capital credits from cooperative 
          lenders.

                   301   Forfeited Customers' Deposits

    Customers may be required to make deposits to guarantee payment of 
amounts billed for electric service. When a customer discontinues 
service, the customer's deposit shall first be applied to unpaid energy 
bills, with the balance remitted by check to the customer. If the check 
is returned, it shall be voided and the original entry that was made 
when the check was issued shall be reversed.
    Unclaimed balances of customer deposits shall remain in Account 235, 
Customer Deposits, until the legal liability of the cooperative to make 
such a refund has elapsed. When there is no further legal liability to 
refund the deposit and if it does not escheat to the state, it shall be 
transferred to Account 144, Accumulated Provision for Uncollectible 
Customer Accounts--Credit, retaining full information of all 
particulars.

                      401   Computer Software Costs

    Computer software consists of programs and routines (sets of 
computer instructions) which direct the operation of the computer. 
Software may refer to generalized routines useful in computer operations 
or to programs for specific applications such as payroll.
    The distinction between generalized software and application 
software is important. Generalized software provides operating support 
for individual applications. This would include programs for such tasks 
as making printouts of machine-readable records, sorting records, 
organizing and maintaining files, translating programs written in a 
symbolic language into machine-language instructions, and scheduling 
jobs through the computer. These programs are generally furnished by the 
manufacturer.
    Application software consists of a set of instructions for 
performing a particular data processing task. Application programs are 
generally written by the user installation, but are frequently obtained 
as prewritten packages from software vendors. Application software 
includes programs such as payroll, billing, general ledger, as well as 
engineering or managerial applications.

[[Page 1028]]

    Costs incurred with the purchase or development of computer software 
shall be accounted for as follows:
    1. Capitalize in a subaccount of Account 391, Office Furniture and 
Equipment, all costs for generalized software. Depreciate the cost over 
the service life (or remaining life) of the main hardware (i.e., 
containing central processor). If the purchase invoice does not break 
out or assign a cost to the ``generalized software,'' it is appropriate 
to include the full amount in hardware costs. Capitalize in a separate 
subaccount of Account 391, all costs for applications software 
determined to have a service life of over one year. Depreciate the cost 
over the estimated useful service life of the program. This depreciation 
period shall not exceed five (5) years. RUS realizes, however, that 
there may be circumstances that justify a useful life longer than 5 
years. When this is the case and it is management's intent to utilize 
these programs over an extended period, written justification shall be 
submitted to RUS for approval.
    2. Expense in Account 921, Office Supplies and Expenses, in the 
period incurred, all costs associated with the maintenance, updating, 
and conversion of files or revision of all software, and all costs for 
software with a useful life of less than 1 year. Also expense in Account 
921, the unamortized cost of all software determined, during the year, 
to be no longer used by or useful to the cooperative. Such costs that 
are clearly applicable to any category of operating expenses other than 
the administrative and general category, however, shall be included in 
the appropriate account in such category. In accordance with the USoA, 
no portion of such costs shall be capitalized to construction or 
retirement activities.
    In determining the total cost of purchased or internally developed 
software, the following items shall be included:
    a. Costs incurred for feasibility studies if they result in the 
purchase or development of software;
    b. All costs related to the actual purchase or development of the 
software. These costs must be specifically identifiable with the 
software and properly supported by time cards, invoices, or other 
documents; and
    c. All costs incurred in ``testing and debugging'' the software.
    Computer software costs are properly chargeable to Account 107, 
Construction Work in Progress, provided that the following criteria are 
met:
    1. The computer program is specifically dedicated to performing a 
construction related activity, and
    2. The cost of the software is itemized separate and apart from 
other hardware and software costs.
    The cost of software programs meeting the above requirements and 
having an estimated useful service life in excess of 1 year shall be 
recorded in Account 186, Miscellaneous Deferred Debits, and amortized to 
Account 107, Construction Work in Progress, over the estimated service 
life of the program not to exceed 5 years.
    All costs related to training personnel in the use of software shall 
be expensed as incurred.
    The accounting in this section is not intended to apply to 
immaterial amounts. When it is deemed that the costs of the 
recordkeeping necessary to amortize these costs outweigh the benefits to 
the members, software costs shall be expensed in the year incurred.
    For computer costs relating to load control equipment, refer to Item 
118 of this section.

                          402   Legal Expenses

    Utilities may incur legal expenses which pertain to construction 
activities, loan activities, or general services. The proper accounting 
treatment for legal expenses is as follows:

    1. Legal fees incurred in connection with a construction project, 
including the court costs directly related thereto, which can be 
identified and supported as such, shall be capitalized in Account 107, 
Construction Work-in-Progress, as a cost of construction.
    2. Legal fees specifically identified and properly supported as 
resulting from activities designed to obtain long-term debt, shall be 
deferred in Account 181, Unamortized Debt Expense.
    3. Legal fees for all other services and fees which cannot be 
properly identified will require expensing to either Account 417.1, 
Expenses of Nonutility

[[Page 1029]]

Operations, or Account 923, Outside Services Employed, as appropriate.

    To properly support the capitalization or deferral of legal fees, 
the attorney shall provide an itemization of services performed and the 
corresponding costs. Only those costs specifically identified by the 
attorney as being related to construction or loan activities shall be 
capitalized or deferred as described above.

                              403   Leases

    Lease transactions shall be accounted for as either a capital lease 
or an operating lease depending upon whether or not the lease meets the 
criteria for classification as a capital lease. The definitions for 
capital and operating leases and the criteria used to determine which 
method shall be used are as follows:

                               Definitions

    1. Capital Lease: A lease that transfers substantially all of the 
benefits and risks inherent in the ownership of the property to the 
lessee, who accounts for the lease as an acquisition of an asset and the 
incurrence of a liability.
    2. Operating Lease: An operating lease is a simple rental agreement 
which does not meet the criteria for a capital lease. Under the terms of 
an operating lease, the lessee records the rental payments due over the 
term of the lease as rent expense.

                                Criteria

    A lease agreement shall be classified as a capital lease if one or 
more of the following criteria is met:

    1. Ownership of the property is transferred to the lessee by the end 
of the lease term;
    2. The lease contains a bargain purchase option;
    3. The lease term is equal to 75 percent or more of the estimated 
useful life of the leased property; or
    4. The present value of the lease payments at the inception of the 
lease equals or exceeds 90 percent of the fair market value of the 
leased property.

    A lease agreement qualifying as a capital lease shall be recorded in 
either Account 101.1, Property Under Capital Leases;Account 120.6, 
Nuclear Fuel Under Capital Leases; or Account 121, Nonutility Property, 
as appropriate, at the present value (at the beginning of the lease 
term) of the minimum lease payments. If, however, this amount exceeds 
the fair value of the leased property at the inception of the lease, the 
asset shall be recorded at its fair market value. An offsetting credit 
shall be recorded in Account 227, Obligations Under Capital Leases--
Noncurrent, with the current portion recorded in Account 243, 
Obligations Under Capital Leases--Current. Assets recorded in Account 
101.1 shall be classified separately according to the detailed accounts 
(301-399) provided for electric plant in service.
    Monthly payments made under the lease obligation shall be charged to 
rent expense, fuel expense, or construction work-in-progress as they 
become payable. Similarly, the leased asset and the associated 
obligation shall be reduced by the current amount due.
    The following journal entries shall be used by the lessee to record 
capital lease transactions:

Dr. 101.1, Property Under Capital Leases
    Cr. 243, Obligations Under Capital Leases--Current
    Cr. 227, Obligations Under Capital Leases--Noncurrent
To record the capital lease agreement.
Dr. 550, Rents
    Cr. 232, Accounts Payable
Dr. 243, Obligations Under Capital Leases--Current
    Cr. 101.1, Property Under Capital Leases
To record the monthly rental payment due.
Dr. 232, Accounts Payable
    Cr. 131.1, Cash--General
To record the monthly lease payment.
    Operating leases which are simple rental agreements do not require 
the recording of an asset or a liability. The entries that are required 
to record an operating lease by the lessee are as follows:

Dr. 550, Rents
    Cr. 232, Accounts Payable
To record the monthly rental payment due.
Dr. 232, Accounts Payable
    Cr. 131.1, Cash--General
To record the monthly lease payment.

    For purposes of illustration, the journal entries presented in this 
interpretation debit Account 550, Rents. However, Account 507, Rents 
(steam power

[[Page 1030]]

generation); Account 525, Rents (nuclear power generation); Account 540, 
Rents (hydraulic power generation); Account 550, Rents (other power 
production); Account 567, Rents (transmission expense); Account 589, 
Rents (distribution expense); and Account 931, Rents (general and 
administrative), should be charged, as appropriate, depending upon the 
function of the equipment being leased.

                 404   Consolidated Financial Statements

    In October 1987, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 94, Consolidation of All 
Majority-Owned Subsidiaries (Statement No. 94). For purposes of 
reporting to RUS, Statement No. 94 shall be applied as follows:
    1. An RUS borrower that is a subsidiary of another entity shall 
prepare and submit to RUS separate financial statements even though this 
financial information is presented in the parent's consolidated 
statements.
    2. In those cases in which an RUS borrower has a majority-ownership 
in a subsidiary, the borrower must prepare consolidated financial 
statements in accordance with the requirements of Statement No. 94. 
These consolidated statements must also include supplementary schedules 
presenting a Balance Sheet and Income Statement for each majority-owned 
subsidiary included in the consolidated statements.
    Although Statement No. 94 requires the consolidation of majority-
owned subsidiaries, RUS Forms 7 and 12 must be prepared on an 
unconsolidated basis.

                   501   Patronage Capital Assignments

    Accounting for patronage capital and margins may vary depending upon 
the individual cooperative's bylaws. The comments contained in this 
section relate to the application of the standard bylaw provisions.
    The entries required, at year's end, to record patronage capital 
transactions where there is no major merchandising program are as 
follows:

Dr. 219.1, Operating Margins
Dr. 219.2, Nonoperating margins
    Cr. 201.2, Patronage Capital Assignable
To record the amount of patronage capital assignable.
Dr. 201.2, Patronage Capital Assignable
    Cr. 201.1, Patronage Capital Credits
To record the allocation of patronage capital to the patrons' accounts.

    The procedure for determining the amount of patronage capital 
assignable to the individual patron on a total dollar basis is as 
follows:

    1. Determine the total amount to be assigned for the year (Account 
201.2).
    2. Determine patronage from electric service, the total of 
consumers' billings (Accounts 440-447).
    3. Determine the percentage factor to be used in calculating 
patronage capital to be credited to each consumer account. Divide ``1'' 
by ``2''.
    4. Determine the amount of capital to be credited to each consumer. 
Multiply the individual consumer's billings for the year by the 
percentage factor obtained in ``3'' above.

    The procedure for determining the amount of patronage capital 
assignable to the individual patron on a dollar basis, less the cost of 
power, is as follows:

    1. Determine the total amount to be assigned for the year.
    2. Determine the total amount of revenue received from each 
classification of customers.
    3. Determine the total cost of power for each classification of 
customers. (For example, use cost per kWh sold).
    4. For each classification of customers subtract the amount obtained 
in ``3'' from the amount obtained in ``2,'' to obtain the total amount 
received, less cost of power, by classification of customers.
    5. Add the amounts obtained in ``4'' to obtain the total amount of 
revenue, less cost of power.
    6. Divide the total amount received, less cost of power for each 
classification of customers (amounts obtained in ``4''), by the total 
amount received, less cost of power for all customers (amount obtained 
in ``5'') to obtain the prorata percentage for each classification of 
customers.
    7. Multiply the total amount to be allocated (amount obtained in 
``1'') by the prorata percentage for each classification of customers 
(obtained in ``6'')

[[Page 1031]]

to obtain the amount to be assigned each classification of customers.
    8. Divide the amount to be assigned each classification of customers 
(amount obtained in ``7'') by the total amount received from the 
classification of customers (amount obtain in ``2'') to obtain the 
percentage factor for each classification of customers.
    9. Determine the total amount received from each individual 
customer.
    10. Multiply the total amount received from each individual customer 
(amount obtained in ``9'') by the percentage factor for his 
classification (amount obtained in ``8'') to obtain the amount of 
capital to be assigned each individual customer.

    After calculating the patronage capital to be credited to each 
customer, there is usually a small balance remaining. This small balance 
shall remain in Account 201.2, Patronage Capital Assignable, and shall 
be added to the amount to be assigned in the following year.
    Proper records shall be maintained to support all capital credit 
transactions. As a minimum, these records shall show, for each patron, 
the amount of capital credited for each year as well as the amount and 
date retired for each year.
    The process of transferring capital credits from the Patronage 
Capital Assignable accounts to the Patrons' Capital Credits Assigned 
accounts or to the Patrons' Capital Credits accounts and the making of 
entries to individual patron's records constitutes an assignment of 
capital credits. This holds true for recordkeeping purposes as well as 
from a legal point of view. This assignment shall be followed by formal 
notification to patrons within a reasonable period of time.
    In the event that a distribution cooperative incurs a net loss, that 
loss shall not be allocated to its members (patrons). The loss shall be 
accumulated and offset by future nonoperating margins.

                   502   Patronage Capital Retirements

    As the board of directors has the responsibility for determining 
whether the financial condition of the cooperative will permit 
retirement of capital credits and whether the proposed retirement 
complies with mortgage and bylaw provisions, the authorization for the 
retirement shall be set forth in the board minutes. The entries to 
record the general retirement of capital credits shall be as follows:

Dr. 201.1, Patronage Capital Credits
    Cr. 238.1, Patronage Capital Payable
To record the board of directors' authorization to make payments of 
          capital credits.
Dr. 238.1, Patronage Capital Payable
    Cr. 131.1, Cash--General.
To record actual cash payments of capital credits.

    Note: To provide better control over the payment of patronage 
capital credits, a special checking account should be established in an 
amount equal to the authorized general retirement. Special prenumbered 
checks shall be used for each general retirement of patronage capital.

    To strengthen internal control and to facilitate the settlement of 
estates, the board should adopt a policy specifying exactly how payments 
of capital credits shall be made to the estates of deceased patrons. 
Payments made to estates shall be recorded as follows:

Dr. 201.1, Patronage Capital Credits
    Cr. 131.1, Cash--General
To record the payment of capital credits when an estate is settled by 
          refunding 100 cents on the dollar.
Dr. 201.1, Patronage Capital Credits
    Cr. 131.1, Cash--General
    Cr. 217, Retired Capital Credits--Gain
To record the payment of capital credits when an estate is settled for 
          less than the full amount of capital credited to the deceased 
          customer's account.
Dr. 217, Retired Capital Credits--Gain
    Cr. 201.2, Patronage Capital Assignable
To record the reallocation to current patrons of the amount of the 
          discount, if provided for in the bylaws.

    If a capital credit check is returned due to an inability to locate 
the patron, it shall be held pending a recheck of available records to 
ascertain the correct address of the patron. If it is determined that 
the patron cannot be located, the check shall be cancelled and the 
amount of the check debited to Account 131.1, Cash--General, and 
credited to Account 217, Retired Capital Credits--Gain. If the state, 
however, has unclaimed property laws to which the amount is subject, the 
amount shall be credited to Account 253, Other Deferred Credits, until 
final disposition has been made. A notation shall be

[[Page 1032]]

made in the records of the former patron to facilitate payment if his or 
her whereabouts is subsequently determined.
    If the records show that a number of former patrons have moved and 
left no forwarding address, it is not necessary to prepare a capital 
credit retirement check for these patrons when a general retirement of 
capital credits is made. When setting funds aside to make a general 
retirement, however, appropriate amounts shall be included to cover 
payments due these patrons. The cooperative shall then make a reasonable 
effort to locate these patrons through publication of their names in the 
newsletter or local newspaper. If the patrons are not located, the 
amounts set aside and the credits to their accounts shall be handled in 
a manner similar to those for whom payment checks are returned.
    Under the standard bylaw provisions recommended by RUS, it is not 
proper to use capital credits that were assigned to former patrons to 
liquidate their delinquent bills. When the standard bylaws are in effect 
and collection efforts have failed, the balance of an uncollectible 
bill, after application of customers deposits and membership fees, shall 
be charged against the accumulated provision for uncollectible accounts. 
If the patron has capital credits assigned to him or her, these remain 
untouched except for a notation to indicate the amount of the unpaid 
bill. When a general retirement of capital credits is made at some 
future date, amounts which would otherwise be due the patron may be 
applied to satisfy the unpaid bill with the balance refunded to him or 
her.

                503   Operating and Nonoperating Margins

    Occasionally questions arise concerning the accounting for the 
balances in Accounts 218, Capital Gains and Losses; 219.3, Other 
Margins; 219.4, Other Margins and Equities-Prior Periods; 434, 
Extraordinary Income; and 435, Extraordinary Deductions. The balance in 
these accounts shall be accounted for as follows:

    1. The balance in Account 219.4, Other Margins and Equities--Prior 
Periods, shall be transferred, at year's end, to Account 219.1 or 219.2, 
as appropriate. Accounts 219.1 and 219.2 are then closed to Account 
201.2, Patronage Capital Assignable, unless otherwise provided for in 
the bylaws.
    2. The balances in Account 434, Extraordinary Income, and Account 
435, Extraordinary Deductions, shall be cleared to Account 219.2 at 
year's end.
    3. The balances in Account 219.3, Other Margins, and Account 218, 
Capital Gains and Losses, shall remain in these accounts unless they are 
allocated to patrons or used to absorb future losses as provided for in 
the bylaws of the cooperative.

    When a cooperative is engaged in a major merchandising activity, all 
costs properly chargeable to the merchandising activity shall be 
allocated as such to offset the associated revenue. Nonoperating margins 
generated from this source shall be prorated annually on a patronage 
basis and credited to those patrons accounts from whom such amounts were 
obtained. Merchandising activities of this nature may require a bylaw 
provision allowing for the allocation of margins generated by a major 
merchandising activity separate from other operating or nonoperating 
margins.
    If, at the time of the adoption of the bylaw provisions for the 
allocation of nonoperating margins, there are prior years' losses 
resulting in debit balances in Accounts 218, Capital Gains and Losses; 
219.1, Operating Margins; 219.2, Nonoperating Margins; or 219.3, Other 
Margins; the credit balances in Accounts 218, 219.2, or 219.3 resulting 
from prior years' operations shall be transferred, to the extent 
necessary, to offset such deficits. If the board determines that amounts 
shall be allocated to prior years' patrons, the credit balances 
remaining in these accounts shall be transferred to Account 201.2, 
Patronage Capital Assignable.
    If there are current year's losses resulting in debit balances in 
either Account 219.1 or 219.2, credit balances in Accounts 219.2, 219.3, 
and 218 shall be transferred, to the extent necessary, to offset such 
deficits. Remaining credit balances allocable to patrons shall be 
transferred to Account 1.2.

[[Page 1033]]

              504   Patronage Capital from G&T Cooperatives

    When a cooperative receives capital credits from a G&T cooperative, 
the transaction shall be recorded by a debit to Account 123.1, Patronage 
Capital from Associated Cooperatives, and a credit to Account 423, 
Generation and Transmission Cooperative Capital Credits. This entry 
shall be made priorto the closing of the cooperative's books even 
though, in most cases, the notice of the G&T allocation is not received 
until after the close of the year to which it relates. If precise 
information cannot be obtained from the G&T within a reasonable time, 
capital credits shall be recorded on an estimated basis. The difference 
between the estimated amount and the actual shall be recognized in the 
following year unless the difference is material.
    A distribution cooperative shall not recognize its proportionate 
share of losses incurred by the G&T. G&T losses shall be accumulated and 
offset as provided for in the bylaws. Unlike distribution cooperatives, 
a G&T has the option to offset accumulated losses with future operating 
and/or nonoperating margins.

     505   Patronage Capital Furnished by Other Cooperative Service 
                              Organizations

    Utilities may obtain long-term and short-term loans, telephone or 
data processing services, or may purchase oil, gasoline, materials, 
insurance, and various items from cooperative or mutual enterprises. 
These enterprises often make patronage refunds or provide evidence that 
an amount equal to such a refund has been credited to the utility as an 
investment of capital. The refund may be in the form of cash in the year 
following the purchase or it may be deducted from the next invoice. The 
notice of patronage credited to the borrower's account may indicate that 
such capital may be retired at some future date upon certain conditions 
having been met. The following provides the accounting journal entries 
for these types of transactions:

    1. Insurance policy refunds from mutual companies, in cash or as 
credits against subsequent purchases, shall be credited to the 
appropriate expense account. If sufficient information is not available 
to credit the refunds to the appropriate expense accounts, they shall be 
credited to Account 165, Prepayments, and reduce premiums for the 
current year.
    2. Patronage capital allocations from cooperatives, other than 
mutual insurance companies, shall be credited, in the year that the 
allocation notice is received, to Account 424, Other Capital Credits and 
Patronage Allocations, or to construction work-in-progress, as 
appropriate. The allocation of patronage capital credits between Account 
424 and construction work-in-progress shall be made on an equitable 
basis. For example, patronage capital allocations received from a 
cooperative money lender are allocated between Account 424 and 
construction work-in-progress based upon the ratio of interest charged 
to construction for that particular lender to total interest expense 
incurred for that lender. Patronage capital allocations received from a 
material supplier are allocated based upon the ratio of materials 
charged to construction to total materials purchased.
    3. The face amount of patronage capital certificates received by the 
cooperative from the purchase of goods or services from cooperative 
money lenders (CFC), oil dealers, material suppliers, pole treating 
plants, communications services, and others shall be charged to either 
Account 123.1, Patronage Capital from Associated Cooperatives, or 
Account 124, Other Investments, as appropriate. Account 123.1 shall 
include investments in only those cooperatives, or enterprises, that are 
directly related to the electric utility industry and controlled by the 
electric cooperatives. These include statewide cooperatives, power 
cooperatives, and NRECA. Other investments in oil cooperatives and 
insurance companies shall be charged to Account 124.

                     506   Forfeited Membership Fees

    The bylaws of each cooperative prescribe certain rules and 
regulations concerning membership in the cooperative. Among these are 
provisions for forfeiture of membership fees. Some

[[Page 1034]]

bylaws provide for application of membership fees against any unpaid 
accounts at the time of termination of service. Any remaining balance 
may be refunded to the member. Balances that cannot be refunded to the 
member due to an inability to locate the member or due to bylaw 
restriction, shall be credited to Account 208, Donated Capital, provided 
they do not escheat to the state. If disposition of the fees cannot be 
determined immediately, the amount involved shall be transferred to 
Account 253, Other Deferred Credits, until the determination is made.

                         601   Employee Benefits

    The costs of employees' fringe benefits (hospitalization, 
retirement, holiday, sick and vacation pay, etc.) shall be accumulated 
in an appropriate clearing account and allocated monthly on the basis of 
payroll. Vacation costs shall be accrued monthly by appropriate credits 
to an accrual account. These monthly accruals shall be allocated on the 
basis of direct payroll costs to construction and retirement with the 
expense portion being charged to Account 926, Employee Pensions and 
Benefits.
    Sick leave costs are not normally accrued unless the employee is 
entitled to be paid for accumulated sick leave at the termination of 
employment. Salary payments to an employee who is actually sick shall be 
charged to the same account or accounts to which his or her salary is 
normally charged.

                       602   Compensated Absences

    Statement of Financial Accounting Standards No. 43, Accounting for 
Compensated Absences (Statement No. 43), requires employers to accrue a 
liability as an employee earns the right to be paid for future absences. 
Four criteria were established for this accrual:

    1. The employer's obligation for payment for future absences is 
attributable to employees' services already performed.
    2. The obligation relates to employee rights which vest or 
accumulate. Vested rights are considered those for which the employer is 
obligated to make payment even if the employee terminates. Rights which 
accumulate are those earned, but unused rights to compensated absences 
which may be carried forward to one or more periods subsequent to the 
period in which they are earned.
    3. Payment of the compensation is probable.
    4. The amount can be reasonably estimated.

    A company's liability shall be estimated based upon payments it 
expects to make as a result of employees' work already performed. If a 
reasonable estimate cannot be made, the company shall disclose that fact 
in the financial statements.
    Statement No. 43 does not apply to severance or termination pay, 
postretirement benefits, deferred compensation, stock or stock options, 
group insurance, or other long-term fringe benefits.
    The entries required to account for the accrual of compensated 
absences are as follows:

Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting 
          Principle
    Cr. 242.3, Accrued Employees' Vacation and Holidays
To record the liability for benefits earned in prior years.
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
Dr. 926, Employee Pensions and Benefits
    Cr. 242.3, Accrued Employees Vacation and Holidays
To record the liability for benefits earned in the current period.

              603   Employee Retirement and Group Insurance

    Some borrowers have group insurance or retirement plans or both for 
their employees. As a general rule the cost of these programs is borne 
partially by the cooperative and partially by its employees. The 
cooperative may pay the full cost in advance and recover the employee's 
share through payroll deductions. The accounting for these transactions 
is as follows:

    1. The cooperative's advanced payment of premiums on insurance and 
retirement agreements shall be charged to Account 165, Prepayments, for 
the employers portion, and Account 143, Other Accounts Receivable, for 
the employee's portion.

[[Page 1035]]

    2. The cost of the employer's portion of a retirement and group 
insurance program shall be charged as follows:

    a. If the participating employees work entirely on operations and 
maintenance, the debit shall be to Account 926, Employees Pensions and 
Benefits.
    b. If the employees' time is charged to construction or retirement 
activities, the charge shall be prorated between construction, 
retirement, and Account 926, Employee Pensions and Benefits, in the 
ratio in which the employees' wages have been distributed.

                       604   Deferred Compensation

    Many utilities participate in the NRECA Deferred Compensation 
Program. Based upon the provisions of the program, the following 
accounting entries shall be made:

Dr. 186.XX, Miscellaneous Deferred Debits--Deferred Compensation
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To increase the deferred compensation provision by the amount of the 
annual deposit to NRECA's Deferred Compensation Fund.

Dr. 128, Other Special Funds--Deferred Compensation
    Cr. 131.1, Cash--General

    To record the annual deposit to NRECA's Deferred Compensation Fund.

Dr. Construction Work in Progress, Retirement Work in Progress, or 
Account 926, Employee Pensions and Benefits, as appropriate.
    Cr. 186.XX, Miscellaneous Deferred Debits--Deferred Compensation

    To record monthly accrual of deferred compensation.

    Note: If an employee joins the deferred compensation program during 
the year, use entry #1 to record the additional deposit to the NRECA 
Deferred Compensation Fund and increase the monthly accrual in entry #2 
to reflect this deposit.

    NRECA provides borrowers that participate in the deferred 
compensation program with an annual account statement disclosing the 
activity for each Homestead Fund investment including the number of 
shares owned, interest income, dividend income, capital gains/losses, 
and the value of the shares owned at statement date. Funds may be 
invested in the Short-term Bond Fund, the Value Fund, the Short-term 
Government Securities Fund, and the Daily Income Fund. Depending upon 
the Homestead Fund selected, invested funds may earn interest and 
dividend income and may experience unrealized holding gains or losses. 
Based upon the information provided on the annual statement, the 
following journal entries shall be recorded to recognize the increase or 
decrease in the fund assets:

Dr. 128, Other Special Funds--Deferred Compensation
    Cr. 419, Interest and Dividend Income
    Cr. 421, Miscellaneous Nonoperating Income

    To record an increase in the fund value as of December 31, 19xx, 
resulting from interest and dividend income and from unrecognized 
holding gains on trading securities.

Dr. 926, Employee Pensions and Benefits
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record an increase in the liability to the employee resulting 
from an increase in the investment account.

Dr. 426.5, Other Deductions
    Cr. 128, Other Special Funds--Deferred Compensation To record a 
decrease in fund value as of December 31, 19xx, resulting from 
unrecognized holding losses on trading securities.

Dr. 228.3, Accumulated Provision for Pensions and Benefits
    Cr. 926, Employee Pensions and Benefits

    To record a decrease in the liability to the employee resulting from 
a decrease in the investment account.
    Payments made to participating employees because of retirement or 
separation for other reasons shall be recorded using the following 
entries:

Dr. 131.1, Cash--General
    Cr. 128, Other Special Funds--Deferred Compensation

    To record the receipt of funds from NRECA.

      and

Dr. 228.3, Accumulated Provision for Pensions and Benefits
    Cr. 131.1, Cash--General


[[Page 1036]]


    To record payment to employee for deferred compensation.
    If the borrower has elected to bear the market risk of the funds 
which guarantee that the amount of money an employee receives will not 
be less than the amount of salary deferred, the following entry shall be 
recorded if total payment(s) from NRECA are less than the amount of 
salary deferred:

Dr. 926, Employee Pensions and Benefits
    Cr. 131.1, Cash--General

    To record payment to employee for deferred compensation. Payment was 
made because amount returned did not equal salary deferred.
    Appropriate disclosure of the terms of the program shall be made in 
the notes to the financial statements.

       605   Life Insurance Premium on Life of a Borrower Employee

    Some borrowers insure the life of the manager and/or key employees 
with the borrower being named as the beneficiary. Such arrangements 
shall be accounted for as follows:

    1. Charge Account 426.2, Life Insurance, for the net amount of the 
premium paid each year on the insurance policy.
    2. At the anniversary date of the policy each year, charge Account 
124, Other Investments, and credit Account 426.2, Life Insurance, with 
the amount of the annual increase in the cash surrender value of the 
policy; provided such increase is less than the net premium paid for 
that year. If the annual increase in the surrender value exceeds the net 
premium paid for the same year, only that portion of the surrender value 
increase equal to the net premium paid shall be credited to Account 
426.2. The remainder is to be credited to Account 419, Interest and 
Dividend Income.
    3. Upon retirement of the insured employee and surrender of the 
insurance policy, charge Account 131.1, Cash--General, and credit 
Account 124, Other Investments, for the amount received from the 
insurance company. If it is decided to grant to the retiring insured 
employee all, or any portion, of the cash received upon surrender of the 
policy, Account 926, Employee Pensions and Benefits, shall be charged 
and Account 131.1 credited for the amount paid to the retiring employee.
    4. If the insured employee dies within his term of service, charge 
Account 131.1, Cash--General, for the face amount of the policy paid by 
the insurance company. Credit Account 124, Other Investments, for the 
cash surrender value previously charged thereto, and credit the 
remainder to Account 421, Miscellaneous Nonoperating Income.

                           606   Pension Costs

    With the issuance of Statement of Financial Accounting Standards No. 
87, Employers' Accounting for Pensions (Statement No. 87), there have 
been significant changes in the accounting and reporting requirements 
relating to pension costs. This section will highlight the accounting 
and reporting requirements for the major types of pension plans. It 
should be noted, however, that the definitions and accounting procedures 
outlined in this section relate to financial accounting and they may 
differ from those used for tax accounting.

                      Defined Benefit Pension Plans

    A defined benefit pension plan is a plan that defines an amount of 
pension benefit to be provided, usually as a function of one or more 
factors such as age, years of service, or compensation. In a defined 
benefit plan, the employer promises to provide, in addition to current 
wages, retirement income payments in future years after the employee 
retires or terminates service. Generally, the amount of benefit to be 
paid depends upon a number of future events that are incorporated into 
the plan's benefit formula, after including how long the employee and 
any survivors live, how many years of service the employee renders, and 
the employee's compensation in the years immediately before retirement 
or termination.
    Under a defined benefit plan, the determination of pension costs, 
assets, liabilities, and the disclosures in the financial statements 
require many calculations and assumptions to be made. This section 
provides a general overview of the accounting and reporting

[[Page 1037]]

requirements associated with a defined benefit pension plan. Consult 
Statement No. 87 for guidance in making the necessary calculations and 
assumption.
    The accounting and reporting requirements related to a defined 
benefit pension plan are as follows:

    1. The following components shall be included in the periodic 
recognition of net pension cost by an employer sponsoring a defined 
benefit pension plan:

    a. The service cost component recognized in a period shall be 
determined as the actuarial present value of benefits attributed by the 
pension plan formula to employee service during that period. The 
measurement of the service cost component requires use of an attribution 
method and assumptions.
    b. The interest cost component recognized in a period shall be 
determined as the increase in the projected benefit obligation due to 
the passage of time. Measuring the projected benefit obligation as a 
present value requires accrual of an interest cost at rates equal to the 
assumed discount rates.
    c. For a funded plan, the actual return on plan assets, if any, 
shall be determined based upon the fair value of plan assets at the 
beginning and the end of the period, adjusted for contributions and 
benefit payments.
    d. Plan amendments (including initiation of a plan) often include 
provisions that grant increased benefits based upon services rendered in 
prior period. Because plan amendments are granted with the expectation 
that the employer will realize economic benefits in future period, 
Statement No. 87 does not require the cost of providing such retroactive 
benefits (prior service cost) to be included in net periodic pension 
cost entirely in the year of the amendment but provides for recognition 
during the future service periods of those employees active at the date 
of the amendment who are expected to receive benefits under the plan.
    The cost of retroactive benefits (including benefits that are 
granted to retirees) is the increase in the projected benefit obligation 
at the date of the amendment. Except as noted below, prior service cost 
shall be amortized by assigning an equal amount to each future period of 
service of each employee active at the date of the amendments who is 
expected to receive benefits under the plan. If all or almost all of the 
plan's participants are inactive, the cost of retroactive plan 
amendments affecting benefits of inactive participants shall be 
amortized based upon the remaining life expectancy of those participants 
rather than the remaining service period.
    To reduce the complexity and detail of the computations require, 
consistent use of an alternative amortization approach that more rapidly 
reduces the unrecognized cost of retroactive amendments is acceptable. 
For example, a straight-line amortization of the cost over the average 
remaining service period of employees expected to receive benefits under 
the plan is acceptable. The alternative method used shall be disclosed.
    In some situations, a history of regular plan amendments and other 
evidence may indicate that the period during which the employee expects 
to realize economic benefits from an amendment granting retroactive 
benefits is shorter than the entire remaining service period of the 
active employees. Identification of such situations requires an 
assessment of the individual circumstances and the substance of the 
particular plan situation. In those circumstances, the amortization of 
prior service cost shall be accelerated to reflect the more rapid 
expiration of the employer's economic benefits and to recognize the cost 
in the periods benefited.
    A plan amendment can reduce rather than increase the projected 
benefit obligation. Such a reduction shall be used to reduce an existing 
unrecognized prior service cost, and the excess, if any, shall be 
amortized on the same basis as the cost of benefit increases.
    e. Gains and losses are changes in the amount of either the 
projected benefit obligation or plan assets resulting from experience 
different from that assumed and changes in assumptions. Gains and losses 
include amounts that have been realized. Because gains and losses may 
reflect refinements in estimates as well as real changes in economic 
values and because some gains in one period may be offset by losses in 
another or vice versa, the recognition of gains and losses as components 
of net pension

[[Page 1038]]

cost of the period in which they arise, is not required.
    The expected return on plan assets shall be determined based upon 
the expected long-term rate of return on plan assets and the market-
related value of plan assets. The market-related value of plan assets 
shall be either fair value or a calculated value that recognizes changes 
in fair value in a systematic and rational manner over not more than 5 
years. Different ways of calculating market-related value may be used 
for different classes of assets but the manner of determining market-
related value shall be applied consistently from year to year for each 
asset class.
    Asset gains and losses are the differences between the actual return 
on assets during a period and the expected return on assets for that 
period. Assets gains and losses include both changes reflected in the 
market-related value of assets and changes not yet reflected in the 
market-related value (that is, the difference between the fair value of 
assets and the market-related value). Asset gains and losses not yet 
reflected in market-related values are not required to be amortized.
    As a minimum, amortization of an unrecognized gain or loss 
(excluding asset gains and losses not yet reflected in market-related 
value) shall be included as a component of net pension cost for a year 
if, as of the beginning of the year, that unrecognized net gain or loss 
exceeds 10 percent of the greater of the projected benefit obligation or 
the market-related value of plan assets. If amortization is required, 
the minimum amortization shall be that excess divided by the average 
remaining service period of active employees expected to receive 
benefits under the plan. If all or almost all of a plan's participants 
are inactive, the average remaining life expectancy of the inactive 
participants shall be used instead of average remaining service life.
    Any systematic method of amortization of gains and losses may be 
used in lieu of the minimum specified in the previous paragraph provided 
that the minimum is used in any period in which the minimum is greater 
(reduces the net balance by more), the method is applied consistently, 
the method is applied similarly to both gains and losses, and the method 
is disclosed.
    The gain or loss component of net periodic pension cost shall 
consist of the difference between the actual return on plan assets and 
the expected return on plan assets and amortization of the unrecognized 
net gain or loss from previous periods.
    2. A liability (unfunded accrued pension cost) shall be recognized 
if net periodic pension cost recognized pursuant to Statement No. 87 
exceeds amounts the employer has contributed to the plan. An asset 
(prepaid pension cost) shall be recognized if net periodic pension cost 
is less than amounts the employer has contributed to the plan.
    If the accumulated benefit obligation exceeds the fair value of plan 
assets, the employer shall recognize a liability (including unfunded 
accrued pension cost) that is at least equal to the unfunded accumulated 
benefit obligation. Recognition of an additional minimum liability is 
required if an unfunded accumulated benefit obligation exists and an 
asset has been recognized as a prepaid pension cost, the liability 
already recognized as unfunded accrued pension cost is less than the 
unfunded accumulated benefit obligation, or no accrued or prepaid 
pension cost has been recognized.
    If an additional minimum liability is recognized, an equal amount 
shall be recognized as an intangible asset, provided that the asset does 
not exceed the amount of unrecognized prior service cost. If an 
additional liability required to be recognized exceeds unrecognized 
prior service cost, the excess (which represents a net loss not yet 
recognized as a net periodic pension cost) shall be reported as a 
separate component (reduction) of equity.
    When a new determination of the amount of additional liability is 
made to prepare a balance sheet, the related intangible asset and 
separate component of equity shall be eliminated or adjusted, as 
necessary.
    3. An employer sponsoring a defined benefit pension plan shall 
disclose the following information:


[[Page 1039]]


    a. A description of the plan including employee groups covered, type 
of benefit formula, funding policy, types of assets held and significant 
nonbenefit liabilities, if any, and the nature and effect of significant 
matters affecting comparability of information for all period presented.
    b. The amount of net periodic pension cost for the period showing 
separately the service cost component, the interest cost component, the 
actual return on assets for the period, and the net total of other 
components.
    c. A schedule reconciling the funded status of the plan with amounts 
reported in the employer's balance sheet, showing separately, the fair 
value of plan assets, the projected benefit obligation identifying the 
accumulated benefit obligation and the vested benefit obligation, the 
amount of unrecognized prior service cost, the amount of unrecognized 
net gain or loss including asset gains and losses not yet reflected in 
market-related value), the amount of any remaining unrecognized net 
obligation or net asset existing at the date of initial application of 
Statement No. 87, the amount of any additional liability recognized, and 
the amount of net pension asset or liability recognized in the balance 
sheet (which is the net result of combining the previous six items).
    d. The weighted-average assumed discount rate and rate of 
compensation increase (if applicable) used to measure the projected 
benefit obligation and the weighted-average expected long-term rate of 
return on plan assets.
    e. If applicable, the amount and type of securities of the employer 
and related parties included in plan assets, and the approximate amount 
of annual benefits of employees and retirees covered by annuity 
contracts issued by the employer and related parties. Also, if 
applicable, the alternative amortization periods used.
    f. An employer that sponsors two or more separate defined benefit 
pension plans shall determine net periodic pension cost, liabilities, 
and assets by separately applying the provisions of Statement No. 87 to 
each plan. In particular, unless an employer clearly has a right to use 
the assets of one plan to pay benefits of another, a liability required 
to be recognized for one plan shall not be reduced or eliminated because 
another plan has assets in excess of its accumulated benefit obligation 
or because the employer has prepaid pension cost related to another 
plan.
    The required disclosures may be aggregated for all of an employer's 
single-employer defined benefit plans, or plans may be disaggregated 
into groups so as to provide the most useful information. Plans with 
assets in excess of the accumulated benefit obligation, however, shall 
not be aggregated with plans that have accumulated benefit obligations 
that exceed plan assets.

                            Annuity Contracts

    An annuity contract is a contract in which an insurance company 
unconditionally undertakes a legal obligation to provide specified 
benefits to specific individuals in return for a fixed consideration or 
premium. An annuity contract is irrevocable and involves the transfer of 
significant risk from the employer to the insurance company. Some 
annuity contracts (participating annuity contracts) provide that the 
purchaser (either the plan or the employer) may participate in the 
experience of the insurance company. Under these contracts, the 
insurance company ordinarily pays dividends to the purchaser. If the 
substance of a participating contract is such that the employer remains 
subject to all or most of the risks and rewards associated with the 
benefit obligation covered and the assets transferred to the insurance 
company, that contract is not an annuity contract for purposes of 
Statement No. 87.
    To the extent that benefits currently earned are covered by annuity 
contracts, the cost of these benefits shall be the cost of purchasing 
the contracts, except as noted below. That is, if all benefits 
attributed by the plan's benefits formula to service in the current 
period are covered by nonparticipating annuity contracts, the cost of 
the contracts determines the service cost component of net pension cost 
for that period.
    Benefits provided by the pension benefit formula beyond benefits 
provided by annuity contracts (for example, benefits related to future 
compensation

[[Page 1040]]

levels) shall be accounted for according to the provisions applicable to 
plans not involving insurance contracts.
    Benefits covered by annuity contracts shall be excluded from the 
projected benefit obligation and the accumulated benefit obligation. 
Except as noted below, annuity contracts shall be excluded from plan 
assets.
    Some annuity contracts provide that the purchaser (either the plan 
or the employer) may participate in the experience of the insurance 
company. Under these contracts, the insurance company ordinarily pays 
dividends to the purchaser, the effect of which is to reduce the cost of 
the plan. The purchase price of a participating annuity contract 
ordinarily is higher than the price of an equivalent contract without 
participation rights. The cost of the participation right shall be 
recognized, at the date of purchase, as an asset. In subsequent periods, 
the participation right shall be measured at its fair value if the 
contract is such that the fair value is reasonably estimable. Otherwise, 
the participation right shall be measured at its amortized cost (not in 
excess of its net realizable value), and the cost shall be amortized 
systematically over the expected dividend period under the contract.

                Other Contracts with Insurance Companies

    Insurance contracts that are, in substance, equivalent to the 
purchase of annuities shall be accounted for as such. Other contracts 
with insurance companies shall be accounted for as investments and 
measured at fair value. For some contracts, the best available evidence 
of fair value may be contract value. If a contract has a determinable 
cash surrender value or conversion value, that is presumed to be its 
fair value.

                       Defined Contribution Plans

    A defined contribution pension plan is a plan that provides pension 
benefits in return for services rendered, provides an individual account 
for each participant, and has terms that specify how contributions to 
the individual's accounts are to be determined rather than the amount of 
pension benefits the individual is to receive. Under a defined 
contribution plan, the pension benefits a participant will receive 
depend only upon the amount contributed to the participant's account, 
the returns earned on investments of those contributions, and 
forfeitures of other participants' benefits that may be allocated to the 
participant's account.
    To the extent that a plan's defined contributions to an individual's 
account are to be made for periods in which that individual renders 
services, the net pension cost for a period shall be the contribution 
called for in that period. If a plan calls for contributions for periods 
after an individual retires or terminates, the estimated cost shall be 
accrued during the employee's service period.
    An employer that sponsors one or more defined contribution plans 
shall disclose the following separately from its defined benefit plan 
disclosures:

    1. A description of the plan(s) including employee groups covered, 
the basis for determining contributions, and the nature and effect of 
significant matters affecting comparability of information for all 
periods presented.
    2. The amount of cost recognized during the period.

    A pension plan having characteristics of both a defined benefit plan 
and a defined contribution plan requires careful analysis. If the 
substance of the plan is to provide a defined benefit, as may be the 
case with some ``target benefit'' plans, the accounting and disclosure 
requirements shall be determined in accordance with the provisions 
applicable to a defined benefit plan.

                           Multiemployer Plans

    A multiemployer plan is a pension plan to which two or more 
unrelated employers contribute, usually pursuant to one or more 
collective-bargaining agreements. A characteristic of multiemployer 
plans is that assets contributed by one participating employer may be 
used to provide benefits to employees of other participating employers 
since assets contributed by an employer are not segregated in a separate 
account or restricted to provide benefits only to employees of that 
employer.

[[Page 1041]]

    An employer participating in a multiemployer plan shall recognize as 
net pension cost, the required contribution for the period and shall 
recognize as a liability, any contributions due and unpaid. The required 
contribution includes both current costs and prior service costs. If an 
employer elects to fund prior service cost in full at the inception of 
the plan, the total payment becomes the employer's required 
contribution, and accordingly, its pension cost for the period.
    The following provisions are applicable to RUS borrowers 
participating in a multiemployer pension plan:

    1. An electric utility participating in a multiemployer plan may 
defer current period pension expenses if the provisions of Statement of 
Financial Accounting Standards No. 71 (Statement No. 71), Accounting for 
the Effects of Certain Types of Regulation, are applied.
    Under the provisions of Statement No. 71, pension costs may be 
deferred provided such costs are recovered through future rates.
    2. An electric utility instituting an amendment to the NRECA 
Retirement and Security plan enters into a contractual agreement to pay 
the costs incurred (prior service pension costs) for the amendment. In 
such cases, the agreement is noncancelable and payable regardless of 
continued participation in the plan.
    Since the utility is unconditionally committed to making these 
payments and such payments are not contingent upon the utility's 
continued participation in the plan, the recognition of that liability 
is appropriate. The costs associated with this liability shall be 
expensed, in their entirety, when the liability is recognized.
    The accounting journal entries required to record the transactions 
associated with a multiemployer pension plan are as follows:

Sample 1--Current Pension Expense
    The journal entry required to record the normal costs associated 
with the NRECA Retirement and Security Program is as follows:

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
    Cr. 131.1, Cash--General
To record the payment of pension costs to NRECA.

    Note: This entry shall not be recorded during the moratorium.

Sample 2--Prior Service Pension Expense
    The journal entries required to record the prior service costs 
associated with the NRECA Retirement and Security Program are as 
follows:

    1. If the RUS borrower elects to pay the prior service pension costs 
in full, and there is no deferral of costs under the provision of 
Statement No. 71, the following entry shall be recorded:

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
    Cr. 131.1, Cash--General
To record the payment of prior service pension costs to NRECA.

    2. If the RUS borrower elects to finance prior service pension costs 
over a period of years and there is no deferral of costs under the 
provisions of Statement No. 71, the following entries shall be recorded:

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
    Cr. 224, Other Long-Term Debt
To record the liability to NRECA for prior service pension costs.
Dr. 224, Other Long-Term Debt
Dr. 427, Interest on Long-Term Debt
    Cr. 131.1, Cash--General
To record the annual payment to NRECA for prior service pension costs.

    3. If the RUS borrower elects to finance prior service pension costs 
over a period of years and such costs are being deferred and amortized 
in accordance with the provisions of Statement No. 71, the following 
entries shall be recorded:

Dr. 182.3, Other Regulatory Assets
    Cr. 224, Other Long-Term Debt
To record the liability to NRECA for prior service pension costs.
Dr. 926, Employee Pension and Benefits
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
    Cr. 182.3, Other Regulatory Assets
To record the amortization of deferred prior service pension costs.
Dr. 224, Other Long-Term Debt
Dr. 427, Interest on Long-Term Debt
    Cr. 131.1, Cash--General
To record the annual payment to NRECA for prior service pension costs.

    4. If the RUS borrower elects to pay the prior service pension costs 
in full and such costs are being deferred and amortized in accordance 
with the provisions of Statement No. 71, the following entries shall be 
recorded:

Dr. 182.3, Other Regulatory Assets
    Cr. 131.1, Cash--General

[[Page 1042]]

To record the payment to NRECA for prior service pension costs.
Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
    Cr. 182.3, Other Regulatory Assets
To record the amortization of deferred prior service pension costs.

    It should be noted that although the above entries relate 
specifically to the NRECA Retirement and Security Program, they are 
applicable to all multiemployer pension plans.
    An employer that participates in one or more multiemployer plans 
shall disclose the following separately from disclosures for a single-
employer plan:

    1. A description of the multiemployer plan(s) including the employee 
groups covered, the type of benefits provided (defined benefit or 
defined contribution), and the nature and effect of significant matters 
affecting comparability of information for all periods presented.
    2. The amount of cost recognized during the period.

                         Multiple-Employer Plans

    A multiple-employer plan is, in substance, aggregations of single-
employer plans combined to pool their assets for investment purposes to 
reduce the cost of plan administration. Under a multiple-employer plan, 
assets are segregated and specifically identified to an employer. In 
addition, such plans may have features that allow participating 
employers to have different benefit formulas. Such plans shall be 
considered single-employer plans for financial accounting purposes and 
each employer's accounting shall be based upon its respective interest 
in the plan.

                         607   Unproductive Time

    Lost time relating to construction, operations and maintenance shall 
be allocated on the basis of direct payroll costs to the appropriate 
construction, operations or maintenance accounts in the month incurred. 
Lost time is defined as time on duty during which productive work is not 
performed due to inclement weather conditions, material shortages, 
machine repairs, or other reasons.
    If lost time attributable to construction has a material effect on 
the construction accounts in any one month, these costs shall be 
deferred and distributed over a reasonable period of time by means of a 
predetermined percentage based upon direct labor.

           608   Training Costs, Attendance at Meetings, etc.

    Utilities engage in many types of training programs. Seminars are 
conducted for directors, managers, office managers, attorneys, 
engineers, and others. Bookkeepers and office managers attend 
accountants' meetings. Safety engineers attend safety schools and 
subsequently conduct regular safety meetings at the cooperative. Costs 
incurred for the various types of training activities shall be accounted 
for as follows:

    1. Managers' and directors' expenses to attend the NRECA national 
and state conventions shall be charged to Account 930.2, Miscellaneous 
General Expenses.
    2. Management or engineering seminar fees, salary time attending 
such seminars, and the related per diem and expenses shall be charged to 
Account 926, Employee Pensions and Benefits, if the meeting is primarily 
for the benefit of the employee. If the meeting is primarily for the 
benefit of the employer, the functional expense accounts shall be 
charged for fees and expenses. Salaries paid to employees shall be 
charged to the appropriate labor expense accounts rather than to Account 
926. Fees and expenses for directors' attendance shall be charged to 
Account 930.2, Miscellaneous General Expenses.
    3. When the office manager, bookkeeper, or work order clerk attends 
a state or regional accounting meeting, their salary time shall be 
charged to the account to which the employees' time is ordinarily 
charged.
    4. Employees' salary time spent attending regular safety meetings 
conducted by the cooperative shall be charged to the account to which 
the employees' time is ordinarily charged.
    5. A safety engineer's salary time spent attending a statewide 
safety school shall be charged to Account 925, Injuries and Damages.
    6. The salary time spent by a manager or line foreman conducting 
weekly safely meetings shall be charged to

[[Page 1043]]

the appropriate functional expense accounts including Account 590, 
Maintenance, Supervision and Engineering, and Account 920, 
Administrative and General Services.

                    609   Maintenance and Operations

    ``Operations'' is the general term used to describe activities 
involved in the delivery of electric service, by means of a distribution 
system, to the end user. It pertains to the use of the utility's 
electric plant facilities and does not include activities intended to 
prevent or remedy an impending or actual breakdown of those facilities. 
These activities are classified as maintenance.
    ``Maintenance'' is the general term used to describe the activities 
involved in the upkeep and repair, but not the enlargement or 
improvement, of property owned or leased and operated by the company. It 
does not include the replacement of retirement units.

                        610   Financial Forecast

    Costs incurred and salaries paid to perform a 10-year financial 
forecast shall be charged to Account 920, Administrative and General 
Salaries. Related office supplies and expenses shall be charged to 
Account 921, Office Supplies and Expenses. When a forecast is performed 
by an outside consultant, the cost shall be charged to Account 923, 
Outside Services Employed.

                        611   Advertising Expense

    The cost of advertising and the cost of informing the public about 
the electric cooperative's activities shall be charged to Account 930.2, 
Miscellaneous General Expenses.
    Most of a cooperative's advertising is instructional in nature and 
relates the cooperative's history and current activities. This type of 
advertising activity should not be confused with that directed towards 
the enactment of a specific law or laws directed toward obtaining a 
specific decision from a regulatory body. Political advertising of the 
type defined above shall be charged to Account 426.4, Expenditures for 
Certain Civic, Political, and Related Activities.

                     612   Special Power Cost Study

    A special power cost study is defined as a study to determine 
whether sufficient power will be available in the future. If additional 
power or power sources are needed, the study determines whether 
generation or purchase will supply the lesser cost. The study also 
indicates when additional power will be needed. As costs are incurred, 
they shall be charged to a subaccount of Account 186, Miscellaneous 
Deferred Debits. Upon completion of the study, the costs shall be 
charged to Account 557, Other Expenses, or amortized to Account 557 over 
a period of time not to exceed 5 years.

                           613   Mapping Costs

    The purpose of posting completed work orders to system maps is to 
improve the operation of the system. These costs shall, therefore, be 
charged to Account 588, Miscellaneous Distribution Expenses. However, 
the cost of system mapping in the planning stage of construction is an 
acceptable overhead cost of the resulting construction.

                      614   Member Relations Costs

    Many electric cooperatives hire employees whose duties concern a 
mixture of power use and member relations activities. The salaries for 
these employees shall be charged to Account 930.2, Miscellaneous General 
Expenses, except as provided below:

    1. Account 912, Demonstrating and Selling Expenses, shall be charged 
with all labor, material, advertising, and other expenses incurred in 
promotional, demonstrating, and selling activities; the objective of 
which is to promote or retain the use of utility services by present or 
prospective customers.
    2. Account 930.1, General Advertising Expenses, shall be charged 
with labor, material, and other expenses incurred in advertising and 
related activities, the cost of which by their content and purpose, are 
not provided for elsewhere.
    3. Account 416, Costs and Expenses of Merchandising, Jobbing, and 
Contract Work, shall be charged with all costs specifically related to 
merchandising

[[Page 1044]]

activities when the utility is engaged in a major merchandising program.
    4. Account 426.4, Expenditures for Certain Civic, Political, and 
Related Activities, shall be charged with expenditures for the purpose 
of influencing public opinion with respect to the election or 
appointment of public officials, referenda, legislation, or ordinances 
(either with respect to the possible adoption of new referenda, 
legislation or ordinances or repeal or modification of existing 
referenda, legislation or ordinances); or approval, modification, or 
revocation of franchises; or for the purpose of influencing the 
decisions of public officials. Account 426.4 shall not include 
expenditures which are directly related to appearances before regulatory 
or other governmental bodies in connection with the borrower's existing 
or proposed operations.

                          615   Statewide Fees

    Additional fees collected by a statewide association from its 
members for construction of a statewide building shall be charged to 
Account 930.2, Miscellaneous General Expenses. Any amounts that are to 
be repaid by the state association shall be charged to Account 143, 
Other Accounts Receivable, or Account 123.23, Other Investments in 
Associated Organizations, depending upon the terms of the repayment.

         616   Power Supply/Distribution Cooperative Borrowings

    When a power supply cooperative borrows money from a distribution 
cooperative as the result of a long-term loan agreement, the money shall 
be recorded on the books of the power supply cooperative as general 
funds unless restricted to a specific purpose. If restricted, the funds 
shall be recorded in Account 128, Other Special Funds. The resulting 
liability shall be recorded in Account 224, Other Long-Term Debt.
    The transaction shall be charged to Account 123.23, Other 
Investments in Associated Organizations, on the books of the 
distribution cooperative.

  617   Rate Discount Allowed by the Power Cooperative to Distribution 
            Cooperatives Owning Connecting Transmission Lines

    A distribution cooperative purchases power from a power cooperative. 
The distribution cooperative owns and operates the transmission line 
between the power cooperative's facilities and the distribution 
facilities. Because of this, power is sold at the standard rate at which 
the power cooperative sells to other distribution cooperatives who do 
not own their transmission lines, less a discount. The discount or 
reduction in rate is based upon the distribution cooperative's expense 
in operating and maintaining its transmission facilities. The contract 
between the power cooperative and the distribution cooperative must 
specifically state that the member shall receive a reduced rate or 
discount from the seller's rate to other member cooperatives.
    Under this type of arrangement, the distribution cooperative shall 
record the cost of purchased power by charging the net amount to Account 
555, Purchased Power.

               618   Theft Losses not Covered by Insurance

    Utilities may suffer losses as a result of thefts of cash, materials 
and supplies, equipment, or electric plant-in-service that is not 
covered by insurance. The charges for nominal uninsured losses shall be 
recorded in the following accounts:

    1. Cash--Account 924, Property Insurance, shall be charged.
    2. Plant materials and operating supplies--Account 163, Stores 
Expense Undistributed, shall be charged.
    3. Equipment--Account 163, Stores Expense Undistributed, shall be 
charged for stores equipment; Account 184, Transportation Expense--
Clearing, for transportation and garage equipment; and Account 924, 
Property Insurance, for all other equipment.
    4. Electric Plant-in-Service--A retirement work order shall be 
prepared for electric plant constituting a unit of property. The loss 
due to retirement

[[Page 1045]]

shall be charged to Account 108.6, Accumulated Provision for 
Depreciation of Distribution Plant. If the plant does not constitute a 
retirement unit, the loss shall be charged to the appropriate 
maintenance expense account.

                           619   Self Billing

    To maintain the books of accounts on an accrual basis, bills for 
customers who self bill and have not sent in a reading or remittance, 
shall be estimated. A journal entry shall be made to record the 
estimated revenue and kWh sold by debiting accounts receivable and 
crediting the appropriate revenue accounts. The estimated bill shall be 
posted to the customer's account and identified by an appropriate symbol 
indicating that it is an estimate. Reconciliation with the general 
ledger control is made in the usual manner.

                         620   Purchase Rebates

    Some vendors from which electric cooperatives purchase plant 
materials and supplies and merchandise for resale are making purchase 
rebates based upon the quantity or dollar volume of purchases. These 
``quantity discounts'' may be in the form of cash or credit memoranda, 
in the form of prepaid package travel arrangements, or a combination of 
such methods. The rebate shall be accounted for as a reduction in the 
cost of the material or appliances upon which it was based.
    In some instances, the rebate may be for material or appliances that 
are no longer in stock or cannot be identified. If the rebate is based 
upon the purchase of plant materials and operating supplies that are 
normally charged to Account 154, Plant Materials and Operating Supplies, 
a credit shall be made to Account 163, Stores Expense Undistributed. If 
the rebate is based upon appliances and equipment held for merchandising 
or contract work, the credit shall be spread over the items in Account 
155, Merchandise. To avoid materially distorting the cost of the 
remaining appliances, if a portion of the items upon which the rebate 
was based are no longer in stock, a portion of the credit shall be 
prorated to Account 416, Cost and Expenses of Merchandising, Jobbing, 
and Contract Work, on the basis of the number of items sold to the 
quantity remaining in stock.
    If the rebate is in the form of a travel package or travel 
arrangements, the value of the rebate shall be estimated and recorded as 
a reduction of the cost of the material or appliances upon which it was 
based in a manner similar to that of the cash rebates discussed above. 
The beneficiary of the travel or travel allowance shall be designated by 
or in accordance with policy established by the board of directors. The 
contra charge to the reduction in cost shall be to an appropriate 
account depending upon the relationship of the recipient to the 
cooperative. For employees, this shall be Account 926, Employee Pensions 
and Benefits; for directors or patrons, Account 930.2, Miscellaneous 
General Expenses.

                          621   Integrity Fund

    The CFC Integrity Fund was established to assist borrowers in their 
attempts to stop takeover bids by investor-owned utilities. A borrower 
makes a contribution to the Integrity Fund in the form of cash or 
patronage capital refunds. CFC retains the contribution for a 5-year 
period during which time the borrower earns interest on the balance in 
its account. Each year, the borrower receives a statement indicating 
(both for the total fund and the individual borrower's share) the amount 
contributed, interest earned, disbursements made, and the ending 
balance. The disbursements from the fund are allocated to each 
contributing borrower's account based upon their individual account 
balances. At the end of the 5-year period, the balance in the account, 
if any, is refunded to the contributing borrower.
    Since the contributing borrower will receive a refund only if its 
funds are not totally disbursed, the contribution shall be charged to 
expense in Account 426.1, Donations. If any part of the contribution is 
returned at the end of the 5-year period, the refund shall be credited 
to Account 421, Miscellaneous Nonoperating Income.

                      622   In-Substance Defeasance

    An in-substance defeasance has been defined as the process whereby a 
debtor irrevocably places cash or other assets

[[Page 1046]]

in a trust to be used solely for the purpose of satisfying scheduled 
payments of both principal and interest related to a specific debt 
obligation. Under the structural arrangements of an in-substance 
defeasance, the probability that the debtor will be required to make 
additional future debt payments is remote. In these specific 
circumstances, debt has been determined to be extinguished even though 
the debtor has not been legally released from his obligations under the 
debt instrument.
    The trust established in a defeasance transaction is restricted as 
to the nature of the assets held. The trust must be funded with monetary 
assets that are essentially risk free as to the amount, timing, and 
collection of interest and principal. For debt denominated in United 
States dollars, ``risk free'' assets are limited to:

    1. Direct obligations of the United States government;
    2. Obligations guaranteed by the United States government; and
    3. Securities that are backed by United States government 
obligations as collateral under an arrangement by which the interest and 
principal payments on the collateral, flow immediately through to the 
holder of the security.

    The monetary assets of the trust must provide cash flows sufficient 
to coincide with the scheduled interest and principal payments on the 
defeased debt. If the trust is expected to pay the costs associated with 
the defeasance, such as trustee fees, these costs must be considered in 
determining the amount of funds required by the trust.
    The principles of in-substance defeasance apply only to debt with 
specific maturities and fixed payment schedules and, as such, do not 
apply to debt with variable terms in which advance determination of debt 
service requirements is not possible.
    Generally accepted accounting principles (GAAP) address the 
extinguishment of debt in Accounting Principles Board Opinion No. 26, 
and Statement of Financial Accounting Standard No. 76, Extinguishment of 
Debt. In accordance with these two statements, debt which has been 
defeased remains recorded in the regulated books of account as do the 
assets placed in the irrevocable trust. They are not, however, 
recognized as an asset and liability for financial reporting purposes. 
The transaction, including the total amount of debt outstanding and the 
total amount of debt that is considered extinguished at the end of the 
period, must be disclosed in the footnotes to the financial statements 
as long as the debt remains outstanding.
    Debt is frequently extinguished before its scheduled maturity. Debt 
may be extinguished by the use of the borrower's general funds, or by 
the reacquisition of another debt issue at a different interest rate or 
varying terms. As these assets are expected to be revenue producing 
during those years, both the assets and the revenue they generate may be 
utilized to meet maturing debt payments. Therefore, in most instances, 
the dollar value of the assets initially placed in the trust do not 
equal the dollar value of the outstanding principal balance. The 
difference represents an ``economic '' gain or loss to the borrower.
    To provide consistency in reporting among all RUS borrowers, any 
gain or loss that is recognized for financial statement purposes should 
be reported in accordance with the provisions of General Instruction No. 
17 of this part. Therefore, the gain or loss should be amortized (for 
reporting purposes) in equal monthly amounts over the remaining life of 
the original debt issue or the remaining life of the new issue. The gain 
or loss may be reported in the current period only in those instances in 
which it is immaterial to the financial statements.
    The RUS Form 7, Financial and Statistical Report, and the RUS Form 
12, Operating Report--Financial, must, however, reflect the actual 
amounts recorded in the books and records of the borrower.

              623   Satellite or Cable Television Services

    Many electric borrowers have become involved in either providing 
satellite or cable television services or obtaining satellite or cable 
television services for their own use. This section outlines the 
accounting to be followed when recording transactions involving 
satellite or cable television services.

[[Page 1047]]

    1. Separate Subsidiary

    If a borrower provides satellite or cable television services 
through a separate subsidiary, the investment in the subsidiary shall be 
recorded in Account 123.11, Investment in Subsidiary Companies. The net 
income or loss of the subsidiary shall be debited or credited to Account 
123.11, as appropriate, with an offsetting entry to Account 418.1, 
Equity in Earnings of Subsidiary Companies.

    2. Segment of Current Operations

    If a borrower provides satellite or cable television services as 
part of its normal operations, the investment in satellite or cable 
television equipment shall be recorded in Account 121, Nonutility 
Property. All income associated with these services shall be recorded in 
Account 417, Revenues from Nonutility Operations, and the associated 
expenses shall be charged to Account 417.1, Expenses of Nonutility 
Operations.

    3. Sale and Installation of Satellite or Cable Television Equipment

    If a borrower sells or installs satellite or cable television 
equipment, the equipment purchased for resale shall be recorded in 
Account 156, Other Materials and Supplies, until sold. The revenues 
generated from such sales or installations shall be recorded in Account 
415, Revenues from Merchandising, Jobbing, and Contract Work, and the 
associated expenses shall be charged to Account 416, Costs and Expenses 
of Merchandising, Jobbing, and Contract Work.

    4. Equipment Purchased for Own Use

    If a borrower purchases satellite or cable television equipment for 
its own use, the investment in the equipment shall be recorded in 
Account 397, Communication Equipment.

                      624   Pollution Control Bonds

    The construction and installation of pollution control facilities 
are often financed by issuing tax exempt municipal securities. The funds 
generated from the sale of these securities are deposited into an 
account that is controlled by a designated trustee. The funds under the 
control of the trustee are usually invested, earning interest, until 
they are needed.
    Interest expense accrued on the pollution control bonds during the 
construction period shall be capitalized in Account 107, Construction 
Work-in-Progress. After construction is complete, all subsequent 
accruals of interest expense shall be charged to Account 427, Interest 
on Long-Term Debt.
    Interest income earned during the construction period shall be 
recorded as a debit to Account 171, Interest and Dividends Receivable, 
and a credit to Account 107, Construction Work-in-Progress. Upon 
notification of receipt of the interest in the trustee account, Account 
221.XX, Long-Term Debt--Pollution Control Bonds, shall be debited and 
Account 171, Interest and Dividends Receivable shall be credited. Upon 
completion of construction, Account 419, Interest and Dividend Income, 
shall be credited for the amount of interest income earned during the 
period.
    The entries required to account for the transactions associated with 
the issuance of pollution control bonds are as follows:

Dr. 221.XX, Long-Term Debt--Pollution Control Bonds--Trustee
    Cr. Account 221.X1, Long-Term Debt--Pollution Control Bonds
To record the sale of pollution control bonds.
Dr. 107, Construction Work-in-Progress
    Cr. 232, Accounts Payable
To record costs incurred in construction of pollution control 
          facilities.
Dr. 131.1, Cash--General Funds
    Cr. 221.XX, Long-Term Debt--Pollution Control Bonds--Trustee
To record the transfer of funds from the trustee.
Dr. 107, Construction Work-in-Progress
    Cr. 221.XX, Long-Term Debt--Pollution Control Bonds--Trustee
To record interest expense on pollution control bonds.
Dr. 171, Interest and Dividends Receivable
    Cr. 107, Construction Work-in-Progress
To record earnings from investments made by the trustee.
Dr. 221.XX, Long-Term Debt--Pollution Control Bonds--Trustee
    Cr. 171, Interest and Dividends Receivable
To record receipt of interest income by the trustee account.
Dr. XXX, Various Plant Accounts
    Cr. 107, Construction Work-in-Progress
To close completed construction to the primary plant accounts.

[[Page 1048]]

                        625   Prepayment of Debt

    Many RUS borrowers have decided to redeem (prepay) their issues of 
long-term debt. As a result of this redemption, the borrower may incur a 
gain (discount) or a loss (penalty) on the early extinguishment of debt. 
The accounting for this gain or loss is highlighted in this section.
    If debt is redeemed without refunding (paid with general funds), the 
gain or loss incurred shall be recorded in Account 189, Unamortized Loss 
on Reacquired Debt, or Account 257, Unamortized Gain on Reacquired Debt, 
as appropriate. The borrower shall amortize the recorded deferral on a 
monthly basis over the remaining life of the old debt issue. Amounts so 
amortized shall be charged to Account 428.1, Amortization of Loss on 
Reacquired Debt, or credited to Account 429.1, Amortization of Gain on 
Reacquired Debt--Credit, as appropriate.
    If the debt is redeemed with refunding (refinanced), the gain or 
loss incurred shall be recorded in Account 189 or Account 257, as 
appropriate. The borrower may elect to account for the deferrals as 
follows:

    1. Write them off immediately when the amounts are insignificant;
    2. Amortize them by equal monthly amounts over the remaining life of 
the old debt issue; or
    3. Amortize them by equal monthly amounts over the life of the new 
debt issue.

    Once an election has been made, it shall be applied on a consistent 
basis. Regardless of the option selected, the amortization shall be 
charged to either Account 428.1 or 429.1, as appropriate.
    Where a regulatory authority having jurisdiction over the borrower 
specifically disallows the rate principle of amortizing gains or losses 
on the redemption of long-term debt without refunding, and does not 
apply the gain or loss to interest charges in computing the borrower's 
rates, the alternative method may be used to account for gains or losses 
relating to the redemption of long-term debt with or without refunding. 
The alternative method requires that gains or losses be recorded in 
Account 421, Miscellaneous Nonoperating Income, or Account 426.5, Other 
Deductions, as incurred. When the alternative method is used, the 
borrower shall include a footnote to the financial statements stating 
the reason for using this method and its treatment for rate making 
purposes.

         626   Rural Economic Development Loan and Grant Program

    On December 21, 1987, Section 313, Cushion of Credits Payments 
Program, was added to the Rural Electrification Act. Section 313 
establishes a Rural Economic Development Subaccount and authorizes the 
Administrator of the Rural Utilities Service to provide zero interest 
loans or grants to RE Act borrowers for the purpose of promoting rural 
economic development and job creation projects.
    Subpart B, Rural Economic Development Loan and Grant Program, 7 CFR 
Part 1703, sets forth the policies and procedures relating to the zero 
interest loan program and for approving and administering grants.
    The accounting journal entries required to record the transactions 
associated with a rural economic development loan are as follows:

Dr. 224.17, RUS Notes Executed--Economic Development--Debit
    Cr. 224.16, Long-Term Debt--RUS Economic Development Notes Executed

    To record the contractual obligation to RUS for the Economic 
Development Notes.

Dr. 131.12, Cash--General--Economic Development Funds
    Cr. 224.17, RUS Notes Executed--Economic Development--Debit

    To record the receipt of the economic development loan funds.

Dr. 123, Investment in Associated Organizations or
Dr. 124, Other Investments
    Cr. 131.12, Cash--General--Economic Development Funds

    To record the disbursement of Economic development loan funds to the 
project.
Dr. 131.1, Cash--General Funds
    Cr. 421, Miscellaneous Nonoperating Income

    To record payment received from the project for loan servicing 
charges.


[[Page 1049]]


Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income

    To record the interest earned on the investment of rural economic 
development loan funds.

Dr. 426.1, Donations or
Dr. 426.5, Other Deductions
    Cr. 131.1, Cash--General Funds

    To record the payment of interest earned in excess of $500.00 on the 
investment of rural economic development loan funds.

    Note: Interest earned in excess of $500.00 must be used for the 
rural economic development project for which the loan funds were 
received or returned to RUS.

Dr. 131.12, Cash--General--Economic Development Funds
    Cr. 123, Investment in Associated Organizations or
    Cr. 124, Other Investments

    To record receipt of the repayment, by the project, of economic 
development loan funds.

Dr. 224.16, Long-Term Debt--RUS Economic Development Notes Executed
    Cr. 131.12, Cash--General--Economic Development Funds

    To record the repayment, to RUS, of the economic development loan 
funds.
    The accounting journal entries required to record the transactions 
associated with a rural economic development grant are as follows:

Dr. 131.13, Cash--General--Economic Development Grant Funds
    Cr. 224.18, Other Long-Term Debt--Grant Funds;
    Cr. 208, Donated Capital; or
    Cr. 421, Miscellaneous Nonoperating Income

    To record grant funds disbursed by RUS. If the grant agreement 
requires repayment of the funds upon termination of the revolving loan 
program, Account 224.18 should be credited. If the grant agreement 
states that there is absolutely no obligation for repayment upon 
termination of the revolving loan program, the funds should be accounted 
for as a permanent infusion of capital by crediting Account 208. If, 
however, the grant agreement is silent as to the final disposition of 
the grant funds, Account 421 should be credited.

Dr. 123.3, Investment in Associated Organizations--Federal Economic 
Development Loans
    Cr. 131.13, Cash--General--Economic Development Grant Funds

    To record advances of Federal funds to associated organizations for 
authorized rural economic development projects.

Dr. 124.1, Other Investments--Federal Economic Development Loans
    Cr. 131.13, Cash--General--Economic Development Grant Funds

    To record advances of Federal funds to nonassociated organizations 
for authorized rural economic development projects.

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income

    To record the accrual of interest on loans made to associated and 
nonassociated organizations with Federal funds for authorized rural 
economic development projects.

Dr. 131.14, Cash--General--Economic Development Non-Federal Revolving 
Funds
    Cr. 123.3, Investment in Associated Organizations--Federal Economic 
Development Loans or
    Cr. 124.1, Other Investments--Federal Economic Development Loans

    To record repayment of loans made with Federal funds.

Dr. 123.4, Investment in Associated Organizations--Non-Federal Economic 
Development Loans
    Cr. 131.14, Cash--General--Economic Development Non-Federal 
Revolving Funds

    To record advances of non-Federal funds to associated organizations 
for authorized rural economic development projects.

Dr. 124.2, Other Investments--Non-Federal Economic Development Loans
    Cr. 131.14, Cash--General--Economic Development Non-Federal 
Revolving Funds

    To record advances of non-Federal funds to nonassociated 
organizations for authorized rural economic development projects.

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income


[[Page 1050]]


    To record the accrual of interest on loans made to associated and 
nonassociated organizations with non-Federal funds for authorized rural 
economic development projects.

Dr. 131.14, Cash--General--Economic Development Non-Federal Revolving 
Funds
    Cr. 123.4, Investment in Associated Organizations--Non-Federal 
Economic Development Loans or
    Cr. 124.2, Other Investments--Non-Federal Economic Development Loans

    To record repayment of loans made with non-Federal funds.

                      627   Postretirement Benefits

    Statement of Financial Accounting Standards No. 106, Employers' 
Accounting for Postretirement Benefits Other than Pensions (Statement 
No. 106), requires reporting entities to accrue the expected cost of 
postretirement benefits during the years the employee provides service 
to the entity. For purposes of applying the provisions of Statement No. 
106, members of the board of directors are considered to be employees of 
the cooperative. Prior to the issuance of Statement No. 106, most 
reporting entities accounted for postretirement benefit costs on a 
``pay-as-you-go'' basis; that is, costs were recognized when paid, not 
when the employee provided service to the entity in exchange for the 
benefits.
    As defined in Statement No. 106, a postretirement benefit plan is a 
deferred compensation arrangement in which an employer promises to 
exchange future benefits for an employee's current services. 
Postretirement benefit plans may be funded or unfunded. Postretirement 
benefits include, but are not limited to, health care, life insurance, 
tuition assistance, day care, legal services, and housing subsidies 
provided outside of a pension plan.
    This statement applies to both written plans and to plans whose 
existence is implied from a practice of paying postretirement benefits. 
An employer's practice of providing postretirement benefits to selected 
employees under individual contracts with specified terms determined on 
an employee-by-employee basis does not, however, constitute a 
postretirement benefit plan under the provisions of this statement.
    Postretirement benefit plans generally fall into three categories: 
single-employer defined benefit plans, multi-employer plans, and 
multiple-employer plans.
    The accounting requirements set forth in this interpretation focus 
on single- and multiple-employer plans. The accounting requirements set 
forth in Statement No. 106 for multiemployer plans or defined 
contribution plans shall be adopted for borrowers electing those types 
of plans.
    Under the provisions of Statement No. 106, there are two components 
of the postretirement benefit cost: the current period cost and the 
transition obligation. The transition obligation is a one-time accrual 
of the costs resulting from services already provided. Statement No. 106 
allows the transition obligation to be deferred and amortized on a 
straight-line basis over the average remaining service period of the 
active employees. If the average remaining service life of the employees 
is less than 20 years, a 20-year amortization period may be used.

                         Accounting Requirements

    All RUS borrowers must adopt the accrual accounting provisions and 
reporting requirements set forth in Statement No. 106. The transition 
obligation and accrual of the current period cost must be based upon an 
actuarial study. This study must be updated to allow the borrower to 
comply with the measurement date requirements of Statement No. 106; 
however, the study must, at a minimum, be updated every five years. RUS 
will not allow electric borrowers to account for postretirement benefits 
on a ``pay-as-you-go'' basis.
    The deferral and amortization of the transition obligation does not 
require RUS approval provided that it complies with the provisions of 
Statement No. 106. If, however, a borrower elects to expense the 
transition obligation in the current period and subsequently defer this 
expense in accordance with Statement of Financial Accounting Standards 
No. 71, Accounting for the Effects of Certain Types of Regulation,

[[Page 1051]]

the deferral must be approved by RUS. In those states in which the 
commission will not allow the recovery of the transition obligation 
through future rates, the transition obligation must be expensed, in its 
entirety, in the year in which Statement No. 106 is adopted. A portion 
of the transition obligation may be charged to construction and 
retirement activities provided such charges are properly supported.

                    Effective Date and Implementation

    For plans outside the United States and for defined benefit plans of 
employers that (a) are nonpublic enterprises and (b) sponsor defined 
benefit postretirement plans with no more than 500 plan participants in 
the aggregate, Statement No. 106 is effective for fiscal years beginning 
after December 15, 1994. For all other plans, Statement No. 106 is 
effective for fiscal years beginning after December 15, 1992.
    RUS borrowers must comply with the implementation dates set forth in 
Statement No. 106. At the time of the adoption of Statement No. 106, 
rates must be in place sufficient to recover the current period expense 
and any amortization of the transition obligation. A copy of a board 
resolution or commission order, as appropriate, indicating that the 
transition obligation and current period expense have been included in 
the borrower's rates must be submitted to RUS.

            Accounting Journal Entries--Transition Obligation

    The journal entries required to record the transition obligation are 
as follows:
    1. If the borrower elects to expense the transition obligation in 
the current period and there is no deferral of costs, the following 
entry shall be recorded:

Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting 
Principle or
Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record the current period recognition of the transition 
obligation for postretirement benefits.

    Note: A portion of the transition obligation may be charged to 
construction and retirement activities provided such charges are 
properly supported.

    2. If the borrower elects to defer and amortize the transition 
obligation in accordance with the provisions of Statement No. 71, the 
following entry shall be recorded:

Dr. 182.3, Other Regulatory Assets
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record the deferral of the transition obligation under the 
provisions of Statement No. 71.

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 182.3, Other Regulatory Assets

    To record the amortization of postretirement benefits expenses as 
they are recovered through rates in accordance with Statement No. 71.
    3. The deferral and amortization of the transition obligation under 
the provisions of Statement No. 106 is considered to be an off balance 
sheet item. If, therefore, the borrower elects to defer and amortize the 
transition obligation on a straight-line basis over the average 
remaining service period of the active employees or 20 years in 
accordance with Statement No. 106, no entry is required. Instead, the 
transition obligation is recognized as a component of postretirement 
benefit cost as it is amortized. It should be noted, however, that the 
amount of the unamortized transition obligation must be disclosed in the 
notes to the financial statements.

           Accounting Journal Entries--Current Period Expense

    The current period postretirement expense should be recorded by the 
following entry:

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 228.3, Accumulated Provision for Pensions and Benefits


[[Page 1052]]


    To record current period postretirement benefit expense.

Dr. 228.3X, Accumulated Provision for Pensions and Benefits--Funded
    Cr. 131.1, Cash--General

    To record cash payments on a ``pay-as-you-go'' basis for 
postretirement benefits.

                    Accounting Journal Entry--Funding

    If a borrower elects to voluntarily fund its postretirement benefits 
obligation in an external, irrevocable trust, the following entry shall 
be recorded:

Dr. 228.3X, Accumulated Provision for Pensions and Benefits--Funded
    Cr. 131.1, Cash--General

    To record the funding of postretirement benefits expense into an 
external, irrevocable trust.
    If a borrower elects to voluntarily fund its postretirement benefits 
obligation in an investment vehicle other than an external, irrevocable 
trust, the following entry shall be recorded:

Dr. 128, Other Special Funds
    Cr. 131.1, Cash--General

    To record the funding of postretirement benefits expense into an 
investment vehicle other than an external, irrevocable trust.

                      628   Postemployment Benefits

    Statement of Financial Accounting Standards No. 112, Employers' 
Accounting for Postemployment Benefits (Statement No. 112) establishes 
the standards of financial accounting and reporting for employers who 
provide benefits to former or inactive employees after employment but 
before retirement. Inactive employees are those who are not currently 
rendering service to the employer but who have not been terminated, 
including employees who are on disability leave, regardless of whether 
they are expected to return to active service. For purposes of applying 
the provisions of Statement No. 112, former members of the board of 
directors are considered to be employees of the cooperative.
    Postemployment benefits include benefits provided to former or 
inactive employees, their beneficiaries, and covered dependents. They 
include, but are not limited to, salary continuation, supplemental 
benefits (including workmen's compensation), health care, job training 
and counseling, and life insurance coverage. Benefits may be provided in 
cash or in kind and may be paid upon cessation of active employment or 
over a specified period of time.
    The cost of providing postemployment benefits is considered to be a 
part of the compensation provided to an employee in exchange for current 
service and should, therefore, be accrued as the employee earns the 
right to be paid for future postemployment benefits. Applying the 
criteria set forth in Statement of Financial Accounting Standards No. 
43, Accounting for Compensated Absences, a postemployment benefit 
obligation is accrued when all of the following conditions are met:
    1. The employer's obligation for payment for future absences is 
attributable to employees' services already performed;
    2. The obligation relates to employee rights that vest or 
accumulate. Vested rights are considered those rights for which the 
employer is obligated to make payment even if the employee terminates. 
Rights that accumulate are those earned, but unused rights to 
compensated absences that may be carried forward to one or more periods 
subsequent to the period in which they are earned;
    3. Payment of the compensation is probable; and
    4. The amount can be reasonably estimated.
    If all of these conditions are not met, the employer must account 
for its postemployment benefit obligation in accordance with Statement 
of Financial Accounting Standards No. 5, Accounting for Contingencies 
(Statement No. 5) when it becomes probable that a liability has been 
incurred and the amount of that liability can be reasonably estimated.
    If an obligation for postemployment benefits is not accrued in 
accordance with the provisions of Statement No. 5 or Statement No. 43 
only because the amount cannot be reasonably estimated, the financial 
statements should disclose that fact.

[[Page 1053]]

                         Accounting Requirements

    All RUS borrowers must adopt the accrual accounting provisions and 
reporting requirements set forth in Statement No. 112 as of the 
statement's implementation date. A portion of the cumulative effect may 
be charged to construction and retirement activities provided such 
charges are properly supported. If a borrower elects to defer the 
cumulative effect of implementing Statement No. 112 in accordance with 
the provisions of Statement of Financial Accounting Standards No. 71, 
Accounting for the Effects of Certain Types of Regulation, the deferral 
must be approved by RUS.

                    Effective Date and Implementation

    Statement No. 112 is effective for fiscal years beginning after 
December 15, 1993. Previously issued financial statements should not be 
restated.
    RUS borrowers must comply with the implementation date set forth in 
Statement No. 112. At the time of the adoption of Statement No. 112, 
rates must be in place sufficient to recover the current period expense.

                       Accounting Journal Entries

    The journal entries required to account for postemployment benefits 
are as follows:

Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting 
Principle
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record the cumulative effect of implementing Statement No. 112.

    Note: A portion of the cumulative effect may be charged to 
construction and retirement activities provided such charges are 
properly supported. Account 435.1 is closed to Account 219.2, 
Nonoperating Margins.

    If the borrower elects to defer and amortize the cumulative effect 
in accordance with the provisions of Statement No. 71, the following 
entry shall be recorded:

Dr. 182.3, Other Regulatory Assets
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record the deferral of the cumulative effect of implementing 
Statement No. 112 in accordance with the provisions of Statement No. 71.

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 182.3, Other Regulatory Assets

    To record the amortization of the cumulative effect of implementing 
Statement No. 112 as it is recovered through rates in accordance with 
Statement No. 71.

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record current period postemployment benefit expense.

    Note: If postemployment benefits are accrued under the criteria set 
forth in Statement No. 43, this journal entry is made on a monthly 
basis. If, however, the accrual is based upon the provisions of 
Statement No. 5, this is a one-time entry unless the liability is 
reevaluated and subsequently adjusted.

             629   Investments in Debt and Equity Securities

    Statement of Financial Accounting Standards No. 115, Accounting for 
Certain Investments in Debt and Equity Securities (Statement No. 115), 
establishes the standards of financial accounting and reporting for 
investments in debt securities and for investments in equity securities 
that have readily determinable fair values. Statement No. 115 does not 
apply to investments in equity securities accounted for under the equity 
method nor to investments in consolidated subsidiaries.
    At the time of acquisition, an entity must classify debt and equity 
securities into one of three categories: held-to-maturity, available-
for-sale, or trading. At the balance sheet date, the appropriateness of 
the classifications must be reassessed.
    Investments in debt securities are classified as held-to-maturity 
and are measured at amortized cost in the balance sheet only if the 
reporting entity has the positive intent and ability to hold these 
securities to maturity. Debt

[[Page 1054]]

securities are not classified as held-to-maturity if the entity has the 
intent to hold the security only for an indefinite period; for example, 
if the security would become available for sale in response to changes 
in market interest rates and related changes in the security's 
prepayment risk, needs for liquidity, changes in the availability of and 
the yield on alternative investments, changes in funding sources and 
terms, and changes in foreign currency risk.
    Investments in debt securities that are not classified as held-to-
maturity and equity securities that have readily determinable fair 
values are classified as either trading securities or available-for-sale 
securities and are measured at fair value in the balance sheet. Trading 
securities are those securities that are bought and held principally for 
the purpose of selling them in the near future. Trading generally 
reflects active and frequent buying and selling and trading securities 
are generally used with the objective of generating profits on short-
term differences in prices. Available-for-sale securities are those 
investments not classified as either trading securities or held-to-
maturity securities.
    Statement No. 115 requires unrealized holding gains and losses for 
trading securities to be included in earnings in the current period. 
Unrealized holding gains and losses for available-for-sale securities 
are excluded from earnings; however, they are reported as a net amount 
in a separate component of shareholders' equity until realized.
    For individual securities classified as either available-for sale or 
held-to-maturity, an entity must determine whether a decline in the 
security's fair value below the amortized cost is other than temporary. 
If the decline in fair value is determined to be permanent, that is, it 
is probable that the entity will not be able to collect all amounts due 
under the contractual terms of the security, the realized loss is 
accounted for in earnings of the current period. The new cost basis is 
not adjusted upward for subsequent recoveries in the fair value. 
Subsequent increases in the fair value of available-for-sale securities 
are included in the separate component of equity. Subsequent decreases 
are also included in the separate component of equity.
    All trading securities are reported as current assets in the balance 
sheet and individual held-to-maturity and available-for-sale securities 
are classified as either current or noncurrent, as appropriate. Cash 
flows from the purchase, sale, or maturity of available-for-sale 
securities and held-to-maturity securities are classified in the 
statement of cash flows as cash flows from investing activities and 
reported gross for each security classification.

                         Accounting Requirements

    All RUS borrowers must adopt the accounting, reporting, and 
disclosure requirements set forth in Statement No. 115 as of the 
statement's implementation date. Unrealized holding gains or losses for 
trading securities shall be recorded in either Account 421, 
Miscellaneous Nonoperating Income, or Account 426.5, Other Deductions, 
as appropriate. Unrealized holding gains or losses for available-for-
sale securities held by the corporate entity are recognized as a 
component of stockholder's equity in Account 215.1, Unrealized Gains and 
Losses--Debt and Equity Securities. A contra account of the investment 
account shall be debited or credited accordingly. Unrealized gains and 
losses for available-for-sale securities held in a decommissioning fund 
shall increase or decrease, as appropriate, the reported value of the 
fund.

                    Effective Date and Implementation

    Statement No. 115 is effective for fiscal years beginning after 
December 15, 1993. At the beginning of the entity's fiscal year, the 
entity must classify its debt and equity securities on the basis of the 
entity's current intent. This statement may not be applied retroactively 
to prior years' financial statements. For fiscal years beginning prior 
to December 16, 1993, reporting entities are permitted to apply 
Statement No. 115 as of the end of a fiscal year for which annual 
financial statements have not previously been issued.

[58 FR 59825, Nov. 10, 1993, as amended at 59 FR 27436, May 27, 1994; 60 
FR 55430, 55435-55438, Nov. 1, 1995]

[[Page 1055]]

Secs. 1767.42--1767.45  [Reserved]



        Subpart C--Depreciation Rates and Procedures  [Reserved]

Secs. 1767.46--1767.65  [Reserved]



             Subpart D--Preservation of Records  [Reserved]

Secs. 1767.66--1767.85  [Reserved]



PART 1770--ACCOUNTING REQUIREMENTS FOR RUS TELEPHONE BORROWERS--Table of Contents




                      Subpart A--General Provisions

Sec.
1770.1--1770.9  [Reserved]

                  Subpart B--Uniform System of Accounts

1770.10  General.
1770.11  Accounting system requirements.
1770.12  Supplementary accounts.
1770.13  Accounting requirements.
1770.14  Continuing property records.
1770.15  Supplementary accounts required of all borrowers.
1770.16  Supplementary accounts required of nonprofit organizations.
1770.17--1770.25  [Reserved]

                  Subpart C--Accounting Interpretations

1770.26  General.
1770.27  Definitions.
1770.28-1770.45  [Reserved]

Appendix to Subpart C--Accounting Methods and Procedures Required of All 
                                Borrowers

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 55 FR 3388, Feb. 1, 1990, unless otherwise noted.



                      Subpart A--General Provisions

Secs. 1770.1--1770.9  [Reserved]



                  Subpart B--Uniform System of Accounts



Sec. 1770.10  General.

    This subpart implements provisions of the standard RUS loan 
documents with respect to the accounting system accounts to be 
maintained by telecommunications borrowers of the Rural Utilities 
Service.



Sec. 1770.11  Accounting system requirements.

    (a) Each RUS borrower subject to the jurisdiction of the Federal 
Communications Commission (FCC) or a State regulatory body shall 
maintain its accounts and records in accordance with the rules and 
regulations prescribed by that regulatory body.
    (b) Each RUS borrower not subject to regulatory control as specified 
in Sec. 1770.11(a) shall maintain its accounts and records in accordance 
with the FCC Uniform System of Accounts as set forth in part 32 of the 
Commission's Rules and Regulations.
    (1) RUS borrowers having annual revenues derived from regulated 
telecommunications operations of $100,000,000 or more shall maintain the 
accounts prescribed in part 32 for Class A companies.
    (2) RUS borrowers having annual revenues derived from regulated 
telecommunications operations of less than $100,000,000 shall maintain 
the accounts prescribed in part 32 for Class B companies.
    (3) RUS borrowers maintaining the accounts prescribed for Class B 
companies may adopt the Class A accounts if they desire more detailed 
and sophisticated accounting records.



Sec. 1770.12  Supplementary accounts.

    (a) All borrowers shall maintain the supplementary accounts set 
forth in Sec. 1770.15. These accounts conform in number and title with 
accounts prescribed in the FCC Uniform System of Accounts. In those 
instances in which a State regulatory body having jurisdiction over an 
RUS borrower has prescribed a system of accounts differing from that of 
the FCC, the account titles prescribed by RUS in Sec. 1770.15 shall 
remain unchanged; however, the supplementary account numbers shall be 
changed to conform with the State's accounting system.
    (b) In addition to the accounts set forth in Sec. 1770.15, 
cooperative or other nonprofit borrowers shall maintain the 
supplementary accounts set forth in Sec. 1770.16.

[[Page 1056]]

    (c) Borrowers are permitted to deviate from the specific subaccount 
numbers detailed in Secs. 1770.15 and 1770.16 provided that the primary 
account numbers and account descriptions conform with those prescribed.

(Approved by the Office of Management and Budget under control number 
0572-0003)



Sec. 1770.13  Accounting requirements.

    (a) Each borrower shall maintain its books of accounts on the 
accrual basis of accounting. All transactions shall be recorded in the 
period in which they occur and reconciled monthly. The books of accounts 
shall be closed at the end of each fiscal year and financial statements 
shall be prepared for the period and audited in accordance with the 
provisions of 7 CFR part 1773, RUS Policy on Audits of Electric and 
Telephone Borrowers.
    (b) All books of accounts, records, and memoranda shall be 
maintained in such a manner as to fully support the journal entries to 
which they relate. The books and records referred to herein shall 
include records of a nontechnical nature such as minute books, stock and 
membership records, reports, correspondence, and memoranda.
    (c) Interpretations of Federal or State requirements shall be 
referred to the applicable commission exercising jurisdiction over the 
borrower.
    (d) Interpretations of RUS accounting requirements shall be referred 
to the appropriate Telephone Area office of RUS.



Sec. 1770.14  Continuing property records.

    Each borrower shall maintain continuing property records which 
detail the date of placement, location, description of property, and the 
original cost of the property record units. The continuing property 
record and other underlying records of construction costs shall be 
maintained so that upon retirement of one or more retirement units or of 
minor items without replacement when not included in the costs of 
retirement units, the actual cost of the plant retired can be 
determined.



Sec. 1770.15  Supplementary accounts required of all borrowers.

    Accounts prescribed in the Stockholders' Equity and Patronage 
Capital section shall be maintained by stock companies and cooperatives 
as appropriate.

------------------------------------------------------------------------
  Class of company                                                      
---------------------                                                   
     Account No.                         Account title                  
---------------------                                                   
    A          B                                                        
------------------------------------------------------------------------
  .......             Current Assets                                    
                                                                        
1130.1...    1120.11  Cash--General Fund.                               
1130.2...    1120.12  Cash--Construction Fund Trustee.                  
1130.3...    1120.13  Cash--Transfer of Funds.                          
  .......    1120.21  Special Cash Deposits.                            
1150.1...    1120.31  Petty Cash Fund                                   
                                                                        
  .......             This account shall include funds in the custody of
                       employees or agents for making minor             
                       disbursements. The fund shall be operated on an  
                       imprest basis. Expenditures shall be supported by
                       receipts, and reimbursements to the fund shall be
                       for the exact amount of such expenditures and    
                       shall be charged to the various accounts to which
                       the expenditures are allocable. At all times, the
                       total of the cash on hand and the unreimbursed   
                       expenditures shall equal the amount of the fund. 
                                                                        
1150.2...    1120.32  Change Fund.                                      
                                                                        
  .......             Supplies                                          
                                                                        
1220.1...    1220.1   Materials and Supplies.                           
1220.2...    1220.2   Property Held for Sale or Lease.                  
1220.3...    1220.3   Exempt Materials--Clearing.                       
                                                                        
  .......             Prepayments                                       
                                                                        
  .......    1280.1   Prepaid Rents.                                    
  .......    1280.2   Prepaid Taxes.                                    
  .......    1280.3   Prepaid Insurance.                                
  .......    1280.4   Prepaid Directory Expenses.                       
  .......    1280.5   Other Prepayments.                                
                                                                        
  .......             Investments                                       
                                                                        
1402.1...    1402.1   Investments in Nonaffiliated Companies--Class B   
                       RTB Stock.                                       
1402.11..    1402.11  Investments in Nonaffiliated Companies--Class B   
                       RTB Stock--Cr.                                   

[[Page 1057]]

                                                                        
1402.2...    1402.2   Investments in Nonaffiliated Companies--Class C   
                       RTB Stock.                                       
1402.3...    1402.3   Other Investments in Nonaffiliated Companies.     
                                                                        
  .......             Property, Plant, and Equipment                    
                                                                        
2001.1...    2001.1   Telecommunications Plant in Service--Classified.  
2001.2...    2001.2   Telecommunications Plant in Service--Unclassified.
2003.1...    2003.1   Telecommunications Plant Under Construction--Short
                       Term--Contract.                                  
2003.2...    2003.2   Telecommunications Plant Under Construction--Short
                       Term--Force Account.                             
2003.3...    2003.3   Telecommunications Plant Under Construction--Short
                       Term--Work Orders.                               
2004.1...    2004.1   Telecommunications Plant Under Construction--Long 
                       Term--Contract.                                  
2004.2...    2004.2   Telecommunications Plant Under Construction--Long 
                       Term--Force Account.                             
2004.3...    2004.3   Telecommunications Plant Under Construction--Long 
                       Term--Work Orders.                               
                                                                        
  .......             Telecommunications Plant in Service               
                                                                        
  .......    2210.11  Central Office Switching--Analog.                 
  .......    2210.21  Central Office Switching--Digital.                
  .......    2210.31  Central Office Switching--Electro-Mechanical--Step-
                       by-Step.                                         
  .......    2210.32  Central Office Switching--Electro-Mechanical--    
                       Crossbar.                                        
  .......    2210.33  Central Office Switching--Electro-Mechanical--    
                       Other.                                           
  .......    2230.11  Central Office Transmission--Radio Systems--      
                       Satellite and Earth Station Facilities.          
  .......    2230.12  Central Office Transmission--Radio Systems--Other.
  .......    2230.21  Central Office Transmission--Circuit Equipment.   
                                                                        
  .......             Depreciation and Amortization                     
                                                                        
3100x....   3100x     Retirement Work in Progress.                      
                                                                        
  .......             Current Liabilities                               
                                                                        
4010.11..    4010.11  Accounts Payable to Affiliated Companies.         
4010.21..    4010.21  Accounts Payable to Nonaffiliated Companies.      
4010.22..    4010.22  Accounts Payable--Employees' Income Tax Withheld. 
4010.23..    4010.23  Accounts Payable--FICA Taxes Withheld.            
4010.24..    4010.24  Accounts Payable--Federal Excise Taxes.           
4010.25..    4010.25  Accounts Payable--Payroll.                        
4070.1...    4070.1   Income Taxes Accrued--Federal.                    
4070.2...    4070.2   Income Taxes Accrued--State and Local             
4080.1...    4080.1   Other Taxes Accrued--Property.                    
4080.2...    4080.2   Other Taxes Accrued--Employer's Portion--FICA.    
4080.3...    4080.3   Other Taxes Accrued--Federal Unemployment.        
4080.4...    4080.4   Other Taxes Accrued--State Unemployment.          
4080.5...    4080.5   Other Taxes Accrued--Miscellaneous.               
4120.1...    4120.1   Unmatured Interest Accrued--RUS Notes.            
4120.2...    4120.2   Unmatured Interest Accrued--Telephone Bank Notes. 
4120.3...    4120.3   Unmatured Interest Accrued--Federal Financing Bank
                       Notes.                                           
4120.4...    4120.4   Unmatured Interest Accrued--Bank for Cooperatives 
                       Notes.                                           
4120.5...    4120.5   Unmatured Interest Accrued--Rural Telephone       
                       Finance Cooperative Notes.                       
4120.6...    4120.6   Other Accrued Liabilities.                        
                                                                        
  .......             Long-Term Debt                                    
                                                                        
4210.11..    4210.11  Funded Debt--Other.                               
4210.12..    4210.12  RUS Notes.                                        
4210.13..    4210.13  Telephone Bank Notes.                             
4210.14..    4210.14  Federal Financing Bank Notes.                     
4210.15..    4210.15  Bank for Cooperatives Notes.                      
4210.16..    4210.16  Rural Telephone Finance Cooperative Notes.        
4210.17..    4210.17  RUS Notes--Deferred Interest.                     
4210.18..    4210.18  RUS Notes--Advance Payments, Dr.                  
4210.19..    4210.19  Funded Debt--Other--Unadvanced, Dr.               
4210.20..    4210.20  RUS Notes--Unadvanced, Dr.                        
4210.21..    4210.21  Telephone Bank Notes--Unadvanced, Dr.             
4210.22..    4210.22  Federal Financing Bank Notes--Unadvanced, Dr.     
4210.23..    4210.23  Bank for Cooperatives Notes--Unadvanced, Dr.      
4210.24..    4210.24  Rural Telephone Finance Cooperative Notes--       
                       Unadvanced, Dr.                                  
                                                                        
  .......             Stockholders' Equity and Patronage Capital        
                                                                        
4540.11..    4540.11  Capital Stock Subscribed.                         
4540.12..    4540.12  Memberships Subscribed but Unissued.              
4540.13..    4540.13  Members' Equity Certificates Subscribed but       
                       Unissued.                                        
4540.21..    4540.21  Memberships Issued.                               
4540.22..    4540.22  Members' Equity Certificates Issued.              
4540.23..    4540.23  Members' Equity--Other.                           
4540.31..    4540.31  Installments Paid on Capital Stock.               
4540.32..    4540.32  Installments Paid on Memberships Subscribed.      

[[Page 1058]]

                                                                        
4540.33..    4540.33  Installments Paid on Equity Certificates          
                       Subscribed.                                      
4540.41..    4540.41  Other Capital--Miscellaneous.                     
4550.1...    4550.1   Operating Margins.                                
4550.2...    4550.2   Nonoperating Margins.                             
4550.3...    4550.3   Other Margins.                                    
4550.4...    4550.4   Patronage Capital Assignable.                     
4550.5...    4550.5   Patrons' Capital Credits Assigned.                
4550.6...    4550.6   Gain on the Retirement of Capital Credits.        
                                                                        
  .......             Plant Specific Operations Expense                 
                                                                        
  .......    6210.11  Analog Electronic Expense.                        
  .......    6210.21  Digital Electronic Expense.                       
  .......    6210.31  Electro-Mechanical Expense.                       
  .......    6230.11  Radio Systems Expense.                            
  .......    6230.21  Circuit Equipment Expense.                        
                                                                        
  .......             Plant Nonspecific Operations Expense              
                                                                        
  .......    6560.1   Depreciation Expense.                             
  .......    6560.2   Amortization Expense.                             
  .......             Operating Taxes.                                  
  .......    7200.1   Operating Investment Tax Credits--Net.            
  .......    7200.2   Operating Federal Income Taxes.                   
  .......    7200.3   Operating State and Local Income Taxes.           
7240.1...    7200.41  Operating Taxes--Property.                        
7240.2...    7200.42  Operating Taxes--Miscellaneous.                   
  .......    7200.5   Provision for Deferred Operating Income Taxes--   
                       Net.                                             
                                                                        
  .......             Nonoperating Income and Expense                   
                                                                        
  .......    7300.1   Dividend Income.                                  
  .......    7300.2   Interest Income.                                  
  .......    7300.3   Income From Sinking and Other Funds.              
  .......    7300.4   Allowance for Funds Used During Construction.     
  .......    7300.5   Gains or Losses from the Disposition of Certain   
                       Property.                                        
  .......    7300.6   Other Nonoperating Income and Expense.            
                                                                        
  .......             Nonoperating Taxes                                
                                                                        
  .......    7400.1   Nonoperating Investment Tax Credits--Net.         
  .......    7400.2   Nonoperating Federal Income Taxes.                
  .......    7400.3   Nonoperating State and Local Income Taxes.        
  .......    7400.4   Nonoperating Other Taxes.                         
  .......    7400.5   Provision for Deferred Nonoperating Income Taxes--
                       Net.                                             
                                                                        
  .......             Extraordinary Items                               
                                                                        
  .......    7600.1   Extraordinary Income Credits.                     
  .......    7600.2   Extraordinary Income Charges.                     
  .......    7600.3   Current Income Tax Effect of Extraordinary Items--
                       Net.                                             
  .......    7600.4   Provision for Deferred Income Tax Effect of       
                       Extraordinary Items--Net.                        
                                                                        
1130.1...    1120.11  Cash--General Fund                                
                                                                        
  .......             This account shall include all unrestricted funds 
                       derived from revenues and other sources which are
                       on deposit in banks or other financial           
                       institutions and available on demand. It shall   
                       also include funds in transit to the depository  
                       for which customers and agents have received     
                       credit on their accounts. Separate subaccounts   
                       should be maintained for each bank account in    
                       which general fund cash is deposited.            
                                                                        
1130.2...    1120.12  Cash--Construction Fund Trustee                   
                                                                        
  .......             This account shall include all loan funds received
                       from RUS, the Rural Telephone Bank, the Federal  
                       Financing Bank, the Bank for Cooperatives, the   
                       Rural Telephone Finance Cooperative, and all non-
                       loan funds supplied by the borrower under the    
                       terms of the loan contract or otherwise required 
                       by RUS. The offsetting credit for funds received 
                       from RUS shall be to Account 4210.20, RUS Notes--
                       Unadvanced, Dr.; funds received from the Rural   
                       Telephone Bank, to Account 4210.21, Telephone    
                       Bank Notes--Unadvanced, Dr.; funds received from 
                       the Federal Financing Bank, to Account 4210.22,  
                       Federal Financing Bank Notes--Unadvanced, Dr.;   
                       funds received from the Bank for Cooperatives, to
                       Account 4210.23, Bank for Cooperatives Notes--   
                       Unadvanced, Dr.; and funds received from the     
                       Rural Telephone Finance Cooperative, to Account  
                       4210.24, Rural Telephone Finance Cooperative     
                       Notes--Unadvanced, Dr.                           
                                                                        
1130.3...    1120.13  Cash--Transfer of Funds                           
                                                                        
  .......             This account shall include all transfers of funds 
                       from one bank account to another. This account   
                       shall be charged with the amount of a check drawn
                       for the transfer, and credited when the amount   
                       transferred is entered into the Cash Receipts    
                       Book.                                            
                                                                        
  .......    1120.21  Special Cash Deposits                             
                                                                        

[[Page 1059]]

                                                                        
  .......             This account shall include all cash on special    
                       deposit, other than in sinking and other special 
                       funds provided for elsewhere, to pay dividends,  
                       interest, and other debts, when such payments are
                       due one year or less from the date of deposit;   
                       the amount of cash deposited to insure the       
                       performance of contracts to be performed within  
                       one year from the date of the deposit; and other 
                       cash deposits of a special nature not provided   
                       for elsewhere. This account shall include the    
                       amount of cash deposited with trustees to be held
                       until mortgaged property sold, destroyed, or     
                       otherwise disposed of is replaced, and also cash 
                       realized from the sale of the company's          
                       securities and deposited with trustees to be held
                       until invested in physical property of the       
                       company or for disbursement when the purposes for
                       which the securities were sold are accomplished. 
                                                                        
1150.1...    1120.31  Petty Cash Fund                                   
                                                                        
  .......             This account shall include funds in the custody of
                       employees or agents for making minor             
                       disbursements. The fund shall be operated on an  
                       inprest basis. Expenditures shall be supported by
                       receipts, and reimbursements to the fund shall be
                       for the exact amount of such expenditures and    
                       shall be charged to the various accounts to which
                       the expenditures are allocable. At all times, the
                       total of the cash on hand and the unreimbursed   
                       expenditures shall equal the amount of the fund. 
                                                                        
1150.2...    1120.32  Change Fund                                       
                                                                        
  .......             This account shall include funds in the custody of
                       employees or agents for making change. Records   
                       shall be kept of the amount held by each person. 
                       Disbursements shall not be made from the fund.   
                                                                        
1220.1...    1220.1   Materials and Supplies*                           
                                                                        
  .......             This account shall include the cost of materials  
                       and supplies held in stock including plant       
                       supplies, motor vehicles supplies, tools, fuel,  
                       other supplies and material and articles of the  
                       company in process of manufacture for supply     
                       stock.                                           
  .......             Transportation charges and sales and use taxes, as
                       far as practicable, shall be included as a part  
                       of the cost of the particular material to which  
                       they relate. Transportation and sales and use    
                       taxes which are not included as part of the cost 
                       of particular material shall be equitably        
                       apportioned among the accounts to which material 
                       is charged.                                      
  .......             As far as practicable, cash and other discounts on
                       material shall be deducted in determining cost of
                       the particular material to which they relate or  
                       credited to the account to which the material is 
                       charged. When such deduction is not practicable, 
                       discounts shall be equitably apportioned among   
                       the accounts to which material is charged.       
  .......             Material recovered in connection with             
                       construction, maintenance or retirement of       
                       property shall be charged to this account as     
                       follows:                                         
  .......               --Reusable items that, when installed or in     
                      service, were retirement units shall be included  
                      in this account at the original cost.             
  .......               --Reusable minor items that, when installed or  
                      in service, were not retirement units shall be    
                      included in this account at current prices new.   
  .......               --The cost of repairing reusable material shall 
                      be charged to the appropriate Plant Specific      
                      Operations Expense accounts.                      
  .......               --Scrap and nonusable material included in this 
                      account shall be carried at the estimated amount  
                      which will be received therefor. The difference   
                      between the amounts realized for scrap and        
                      nonusable material sold, and the amounts at which 
                      it is carried in this account shall be adjusted in
                      the accounts credited when the material was taken 
                      up in this account.                               
  .......             Interest paid on material bills, the payments of  
                       which are delayed, shall be charged to Account   
                       7540, Other Interest Deductions.                 
  .......             Inventories of materials and supplies shall be    
                       taken during each calendar year and the          
                       adjustments to this account shall be charged or  
                       credited to Account 6512, Provisioning Expense.  
                                                                        
1220.2...    1220.2   Property Held for Sale or Lease*                  
                                                                        
  .......             This account shall include the cost of all items  
                       purchased for resale or lease. The cost shall    
                       include applicable transportation charges, sales 
                       and use taxes, and cash and other purchase       
                       discounts. Inventory shortages and overages shall
                       be charged and credited, respectively to Account 
                       7991, Other Nonregulated Revenues.               
  .......               *These accounts shall not include items which   
                      are related to a nonregulated activity unless that
                      activity involves joint or common use of assets   
                      and resources in the provision of regulated and   
                      nonregulated products and services.               
                                                                        
1220.3...    1220.3   Exempt Materials--Clearing                        
                                                                        
  .......             This account shall include the cost of materials  
                       and supplies designated as exempt material on the
                       carrier's ``Exempt Material List''. Charges to   
                       this account shall be cleared monthly to the     
                       primary plant and maintenance accounts in        
                       accordance with percentages developed by the     
                       individual carriers.                             
  .......             When there is a substantial amount of exempt      
                       material on hand at the end of the year,         
                       substantial enough to distort net income or      
                       margins, a physical inventory may be taken. The  
                       cost of the inventory on hand shall be debited to
                       this account and credited to the appropriate     
                       primary plant and maintenance accounts on a pro- 
                       rata basis related to the original charges to    
                       these accounts. This entry shall be reversed at  
                       the first of the year.                           
                                                                        
  .......    1280.1   Prepaid Rents                                     
                                                                        

[[Page 1060]]

                                                                        
  .......             This account shall include the amount of rents    
                       paid in advance of the period in which it is     
                       chargeable to income, except amounts chargeable  
                       to telecommunications plant under construction   
                       and minor amounts which may be charged directly  
                       to the final accounts. As the term expires for   
                       which the rents are paid, this account shall be  
                       credited monthly and the appropriate account     
                       charged.                                         
                                                                        
  .......    1280.2   Prepaid Taxes                                     
                                                                        
  .......             This account shall include the balance of all     
                       taxes paid in advance of the period in which they
                       are chargeable to income, except amounts         
                       chargeable to telecommunications plant under     
                       construction and minor amounts which may be      
                       charged directly to the final accounts. As the   
                       term expires for which the taxes are paid, this  
                       account shall be credited monthly and the        
                       appropriate account charged.                     
                                                                        
  .......    1280.3   Prepaid Insurance                                 
                                                                        
  .......             This account shall include the amount of insurance
                       premiums paid in advance of the period in which  
                       they are chargeable to income, except premiums   
                       chargeable to telecommunications plant under     
                       construction and minor amounts which may be      
                       charged directly to the final accounts. As the   
                       term expires for which the premiums are paid,    
                       this account shall be credited monthly and the   
                       appropriate account charged.                     
  .......    1280.4   Prepaid Directory Expenses                        
                                                                        
  .......             This account shall include the cost of preparing, 
                       printing, binding, and delivering directories and
                       the cost of soliciting advertisements for        
                       directories, except minor amounts which may be   
                       charged directly to Account 6620, Services.      
                       Amounts in this account, shall be cleared to     
                       Account 6620 by monthly charges representing that
                       portion of the expenses applicable to each month.
                                                                        
  .......    1280.5   Other Prepayments                                 
                                                                        
  .......             This amount shall include prepayments, other than 
                       those includable in Accounts 1280.1 through      
                       1280.4 except minor amounts which may be charged 
                       directly to the final accounts. As the term      
                       expires for which the payments apply, this       
                       account shall be credited monthly and the        
                       appropriate account charged.                     
                                                                        
1402.1...    1402.1   Investments in Nonaffiliated Companies--Class B   
                       RTB Stock                                        
                                                                        
  .......             This account shall include the par value of the   
                       required purchase of Class B Rural Telephone Bank
                       stock and the par value of the Class B Rural     
                       Telephone Bank stock received as a patronage     
                       refund. This account shall be debited at the time
                       the refund is received and Account 1402.11,      
                       Investments in Nonaffiliated Companies--Class B  
                       RTB Stock--Cr., credited.                        
  .......             This account shall be credited and Account 1402.11
                       debited when the patronage refund is redeemed.   
                                                                        
1402.11..    1402.11  Investments in Nonaffiliated Companies--Class B   
                       RTB Stock--Cr.                                   
                                                                        
  .......             This account shall include the par value of Class 
                       B Rural Telephone Bank stock received as a       
                       patronage refund. This account shall be credited 
                       at the time the refund is received and Account   
                       1402.1, Investments in Nonaffiliated Companies-- 
                       Class B RTB Stock, debited.                      
  .......             This account shall be debited and Account 1402.1  
                       credited when the patronage refund is redeemed.  
                                                                        
1402.2...    1402.2   Investments in Nonaffiliated Companies--Class C   
                       RTB Stock                                        
                                                                        
  .......             This account shall include the par value of the   
                       company's investment in Class C Rural Telephone  
                       Bank stock. Cash dividends on Class C stock shall
                       be recorded in Account 7310/7300.1, Dividend     
                       Income, when declared.                           
                                                                        
1402.3...    1402.3   Other Investments in Nonaffiliated Companies      
                                                                        
  .......             This account shall include the acquisition cost of
                       the company's investment in securities issued by 
                       non-affiliated companies, other than securities  
                       held in special funds which shall be charged to  
                       Account 1408, Sinking Funds, and also its        
                       investment advances to such parties and special  
                       deposits of cash for more than one year from the 
                       date of deposit.                                 
  .......             Declines in value of investments shall be charged 
                       to Account 4540.41, Other Capital, if temporary  
                       and as a current period loss if permanent.       
                       Detailed records shall be maintained to reflect  
                       unrealized losses for each investment.           
                                                                        
2001.1...    2001.1   Telecommunications Plant in Service--Classified   
                                                                        
  .......             This account shall include the original cost of   
                       the property capitalized in Accounts 2110 through
                       2690.                                            
2001.2...    2001.2   Telecommunications Plant in Service--Unclassified 
                                                                        
  .......             This account shall include the original cost of   
                       telecommunications property which has been       
                       completed and placed in service but which has not
                       been classified pending completion of final      
                       inventories of construction, final cost          
                       summaries, etc. The balance in this account is   
                       subject to depreciation charges.                 
                                                                        
2003.1...    2003.1   Telecommunications Plant Under Construction--Short
                       Term--Contract                                   
                                                                        
  .......             This account shall include all costs incurred in  
                       the construction of telecommunications plant     
                       performed under contract and designed to be      
                       completed in one year or less. Included among    
                       these costs are contractor payments, and charges 
                       for engineering, supervision, taxes, insurance,  
                       transportation, and other costs incurred in      
                       contract construction. This account shall be     
                       maintained such that the various items of costs  
                       are readily identifiable.                        
                                                                        
2003.2...    2003.2   Telecommunications Plant Under Construction--Short
                       Term--Force Account                              
                                                                        

[[Page 1061]]

                                                                        
  .......             This account shall include all costs incurred in  
                       the construction of telecommunications plant     
                       performed by the borrowers' own employees and    
                       designed to be completed in one year or less.    
                       Included among these costs are charges for       
                       material, labor, engineering, supervision, taxes,
                       insurance, transportation, supply expense, and   
                       other costs incurred in the construction. This   
                       account shall be maintained so that the various  
                       items of cost are readily identified. Specific   
                       subaccounts should be maintained to distinguish  
                       individual projects.                             
                                                                        
2003.3...    2003.3   Telecommunications Plant Under Construction--Short
                       Term--Work Orders                                
                                                                        
  .......             This account shall include all costs incurred in  
                       the construction of telecommunications plant     
                       performed under a work order system or a line    
                       extension contract and designed to be completed  
                       in one year or less. This type of construction   
                       generally includes service installations,        
                       subscriber extensions, and minor plant           
                       improvements after the completion of the initial 
                       system. Included among these costs are charges   
                       for labor, materials and supplies,               
                       transportation, payroll taxes, insurance,        
                       supervision and other costs incurred in the      
                       construction. Subsidiary records shall be        
                       maintained to reflect the cost of individual     
                       jobs. These records shall be reconciled          
                       periodically with the general ledger control     
                       account. Specific subaccounts should be          
                       maintained to accumulate costs incurred under    
                       line extension contracts.                        
                                                                        
2004.1...    2004.1   Telecommunications Plant Under Construction--Long 
                       Term--Contract                                   
                                                                        
  .......             This account shall include all costs incurred in  
                       the construction of telecommunications plant     
                       performed under contract and designed to be      
                       completed in more than one year. Included among  
                       these costs are contractor payments, and charges 
                       for engineering, supervision, taxes, insurance,  
                       transportation, interest during construction, and
                       other costs incurred in contract construction.   
                       This account shall be maintained such that the   
                       various items of cost are readily identified.    
                                                                        
2004.2...    2004.2   Telecommunications Plant Under Construction--Long 
                       Term--Force Account                              
                                                                        
  .......             This account shall include all costs incurred in  
                       the construction of telecommunications plant     
                       performed by the borrowers' own employees and    
                       designed to be completed in more than one year.  
                       Included among these costs are charges for       
                       material, labor, engineering, supervision, taxes,
                       insurance, transportation, supply expense,       
                       interest during construction, and other costs    
                       incurred in the construction. This account shall 
                       be maintained such that the various items of cost
                       are readily identified. Specific subaccounts     
                       should be maintained to distinguish individual   
                       projects.                                        
                                                                        
2004.3...    2004.3   Telecommunications Plant Under Construction--Long 
                       Term--Work Orders                                
                                                                        
  .......             This account shall include all costs incurred in  
                       the construction of telecommunications plant     
                       performed under a work order system or a line    
                       extension contract and designed to be completed  
                       in more than one year. Included among these costs
                       are charges for labor, materials and supplies,   
                       transportation, payroll taxes, insurance,        
                       supervision, interest during construction, and   
                       other costs incurred in the construction.        
                       Subsidiary records shall be maintained to reflect
                       the cost of individual jobs. These records shall 
                       be reconciled periodically with the general      
                       ledger control account. Specific subaccounts     
                       should be maintained to accumulate costs incurred
                       under line extension contracts.                  
                                                                        
  .......    2210.11  Central Office Switching--Analog*                 
                                                                        
  .......             This account shall include the original cost of   
                       stored program control analog circuit-switching  
                       and associated equipment. This account shall also
                       include the original cost of remote analog       
                       electronic circuit switches.                     
                                                                        
  .......    2210.21  Central Office Switching--Digital*                
                                                                        
  .......             This account shall include the original cost of   
                       stored program control digital switches and their
                       associated equipment. Included in this account is
                       the original cost of digital switches which      
                       utilize either dedicated or non-dedicated        
                       circuits. This account shall also include the    
                       original cost of remote digital electronic       
                       switches.                                        
                                                                        
  .......    2210.31  Central Office Switching--Electro-Mechanical--Step-
                       by-Step*                                         
                                                                        
  .......             This account shall include the original cost of   
                       step-by-step and associated circuit-switching    
                       equipment.                                       
                                                                        
  .......    2210.32  Central Office Switching--Electro-Mechanical--    
                       Crossbar*                                        
                                                                        
  .......             This account shall include the original cost of   
                       crossbar and associated circuit switching        
                       equipment. Also included in this account is the  
                       original cost of electronic translator system    
                       equipment used in switching.                     
                                                                        
  .......    2210.33  Central Office Switching--Electro-Mechanical--    
                       Other*                                           
                                                                        
  .......             This account shall include the original cost of   
                       all other types of non-electronic circuit-       
                       switching equipment such as panel systems and    
                       their associated circuit-switching equipment.    
  .......               *Switching plant excludes switchboards which    
                      perform operator assistance functions and         
                      equipment which is an integral part thereof. It   
                      does not exclude equipment used solely for the    
                      recording of calling telephone numbers in         
                      connection with customer dialed charged traffic,  
                      dial tandem switches, and special switchboards    
                      used in conjunction with private line service;    
                      such equipment shall be classified to the         
                      particular switch that it serves.                 
                                                                        
  .......    2230.11  Central Office Transmission--Radio Systems--      
                       Satellite and Earth Station Facilities           
                                                                        

[[Page 1062]]

                                                                        
  .......             This account shall include the original cost of an
                       ownership interest in satellites (including land-
                       side spares), other spare parts, materials, and  
                       supplies. It shall include launch insurance and  
                       other satellite launch costs. This account shall 
                       also include the original cost of earth stations 
                       and spare parts, materials, and supplies         
                       therefor.                                        
                                                                        
  .......    2230.12  Central Office Transmission--Radio Systems--Other 
                                                                        
  .......             This account shall include the original cost of   
                       radio equipment used to provide radio            
                       communication channels. Radio equipment is that  
                       equipment which is used for the generation,      
                       amplification, propagation, reception,           
                       modulation, and demodulation of radio waves in   
                       free space over which communications channels can
                       be provided. This account shall also include the 
                       associated carrier and auxiliary equipment and   
                       patch bay equipment which is an integral part of 
                       the radio equipment. Such equipment may be       
                       located in central office buildings, terminal    
                       rooms, or repeater stations or may be mounted on 
                       towers, masts, or other supports.                
                                                                        
  .......    2230.21  Central Office Transmission--Circuit Equipment    
                                                                        
  .......             This account shall include the original cost of   
                       equipment which is used to reduce the number of  
                       physical pairs otherwise required to serve a     
                       given number of subscribers by utilizing carrier 
                       systems, concentration stages or combinations of 
                       both. It shall include equipment that provides   
                       for simultaneous use of a number of interoffice  
                       channels on a single transmission path. This     
                       account shall also include the original cost of  
                       equipment which is used for the amplification,   
                       modulation, regeneration, circuit patching,      
                       balancing or control of signals transmitted over 
                       interoffice communications transmission channels.
                       This account shall include the original cost of  
                       equipment which utilizes the message path to     
                       carry signaling information or which utilizes    
                       separate channels between switching offices to   
                       transmit signaling information independent of the
                       subscribers' communication paths or transmission 
                       channels. This account shall also include the    
                       original cost of associated material used in the 
                       construction of such plant. Circuit equipment may
                       be located in central offices, in manholes, on   
                       poles, in cabinets or huts or at other locations.
  .......             This account excludes carrier and auxiliary       
                       equipment and patch bay which are recorded in    
                       Account 2230.12, Central Office Transmission--   
                       Radio Systems--Other                             
                                                                        
3100x....   3100x     Retirement Work in Progress                       
                                                                        
  .......             This account shall be charged with the original   
                       cost of property retired from the                
                       telecommunications plant accounts. It shall also 
                       be charged with all of the costs incurred in     
                       removing the retired plant from service. This    
                       account shall be credited with the salvage value 
                       of materials recovered in the retirement of the  
                       telecommunications plant. At such time as the    
                       retirement work order is complete, the net income/
                       loss resulting therefrom shall be transferred    
                       from this account to the appropriate primary     
                       plant depreciation reserve account.              
                                                                        
4010.11..    4010.11  Accounts Payable to Affiliated Companies          
                                                                        
  .......             This account shall include all amounts currently  
                       due to affiliated companies for recurring trade  
                       obligations, and not provided for in other       
                       accounts, such as those for traffic settlements, 
                       material and supplies, repairs to                
                       telecommunications plant, matured rents, and     
                       interest payable under monthly settlements on    
                       short-term loans, advances, and open accounts.   
                                                                        
4010.21..    4010.21  Accounts Payable to Nonaffiliated Companies       
                                                                        
  .......             This account shall include all amounts currently  
                       due to nonaffiliated companies for recurring     
                       trade obligations, and not provided for in other 
                       accounts, such as those for traffic settlements, 
                       materials and supplies, repairs to               
                       telecommunications plant, matured rents, and     
                       interest payable under monthly settlements on    
                       short-term loans, advances, and open accounts.   
                                                                        
4010.22..    4010.22  Accounts Payable--Employees' Income Tax Withheld  
                                                                        
  .......             This account shall include income taxes payable   
                       that have been withheld from employees' salaries.
                                                                        
4010.23..    4010.23  Accounts Payable--FICA Taxes Withheld             
                                                                        
  .......             This account shall include FICA taxes payable that
                       have been withheld from employees' salaries.     
                                                                        
4010.24..    4010.24  Accounts Payable--Federal Excise Taxes            
                                                                        
  .......             This account shall include Federal excise taxes   
                       payable.                                         
                                                                        
4010.25..    4010.25  Accounts Payable--Payroll                         
                                                                        
  .......             This account shall include amounts payable to the 
                       company's employees in the form of salaries or   
                       wages.                                           
                                                                        
4070.1...    4070.1   Income Taxes Accrued--Federal                     
                                                                        
  .......             For Class A companies, this account shall be      
                       credited and Accounts 7220, 7420, and 7630, as   
                       appropriate, shall be debited for the amount of  
                       Federal income taxes accrued during the current  
                       operating period.                                
  .......             For Class B companies, this account shall be      
                       credited and Accounts 7220.2, 7400.2, and 7600.3,
                       as appropriate, shall be debited for the amount  
                       of Federal income taxes accrued during the       
                       current operating period.                        
                                                                        
4070.2...    4070.2   Income Taxes Accrued--State and Local             
                                                                        

[[Page 1063]]

                                                                        
  .......             For Class A companies, this account shall be      
                       credited and Accounts, 7230, 7430, and 7630, as  
                       appropriate, shall be debited for the amount of  
                       state and local income taxes accrued during the  
                       current operating period.                        
  .......             For Class B companies, this account shall be      
                       credited and Accounts, 7200.3, 7400.3, and       
                       7600.3, as appropriate, shall be debited for the 
                       amount of state and local income taxes accrued   
                       during the current operating period.             
                                                                        
4080.1...    4080.1   Other Taxes Accrued--Property                     
                                                                        
  .......             This account shall be credited and Account 7240.1/
                       7200.41, Operating Taxes--Property, shall be     
                       debited for the amount of property taxes accrued 
                       during the current operating period.             
                                                                        
4080.2...    4080.2   Other Taxes Accrued--Employer's Portion--FICA     
                                                                        
  .......             This account shall be credited and the appropriate
                       construction, depreciation, or expense account   
                       shall be debited for the employer's portion of   
                       FICA taxes accrued during the current operating  
                       period.                                          
                                                                        
4080.3...    4080.3   Other Taxes Accrued--Federal Unemployment         
                                                                        
  .......             This account shall be credited and the appropriate
                       construction, removal, or expense account shall  
                       be debited for the amount of Federal unemployment
                       taxes accrued during the current operating       
                       period.                                          
                                                                        
4080.4...    4080.4   Other Taxes Accrued--State Unemployment           
                                                                        
  .......             This account shall be credited and the appropriate
                       construction, removal, or expense account shall  
                       be debited for the amount of state unemployment  
                       taxes accrued during the current operating       
                       period.                                          
                                                                        
4080.5...    4080.5   Other Taxes Accrued--Miscellaneous                
                                                                        
  .......             This account shall be credited and Account 7240.2/
                       7200.42, Operating Taxes--Miscellaneous, shall be
                       debited for the amount of all other taxes accrued
                       during the current operating period and not      
                       provided for elsewhere such as a gross receipts  
                       tax, franchise taxes, and capital stock taxes.   
                                                                        
4120.1...    4120.1   Unmatured Interest Accrued--RUS Notes             
                                                                        
  .......             This account shall include the interest accrued as
                       of the balance sheet date but not payable until  
                       after that date on RUS mortgage notes.           
  .......             Interest expense incurred during the period of    
                       construction of telecommunications plant shall be
                       charged to Account 2004, Telecommunications Plant
                       Under Construction--Long Term, and credited to   
                       Account 7340/7300.4, Allowance for Funds Used    
                       During Construction.                             
                                                                        
4120.2...    4120.2   Unmatured Interest Accrued--Telephone Bank Notes  
                                                                        
  .......             This account shall include the interest accrued as
                       of the balance sheet date but not payable until  
                       after that date on Rural Telephone Bank mortgage 
                       notes.                                           
  .......             Interest expense incurred during the period of    
                       construction of telecommunications plant shall be
                       charged to Account 2004, Telecommunications Plant
                       Under Construction--Long Term, and credited to   
                       Account 7340/7300.4, Allowance for Funds Used    
                       During Construction.                             
                                                                        
4120.3...    4120.3   Unmatured Interest Accrued--Federal Financing Bank
                       Notes                                            
                                                                        
  .......             This account shall include the interest accrued as
                       of the balance sheet date but not payable until  
                       after that date on Federal Financing Bank        
                       mortgage notes.                                  
  .......             Interest expense incurred during the period of    
                       construction of telecommunications plant shall be
                       charged to Account 2004, Telecommunications Plant
                       Under Construction--Long Term, and credited to   
                       Account 7340/7300.4, Allowance for Funds Used    
                       During Construction.                             
                                                                        
4120.4...    4120.4   Unmatured Interest Accrued--Bank for Cooperatives 
                       Notes                                            
                                                                        
  .......             This account shall include the interest accrued as
                       of the balance sheet date but not payable until  
                       after that date on Bank for Cooperatives mortgage
                       notes.                                           
  .......             Interest expense incurred during the period of    
                       construction of telecommunications plant shall be
                       charged to Account 2004, Telecommunications Plant
                       Under Construction--Long Term, and credited to   
                       Account 7340/7300.4, Allowance for Funds Used    
                       During Construction.                             
                                                                        
4120.5...    4120.5   Unmatured Interest Accrued--Rural Telephone       
                       Finance Cooperative Notes                        
                                                                        
  .......             This account shall include the interest accrued as
                       of the balance sheet date but not payable until  
                       after that date on Rural Telephone Finance       
                       Cooperative mortgage notes.                      
  .......             Interest expense incurred during the period of    
                       construction of telecommunications plant shall be
                       charged to Account 2004, Telecommunications Plant
                       Under Construction--Long Term, and credited to   
                       Account 7340/7300.4, Allowance for Funds Used    
                       During Construction.                             
                                                                        
4120.6...    4120.6   Other Accrued Liabilities                         
                                                                        
  .......             This account shall include the amount of wages,   
                       compensated absences, interest on indebtedness of
                       the company, dividends on capital stock, and     
                       rents accrued as of the balance sheet date but   
                       not payable until after the date.                
  .......             This account shall not include interest accrued on
                       RUS, Rural Telephone Bank, Bank for Cooperatives,
                       Federal Financing Bank, or Rural Telephone       
                       Finance Cooperative debt.                        
                                                                        
4210.11..    4210.11  Funded Debt--Other                                
                                                                        

[[Page 1064]]

                                                                        
  .......             This account shall include the total face amount  
                       of unmatured debt, maturing more than one year   
                       from the date of issue, issued by the company and
                       not retired, and the total face amount of similar
                       unmatured debt of other companies, the payment of
                       which has been assumed by the company, including 
                       funded debt the maturity of which has been       
                       extended by specific agreement.                  
  .......             This account shall not include unmatured RUS,     
                       Rural Telephone Bank, Federal Financing Bank,    
                       Bank for Cooperatives, or Rural Telephone Finance
                       Cooperative debt.                                
                                                                        
4210.12..    4210.12  RUS Notes                                         
                                                                        
  .......             This account shall include the total face amount  
                       of unmatured RUS mortgage notes. Account 4210.20,
                       RUS Notes--Unadvanced, Dr., shall be charged and 
                       this account credited upon execution of the      
                       notes.                                           
  .......             If principal installments are not paid at the     
                       maturity date, the amount due shall be           
                       transferred to Account 4050, Current Maturities--
                       Long-Term Debt.                                  
                                                                        
4210.13..    4210.13  Telephone Bank Notes                              
  .......             This account shall include the total face amount  
                       of unmatured Rural Telephone Bank mortgage notes.
                       Account 4210.21, Telephone Bank Notes--          
                       Unadvanced, Dr., shall be changed and this       
                       account credited upon execution of the notes.    
  .......             If principal installments are not paid at the     
                       maturity date, the amount due shall be           
                       transferred to Account 4050, Current Maturities--
                       Long-Term Debt.                                  
                                                                        
4210.14..    4210.14  Federal Financing Bank Notes                      
                                                                        
  .......             This account shall include the total face amount  
                       of unmatured Federal Financing Bank mortgage     
                       notes. Account 4210.22, Federal Financing Bank   
                       Notes--Unadvanced, Dr., shall be charged and this
                       account credited upon execution of the notes.    
  .......             If principal installments are not paid at the     
                       maturity date, the amount due shall be           
                       transferred to Account 4050, Current Maturities--
                       Long-Term Debt.                                  
                                                                        
4210.15..    4210.15  Bank for Cooperatives Notes                       
                                                                        
  .......             This account shall include the total face amount  
                       of unmatured Bank for Cooperatives mortgage      
                       notes. Account 4210.23, Bank for Cooperatives    
                       Notes--Unadvanced, Dr., shall be charged and this
                       account credited upon execution of the notes.    
  .......             If principal installments are not paid at the     
                       maturity date, the amount due shall be           
                       transferred to Account 4050, Current Maturities--
                       Long-Term Debt.                                  
                                                                        
4210.16..    4210.16  Rural Telephone Finance Cooperative Notes         
                                                                        
  .......             This account shall include the total face amount  
                       of unmatured Rural Telephone Finance Cooperative 
                       mortgage notes. Account 4210.24, Rural Telephone 
                       Finance Cooperative Notes--Unadvanced, Dr., shall
                       be charged and this account credited upon        
                       execution of the notes.                          
  .......             If principal installments are not paid at the     
                       maturity date, the amount due shall be           
                       transferred to Account 4050, Current Maturities--
                       Long-Term Debt.                                  
                                                                        
4210.17..    4210.17  RUS Notes--Deferred Interest                      
                                                                        
  .......             This account shall include interest accrued on RUS
                       mortgage notes, the payment of which has been    
                       deferred in accordance with the terms of the     
                       notes or extension agreements. The offsetting    
                       charge shall be to Account 7510, Interest on     
                       Funded Debt, for Class A companies and Account   
                       7500, Interest and Related Items, for Class B    
                       companies.                                       
  .......             If interest payments are not made at the due date,
                       this account shall be debited and Account        
                       4010.21, Accounts Payable to Nonaffiliated       
                       Companies, credited with the amount of the       
                       matured interest.                                
                                                                        
4210.18..    4210.18  RUS Notes--Advance Payments, Dr.                  
                                                                        
  .......             This account shall include all payments on RUS    
                       mortgage notes made in advance of the due date   
                       and not applied to a specific quarterly payment. 
                       As these payments are applied to specific notes, 
                       this account shall be credited and the long-term 
                       debt and interest liability accounts debited.    
                                                                        
4210.19..    4210.19  Funded Debt--Other--Unadvanced, Dr.               
                                                                        
  .......             This account shall include the total face amount  
                       of notes executed to others, for which funds have
                       not been received.                               
  .......             This account shall be credited and Account 1130.1/
                       1120.11, Cash--General Funds, debited when funds 
                       are received from the lender.                    
                                                                        
4210.20..    4210.20  RUS Notes--Unadvanced, Dr.                        
                                                                        
  .......             This account shall include the total face amount  
                       of RUS mortgage notes for which funds have not   
                       been received.                                   
  .......             This account shall be credited and Account 1130.2/
                       1120.12, Cash--Construction Fund Trustee, debited
                       when funds are received from RUS.                
                                                                        
4210.21..    4210.21  Telephone Bank Notes--Unadvanced, Dr.             
                                                                        
  .......             This account shall include the total face amount  
                       of Rural Telephone Bank mortgage notes for which 
                       funds have not been received.                    
  .......             This account shall be credited and Account 1130.2/
                       1120.12, Cash--Construction Fund Trustee, debited
                       when funds are received from the Rural Telephone 
                       Bank.                                            
                                                                        
4210.22..    4210.22  Federal Financing Bank Notes--Unadvanced, Dr.     
                                                                        

[[Page 1065]]

                                                                        
  .......             This account shall include the total face amount  
                       of Federal Financing Bank mortgage notes for     
                       which funds have not been received.              
  .......             This account shall be credited and Account 1130.2/
                       1120.12, Cash--Construction Fund Trustee, debited
                       when funds are received from the Federal         
                       Financing Bank.                                  
                                                                        
4210.23..    4210.23  Bank for Cooperatives Notes--Unadvanced, Dr.      
                                                                        
  .......             This account shall include the total face amount  
                       of Bank for Cooperatives mortgage notes for which
                       funds have not been received.                    
  .......             This account shall be credited and Account 1130.2/
                       1120.12, Cash--Construction Fund Trustee, debited
                       when funds are received from the Bank for        
                       Cooperatives.                                    
                                                                        
4210.24..    4210.24  Rural Telephone Finance Cooperative Notes--       
                       Unadvanced, Dr.                                  
                                                                        
  .......             This account shall include the total face amount  
                       of Rural Telephone Finance Cooperative mortgage  
                       notes for which funds have not been received.    
  .......             This account shall be credited and Account 1130.2/
                       1120.12, Cash--Construction Fund Trustee, debited
                       when funds are received from the Rural Telephone 
                       Finance Cooperative.                             
                                                                        
4540.11..    4540.11  Capital Stock Subscribed.                         
                                                                        
  .......             This account shall include the par value of       
                       capital stock for which legally enforceable      
                       subscriptions have been received but for which,  
                       at the date of the balance sheet, stock          
                       certificates have not been issued.               
  .......             This account shall be debited and Account 4510,   
                       Capital Stock, credited when a subscriber has    
                       paid the subscription in full and stock          
                       certificates are issued.                         
                                                                        
4540.12..    4540.12  Memberships Subscribed but Unissued.              
                                                                        
  .......             This account shall include the face amount of     
                       memberships subscribed but not issued. This      
                       account shall be credited at the time the        
                       subscription is received and Account 1350.2,     
                       Subscriptions to Memberships, debited.           
  .......             This account shall be debited and Account 4540.21,
                       Memberships Issued, credited when a subscriber   
                       has paid the subscription in full and the        
                       membership certificates are issued.              
                                                                        
4540.13..    4540.13  Members' Equity Certificates Subscribed but       
                       Unissued.                                        
                                                                        
  .......             This account shall include the face amount of     
                       members' equity certificates subscribed but not  
                       issued. This account shall be credited at the    
                       time the subscription is received and Account    
                       1350.3, Subscriptions to Members' Equity         
                       Certificates, debited.                           
  .......             This account shall be debited and Account 4540.22,
                       Members' Equity Certificates Issued, credited    
                       when a subscriber has paid the subscription in   
                       full and the members' equity certificates are    
                       issued.                                          
                                                                        
4540.21..    4540.21  Memberships Issued.                               
                                                                        
  .......             This account shall include the face amount of     
                       membership certificates outstanding. A subsidiary
                       membership certificate record shall be maintained
                       to reflect the detail of the balance in this     
                       account.                                         
                                                                        
4540.22..    4540.22  Member's Equity Certificates Issued.              
                                                                        
  .......             This account shall include the face amount of     
                       members' equity certificates outstanding. A      
                       subsidiary members' equity certificate record    
                       shall be maintained to reflect the detail of the 
                       balance in this account.                         
                                                                        
4540.23..    4540.23  Members' Equity--Other.                           
                                                                        
  .......             This account shall include credit amounts arising 
                       from donations, forfeitures of membership fees,  
                       forgiveness of debts of the cooperative, and     
                       member's equities not otherwise provided for.    
                                                                        
4540.31..    4540.31  Installments Paid on Capital Stock.               
                                                                        
  .......             This account shall include the amount of          
                       installments paid on capital stock on a partial  
                       or installment payment plan by subscribers       
                       against whom there is no legally enforceable     
                       subscription contract, and who are entitled to be
                       reimbursed the principal amount of their         
                       payments, with or without interest, in the event 
                       they fail to complete payment for the stock and  
                       receive certificates therefore.                  
  .......             This account shall be debited and Account 4510,   
                       Capital Stock, credited with the par value of    
                       capital stock when the total subscription is     
                       received and the stock certificates are issued.  
                       Any difference between the purchase price of the 
                       subscription and the par value of the stock shall
                       be credited to Account 4520, Additional Paid-In  
                       Capital.                                         
  .......             A subsidiary ledger shall be maintained to record 
                       for each subscriber, the amount subscribed,      
                       payments made, and the balance due. The balance  
                       in this account shall be reconciled monthly with 
                       the subscription ledger.                         
                                                                        
4540.32..    4540.32  Installments Paid on Memberships Subscribed.      
                                                                        
  .......             This account shall include the amount of          
                       installments paid by prospective members on      
                       membership subscriptions against whom there is no
                       legally enforceable subscription contract, and   
                       who are entitled to be reimbursed for the        
                       principal amount of their payments, with or      
                       without interest, in the event they fail to      
                       complete payment for the membership and receive  
                       certificates therefor.                           
  .......             This account shall be debited and Account 4540.21,
                       Memberships Issued, credited with the face amount
                       of the membership when the total subscription is 
                       received and the membership certificates are     
                       issued.                                          
  .......             A subsidiary ledger shall be maintained to record 
                       for each subscriber, the amount subscribed,      
                       payments made, and the balance due. The balance  
                       in this account shall be reconciled monthly with 
                       the subscription ledger.                         
                                                                        

[[Page 1066]]

                                                                        
4540.33..    4540.33  Installments Paid on Equity Certificates          
                       Subscribed                                       
                                                                        
  .......             This account shall include the amount of          
                       installments paid by prospective members on      
                       equity certificate subscriptions against whom    
                       there is no legally enforceable subscription     
                       contract, and who are entitled to be reimbursed  
                       for the principal amount of their payments, with 
                       or without interest, in the event they fail to   
                       complete payment for the membership and receive  
                       equity certificates therefor.                    
  .......             This account shall be debited and Account 4540.22,
                       Members' Equity Certificates Issued, credited    
                       with the face amount of the memberships when the 
                       total subscription is received and the equity    
                       certificates are issued.                         
  .......             A subsidiary ledger shall be maintained to record 
                       for each subscriber, the amount subscribed,      
                       payments made, and the balance due. The balance  
                       in this account shall be reconciled monthly with 
                       the subscription ledger.                         
                                                                        
4540.41..    4540.41  Other Capital--Miscellaneous                      
                                                                        
  .......             This account shall include amounts which are      
                       credits arising from capital recorded upon the   
                       reorganization or recapitalization of the company
                       and temporary declines in the value of marketable
                       securities held for investment purposes.         
                                                                        
4550.1...    4550.1   Operating Margins                                 
                                                                        
  .......             This account shall include amounts received or    
                       receivable from the furnishing of                
                       telecommunications service in excess of costs    
                       incurred in the furnishing of such service. If   
                       costs exceed revenues, the excess cost of        
                       furnishing telecommunications service shall be   
                       recorded as a debit to this account.             
                                                                        
4550.2...    4550.2   Nonoperating Margins                              
                                                                        
  .......             This account shall include margins arising from   
                       transactions or activities not related to the    
                       furnishing of telecommunications service.        
                       Included in this account are receipts from       
                       investments, income from investments, income from
                       nonoperating plant, and revenues derived from    
                       services performed for others incident to the    
                       company's regulated telecommunications           
                       operations.                                      
                                                                        
4550.3...    4550.3   Other Margins                                     
                                                                        
  .......             This account shall include patronage capital      
                       credits assigned to the cooperative by other     
                       nonprofit organizations prior to January 1, 1970,
                       which were not credited directly to an operating 
                       expense account as a reduction in the cost of    
                       furnishing telecommunications service.           
  .......             No entries shall be made to this account unless it
                       is to distribute or eliminate prior balances in  
                       conformance with the bylaws of the cooperative.  
                                                                        
4550.4...    4550.4   Patronage Capital Assignable                      
                                                                        
  .......             This account shall include all amounts transferred
                       from operating margins, nonoperating margins, and
                       other margin accounts which are assignable to    
                       individual patrons.                              
                                                                        
4550.5...    4550.5   Patrons' Capital Credits Assigned                 
                                                                        
  .......             This account shall include the amounts of         
                       patronage capital which have been credited to    
                       individual patrons. A subsidiary patronage       
                       capital ledger shall be maintained so as to      
                       reflect the amount of capital furnished by each  
                       patron and the amount of such capital returned to
                       the patron.                                      
                                                                        
4550.6...    4550.6   Gain on the Retirement of Capital Credits         
                                                                        
  .......             This account shall include credits resulting from 
                       the retirement of patronage capital through      
                       settlement of individual patrons' accounts at    
                       less than 100 percent of the capital assigned to 
                       the patron. The portion of patronage capital not 
                       returned to patrons under such settlements shall 
                       be debited to Account 4550.5, Patrons' Capital   
                       Credits Assigned, and credited to this account.  
  .......             This account shall also include amounts           
                       representing patronage capital authorized to be  
                       retired to patrons who cannot be located.        
                       Returned checks issued for retirements of        
                       patronage capital, after an appropriate waiting  
                       period, shall be credited to this account and a  
                       record shall be maintained adequate to enable the
                       cooperative to make payment to the patron if and 
                       when a claim has been established by the patron. 
                                                                        
  .......    6210.11  Analog Electronic Expense                         
                                                                        
  .......             This account shall include expenses associated    
                       with analog electronic switching.                
                                                                        
  .......    6210.21  Digital Electronic Expense                        
                                                                        
  .......             This account shall include expenses associated    
                       with digital electronic switching.               
                                                                        
  .......    6210.31  Electro-Mechanical Expense                        
                                                                        
  .......             This account shall include expenses associated    
                       with electro-mechanical switching.               
                                                                        
  .......    6230.11  Radio Systems Expense                             
                                                                        
  .......             This account shall include expenses associated    
                       with radio systems.                              
                                                                        
  .......    6230.21  Circuit Equipment Expense                         
                                                                        
  .......             This account shall include expenses associated    
                       with circuit equipment.                          
                                                                        
  .......    6560.1   Depreciation Expense                              
                                                                        
  .......             This account shall include the depreciation       
                       expense associated with telecommunications plant 
                       in service (Accounts 2112 through 2441) and      
                       property held for future telecommunications use  
                       (Account 2002).                                  
                                                                        

[[Page 1067]]

                                                                        
  .......    6560.2   Amortization Expense                              
                                                                        
  .......             This account shall include the amortization       
                       expense associated with capital leases and       
                       leasehold improvements (Accounts 2681 and 2682), 
                       intangibles (Account 2690), and                  
                       telecommunications plant adjustments (Account    
                       2005).                                           
                                                                        
  .......    7200.1   Operating Investment Tax Credits--Net             
                                                                        
  .......             This account shall be charged and Account 4320,   
                       Unamortized Operating Investment Tax Credits--   
                       Net, shall be credited with investment tax       
                       credits generated from qualified expenditures    
                       related to regulated operations which the company
                       defers rather than recognizes currently in       
                       income.                                          
  .......             This account shall be credited and Account 4320   
                       shall be charged ratably with the amortization of
                       each year's investment tax credits included in   
                       Account 4320 for investment services for         
                       ratemaking purposes. Such amortization shall be  
                       determined in relation to the period of time used
                       for computing book depreciation on the property  
                       with respect to which the tax credits relate.    
                                                                        
  .......    7200.2   Operating Federal Income Taxes                    
                                                                        
  .......             This account shall be charged and Account 4070.1, 
                       Income Taxes Accrued--Federal, shall be credited 
                       for the amount of Federal income tax expense     
                       incurred in the current operating period. This   
                       account shall also reflect subsequent adjustments
                       to amounts previously charged.                   
  .......             Taxes should be accrued each month on an estimated
                       basis and adjustments made as later data becomes 
                       available.                                       
                                                                        
  .......    7200.3   Operating State and Local Income Taxes            
                                                                        
  .......             This account shall be charged and Account 4070.2, 
                       Income Taxes Accrued--State and Local, shall be  
                       credited for the amount of state and local income
                       tax expense incurred in the current operating    
                       period. This account shall also reflect          
                       subsequent adjustments to amounts previously     
                       charged.                                         
  .......             Taxes should be accrued each month on an estimated
                       basis and adjustments made as later data becomes 
                       available.                                       
                                                                        
7240.1...    7200.41  Operating Taxes--Property                         
                                                                        
  .......             This account shall be charged and Account 4080.1, 
                       Other Taxes Accrued--Property, shall be credited 
                       for the amount of property tax expense incurred  
                       in the current operating period. This account    
                       shall also reflect subsequent adjustments to     
                       amounts previously charged.                      
  .......             Taxes should be accrued each month on an estimated
                       basis and adjustments made as later data becomes 
                       available.                                       
                                                                        
7240.2...    7200.42  Operating Taxes--Miscellaneous                    
                                                                        
  .......             This account shall be charged and Account 4080.5, 
                       Other Taxes Accrued--Miscellaneous, shall be     
                       credited for the amount of all other taxes       
                       accrued during the current operating period and  
                       not provided for elsewhere such as gross         
                       receipts, franchise, and capital stock tax       
                       expense incurred in the current operating period.
                       This account shall also reflect subsequent       
                       adjustments to amounts previously charged.       
  .......             Taxes should be accrued each month on an estimated
                       basis and adjustments made as later data becomes 
                       available.                                       
                                                                        
  .......    7200.5   Provision for Deferred Operating Income Taxes-Net 
                                                                        
  .......             This account shall be charged or credited, as     
                       appropriate, with contra entries recorded in     
                       either Account 4100, Net Current Deferred        
                       Operating Income Taxes, or Account 4340, Net     
                       Noncurrent Deferred Operating Income Taxes, as   
                       appropriate, for income tax expense that has been
                       deferred.                                        
  .......             Subsidiary record categories shall be maintained  
                       to distinguish between property and nonproperty  
                       related deferrals and so that the company may    
                       separately report the amounts contained herein   
                       that relate to Federal, state, and local income  
                       taxes.                                           
                                                                        
  .......    7300.1   Dividend Income                                   
                                                                        
  .......             This account shall include dividends on           
                       investments in common and preferred stock, which 
                       is the property of the company, whether such     
                       stock is owned by the company and held in its    
                       treasury, or deposited in trust, or otherwise    
                       controlled.                                      
  .......             This account shall not include dividends or other 
                       returns on securities issued or assumed by the   
                       company and held by or for it, whether pledged as
                       collateral, or held in its treasury, in special  
                       deposits, or in sinking or other funds.          
  .......             Dividends on stocks of other companies held in    
                       sinking or other funds shall be credited to      
                       Account 7300.3, Income from Sinking and Other    
                       Funds.                                           
  .......             Dividends received and receivable from affiliated 
                       companies accounted for on the equity method     
                       shall be included in Account 1401, Investments in
                       Affiliated Companies, as a reduction of the      
                       carrying value of the investments.               
                                                                        
  .......    7300.2   Interest Income                                   
                                                                        

[[Page 1068]]

                                                                        
  .......             This account shall include interest on securities,
                       including notes and other evidences of           
                       indebtedness which are the property of the       
                       company, whether such securities are owned by the
                       company and held in its treasury, or deposited in
                       trust (except in sinking or other funds) or      
                       otherwise controlled. It shall also include      
                       interest on bank balances, certificates of       
                       deposits, open accounts, and other analogous     
                       items. There shall be included in this account   
                       for each month, the applicable amount requisite  
                       to extinguish, during the interval between the   
                       date of acquisition and the date of maturity, the
                       difference between the purchase price and the par
                       value of securities owned, the income from which 
                       is includable in this account. Amounts thus      
                       credited or charged shall be concurrently        
                       included in the accounts in which the securities 
                       are carried. Any such difference remaining       
                       unextinguished at the sale or upon the maturity  
                       and satisfaction of such securities shall be     
                       cleared to Account 7300.6. Other Nonoperating    
                       Income and Expense.                              
                                                                        
  .......    7300.3   Income from Sinking and Other Funds               
                                                                        
  .......             This account shall include the income accrued on  
                       cash, securities issued by other companies, and  
                       other assets (not including securities issued or 
                       assumed by the company) held in sinking and other
                       funds.                                           
  .......             There shall be included in this account for each  
                       month the applicable amount requisite to         
                       extinguish, during the interval between the date 
                       of acquisition and the date of maturity, the     
                       difference between the purchase price and the par
                       value of securities held in sinking or other     
                       funds. Amounts thus credited or charged shall be 
                       concurrently included in the accounts in which   
                       the securities are carried. Any such differences 
                       remaining unextinguished upon the maturity and   
                       satisfaction of such securities shall be cleared 
                       to Account 7300.6. Other Nonoperating Income and 
                       Expense.                                         
                                                                        
  .......    7300.4   Allowance for Funds Used During Construction      
                                                                        
  .......             This account shall be credited with such amounts  
                       as are charged to the telecommunications plant   
                       accounts for the purpose or recording an         
                       allowance for funds used for construction        
                       purposes.                                        
                                                                        
  .......    7300.5   Gains or Losses from the Disposition of Certain   
                       Property                                         
                                                                        
  .......             This account shall include gains or losses        
                       resulting from the disposition of land or        
                       artworks; plant with traffic, and nonoperating   
                       telecommunications plant not previously used in  
                       the provision of telecommunication services.     
                                                                        
  .......    7300.6   Other Nonoperating Income and Expense             
                                                                        
  .......             This account shall include all other items of     
                       income and gains or losses from activities not   
                       specifically provided for elsewhere such as gains
                       or losses realized on the sale of temporary cash 
                       investments or marketable equity securities; fees
                       collected in connection with the exchange of     
                       coupon bonds for registered bonds; uncollectible 
                       amounts previously credited to Accounts 7300.1,  
                       7300.2, 7300.3, 7300.4, 7300.5, and 7300.6, gains
                       or losses from the extinguishment of debt made to
                       satisfy sinking fund requirements; gains or      
                       losses of a nonoperating nature arising from the 
                       exchange or translation of foreign currency; net 
                       unrealized losses on investments in current      
                       marketable equity securities; write-downs or     
                       write-offs of the book costs of investments in   
                       equity securities due to permanent impairment;   
                       amortization of goodwill; the company's share of 
                       earnings or losses of affiliated companies       
                       accounted for on the equity method; and the net  
                       balance of the revenue from and the expenses of  
                       property, plant, and equipment, the cost of which
                       is includable in Account 2006, Nonoperating      
                       Plant.                                           
                                                                        
  .......    7400.1   Nonoperating Investment Tax Credits--Net          
                                                                        
  .......             This account shall be charged and Account 4330,   
                       Unamortized Nonoperating Investment Tax Credits--
                       Net, shall be credited with nonoperating         
                       investment tax credits generated from qualified  
                       expenditures related to other operations which   
                       the company has elected to defer rather than     
                       recognize currently in income.                   
  .......             This account shall be credited and Account 4330,  
                       Unamortized Nonoperating Investment Tax Credits--
                       Net, shall be charged with the amortization of   
                       each year's investment tax credits included in   
                       such accounts relating to amortization of        
                       previously deferred investment tax credits of    
                       other property or regulated property, the        
                       amortization of which does not serve to reduce   
                       costs of service (but the unamortized balance    
                       does reduce rate base) for ratemaking purposes.  
                       Such amortization shall be determined with       
                       reference to the period of time used for         
                       computing book depreciation on the property with 
                       respect to which the tax credits relate.         
                                                                        
  .......    7400.2   Nonoperating Federal Income Taxes                 
                                                                        
  .......             This account shall be charged and Account 4070.1, 
                       Income Taxes Accrued--Federal, shall be credited 
                       for the amount of nonoperating Federal income    
                       taxes for the current period. This account shall 
                       also reflect subsequent adjustments to amounts   
                       previously charged.                              
  .......             Taxes shall be accrued each month on an estimated 
                       basis and adjustments made as later data becomes 
                       available. Companies that adopt the flowthrough  
                       method of accounting for investment tax credits  
                       shall reduce the calculated provision in this    
                       account by the entire amount of the credit       
                       realized during the year. Tax credits, if        
                       normalized, shall be recorded consistent with the
                       accounting for investment tax credits.           
  .......             No entries shall be made to this account to       
                       reflect interperiod tax allocation.              
                                                                        
  .......    7400.3   Nonoperating State and Local Income Taxes         
                                                                        

[[Page 1069]]

                                                                        
  .......             This account shall be charged and Account 4070.2, 
                       Income Taxes Accrued--State and Local, shall be  
                       credited for the amount of nonoperating state and
                       local income taxes for the current period. This  
                       account shall also reflect subsequent adjustments
                       to amounts previously charged.                   
  .......             Taxes shall be accrued each month on an estimated 
                       basis and adjustments made as later data becomes 
                       available.                                       
  .......             No entries shall be made to this account to       
                       reflect interperiod tax allocation.              
                                                                        
  .......    7400.4   Nonoperating Other Taxes                          
                                                                        
  .......             This account shall be charged and Account 4080.5, 
                       Other Taxes Accrued--Miscellaneous, shall be     
                       credited for all nonoperating taxes, other than  
                       Federal, state, and local income taxes, and      
                       payroll related taxes for the current period.    
                       Among the items includable in this account are   
                       property, gross receipts, franchise and capital  
                       stock taxes. This account shall also reflect     
                       subsequent adjustments to amounts previously     
                       charged.                                         
                                                                        
  .......    7400.5   Provision for Deferred Nonoperating Income Taxes--
                       Net                                              
                                                                        
  .......             This account shall be charged or credited, as     
                       appropriate, with contra entries recorded in     
                       either Account 4110, Net Current Deferred        
                       Nonoperating Income Taxes, or Account 4350, Net  
                       Noncurrent Deferred Nonoperating Income Taxes, as
                       appropriate, for nonoperating tax expenses that  
                       have been deferred.                              
  .......             Subsidiary record categories shall be maintained  
                       to distinguish between property and nonproperty  
                       related deferrals and so that the company may    
                       separately report the amounts contained herein   
                       that relate to Federal, state, and local income  
                       taxes.                                           
                                                                        
  .......    7600.1   Extraordinary Income Credits                      
                                                                        
  .......             This account shall be credited with nontypical,   
                       noncustomary, and infrequently recurring gains   
                       which would significantly distort the current    
                       year's income computed before such extraordinary 
                       items, if reported other than as extraordinary   
                       items. Income tax relating to the amounts        
                       recorded in this account shall be recorded in    
                       Account 7600.3, Current Income Tax Effect for    
                       Extraordinary Items--Net, and Account 7600.4,    
                       Provision for Deferred Income Tax Effect of      
                       Extraordinary Items--Net.                        
                                                                        
  .......    7600.2   Extraordinary Income Charges                      
                                                                        
  .......             This account shall be debited with nontypical,    
                       noncustomary, and infrequently recurring losses  
                       which would significantly distort the current    
                       year's income computed before such extraordinary 
                       items, if reported other than as extraordinary   
                       items. Income tax relating to the amounts        
                       recorded in this account shall be recorded in    
                       Account 7600.3, Current Income Tax Effect for    
                       Extraordinary Items--Net, and Account 7600.4,    
                       Provision for Deferred Income Tax Effect of      
                       Extraordinary Items--Net.                        
                                                                        
  .......    7600.3   Current Income Tax Effect of Extraordinary Items--
                       Net                                              
                                                                        
  .......             This account shall be charged or credited and     
                       Account 4070.1, Income Taxes Accrued--Federal, or
                       Account 4070.2, Income Taxes Accrued--State and  
                       Local, shall be credited or charged, as          
                       appropriate, for all current income tax effects  
                       (Federal, state, and local) of items included in 
                       Account 7600.1, Extraordinary Income Credits, and
                       Account 7600.2, Extraordinary Income Charges.    
                                                                        
  .......    7600.4   Provision for Deferred Income Tax Effect of       
                       Extraordinary Items--Net                         
                                                                        
  .......             This account shall be charged or credited, as     
                       appropriate, with a contra amount recorded in    
                       Account 4350, Net Noncurrent Deferred            
                       Nonoperating Income Taxes, or Account 4110, Net  
                       Current Deferred Nonoperating Income Taxes, for  
                       the income tax effects (Federal, state, and      
                       local) of items included in Account 7600.1,      
                       Extraordinary Income Credits, and Account 7600.2,
                       Extraordinary Income Charges, that have been     
                       deferred.                                        
------------------------------------------------------------------------

[55 FR 3388, Feb. 1, 1990; 55 FR 17352, Apr. 24, 1990, as amended at 55 
FR 53488, Dec. 31, 1990]


Sec. 1770.16    Supplementary Accounts Required of Nonprofit 
        Organizations.

------------------------------------------------------------------------
  Class of company                                                      
---------------------                                                   
     Account No.                         Account title                  
---------------------                                                   
    A          B                                                        
------------------------------------------------------------------------
  .......             Current Assets                                    
                                                                        
1350.1...    1350.1   Subscriptions to Capital Stock.                   
1350.2...    1350.2   Subscriptions to Memberships.                     
1350.3...    1350.3   Subscriptions to Members' Equity Certificates.    
1350.4...    1350.4   Other Current Assets.                             
                                                                        
  .......             Current Liabilities                               
                                                                        
4130.1...    4130.1   Patronage Capital Payable.                        
4130.2...    4130.2   Other Current Liabilities--Miscellaneous.         
                                                                        
  .......             Long-Term Debt                                    
                                                                        
4270.1...    4270.1   Members' Redeemable Equity Certificates Subscribed
                       but Unissued.                                    
4270.2...    4270.2   Members' Redeemable Equity Certificates Issued.   
4270.3...    4270.3   Other Long-Term Debt.                             
                                                                        

[[Page 1070]]

                                                                        
1350.1...    1350.1   Subscriptions to Capital Stock                    
                                                                        
  .......             This account shall include the balance due from   
                       subscribers upon legally enforceable             
                       subscriptions to capital stock.                  
  .......             The purchase price of subscriptions shall be      
                       charged to this account at the time the          
                       subscription is received. The par value of the   
                       stock subscribed shall be credited to Account    
                       4540.11, Capital Stock Subscribed, and the       
                       difference between the purchase price and the par
                       value shall be credited to Account 4520,         
                       Additional Paid-In Capital.                      
                                                                        
1350.2...    1350.2   Subscriptions to Memberships                      
                                                                        
  .......             This account shall include the balance due on     
                       memberships subscribed. The face amount of       
                       memberships subscribed shall be charged to this  
                       account at the time the subscription is received.
                       The offsetting credit shall be to Account        
                       4540.12, Memberships Subscribed but Unissued.    
  .......             A subscription ledger shall be maintained to      
                       record for each subscriber, the amount           
                       subscribed, payments made, and the balance due.  
                       The balance in this account shall be reconciled  
                       monthly with the subscription ledger.            
                                                                        
1350.3...    1350.3   Subscriptions to Members' Equity Certificates     
                                                                        
  .......             This account shall include the balance due on     
                       member's equity certificates subscribed. The face
                       amount of certificates subscribed shall be       
                       charged to this account at the time the          
                       subscription is received. The offsetting credit  
                       shall be to Account 4540.13, Members' Equity     
                       Certificates Subscribed but Unissued, or to      
                       Account 4270.1, Members' Redeemable Equity       
                       Certificates Subscribed but Unissued.            
  .......             A subscription ledger shall be maintained to      
                       record for each subscriber, the amount           
                       subscribed, payments made, and the balance due.  
                       The balance in this account shall be reconciled  
                       monthly with the subscription ledger. The        
                       subscription ledger shall be maintained in such a
                       manner as to separately identify redeemable and  
                       nonredeemable certificates.                      
                                                                        
1350.4...    1350.4   Other Current Assets                              
                                                                        
  .......             This account shall include the amount of all      
                       current assets which are not includable in       
                       Accounts 1120 through 1350.3.                    
                                                                        
4130.1...    4130.1   Patronage Capital Payable                         
                                                                        
  .......             This account shall include the amount of patronage
                       capital which has been authorized to be returned 
                       to patrons.                                      
                                                                        
4130.2...    4130.2   Other Current Liabilities--Miscellaneous          
                                                                        
  .......             This account shall include liabilities of current 
                       character which are not includable in Accounts   
                       4010 through 4130.1.                             
                                                                        
4270.1...      70.1   Members' Redeemable Equity Certificates Subscribed
                       but Unissued                                     
                                                                        
  .......             This account shall include the face amount of     
                       members' equity certificates which are redeemable
                       at some specified future date for which          
                       subscriptions have been received but for which   
                       certificates have not been issued. This account  
                       shall be credited at the time the subscription is
                       received and Account 1350.3, Subscriptions to    
                       Members' Equity Certificates, debited.           
  .......             This account shall be debited and Account 4270.2, 
                       Members' Redeemable Equity Certificates Issued,  
                       credited when a subscriber has paid the          
                       subscription in full and the equity certificates 
                       are issued.                                      
                                                                        
4270.2...    4270.2   Members' Redeemable Equity Certificates Issued    
                                                                        
  .......             This account shall include the face amount of     
                       outstanding members' equity certificates which   
                       are redeemable at some specified future date. A  
                       subsidiary members' redeemable equity certificate
                       record shall be maintained to reflect the detail 
                       of the balance in this account.                  
                                                                        
4270.3...    4270.3   Other Long-Term Debt                              
                                                                        
  .......             This account shall include long-term debt not     
                       provided for elsewhere.                          
------------------------------------------------------------------------

Secs. 1770.17--1770.25  [Reserved]



                  Subpart C--Accounting Interpretations

    Source: 61 FR 39847, July 31, 1996, unless otherwise noted.



Sec. 1770.26  General.

    (a) The standard provisions of the security instruments utilized by 
the Rural Utilities Service (RUS) and the Rural Telephone Bank (RTB) for 
all telecommunications borrowers require borrowers to at all times keep 
and safely preserve, proper books, records, and accounts in which full 
and true entries will be made of all of the dealings, business, and 
affairs of the borrower in accordance with the methods and principles of 
accounting prescribed by the

[[Page 1071]]

state regulatory body having jurisdiction over the borrower and by the 
Federal Communications Commission (FCC) in its Uniform System of 
Accounts for telecommunications companies (47 CFR part 32), as those 
methods and principles of accounting are supplemented from time to time 
by RUS.
    (b) This subpart implements those standard provisions of the RUS and 
RTB security instruments by prescribing accounting principles, 
methodologies, and procedures applicable to all telecommunications 
borrowers for particular situations.



Sec. 1770.27   Definitions.

    As used in this part:
    Borrower is an RUS telecommunications borrower.
    Cushion of Credit Account is a 5 percent interest bearing account 
established by RUS in which all voluntary payments or overpayments on 
Rural Electric and Telephone Revolving Funds after October 1, 1987, are 
deposited.
     FCC is the Federal Communications Commission.
    Part 32 is 47 CFR part 32, Uniform System of Accounts, issued by the 
Federal Communications Commission.
     RAO is the Responsible Accounting Officer of the Federal 
Communications Commission.
     RE Act is the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
     RETRF is the Rural Electric and Telephone Revolving Fund.
     RTB is the Rural Telephone Bank.
     RUS is the Rural Utilities Service, an agency of the United States 
Department of Agriculture, or its predecessor or successor.
Sec. 1770.28--1770.45  [Reserved]

Appendix to Subpart C--Accounting Methods and Procedures Required of All 
                                Borrowers

     All borrowers shall maintain and keep their books of accounts and 
all other books and records which support the entries in such books of 
accounts in accordance with the accounting principles prescribed in this 
appendix.

                             Numerical Index

                            Number and Title

101  Postretirement Benefits
102  Rural Telephone Bank Stock
103  Cushion of Credit Investments
104  Rural Economic Development Loan and Grant Program
105  Satellite and Cable Television Services
106  Consolidated Financial Statements

                                                                        
                     Subject Matter Index                        Number 
                                                                        
C                                                                       
  Cable Television Services..................................        105
  Consolidated Financial Statements..........................        106
  Cushion of Credit Investments..............................        103
E                                                                       
  Economic Development Loan and Grant Program................        104
F                                                                       
  Financial Statements--Consolidated.........................        106
I                                                                       
  Investments--Cushion of Credit.............................        103
P                                                                       
  Postretirement Benefits....................................        101
R                                                                       
  Rural Economic Development Loan and Grant Program..........        104
  Rural Telephone Bank Stock.................................        102
S                                                                       
  Satellite Television Services..............................        105
  Stock--Rural Telephone Bank................................        102
  Postretirement Benefits....................................           
                                                                        

    A. Statement of Financial Accounting Standards No. 106, Employers' 
Accounting for Postretirement Benefits Other than Pensions (Statement 
No. 106), requires reporting entities to accrue the expected cost of 
postretirement benefits during the years the employee provides service 
to the entity. For purposes of applying the provisions of Statement No. 
106, members of the board of directors are considered to be employees of 
the cooperative. Prior to the issuance of Statement No. 106, most 
reporting entities accounted for postretirement benefit costs on a 
``pay-as-you-go'' basis; that is, costs were recognized when paid, not 
when the employee provided service to the entity in exchange for the 
benefits. (Statement 106 is available from the Financial Accounting 
Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT. 06856-5116.)
    B. As defined in Statement No. 106, a postretirement benefit plan is 
a deferred compensation arrangement in which an employer promises to 
exchange future benefits for an employee's current services. 
Postretirement benefit plans may be funded or unfunded. Postretirement 
benefits include, but are not limited to, health care, life insurance, 
tuition assistance, day care, legal services, and

[[Page 1072]]

housing subsidies provided outside of a pension plan.
    C. Statement No. 106 applies to both written plans and to plans 
whose existence is implied from a practice of paying postretirement 
benefits. An employer's practice of providing postretirement benefits to 
selected employees under individual contracts with specific terms 
determined on a employee-by-employee basis does not, however, constitute 
a postretirement benefit plan under the provisions of this statement.
    D. Postretirement benefit plans generally fall into three 
categories: single-employer defined benefit plans, multiemployer plans, 
and multiple-employer plans.
    E. A single-employer plan is a postretirement benefit plan that is 
maintained by one employer. The term may also be applied to a plan that 
is maintained by related parties such as a parent and its subsidiaries. 
A multiemployer plan is a postretirement benefit plan in which two or 
more unrelated employers contribute, usually pursuant to one or more 
collective-bargaining agreements. One characteristic of a multiemployer 
plan is that the assets contributed by one participating employer may be 
used to provide benefits to employees of other participating employers 
since assets contributed by an employer are not segregated in a separate 
account or restricted to provide benefits only to employees of that 
employer.
    F. A multiple-employer plan is a postretirement benefit plan that is 
maintained by more than one employer but is not a multiemployer plan. A 
multiple-employer plan is generally not collectively bargained and is 
intended to allow participating employers to pool their plan assets for 
investment purposes and reduce the cost of plan administration. A 
multiple-employer plan maintains separate accounts for each employer so 
that contributions provide benefits only for employees of the 
contributing employer.
    G. The accounting requirements set forth in this interpretation 
focus on single- and multiple-employer plans. The accounting 
requirements set forth in Statement No. 106 for multiemployer plans or 
defined contribution plans shall be adopted for borrowers electing those 
types of plans.
    H. Under the provisions of Statement No. 106, there are two 
components of the postretirement benefit cost: the current period cost 
and the transition obligation. The transition obligation is a one-time 
accrual of the costs resulting from services already provided. Statement 
No. 106 allows the transition obligation to be deferred and amortized on 
a straight-line basis over the average remaining service period of the 
active employees. If the average remaining service period of the active 
employees is less than 20 years, a 20-year amortization period may be 
used.

                       I. Accounting Requirements

    A. All borrowers shall adopt the accrual accounting provisions and 
reporting requirements as set forth in Statement No. 106. The transition 
obligation and accrual of the current period cost must be based upon an 
actuarial study. This study must be updated to allow the borrower to 
comply with the measurement date requirements of Statement No. 106; 
however, the study must, at a minimum, be updated every five years. 
Borrowers may not account for postretirement benefits on a ``pay-as-you-
go'' basis.
    B. Under the provisions of Statement No. 106, an entity may 
recognize the transition obligation, in its entirety, when Statement No. 
106 is first adopted or the entity may elect to delay the recognition of 
the transition obligation. On December 26, 1991, however, the FCC issued 
6 FCC Rcd 7560, which requires telecommunications carriers to recognize 
the transition obligation on a delayed basis. RUS reviewed this issuance 
and has determined that borrowers must comply with this ruling and 
recognize the transition obligation on a delayed basis.
    C. The deferral and amortization of the transition obligation on a 
delayed basis is considered to be an off balance sheet item. As a 
result, an accounting entry is not required at the time of adoption of 
Statement No. 106. Instead, the transition obligation is recognized as a 
component of postretirement benefit cost as it is amortized. The amount 
of the unamortized transition obligation must be disclosed in the notes 
to the financial statements.
    D. In accordance with the provisions of Responsible Accounting 
Officer (RAO) Letter 20, released by the FCC on April 24, 1992, Account 
4310, Other Long-Term Liabilities, shall be used to record the liability 
accrued for postretirement benefits. (RAO Letter 20 is available from 
the Federal Communications Commission, 1919 M Street, NW., Washington, 
DC 20554.) Borrowers shall credit this account for the net periodic cost 
of postretirement benefits for the current year and shall debit this 
account for any fund payments made during the current year.
    E. Net periodic postretirement benefit cost includes current period 
service cost, interest cost, return on plan assets, amortization of 
prior service cost, gains and losses, and amortization of the transition 
obligation. If fund payments create a debit balance in the 
postretirement benefits portion of Account 4310, the debit balance 
applicable to postretirement benefits shall be reported in Account 1410, 
Other Noncurrent Assets. Account 1410 shall also be used to record any 
prepaid postretirement benefit cost.
    F. The benefits portion of the expense matrix for the appropriate 
Part 32 expense accounts shall be used to record the current period 
service cost component of the current

[[Page 1073]]

year's net periodic postretirement benefit cost. The interest cost 
component, return on plan assets, amortization of prior service cost, 
gains and losses, and amortization of the transition obligation shall be 
charged to the benefits portion of the expense matrix of Account 6728, 
Other General and Administrative.

                  II. Effective Date and Implementation

    A. For plans outside the United States and for defined benefit plans 
of employers that (a) are nonpublic enterprises and (b) sponsor defined 
benefit postretirement plans with no more than 500 plan participants in 
the aggregate, Statement No. 106 is effective for fiscal years beginning 
after December 15, 1994. For all other plans, Statement No. 106 is 
effective for fiscal years beginning after December 15, 1992.

                     102  Rural Telephone Bank Stock

    A. Capital stock issued by the Rural Telephone Bank consists of 
Class A, Class B, and Class C stock. Class A stock is issued only to the 
Administrator of RUS on behalf of the United States in exchange for 
capital furnished to RTB.
    B. Class B stock is issued only to recipients of loans under Section 
408 of the Rural Electrification Act (RE Act). Borrowers receiving loan 
funds pursuant to Section 408(a) (1) or (2) of the RE Act are required 
to invest 5 percent of the amount of loan funds approved in Class B 
stock. No dividends are payable on Class B stock. All holders of Class B 
stock are entitled to patronage refunds in the form of Class B stock 
under the terms and conditions specified in the bylaws of the RTB.
    C. Class C stock is available for purchase by borrowers, 
corporations, and public bodies eligible to borrow under Section 408 of 
the RE Act, or by organizations controlled by such borrowers, 
corporations and public bodies. The payment of dividends is in 
accordance with the bylaws of the RTB.

                         Accounting Requirements

    A. The purchase of RTB stock required by the RE Act shall be debited 
to Account 1402.1, Investments in Nonaffiliated Companies--Class B RTB 
Stock. Patronage refunds in the form of additional shares of RTB Class B 
Stock shall be debited to Account 1402.1 and credited to Account 
1402.11, Investments in Nonaffiliated Companies--Class B RTB Stock--Cr.
    B. Purchases of Class C RTB stock shall be debited to Account 
1402.2, Investments in Nonaffiliated Companies--Class C RTB Stock. Cash 
dividends received on Class C RTB stock shall be credited to Account 
7310, Dividend Income.
    C. Once a borrower has repaid all of its RTB loans, it may request 
that its Class B stock be converted to Class C stock. When the 
conversion is made, Account 1402.2 shall be debited and Account 1402.1 
shall be credited for the face value of the stock converted. Account 
1402.21, Investments in Nonaffiliated Companies--Class C RTB Stock--Cr., 
shall be credited and Account 1402.11 shall be debited for the face 
value of the Class B stock that has been received as patronage refunds.

                   103  Cushion of Credit Investments

    A. The RUS Cushion of Credit account is an investment account 
bearing an interest rate of 5 percent. All voluntary payments or 
overpayments on Rural Electric and Telephone Revolving Fund (RETRF) 
loans made after October 1, 1987, are deposited into this account in the 
appropriate borrower's name.

                         Accounting Requirements

    A. The following journal entries shall be used by RUS borrowers to 
record the transactions associated with cushion of credit payment:

1. Dr. 4210.18, RUS Notes--Advance Payments, Dr. Cr. 1130.1/1120.11, 
          Cash--General Fund. To record the cushion of credit payment.
2. Dr. 4210.18, RUS Notes--Advance Payments, Dr. Cr. 7320/7300.2, 
          Interest Income. To record interest earned on cushion of 
          credit deposits.
3. Dr. 4210.12, RUS Notes, Cr. 4210.18, RUS Notes--Advance Payments, Dr. 
          To apply cushion of credit payments (and interest) to the RUS 
          note.

         104  Rural Economic Development Loan and Grant Program

    A. On December 21, 1987, Section 313, Cushion of Credit Payments 
Program (7 U.S.C. 901 et seq.), was added to the RE Act. Section 313 
establishes a Rural Economic Development Subaccount and authorizes the 
Administrator of the RUS to provide zero interest loans or grants to RE 
Act borrowers for the purpose of promoting rural economic development 
and job creation projects. Effective December 5, 1994, this authority 
was assigned to the Administrator, Rural Business and Cooperative 
Development Service.
    B. 7 CFR part 1703, Subpart B, Rural Economic Development Loan and 
Grant Program, sets forth the policies and procedures relating to the 
zero interest loan program and for approving and administering grants.

                         Accounting Requirements

    A. The accounting journal entries required to record the 
transactions associated with a Rural Economic Development grant are as 
follows:


[[Page 1074]]


1. Dr. 1130.4/1120.14, Cash--General Fund--Economic Development Grant 
          Funds. Cr. 4210.25, RUS Notes--Economic Development Grant; Cr. 
          4540.41, Other Capital--Miscellaneous; or Cr. 7360/7300.6, 
          Other Nonoperating Income. To record grant funds disbursed by 
          RUS. If the grant agreement requires repayment of the funds 
          upon termination of the revolving loan program, Account 
          4210.25 shall be credited. If the grant agreement states that 
          there is absolutely no obligation for repayment upon 
          termination of the revolving loan program, the funds shall be 
          accounted for as a permanent infusion of capital by crediting 
          Account 4540.41. If, however, the grant agreement is silent as 
          to the final disposition of the grant funds, Account 7360/
          7300.6 shall be credited.
2. Dr. 1401.1, Other Investments in Affiliated Companies--Federal 
          Economic Development Grant Loans or Dr. 1402.4, Other 
          Investments in Nonaffiliated Companies--Federal Economic 
          Development Grant Loans Cr. 1130.4/1120.14, Cash--General 
          Fund--Economic Development Grant Funds. To record a Federal 
          revolving loan to an economic development project.
3. Dr. 1130.1/1120.11, Cash--General Fund. Cr. 7360/7300.6, Other 
          Nonoperating Income. To record payment of loan servicing fees 
          charged to the economic development project.
4. Dr. 1130.5/1120.15, Cash--General Fund--Economic Development Non-
          Federal Revolving Funds. Cr. 1401.1, Other Investments in 
          Affiliated Companies --Federal Economic Development Grant 
          Loans or Cr. 1402.4, Other Investments in Nonaffiliated 
          Companies--Federal Economic Development Grant Loans. To record 
          the repayment, by the project, of the Federal revolving loan.
5. Dr. 1401.2, Other Investments in Affiliated Companies--Non-Federal 
          Economic Development Grant Loans or Dr. 1402.5, Other 
          Investments in Nonaffiliated Companies--Non-Federal Economic 
          Development Grant Loans. Cr. 1130.5/1120.15, Cash--General 
          Fund--Economic Development Non-Federal Revolving Funds. To 
          record a Non-Federal revolving loan to an economic development 
          project.
6. Dr. 1210, Interest and Dividends Receivable Cr. 7320/7300.2, Interest 
          Income. To record the interest earned on a Non-Federal 
          revolving loan to an economic development project.
7. Dr. 1130.5/1120.15, Cash--General Fund--Economic Development Non-
          Federal Revolving Funds. CR. 1401.2, Other Investments in 
          Affiliated Companies--Non-Federal Economic Development Grant 
          Loans or Cr. 1402.5, Other Investments in Nonaffiliated 
          Companies--Non-Federal Economic Development Grant Loans. To 
          record the repayment, by the project, of the Non-Federal 
          revolving loan.

    B. The accounting journal entries required to record the 
transactions associated with a Rural Economic Development loan are as 
follows:

1. Dr. 4210.26, Economic Development Notes--Unadvanced, Fr. Cr. 4210.25, 
          Economic Development Notes. To record the contractual 
          obligation to RUS for the Economic Development Notes.
2. Dr. 1130.6/1120.16, Cash--General Fund--Economic Development Loan 
          Funds Cr. 4210.26, Economic Development Notes--Unadvanced, Dr. 
          To record the receipt of the economic development loan funds.
3. Dr. 1401.3, Other Investments in Affiliated Companies--Federal 
          Econmic Development Loans or Dr. 1402.6, Other Investments in 
          Nonaffilitated Companies--Federal Economic Development Loans. 
          Cr. 1130.6/1120.16, Cash--General Fund--Ecoomice Development 
          Loan Funds. To record the discursement of economci development 
          loand funds to the project.
4. Dr. 1130.1/1120.11, Cash--General Fund. Cr. 7360/7300.6, Other 
          Nonoperating Income. To record payment of loan servicing fees 
          charged to the economic development project.
5. Dr. 1210, Interest and Dividends Receivable Cr. 7320/7300.2, Interest 
          Income. To record the interest earned on the investment of 
          rural economic development loan funds.
6. Dr. 7370, Special Charges. Cr. 1130.1, Cash--General Funds. To record 
          the payment of interest earned in excess of $500 on the 
          investment of rural economic development loan funds. Note: 
          Interest earned in excess of $500 must be used for the rural 
          economic development project for which the loan funds were 
          received or returned to RUS.
7. Dr. 1130.6/1120.16, Cash--General Fund--Economic Development Loan 
          Funds. Cr. 1401.3, Other Investments in Affiliated Companies--
          Federal Economic Development Loans or Cr. 1402.6, Other 
          Investments in Nonaffiliated Companies--Federal Economic 
          Development Loans. To record repayment, by the project, of the 
          economic development loan.
8. Dr. 4210.25, Economic Development Notes. Cr. 1130.6/1120.16, Cash--
          General Fund--Economic Development Loan Funds. To record the 
          repayment, to RUS, of the economic development loan funds.

[[Page 1075]]

              105  Satellite and Cable Television Services

    A. Many RUS borrowers have become involved in providing either 
satellite or cable television services to their members and others 
through subsidiaries, joint ventures, or as segments of their current 
operations.

                         Accounting Requirements

    A. This section outlines the accounting to be followed when 
recording transactions involving satellite or cable television services.
    1. Separate Subsidiary. If a borrower provides satellite or cable 
television services through a separate subsidiary, the investment in the 
subsidiary shall be debited to Account 1401, Investments in Affiliated 
Companies. The net income or loss of the subsidiary shall be debited or 
credited to Account 1401, as appropriate, with an offsetting entry to 
Account 7360, Other Nonoperating Income.
    2. Joint Venture. i. If a borrower provides satellite or cable 
television services through a joint venture, the borrower's ownership 
interest dictates the accounting methodology. If the borrower has less 
than a 20 percent ownership interest in the joint venture, the 
investment is accounted for under the cost method of accounting in 
Account 1402, Investments in Nonaffiliated Companies. Under the cost 
method, the joint venture's net income or loss is not recorded in the 
borrower's records. Income is recognized only to the extent of any 
dividends declared by the joint venture. When a dividend is declared, 
the borrower shall debit Account 1210, Interest and Dividends 
Receivable, and credit Account 7310, Dividend Income. When the dividend 
is received in cash, the borrower shall debit Account 1130.1, Cash--
General Fund, and credit Account 1210.
    ii. If a borrower has a 20-percent or more ownership interest in the 
joint venture, the investment is accounted for under the equity method 
in Account 1401, Investments in Affiliated Companies. The borrower's 
proportionate share of the joint venture's net income or loss shall be 
debited or credited to Account 1401, as appropriate, with an offsetting 
entry to Account 7360, Other Nonoperating Income.
    3. Segment of Current Operations. i. If a borrower provides 
satellite or cable television service as a segment of its current 
operations and there are no shared assets between this activity and the 
regulated telecommunications activities of the borrower, the investment 
shall be debited to Account 1406.1, Nonregulated Investments--Permanent 
Investment. The net income or loss from providing such service shall be 
debited or credited, as appropriate, to Account 1406.3, Nonregulated 
Investments--Current Net Income, with an offsetting entry to Account 
7990, Nonregulated Net Income.
    ii. If a borrower provides satellite or cable television service as 
a segment of current operations and shares assets between this activity 
and the regulated telecommunications activities of the borrower, the 
franchise and application fees shall be debited to a subaccount of 
Account 2690, Intangibles. The cost of the satellite or cable television 
equipment shall be debited to a subaccount of Account 2231, Radio 
Systems. Revenues earned from providing satellite or cable service shall 
be credited to Account 5280, Nonregulated Operating Revenue, while the 
associated expenses shall be recorded in a subaccount of the applicable 
regulated expense accounts.
    4. Sale and Installation of Satellite or Cable Television Equipment. 
i. If a borrower sells or installs satellite or cable television 
equipment as a segment of its current operations and there are no shared 
assets between this activity and the regulated telecommunications 
activities of the borrower, the purchase of the equipment shall be 
debited to Account 1406.1, Nonregulated Investments--Permanent 
Investment. The net income or loss from providing such services shall be 
debited or credited, as appropriate, to Account 1406.3, Nonregulated 
Investments--Current Net Income, with an offsetting entry to Account 
7990, Nonregulated Net Income.
    ii. If a borrower sells or installs satellite or cable television 
equipment as a segment of its current operations and shares assets 
between this activity and the regulated telecommunications activities of 
the borrower, the purchase of the equipment shall be debited to Account 
1220.2, Property Held for Sale or Lease. Revenues received for the sale 
or installation of the equipment shall be credited to Account 5280, 
Nonregulated Operating Revenue, while the associated expenses shall be 
debited to a subaccount of the applicable regulated expense accounts.

                 106  Consolidated Financial Statements

    A. In October 1987, FASB issued Statement of Financial Accounting 
Standards No. 94, Consolidation of All Majority-Owned Subsidiaries 
(Statement No. 94). (Statement 94 is available from the Financial 
Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 
06856-5116.) For purposes of reporting to RUS, Statement No. 94 shall be 
applied as follows:
    1. A borrower that is a subsidiary of another entity shall prepare 
and submit to RUS separate financial statements even though this 
financial information is presented in the parent's consolidated 
statements.
    2. In those cases in which a borrower has a majority-ownership in a 
subsidiary, the borrower shall prepare consolidated financial statements 
in accordance with the requirements of Statement No. 94. These 
consolidated statements must also include supplementary schedules 
presenting a Balance

[[Page 1076]]

Sheet and Income Statement for each majority-owned subsidiary included 
in the consolidated statements.
    B. Although Statement No. 94 requires the consolidation of majority-
owned subsidiaries, the RUS Form 479, Financial and Statistical Report 
for Telecommunications Borrowers, shall be prepared on an unconsolidated 
basis by all borrowers.



PART 1773--POLICY ON AUDITS OF RUS BORROWERS--Table of Contents




                      Subpart A--General Provisions

Sec.
1773.1  General.
1773.2  Definitions.

                    Subpart B--RUS Audit Requirements

1773.3  Annual audit.
1773.4  Borrower responsibilities.
1773.5  Qualifications of CPA.
1773.6  Audit agreement.
1773.7  Audit standards.
1773.8  Audit date.
1773.9  Disclosure of irregularities and illegal acts.
1773.10  Access to audit-related documents.
1773.11--1773.19  [Reserved]

    Subpart C--RUS Requirements for the Submission and Review of the 
Auditor's Report, Report on Compliance, Report on Internal Controls, and 
                            Management Letter

1773.20  CPA's submission of the auditor's report, report on compliance, 
          report on internal controls, and management letter.
1773.21  Borrower's review and submission of the auditor's report, 
          report on compliance, report on internal controls, and 
          management letter.
1773.22--1773.29  [Reserved]

                  Subpart D--RUS Reporting Requirements

1773.30  General.
1773.31  Auditor's report.
1773.32  Report on compliance.
1773.33  Report on internal controls.
1773.34  Management letter.
1773.35--1773.37  [Reserved]

       Subpart E--RUS Required Audit Procedures and Documentation

1773.38  Scope of engagement.
1773.39  Utility plant and accumulated depreciation.
1773.40  Regulatory assets.
1773.41  Extraordinary retirement losses.
1773.42  Clearing accounts.
1773.43  Capital and equity accounts.
1773.44  Long-term debt.
1773.45  Regulatory liabilities.
1773.46--1773.49  [Reserved]

Appendix A to Part 1773--Sample Auditor's Report for an Electric 
          Cooperative
Appendix B to Part 1773--Sample Auditor's Report for a Class A or B 
          Commercial Telephone Company
Appendix C to Part 1773--Illustrative Independent Auditor's Management 
          Letter

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 56 FR 63360, Dec. 3, 1991, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 1773.1  General.

    (a) This part implements those standard provisions of the security 
instrument utilized by the Rural Utilities Service (RUS) for both 
electric and telephone borrowers and by the Rural Telephone Bank (RTB) 
for its telephone borrowers. The provisions require borrowers 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, in form and substance satisfactory to RUS, audited and certified 
by an independent certified public accountant (CPA), satisfactory to 
RUS, and accompanied by a report of such audit, in form and substance 
satisfactory to RUS.
    (b) This part 1773 applies to both RUS and RTB borrowers. For the 
purposes of RTB borrowers, as used in this part 1773, RUS means RTB and 
Administrator means Governor unless the text indicates otherwise.
    (c) This part complies with the 1994 revision of Government Auditing 
Standards, issued by the Comptroller General of the United States, 
United States General Accounting Office.
    (d) An auditor's report, report on compliance, report on internal 
controls, and management letter are required to meet the reporting 
provisions of the RUS security instrument.
    (1) The auditor's report must state that the audit was conducted in 
accordance with generally accepted government auditing standards 
(GAGAS).

[[Page 1077]]

    (2) The management letter must state that the audit was conducted in 
accordance with this part.
    (3) A report of the audit, in form and substance satisfactory to 
RUS, cannot be issued unless and until an audit has been performed in 
accordance with GAGAS and this part.
    (4) A borrower is in violation of provisions of its security 
instrument with RUS if the borrower fails to provide an audit performed 
in compliance with GAGAS and this part. RUS security instruments 
normally provide for notice and an opportunity to cure such violations 
before RUS can exercise certain remedies.
    (5) A report prepared in connection with a review or compilation of 
financial statements, as defined in Statement of Standards for 
Accounting and Review Services No. 1, Compilation and Review of 
Financial Statements, does not satisfy the requirements of the RUS 
security instrument.
    (6) A report, as described in Statement on Auditing Standards (SAS) 
No. 62, entitled ``Special Reports'', or in SAS No. 35, entitled 
``Special Reports--Applying Agreed-upon Procedures to Specified 
Elements, Accounts, or Items of a Financial Statement'', does not 
satisfy the RUS loan security instrument requirements.
    (7) An annual report containing audited financial statements does 
not satisfy the RUS security instrument requirements.
    (e) This part further implements those provisions of the standard 
RUS security instrument by setting forth the criteria for CPAs to be 
deemed satisfactory to RUS and the audit procedures and documentation 
standards that must be performed before a report of the audit 
satisfactory to RUS can be prepared and issued.

[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 107, Jan. 3, 1996]



Sec. 1773.2  Definitions.

    As used in this part:
    Administrator means the Administrator of RUS and, as provided in 
Sec. 1773.2 (b), Governor.
    AICPA means the American Institute of Certified Public Accountants.
    Audit means an examination of financial statements by an independent 
CPA for the purpose of expressing an opinion on the fairness with which 
those statements present financial position, results of operations, and 
changes in cash flows in conformity with generally accepted accounting 
principles (GAAP) and for determining whether the borrower has complied 
with applicable laws, regulations, and contracts for those transactions 
and events reflected in the financial statements.
    BAD means the Borrower Accounting Division of RUS.
    CPA means certified public accountant. The terms CPA and CPA firm 
are used interchangeably.
    FFB means the Federal Financing Bank, an instrumentality and wholly 
owned corporation of the United States.
    GAAP means generally accepted accounting principles.
    GAGAS means generally accepted government auditing standards as set 
forth in Government Auditing Standards, Standards for Audit of 
Governmental Organizations, Programs, Activities, and Functions, issued 
by the Comptroller General of the United States.
    GAO means the General Accounting Office.
    Governor means the Governor of the RTB.
    Illegal act has the meaning prescribed in SAS No. 54, entitled 
``Illegal Acts by Clients''.
    Irregularity has the meaning prescribed in SAS No. 53, entitled 
``The Auditor's Responsibility to Detect and Report Errors and 
Irregularities''.
    OIG means the Office of Inspector General, United States Department 
of Agriculture.
    OMB means the Office of Management and Budget.
    PCPS means the Private Companies Practice Section of the AICPA.
    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.
    Regulatory asset means an asset resulting from an action of a 
regulator as prescribed in Statement of Financial Accounting Standards 
(SFAS) No. 71,

[[Page 1078]]

entitled ``Accounting for the Effects of Certain Types of Regulation''.
    Regulatory liability means a liability imposed on a regulated 
enterprise by an action of a regulator as prescribed in SFAS No. 71, 
entitled ``Accounting for the Effects of Certain Types of Regulation''.
    Related party has the meaning prescribed in SFAS No. 57, entitled 
``Related Party Disclosures''.
    Related party transaction has the meaning prescribed in SFAS No. 57, 
entitled ``Related Party Disclosures''.
    Reportable condition has the meaning prescribed in SAS No. 60, 
entitled ``Communication of Internal Control Structure Related Matters 
Noted in an Audit''.
    RTB means the Rural Telephone Bank.
    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.
    SAS means Statement on Auditing Standards as prescribed by the 
AICPA.
    SEC Practice Section means the Securities and Exchange Commission 
Practice Section of the AICPA.
    SFAS means Statements of Financial Accounting Standards as 
prescribed by the Financial Accounting Standards Board.
    State means any state or territory of the United States, or the 
District of Columbia.
    Uniform System of Accounts means, for telephone borrowers, the 
Uniform System of Accounts for Telecommunications Companies, prescribed 
by the Federal Communications Commission and set forth at 47 CFR part 
32, as supplemented by RUS pursuant to 7 CFR part 1770, Accounting 
Requirements for RUS Telephone Borrowers, subpart B, Uniform System of 
Accounts, and, for electric borrowers, the Uniform System of Accounts 
Prescribed for Electric Borrowers of the RUS.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 66440, Dec. 27, 1994; 60 
FR 2874, Jan. 12, 1995]



                    Subpart B--RUS Audit Requirements



Sec. 1773.3  Annual audit.

    (a) Each borrower must have its financial statements audited 
annually by a CPA selected by the borrower and approved by RUS as set 
forth in Sec. 1773.4.
    (b) Each borrower must establish an annual as of audit date within 
twelve months of the date of receipt of the first advance of RUS or FFB 
loan funds and must prepare financial statements as of the date 
established.
    (c) Until all loans made or guaranteed by RUS have been repaid, the 
borrower must furnish three copies of the auditor's report, report on 
compliance, report on internal controls, and management letter to RUS 
within 120 days of the as of audit date.
    (d) A borrower that qualifies as a unit of state or local government 
or Indian tribe as such terms are defined in the Single Audit Act of 
1984 (31 U.S.C. 7501 et seq.) and OMB Circular A-128, Audits of State 
and Local Governments, must comply with this part as follows:
    (1) A borrower that receives total Federal financial assistance 
equal to or in excess of $100,000 during the fiscal year, must have an 
audit performed and submit an auditor's report meeting the requirements 
of the Single Audit Act of 1984 (31 U.S.C. 7501 et seq.).
    (2) A borrower that receives total Federal financial assistance of 
between $25,000 and $100,000 during the fiscal year must have an audit 
performed in accordance with either the requirements of the Single Audit 
Act of 1984 (31 U.S.C. 7501 et seq.) or this part.
    (3) A borrower that receives less than $25,000 in total Federal 
financial assistance during the fiscal year must have an audit performed 
in accordance with the requirements of this part.
    (4) A borrower must notify RUS, in writing, within 30 days of the as 
of audit date, of the total Federal financial assistance received during 
the audit year and must state whether it will have an audit performed in 
accordance with the Single Audit Act of 1984 (31 U.S.C. 7501 et seq.) or 
this part.
    (i) A borrower that elects to comply with this part must select a 
CPA that

[[Page 1079]]

meets the qualifications set forth in Sec. 1773.5.
    (ii) If an audit is performed in accordance with the Single Audit 
Act of 1984 (31 U.S.C. 7501 et seq.), an auditor's report that meets the 
requirements of the Single Audit Act of 1984 (31 U.S.C. 7501 et seq.) 
will be sufficient to satisfy that borrower's obligations under this 
part.
    (e) OMB Circular A-133, Audits of Institutions of Higher Education 
and Other Nonprofit Organizations, does not apply to audits of RUS 
borrowers.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994]



Sec. 1773.4  Borrower responsibilities.

    (a) Selection of a qualified CPA. The borrower's board of directors 
is responsible for the selection of a qualified CPA that meets the 
requirements set forth in Sec. 1773.5. When selecting a CPA, the 
borrower should consider, among other matters:
    (1) The qualifications of CPAs available to do the work;
    (2) The CPA's experience in performing audits of utilities; and
    (3) The CPA's ability to complete the audit and submit the reports 
and management letter within 90 days of the as of audit date.
    (b) Board approval of selection. The board's approval of a CPA must 
be recorded by a board resolution that states:
    (1) The CPA meets RUS's qualifications to perform an audit; and
    (2) The borrower and CPA will enter into an audit agreement in 
accordance with Sec. 1773.6.
    (c) Notification of selection. When the initial selection or 
subsequent change of a CPA by a borrower has been made, the borrower 
must notify RUS, in writing, at least 90 days prior to the as of audit 
date.
    (1) RUS will notify the borrower, in writing, within 30 days of the 
date of receipt of such notice, if the selection or change in CPA is not 
satisfactory.
    (2) Notification to RUS that the same CPA has been selected for 
succeeding audits of the borrower's financial statements is not 
required; however, the procedures outlined in this part must be followed 
for each new CPA selected, even though such CPA may previously have been 
approved by RUS to audit records of other RUS borrowers. Changes in the 
name of a CPA firm are considered to be a change in the CPA.
    (d) Audit agreement. The borrower must enter into an audit agreement 
with the CPA that complies with Sec. 1773.6.
    (e) Debarment certification. The borrower is responsible for the 
receipt, from the selected CPA, of a lower tier covered transaction 
certification, as required under the provisions of Executive Orders 
12549 and 12689, Debarment and Suspension, and any rules or regulations 
issued thereunder.
    (f) Submission of auditor's report. The borrower must submit to RUS 
the required auditor's report, report on compliance, report on internal 
controls, and management letter as set forth in Sec. 1773.21.
    (1) An annual auditor's report, report on compliance, report on 
internal controls, and management letter that fail to meet the 
requirements detailed in this part will be returned to the borrower with 
a written explanation of noncompliance.
    (2) The borrower must, within 60 days of the date of the letter 
detailing the noncompliance, submit corrected reports to RUS.
    (3) If corrected reports are not received within 60 days of the date 
of the letter detailing the noncompliance, RUS may notify the borrower 
that a default has occurred under its security instrument or take other 
appropriate action. The default notice will set forth the period of time 
during which the default will be remedied.
    (g) Submission of plan of corrective action. The borrower must 
submit written comments to RUS on the findings and recommendations in 
the auditor's report, report on compliance, report on internal controls, 
and management letter. The borrower must also submit to RUS:
    (1) A written plan for corrective action taken or planned; and
    (2) Comments on the status of corrective action taken on previously 
reported findings and recommendations.
    If corrective action is not necessary, a written statement 
describing the reason it is not should accompany the auditor's report.

[[Page 1080]]



Sec. 1773.5  Qualifications of CPA.

    For purposes of the RUS standard security instrument, any CPA that 
meets the qualifications criteria of this section and enters into an 
audit agreement with the borrower that complies with Sec. 1773.6, will 
be considered satisfactory to RUS.
    (a) Certification. The accountant that audits the financial 
statements of an RUS borrower must be a CPA in good standing of some 
state. The CPA does not have to be licensed by the state in which the 
borrower is located; however, the CPA must abide by the rules and 
regulations of professional conduct promulgated by the accountancy board 
of the state in which the borrower is located.
    (b) Independence. The CPA must be independent. A CPA will be 
considered independent if the CPA:
    (1) Meets the standards for independence contained in the AICPA Code 
of Professional Conduct in effect at the time the CPA's independence is 
under review;
    (2) Does not have and has not had any direct financial interest or 
any material indirect financial interest in the borrower during the 
period covered by the audit; and
    (3) Is not and was not, during the period under audit, connected 
with the borrower as a promoter, underwriter, trustee, director, 
officer, or employee.
    (c) Peer review requirement. The CPA must belong to and participate 
in a peer review program, and must have undergone a satisfactory peer 
review of the accounting and audit practice conducted by an approved 
peer review program under paragraph (c)(4) of this section, unless a 
waiver is granted under paragraph (c)(7) of this section. The reviewing 
organization must not be affiliated with or have had its most recent 
peer review conducted by the organization currently being reviewed 
(reciprocal reviews). After the initial peer review has been performed, 
the CPA must undergo a peer review of the accounting and audit practice 
within 42 months of the previous ``as of'' peer review date or at such 
additional times as designated by the peer review executive committee.
    (1) A CPA that receives an unqualified peer review report will be 
satisfactory to RUS provided that the CPA meets the other criteria set 
forth in this section.
    (2) If a CPA receives a qualified or adverse peer review report, the 
CPA must undergo a second peer review within 18 months of the date of 
the qualified or adverse report. A CPA that receives an unqualified 
second peer review report will be satisfactory to RUS provided that the 
CPA meets the other criteria set forth in this section.
    (3) A CPA that receives a second qualified or adverse peer review 
report will not be satisfactory to RUS.
    (4) Approved peer review programs. The following peer review 
programs are approved by RUS:
    (i) The peer review programs conducted by the AICPA;
    (ii) The peer review program conducted by the regulated audit 
program group of the National Conference of CPA Practitioners; and
    (iii) An independent peer review program that, in RUS's 
determination, requires its members to:
    (A) Ensure that the CPA can legally engage in the practice of 
certified public accounting;
    (B) Adhere to the quality control standards established by the 
AICPA;
    (C) Submit to peer reviews of the CPA's accounting and audit 
practice every 42 months or at such additional times as designated by 
its own executive committee; and
    (D) Ensure that all professionals in the firm, including CPAs and 
nonCPAs, take part in the qualifying continuing professional education 
requirements of GAGAS, as set forth in paragraphs (c)(4)(iii)(D)(1) and 
(c)(4)(iii)(D)(2). A qualified continuing professional education course 
is one which meets the standards of the AICPA.
    (1) An auditor responsible for planning, directing, conducting, or 
reporting on government audits must complete, every two years, at least 
eighty hours of continuing education and training which contributes to 
the auditor's professional proficiency. At least twenty hours must be 
completed in any one year of the two-year period; and
    (2) An individual responsible for planning, directing, and 
conducting substantial portions of the field work, or reporting on the 
government audit

[[Page 1081]]

must complete at least 24 of the 80 hours of continuing education and 
training in subjects directly related to the government environment and 
to government auditing. If the audited entity operates in a specific or 
unique environment, auditors must receive training that is related to 
that environment.
    (5) Notification. The CPA must notify the Director, BAD, in writing, 
of participation in a peer review program. RUS will notify the CPA 
within 60 days of receipt of this notice if the selected peer review 
program is acceptable.
    (6) Submission of reports. The CPA must submit to the Director, BAD, 
a copy of any peer review report and accompanying letter of comment, if 
any, within 60 days of the date such report and letter of comment are 
released by the peer review group.
    (i) If the peer review report indicates that a follow-up review will 
be made, the CPA must submit subsequent reports to the Director, BAD, 
within 60 days of the date such reports are released by the peer review 
group.
    (ii) A peer review report must be submitted to the Director, BAD, at 
least once every 42 months, or more frequently, if required by the peer 
review program.
    (iii) A copy of the peer review report, accompanying letter of 
comment, and the partners' inspections must be made available to OGC, 
upon request.
    (7) Waiver of the peer review requirement. (i) A CPA may request 
that the Administrator, RUS, waive the peer review requirement. To be 
eligible for a waiver, the following criteria must be met:
    (A) The firm has been in existence for less than 1 year from the 
date of the request and has not been previously organized under a 
different name;
    (B) One of the partners organizing the firm has previously, within 
18 months preceding the request, worked for a firm that has been peer 
reviewed and the partner was partner-in-charge of audits of RUS 
borrowers in the previous firm;
    (C) The firm has enrolled in an approved peer review program; and
    (D) The firm agrees to have the peer review conducted within 18 
months of the date of the RUS waiver.
    (ii) Waiver requests must address each of the criteria in paragraph 
(c)(7)(i) of this section and should be submitted to the Director, 
Borrower Accounting Division.
    (d) Audit agreement. The CPA must enter into an audit agreement with 
the borrower that complies with Sec. 1773.6.

[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 107, Jan. 3, 1996]



Sec. 1773.6  Audit agreement.

    (a) An audit agreement must be entered into between the CPA and the 
borrower. The audit agreement must set forth the auditor's 
responsibilities in a financial statement audit, including the 
responsibilities for testing and reporting on internal controls and 
compliance with laws and regulations and the nature of any additional 
testing of internal controls and compliance required by laws and 
regulations. These responsibilities should be contrasted with the 
additional procedures that could be performed that would result in 
additional assurances or opinions on the internal control structure and 
compliance with laws and regulations. The audit agreement must also 
include the following:
    (1) The borrower and the CPA acknowledge that the audit is being 
performed and the auditor's report, report on compliance, report on 
internal controls, and management letter is being issued in order to 
enable the borrower to comply with the provisions of RUS's security 
instrument;
    (2) The borrower and CPA acknowledge that RUS will consider the 
borrower to be in violation of its security instrument with RUS if the 
borrower fails to have an audit performed and documented in compliance 
with GAGAS and this part;
    (3) The CPA represents that he/she meets the requirements under this 
part to be satisfactory to RUS;
    (4) The CPA will perform the audit and will prepare the auditor's 
report, report on compliance, report on internal controls, and 
management letter in accordance with the requirements of this part;
    (5) The CPA will document the audit work performed in accordance 
with GAGAS, the professional standards of

[[Page 1082]]

the AICPA, and the requirements of this part;
    (6) The CPA will make all audit-related documents, including 
auditor's reports, workpapers, and management letters available to RUS 
or its representatives (OGC and GAO), upon request, and will permit the 
photocopying of all audit-related documents; and
    (7) The CPA will follow the requirements of reporting irregularities 
and illegal acts as outlined in Sec. 1773.9.
    (b) The audit agreement may include such additional terms and 
conditions as the CPA and borrower deem appropriate, including, but not 
limited to:
    (1) The CPA will report all audit findings to the board of directors 
as required in Sec. 1773.20(b); and
    (2) The auditor's report, report on compliance, report on internal 
controls, and management letter with copies for transmittal to RUS, and 
supplemental lenders, if applicable, will be submitted to the borrower's 
board of directors within 90 days of the as of audit date;
    (c) A copy of the audit agreement must be available at the 
borrower's office for inspection by RUS personnel. One copy of the 
current audit agreement must be maintained in the CPA's workpapers or 
permanent file.

[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 108, Jan 3, 1996]



Sec. 1773.7  Audit standards.

    (a) The audit must be performed in accordance with GAGAS and this 
part. The audit must be performed in accordance with GAGAS in effect at 
the audit date unless the borrower is directed otherwise, in writing, by 
RUS.
    (b) The audit must include such tests of the accounting records and 
such other auditing procedures that are sufficient to enable the CPA to 
express an opinion on the financial statements and to issue the required 
reports on compliance and internal controls and the management letter.
    (c) Audit scope limitation. (1) The borrower will not limit the 
scope of the audit to the extent that the CPA is unable to meet RUS's 
audit requirements or to provide an unqualified opinion that the 
financial statements are presented fairly in conformity with GAAP.
    (2) The security instrument provision requiring the submission of a 
report of the audit is not satisfied if the CPA must qualify the opinion 
in the auditor's report due to limitations placed on the scope of the 
audit by the borrower.
    (3) If the CPA determines during the audit that an unqualified 
opinion cannot be issued due to a scope limitation imposed by the 
borrower, the CPA should use professional judgment to determine what 
levels of the borrower's management should be informed.
    (4) After informing the borrower's management, if the scope 
limitation is not adequately resolved, the CPA should immediately 
contact the Director, BAD, RUS, U.S. Department of Agriculture, 
Washington, DC 20250-1500. The Director, BAD, will endeavor to resolve 
the matter with the borrower.



Sec. 1773.8  Audit date.

    (a) The annual audit must be performed as of the end of the same 
calendar month each year unless prior approval to change the as of audit 
date is obtained, in writing, from RUS.
    (1) A borrower may request a change in the as of audit date by 
writing to the appropriate RUS regional office at least 60 days prior to 
the newly requested as of audit date.
    (2) The time period between the prior as of audit date and the newly 
requested as of audit date must be no longer than twenty-four months. 
For example, a borrower that wishes to change its as of audit date from 
December 31, 19X1, to June 30, must make the change effective no later 
than June 30, 19X3.
    (b) Comparative financial statements must be prepared and audited 
for the twelve months ending as of the new audit date and for the twelve 
months immediately preceding that period.
    (c) A borrower that changes its as of audit date from December 31, 
19X1, to June 30, 19X3, must have the CPA report on statements in the 
following manner:

[[Page 1083]]



------------------------------------------------------------------------
                                              Statements prepared as of 
       Previously issued statements                new audit date       
------------------------------------------------------------------------
12/31/X1; 12/31/X0 (Statements need not be  6/30/X3; 6/30/X2            
 reissued).                                                             
------------------------------------------------------------------------



Sec. 1773.9  Disclosure of irregularities and illegal acts.

    (a) In accordance with GAGAS, the CPA must design audit steps and 
procedures to provide reasonable assurance of detecting errors, 
irregularities, illegal acts, and noncompliance with the provisions of 
contracts or grant agreements that could have a direct and material 
effect on financial statement amounts.
    (b) If there is an indication that an irregularity may have occurred 
or evidence concerning the existence of a possible instance of 
noncompliance with the provisions of contracts or grant agreements that 
could have a material direct or indirect effect on the financial 
statements, the CPA must extend audit steps and procedures to obtain 
sufficient, competent evidential matter to determine whether, in fact, 
an irregularity or an instance of noncompliance has occurred and the 
effect on the borrower's financial statements.
    (c) Pursuant to the terms of its audit agreement with the borrower, 
the CPA must immediately report, in writing, all irregularities and all 
indications or instances of illegal acts, whether material or not, to:
    (1) The president of the borrower's board of directors;
    (2) The Director, BAD; and
    (3) OIG, as follows:
    (i) For the States of Delaware, District of Columbia, Maryland, 
Pennsylvania, Virginia, West Virginia, Connecticut, Maine, 
Massachusetts, New Hampshire, New Jersey, New York, Puerto Rico, Rhode 
Island, Vermont and the Virgin Islands, report to USDA-OIG-Audit, 
Northeast Region, Regional Inspector General, 6505 Belcrest Road, room 
428-A, Hyattsville, Maryland 20782;
    (ii) For the States of Alabama, Florida, Georgia, Kentucky, 
Mississippi, North Carolina, South Carolina, and Tennessee, report to 
USDA-OIG-Audit, Southeast Region, Regional Inspector General, 401 W. 
Peachtree Street, NW., room 2328, Atlanta, Georgia 30365-3520;
    (iii) For the States of Illinois, Indiana, Michigan, Minnesota, 
Ohio, and Wisconsin, report to USDA-OIG-Audit, Midwest Region, Regional 
Inspector General, 111 N. Canal Street, Suite 1130, Chicago, Illinois 
60606;
    (iv) For the States of Arkansas, Louisiana, New Mexico, Oklahoma, 
and Texas, report to USDA-OIG-Audit, Southwest Region, Regional 
Inspector General, 101 South Main, room 324, Temple, Texas 76501;
    (v) For the States of Colorado, Iowa, Kansas, Missouri, Montana, 
Nebraska, North Dakota, South Dakota, Wyoming, and Utah, report to USDA-
OIG-Audit, Great Plains Region, Regional Inspector General, P.O. Box 
293, Kansas City, Missouri 64141; and
    (vi) For the States of Alaska, Arizona, California, Hawaii, Idaho, 
Nevada, Oregon, Territory of Guam, Trust Territories of Pacific, and 
Washington, report to USDA-OIG-Audit, Western Region, Regional Inspector 
General, 555 Battery Street, room 511, San Francisco, California 94111.

[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 108, Jan. 3, 1996]



Sec. 1773.10  Access to audit-related documents.

    Pursuant to the terms of the audit agreement, the CPA must make all 
audit-related documents, including auditors' reports, workpapers, and 
management letters available to RUS, or its designated representative, 
upon request and must permit RUS, or its designated representative, to 
photocopy all audit-related documents.

[[Page 1084]]

Secs. 1773.11--1773.19  [Reserved]



    Subpart C--RUS Requirements for the Submission and Review of the 
Auditor's Report, Report on Compliance, Report on Internal Controls, and 
                            Management Letter



Sec. 1773.20  CPA's submission of the auditor's report, report on compliance, report on internal controls, and management letter.

    (a) Time limit. As soon as possible after completion of the audit, 
but within 90 days of the as of audit date, the CPA should deliver the 
auditor's report, report on compliance, report on internal controls, and 
management letter to the president of the borrower's board of directors. 
As a minimum, copies should be provided for each member of the board of 
directors and the manager. Further, three copies must be provided to the 
borrower for transmittal to RUS.
    (b) Communication with the board of directors. In addition to 
providing sufficient copies of the auditor's report, report on 
compliance, report on internal controls, and management letter for each 
member of the borrower's board of directors, RUS requires that the CPA 
report all audit findings to the borrower's board of directors. RUS 
recommends that audit findings be communicated orally; however, the 
communication may be oral or written, at the borrower's discretion. If 
the information is communicated orally, the CPA must document the 
communication by appropriate memoranda or notations in the workpapers. 
If the CPA communicates in writing, a copy of the written communication 
must be included in the CPA's audit workpapers or permanent file.
    (c) Matters to be communicated. Matters communicated to the board of 
directors must include, but are not limited to the matters to be 
communicated to the audit committee as prescribed in SAS No. 61, 
entitled ``Communication with Audit Committee'',:
    (1) The initial selection of and changes in significant accounting 
policies;
    (2) The methods used to account for significant or unusual 
transactions and the effects of significant accounting policies in 
controversial or emerging areas;
    (3) The process utilized by management to formulate significant 
accounting estimates and the basis for the CPA's conclusions regarding 
the reasonableness of these estimates;
    (4) Audit findings and recommendations, including audit adjustments 
that either individually or in the aggregate have a significant effect 
on the borrower's financial statements;
    (5) The CPA's responsibility for other information presented with 
the audited financial statements, any audit procedures performed, and 
the results thereof;
    (6) Any disagreements with management, whether or not satisfactorily 
resolved, concerning matters that individually or in the aggregate may 
be significant to the borrower's financial statements or the auditor's 
report, report on compliance, report on internal controls, or management 
letter;
    (7) Significant matters that were the subject of consultations with 
other accountants;
    (8) Significant issues discussed with management with regard to the 
initial or recurring retention of the CPA; and
    (9) Any serious difficulties encountered in dealing with management 
during the performance of the audit.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994]



Sec. 1773.21  Borrower's review and submission of the auditor's report, report on compliance, report on internal controls, and management letter.

    (a) The borrower's board of directors should note and record receipt 
of the auditor's report, report on compliance, report on internal 
controls, and management letter and any action taken in response to the 
reports or management letter in the minutes of the board meeting at 
which such reports and management letter are presented.
    (b) The borrower must furnish RUS with three copies of the auditor's 
report, report on compliance, report on internal controls, and 
management letter within 120 days of the as of audit date. Any provision 
in RUS's security

[[Page 1085]]

instrument that requires such documents to be furnished to RUS in a 
shorter period of time may be disregarded.
    (c) The borrower must furnish RUS with three copies of its plan for 
corrective action, if any, within 180 days of the as of audit date.
    (d) The borrower must furnish RUS, within 120 days of the as of 
audit date, with a copy of each special report, summary of 
recommendations or similar communications, if any, received from the CPA 
as a result of the audit.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994]
Secs. 1773.22--1773.29  [Reserved]



                  Subpart D--RUS Reporting Requirements



Sec. 1773.30  General.

    (a) The CPA must prepare the following:
    (1) An auditor's report, examples of which are set forth in 
appendixes A, exhibit 1 (Electric), and B, exhibit 1 (Telephone) of this 
part 1773;
    (2) A report on compliance, examples of which are set forth in 
appendixes A, exhibits 2 through 4 (Electric) and B, exhibits 2 through 
4 (Telephone) of this part 1773;
    (3) A report on internal controls, examples of which are set forth 
in appendixes A, exhibits 5 and 6 (Electric) and B, exhibits 5 and 6 
(Telephone) of this part 1773; and
    (4) A management letter, an example of which is set forth in 
appendix C of this part 2773.
    (b) The CPA should deliver the auditor's report, report on 
compliance, report on internal controls, and management letter (with 
copies as required in Sec. 1773.20) to the borrower as soon as possible 
after completion of the audit but not more than 90 days after the as of 
audit date.



Sec. 1773.31  Auditor's report.

    The CPA must prepare a written report on comparative balance sheets, 
statements of revenue and patronage capital (or income and retained 
earnings, depending upon the structure of the borrower) and statements 
of cash flows. This report must be signed by the CPA, cover all 
statements presented, and refer to the separate reports on internal 
controls and on compliance with laws and regulations issued in 
conjunction with the auditor's report.

[61 FR 108, Jan. 3, 1996]



Sec. 1773.32  Report on compliance.

    (a) As required by GAGAS, the CPA must prepare a written report on 
the tests performed for compliance with applicable laws, regulations, 
contracts, and grants. This report must be signed by the CPA and must 
contain the status of known but uncorrected significant or material 
findings and recommendations from prior audits that affect the current 
audit objective.
    (b) If, based upon assessments of materiality and audit risk, the 
CPA concludes that it is not necessary to perform tests of compliance 
with laws, regulations, and contracts, the CPA must issue a report as 
illustrated in appendix A, exhibit 2 (Electric) and appendix B, exhibit 
2 (Telephone) of this part 1773.
    (c) If the CPA determines that testing for compliance with laws, 
regulations, and contracts is necessary, and no material instances of 
noncompliance are found, the CPA must issue a report as illustrated in 
appendix A, exhibit 3 (Electric), and appendix B, exhibit 3 (Telephone) 
of this part 1773.
    (d) If material instances of noncompliance are found, the CPA must 
issue a report as illustrated in appendix A, exhibit 4 (Electric), and 
appendix B, exhibit 4 (Telephone) of this part 1773.
    (e) Other nonmaterial instances of noncompliance should not be 
disclosed in the report on compliance but should be reported in a 
separate communication to the board of directors, preferably in writing. 
All such communications must be documented in the workpapers.
    (f) If the CPA has issued a separate letter detailing immaterial 
instances of noncompliance, the report on compliance must be modified to 
include a statement such as:

    We noted certain immaterial instances of noncompliance that we have 
reported to the

[[Page 1086]]

management of (borrower's name) in a separate letter dated March 2, 
19X0.

[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 108, Jan. 3, 1996]



Sec. 1773.33  Report on internal controls.

    As required by GAGAS, the CPA must prepare a written report on the 
borrower's internal control structure and the assessment of control risk 
made as part of the financial statement audit. This report must be 
signed by the CPA and must include, as a minimum:
    (a) The scope of the CPA's work to obtain an understanding of the 
borrower's internal control structure and in assessing the control risk;
    (b) A description of the reportable conditions noted which include 
material weaknesses identified as a result of the CPA's work in 
understanding and assessing the control risk; and
    (c) The status of known but uncorrected, significant or material 
findings and recommendations from prior audits that affect the current 
audit objective.

[61 FR 108, Jan. 3, 1996]



Sec. 1773.34  Management letter.

    The CPA must prepare a management letter that includes, at a 
minimum, comments on:
    (a) Audit procedures. State whether the audit has been performed in 
accordance with this part;
    (b) Special reports. State whether any special reports, summaries of 
recommendations, or similar communications were furnished to the 
borrower's management during the course of the audit or during interim 
audit work, and provide a description of the information furnished;
    (c) Accounting and records. Comment on the adequacy and 
effectiveness of the borrower's accounting procedures, discuss the 
general condition of the records, and outline any recommendations for 
improvement. Comment on the adequacy and fairness of the methods used in 
accumulating and recording labor, material, and overhead costs, and the 
distribution of these costs to construction, retirement, and maintenance 
or other expense accounts, and where appropriate, include:
    (1) Whether subsidiary plant records agree with the controlling 
general ledger plant accounts;
    (2) Whether construction clearing accounts are cleared promptly of 
costs of completed construction to the proper classified plant accounts 
and whether depreciation was accrued on such completed construction from 
the date the plant was placed in service;
    (3) Whether retirements of plant are currently and systematically 
recorded and properly priced;
    (4) Whether all costs associated with retirements of plant are 
properly accounted for in the accumulated provision for depreciation 
accounts and comment on any unusual charges or credits to such accounts; 
and
    (5) Whether RUS approval was obtained for a sale requiring such 
approval, and whether receipts from sales of plant, material or scrap 
were not handled in conformance with RUS requirements.
    (d) Materials control. Comment on the adequacy of the control over 
materials and supplies.
    (e) Compliance with RUS loan and security instrument provisions. 
State whether the following provisions of RUS's loan and security 
instruments have been complied with:
    (1) For electric borrowers, provisions relating to:
    (i) The requirement for funds to be deposited in banks or other 
depositories designated in the loan documents or approved by RUS. For 
purposes of this part 1773, funds shall be defined as cash on deposit in 
demand and time accounts, and certificates of deposit;
    (ii) The requirement for a borrower to obtain written approval of 
mortgagees to enter into any contract for the operation or maintenance 
of all or any substantial part of its property, or for the use by others 
of its property. For purposes of this part 1773, the following contracts 
shall be deemed as requiring RUS approval:
    (A) Management contracts in which the borrower has contracted to 
have another borrower or other entity manage its affairs;
    (B) Management contracts in which the borrower has contracted to 
manage

[[Page 1087]]

another borrower or other utility system;
    (C) Operations and maintenance contracts in which the borrower has 
contracted to have another borrower or other entity operate and/or 
maintain all or a substantial part (45% or more) of the physical plant 
facilities of the borrower;
    (D) Operations and maintenance contracts in which the borrower has 
contracted to operate and maintain the physical plant facilities of 
another borrower or other utility system; and
    (E) Contracts between the borrower and its manager; and
    (iii) The requirement for a borrower to prepare and furnish 
mortgagees annual financial and statistical reports on the borrower's 
financial condition and operations. The CPA must state whether the 
information represented by the borrower as having been submitted to RUS 
in its most recent December 31 RUS Form 7 or Form 12 is in agreement 
with the borrower's audited records, and must comment on any exceptions 
noted. If the borrower represents that an amended report has been filed 
as of December 31, the comments must relate to the amended report.
    (2) For telephone borrowers, provisions relating to:
    (i) The requirement for a borrower to obtain written approval of the 
mortgagees to enter into any contract for the operation or maintenance 
of property and for the use of mortgaged property by others, or for 
services pertaining to toll traffic, operator assistance, or switching. 
For purposes of this part 1773, the following contracts shall be deemed 
as requiring RUS approval:
    (A) Any contract, agreement or lease between the borrower and an 
affiliate other than as allowed under 7 CFR part 1744, subpart E;
    (B) Any lease of a building or land; and
    (C) Any other contract as defined in Sec. 1773.34 (e)(2)(i) except:
    (1) Industry standard traffic settlement agreements involving 
interexchange and long distance carriers which, in form and substance, 
conform with contracts in general use in the telecommunications 
industry;
    (2) Billing and collecting agreements;
    (3) Toll pooling arrangements involving National Exchange Carrier 
Association and state associations;
    (4) Directory services agreements; and
    (5) Joint use agreements;
    (ii) The requirement for funds to be deposited in banks or other 
depositories designated in the loan documents or approved by RUS. For 
purposes of this part 1773, funds shall be defined as cash on deposit in 
demand and time accounts, and certificates of deposit; and
    (iii) The requirement for a borrower to prepare and furnish 
mortgagees annual financial and statistical reports on the borrower's 
financial condition and operations. The CPA must state whether the 
information represented by the borrower as having been submitted to RUS 
in its most recent December 31 RUS Form 479 is in agreement with the 
borrower's audited records, and must comment on any exceptions noted. If 
the borrower represents that an amended report has been filed as of 
December 31, the comments must relate to the amended report;
    (f) Related party transactions. State whether all material related 
party transactions have been disclosed in the notes to the financial 
statements in accordance with SFAS No. 57, entitled ``Related Party 
Disclosures''. If the audit did not disclose any related party 
transactions considered to be material, either individually or in the 
aggregate, so state;
    (g) Depreciation rates. For electric borrowers, comment when the 
depreciation rates used in computing monthly accruals are not in 
compliance with RUS requirements (See RUS Bulletin 183-1, Depreciation 
Rates and Procedures), which require the use of depreciation rates that 
are within the ranges established by RUS for each primary plant account, 
or with the requirements of the State regulatory body having 
jurisdiction over the borrower's depreciation rates; and
    (h) Deferred debits and deferred credits. For electric borrowers, 
provide a detailed analysis of the totals reported as deferred debits 
and deferred credits, including, but not limited to, margin 
stabilization plans, revenue deferral plans, and expense deferrals. The 
CPA must

[[Page 1088]]

state whether RUS has approved, in writing, each regulatory asset and 
liability.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 61 FR 
108, Jan. 3, 1996]
Secs. 1773.35--1773.37  [Reserved]



       Subpart E--RUS Required Audit Procedures and Documentation



Sec. 1773.38  Scope of engagement.

    (a) RUS requires that the audit procedures set forth in 
Secs. 1773.39 through 1773.45 be performed annually by the CPA during 
the audit of the RUS borrowers' financial statements, which audit 
procedures may be in addition to the conduct of a GAGAS audit.
    (b) The CPA must exercise professional judgment in determining 
whether any auditing procedures in addition to those mandated by GAGAS 
or this part should be performed in order to afford a reasonable basis 
for rendering the auditor's report, report on compliance, report on 
internal controls, and management letter.



Sec. 1773.39  Utility plant and accumulated depreciation.

    (a) General. The audit of these accounts must include tests of 
additions, replacements, retirements, and changes. Based upon the CPA's 
determination of materiality, an appropriate sample of transactions must 
be selected for testing. The CPA's workpapers must document that he/she:
    (1) Examined direct labor and material transactions to determine 
whether the borrower's accounting records reflect a complete 
accumulation of costs;
    (2) Examined indirect costs and overhead charges to determine if 
they conform to the Uniform System of Accounts;
    (3) Reviewed the costs of completed construction and retirement 
projects to determine if they were cleared promptly from the work in 
progress accounts to the classified plant in service accounts and the 
related depreciation reserves;
    (4) Examined direct purchases of special equipment and general 
plant;
    (5) Determined the degree of accuracy and control of costing 
retirements, including tests of salvage and removal costs;
    (6) Reviewed the borrower's work order procedures; and
    (7) Reviewed depreciation rates for adequate support, compared them 
to RUS guidelines, and determined if they are in compliance.
    (b) Construction work in progress. (1) The workpapers must include a 
summary of open work orders reconciled to the general ledger. The CPA 
must note on the summary any unusual or nontypical projects.
    (2) Based upon the CPA's determination of materiality, an 
appropriate sample of work orders must be selected for testing. The 
CPA's workpapers must document that he/she:
    (i) Reviewed equipment purchases charged to work orders, including 
payments and receiving reports;
    (ii) Reviewed contracts showing the scope of the work, the nature of 
the contract, the contract amount, and scheduled payments and reviewed 
supporting documents to determine that all services contracted for were 
in fact rendered;
    (iii) Reviewed time cards and pay rates for several employees who 
allocate their time to work orders;
    (iv) Reviewed the nature of material and supplies issued to the 
project, traced amounts and quantities to supporting documents, and 
reviewed the reasonableness of clearing rates for assignment of stores 
expense to the work order;
    (v) Reviewed the accuracy of the computation of overheads applied to 
the work order; and
    (vi) Reviewed other costs charged to the work order for support and 
propriety.
    (3) Based upon the CPA's determination of materiality, an 
appropriate sample of completed contracts must be selected for testing. 
The CPA's workpapers must document that he/she:
    (i) Scheduled payments to contractors and traced to verify payments 
and supporting invoices;
    (ii) Traced contract costs to final closeout documents, to the 
general ledger, and to the continuing property records; and

[[Page 1089]]

    (iii) Verified the costs of owner furnished materials, if 
applicable.
    (4) The CPA must review the borrower's procedures for unitization 
and classification of work order and contract costs. Based upon the 
CPA's determination of materiality, an appropriate sample of 
transactions must be selected for testing. The CPA's workpapers must 
document that he/she:
    (i) Reviewed the tabulation of record units for construction from 
the work order staking sheets to the tabulation of record units, to the 
unitization sheets, and to the continuing property records;
    (ii) Reviewed the procedures for unitizing and distributing costs of 
completed construction to the plant accounts;
    (iii) Verified that standard costs were being used;
    (iv) Evaluated the basis for development of standard costs; and
    (v) Determined that costs of completed construction were cleared 
promptly from work in progress accounts.
    (c) Continuing property records. Based upon the CPA's determination 
of materiality, an appropriate sample of transactions must be selected 
for testing. The CPA's workpapers must document that he/she:
    (1) Determined whether the subsidiary plant records agree with the 
controlling general ledger plant accounts;
    (2) Noted differences in the workpapers; and
    (3) Commented, in the management letter, on any discrepancies.
    (d) Retirement work-in-progress. Based upon the CPA's determination 
of materiality, an appropriate sample of transactions must be selected 
for testing. The CPA's workpapers must document that he/she:
    (1) Determined that plant retirements are currently and 
systematically recorded and priced on the basis of the continuing 
property records, and determined that costs of removal have been 
properly accounted for;
    (2) Explained the method used in computing the cost of units of 
plant retired if continuing property records have not been established 
and determined whether costs appeared reasonable; and
    (3) Determined the manner in which net losses due to retirements 
were accounted for and traced clearing entries to the depreciation 
reserve, the plant accounts, and the continuing property records.
    (e) Provision for accumulated depreciation. The CPA's workpapers 
must include an analysis of transactions. Based upon the CPA's 
determination of materiality, an appropriate sample of transactions must 
be selected for testing. The CPA's workpapers must document that he/she:
    (1) Verified the depreciation accruals for the period, including the 
depreciation base;
    (2) Reviewed the basis of the depreciation rates, any change in 
rates and the reason therefor, and, if appropriate, determined whether 
the rates are in compliance with RUS requirements or with the 
requirements of the state regulatory body having jurisdiction over the 
borrower's depreciation rates;
    (3) Reviewed salvage and removal costs; and
    (4) Searched for unrecorded retirements.
    (f) Other reserves. The CPA's workpapers must include an account 
analysis for all other material plant reserves, such as the reserve for 
the amortization of plant acquisition adjustments. Based upon the CPA's 
determination of materiality, an appropriate sample of transactions must 
be selected for testing. The CPA's workpapers must document that 
appropriate tests of transactions were performed.
    (g) Narrative. The CPA must prepare and include in the workpapers a 
comprehensive narrative on the scope of work performed, observations 
made, and conclusions reached. Specific matters covered in this 
narrative must include:
    (1) The nature of construction and other additions;
    (2) The control over, and the accuracy of pricing retirements;
    (3) The accuracy of distributing costs to classified utility plant 
accounts;
    (4) An evaluation of the method of:
    (i) Capitalizing the direct loadings on labor and material costs;

[[Page 1090]]

    (ii) Distributing transportation costs and other expense clearing 
accounts; and
    (iii) Capitalizing overhead costs;
    (5) The tests of depreciation;
    (6) A review of agreements such as those relating to acquisitions, 
property sales, and leases which affect the plant accounts; and
    (7) Notations, if applicable, of RUS approval of property sales and 
the propriety of the disposition of the proceeds.



Sec. 1773.40  Regulatory assets.

    The CPA's workpapers must document whether all regulatory assets 
comply with the requirements of SFAS No. 71. For electric borrowers 
only, the CPA's workpapers must document whether all regulatory assets 
have received RUS approval.

[59 FR 660, Jan. 6, 1994]



Sec. 1773.41  Extraordinary retirement losses.

    The CPA's workpapers must contain an analysis of retirement losses, 
including any required approval by a regulatory commission with 
jurisdiction in the matter, or RUS, in the absence of commission 
jurisdiction.



Sec. 1773.42  Clearing accounts.

    The CPA's workpapers must contain an analysis of all clearing 
accounts. Based upon the CPA's determination of materiality, an 
appropriate sample of transactions should be selected for testing. The 
CPA's workpapers must document that transactions were reviewed for 
proper allocation between expense and capital accounts.



Sec. 1773.43  Capital and equity accounts.

    (a) Capital stock. For privately owned companies, the workpapers 
must include analyses of all stock transactions during the audit period. 
Based upon the CPA's determination of materiality, an appropriate sample 
of transactions must be selected for testing. The CPA's workpapers must 
document that he/she:
    (1) Reviewed the subsidiary records and reconciled them to the 
general ledger control account;
    (2) Reviewed authorizations and issuances or redemptions of capital 
stock for proper approvals by the board of directors, stockholders, and 
regulatory commissions;
    (3) Determined that transactions were made in accordance with the 
appropriate provisions of the articles of incorporation, bylaws, and RUS 
loan documents; and
    (4) Determined that transactions were recorded in accordance with 
the Uniform System of Accounts.
    (b) Memberships. For cooperative organizations, the workpapers must 
include an analysis of the membership transactions during the audit 
period. Based upon the CPA's determination of materiality, an 
appropriate sample of transactions must be selected for testing. The 
CPA's workpapers must document that he/she:
    (1) Reviewed the subsidiary records and reconciled them to the 
general ledger control account; and
    (2) Determined that transactions were made in accordance with the 
appropriate provisions of the articles of incorporation, bylaws, and RUS 
loan documents.
    (c) Patronage capital, retained earnings, margins, and other 
equities. The workpapers must include an analysis of the patronage 
capital, retained earnings, margins and other equities, and any related 
reserve accounts. Based upon the CPA's determination of materiality, an 
appropriate sample of transactions must be selected for testing. The 
CPA's workpapers must document that he/she:
    (1) Determined that the transactions were made in accordance with 
the appropriate provisions of the articles of incorporation, bylaws, RUS 
loan documents, Uniform System of Accounts, or orders of regulatory 
commissions;
    (2) Traced payments to underlying support; and
    (3) Determined whether, under the terms of the RUS security 
instrument, restrictions of retained earnings or margins are required 
and, if so, whether they have been properly recorded.



Sec. 1773.44  Long-term debt.

    The CPA's workpapers must document that he/she:

[[Page 1091]]

    (a) Confirmed RUS, FFB, and RTB debt to the appropriate confirmation 
schedule (RUS Form 690, Confirmation Schedule Obligation to the FFB as 
of: or Form 691, Confirmation Schedule--Long-term Obligation to RUS as 
of; or RTB Form 12, Confirmation Schedule);
    (b) Confirmed other long-term debt directly with the lender;
    (c) Examined notes executed or canceled during the audit period; and
    (d) Tested accrued interest computations.



Sec. 1773.45  Regulatory liabilities.

    The CPA's workpapers must document whether all regulatory 
liabilities comply with the requirements of SFAS No. 71. For electric 
borrowers only, the CPA's workpapers must document whether all 
regulatory liabilities have received RUS approval.

[59 FR 660, Jan. 6, 1994]
Secs. 1773.46--1773.49  [Reserved]

    Appendix A to Part 1773--Sample Auditor's Report for an Electric 
                               Cooperative

    Appendix A includes an example of an auditor's report, report on 
compliance, report on internal controls, financial statements and 
accompanying notes for an electric distribution cooperative. The sample 
auditor's report is intended as a guide only and, while it is 
recommended that the format be followed, each auditor's report should be 
prepared to adequately cover the circumstances. To the extent possible, 
it should be used as a guide in preparing auditors' reports for other 
types of electric borrowers. For power supply borrowers and for 
distribution borrowers with production or transmission plant, the same 
general format should be followed. However, the Statement of Revenue and 
Patronage Capital must be expanded to show separate totals for 
operations expenses and maintenance expenses for each class of 
production plant and for transmission plant.

                   Exhibit 1--Sample Auditor's Report

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center County Electric Cooperative:

                      Independent Auditor's Report

    We have audited the accompanying balance sheets of Center County 
Electric Cooperative as of December 31, 19X9 and 19X8, and the related 
statements of revenue and patronage capital, and cash flows for the 
years then ended. These financial statements are the responsibility of 
Center County Electric Cooperative's management. Our responsibility is 
to express an opinion on these financial statements based on our audit.
    We conducted our audits in accordance with generally accepted 
auditing standards and Government Auditing Standards issued by the 
Comptroller General of the United States. Those standards require that 
we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement. An 
audit includes examining, on a test basis, evidence supporting the 
amounts and disclosures in the financial statements. An audit also 
includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.
    In our opinion, the financial statements referred to above present 
fairly, in all material respects, the financial position of Center 
County Electric Cooperative as of December 31, 19X9 and 19X8, and the 
results of its operations and its cash flows for the years then ended in 
conformity with generally accepted accounting principles.
    In accordance with Government Auditing Standards, we have also 
issued a report dated March 2, 19X0, on our consideration of Center 
County Electric Cooperative's internal control structure and a report 
dated March 2, 19X0, on its compliance with laws and regulations.

                      Certified Public Accountants

March 2, 19X0

  Exhibit 2--Sample Report on Compliance When, Based on Assessments of 
 Materiality and Audit Risk, the CPA Concluded It Was Not Necessary to 
          Perform Tests of Compliance With Laws and Regulations

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center County Electric Cooperative:
    We have audited the financial statements of Center County Electric 
Cooperative as of and for the years ended December 31, 19X9 and 19X8, 
and have issued our report thereon dated March 2, 19X0.
    We conducted our audits in accordance with generally accepted 
auditing standards and the Government Auditing Standards, issued by the 
Comptroller General of the United States. Those standards require that 
we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement.
    Compliance with laws, regulations, contracts, and grants applicable 
to Center County Electric Cooperative is the responsibility

[[Page 1092]]

of Center County Electric Cooperative's management. As part of our 
audit, we assessed the risk that noncompliance with certain provisions 
of laws, regulations, contracts, and grants could cause the financial 
statements to be materially misstated. We concluded that the risk of 
such material misstatement was sufficiently low that it was not 
necessary to perform tests of Center County Electric Cooperative's 
compliance with such provisions of laws, regulations, contracts, and 
grants.
    This report is intended for the information of the audit committee, 
management, the Rural Utilities Service, and supplemental lenders. 
However, this report is a matter of public record and its distribution 
is not limited.

                      Certified Public Accountants

March 2, 19X0

  Exhibit 3--Sample Report on Compliance When, Based on Assessments of 
  Materiality and Audit Risk, the CPA Performed Compliance Testing and 
             Found No Reportable Instances of Noncompliance

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center County Electric Cooperative:
    We have audited the financial statements of Center County Electric 
Cooperative as of and for the years ended December 31, 19X9 and 19X8, 
and have issued our report thereon dated March 2, 19X0.
    We conducted our audits in accordance with generally accepted 
auditing standards and Government Auditing Standards, issued by the 
Comptroller General of the United States. Those standards require that 
we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement.
    Compliance with laws, regulations, contracts, and grants applicable 
to Center County Electric Cooperative is the responsibility of Center 
County Electric Cooperative's management. As part of obtaining 
reasonable assurance about whether the financial statements are free of 
material misstatement, we performed tests of Center County Electric 
Cooperative's compliance with certain provisions of laws, regulations, 
contracts, and grants. However, the objective of our audit of the 
financial statements was not to provide an opinion on overall compliance 
with such provisions. Accordingly, we do not express such an opinion.
    The results of our tests disclosed no instances of noncompliance 
that are required to be reported herein under Government Auditing 
Standards.
    This report is intended for the information of the audit committee, 
management, the Rural Utilities Service, and supplemental lenders. 
However, this report is a matter of public record and its distribution 
is not limited.

                      Certified Public Accountants

March 2, 19X0

  Exhibit 4--Sample Report on Compliance When, Based on Assessments of 
  Materiality and Audit Risk, the CPA Performed Compliance Testing and 
               Found Reportable Instances of Noncompliance

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center County Electric Cooperative:
    We have audited the financial statements of Center County Electric 
Cooperative as of and for the years ended December 31, 19X9 and 19X8, 
and have issued our report thereon dated March 2, 19X0.
    We conducted our audits in accordance with generally accepted 
auditing standards and Government Auditing Standards, issued by the 
Comptroller General of the United States. Those standards require that 
we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement.
    Compliance with laws, regulations, contracts, and grants applicable 
to Center County Electric Cooperative is the responsibility of Center 
County Electric Cooperative's management. As part of obtaining 
reasonable assurance about whether the financial statements are free of 
material misstatement, we preformed tests of Center County Electric 
Cooperative's compliance with certain provisions of laws, regulations, 
contracts, and grants. However, the objective of our audit of the 
financial statements was not to provide an opinion on overall compliance 
with such provisions. Accordingly, we do not express such an opinion.
    The results of our tests disclosed instances of noncompliance that 
are required to be reported herein under Government Auditing Standards 
for which the ultimate resolution cannot presently be determined. 
Accordingly, no provision for any liability that may result has been 
recognized in Center County Electric Cooperative's 19X9 and 19X8 
financial statements.

[Include paragraphs describing the instances of noncompliance noted.]

    We considered these instances of noncompliance in forming our 
opinion on whether Center County Electric Cooperative's 19X9 and 19X8 
financial statements are presented fairly, in all material respects, in 
conformity with generally accepted accounting principles, and this 
report does not effect our report dated March 2, 19X0, on those 
financial statements.
    This report is intended for the information of the audit committee, 
management, the Rural Utilities Service, and supplemental lenders. 
However, this report is a matter of

[[Page 1093]]

public record and its distribution is not limited.

                      Certified Public Accountants

March 2, 19X0

Exhibit 5--Sample Report on Internal Controls When Reportable Conditions 
                               Were Found

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center County Electric Cooperative:
    We have audited the financial statements of Center County Electric 
Cooperative as of and for the years ended December 31, 19X9 and 19X8, 
and have issued our report thereon dated March 2, 19X0.
    We conducted our audits in accordance with generally accepted 
auditing standards and Government Auditing Standards, issued by the 
Comptroller General of the United States. Those standards require that 
we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement.
    The management of Center County Electric Cooperative is responsible 
for establishing and maintaining an internal control structure. In 
fulfilling this responsibility, estimates and judgements by management 
are required to assess the expected benefits and related costs of 
internal control structure policies and procedures. The objectives of an 
internal control structure are to provide management with reasonable, 
but not absolute, assurance that the assets are safeguarded against loss 
from unauthorized use or disposition, and that transactions are executed 
in accordance with management's authorization and recorded properly to 
permit the preparation of financial statements in accordance with 
generally accepted accounting principles. Because of inherent 
limitations in any internal control structure, errors or irregularities 
may nevertheless occur and not be detected. Also, projection of any 
evaluation of the structure to future periods is subject to the risk 
that procedures may become inadequate because of changes in conditions 
or that the effectiveness of the design and operation of policies and 
procedures may deteriorate.
    In planning and performing our audit of the financial statements of 
Center County Electric Cooperative for the years ended December 31, 19X9 
and 19X8, we obtained an understanding of the internal control 
structure. With respect to the internal control structure, we obtained 
an understanding of the design of relevant policies and procedures and 
whether they have been placed in operation, and we assessed control risk 
in order to determine our auditing procedures for the purpose of 
expressing our opinion on the financial statements and not to provide an 
opinion on the internal control structure. Accordingly, we do not 
express such an opinion.
    We noted certain matters involving the internal control structure 
and its operation that we consider to be reportable conditions under 
standards established by the American Institute of Certified Public 
Accountants. Reportable conditions involve matters coming to our 
attention relating to significant deficiencies in the design or 
operation of the internal control structure that, in our judgement, 
could adversely affect the entity's ability to record, process, 
summarize, and report financial data consistent with the assertions of 
management in the financial statements.

[Include paragraphs to describe the reportable conditions noted.]

    A material weakness is a reportable condition in which the design or 
operation of one or more of the specific internal control structure 
elements does not reduce to a relatively low level the risk that errors 
or irregularities in amounts that would be material in relation to the 
financial statements being audited may occur and not be detected within 
a timely period by employees in the normal course of performing their 
assigned functions.
    Our consideration of the internal control structure would not 
necessarily disclose all matters in the internal control structure that 
might be reportable conditions and, accordingly, would not necessarily 
disclose all reportable conditions that are also considered to be 
material weaknesses as defined above. However, we believe none of the 
reportable conditions described above is a material weakness.
    We also noted other matters involving the internal control structure 
and its operation that we have reported to the management of Center 
County Electric Cooperative in a separate letter dated March 2, 19X0.
    This report is intended for the information of the audit committee, 
management, the Rural Utilities Service, and supplemental lenders. 
However, this report is a matter of public record, and its distribution 
is not limited.

                      Certified Public Accountants

March 2, 19X0

    Exhibit 6--Sample Report on Internal Controls When No Reportable 
                          Conditions Were Found

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center County Electric Cooperative:
    We have audited the financial statements of Center County Electric 
Cooperative, as of and for the years ended December 31, 19X9 and 19X8, 
and have issued our report thereon dated March 2, 19X0.
    We conducted our audits in accordance with generally accepted 
auditing standards

[[Page 1094]]

and Government Auditing Standards, issued by the Comptroller General of 
the United States. Those standards require that we plan and perform the 
audit to obtain reasonable assurance about whether the financial 
statements are free of material misstatement.
    The management of Center County Electric Cooperative is responsible 
for establishing and maintaining an internal control structure. In 
fulfilling this responsibility, estimates and judgements by management 
are required to assess the expected benefits and related costs of 
internal control structure policies and procedures. The objectives of an 
internal control structure are to provide management with reasonable, 
but not absolute, assurance that assets are safeguarded against loss 
from unauthorized use or disposition, and that transactions are executed 
in accordance with management's authorization and recorded properly to 
permit the preparation of financial statements in accordance with 
generally accepted accounting principles. Because of inherent 
limitations in any internal control structure, errors or irregularities 
may nevertheless occur and not be detected. Also, projection of any 
evaluation of the structure to future periods is subject to the risk 
that procedures may become inadequate because of changes in conditions 
or that the effectiveness of the design and operation of policies and 
procedures may deteriorate.
    In planning and performing our audit of the financial statements of 
Center County Electric Cooperative for the years ended December 31, 19X9 
and 19X8, we obtained an understanding of the internal control 
structure. With respect to the internal control structure, we obtained 
an understanding of the design of relevant policies and procedures and 
whether they have been placed in operation, and we assessed control risk 
in order to determine our auditing procedures for the purpose of 
expressing our opinion on the financial statements and not to provide an 
opinion on the internal control structure. Accordingly, we do not 
express such an opinion.
    Our consideration of the internal control structure would not 
necessarily disclose all matters in the internal control structure that 
might be material weaknesses under standards established by the American 
Institute of Certified Public Accountants. A material weakness is a 
condition in which the design or operation of one or more of the 
specific internal control structure elements does not reduce to a 
relatively low level the risk that errors or irregularities in amounts 
that would be material in relation to the financial statements being 
audited may occur and not be detected within a timely period by 
employees in the normal course of performing their assigned functions. 
We noted no matters involving the internal control structure and its 
operations that we consider to be material weaknesses as defined above.
    However, we noted other matters involving the internal control 
structure and its operation that we have reported to the management of 
Center County Electric Cooperative in a separate letter dated March 2, 
19X0.
    This report is intended for the information of the audit committee, 
management, the Rural Utilities Service, and supplemental lenders. 
However, this report is a matter of public record, and its distribution 
is not limited.

                      Certified Public Accountants

March 2, 19X0

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[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 109, Jan. 3, 1996]

[[Page 1104]]



  Appendix B to Part 1773--Sample Auditor's Report for a Class A or B 
                      Commercial Telephone Company

    Appendix B includes an example of a short-form auditor's report, 
report on compliance, report on internal controls, financial statements 
and accompanying notes for a commercial telephone company. The sample 
auditor's report is intended as a guide only and, while it is 
recommended that the format be followed, each auditor's report should be 
prepared to adequately cover the circumstances. To the extent possible, 
it should be used as a guide in preparing auditors' reports for other 
types of telephone borrowers.

                   Exhibit 1--Sample Auditor's Report

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center Telephone Company:

                      Independent Auditor's Report

    We have audited the accompanying balance sheets of Center Telephone 
Company as of December 31, 19X9 and 19X8, and the related statements of 
revenue and patronage capital, and cash flows for the years then ended. 
These financial statements are the responsibility of Center Telephone 
Company's management. Our responsibility is to express an opinion on 
these financial statements based on our audit.
    We conducted our audits in accordance with generally accepted 
auditing standards and Government Auditing Standards issued by the 
Comptroller General of the United States. Those standards require that 
we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement. An 
audit includes examining, on a test basis, evidence supporting the 
amounts and disclosures in the financial statements. An audit also 
includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.
    In our opinion, the financial statements referred to above present 
fairly, in all material respects, the financial position of Center 
Telephone Company as of December 31, 19X9 and 19X8, and the results of 
its operations and its cash flows for the years then ended in conformity 
with generally accepted accounting principles.
    In accordance with Government Auditing Standards, we have also 
issued a report dated March 2, 19X0, on our consideration of Center 
Telephone Company's internal control structure and a report dated March 
2, 19X0, on its compliance with laws and regulations.

                      Certified Public Accountants

March 2, 19X0

  Exhibit 2--Sample Report on Compliance When, Based on Assessments of 
 Materiality and Audit Risk, the CPA Concluded It Was Not Necessary to 
          Perform Tests of Compliance With Laws and Regulations

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center Telephone Company
    We have audited the financial statements of Center Telephone Company 
as of and for the years ended December 31, 19X9 and 19X8, and have 
issued our report thereon dated March 2, 19X0.
    We conducted our audits in accordance with generally accepted 
auditing standards and the Government Auditing Standards, issued by the 
Comptroller General of the United States. Those standards require that 
we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement.
    Compliance with laws, regulations, contracts, and grants applicable 
to Center Telephone Company is the responsibility of Center Telephone 
Company's management. As part of our audit, we assessed the risk that 
noncompliance with certain provisions of laws, regulations, contracts, 
and grants could cause the financial statements to be materially 
misstated. We concluded that the risk of such material misstatement was 
sufficiently low that it was not necessary to perform tests of Center 
Telephone Company's compliance with such provisions of laws, 
regulations, contracts, and grants.
    This report is intended for the information of the audit committee, 
management, the Rural Utilities Service, and supplemental lenders. 
However, this report is a matter of public record and its distribution 
is not limited.

                      Certified Public Accountants

March 2, 19X0

  Exhibit 3--Sample Report on Compliance When, Based on Assessments of 
  Materiality and Audit Risk, the CPA Performed Compliance Testing and 
             Found No Reportable Instances of Noncompliance

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center Telephone Company:
    We have audited the financial statements of Center Telephone Company 
as of and for the years ended December 31, 19X9 and 19X8, and have 
issued our report dated March 2, 19X0.

[[Page 1105]]

    We conducted our audits in accordance with generally accepted 
auditing standards and Government Auditing Standards, issued by the 
Comptroller General of the United States. Those standards require that 
we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement.
    Compliance with laws, regulations, contracts, and grants applicable 
to Center Telephone Company is the responsibility of Center Telephone 
Company's management. As part of obtaining reasonable assurance about 
whether the financial statements are free of material misstatement, we 
performed tests of Center Telephone Company's compliance with certain 
provisions of laws, regulations, contracts, and grants. However, the 
objective of our audit of the financial statements was not to provide an 
opinion on overall compliance with such provisions. Accordingly, we do 
not express such an opinion.
    The results of our tests disclosed no instances of noncompliance 
that are required to be reported herein under Government Auditing 
Standards.
    This report is intended for the information of the audit committee, 
management, the Rural Utilities Service, and supplemental lenders. 
However, this report is a matter of public record and its distribution 
is not limited.

                      Certified Public Accountants

March 2, 19X0

  Exhibit 4--Sample Report on Compliance When, Based on Assessments of 
  Materiality and Audit Risk, the CPA Performed Compliance Testing and 
               Found Reportable Instances of Noncompliance

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center Telephone Company:
    We have audited the financial statements of Center Telephone Company 
as of and for the years ended December 31, 19X9 and 19X8, and have 
issued our report thereon dated March 2, 19X0.
    We conducted our audits in accordance with generally accepted 
auditing standards and Government Auditing Standards, issued by the 
Comptroller General of the United States. Those standards require that 
we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement.
    Compliance with laws, regulations, contracts, and grants applicable 
to Center Telephone Company is the responsibility of Center Telephone 
Company's management. As part of obtaining reasonable assurance about 
whether the financial statements are free of material misstatement, we 
preformed tests of Center Telephone Company's compliance with certain 
provisions of laws, regulations, contracts, and grants. However, the 
objective of our audit of the financial statements was not to provide an 
opinion on overall compliance with such provisions. Accordingly, we do 
not express such an opinion.
    The results of our tests disclosed instances of noncompliance that 
are required to be reported herein under Government Auditing Standards 
for which the ultimate resolution cannot presently be determined. 
Accordingly, no provision for any liability that may result has been 
recognized in Center Telephone Company's 19X9 and 19X8 financial 
statements.

[Include paragraphs describing the instances of noncompliance noted.]

    We considered these instances of noncompliance in forming our 
opinion on whether Center Telephone Company's 19X9 and 19X8 financial 
statements are presented fairly, in all material respects, in conformity 
with generally accepted accounting principles, and this report does not 
effect our report dated March 2, 19X0, on those financial statements.
    This report is intended for the information of the audit committee, 
management, the Rural Utilities Service, and supplemental lenders. 
However, this report is a matter of public record and its distribution 
is not limited.

                      Certified Public Accountants

March 2, 19X0

Exhibit 5--Sample Report on Internal Controls When Reportable Conditions 
                               Were Found

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center Telephone Company:
    We have audited the financial statements of Center Telephone Company 
as of and for the years ended December 31, 19X9 and 19X8, and have 
issued our report thereon dated March 2, 19X0.
    We conducted our audits in accordance with generally accepted 
auditing standards and Government Auditing Standards, issued by the 
Comptroller General of the United States. Those standards require that 
we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement.
    The management of Center Telephone Company is responsible for 
establishing and maintaining an internal control structure. In 
fulfilling this responsibility, estimates and judgements by management 
are required to assess the expected benefits and related costs of 
internal control structure policies and procedures. The objectives of an 
internal control structure are to provide management with reasonable, 
but not absolute, assurance that the assets are safeguarded against loss 
from unauthorized use or disposition, and that transactions are executed 
in accordance

[[Page 1106]]

with management's authorization and recorded properly to permit the 
preparation of financial statements in accordance with generally 
accepted accounting principles. Because of inherent limitations in any 
internal control structure, errors or irregularities may nevertheless 
occur and not be detected. Also, projection of any evaluation of the 
structure to future periods is subject to the risk that procedures may 
become inadequate because of changes in conditions or that the 
effectiveness of the design and operation of policies and procedures may 
deteriorate.
    In planning and performing our audit of the financial statements of 
Center Telephone Company for the years ended December 31, 19X9 and 19X8, 
we obtained an understanding of the internal control structure. With 
respect to the internal control structure, we obtained an understanding 
of the design of relevant policies and procedures and whether they have 
been placed in operation, and we assessed control risk in order to 
determine our auditing procedures for the purpose of expressing our 
opinion on the financial statements and not to provide an opinion on the 
internal control structure. Accordingly, we do not express such an 
opinion.
    We noted certain matters involving the internal control structure 
and its operation that we consider to be reportable conditions under 
standards established by the American Institute of Certified Public 
Accountants. Reportable conditions involve matters coming to our 
attention relating to significant deficiencies in the design or 
operation of the internal control structure that, in our judgement, 
could adversely affect the entity's ability to record, process, 
summarize, and report financial data consistent with the assertions of 
management in the financial statements.

[Include paragraphs to describe the reportable conditions noted.]

    A material weakness is a reportable condition in which the design or 
operation of one or more of the specific internal control structure 
elements does not reduce to a relatively low level the risk that errors 
or irregularities in amounts that would be material in relation to the 
financial statements being audited may occur and not be detected within 
a timely period by employees in the normal course of performing their 
assigned functions.
    Our consideration of the internal control structure would not 
necessarily disclose all matters in the internal control structure that 
might be reportable conditions and, accordingly, would not necessarily 
disclose all reportable conditions that are also considered to be 
material weaknesses as defined above. However, we believe none of the 
reportable conditions described above is a material weakness.
    We also noted other matters involving the internal control structure 
and its operation that we have reported to the management of Center 
Telephone Company in a separate letter dated March 2, 19X0.
    This report is intended for the information of the audit committee, 
management, and Rural Utilities Service, and supplemental lenders. 
However, this report is a matter of public record, and its distribution 
is not limited.

                      Certified Public Accountants

March 2, 19X0

    Exhibit 6--Sample Report on Internal Controls When No Reportable 
                          Conditions Were Found

    Certified Public Accountants, 1600 Main Street, City, State 24105, 
The Board of Directors, Center Telephone Company:
    We have audited the financial statements of Center Telephone 
Company, as of and for the years ended December 31, 19X9 and 19X8, and 
have issued our report thereon dated March 2, 19X0.
    We conducted our audit in accordance with generally accepted 
auditing standards and Government Auditing Standards, issued by the 
Comptroller General of the United States. Those standards require that 
we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement.
    The management of Center Telephone Company is responsible for 
establishing and maintaining an internal control structure. In 
fulfilling this responsibility, estimates and judgements by management 
are required to assess the expected benefits and related costs of 
internal control structure policies and procedures. The objectives of an 
internal control structure are to provide management with reasonable, 
but not absolute, assurance that assets are safeguarded against loss 
from unauthorized use or disposition, and that transactions are executed 
in accordance with management's authorization and recorded properly to 
permit the preparation of financial statements in accordance with 
generally accepted accounting principles. Because of inherent 
limitations in any internal control structure, errors or irregularities 
may nevertheless occur and not be detected. Also, projection of any 
evaluation of the structure to future periods is subject to the risk 
that procedures may become inadequate because of changes in conditions 
or that the effectiveness of the design and operation of policies and 
procedures may deteriorate.
    In planning and performing our audit of the financial statements of 
Center Telephone Company for the years ended December 31, 19X9 and 19X8, 
we obtained an understanding of the internal control structure. With 
respect to the internal control structure, we obtained an understanding 
of the design of

[[Page 1107]]

relevant policies and procedures and whether they have been placed in 
operation, and we assessed control risk in order to determine our 
auditing procedures for the purpose of expressing our opinion on the 
financial statements and not to provide an opinion on the internal 
control structure. Accordingly, we do not express such an opinion.
    Our consideration of the internal control structure would not 
necessarily disclose all matters in the internal control structure that 
might be material weaknesses under standards established by the American 
Institute of Certified Public Accountants. A material weakness is a 
condition in which the design or operation of one or more of the 
specific internal control structure elements does not reduce to a 
relatively low level the risk that errors or irregularities in amounts 
that would be material in relation to the financial statements being 
audited may occur and not be detected within a timely period by 
employees in the normal course of performing their assigned functions. 
We noted no matters involving the internal control structure and its 
operations that we consider to be material weaknesses as defined above.
    However, we noted other matters involving the internal control 
structure and its operation that we have reported to the management of 
Center Telephone Company in a separate letter dated March 2, 19X0.
    This report is intended for the information of the audit committee, 
management, the Rural Utilities Service, and supplemental lenders. 
However, this report is a matter of public record, and its distribution 
is not limited.

                      Certified Public Accountants

March 2, 19X0

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[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 111, Jan. 3, 1996]

[[Page 1118]]



 Appendix C to Part 1773--Illustrative Independent Auditor's Management 
                                 Letter

    RUS requires that CPAs auditing RUS borrowers provide a management 
letter in accordance with Sec. 1773.34. This letter must be signed by 
the CPA, bear the same date as the auditor's report, and be addressed to 
the borrower's board of directors.

          Illustrative Independent Auditor's Management Letter

March 15, 19X6
    Board of Directors, [Name of Borrower], [City, State].
    We have audited the financial statements of [Name of Borrower] for 
the year ended December 31, 19X5, and have issued our report thereon 
dated March 15, 19X6. We conducted our audit in accordance with 
generally accepted auditing standards, Government Auditing Standards 
issued by the Comptroller General of the United States, and 7 CFR part 
1773, Policy on Audits of Rural Utilities Service (RUS) Borrowers. Those 
standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of 
material misstatement.
    In planning and performing our audit of the financial statements of 
[Name of Borrower] for the year ended December 31, 19X5, we considered 
its internal control structure in order to determine our auditing 
procedures for the purpose of expressing an opinion on the financial 
statements and not to provide assurance on the internal control 
structure.
    A description of the responsibility of management for establishing 
and maintaining the internal control structure and the objectives of and 
inherent limitations in such a structure is set forth in our independent 
auditors' report on the internal control structure dated March 15, 19X6, 
and should be read in conjunction with this report.
    Our consideration of the internal control structure would not 
necessarily disclose all matters in the internal control structure that 
might be material weaknesses under standards established by the American 
Institute of Certified Public Accountants.
    A material weakness is a condition in which the design or operation 
of the specific internal control structure elements does not reduce to a 
relatively low level the risk that errors or irregularities in amounts 
that would be material in relation to the financial statements being 
audited may occur and not be detected within a timely period by 
employees in the normal course of performing their assigned functions. 
However, we noted no matters involving the internal control structure 
and its operation that we consider to be a material weakness as defined 
above. [If a material weakness was noted, refer the reader to the 
independent auditors' report on internal control structure.]
    7 CFR 1773.34 requires comments on specific aspects of the internal 
control structure, compliance with specific RUS loan and security 
instrument provisions, and other additional matters. We have grouped our 
comments accordingly. In addition to obtaining reasonable assurance 
about whether the financial statements are free from material 
misstatements, at your request, we performed tests of specific aspects 
of the internal control structure, of compliance with specific RUS loan 
and security instrument provisions, and of additional matters. The 
specific aspects of the internal control structure, compliance with 
specific RUS loan and security instrument provisions, and additional 
matters tested include, among other things, the accounting procedures 
and records, materials control, compliance with specific RUS loan and 
security instrument provisions set forth in 7 CFR 1773.34 (e)(1), [for 
telephone borrowers, 7 CFR 1773.34 (e)(2)], related party transactions, 
and depreciation rates. [For electric borrowers:] The additional matters 
tested also include a schedule of deferred debits and credits, upon 
which we express an opinion. In addition, our audit of the financial 
statements also included the procedures specified in 7 CFR 1773.38-.45. 
Our objective was not to provide an opinion on these specific aspects of 
the internal control structure, compliance with specific RUS loan and 
security instrument provisions, or additional matters, and accordingly, 
we express no opinion thereon.
    No reports (other than our independent auditors' report, our 
independent auditors' compliance report, and our independent auditors' 
report on the internal control structure, all dated March 15, 19X6) or 
summary of recommendations related to our audit have been furnished to 
management.
    Our comments on specific aspects of the internal control structure, 
compliance with specific RUS loan and security instrument provisions, 
and other additional matters as required by 7 CFR 1773.34 are presented 
below.

 Comments on Certain Specific Aspects of the Internal Control Structure

    We noted no matters regarding [Name of Borrower]'s internal control 
structure and its operation that we consider to be a material weakness 
as previously defined with respect to:

--The accounting procedures and records [list other comments];
--The process for accumulating and recording labor, material, and 
overhead costs, and the distribution of these costs to construction, 
retirement, and maintenance or

[[Page 1119]]

other expense accounts [list other comments]; and
--The materials control [list other comments].

 Comments on Compliance With Specific RUS Loan and Security Instrument 
                               Provisions

    Management's responsibility for compliance with laws, regulations, 
contracts, and grants is set forth in our independent auditors' report 
on compliance dated March 15, 19X6, and should be read in conjunction 
with this report. At your request, we have performed the procedures 
enumerated below with respect to compliance with certain provisions of 
laws, regulations, and contracts. The procedures we performed are 
summarized as follows:

--Procedure performed with respect to the requirement to maintain all 
funds in institutions whose accounts are insured by an Agency of the 
Federal government:

    1. Obtained information from financial institutions with which [Name 
of Borrower] maintains funds that indicated that the institutions are 
insured by an Agency of the Federal government.

--Procedures performed with respect to the requirement for a borrower to 
obtain written approval of the mortgagee to enter into any contract for 
the operation or maintenance of property, or for the use of mortgaged 
property by others [see 1773.34 (e)(2)(i) for additional telephone 
borrower requirements in accordance with 7 CFR 1773.34 (e)] for the year 
ended December 31, 19X5 of [Name of Borrower]:

    1. Obtained and read a borrower prepared schedule of new written 
contracts entered into during the year for the operation or maintenance 
of its property, or for the use of its property by others as defined in 
Sec. 1773.34 (e)(1)(ii) [Sec. 1773.34 (e)(2)(i) for telephone borrowers]
    2. Reviewed Board of Director minutes to ascertain whether board-
approved written contracts are included in the borrower-prepared 
schedule.
    3. Noted the existence of written RUS [and other mortgagee] approval 
of each contract listed by the borrower.

--Procedure performed with respect to the requirement to submit RUS Form 
7 or Form 12 [Form 479 for telephone borrowers] to the RUS:

    1. Agreed amounts reported in Form 7 or Form 12 [Form 479 for 
telephone borrowers] to [Name of Borrower]'s records.
    The results of our tests indicate that, with respect to the items 
tested, [Name of Borrower] complied, except as noted below, in all 
material respects, with the specific RUS loan and security instrument 
provisions referred to below. With respect to items not tested, nothing 
came to our attention that caused us to believe that [Name of Borrower] 
had not complied, in all material respects, with those provisions. The 
specific provisions tested, as well as any exceptions noted, include the 
requirements that:

--The borrower maintains all funds in institutions whose accounts are 
insured by an Agency of the Federal government [list all exceptions];
--The borrower has obtained written approval of the RUS [and other 
mortgagees] to enter into any contract for the operation or maintenance 
of property, or for the use of mortgaged property by others as defined 
in Sec. 1773.34 (e)(1)(ii) [Sec. 1773.34 (e)(2)(i) for telephone 
borrowers] [list all exceptions]; and
--The borrower has submitted its Form 7 or Form 12 [Form 479 for 
telephone borrowers] to the RUS and the Form 7 or Form 12 [Form 479 for 
telephone borrowers], Financial and Statistical Report, as of December 
31, 19X5, represented by the borrower as having been submitted to RUS is 
in agreement with the [Name of Borrower]'s audited records in all 
material respects [list all exceptions].

                  Comments on Other Additional Matters

    In connection with our audit of the financial statements of [Name of 
Borrower], nothing came to our attention that caused us to believe that 
[Name of Borrower] failed to comply with respect to:

--The reconciliation of subsidiary plant records to the controlling 
general ledger plant accounts addressed at 7 CFR 1773.34 (c)(1) [list 
all exceptions];
--The clearing of the construction accounts and the accrual of 
depreciation on completed construction addressed at 7 CFR 1773.34 (c)(2) 
[list all exceptions];
--The retirement of plant addressed at 7 CFR 1773.34 (c)(3) and (4) 
[list all exceptions];
--Sales of plant material, or scrap addressed at 7 CFR 1773.34 (c)(5) 
[list all exceptions];
--The disclosure of material related party transactions, in accordance 
with Statement of Financial Accounting Standards No. 57, Related Party 
Transactions, for the year ended December 31, 19X5, in the financial 
statements referenced in the first paragraph of this report addressed at 
7 CFR 1773.34 (f) [list all exceptions]; and
--For electric borrowers only: depreciation rates addressed at 7 CFR 
1773.34 (g) [list all exceptions].

 For Electric Borrowers Only: Detailed Schedule of Deferred Debits and 
                            Deferred Credits

    Our audit was made for the purpose of forming an opinion on the 
basic financial statements taken as a whole. The detailed schedule of 
deferred debits and deferred credits required by 7 CFR 1773.34 (h) and 
provided

[[Page 1120]]

below is presented for purposes of additional analysis and is not a 
required part of the basic financial statements. This information has 
been subjected to the auditing procedures applied in our audit of the 
basic financial statements and, in our opinion, is fairly stated in all 
material respects in relation to the basic financial statements taken as 
a whole.

[The detailed schedule of deferred debits and deferred credits would be 
included here. The total amount of deferred debits and deferred credits 
as reported in the schedule must agree with the totals reported on the 
Balance Sheet under the specific captions of ``Deferred Debits'' and 
``Deferred Credits''. Those items that have been approved, in writing, 
by RUS should be clearly indicated.]

    This report is intended solely for the information and use of the 
board of directors, management, and the RUS and supplemental lenders. 
However, this report is a matter of public record and its distribution 
is not limited.

Certified Public Accountants

[61 FR 113, Jan. 3, 1996]



PART 1785--LOAN ACCOUNT COMPUTATIONS, PROCEDURES AND POLICIES FOR ELECTRIC AND TELEPHONE BORROWERS--Table of Contents




                          Subpart A--[Reserved]

  Subpart B--RUS Cushion of Credit Account Computations and Procedures

Sec.
1785.66  General.
1785.67  Definitions.
1785.68  Establishing an RUS cushion of credit payment account.
1785.69  Cushion of credit payment account computations.
1785.70  Application of RETRF cushion of credit payments.

    Authority: 7 U.S.C. 901 et seq.; Title I, Subtitle D, sec. 1403, 
Omnibus Budget Reconciliation Act of 1987, Pub. L. 100-203; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).



                          Subpart A--[Reserved]



  Subpart B--RUS Cushion of Credit Account Computations and Procedures

    Source: 54 FR 13669, Apr. 5, 1989, unless otherwise noted.



Sec. 1785.66   General.

    This subpart B sets forth policies and procedures on the RUS cushion 
of creditpayments program. The cushion of credit payments program will 
be maintained only for insured loans evidenced by obligations of the 
Fund. A subaccount within the Fund is hereby established for purposes of 
promoting rural economic development. It shall be known as the ``Rural 
Economic Development Subaccount.'' The assets of the subaccount shall be 
obtained from crediting (on a monthly basis) a sum determined by 
multiplying the outstanding cushion of credit payments made after 
October 1, 1987, by the difference (converted on a monthly basis) 
between the average weighted interest rate paid on outstanding 
certificates of beneficial ownership issued by the Fund and the 5 
percent rate of interest provided to borrowers on cushion of credit 
payments, repayment of loans made pursuant to Section 313 of the Act, 
and other sources as provided by law. This subaccount shall be used to 
provide grants or zero interest loans to borrowers under the Act for the 
purpose of promoting rural economic development.



Sec. 1785.67  Definitions.

    Accumulated (deferred) interest means interest allowed to accumulate 
up to, and including, the basis date of RUS notes covering loans 
approved before June 5, 1957. The accumulated interest is payable in 
equal periodic installments over the remaining life of the notes.
    Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et. seq.).
    Advance payment means a voluntary unscheduled payment on an RUS 
note, made prior to October 2, 1987, credited to the advance payment 
account of a borrower.
    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.
    Current interest means interest payable periodically as it accrues.
    Fund means the Rural Electrification and Telephone Revolving Fund 
established pursuant to the Act.

[[Page 1121]]

    Interest credit means interest earned on balances in advance payment 
or cushion of credit accounts. Since the periodic installments are 
established by the terms of the notes, the interest credits cannot serve 
to change the total amount of each installment; therefore, an amount 
equal to the interest credits is added to the principal installment due. 
On receipt of the full installments, amounts equal to the interest 
credits (the principal offsets) are added to the respective advance 
payment accounts.
    Prepayment means a voluntary unscheduled payment which the borrower 
instructs RUS to apply directly and immediately to the principal of an 
RUS note.
    RUS notes means those notes, bonds, or other obligations evidencing 
indebtedness created by loans made by RUS pursuant to titles I, II, or 
III of the Act.
    Subaccount means the Rural Economic Development Subaccount 
established pursuant to the Act as part of the Fund.



Sec. 1785.68  Establishing an RUS cushion of credit payment account.

    A cushion of credit account shall be automatically established by 
RUS for each borrower who makes a payment after October 1, 1987, in 
excess of amounts then due on an RUS note. Such account will bear 
interest at a rate of 5 percent per annum. All payments on RUS notes 
which are in excess of required payments and not otherwise designated 
shall be deposited in the borrowers' respective cushion of credit 
accounts. Payments received in the month in which an installment is due 
will be applied to the installment due. However, if the regular 
installment payment is received at a later date in the month, the first 
payment received will be applied retroactively to a cushion of credit 
account and the second will be applied to the installment due.



Sec. 1785.69  Cushion of credit payment account computations.

    (a) Deposits. Cushion of credit payments are credited to the 
borrowers' cushion of credit accounts.
    (b) Interest. Interest at the rate of 5 percent per annum shall be 
credited on a quarterly basis to cushion of credit accounts. Interest 
earned will appear as a reduction in the interest billed on the 
borrower's RUS notes and will be separately shown on RUS Form 694, 
``Statement of Interest and Principal Due.''



Sec. 1785.70   Application of RETRF cushion of credit payments.

    (a) If a maturing installment on an RUS note or a note which has 
been guaranteed by RUS is not received by its due date, funds will be 
withdrawn from the borrower's cushion of credit account and applied as 
of the installment due date beginning with the oldest of such notes as 
follows: first, to current interest then due on all notes; second, to 
the accumulated interest due, if any, on all notes; and third, to the 
principal then due on all notes. In those instances where a borrower has 
prior to October 2, 1987, maintained an advance payment account with 
RUS, its cushion of credit account will be applied in accordance with 
the provisions of this section prior to using any balance remaining in 
its advance payment account to pay interest and principal installments 
on notes. Computations required under this section have been made by RUS 
as of October 2, 1987; however, on or before May 25, 1989 any borrower 
may make a one time irrevocable election to have all such computations 
made as of April 5, 1989, by filing written notice to that effect with 
Robert D. Ruddy, Director, Fiscal Accounting Division, Rural Utilities 
Service, Washington, DC 20250-1500.
    (b) A borrower may reduce the balance of its cushion of credit 
account only if the amount obtained from the reduction is used to make 
scheduled

[[Page 1122]]

payments on loans made or guaranteed under the Act.

[54 FR 13669, Apr. 5, 1989; 54 FR 17703, Apr. 25, 1989]



PART 1786--PREPAYMENT OF RUS GUARANTEED AND INSURED LOANS TO ELECTRIC AND TELEPHONE BORROWERS--Table of Contents




                     Subpart A--General  [Reserved]

Sec.
1786.1--1786.24  [Reserved]

  Subpart B--Prepayment of RUS Guaranteed Federal Financing Bank Loans 
                Pursuant to Section 306(A) of the RE Act

1786.25  Purpose.
1786.26  Policy.
1786.27  Definitions and Rules of Construction.
1786.28  Qualifications.
1786.29  Prepayment Authority, Program Allocations, Categories of 
          Prepayment Applications and Financially Distressed Borrowers' 
          Reserve.
1786.30  Processing procedure.
1786.31  Application procedure.
1786.32  Settlement procedure.
1786.33  Forms.
1786.34  Access to records of lenders, servicers, and trustees.
1786.35  Loss, theft, destruction, mutilation, or defacement of RUS 
          guarantee.
1786.36  Other prepayments.
1786.37  Application of regulation to previous prepayments.
1786.38  Judicial review.
1786.39--1786.49  [Reserved]

  Subpart C--Special Discounted Prepayments on RUS Direct/Insured Loans

1786.50  Purpose.
1786.51  Definitions.
1786.52  Prepayment.
1786.53  Discounted present value.
1786.54  Eligibility criteria.
1786.55  Application procedure.
1786.56  Approval of applications.
1786.57  Prepayment agreement.
1786.58  Security.
1786.59  Loan fund audit.
1786.60  Closing.
1786.61  Other prepayments.
1786.62--1786.74  [Reserved]

 Subpart D--RUS Privitization Demonstration Prepayment Program for the 
                             State of Alaska

1786.75  Purpose.
1786.76  Policy.
1786.77  Definitions.
1786.78  Demonstration program.
1786.79  RUS Guarantee.
1786.80  Qualifications.
1786.81  Loan security.
1786.82  Prepayment of RUS and RTB Notes.
1786.83  Application procedure.
1786.84  Future eligibility under the RE Act.
1786.85  Settlement procedure.
1786.86  Other prepayments.
1786.87--1786.94  [Reserved]

Subpart E--Discounted Prepayments on RUS Notes in the Event of a Merger 
                    of Certain RUS Electric Borrowers

1786.95  Purpose.
1786.96  Definitions.
1786.97  Prepayment.
1786.98  Discounted present value.
1786.99  Eligibility criteria.
1786.100  Application procedure.
1786.101  Approval of application.
1786.102  Prepayment agreement.
1786.103  Security.
1786.104  Loan fund audit.
1786.105  Closing.
1786.106  Other prepayments.

Appendix A to Subpart E of Part 1786--Listing of Eligible Borrowers
Appendix B to Subpart E of Part 1786--Federal Reserve Statistical 
          Release

         Subpart F--Discounted Prepayments on RUS Electric Loans

1786.150  Purpose.
1786.151  Definitions and rules of construction.
1786.152  Prepayments of RUS loans.
1786.153  Discounted present value.
1786.154  Qualified Notes.
1786.155  Eligible borrower.
1786.156  Application procedure.
1786.157  Approval of applications.
1786.158  Terms and conditions of prepayment agreement.
1786.159  Initial closing.
1786.160  Subsequent closings.
1786.161  Return of Qualified Notes and release of lien.
1786.162  Outstanding loan documents.
1786.163  Existing wholesale power contracts.
1786.164  Loan fund audit.
1786.165  Reporting.
1786.166  Approvals.
1786.167  Restrictions to additional RUS financing.
1786.168  Borrowers who prepaid under this part prior to October 21, 
          1992.
1786.169  Liability.
1786.170  Prepayment of loans approved after December 20, 1993. 
          [Reserved]
1786.171--1786.199  [Reserved]

[[Page 1123]]

   Subpart G--Refinancing and Prepayment of RUS Guaranteed FFB Loans 
                Pursuant to Section 306(c) of the RE Act

1786.200  Purpose.
1786.201  Definitions and rules of construction.
1786.202  Prepayment and refinancing of RUS guaranteed FFB loans.
1786.203  Special considerations.
1786.204  Limitations.
1786.205  Application procedure.
1786.206  Refinancing note.
1786.207  Prepayment premium.
1786.208  Increased principal.
1786.209  Outstanding loan documents.
1786.210  Approvals.

    Authority: 7 U.S.C. 901-950b; Title I, subtitle B, Pub. L. 99-509; 
Pub. L. 101-624, 104 Stat. 4051; Pub. L. 103-354, 108 Stat. 3178, (7 
U.S.C. 6941 et seq.), unless otherwise noted.

    Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 1786 appear at 55 FR 
49250, Nov. 27, 1990.



                     Subpart A--General  [Reserved]

Secs. 1786.1--1786.24  [Reserved]



  Subpart B--Prepayment of RUS Guaranteed Federal Financing Bank Loans 
                Pursuant to Section 306(A) of the RE Act

    Authority: 7 U.S.C. 901-950b; Title I, Subtitle B, Pub. L. 99-509; 
Title I, Pub. L. 100-202; Pub. L. 100-203; Title VI, Pub. L. 100-460; 
Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted. 
Redesignated at 55 FR 49250, Nov. 27, 1990.



Sec. 1786.25  Purpose.

    This subpart contains the general regulations of the Rural Utilities 
Service (RUS) for implementing the provisions of (a) section 306(A) of 
the Rural Electrification Act of 1936, as amended (RE Act); (b) section 
633 of the Rural Development, Agriculture, and Related Agencies 
Appropriations Act, 1988 (Pub. L. 100-202) (the continuing resolution); 
and (c) section 637 of the Rural Development, Agriculture, and Related 
Agencies Appropriations Act, 1989 (Pub. L. 100-460) (the 1989 
Appropriations Act) which permit, in certain circumstances, loans made 
by the Federal Financing Bank (FFB) and guaranteed by the Administrator 
of RUS to be prepaid by RUS electric and telephone borrowers by paying 
the outstanding principal balance due on the FFB loan, using a private 
loan with the existing RUS guarantees or using internally generated 
funds.



Sec. 1786.26  Policy.

    It is the policy of RUS to facilitate the prepayment of FFB loans in 
accordance with the provisions of section 306(A) of the RE Act and 
section 633 of the continuing resolution as modified by section 637 of 
the 1989 Appropriations Act. Furthermore, consistent with the RE Act, 
the continuing resolution and the 1989 Appropriations Act, it is the 
policy of RUS to implement the objectives of the prepayment program in a 
manner which does not result in an increase in loan guarantee risk or an 
inappropriate increase in the administrative burden on RUS.



Sec. 1786.27  Definitions and Rules of Construction.

    (a) Definitions. For the purposes of this subpart, the following 
terms shall have the following meanings:
    Administrator means the Administrator of RUS.
    Application Category shall have the meaning set forth in 
Sec. 1786.29(c).
    Application period means a period during which RUS is accepting 
applications to make prepayments pursuant to this subpart, and initially 
means:
    (1) In the case of telephone borrowers, the period commencing on 
February 12, 1990 and ending on March 12, 1990;
    (2) In the case of financially distressed borrowers, the period 
commencing October 1, 1990 and ending on July 30, 1993; or
    (3) In the case of other borrowers, the period to be announced by 
RUS.
    Borrower means any organization which has an outstanding FFB loan 
guaranteed by RUS under the RE Act.
    Business Day means any day other than a Saturday, a Sunday, a legal 
public holiday under 5 U.S.C. section 6103 for the purposes of statutes 
relating to pay and leave of employees, or any other day declared to be 
legal holiday for the purposes of statutes relating to pay and leave of 
employees by

[[Page 1124]]

Federal statute or Federal Executive Order.
    Continuing Resolution means section 633 of the Rural Development, 
Agriculture, and Related Agencies Appropriations Act, 1988 (Pub. L. 100-
202).
    Date Received means the date inscribed on the Notice of Intent to 
Prepay the Federal Financing Bank, by an authorized official of RUS, as 
the date the application was received.
    Documentation means all or part of the agreements relating to a 
prepayment under this part, irrespective of whether RUS is a party to 
each agreement, including all exhibits to such agreements.
    Electric Program Applications shall have the meaning specified in 
Sec. 1786.29(c)(1).
    Existing Loan Guarantee means a guarantee of payment issued by RUS 
to FFB pursuant to the RE Act for an FFB loan made on or before July 2, 
1986.
    Fees means any fees, costs or charges, incurred in connection with 
obtaining the private loan used to make the prepayment including without 
limitation, accounting fees, filing fees, legal fees (including fees and 
disbursements charged by counsel representing the borrower), printing 
costs, recording fees, trustee fees, underwriting fees, capital stock 
purchases or other equity investment requirements of the lender, and 
other related transaction expenses.
    Financially Distressed Borrower means an RUS-financed electric 
system determined by the Administrator to be either (1) in default or 
near default on interest or principal payments due on loans made or 
guaranteed under the RE Act, and is making a good faith effort to 
increase rates and reduce costs to avoid or mitigate default; or (2) 
participating in a work out or debt restructuring plan with RUS, either 
as the borrower being restructured or as a borrower providing assistance 
as part of the work out or restructuring.
    Financially Viable Lender means:
    (1) A lender (i) which has a capital and surplus of at least $50 
million; (ii) is a beneficiary of an irrevocable letter of credit, in 
form and substance satisfactory to the Administrator, payable to it in 
the amount of $50 million; (iii) is the beneficiary of a guarantee, in 
form and substance satisfactory to the Administrator, in the amount of 
$50 million from a lending institution with a capital and surplus of at 
least $50 million; or (iv) has other credit support, in form and 
substance satisfactory to the Administrator, in the amount of $50 
million; or
    (2) In the event of a prepayment totalling less than $100 million, a 
lender (i) which has a capital and surplus of at least $10 million; (ii) 
is a beneficiary of an irrevocable letter of credit, in form and 
substance satisfactory to the Administrator, payable to it in the amount 
of $10 million; (iii) is the beneficiary of a guarantee, in form and 
substance satisfactory to the Administrator, in the amount of $10 
million from a lending institution with a capital and surplus of at 
least $10 million; or (iv) has other credit support, in form and 
substance satisfactory to the Administrator, in the amount of $10 
million;
    FFB means the Federal Financing Bank, an instrumentality and wholly 
owned corporation of the United States.
    FFB Loan means one or more advances, or a part of one or more 
advances, made on or before July 2, 1986, by FFB on a promissory note or 
notes executed by a borrower and guaranteed by RUS pursuant to section 
306 of the RE Act (7 U.S.C. 936).
    Guarantee means the original endorsement, in the form specified by 
RUS which is executed by the Administrator and 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 holder 
had actual knowledge at the time it became a holder.
    Increase in Loan Guarantee Risk means the change in any of the 
components of loan guarantee risk associated with the private loan which 
in the judgment of RUS increases the magnitude or duration of the loan 
guarantee risk currently assumed by RUS in connection with the existing 
loan guarantee;
    Internally Generated Funds means money belonging to the borrower 
other than: (1) Proceeds of loans made or guaranteed under the RE Act or 
(2)

[[Page 1125]]

funds on deposit in the cash construction trustee account;
    Lender means the organization making and servicing the private loan 
which is to be guaranteed under the provisions of this subpart and used 
to prepay the FFB loan. The term lender does not include the FFB, or any 
other Government agency.
    Loan Guarantee Agreement means the written contract by and among the 
lender, the borrower, the Administrator, and such other parties that RUS 
may require, setting forth the terms and conditions of a guarantee 
issued pursuant to the provisions of this subpart.
    Loan Guarantee Risk means the risk as determined by RUS associated 
with guaranteeing a loan for a particular borrower. Components of loan 
guarantee risk include the following:
    (1) The outstanding principal balance of a loan;
    (2) The dollar weighted average interest rate (stated as an annual 
percentage rate) on a loan;
    (3) The final maturity date of a loan;
    (4) The annual principal amortization of the loan; and
    (5) Any other factor that as determined by RUS increases the 
magnitude or duration of the guarantee.
    Mortgage means the mortgage and security agreements by and among the 
borrower and RUS, as from time to time supplemented, amended and 
restated.
    1989 Appropriations Act means the Rural Development, Agriculture, 
and Related Agencies Appropriations Act, 1989 (Pub. L. 100-460).
    Notice of Intent to Prepay the Federal Financing Bank means the 
notice in the form specified in Sec. 1786.33 hereof.
    Prepayment Authority shall have the meaning specified in 
Sec. 1786.29(a).
    Private Loan means a loan or loans to be guaranteed under the 
provisions of this part and used to prepay an FFB loan.
    Pro-rated Percentage shall have the meaning specified in 
Sec. 1786.30(b)(1).
    RE Act means the Rural Electrification Act of 1936 (7 U.S.C. 901-
950b), as amended.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    Service or Servicing means the following activities:
    (1) The billing and collecting of the private loan payments from the 
borrower;
    (2) Notifying the Administrator promptly of any default in the 
payment of principal and interest on the private loan and submitting a 
report, as soon as possible thereafter, setting forth the servicer's 
views as to the reasons for the default, how long the servicer expects 
the borrower to be in default, and what corrective actions the borrower 
states it is taking to achieve a current debt service position;
    (3) Notifying the Administrator of any known violations or defaults 
by the borrower under the lending agreement, loan guarantee agreement, 
the mortgage, or related security instruments, or conditions of which 
the servicer or the lender is aware which might lead to nonpayment, 
violation or other default; and
    (4) Such other activities as may be specified in the loan guarantee 
agreement.
    Settlement Date means the date the borrower disburses funds to the 
FFB in order to complete a prepayment pursuant to this subpart, and 
shall be a date agreed to by RUS, and a date on which both the FFB and 
the Federal Reserve Bank of New York are open for business.
    Standard Electric Program Application shall have the meaning 
specified in Sec. 1786.29(c)(1).
    Telephone Borrower means a borrower that provides telephone service 
as defined in 7 CFR 1735.2(a).
    Telephone Program Applications shall have the meaning specified in 
Sec. 1786.29(c)(2).

[[Page 1126]]

    (b) Rules of Construction. Unless the context shall otherwise 
indicate, the terms defined in Sec. 1786.27(a) hereof include the plural 
as well as the singular, and the singular as well as the plural. The 
words ``herein,'' ``hereof'' and ``hereunder'', and words of similar 
import, refer to this subpart as a whole.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990. 
Redesignated at 55 FR 49250, Nov. 27, 1990, and amended at 59 FR 66440, 
Dec. 27, 1994]



Sec. 1786.28  Qualifications.

    (a) Borrowers. To qualify to prepay an FFB loan pursuant to this 
subpart, the borrower must:
    (1) Demonstrate that the FFB loan was outstanding on July 2, 1986;
    (2) Prepay the FFB loan by:
    (i) Using a private loan with the existing loan guarantee;
    (ii) Using internally generated funds; or
    (iii) Using a combination of a private loan with the existing loan 
guarantee and internally generated funds; and
    (3) Certify that any savings resulting from such prepayment will be 
passed on to its customers, or used to improve the financial strength of 
the borrower in cases of financial hardship.
    (b) Lenders. To participate pursuant to this subpart, in a 
borrower's prepayment of an FFB loan by means of a private loan, the 
lender must:
    (1) Be a private legally organized lender, or a lender established 
pursuant to the Farm Credit Act of 1971, as amended;
    (2) (i) Be subject to credit examination and supervision by either 
an agency of the United States or a state and be in good standing with 
its licensing authority and have met the requirements, if any, of 
licensing, lending and loan servicing in the state where the collateral 
for the Loan is located; (ii) be a financially viable lender; or (iii) 
be a trust administered. by an entity meeting the requirements of 
paragraph (b)(2) (i) or (ii) of this section; and
    (3) Have the capability to adequately service the private loan 
either by using its own resources or by contracting for such resources 
with a financially viable lender. Under no circumstances may the 
borrower or an affiliate of the borrower service the private loan. A 
qualified lender may participate out each private loan to entities other 
than a Government agency, the borrower, or an affiliate of the borrower, 
provided that such participation shall be on terms and conditions 
satisfactory to the Administrator.
    (c) Private Loans. A borrower who qualifies pursuant to 
Sec. 1786.28(a) may at its option elect to use a private loan to make a 
prepayment, or a portion of a prepayment, pursuant to this subpart. 
Private loans, the proceeds of which are used exclusively to prepay FFB 
loans, shall be eligible for a guarantee under this subpart. The 
Administrator shall endorse a guarantee on each note evidencing a 
qualifying private loan. The private loan shall be structured in a 
manner which in the judgment of RUS shall not result in an increase in 
loan guarantee risk and shall comply with the following:
    (1) The private loan shall provide for the periodic payment of 
interest by the borrower not less frequently than annually, at either a 
variable or fixed rate in a manner which shall not result in an increase 
in loan guarantee risk. (i.e. The dollar weighted average interest rate 
on the private loan shall be less than or equal to the dollar weighted 
average interest rate on the FFB loan being prepaid, so that:
[GRAPHIC] [TIFF OMITTED] TC16SE91.024

Where,
Cr=The revised interest rate cap;
Co=The original interest rate cap at the time of prepayment;
Ai=The average interest rate actually charged in the ith 
          period;
Ti=Length of the ith period expressed in years;
n=The number of years that have elapsed since the initial prepayment;
J=The initial term of the private loan, at the time of prepayment;

Subject to the constraint that A1 must be less or equal to 
Co).
    (2) Principal payments on the private loan shall be made either 
quarterly, semiannually, or annually and shall commence on or before the 
last day of

[[Page 1127]]

the calendar year during which the prepayment pursuant to this subpart 
was made.
    (3) With the approval of the Administrator, the lender may refund 
the private loan with the proceeds of another loan from the same lender, 
with the existing guarantee and under terms, conditions, and a structure 
substantially similar to the private loan, on such dates as the lender, 
the borrower and RUS may agree, provided however, that such a refunding 
loan shall comply with the provisions of Sec. 1786.28(c) hereof. 
Additionally, with the approval of the Administrator, the private loan 
may be prepaid either in whole or in part at any time by the borrower 
using its general funds.
    (4) The private loan and the guaranteed note evidencing the private 
loan shall not be directly or indirectly part of a transaction the 
income of which is excluded from gross income for the purposes of 
Chapter I of the Internal Revenue Code of 1986.
    (5) The guaranteed note evidencing the private loan shall not be 
transferable or assignable except (i) with the written approval of the 
Administrator; (ii) in the event that the guaranteed note evidencing the 
private loan is held by a trust, to a similar trust, in connection with 
a refunding loan made by the lender pursuant to Sec. 1786.28(c)(3); or 
(iii) as an undivided pro rata interest in a pool of obligations.
    (6) The loan documentation shall provide RUS with the right to 
accelerate the note evidencing the private loan upon the occurrence of 
any ``Event of Default'' under the mortgage with the effect that all of 
the unpaid principal and interest on any such note shall become 
immediately due and payable to RUS, and RUS shall continue to pay under 
its guarantee the principal of and interest on such note without taking 
into account such acceleration. The loan documentation shall also 
provide RUS with a right, upon the occurrence of such an ``Event of 
Default,'' to accelerate payment on its guarantee and accelerate payment 
on the note evidencing the private loan on the earlier of any date the 
interest rate on the private loan is reset, without premium or penalty; 
any date the borrower may prepay in accordance with the terms of the 
private loan, or the tenth anniversary of the date the private loan 
first bears interest at a fixed interest rate.
    (7) The principal of the private loan shall not include amounts 
attributable to fees associated with the private loan. At the time it 
submits its application, a borrower may request that the Administrator 
approve the inclusion of amounts attributable to fees as part of the 
interest rate on the private loan, if the net effective interest rate 
including such fees meets the test contained in Sec. 1786.28(c)(1). For 
the purposes of these regulations, such financed fees shall be 
considered ``interest''.
    (8) Private loans and guaranteed notes evidencing private loans 
shall otherwise be in form and substance satisfactory to the 
Administrator.
    (d) Prepayments Without a Guarantee. Qualifying borrowers may elect 
to utilize internally generated funds without a guarantee to prepay an 
FFB loan, or partially prepay an FFB loan, pursuant to this subpart, if
    (1) The borrower notifies RUS, of its intent to prepay using 
internally generated funds in accordance with the application procedures 
set forth in this subpart; and
    (2) The borrower submits a certification to RUS that the prepayment 
does not, materially adversely affect the financial stability of the 
borrower and its ability to meet all its obligations, including debt 
service on all loans made, guaranteed or lien accommodated under the RE 
Act which will remain outstanding after the date of the prepayment.
    (e) The Use of both a Private Loan and Internally Generated Funds. 
Qualifying borrowers may elect to utilize a combination of private loans 
and internally generated funds without a guarantee, to prepay an FFB 
loan pursuant to this subpart, if
    (1) The private loans comply with the provisions of paragraph (c) of 
this section, and
    (2) The borrower complies with paragraph (d) of this section.
    (f) FFB loans. A borrower's FFB loans that qualify to be prepaid 
pursuant to this subpart are:

[[Page 1128]]

    (1) Qualifying Borrowers. In the case of qualifying borrowers other 
than financially distressed borrowers, FFB advances with long-term 
maturity dates may be prepaid pursuant to this subpart; and
    (2) Financially distressed borrowers. FFB loans that are eligible to 
be prepaid by utilizing the financially distressed borrowers' reserve 
are advances with long-term maturity dates, and which in the opinion of 
the Administrator, if prepaid, would result in an economic savings to 
the financially distressed borrower.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990. 
Redesignated at 55 FR 49250, Nov. 27, 1990]



Sec. 1786.29  Prepayment Authority, Program Allocations, Categories of Prepayment Applications and Financially Distressed Borrowers' Reserve.

    (a) Prepayment Authority. So long as the aggregate amount of 
prepayments made after December 22, 1987, including prepayments made 
pursuant to Sec. 1786.28(d) and Sec. 1786.28(e), under section 306(A) of 
the RE Act, does not exceed $2.5 billion, the approval of the Secretary 
of the Treasury is not required in order to make a prepayment pursuant 
to this subpart (such amount of prepayments is hereinafter called 
prepayment authority).
    (b) Program Allocations. In accordance with the provisions of 
section 637 of the 1989 Appropriations Act, $350 million of prepayment 
authority is allocated to RUS-financed electric systems and $150 million 
of prepayment authority is allocated to RUS-financed telephone 
utilities. The amounts of prepayment authority allocated to electric 
program borrowers and telephone program borrowers shall not be 
transferred between programs. Borrowers may not sell, assign, or 
otherwise transfer prepayment authority to another borrower.
    (c) Categories of Prepayment Applications. Applications received by 
RUS from borrowers desiring to prepay pursuant to this subpart will be 
separated into the following two application categories:
    (1) Electric Program Applications. Electric program applications are 
applications to make a prepayment pursuant to this subpart from RUS-
financed electric utilities, that qualify in accordance with 
Sec. 1786.28(a) hereof and which are received by RUS during the 
application period. Electric program applications will be further 
subdivided and classified as being either (i) a financially distressed 
borrower's application, or (ii) a standard electric program application. 
Applications received from borrowers determined by the Administrator not 
to be a financially distressed borrower will be classified and processed 
as a standard electric program application;
    (2) Telephone Program Applications. Telephone program applications 
are applications to make a prepayment pursuant to this subpart from RUS-
financed telephone utilities that qualify in accordance with 
Sec. 1786.28(a) hereof and which are received by RUS during the 
application period;
    (d) Financially distressed borrowers' reserve. The $350 million of 
prepayment authority allocated for RUS-financed electric utilities, is 
initially set aside into a financially distressed borrowers' reserve. 
This reserve of prepayment authority will be available for prepayments 
pursuant to this subpart by financially distressed borrowers who apply 
to make such a prepayment during the application period. In the event 
that a portion of financially distressed borrowers' reserve remains 
unsubscribed at the end of the initial application period, the 
unallocated portion of the financially distressed borrowers' reserve 
will be allocated to other electric borrowers having submitted 
applications during an application period to be announced by RUS. Such 
prepayment applications shall be classified as standard electric program 
applications.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35427, Aug. 30, 1990. 
Redesignated at 55 FR 49250, Nov. 27, 1990]



Sec. 1786.30  Processing procedure.

    (a) Priority of Processing. The determination of the order or method 
in which applications or portions of applications will be processed by 
RUS pursuant to this subpart rests solely within the discretion of the 
Administrator.

[[Page 1129]]

RUS expects that a number of prepayment applications will be processed 
simultaneously. In the event that it becomes necessary to establish 
priorities of processing, prepayment applications will be processed 
without regard to the date received, generally in the following order of 
priority:
    (1) Applications from telephone borrowers;
    (2) Applications from financially distressed borrowers;
    (3) Applications from all other borrowers. When assigning priority 
to such applications, RUS will consider a number of factors, including 
without limitation, (i) the number of prepayment applications being 
processed by the area office; (ii) the novelty or complexity of the 
proposed transaction; (iii) the method of prepayment; and (iv) the 
availability of resources. In the event that RUS receives during the 
initial application period, prepayment applications from such borrowers 
in an amount less than remaining prepayment authority for each 
respective program, RUS will establish a new application period and 
publish a notice to that effect in the Federal Register.
    (b) Pro-rated Applications. Standard electric program applications, 
and telephone program applications will be prorated within their 
respective application categories to permit partial prepayments in the 
event that the aggregate amount of prepayment applications received 
during the application period exceeds the amount of prepayment authority 
allocated to that application category. In such circumstances, the 
amount of each borrower's permitted prepayment shall be determined 
within each respective application category, as follows:
    (1) The principal amount of FFB advances under each individual 
application, which, if prepaid pursuant to this subpart, would result in 
an economic savings to the borrower, shall be divided by the aggregate 
principal amount of FFB advances, under all of the applications, which, 
if prepaid pursuant to this subpart, would result in an economic savings 
to the borrowers, in order to determine a percentage (hereinafter called 
a pro-rated percentage) for each borrower;
    (2) Each borrower's share of the prepayment authority for its 
application category shall be equal to the product of (i) the prepayment 
authority times (ii) the respective pro-rated percentage, and may be 
used to prepay a portion of any of the borrower's FFB loans listed 
pursuant to Sec. 1786.31(a)(2);
    (3) If any approved prepayment transaction fails to be settled 
within 180 days of the date the borrower is notified by RUS of its 
prepayment allocation, RUS may rescind its approval. The unused 
prepayment authority represented by such a failed transaction is subject 
to being included in any subsequent notice of a new application period 
under this subpart; and
    (4) In the event that applications from financially distressed 
borrowers exceed the amount prepayment authority remaining in the 
financially distressed borrowers' reserve, the Administrator at his 
discretion shall select one or more of such applications and allocate 
the reserve. In making such a selection and allocation, the 
Administrator may consider various factors, including without 
limitation, (i) the dollar amount of savings to be realized by the 
proposed prepayment; (ii) the interest rates on the FFB loans proposed 
to be prepaid; (iii) the magnitude of the default or potential default; 
and (iv) whether the borrower has previously completed a prepayment 
under section 306(A).
    (c) Notification of Borrowers' Allocations. Promptly after 
allocating the prepayment authority to borrowers and completing any 
proration calculations that may be necessary, RUS will return to each 
borrower submitting a prepayment application pursuant to this subpart, a 
copy of their Notice of Intent to Prepay the Federal Financing Bank 
specifying the amount of the borrower's prepayment allocation.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 49250, Nov. 27, 1990]



Sec. 1786.31  Application procedure.

    Applications to make a prepayment pursuant to this subpart shall be 
submitted to RUS on such forms as RUS may prescribe in the following 
manner:
    (a) Application. Each borrower desiring to make a prepayment 
pursuant to

[[Page 1130]]

this subpart shall submit an application to RUS. No application from a 
borrower will be accepted by RUS prior to the commencement of the 
application period. An application shall not be deemed submitted to RUS 
until it is received by RUS, and the ``Date Received'' has been 
inscribed on the Notice of Intent to Prepay the Federal Financing Bank 
by an authorized official of RUS. Incomplete applications may be 
returned to the borrower at the discretion of RUS and thereafter must be 
resubmitted in order to be processed. To be considered complete, the 
application should include the following:
    (1) ``Notice of Intent to Prepay the Federal Financing Bank'' in the 
form specified in Sec. 1786.33 hereof;
    (2) A listing of each FFB loan advance to be prepaid by loan 
designation, RUS note number, RUS account number, advance date, maturity 
date, original amount, outstanding balance, and interest rate;
    (3) Evidence that the borrower meets the qualification provisions of 
Sec. 1786.28(a) of these regulations;
    (4) The certification set forth in part A of the Notice of Intent to 
Prepay the Federal Financing Bank executed by the chief executive 
officer of the borrower;
    (5) In the event that a borrower submits a prepayment application 
which proposes to utilize a portion of the financially distressed 
borrowers' reserve, a certification signed by the chief executive 
officer of the system to the effect that the borrower is either (i) in 
default or near default on interest or principal payments due on loans 
made or guaranteed under the RE Act, and is making a good faith effort 
to increase rates and reduce costs to avoid or mitigate default; or (ii) 
participating in a work out or debt restructuring plan with RUS, either 
as the borrower being restructured or as a borrower providing assistance 
as part of the work out or restructuring and stating why the borrower is 
in default or near default.
    (b) Election of Method of Prepayment. Prior to requesting RUS to 
schedule a settlement date, the borrower shall (1) elect whether it will 
use a private loan, internally generated funds, or a combination of a 
private loan and internally generated funds to make the prepayment, by 
completing part C of its Notice of Intent to Prepay the Federal 
Financing Bank; (2) specify in part C of the Notice of Intent to prepay 
the Federal Financing Bank a date after which a prepayment closing may 
be scheduled; (3) if appropriate, execute the certification set forth in 
part C of the Notice of Intent to Prepay the Federal Financing Bank; and 
(4) return a completed copy of the Notice of Intent to Prepay the 
Federal Financing Bank to the RUS area office.
    (c) Final Documentation. All documentation in connection with a 
proposed prepayment made pursuant to this subpart shall have been 
submitted to RUS in final form, no later than 5 business days prior to 
the settlement date agreed to by the borrower and RUS. To be considered 
complete, the final documentation shall include the following material:
    (1) A completed copy of the Notice of Intent to Prepay the Federal 
Financing Bank;
    (2) In the event that a borrower proposes to utilize a private loan 
in connection with a prepayment or a portion of a prepayment,
    (i) Evidence, in form and substance satisfactory to RUS, that the 
borrower has an irrevocable commitment from the lender to close the 
private loan on the settlement date at an interest rate that meets the 
requirements of Sec. 1786.28(c)(1);
    (ii) Evidence that the lender meets the qualification provisions of 
Sec. 1786.28(b);
    (iii) Evidence that the private loan meets the qualification 
provisions of Sec. 1786.28(c); and
    (iv) The final documentation for the private loan;
    (3) Estimate of fees, and expenses, including any taxes, in 
connection with the prepayment transaction;
    (4) A certified copy of a resolution of the board of directors of 
the borrower approving the certification cited above and requesting RUS 
approval of the prepayment.
    (5) In the case of financially distressed borrowers, evidence in 
form and substance satisfactory to the Administrator that the benefits 
of prepayment will not be used to reduce rates and that any Federal or 
state regulatory

[[Page 1131]]

body having jurisdiction over the borrower's rates has acknowledged its 
awareness of this requirement;
    (6) In the event that borrower is unable to deliver final 
documentation or the evidence specified in accordance with, 
Sec. 1786.31(c), RUS may reschedule the settlement date at its 
discretion.

(Approved by the Office of Management and Budget under control number 
0572-0088)

    (c) Procedure for Submission of Prepayment Applications. An original 
and three copies of each initial application must be submitted, between 
the hours of 8:15 a.m. to 4:45 p.m. Washington, DC time, to: Chief, 
Communications and Records Management Branch, Administrative Service 
Division, Rural Utilities Service, U.S. Department of Agriculture, Room 
0175 South Agriculture Building, Washington, DC 20250-1500. The outside 
front of the package containing the prepayment application must be 
clearly marked, ``FFB PREPAYMENT APPLICATION.'' The Notice of Intent to 
Prepay the Federal Financing Bank must be the first document in the 
application package. Upon receipt the prepayment application will be 
opened, logged in, and the Notice of Intent to Prepay the Federal 
Financing Bank will be inscribed with the date received by an authorized 
official of RUS. A copy of the Notice of Intent to Prepay the Federal 
Financing Bank will then be returned to the borrower to acknowledge 
receipt of the application. Should an application be submitted other 
than in accordance with the provisions of Sec. 1786.31, the date 
received shall be a date determined by RUS in its sole discretion.



Sec. 1786.32  Settlement procedure.

    (a) General. Settlements in connection with prepaying FFB loans 
pursuant to this subpart shall be conducted in accordance with the 
provisions of this section.
    (b) Settlement Date. The prepayment will be settled and if a private 
loan is utilized, the guarantee will be delivered, on a settlement date 
agreed upon by the borrower and RUS. Prior to scheduling a settlement 
date for a borrower's prepayment pursuant to this subpart, RUS shall 
have received the material specified in Sec. 1786.31(b).
    (c) Place of Settlement. All settlements will take place in 
Washington, DC, at a location of the borrower's choosing; provided 
however, if more than one settlement is proposed for the same settlement 
date, RUS reserves the right to coordinate the date and location of the 
settlements with borrowers involved.
    (d) Repayment of FFB. Prior to 1:00 p.m. prevailing local time in 
New York, New York, on the settlement date, the borrower shall wire 
immediately available funds to RUS through the Department of the 
Treasury account at the Federal Reserve Bank of New York or shall 
provide for payment to RUS in another manner acceptable to RUS and FFB, 
in an amount sufficient to pay the outstanding principal of the FFB loan 
being prepaid plus accrued interest from the last payment date to and 
including the settlement date.
    (e) Documentation. The borrower shall deliver, or cause to be 
delivered to RUS and FFB, not less than 3 business days prior to the 
settlement date, written notice of the settlement date and a complete 
listing of each FFB loan advance to be prepaid or partially prepaid, in 
the format required by Sec. 1786.31(a)(2). In the event that a private 
loan is used in connection with the prepayment, the following executed 
documents, opinions and material shall be delivered at the settlement:
    (1) The guaranteed note evidencing the private loan.
    (2) The guarantee.
    (3) The loan guarantee agreement.
    (4) Copy of the private loan agreement between the lender and the 
borrower.
    (5) Evidence that the borrower has received all approvals which are 
required under Federal or state law, loan agreements, security 
agreements, existing financing arrangements, or any other agreement to 
which the borrower is a party.
    (6) An amendment in recordable form revising the description of the 
obligations secured by the mortgage including the obligation of the 
borrower to reimburse RUS for any amounts that RUS may pay under the 
guarantee.
    (7) An approving opinion of the borrower's legal counsel to the 
effect that

[[Page 1132]]

the guaranteed note evidencing the private loan is a valid and legally 
binding obligation of the borrower which is secured under the mortgage, 
and the priority of the mortgage, as amended pursuant to paragraph 
(e)(6) of this section, remains undisturbed.
    (8) An approving opinion of the lender's legal counsel to the effect 
that the loan guarantee agreement is a valid and legally binding 
obligation of the lender.
    (9) Such other opinions of counsel as may be required by the 
Administrator.
    (10) Copies of any other documentation required by the lender.
    (11) Copies of any other documentation required by RUS to ensure 
that the obligations of the borrower to reimburse RUS for any amounts 
that RUS pays under the guarantee or may advance in connection with the 
private loan are adequately secured under the mortgage.

(Approved by the Office of Management and Budget under control number 
0572-0088)



Sec. 1786.33  Forms.

    Guarantees and loan guarantee agreements executed by RUS pursuant to 
this subpart will be on forms prescribed by RUS. Such forms will 
include, without limitation, additional details on servicing, procedures 
for notifying RUS of a default, the manner for requesting payment on a 
guarantee. The Notice of Intent to Prepay the Federal Financing Bank 
shall be substantially in the form specified by RUS. RUS may also 
prescribe standard forms of certifications to be used in connection with 
materials required to be furnished pursuant to Sec. 1786.31 of this 
subpart.



Sec. 1786.34  Access to records of lenders, servicers, and trustees.

    The lender, the servicer, or the trustee will permit representatives 
of RUS (or other agencies of the U.S. Department of Agriculture 
authorized by that Department) to inspect and make copies of any of 
their records pertaining to RUS guaranteed loans. Such inspection and 
copying may be made during regular office hours of the respective party 
or any other time the party and RUS find convenient.



Sec. 1786.35  Loss, theft, destruction, mutilation, or defacement of RUS guarantee.

    (a) Authorized representative. Except where the evidence of debt was 
or is a bearer instrument, the RUS Administrator is authorized on behalf 
of RUS to issue a replacement guarantee(s) for one(s) which may have 
been lost, stolen, destroyed, mutilated, or defaced. Such replacement(s) 
shall be issued only to the lender or holder and only upon receipt of an 
acceptable certificate of loss and an indemnity bond.
    (b) Requirements. When a guarantee(s) is lost, stolen, destroyed, 
mutilated, or defaced while in the custody of the lender, or holder, the 
lender will coordinate the activities of the party who seeks the 
replacement documents and will submit the required documents to RUS for 
processing. The requirements for replacement are as follows:
    (1) A certificate of loss properly notarized which includes:
    (i) Legal name and present address of the owner, requesting the 
replacement forms;
    (ii) Legal name and address of lender of record;
    (iii) Capacity of person certifying;
    (iv) Full identification of the guarantee, including the name of the 
borrower, date of the guarantee, face amount of the evidence of debt 
purchased, date of evidence of debt and present balance of the loan. Any 
existing parts of the documents to be replaced should be attached to the 
certificate;
    (v) A full statement of circumstances of the loss, theft, or 
destruction of the guarantee; and
    (vi) The lender or holder, shall present evidence demonstrating 
current ownership of the guarantee and note. If the present holder is 
not the same as the original lender, a copy of the endorsement of each 
successive holder in the chain of transfer from the initial private 
lender to present holder shall be included. If copies of the endorsement 
cannot be obtained, best available records of transfer shall be 
presented to RUS (e.g., order confirmation, cancelled checks, etc).
    (2) An indemnity bond acceptable to RUS shall accompany the request 
for replacement except when the holder is

[[Page 1133]]

the United States, a Federal Reserve Bank, a Federal Government 
Corporation, a state or territory, or the District of Columbia. The bond 
may be with or without surety. The bond shall be with surety except when 
the outstanding principal balance and accrued interest due the present 
holder is less than $1,000,000 verified by the lender in writing in a 
letter of certification of balance due. The surety shall be a qualified 
surety company holding a certificate of authority from the Secretary of 
the Treasury and listed in Treasury Department Circular 580.
    (3) All indemnity bonds shall be issued and/or payable to the United 
States of America acting through the Administrator of the Rural 
Utilities Service. The bond shall be in an amount not less than the 
unpaid principal and interest. The bond shall save RUS harmless against 
any claim or demand which might arise or against any damage, loss, 
costs, or expenses which might be sustained or incurred by reasons of 
the loss or replacement of the instruments.



Sec. 1786.36  Other prepayments.

    Nothing contained in this subpart shall prohibit a borrower from 
making prepayments of FFB loans in accordance with the terms thereof.



Sec. 1786.37  Application of regulation to previous prepayments.

    Nothing contained in this subpart shall affect the validity of 
prepayments made or guarantees issued pursuant to previous regulations. 
Those borrowers, however, that completed a prepayment pursuant to 
section 306(A) of the RE Act and closed loans prior to February 27, 
1988, may, in their discretion request RUS approval and if required by 
prior regulations the concurrence of the Secretary of the Treasury, of 
any amendments necessary to make the terms and conditions of such loans 
consistent with, or to consolidate such loans with, loans guaranteed 
under these regulations.



Sec. 1786.38  Judicial review.

    This subpart is intended to set forth RUS policies and procedures 
for the orderly administration of the provisions of section 306(A) of 
the RE Act, section 633 of the continuing resolution, and section 637 of 
the 1989 Appropriations Act and is not intended to create any right or 
benefit, substantive or procedural, enforceable at law by a party 
against the United States, its agencies, its officers or any person.
Secs. 1786.39--1786.49  [Reserved]



  Subpart C--Special Discounted Prepayments on RUS Direct/Insured Loans

    Authority: 7 U.S.C. 901-950b; Title I, Subtitle B, Pub. L. 99-509; 
Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 51 FR 46999, Dec. 29, 1986, unless otherwise noted. 
Redesignated at 55 FR 49250, Nov. 27, 1990.



Sec. 1786.50  Purpose.

    This subpart sets forth the policies and procedures of RUS whereby 
electric and telephone borrowers may prepay outstanding RUS Notes at the 
Discounted Present Value of the RUS Notes with private financing.



Sec. 1786.51  Definitions.

    As used in this subpart:
    Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Administrator means the Administrator of RUS.
    Discounted Present Value shall have the meaning specified in 
Sec. 1786.53
    Fund means the Rural Electrification and Telephone Revolving Fund 
established pursuant to the Act.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the Unites 
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 Loan Agreement means the agreement between the borrower and RUS

[[Page 1134]]

providing for loans pursuant to the Act.
    RUS Notes means those notes, bonds or other obligations evidencing 
indebtedness created by loans made pursuant to Titles I, II or III of 
the Act (7 U.S.C. 901-940).

[51 FR 46999, Dec. 29, 1986. Redesignated at 55 FR 49250, Nov. 27, 1990, 
as amended at 59 FR 66441, Dec. 27, 1994]



Sec. 1786.52  Prepayment.

    Through September 30, 1987, the Administrator may, pursuant to this 
subpart, permit eligible electric and telephone borrowers to prepay all 
outstanding RUS Notes issued or assumed by such borrowers and held in 
the Fund, upon paying the lesser of the outstanding balance or the 
Discounted Present Value.



Sec. 1786.53  Discounted present value.

    The Discounted Present Value shall be calculated five business days 
before prepayment is made by summing the present values of all remaining 
payments by using the following formula:
[GRAPHIC] [TIFF OMITTED] TC16SE91.025

Where:

Pk=Total payment including interest, due on the 
          kth payment date following the prepayment date.
n=Total number of remaining payments dates.
I=The discount rate, in decimals, which shall be the average rate on 
          utility bonds bearing a rating of ``Aa'' as set forth in that 
          issue of Moody's Public Utility News Reports most recently 
          published prior to the date on which Discounted Present Value 
          is calculated.
D11=Number of days in the ith payment period that 
          are in a non-leap year (365 day year).
D2i=Number of days in the ith payment period that 
          are in a leap year (366 day year).



Sec. 1786.54  Eligibility criteria.

    To be eligible to prepay RUS Notes at the Discounted Present Value a 
borrower must comply with the following criteria:
    (a) The borrower must be current on all payments due on its 
outstanding RUS Notes and all other payment obligations owed to RUS and 
the Rural Telephone Bank.
    (b) The borrower must agree to prepay all of its outstanding RUS 
Notes.
    (c) The borrower must identify the source of private financing that 
will be used to refinance its outstanding RUS Notes, which financing may 
not include obligations the income of which is exempt from taxation 
under the Internal Revenue Code of 1986.
    (d) The borrower must have expended all funds advanced on account of 
the RUS Notes for the purposes for which such funds were advanced.
    (e) The borrower must agree to a rescission of the unadvanced 
balance of the RUS Notes.
    (f) The borrower must agree that the borrower, its successors or 
assigns, shall pay to the Government, as a condition of receiving 
additional loans or loan guarantees pursuant to Titles I, II and III of 
the Act, an amount equal to the aggregate of the difference with respect 
to each of the RUS Notes between the amount outstanding on the RUS Note 
and the Discounted Present Value of the RUS Note upon prepayment with 
interest accruing quarterly; the interest rates shall be the rates 
provided in the respective RUS Notes.
    (g) If the borrower is a party to a wholesale power contract with a 
power supplier financed pursuant to the Act, the borrower must provide 
the Administrator with such assurances as the Administrator may request 
that it will meet its obligations to the power supplier.



Sec. 1786.55  Application procedure.

    Any borrower seeking to prepay its RUS Notes under this subpart 
should

[[Page 1135]]

apply to the appropriate RUS Area Director by submitting:
    (a) A board resolution that: (1) Requests approval of the prepayment 
of the borrower's outstanding RUS Notes, and (2) states the intent of 
the borrower to comply with all eligibility criteria set forth in 
Sec. 1786.54 of this subpart.
    (b) A list of all RUS Notes together with the outstanding amount on 
such notes.
    (c) Such additional information as the Administrator shall request.



Sec. 1786.56  Approval of applications.

    The applications will ordinarily be reviewed and, if satisfactory, 
approved, and closing schedule based on the order in which executed 
prepayment agreements are received. The Administrator may limit the 
number of applications approved and closings scheduled from time to time 
taking into account, among other matters, the financial interests and 
administrative considerations of the Government.



Sec. 1786.57  Prepayment agreement.

    Upon approving an application for prepayment under this subpart, the 
Administrator shall notify the borrower and deliver to the borrower for 
its execution a prepayment agreement which shall set forth and provide:
    (a) The RUS Notes to be prepaid and when the Discounted Present 
Value will be calculated.
    (b) The place and conditions for closing.
    (c) Agreement that the unadvanced balance of RUS Notes shall be 
rescinded.
    (d) Agreement that the borrower, or its successors or assigns, shall 
pay to the Government, as a condition of receiving additional loans or 
loan guarantees pursuant to Titles I, II and III of the Act, an amount 
equal to the aggregate of the difference with respect to each of the RUS 
Notes between the amount outstanding on the RUS Note and the Discounted 
Present Value of the RUS Note upon prepayment with interest accruing 
quarterly; the interest rates shall be the rates provided in the 
respective RUS Notes.
    (e) Assurances that the borrower will meet its obligations to any 
power supplier financed pursuant to the Act.
    (f) Such other terms and conditions as the Administrator deems 
appropriate.



Sec. 1786.58  Security.

    If, after prepayment of RUS Notes, the Government should continue to 
hold liens on the borrower's property that secure loans made or 
guaranteed pursuant to the Act, the Administrator of RUS or the Governor 
of the Rural Telephone Bank, as the case may be, will consider request 
for the accommodation of such liens for the purpose of providing 
security for loans the proceeds of which were used to prepay RUS Notes. 
Such lien accommodations shall be limited in amount to the Discounted 
Present Value of the RUS Notes plus such costs, as the Administrator 
shall determine to be reasonable, incurred by the borrower in obtaining 
such loans.



Sec. 1786.59  Loan fund audit.

    Within 6 months of closing RUS shall have the right to audit 
transactions involving the RUS construction fund established and 
maintained by the borrower pursuant to the terms of the RUS Loan 
Agreement and to inspect all books, records, accounts and other 
documents and papers of the borrower. Should RUS determine that the 
borrower has made disbursements of funds advanced pursuant to RUS Notes 
which do not comply with the requirements of the RUS Loan Agreement, the 
borrower shall be required to pay to the Government an amount equal to 
the difference between the amount which the borrower prepaid on such RUS 
Notes evidencing RUS loan funds which were improperly disbursed and the 
amount which the borrower would otherwise have been required to return 
to the Government as a result of noncompliance if the borrower had not 
prepaid such RUS Notes. (See 7 CFR part 1721)



Sec. 1786.60  Closing.

    (a) The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the prepayment 
agreement

[[Page 1136]]

including such approvals as may be required by regulatory bodies and 
other lenders.
    (b) The RUS Notes shall be prepaid at a closing to be held in 
accordance with the prepayment agreement; Provided, however, That no 
closing may be scheduled for after September 30, 1987. At closing, a 
borrower shall prepay the RUS Notes by paying to the Government an 
amount equal to the Discounted Present Value of the RUS Notes. The 
closing shall otherwise be conducted as prescribed in the prepayment 
agreement.



Sec. 1786.61  Other prepayments.

    RUS loan documentation generally permits borrowers to prepay RUS 
Notes by paying the outstanding balance due thereon. Nothing in this 
subpart shall prohibit any borrower from prepaying its outstanding RUS 
Notes in accordance with the terms thereof. The provisions of this 
subpart shall not be applicable to such prepayment.
Secs. 1786.62--1786.74  [Reserved]



 Subpart D--RUS Privitization Demonstration Prepayment Program for the 
                             State of Alaska

    Authority: 7 U.S.C. 901-950b; Pub. L. 99-591, Pub. L. 103-354, 108 
Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 52 FR 2395, Jan. 22, 1987, unless otherwise noted. 
Redesignated at 55 FR 49250, Nov. 27, 1990.



Sec. 1786.75  Purpose.

    This subpart contains the general regulations of the Rural Utilities 
Service (RUS) for implementing section 311 of the RE Act which, in 
certain circumstances, permits loans made by the Federal Financing Bank 
(FFB) and guaranteed by the Administrator of RUS to be prepaid by RUS 
Alaska borrowers using private capital with a 90 percent guarantee.



Sec. 1786.76  Policy.

    It is RUS policy to carry out this privatization demonstration 
program in a manner which will minimize the loan guarantee exposure to 
RUS and the administrative burden on RUS.



Sec. 1786.77  Definitions.

    For the purpose of this subpart:
    Administrator means the Administrator of RUS.
    Discounted Present Value shall have the meaning specified in 
Sec. 1786.82(a).
    Existing Loan Guarantee means a guarantee of payment issued by RUS 
to FFB pursuant to the RE Act.
    Fees means any fees, costs or charges, incurred in connection with 
obtaining the Refund Loan used to make the prepayment including without 
limitation, accounting fees, filing fees, legal fees, printing costs, 
recording fees, trustee fees, overheads of the borrower, underwriting 
fees, capital stock purchases, or other equity investment requirements 
of the Private Lender.
    FFB means the Federal Financing Bank, an instrumentality and wholly-
owned corporation of the United States.
    FFB Loan means one or more advances made by FFB on a FFB Note.
    FFB Note means a promissory note executed in favor of the FFB by a 
borrower and guaranteed by RUS pursuant to section 306 of the RE Act (7 
U.S.C. 936).
    Guarantee shall have the meaning specified in Sec. 1786.79.
    Internally Generated Funds means money belonging to the borrower 
other than: (1) Proceeds of loans made or guaranteed under the RE Act or 
(2) funds on deposit in the cash construction trustee account maintained 
pursuant to the terms of the RUS loan agreement;
    Loan Guarantee Agreement means the written contract by and among the 
Private Lender, the borrower and the Administrator setting forth the 
terms and conditions of a Guarantee issued pursuant to the provisions of 
this subpart.
    Mortgage means the mortgage and security agreements by and among the 
borrower and RUS, as from time to time supplemented, amended and 
restated.
    Private Lender shall have the meaning set forth in Sec. 1786.80(b).
    RE Act means the Rural Electrification Act of 1936 (7 U.S.C. 901-
950b), as amended.
    REA means the Rural Electrification Administration formerly an 
agency of

[[Page 1137]]

the United States Department of Agriculture and predecessor agency to 
RUS with respect to administering certain electric and telephone loan 
programs.
    Refunding Loan means the note(s), bond(s) or other obligation(s) 
evidencing indebtedness created by the Refunding Loan(s).
    Refunding Note means the loan or loans used by the borrower to 
prepay FFB Notes, RUS Notes or RTB Notes pursuant to this subpart.
    RTB means the Rural Telephone Bank, a body corporate and 
instrumentality of the United States established pursuant to 7 U.S.C. 
941.
    RTB Notes mean those notes, bonds or other obligations evidencing 
indebtedness created by loans made by the RTB pursuant to Title IV of 
the RE Act (7 U.S.C. 941-950b).
    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 Notes mean those notes, bonds or other obligations evidencing 
indebtedness created by loans made pursuant to Titles I, II, or III of 
the RE Act (7 U.S.C. 901-940).
    Service Area shall have the meaning set forth in Sec. 1786.84(c).

[52 FR 2395, Jan. 22, 1987, as amended at 53 FR 37733, Sept. 28, 1988. 
Redesignated at 55 FR 49250, Nov. 27, 1990, and amended at 59 FR 66440, 
Dec. 27, 1994]



Sec. 1786.78  Demonstration program.

    Pursuant to section 311 of the RE Act and this subpart, qualified 
borrowers may prepay FFB Loans by paying the outstanding principal 
balance due thereon. Borrowers may refinance FFB Loans with Refunding 
Loans from qualified Private Lenders. Such Refunding Loans shall be 
eligible for a Guarantee as hereinafter provided. Participating 
borrowers shall be required to prepay all other loans made or guaranteed 
pursuant to the RE Act and otherwise comply with the provisions of this 
subpart. Because section 311 of the RE Act provides for a demonstration 
program of limited applicability, many of the terms and conditions for 
prepayments of FFB Loans and in particular the terms and conditions of 
Refunding Loans shall be negotiated on a case-by-case basis by RUS, the 
borrower, and the Private Lender, and any other secured party under the 
borrower's Mortgage.



Sec. 1786.79  RUS Guarantee.

    For the purposes of this subpart, ``Guarantee'' means the 
endorsement in the form specified by RUS. The Guarantee shall provide, 
among other matters, that in the event of a payment default by the 
borrower on a Refunding Note bearing a Guarantee, RUS shall pay the 
Private Lender, when and as due, 90 percent of the unpaid portion of the 
regularly scheduled debt service payment on such Refunding Note. RUS 
shall have the right to accelerate, in accordance with 
Sec. 1786.80(c)(7), such Refunding Note and pay the Private Lender 90 
percent of the outstanding principal balance and accrued interest of the 
loan guaranteed by RUS and be discharged from its Guarantee obligation.



Sec. 1786.80  Qualifications.

    (a) Borrowers. To qualify to prepay an FFB Loan pursuant to this 
subpart, the borrower:
    (1) Must be located in the State of Alaska;
    (2) Must prepay the FFB loan by using a Refunding Loan with a 
Guarantee, or by using Internally Generated Funds;
    (3) Must prepay all of its outstanding loans made or guaranteed 
under the RE Act; and
    (b) Private Lenders. To qualify for a Guarantee pursuant to this 
subpart, the Private Lender must be an entity or a trust administered by 
an entity; such entity in either case must also:
    (1) Be a private legally organized lender;
    (2) Either (i) be subject to credit examination and supervision by 
either an agency of the United States or a State and be in good standing 
with its licensing authority and have met the requirements, if any, of 
licensing, lending and loan servicing in the State where the collateral 
for the Refunding

[[Page 1138]]

Loan is located; (ii) have capital and surplus of at least $50 million; 
or (iii) have credit support such as a letter of credit or guarantee, in 
form and substance satisfactory to the Administrator, in the amount of 
$50 million.
    (3) Have the capability to adequately service the Refunding Loan by 
using its own resources. Under no circumstances may the borrower or an 
affiliate of the borrower service the Refunding Loan. Required servicing 
shall include:
    (i) The billing and collecting of the Refunding Loan payments from 
the borrower; (ii) notifying the Administrator promptly of any default 
in the payment of principal and interest on the Refunding Loan and 
submitting a report, as soon as possible thereafter, setting forth the 
Private Lender's views as to the reasons for the default, how long the 
Private Lender expects the borrower to be in default, and what 
corrective actions the borrower states it is taking to achieve a current 
debt service position; (iii) notifying the Administrator of any known 
violations or defaults by the borrower under the lending agreement, Loan 
Guarantee Agreement, or related security instruments, or conditions of 
which the Private Lender is aware which might lead to nonpayment, 
violation or other default; and (iv) such other activities as may be 
specified in the Loan Guarantee Agreement.
    (c) Refunding Loans. A qualifying borrower may at its option elect 
to use a Refunding Loan to make a prepayment pursuant to this subpart. 
With respect to the prepayment of any one FFB Loan, the Administrator 
may endorse Guarantees evidencing Refunding Loans in increments not less 
than $30 million except where an FFB Loan being prepaid is less than 
$150 million in which case the Administrator may endorse Guarantees on 
not more than five Refunding Notes. RUS shall generally require as a 
condition to providing a Guarantee that the Refunding Loan and Refunding 
Note comply with the following:
    (1) The principal amount of the Refunding Note may not exceed the 
outstanding principal balance of the FFB Loan being prepaid.
    (2) For the life of the loan the interest rate, whether fixed or 
variable, on the Refunding Note shall be less than the dollar weighted 
average interest rate on the FFB Loan being prepaid.
    (3) The unguaranteed portion of the Refunding Note may not be 
severed or ``stripped'' from the guaranteed portion of the Refunding 
Note.
    (4) The loan documentation shall provide RUS with the right to 
accelerate the Refunding Loan upon the occurrence of an Event of Default 
as that term is defined in the Mortgage at the earlier of: (i) Any date 
the borrower may prepay in accordance with the terms of the Refunding 
Note, or (ii) the tenth anniversary date of the Refunding Note.
    (5) The principal of Refunding Note shall not include amounts 
attributable to Fees associated with the Refunding Loan. Subject to the 
approval of the Administrator in connection with the development of loan 
documentation, the interest rate on the Refunding Note may include 
amounts attributable to Fees if the net effective interest rate 
including such Fees meets the tests contained in Sec. 1786.80(c)(2). The 
borrower, subject to the approval of RUS, may finance the Fees with the 
proceeds of a loan. Such a loan will not be guaranteed by RUS nor will 
RUS share first mortgage security to enable another lender to obtain 
security for such a loan to the borrower.
    (6) Refunding Loans and Refunding Notes shall otherwise be in form 
and substance satisfactory to the Administrator.
    (d) Participation of Refunding Loan. A qualified Private Lender may 
participate out each Refunding Loan which bears a Guarantee pursuant to 
this subpart to entities other than a Government agency, the borrower, 
or an affiliate of the borrower, provided that such participation shall 
be on terms and conditions satisfactory to the Administrator. Generally, 
the Private Lender may utilize any financing structure it desires in 
obtaining funds to make the Refunding Loan, providing the Refunding Loan 
meets the requirements of Sec. 1786.80(c).
    (e) Prepayments Without a Guarantee. A qualifying borrower may 
utilize Internally Generated Funds without a

[[Page 1139]]

Guarantee to prepay an FFB Loan pursuant to this subpart or may utilize 
a combination of a Refunding Loan with a Guarantee and Internally 
Generated Funds without a guarantee.

[52 FR 2395, Jan. 22, 1987, as amended at 53 FR 37733, Sept. 28, 1988. 
Redesignated and amended at 55 FR 49250, Nov. 27, 1990]



Sec. 1786.81  Loan security.

    (a) Loan security. Refunding Notes evidencing Refunding Loans made 
to the borrower will be secured as follows:
    (1) The Refunding Note(s) bearing an RUS Guarantee, will be secured 
under the Mortgage on a pari passu basis with all other secured 
indebtedness of the borrower. Both the obligation of the borrower to 
reimburse RUS for any funds advanced by RUS pursuant to the Guarantee 
and the 10 percent unguaranteed portion of the Refunding Note shall be 
so secured.
    (2) The Refunding Note(s) which do not bear an RUS Guarantee, will 
be secured, in a principal amount equal to the outstanding principal 
balance due on the RUS Notes or RTB Notes which are prepaid pursuant to 
this subpart, under the Mortgage on a pari passu basis with all other 
secured indebtedness of the borrower.
    (3) The Mortgage shall permit additional indebtedness to be secured 
thereunder on a pari passu basis with the approval of the Administrator.
    (b) Mortgage rights and remedies. The terms of the Mortgage, 
including the rights and remedies available to RUS, the Private Lenders 
and other secured parties under the Mortgage will be subject to 
negotiations between the borrower and such parties.



Sec. 1786.82  Prepayment of RUS and RTB Notes.

    (a) The borrower shall prepay all outstanding RUS Notes within one 
year after prepayment of FFB Loans at the lesser of the outstanding 
principal balance due on the loan or the loan's Discounted Present 
Value. The Discounted Present Value shall be calculated five business 
days before prepayment is made by summing the present values of all 
remaining payments by using the following formula:
[GRAPHIC] [TIFF OMITTED] TC16SE91.026

Where:

Pk=Total payment, including interest, due on the 
          kth payment date following the prepayment date.
n=Total number of remaining payments dates.
I=The discount rate, in decimals, which shall be the average rate on 
          utility bonds bearing a rating of ``Aa'' as set forth in that 
          issue of Moody's Public Utility News Reports most recently 
          published prior to the date on which Discounted Present Value 
          is calculated.
D1i=Number of days in the ith payment period that 
          are in a non-leap year (365 day year).
D2i=Number of days in the ith payment period that 
          are in a leap year (366 day year).

    (b) The borrower shall prepay all RTB Notes within one year after 
prepayment of the FFB Loans by paying the outstanding principal balance 
due on the RTB Notes.
    (c) The borrower shall prepay all other RUS guaranteed notes in 
accordance with the terms of such notes.
    (d) Except as otherwise provided prepayments of RUS Notes, RTB 
Notes, and RUS guaranteed notes shall be in such terms and conditions as 
the Administrator shall prescribe. If the borrower is a party to a 
wholesale power contract with a power supplier financed pursuant to the 
RE Act, the borrower must provide the Administrator with such assurances 
as the Administrator may request that it will meet it obligations to the 
power supplier.



Sec. 1786.83  Application procedure.

    (a) Applications. Applications to make a prepayment pursuant to this 
subpart

[[Page 1140]]

must be submitted to the appropriate Area Director not less than 30 
business days prior to the projected settlement date for the Refunding 
Loan and shall be on such forms as RUS may prescribe. The application 
shall provide among other matters the following:
    (1) Borrower's RUS designation.
    (2) Borrower's name and address.
    (3) A certified copy of a resolution of the board of directors of 
the borrower that: (i) Requests RUS approval of the prepayment and (ii) 
recognizes that the request results in the borrower being ineligible for 
additional financial assistance under the RE Act.
    (4) Listing of each RUS Note, RTB Note or FFB Note or other RUS 
guaranteed note to be prepaid by loan designation, RUS account number, 
advance date, maturity date, original amount, and outstanding balance.
    (5) Evidence that the borrower meets or will be able to meet the 
qualification provisions of Sec. 1786.80(a) of these regulations 
including that the borrower has the ability to obtain the financing 
necessary to prepay its outstanding RUS Notes, RTB Notes, FFB Notes and 
other RUS guaranteed notes within one year of the prepayment of the 
first FFB Loan.
    (6) In the event the borrower proposes to utilize a Refunding Loan 
with a Guarantee in connection with the FFB prepayment, a proposal for 
the Refunding Loan from a Lender selected by the borrower.
    (7) Evidence of the Private Lender's qualifications.
    (8) Servicing entity's name and address.
    (9) Evidence that the borrower has received all approvals which can 
be obtained at the time of application and which are required under 
Federal or State law, loan agreements, security agreements, existing 
financing arrangements, or any other agreement to which the borrower is 
a party.
    (10) Estimate of Fees and expenses, including any taxes.
    (11) Description of the area served by the borrower.
    (b) Notifications. If a borrower's application has been approved, 
the Administrator will promptly notify the borrower, the Private Lender 
and FFB to that effect. If not approved the Administrator will promptly 
notify the borrower.

[52 FR 2395, Jan. 22, 1987, as amended at 53 FR 37733, Sept. 28, 1988. 
Redesignated at 55 FR 49250, Nov. 27, 1990]



Sec. 1786.84  Future eligibility under the RE Act.

    With respect to borrowers which prepay FFB Loans pursuant to this 
subpart additional loans, loan guarantees and other financial assistance 
under the RE Act shall be restricted as follows:
    (a) Electric borrowers. In the case of an electric borrower 
prepaying under this subpart, after the date of prepayment, no loans, 
loan guarantees or other financial assistance shall be provided pursuant 
to the RE Act to the borrower or its successors or for the purpose of 
financing the construction or operation of generating plants or bulk 
transmission lines for the purpose of furnishing electric energy in the 
area served on a retail or wholesale basis by such borrower.
    (b) Telephone borrowers. In the case of a telephone borrower 
prepaying under this subpart, after the date of prepayment, no loans, 
loan guarantees or other financial assistance shall be provided pursuant 
to the RE Act to the borrower or its successors or for the purpose of 
furnishing or improving telephone service in the area served by such 
borrower.
    (c) Service area. For the purposes of this subpart, the borrower's 
``Service Area'' shall be as determined by the Administrator based upon 
data as of December 31, of the year preceding the date of prepayment. In 
determining the Service Area of electric borrowers, the Administrator 
shall make allowances and adjustments to avoid adversely affecting the 
eligibility of other borrowers for financial assistance under the RE Act 
where such borrowers are currently providing electric supply services 
for retail loads in the same area and which are reasonably expected to 
continue providing electric supply services for retail loads in such 
areas.
    (d) Other borrowers. In the event that the borrower prepaying under 
this subpart shall be suing a majority of its generating capacity to 
directly serve its retail consumers, other borrowers

[[Page 1141]]

which are purchasing power from such borrower as of September 20, 1986, 
shall continue to remain eligible for financing under the RE Act for 
needs in their service area.
    (e) Project participation. Nothing in this subpart shall prohibit a 
borrower which has prepaid pursuant to this subpart from participating 
in generation and transmission projects with borrowers which have not 
prepaid, so long as the borrower which has prepaid utilizes private 
capital financing without financial assistance under the RE Act.
    (f) Short-term power purchases. Nothing in this subpart shall 
prohibit short-term power purchases by borrowers which have prepaid 
under this section from borrowers which have not prepaid.
    (g) Lien accommodations. The Administrator shall consider on a case-
by-case basis requests by a borrower which has prepaid under section 311 
of the RE Act for an accommodation of the lien of the Mortgage on a pari 
passu basis, to provide security for a lender who provides the borrower 
with a loan for the purposes of financing electric or telephone 
facilities within the borrower's Service Area or for other corporate 
purposes.



Sec. 1786.85  Settlement procedure.

    (a) Settlement date. When RUS is satisfied with the documentation, 
the parties will schedule a settlement date. The Refunding Loan will be 
settled and the Guarantee delivered on a date and time mutually agreed 
upon among the parties not earlier than ten business days after receipt 
by RUS of all final documentation. RUS reserves the right to limit the 
aggregate dollar amount of and/or the number of prepayments or 
settlements that take place on any given day.
    (b) Place of settlement. All settlements involving the Guarantee of 
Refunding Loans will take place in Washington, DC, at a location of the 
borrower's choosing.
    (c) Repayment of FFB. Prior to 1:00 p.m. prevailing local time in 
New York, New York, on the settlement date, the borrower shall wire 
immediately available funds to RUS through the Department of the 
Treasury account at the Federal Reserve Bank of New York in an amount 
sufficient to pay the outstanding principal of FFB Loans plus accrued 
interest from the last payment date to and including the settlement 
date. In the event the borrower has more than one FFB Loan, all such 
loans must be prepaid at the same settlement.
    (d) Prepayment of RUS Notes and RTB Notes. In the event that the 
borrower chooses not to prepay all its outstanding RUS Notes and RTB 
Notes simultaneously with the prepayment of the FFB Loans, the borrower 
shall execute:
    (1) An agreement specifying that such RUS Notes and RTB Notes will 
be prepaid within one year of the settlement date and
    (2) A note payable to RUS in an amount equal to the premiums that 
would have been due under the FFB Notes being prepaid if the FFB Notes 
had been prepaid in accordance with their terms rather than pursuant to 
this subpart. This note shall (i) bear interest at a rate equal to the 
rate on the FFB Notes, (ii) be secured in a manner satisfactory to the 
Administrator, (iii) be payable on demand one year after the settlement 
date in the event that the borrower does not prepay all its outstanding 
RUS Notes, RTB Notes and other RUS guaranteed notes within one year of 
the date it prepays its FFB Notes, and (iv) be cancelled and returned to 
the borrower if the borrower's RUS Notes, RTB Notes and other RUS 
guaranteed notes are prepaid within one year of the date it prepays its 
FFB Notes.
    (e) Documentation. The documentation to be delivered at settlement 
will be agreed upon by the Private Lender, the borrower and RUS. 
Depending upon the circumstances, RUS may require the borrower to 
perform a search of title, provide additional title insurance and take 
such other actions as may be necessary to ensure that the interests of 
the Government are adequately protected.



Sec. 1786.86  Other prepayments.

    Nothing shall prohibit a borrower from making prepayments of FFB 
Loans, RUS loans, RTB loans, or other RUS guaranteed loans in accordance 
with the terms thereof.

[[Page 1142]]

Secs. 1786.87--1786.94  [Reserved]



Subpart E--Discounted Prepayments on RUS Notes in the Event of a Merger 
                    of Certain RUS Electric Borrowers

    Source: 56 FR 37268, Aug. 6, 1991, unless otherwise noted.



Sec. 1786.95  Purpose.

    This subpart sets forth the policies and procedures of RUS whereby 
certain electric borrowers may prepay outstanding RUS Notes at the 
Discounted Present Value of the RUS Notes with private financing.



Sec. 1786.96  Definitions.

    As used in this subpart:
    Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Administrator means the Administrator of RUS.
    Consolidation means:
    (1) The combination, pursuant to state law, of two or more borrower 
or nonborrower organizations into a new successor organization that 
takes over the assets and assumes the liabilities of those 
organizations; or
    (2) Any other transaction including an acquisition which has 
substantially the same effect.
    Discounted Present Value shall have the meaning specified in 
Sec. 1786.98.
    Fund means the Rural Electrification and Telephone Revolving Fund 
pursuant to the Act.
    Merger means:
    (1) The combination, pursuant to state law, of two or more borrower 
or nonborrower organizations into an existing survivor organization that 
takes over the assets and assumes the liabilities of the merged 
organizations; or
    (2) Any other transaction including an acquisition which has 
substantially the same effect.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    RUS Loan Agreement means the agreement between the borrower and RUS 
providing for loans pursuant to the Act.
    RUS Notes means those notes, bonds or other obligations evidencing 
indebtedness created by loans made or guaranteed by RUS pursuant to 
titles I and III of the Act (7 U.S.C. 901-940).

[56 FR 37268, Aug. 6, 1991, as amended at 59 FR 66440, Dec. 27, 1994]



Sec. 1786.97  Prepayment.

    There were 29 former RUS electric borrowers that prepaid their 
direct or insured loans under section 306B(a) of the Act prior to 
October 1, 1987. (See subpart C of this part.) These borrowers are 
listed in appendix A to subpart E of this part. Any RUS electric 
borrower which is the result of a merger or consolidation involving any 
of these 29 former borrowers and a borrower with outstanding Notes may, 
after meeting all requirements of this subpart, prepay all outstanding 
RUS Notes issued or assumed by the borrower upon paying the lesser of 
the outstanding balance or the Discounted Present Value. Such prepayment 
must be made not later than one year after the effective date of the 
merger or consolidation.



Sec. 1786.98  Discounted present value.

    (a) The Discounted Present Value shall be calculated by RUS before 
prepayment is made by summing the present values of all remaining 
payments on all outstanding notes according to the following formula to 
compute the discounted present value of each note and adjusting as here 
and after provided for tax exempt financing.

[[Page 1143]]

[GRAPHIC] [TIFF OMITTED] TC16SE91.027


Where:

Pk=Total payment, including interest, due on the 
          kth payment date following the prepayment date. 
          n=Total number of remaining payment dates. I=The discount rate 
          applied to each transaction will be ascertained by using data 
          specified in the ``Federal Reserve Statistical Release'' which 
          is published each Monday. (See appendix B to subpart E of this 
          part.) The specific discount rate will be the discount rate(s) 
          specified in the ``Treasury Constant Maturities'' section of 
          this publication eight working days prior to the closing. In 
          applying the discount rate, the 1-year Treasury rate will be 
          used for all notes with a remaining term of less than 2 years; 
          the 2-year Treasury rate for notes with maturities between 2 
          and 3 years; the 3-year Treasury rate for all notes with 
          maturities between 3 and 5 years; the 5-year Treasury rate for 
          all notes with maturities between 5 and 7 years; the 7-year 
          Treasury rate for all notes with maturities between 7 and 10 
          years; the 10-year Treasury rate for all notes with maturities 
          between 10 and 30 years; and the 30-year Treasury rate for all 
          notes with maturities longer than 30 years.
D1i=Number of days in the ith payment period that 
          are in a non-leap year (365 day year).
D2i=Number of days in the ith payment period that 
          are in a leap year (366 day year).

    (b) Notwithstanding paragraph (a) of this section, in the event that 
the borrower shall elect to prepay using tax exempt financing, the 
calculation of the Discounted Present Value shall be adjusted to make 
the discount the equivalent of fully taxable financing.



Sec. 1786.99  Eligibility criteria.

    To be eligible to prepay RUS Notes at the Discounted Present Value, 
a borrower must comply with the following criteria:
    (a) The borrower must be current on all payments due on its 
outstanding RUS Notes and all other payment obligations owed to RUS;
    (b) The borrower must agree to prepay all of its outstanding RUS 
Notes;
    (c) The borrower must identify the source of financing that will be 
used directly or indirectly to refinance its outstanding RUS Notes. The 
borrower must certify in writing whether such financing will be tax 
exempt and, if so, shall furnish all information on the financing as RUS 
may request to enable RUS to adjust the discount to the equivalent to 
fully taxable financing;
    (d) The borrower must have expended all funds advanced on account of 
the RUS Notes for the purposes for which such funds were advanced or 
repaid RUS for all unexpended funds;
    (e) The borrower must agree to a rescission of the unadvanced 
balance of any RUS Notes outstanding as of the date of its application 
for prepayment;
    (f) The borrower must agree that the borrower, its successors and 
assigns, shall pay to the Government, as a condition of receiving 
additional loans or loan guarantees pursuant to titles I and III of the 
Act, an amount equal to the aggregate of the difference with respect to 
each of the RUS Notes between the amount outstanding on the RUS Note and 
the Discounted Present Value of the RUS Note upon prepayment with 
interest accruing quarterly; the interest rates shall be the rates 
provided in the respective Notes; and
    (g) If the borrower is a party to a wholesale power contract with a 
power supplier financed pursuant to the Act, the borrower must provide 
the Administrator with such assurances as the Administrator may request 
that it will meet its obligations to the power supplier. The borrower 
must also specifically agree to the following limitation: The borrower 
agrees that, for so long as the Wholesale Power Contract shall be in 
effect between the borrower and the power supplier, the borrower will 
not, without the approval in writing of the power supplier and the 
Administrator, take or suffer to be taken any steps for reorganization 
or to consolidate with or merge into any corporation or any other public 
power district,

[[Page 1144]]

or to sell, lease or transfer (or make any agreement therefor) all or a 
substantial portion of its assets, whether now owned or hereafter 
acquired. Notwithstanding the foregoing, the borrower may take or suffer 
to be taken any steps for reorganization or to consolidate with or merge 
into any corporation or any other public power district, or to sell, 
lease or transfer (or make any agreement therefor) all or a substantial 
portion of its assets, whether now owned or hereafter acquired, so long 
as the borrower shall pay such portion of the outstanding indebtedness 
evidenced by the power supplier's Notes at the time outstanding as shall 
be determined by the power supplier with the prior written consent of 
the Administrator and shall otherwise comply with such reasonable terms 
and conditions as the Administrator and the Power Supplier shall 
require.



Sec. 1786.100  Application procedure.

    Any borrower seeking to prepay its RUS Notes under this Subpart 
should apply to the appropriate RUS Area Director not less than 60 days 
prior to one year after the effective date of the merger or 
consolidation by submitting:
    (a) A board resolution that:
    (1) Requests approval of the prepayment of the borrower's 
outstanding RUS Notes;
    (2) States the intent of the borrower to comply with all eligibility 
criteria set forth in Sec. 1786.99 of this subpart; and
    (3) Identifies the source of financing.
    (b) A list of all RUS Notes together with the outstanding amount on 
such notes.
    (c) An opinion of counsel as to the effective date of the merger or 
consolidation.
    (d) Such additional information as the Administrator will request.



Sec. 1786.101  Approval of application.

    The applications will be reviewed and, if satisfactory, approved. 
Closing will be scheduled upon approval.



Sec. 1786.102  Prepayment agreement.

    Upon approving an application for prepayment under this subpart, the 
Administrator shall notify the borrower and deliver to the borrower for 
its execution a prepayment agreement which shall set forth and provide:
    (a) The RUS Notes to be prepaid and when the Discounted Present 
Value will be calculated.
    (b) The place, date and conditions for closing.
    (c) Agreement that the unadvanced balance of RUS Notes shall be 
rescinded.
    (d) Agreement that the borrower, or its successors or assigns, shall 
pay to the Government, as a condition of receiving additional loans or 
loan guarantees pursuant to titles I and III of the Act, an amount equal 
to the aggregate of the difference with respect to each of the RUS Notes 
between the amount outstanding on the RUS Note and the Discounted 
Present Value of the prepaid RUS Note; with interest accruing quarterly. 
The interest rates shall be the rates provided in the respective RUS 
Notes.
    (e) Assurances that the borrower will meet its obligations to any 
power supplier financed pursuant to the Act.
    (f) Such other terms and conditions as the Administrator deems 
appropriate.



Sec. 1786.103  Security.

    If, after prepayment of RUS Notes, the Government should continue to 
hold liens on the borrower's property, the Administrator of RUS will 
consider a request for the accommodation of such liens for the purpose 
of providing security for loans the proceeds of which were used to 
prepay RUS Notes. Such lien accommodations shall be limited in amount to 
the Discounted Present Value of the RUS Notes plus such costs, as the 
Administrator shall determine to be reasonable, incurred by the borrower 
in obtaining such loans.



Sec. 1786.104  Loan fund audit.

    RUS shall have the right to audit within 6 months of closing, 
transactions involving the RUS construction fund established and 
maintained by the borrower pursuant to the terms of the RUS Loan 
Agreement and to inspect all books, records, accounts and other 
documents and papers of the borrower. Should RUS determine that the 
borrower has made disbursements of

[[Page 1145]]

funds advanced pursuant to RUS Notes which do not comply with the 
requirements of the RUS Loan Agreement, the borrower shall be required 
to pay the Government an amount equal to the difference between the 
amount which the borrower prepaid on such RUS Notes evidencing RUS loans 
funds which were improperly disbursed and the amount which the borrower 
would otherwise have been required to return to the Government as a 
result of noncompliance if the borrower had not prepaid such RUS Notes. 
(See 7 CFR part 1721, Post-Loan Policies and Procedures for Insured 
Electric Loans.)



Sec. 1786.105  Closing.

    (a) The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the prepayment 
agreement, including such approvals as may be required by regulatory 
bodies and other lenders.
    (b) The RUS Notes shall be prepaid at a closing to be held in 
accordance with the prepayment agreement. RUS shall designate the date 
of closing which in no event shall be later than one year after the 
effective date of the merger or consolidation. At closing, in addition 
to paying all current interest due on the date of prepayment, a borrower 
shall prepay the RUS Notes by paying to the Government an amount equal 
to the lesser of the outstanding balance or the Discounted Present Value 
of the RUS Notes. The closing shall otherwise be conducted as prescribed 
in the prepayment agreement.



Sec. 1786.106  Other prepayments.

    RUS loan documentation generally permits borrowers to prepay RUS 
Notes by paying the outstanding balance due thereon. Nothing in this 
subpart shall prohibit any borrower from prepaying its outstanding RUS 
Notes in accordance with the terms thereof. The provisions of this 
subpart shall not be applicable to such prepayment.

   Appendix A to Subpart E of Part 1786--Listing of Eligible Borrowers

------------------------------------------------------------------------
                State                      Borrower name and address    
------------------------------------------------------------------------
Colorado............................  Colorado-Ute Electric Assn., Inc.,
                                       Montrose.                        
Florida.............................  Lee County Electric Coop. Inc.,   
                                       North Fort Myers.                
Indiana.............................  Clark County Rural Elec. Memb.    
                                       Corp., Sellersburg.              
Louisiana...........................  Beauregard Electric Cooperative,  
                                       Inc., Deridder.                  
Missouri............................  Culvre River Electric Cooperative,
                                       Inc., Troy.                      
Nebraska............................  Roosevelt Public Power District,  
                                       Mitchell.                        
Nebraska............................  Howard Greely Rural Public Power  
                                       Dist., St. Paul.                 
Nebraska............................  Cuming County Public Power        
                                       District, West Point.            
Nebraska............................  York County Rural Public Power    
                                       District, York.                  
Nebraska............................  Elkhorn Rural Public Power        
                                       District, Battle Creek.          
Nebraska............................  Southern Nebraska Rural P. P. D., 
                                       Grand Island.                    
Nebraska............................  McCook Public Power District,     
                                       McCook.                          
Nebraska............................  Niobrara Valley Electric Memb.    
                                       Corp., O'Neill.                  
Nebraska............................  Cornhusker Public Power District, 
                                       Columbus.                        
Nebraska............................  Custer Public Power District,     
                                       Broken Bow.                      
Nebraska............................  Northwest Rural Public Power      
                                       Dist., Hay Springs.              
Nebraska............................  Southwest Public Power District,  
                                       Palisade.                        
Nebraska............................  Loup Valleys Rural Public Power   
                                       District, Ord.                   
Nebraska............................  South Central Public Power        
                                       District, Nelson.                
Oklahoma............................  Peoples' Electric Cooperative,    
                                       Ada.                             
Texas...............................  Deaf Smith County Electric Coop.  
                                       Inc., Hereford.                  
Texas...............................  Pedernales Electric Coop. Inc.,   
                                       Johnson City.                    
Texas...............................  Bandera Electric Cooperative,     
                                       Inc., Bandera.                   
Texas...............................  Guadalupe Valley Electric Coop.,  
                                       Inc., Gonzales.                  
Texas...............................  Bluebonnet Electric Cooperative,  
                                       Inc., Giddings.                  
Texas...............................  Cap Rock Electric Cooperative,    
                                       Inc. Stanton.                    
Texas...............................  San Bernard Electric Cooperative, 
                                       Inc., Bellville.                 
Washington..........................  Inland Power & Light Company,     
                                       Spokane.                         
Washington..........................  Pub. Util. Dist. No. 1 Grays      
                                       Harbor Co., Aberdeen.            
------------------------------------------------------------------------

   Appendix B to Subpart E of Part 1786--Federal Reserve Statistical 
                                 Release

                   Federal Reserve Statistical Release

    These data are released each Monday. The availability of the release 
will be announced when the information is available, on (202) 452-3206.

                               H. 15 (519)

    For immediate release February 4, 1991.

[[Page 1146]]



                                                                 Selected Interest Rates                                                                
                                                              [Yields in percent per annum]                                                             
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           1991 Jan.   1991 Jan.   1991 Jan.   1991 Jan.   1991 Feb.                                    
                       Instruments                            28          29          30          31           1       This week   Last week   1991 Jan.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Funds (effective) \1\ \2\ \3\...................        7.61        7.16        6.96        8.18        6.30        7.46        6.88        6.91
Commercial paper \3\ \4\ \5\                                                                                                                            
    1-Month.............................................        6.88        6.96        6.95        6.99        6.73        6.90        6.83        7.12
    3-Month.............................................        6.92        6.96        6.94        6.95        6.67        6.89        6.92        7.10
    6-Month.............................................        6.87        6.91        6.88        6.88        6.58        6.82        6.86        7.02
Finance paper placed directly \3\ \4\ \6\                                                                                                               
    1-Month.............................................        6.76        6.85        6.83        6.83        6.55        6.76        6.68        6.95
    3-Month.............................................        6.75        6.83        6.83        6.76        6.46        6.73        6.77        6.92
    6-Month.............................................        6.53        6.53        6.59        6.53        6.19        6.47        6.55        6.59
Bankers acceptances (top rated) \3\ \4\ \7\                                                                                                             
    3-Month.............................................        6.80        6.82        6.77        6.68        6.30        6.67        6.76        6.96
    6-Month.............................................        6.67        6.70        6.65        6.55        6.15        6.54        6.63        6.84
CDS (secondary market) \3\ \8\                                                                                                                          
    1-Month.............................................        6.78        6.85        6.87        6.82        6.52        6.77        6.77        7.10
    3-Month.............................................        6.94        6.95        6.93        6.88        6.51        6.84        6.94        7.17
    6-Month.............................................        6.95        6.98        6.95        6.88        6.51        6.85        6.97        7.17
Eurodollar deposits (London) \3\ \9\                                                                                                                    
    1-Month.............................................        6.81        6.88        6.88        6.88        6.88        6.86        6.81        7.13
    3-Month.............................................        6.94        7.06        7.00        6.94        6.94        6.98        7.01        7.23
    6-Month.............................................        7.00        7.00        7.00        6.94        6.94        6.98        7.04        7.23
Bank prime loan \2\ \3\ \10\............................        9.50        9.50        9.50        9.50        9.50        9.50        9.50        9.52
Discount window borrowing \2\ \11\......................        6.50        6.50        6.50        6.50        6.00        6.50        6.50        6.50
U.S. Government securities                                                                                                                              
  Treasury bills                                                                                                                                        
    Auction average \3\ \4\ \12\                                                                                                                        
      3-Month...........................................        6.22  ..........  ..........  ..........  ..........        6.22        6.14        6.30
      6-Month...........................................        6.28  ..........  ..........  ..........  ..........        6.28        6.21        6.34
      1-Year............................................  ..........  ..........  ..........  ..........  ..........  ..........  ..........        6.22
    Auction average (investment) \12\                                                                                                                   
      3-Month...........................................        6.41  ..........  ..........  ..........  ..........        6.41        6.32        6.49
      6-Month...........................................        6.58  ..........  ..........  ..........  ..........        6.58        6.50        6.64
    Secondary market \3\ \4\                                                                                                                            
      3-Month...........................................        6.25        6.22        6.20        6.19        6.00        6.17        6.12        6.22
      6-Month...........................................        6.26        6.26        6.24        6.20        5.97        6.19        6.20        6.28
      1-Year............................................        6.24        6.20        6.17        6.13        5.91        6.13        6.19        6.25
Treasury Constant maturities \13\                                                                                                                       
      1-Year............................................        6.64        6.59        6.56        6.51        6.27        6.51        6.58        6.64
      2-Year............................................        7.12        7.10        7.07        7.05        6.83        7.03        7.09        7.13
      3-Year............................................        7.38        7.35        7.34        7.30        7.10        7.29        7.35        7.38
      5-Year............................................        7.67        7.64        7.64        7.62        7.45        7.60        7.66        7.70
      7-Year............................................        7.93        7.90        7.90        7.89        7.75        7.87        7.92        7.97
      10-Year...........................................        8.06        8.05        8.05        8.03        7.91        8.02        8.04        8.09
      30-Year...........................................        8.23        8.20        8.23        8.21        8.09        8.19        8.22        8.27
  Composite                                                                                                                                             
    Over 10 years (long-term) \14\......................        8.29        8.26        8.29        8.27        8.15        8.25        8.28        8.33
Corporate bonds                                                                                                                                         
  Moody's Seasoned                                                                                                                                      
    AAA.................................................        9.03        9.01        9.00        8.99        8.96        9.00        9.05        9.04
    BAA.................................................       10.43       10.37       10.35       10.33       10.24       10.34       10.44       10.45
    A-Utility \15\......................................  ..........  ..........  ..........  ..........        9.65        9.65        9.80        9.83
State and local bonds \16\..............................  ..........  ..........  ..........        7.00  ..........        7.00        7.06        7.08

[[Page 1147]]

                                                                                                                                                        
Conventional mortgages \17\.............................  ..........  ..........  ..........  ..........        9.56        9.56        9.61        9.64
--------------------------------------------------------------------------------------------------------------------------------------------------------
Footnotes:                                                                                                                                              
\1\ The daily effective federal funds rate is a weighted average of rates on trades through N.Y. brokers.                                               
\2\ Weekly figures are averages of 7 calendar days ending on Wednesday of the current week; monthly figures include each calendar day in the month.     
\3\ Annualized using a 360-day year or bank interest.                                                                                                   
\4\ Quoted on a discount basis.                                                                                                                         
\5\ An average of offering rates on commercial paper placed by several leading dealers for firms whose bond rating is AA or the equivalent.             
\6\ An average of offering rates on paper directly placed by finance companies.                                                                         
\7\ Representative closing yields for acceptances of the highest rated money center banks.                                                              
\8\ An average of dealer offering rates on nationally traded certificates of deposit.                                                                   
\9\ Bid rates for Eurodollar deposits at 11 a.m. London time.                                                                                           
\10\ One of several base rates used by banks to price short-term business loans.                                                                        
\11\ Rate for the Federal Reserve Bank of New York.                                                                                                     
\12\ Auction date for daily data; weekly and monthly averages computed on an issue-date basis.                                                          
\13\ Yields on actively traded issues adjusted to constant maturities. Source: U.S. Treasury.                                                           
\14\ Unweighted average of rates on all outstanding bonds neither due nor callable in less than 10 years, including one very low yielding ``flower''    
  bond.                                                                                                                                                 
\15\ Estimate of the yield on a recently offered, A-rated utility bond with a maturity of 30 years and call protection of 5 years; Friday quotations.   
\16\ Bond buyer Index, general obligation, 20 years to maturity, mixed quality; Thursday quotations.                                                    
\17\ Contract interest rates on commitments for fixed-rate first mortgages. Source: FHLMC.                                                              
Note: Weekly and monthly figures are averages of business days unless otherwise noted.                                                                  

          Description of the Treasury Constant Maturity Series

    Yields on Treasury securities at ``constant maturity'' are 
interpolated by the U.S. Treasury from the daily yield curve. This 
curve, which relates the yield on a security to its time to maturity, is 
based on the closing market bid yields on actively traded Treasury 
securities in the over-the-counter market. These market yields are 
calculated from composites of quotations reported by five leading U.S. 
Government securities dealers to the Federal Reserve Bank of New York. 
The constant maturity yield values are read from the yield curve at 
fixed maturities, currently 1, 2, 3, 5, 7, 10, and 30 years. This method 
provides a yield for a 10-year maturity, for example, even if no 
outstanding security has exactly 10 years remaining to maturity.



         Subpart F--Discounted Prepayments on RUS Electric Loans

    Authority: 7 U.S.C. 901 et seq.; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.).

    Source: 59 FR 13620, Mar. 22, 1994, unless otherwise noted.



Sec. 1786.150  Purpose.

    This subpart sets forth the policies and procedures of RUS whereby 
borrowers may prepay, with private financing or internally generated 
funds, outstanding RUS Notes evidencing electric loans at the Discounted 
present value of the RUS Notes, pursuant to the provisions of section 
306(B) of the RE Act as amended by Public Law 102-428, 106 Stat. 2183, 
adopted October 21, 1992.



Sec. 1786.151  Definitions and rules of construction.

    (a) Definitions. As used in this subpart:
    Administrator means the Administrator of the Rural Utilities Service 
(RUS).
    Borrower means any organization which has an outstanding note(s) 
evidencing electric loans made by RUS, or has previously prepaid such 
notes under subparts C and E of this part.
    Business day means any day on which both the RUS and the Federal 
Reserve Bank of New York are open for business.
    Construction Fund Account means the Cash--Construction Fund--Trustee 
Account, maintained by the borrower pursuant to the terms of the 
outstanding RUS Loan Contract.
    Closing shall mean one of the several contemplated closings of the 
prepayment of the Qualified Notes prescribed by the Prepayment 
agreement.
    Closing date shall mean any business day identified as such by the 
Government in its preclosing notice delivered to the Company pursuant to 
Sec. 1786.158.

[[Page 1148]]

    Closing request shall mean a request by the borrower of the 
Government to schedule a closing for certain Qualified Notes on the date 
requested therein.
    Direct loan means a loan made pursuant to section 4 of the RE Act.
    Discounted present value shall have the meaning set forth in 
Sec. 1786.153.
    Distribution borrower means a borrower that sells electric power and 
energy at retail in rural areas.
    Electric loan means a Direct loan or an Insured loan made for the 
purpose of furnishing electric energy to persons in rural areas.
    Final maturity means the final date on which all outstanding 
principal and accrued interest on an electric loan is due and payable.
    Government means the United States of America, acting through the 
Administrator of the Rural Utilities Service.
    Insured loan means a loan made pursuant to Section 305 of the RE 
Act.
    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.
    Loan guarantee means a loan guarantee under Section 306 of the RE 
Act.
    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.
    Preclosing notice shall mean a notice delivered by the Government to 
the borrower in response to a closing request, identifying the closing 
date, the Qualified Notes to be prepaid at such closing and documents to 
be delivered by the borrower to the Government prior to the closing 
date.
    Prepayment agreement shall have the meaning set forth in 
Sec. 1786.158.
    Qualified Notes shall have the meaning set forth in Sec. 1786.154.
    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.
    RUS Loan Contract means the agreement, as amended, supplemented, or 
restated from time to time, between a borrower and RUS providing for 
loans or loan guarantees pursuant to the RE Act.
    RUS Mortgage means collectively those mortgages and security 
agreements made by and among the borrower, the Government, and third 
parties, if any, securing indebtedness evidencing electric loans or loan 
guarantees made pursuant to the RE Act.
    Rural development loans means loans or grants made pursuant to Rural 
development programs.
    Rural development programs means loan or grant programs under the 
authority of the Administrator pursuant to sections 313, 501, and 502 of 
the RE Act.
    Supplemental lender means a private lender whose loan to the 
borrower is secured by the RUS mortgage.
    Tax exempt financing means borrowing evidenced by bonds, notes and 
other evidence of indebtedness the income of which is excluded from 
gross income for the purposes of Chapter 1 of the Internal Revenue Code 
of 1986 (26 U.S.C. ch. 1).
    (b) Rules of construction. Unless the context shall otherwise 
indicate, the terms defined in paragraph (a) of this section include the 
plural as well as the singular, and the singular as well as the plural.



Sec. 1786.152  Prepayments of RUS loans.

    An electric loan made under the RE Act shall not be sold or prepaid 
at a value that is less than the outstanding principal balance, except 
that, on request of a borrower, an electric loan made under the RE Act, 
or a portion of such a loan, that was advanced before May 1, 1992, or 
has been advanced for not less than 2 years, shall be prepaid by the 
borrower at the lesser of the outstanding principal balance of the loan 
or the discounted present value thereof.



Sec. 1786.153  Discounted present value.

    (a) The discounted present value shall be calculated by summing the 
present values of all remaining payments on all Qualified Notes to be 
prepaid according to the following formula and adjusted as provided in 
paragraph (b) of this section if tax exempt financing is used.

[[Page 1149]]

[GRAPHIC] [TIFF OMITTED] TR22MR94.016


Where:

    The Greek letter, Sigma () means the sum of the following 
terms.
    The Greek letter, Pi () means the product of the following 
terms.

Pk=Total payment, including interest due on the Kth 
payment date following the prepayment date.
n=Total number of remaining payment dates to final maturity.
D1i=Number of days in the ith payment period that 
are in a non-leap year (365-day year).
D2i=Number of days in the ith payment period that 
are in a leap year (366-day year).
I=The discount rate applied to each transaction ascertained by using 
data specified in the ``Federal Reserve Statistical Release'' (H.15 
(519)), which is published each Monday. The availability of this Release 
will be announced when the information is available by telephone on 
(202) 452-3206. See adjustment for tax exempt refinancing at paragraph 
(b) of this section. The specific discount rate will be based on the 
discount rate(s) specified in the ``Treasury Constant Maturities'' 
section of this publication 8 business days prior to the closing and 
will be interpolated from that information as follows:

------------------------------------------------------------------------
      Remaining final maturity of RUS loan:                             
-------------------------------------------------                       
               At least                 But less     Treasury constant  
--------------------------------------    than          maturities      
                                      -----------                       
               # years                  # years                         
------------------------------------------------------------------------
0....................................          2  1-year.               
2....................................          3  2-year.               
3....................................          4  3-year.               
4....................................          5  (1)                   
5....................................          6  5-year.               
6....................................          7  (2)                   
7....................................          8  7-year.               
8....................................          9  (3)                   
9....................................         10  (3)                   
10...................................         11  10-year.              
11...................................         20  (4)                   
20...................................         21  20-year.              
21...................................         30  (5)                   
30...................................         36  30-year.              
------------------------------------------------------------------------
Notes: 1 The arithmetic mean between the 3-year. and 5-year. Treasury   
  Constant Maturities; i.e., if 3-year. rate is 3.00% and the 5-year.   
  rate is 4.00% then the rate used would be 3.5%.                       
2 The arithmetic mean between the 5-year and 7-year Treasury Constant   
  Maturities computed as above.                                         
3 A straight line interpolated rate between the 7-year rate and the 10- 
  year rate. (See formula below)                                        
4 A straight line interpolated rate between the 10-year note and the 20-
  year Bond rate. (See formula below)                                   
5 A straight line interpolated rate between the 20-year bond and the 30-
  year bond using the following formula:                                

  [GRAPHIC] [TIFF OMITTED] TR22MR94.017
  
Where:

I=The discount rate interpolated from the cost of money to the Treasury.
A=The Treasury interest rate for the most recently published maturity 
(in years) that is the shortest Treasury term (in years) which is 
greater than the borrower's remaining term (in years) to final maturity; 
i.e., (if the note to be prepaid has a final maturity of more than 10 
years then this rate is the 20-year Treasury rate)
B=The Treasury interest rate for the most recently published maturity 
(in years) that is the longest Treasury term (in years) which is less 
than the borrower's remaining term (in years) to final maturity; i.e., 
(if the note to be prepaid has a final maturity of more than 10 years 
but less than 20 years then this term is the 10-year Treasury rate)
C=The remaining number of full years to the final maturity of the 
borrower's note. Drop all fractions of a year and use the remaining full 
years.
E=The published Treasury term (in years) to maturity which is the 
longest term to maturity for the published term that is less than the

[[Page 1150]]

remaining term (in years) to final maturity of the borrower's note; 
i.e., (if the note to be prepaid has remaining years to maturity between 
11 and 20 years then this term would be 10 or if the note to be prepaid 
has remaining years to maturity between 21 years and 30 years then this 
term would be 20).
F=The published Treasury term (in years) to maturity which is the 
shortest term to maturity for the published term that is greater than 
the remaining term (in years) to maturity of the borrower's note; i.e., 
(if the note to be prepaid has remaining years to maturity between 11 
and 20 years then this term would be 20 or if the remaining years to 
maturity is between 21 and 30 years then this term would be 30).

    Note: The percentage terms used in the above formula will be 
truncated to two decimal places. For the purpose of the terms A, B, E, 
and F above the published Treasury rate and term shall mean the Treasury 
Constant Maturities from the Federal Reserve Statistical Release for 7 
years, 10 years, 20 years, and 30 years.

    (b)(1) In the event that the borrower prepays a loan under paragraph 
(a) of this section using, directly or indirectly, tax exempt financing, 
the discount shall be adjusted to ensure that the borrower receives a 
benefit that is no greater than the benefit the borrower would receive 
if the borrower used financing that was not tax exempt. The borrower 
shall certify in writing whether the financing will be tax exempt.
    (2) The discount rate established in paragraph (a) of this section 
shall be adjusted for a tax exempt financing by substituting for the 
``I'' term in the discount rate formula, a discount rate equal to the 
interest rate(s) published pursuant to 7 CFR 1714.5, determination of 
interest rates on municipal rate loans. This is the interest rate 
established for the new RUS loan program which is based on municipal 
interest rates for issues of comparable maturity. No interpolation or 
average will be used. If a note is to be prepaid under this subpart and 
is subject to this tax exempt adjustment, the discount rate will be 
determined from the published table in the Federal Register. For 
example, if the note to be discounted matures in the year 1999 then the 
discount rate will be the interest rate for the year 1999. RUS will 
publish a schedule of interest rates for municipal rate loans in the 
Federal Register at the beginning of each calendar quarter. The 
published rates in effect eight business days prior to closing will be 
used for the discount rates. All notes to be prepaid that have remaining 
years to maturity of more than 20 years will be discounted at the 
interest rate in effect for new RUS municipal rate loans of comparable 
maturity at the time of closing.



Sec. 1786.154  Qualified Notes.

    An eligible borrower may prepay Qualified Notes under this subpart 
at the discounted present value. A Qualified Note is a note evidencing 
an RUS electric loan, all advances of which were made prior to May 1, 
1992, or not less than 2 years prior to the date of prepayment closing. 
See Secs. 1786.155(a)(3) and 1786.158 (h) and (j).



Sec. 1786.155  Eligible borrower.

    (a) To be eligible to prepay an electric loan under this subpart, 
the borrower must be in compliance with the following:
    (1) The borrower shall be current on all payment obligations on 
outstanding loans made or guaranteed by RUS. For the purpose of 
determining eligibility for prepayment, a default by a power supply 
borrower from which a distribution borrower purchases wholesale power 
shall not be considered a default by the distribution borrower;
    (2) There shall exist no material defaults under the borrower's RUS 
Loan Contract and Mortgage;
    (3) The borrower shall have expended all funds advanced pursuant to 
the RUS Loan Contract for the purposes for which such funds were 
advanced. A borrower will not be eligible to prepay under this subpart 
if it has any funds advanced pursuant to the RUS Loan Contract in its 
Construction Fund Account; and
    (4) The borrower shall be current on all obligations under any 
wholesale power contract with an RUS financed power supply borrower.

[[Page 1151]]

    (b) The eligibility of borrowers that have had any indebtedness 
representing loans made or guaranteed by RUS restructured shall be 
determined on a case by case basis considering the terms and conditions 
of the restructuring agreement.



Sec. 1786.156  Application procedure.

    Any borrower seeking to prepay Qualified Notes under this subpart 
should apply to the appropriate RUS Regional Director or the Director of 
the Power Supply Division. The application shall provide the following:
    (a) Borrower's RUS designation;
    (b) Borrower's name and address;
    (c) A certified copy of a resolution of the board of directors of 
the borrower that the borrower wishes to enter into a prepayment 
agreement providing for the prepayment of all or a portion of its 
Qualified Notes;
    (d) Listing of each Qualified Note to be prepaid by loan 
designation, RUS account number, advance date, maturity date, original 
amount, and outstanding principal balance;
    (e) Evidence that the borrower has the ability to obtain the 
financing necessary to prepay its Qualified Notes listed in paragraph 
(d) of this section and identification of the source of financing and 
the need if any of obtaining a lien accommodation from RUS; and
    (f) Such additional information as the Administrator may request.



Sec. 1786.157  Approval of applications.

    (a) Ordinarily, within 30 days of receipt, an application will be 
reviewed and the borrower will be notified as to whether the application 
has been approved. If the application has not been approved, the 
borrower will be informed as to the reasons. If the application is 
approved the borrower shall thereafter be provided with a prepayment 
agreement for execution.
    (b) The Administrator may limit the number of applications approved 
and closings scheduled from time to time, taking into account, among 
other matters, administrative considerations of the RUS.



Sec. 1786.158  Terms and conditions of prepayment agreement.

    Upon receipt of a satisfactory application, RUS shall provide to the 
borrower for its execution a prepayment agreement, in form and substance 
satisfactory to RUS, which may include the following:
    (a) Provide for the prepayment of one or more Qualified Notes from 
time to time, but no more than two closings may be scheduled in any 
calendar year unless a third closing is for the prepayment of all 
outstanding electric loans of the borrower;
    (b) Set forth procedures and forms through which the borrower will 
notify the Government of each election it makes to prepay certain 
Qualified Notes upon a requested closing date and the Government will 
notify the borrower of the established closing date and prepayment 
amount for the Qualified Notes for each closing;
    (c) Reserve to the Administrator the right to reschedule closing 
dates to meet administrative considerations;
    (d) Set forth closing requirements identifying the location and 
manner of payment, and all documentation and information to be delivered 
prior to or at closing, including opinions of counsel and certificates 
from the borrower;
    (e) Provide for notice by either telephone or facsimile to be given 
by RUS to the borrower not more than 8 nor less than 3 business days 
before a scheduled closing date of the amount to be paid at closing 
which shall include all accrued interest and the discounted present 
value of the Qualified Notes to be prepaid;
    (f) Provide for notice of the 120 month period during which the 
borrower's eligibility for direct or insured loans will be restricted;
    (g) Set forth representations and warranties;
    (h) Require the borrower to prepay each Qualified Note specified in 
full;
    (i) Require the borrower to identify the source of the financing 
that will be used directly or indirectly to refinance the Qualified 
Notes. If the source is other than internally generated funds, the 
borrower must certify in writing whether such financing will be tax 
exempt, and if tax exempt financing will be used, furnish all 
information on the

[[Page 1152]]

terms and conditions of the financing as RUS may require;
    (j) Require the borrower to rescind the unadvanced balance of all 
outstanding electric loans as of the date of initial closing;
    (k) Require the borrower, if it is a party to a wholesale power 
contract with a power supply borrower, to provide the Administrator with 
such assurances as the Administrator may require that it is in 
compliance with and will continue to comply with its obligation to such 
power supply borrower;
    (l) Provide RUS, if the Administrator determines it necessary, with 
security for all outstanding rural development loans and amendments to 
any outstanding rural development loan agreements in form and substance, 
and on terms and conditions, satisfactory to RUS;
    (m) Prescribe remedies for violating the terms and conditions of the 
prepayment agreement;
    (n) Provide for termination by RUS of the right for the borrower to 
prepay thereunder;
    (o) Provide evidence that any approvals required from any 
supplemental lender have been obtained; and
    (p) Set forth such other terms and conditions as the Administrator 
shall deem appropriate.



Sec. 1786.159  Initial closing.

    (a) Upon receipt of the prepayment agreement, the borrower may 
submit, pursuant to the terms of the prepayment agreement, a closing 
request which shall request a closing date no less than 30 business days 
from the date of the request.
    (b) The Government will respond to the borrower's closing request by 
delivering a preclosing notice to the borrower not less than 10 business 
days prior to the date which the Government, after reviewing the 
borrower's closing request, selects as a closing date.



Sec. 1786.160  Subsequent closings.

    (a) Each subsequent prepayment after the initial closing shall be 
facilitated with the submission of an additional closing request by the 
borrower. Each closing request must request a closing date no less than 
30 business days from the date of the request.
    (b) The Government will respond to each subsequent closing request 
by delivering a preclosing notice to the borrower not less than 10 
business days prior to the date which the Government, after reviewing 
the borrower's closing request, selects as a closing date in each case.



Sec. 1786.161  Return of Qualified Notes and release of lien.

    Upon payment to RUS at closing of the full amount specified in the 
notice delivered by RUS to the borrower pursuant to the terms of the 
prepayment agreement (see Sec. 1786.158(e)), RUS will deliver to the 
borrower at closing those Qualified Notes which have been paid in full 
at such closing, and upon payment and discharge of all outstanding RUS 
debt obligations by the borrower, RUS will deliver to the borrower at 
the final closing a release of lien prepared by the borrower pursuant to 
the terms of the prepayment agreement.



Sec. 1786.162  Outstanding loan documents.

    (a) Except as expressly provided in this subpart, the borrower shall 
comply with all provisions of its RUS Loan Contract, its outstanding 
notes issued to RUS, and the RUS Mortgage.
    (b) Nothing in this subpart shall affect any rights of supplemental 
lenders under the RUS Mortgage, or other creditors of the borrower.
    (c) Nothing in this subpart shall prohibit a borrower from making 
prepayments of any loans pursuant to the RE Act in accordance with the 
terms of such loans.



Sec. 1786.163  Existing wholesale power contracts.

    (a) If the borrower is a party to a wholesale power contract with a 
power supply borrower financed pursuant to the RE Act, the Administrator 
may require that the borrower and the power supply borrower enter into a 
supplement to the outstanding wholesale power contract providing 
substantially as follows:

[[Page 1153]]

                          Sample Contract Terms

    So long as any of the notes evidencing secured loans of the power 
supply borrower are outstanding, the borrower will not, without the 
approval in writing of the power supply borrower and the Administrator, 
take or suffer to be taken any steps for reorganization or dissolution, 
or to consolidate with or merge into any corporation, or to sell, lease 
or transfer (or make any agreement therefor) all or a substantial 
portion of its assets, whether now owned or hereafter acquired. The 
power supply borrower will not unreasonably withhold or condition its 
consent to any such, reorganization, dissolution, consolidation, or 
merger, or to any such sale, lease or transfer (or any agreement 
therefor) of assets. The power supply borrower will not withhold or 
condition such consent except in cases where to do otherwise would 
result in rate increases for the other members of the power supply 
borrower or impair the ability of the power supply borrower to repay its 
secured loans in accordance with their terms, or adversely affect system 
performance in a material way. Notwithstanding the foregoing, the 
borrower may take or suffer to be taken any steps for reorganization or 
dissolution or to consolidate with or merge into any corporation or to 
sell, lease or transfer (or make any agreement therefor) all or a 
substantial portion of its assets, whether now owned or hereafter 
acquired without the power supply borrower's consent, so long as the 
borrower shall pay such portion of the outstanding indebtedness on the 
power supply borrower's notes or other obligations as shall be 
determined by the power supply borrower with the prior written consent 
of the Administrator and shall otherwise comply with such reasonable 
terms and conditions as the Administrator and power supply borrower may 
require either: (1) To eliminate any adverse effect that such action 
seems likely to have on the rates of the other members of the power 
supply borrower, or
    (2) To assure that the power supply borrower's ability to repay the 
secured loans and other obligations of the power supply borrower in 
accordance with their terms is not impaired.
    The Administrator may require, among other things, that any payment 
owed under (2) of the preceding sentence that represents a portion of 
the power supply borrower's indebtedness on Notes shall be paid by the 
borrower in the manner necessary to accomplish a defeasance of those 
obligations in accordance with the loan documents relating thereto, or 
be paid directly to the holders of the Notes for application by them as 
prepayments in accordance with the provisions of such documents, or be 
paid to the power supply borrower and held and invested in a manner 
satisfactory to the Administrator.

[End of sample contract terms]

    (b) The Administrator may exempt a borrower from the requirement to 
enter into a supplement to its outstanding wholesale power contract if 
the Administrator determines that such requirement is burdensome and 
unnecessary in light of the provisions of the existing wholesale power 
contract, other security arrangements of the power supply borrower, and 
any other relevant facts and circumstances. Normally such exemption will 
be granted only with the concurrence of the power supply borrower.



Sec. 1786.164  Loan fund audit.

    In the event that a borrower shall prepay all its outstanding 
electric loans RUS shall have the right to audit within six (6) months 
of closing transactions involving the RUS Construction Fund Account 
established and maintained by the borrower pursuant to the terms of the 
RUS Loan Contract and to inspect all books, records, accounts, and other 
documents and papers of the borrower. Should RUS determine that the 
borrower has made disbursements of funds advanced pursuant to the RUS 
Loan Contracts which do not comply with the requirements thereof, the 
borrower shall be required to pay the RUS an amount equal to the 
difference between the amount which the borrower prepaid under this 
subpart with respect to such advances, and the amount which the borrower 
would otherwise have been required to return to the RUS as a result of 
noncompliance if the borrower had not prepaid such advances, plus 
interest. (See 7 CFR part 1721, Post-Loan Policies and Procedures for 
Insured Electric Loans.)



Sec. 1786.165  Reporting.

    Borrowers that no longer have any loans made or guaranteed by RUS 
and are considering applying for other financial assistance pursuant to 
the RE Act are encouraged to file the end-of-year operating report, RUS 
Form 7.



Sec. 1786.166  Approvals.

    The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the prepayment 
agreement,

[[Page 1154]]

including such approvals as may be required by regulatory bodies and 
other lenders.



Sec. 1786.167  Restrictions to additional RUS financing.

    (a) No borrower that prepays an electric loan at a discount as 
provided under this subpart may apply for or receive direct or insured 
loans during the 120 months from the most recent closing date, except at 
the discretion of the Administrator. During the 120 month period the 
Administrator may consider providing an insured loan if, among other 
matters, it is necessary to assure repayment of, or protect the 
Government's security for any outstanding loans or loan guarantees, or 
the borrower's system has suffered severe physical plant related damage 
due to conditions beyond its control and the borrower is unable to 
obtain financing at reasonable terms to restore the system from non-RUS 
sources, including the Federal Emergency Management Agency, and from 
private sources. Upon expiration of the 120 months, such borrowers may 
apply for direct or insured loans in the same manner as other borrowers 
provided that such borrowers may not apply for direct or insured loans 
for facilities, construction of which commenced prior to the expiration 
of the 120 months. Special provisions for mergers involving a borrower 
that has prepaid pursuant to this subpart are in 7 CFR 1717.158.
    (b) Borrowers that prepay their direct or insured RUS loans under 
this subpart remain eligible for certain types of financial assistance 
under the RE Act, including loan guarantees and rural development loans.

[59 FR 13620, Mar. 22, 1994, as amended at 61 FR 66874, Dec. 19, 1996]

    Effective Date Note: At 61 FR 66874, Dec. 19, 1996, Sec. 1786.167 
was amended by adding a sentence at the end of paragraph (a), effective 
Jan. 21, 1997.



Sec. 1786.168  Borrowers who prepaid under this part prior to October 21, 1992.

    (a) A borrower that had prepaid, prior to the date of enactment of 
Public Law 102-428 (106 Stat. 2183) on October 21, 1992, at a discount 
rate as provided at 7 CFR part 1786, subpart C:
    (1) Shall not be eligible except at the discretion of the 
Administrator as stated in paragraph Sec. 1786.167(a), to apply for or 
receive direct or insured loans during the 180-month period beginning on 
the date of the prepayment; and
    (2) Shall not be eligible to apply for or receive direct or insured 
loans from RUS until the borrower has repaid to the RUS the sum of:
    (i) The amount (if any) by which the discount the borrower received 
by reason of the prepayment exceeds the discount the borrower would have 
received had the discount been based on the cost of funds to the 
Department of the Treasury as calculated at Sec. 1786.153 at the time of 
the prepayment; and
    (ii) Interest on the amount described in paragraph (a)(2)(i) of this 
section for the period beginning on the date of the prepayment and 
ending on the date of the repayment, at a rate equal to the average 
annual cost of borrowing by the Department of the Treasury. This rate 
will be calculated first on the date of prepayment and at one year 
intervals from that date based on the same U.S. Treasury issues 
published in the Federal Reserve Statistical Release closest to that 
date. The Treasury rate of interest to be applied for each year will be 
the rate for the Treasury issue of comparable maturity to the number of 
years from the prepayment date to the repayment date and at one year 
intervals thereafter.
    (b) If a borrower and the Administrator have entered into an 
agreement with respect to a prepayment occurring before October 21, 
1992, this section shall supersede any provision in the agreement 
relating to the restoration of eligibility for loans under the RE Act.
    (c) Borrowers who prepaid prior to October 1, 1987, are eligible for 
assistance under the RE Act in the same manner as other borrowers with 
respect to loan guarantees and the rural development loans.
    (d) During the 180 month period described in paragraph (a)(1) of 
this section the Administrator may consider providing an insured loan, 
if the conditions described in Sec. 1786.167(a) exist.
    (e) Borrowers may not apply for direct or insured loans for 
facilities, construction of which commenced prior to

[[Page 1155]]

the expiration of the 180 month period described in paragraph (a)(1) of 
this section.



Sec. 1786.169  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 prepayments or closing requests, shall 
not give rise to liability of any kind on the part of the Government or 
any employees of the Government including, without limitation, liability 
for damages, fees, expenses or costs incurred by or on behalf of a 
borrower, private lender or any other party.
Sec. 1786.170  Prepayment of loans approved after December 20, 1993. 
[Reserved]
Secs. 1786.171--1786.199  [Reserved]



   Subpart G--Refinancing and Prepayment of RUS Guaranteed FFB Loans 
                Pursuant to Section 306(c) of the RE Act

    Authority: 7 U.S.C. 901 et seq.; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.); sec. 1201(b) of subtitle B of title 1 of Pub. L. 
103-66, 107 Stat. 312.

    Source: 58 FR 51008, Sept. 30, 1993, unless otherwise noted.



Sec. 1786.200  Purpose.

    This subpart sets forth the policies and procedures of RUS through 
the existing FFB program, whereby borrowers may prepay and refinance, 
outstanding FFB Notes evidencing electric or telephone loans with FFB, 
pursuant to the provisions of section 306(C) of the RE Act as added by 
Public Law 103-66, 107 Stat. 312, enacted August 10, 1993.



Sec. 1786.201  Definitions and rules of construction.

    (a) Definitions. As used in this subpart:
    Administrator means the Administrator of the Rural Utilities Service 
(RUS).
    Borrower means any organization which has an outstanding note(s) 
evidencing electric or telephone loans guaranteed by RUS, from FFB.
    Business day means any such day on which both the Federal Financing 
Bank and Federal Reserve Bank--New York are open for business.
    Electric loan means a loan made by FFB and guaranteed by RUS under 
section 306 of the RE Act for electric service.
    FFB means the Federal Financing Bank, an instrumentality and wholly 
owned corporation of the United States.
    Government means the United States of America, acting through the 
Administrator of the Rural Utilities Service.
    Loan guarantee means RUS's guarantee under section 306 of the RE Act 
of a loan from FFB.
    Payment date means the date that payment is due and is the last day 
in a calendar quarter.
    Prepayment penalty means the same as prepayment premium.
    Prepayment premium shall have the meaning set forth at 
Sec. 1786.207.
    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.
    Refinancing note shall have the meaning set forth at Sec. 1786.206.
    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 loan contract means the agreement, as amended, supplemented, or 
restated from time to time, between a borrower and RUS providing for 
loans or loan guarantees pursuant to the RE Act.

[[Page 1156]]

    RUS mortgage means collectively those mortgages and security 
agreements made by and between the borrower and the Government, securing 
indebtedness evidencing electric and telephone loans or loan guarantees 
made pursuant to RE Act. The term includes such mortgages regardless 
whether third parties are mortgagees with RUS.
    Supplemental lender means a private lender whose loan to the 
borrower is secured under an RUS mortgage.
    Telephone loan means a loan made by FFB and guaranteed by RUS under 
section 306 of the RE Act for telephone service.
    (b) Rules of construction. Unless the context shall otherwise 
indicate, the terms defined in paragraph (a) of this section include the 
plural as well as the singular, and the singular as well as the plural. 
The words ``herein,'' ``hereof'' and ``hereunder'', and words of similar 
import, refer to this subpart as a whole.

[58 FR 51008, Sept. 30, 1993, as amended at 59 FR 66440, Dec. 27, 1994]



Sec. 1786.202  Prepayment and refinancing of RUS guaranteed FFB loans.

    The borrower of an electric or telephone loan made by the FFB and 
guaranteed by RUS under section 306 of the RE Act may, at the option of 
the borrower, refinance or prepay a loan or an advance on the loan, or 
any portion of the loan or advance in accordance with section 306C of 
the RE Act, after meeting certain conditions using the procedures 
prescribed in the note. After refinancing existing notes under this 
section, additional prepayments or refinancings will be governed by the 
terms of the refinancing note(s).



Sec. 1786.203  Special considerations.

    Generally all FFB borrowers with loans guaranteed by RUS whose FFB 
notes have not been accelerated are eligible to prepay or refinance 
under this part. All requests for prepayment or refinancing will be 
processed in accordance with this subpart except that some requests for 
refinancing and prepayments are more complicated and thus will involve 
special considerations. These requests will have to be handled on a case 
by case basis and include:
    (a) Telephone borrowers who are required to meet certain terms of 
their indenture;
    (b) Borrowers who have amended their old form note or have already 
repriced prior to September 30, 1993;
    (c) Borrowers that have been involved in a merger or consolidation;
    (d) Borrowers whose obligations to RUS, FFB notes, or security 
instruments differ from those normally used;
    (e) A request to prepay or refinance an amount of less than $100,000 
or an amount of less than the full amount of an advance outstanding; or
    (f) A request to prepay or refinance a note that includes unadvanced 
loan funds.



Sec. 1786.204  Limitations.

    (a) No more than three refinancing notes will be executed for any 
borrower per calendar year.
    (b) The borrower may not select a term for the refinanced advance 
that ends after the maturity date set for that advance.



Sec. 1786.205  Application procedure.

    (a) Any borrower seeking to prepay or refinance an advance from the 
FFB under this subpart should apply by letter to the appropriate RUS 
Regional Director or, in the case of power supply borrowers, to the 
Director of the Power Supply Division. The borrower will be required to 
submit applications and elections in a digital format to be supplied by 
RUS. The application letter shall provide the following:
    (1) Borrower's RUS designation;
    (2) Borrower's name and address;
    (3) Listing of each note to be prepaid by loan designation, RUS note 
number, RUS account number, advance date, maturity date, original 
amount, outstanding balance, and date(s) of any substitute FFB note(s) 
amending the original FFB Note;
    (4) A statement of the borrower's intention to finance the premium 
by an addition to principal balance or to pay the premium in cash or 
with unsecured debt;
    (5) A statement of the maturity options that the borrower wishes to 
select;

[[Page 1157]]

    (6) Such additional information as the Administrator may request.
    (b) Requests for refinancing or prepayment will ordinarily be 
processed in the order that they are received. Borrower's may withdraw 
an application by notifying the appropriate RUS office in which they 
filed the application.
    (c) When the request for prepayment or refinancing is approved for 
processing the borrower will be provided with appropriate instructions, 
documents and forms which may include but are not limited to the 
following:
    (1) An FFB refinancing note;
    (2) Resolution of Board of Directors;
    (3) Legal Opinion;
    (4) Certificate of Secretary;
    (5) Waiver of Notice;
    (6) Notice to borrower electing an effective date other than a 
scheduled quarterly payment date (if applicable);
    (7) Documentation of obligations secured pursuant to section 
1786.208 if any; and
    (8) Security instrument.

(Approved by the Office of Management and Budget under control number 
0572-0032)



Sec. 1786.206  Refinancing note.

    (a) RUS will issue a replacement guaranty for refinancing notes 
delivered to FFB to replace and substitute for existing FFB notes in 
connection with any refinancing by FFB pursuant to section 306C of the 
RE Act.
    (b) Generally, refinancing notes will, to the extent practicable, 
consolidate all of a borrower's existing FFB notes which have been 
guaranteed by RUS and containing terms and conditions as FFB may require 
and RUS and the borrower may accept.
    (c) Notwithstanding any contrary provision contained in this 
subpart, RUS will give preference to processing refinancings that 
utilize a generic form of refinancing note in the event that FFB 
prescribes one.

[58 FR 51008, Sep. 30, 1993; 58 FR 58729, Nov. 3, 1993]



Sec. 1786.207  Prepayment premium.

    (a) A premium shall be assessed against a borrower that refinances 
or prepays a loan or loan advance, or any portion of a loan or advance, 
under this section. RUS will collect the prepayment premium as 
calculated by FFB. FFB will calculate this premium as described in this 
section. Except as provided in paragraph (b) of this section, the 
premium shall be equal to the lesser of:
    (1) The difference between the outstanding principal balance of the 
loan being refinanced and the present value of the loan discounted at a 
rate equal to the then current cost of funds to the Department of the 
Treasury for obligations of comparable maturity to the loan being 
refinanced or prepaid;
    (2) 100 percent of the amount of interest for 1 year on the 
outstanding principal balance of the loan or loan advance, or any 
portion of the loan or advance, being refinanced, multiplied by the 
ratio that:
    (i) The number of quarterly payment dates between the date of the 
refinancing or prepayment and the maturity date for the loan advance; 
bears to
    (ii) The number of quarterly payment dates between the first 
quarterly payment date that occurs 12 years after the end of the year in 
which the amount being refinanced was advanced and the maturity date of 
the loan advance; and
    (3)(i) The present value of 100 percent of the amount of interest 
for 1 year on the outstanding principal balance of the loan or loan 
advance, or any portion of the loan or advance, being refinanced or 
prepaid; plus
    (ii) For the interval between the date of the refinancing or 
prepayment and the first quarterly payment date that occurs 12 years 
after the end of the year in which the amount being refinanced or 
prepaid was advanced, the present value of the difference between:
    (A) Each payment scheduled for the interval on the loan amount being 
refinanced or prepaid; and
    (B) The payment amounts that would be required during the interval 
on the amounts being refinanced or prepaid if the interest rate on the 
loan were equal to the then current cost of funds to the Department of 
the Treasury for obligations of comparable maturity to the loan being 
refinanced or prepaid.
    (b)(1) Except as provided in paragraph (b)(2) of this section, the 
premium provided by paragraph (a)(1) of

[[Page 1158]]

this section shall be required for refinancing or prepayment under this 
section.
    (2) In the case of a loan advanced under an agreement that permits 
the refinancing or prepayment of the loan advance based on the payment 
of 1 year of interest on the outstanding principal balance of the loan 
advance, a borrower may, in lieu of the premium required by paragraph 
(a)(1) of this section, pay a premium as provided by:
    (i) Paragraph (a)(2) of this section, if the loan advance has 
reached the 12-year maturity required under the loan agreement for the 
refinancing or prepayment; or
    (ii) Paragraph (a)(3) of this section, if the loan advance has not 
reached the 12-year maturity required under the loan agreement for the 
refinancing or prepayment.



Sec. 1786.208  Increased principal.

    A borrower can meet the premium requirements by increasing the 
outstanding principal balance of the loan advance that is being 
refinanced. If it does so the borrower shall make a payment at the time 
of the refinancing equal to 2.5 percent of the amount of the premium 
that is added to the outstanding principal balance of the loan.



Sec. 1786.209  Outstanding loan documents.

    (a) Except as expressly provided in this subpart, the borrower shall 
comply with all provisions of its RUS loan contract, its outstanding 
notes issued to RUS, and the RUS mortgage.
    (b) Nothing in this subpart shall affect any rights of supplemental 
lenders under the RUS mortgage or the rights of any other creditors of 
the borrower.
    (c) Nothing in this subpart shall prohibit a borrower from making 
prepayments on any loans pursuant to the RE Act in accordance with the 
terms thereof or as may be otherwise permitted by law.



Sec. 1786.210  Approvals.

    The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the refinancing 
note, including such approvals as may be required by regulatory bodies 
and other lenders.



PART 1788--RUS FIDELITY AND INSURANCE REQUIREMENTS FOR ELECTRIC AND TELEPHONE BORROWERS--Table of Contents




               Subpart A--General Policies and Procedures

Sec.
1788.1  General.
1788.2  Policy.
1788.3  Certification of insurance coverage.
1788.4  New borrowers' procedure.
1788.5  RUS endorsement required.
1788.6  Analysis of deductibles.
1788.7  Specialized requirements.
1788.8  Procedure for fidelity notices and claims.
1788.9  Recovering claims.
1788.10  Reporting accidents.
1788.11  Reporting claims to RUS.
1788.12  Use of insurance proceeds.
1788.13  Package-type policies.
1788.14  Obtaining minimum cost.
1788.15  Type of policies.
1788.16  Telephone building rates.
1788.17  Coinsurance recommended.
1788.18  Advantageous fire rates.

              Subpart B--Specific RUS Minimum Requirements

1788.19  General.
1788.20  Officers and employees.
1788.21  Types of coverage.
1788.22  Collection agents.
1788.23  When revenues exceed $1 million.
1788.24  Single bond provisions.
1788.25  Responsibilities of borrowers.
1788.26  Disbursement of recovered sums.
1788.27  Requirements of coverage.
1788.28  Limits required.
1788.29  Contractual liability insurance.
1788.30  Provision on explosives.
1788.31  Buried plant provision.
1788.32  Appliance sales coverage.
1788.33  Railroad right-of-way exclusion.
1788.34  Pollution exclusion.
1788.35  Liability requirements.
1788.36  Comprehensive requirements.
1788.37  Coverage requirement.
1788.38  RUS endorsement.
1788.39  Types of fire insurance policies.
1788.40  Coverage requirement.
1788.41  Endorsements required.
1788.42  Coverage requirement.
1788.43  Suspension notice.
1788.44  Annual inspection report.
1788.45  Modifications considered.

     Subpart C--Insurance for Contractors, Engineers, and Architects

1788.46  General.
1788.47  Policy requirements.
1788.48  Contract requirements.

[[Page 1159]]

1788.49  Bond requirements.
1788.50  Acceptable sureties.
1788.51  Borrower options.
1788.52  Builders' risk policy.
1788.53  Major equipment insurance.
1788.54  Compliance with contracts.
1788.55  Providing RUS evidence.
Exhibit A to Part 1788--Rural Utilities Service Endorsement
Exhibit B to Part 1788--Rural Utilities Service Joint Insured

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 51 FR 25855, July 17, 1986, unless otherwise noted.



               Subpart A--General Policies and Procedures



Sec. 1788.1  General.

    This part sets forth general Rural Utilities Service (RUS) policy 
and requirements for minimum insurance and fidelity coverage for 
electric and telephone borrowers and provides information for borrowers 
to meet those requirements.



Sec. 1788.2  Policy.

    (a) Specific coverages required. RUS mortgage provisions require 
that borrowers procure specific minimum insurance and fidelity coverage 
and that they maintain this coverage as long as the loan or guaranteed 
loan remains unpaid.
    (b) Evidence of coverage. Borrowers shall furnish RUS satisfactory 
evidence that required insurance and fidelity coverage is being 
continuously maintained.
    (c) Excess coverage. Borrowers may purchase insurance or fidelity 
coverage in excess of the RUS requirements.
    (d) Borrower responsibility. Procurement of insurance and fidelity 
coverage is the primary responsibility of the borrower.
    (1) The borrower shall purchase required coverages from companies of 
the borrower's choice, provided the companies selected are licensed to 
do business in the state, or states, in which the borrower operates.
    (2) The required insurance and fidelity bond coverage shall be in 
accordance with acceptable insurance industry types of bonds and 
policies.
    (3) If a borrower fails to purchase or maintain the required 
insurance and fidelity coverages, the mortgagees may place required 
insurance and fidelity coverage on behalf and in the name of the 
borrower. The borrower shall pay the cost of this coverage, as provided 
in the loan documents.
    (e) Losses not covered. In the event of a loss not covered because 
of a deductible provision in an insurance policy, the borrower should 
treat the loss as an expense in the year in which it occurs if provision 
has not been made for such losses in an insurance reserve account. If an 
insurance reserve has been established, the amount of the loss should be 
charged directly against that account. Ordinarily, losses not covered 
because of a deductible provision can be absorbed as current operating 
costs. A reserve account may be established to provide for losses which 
would be excluded because of a deductible and the following guidelines 
are recommended:
    (1) The reserve balance at any one time should not exceed the total 
of the deductibles in the borrower's insurance policies.
    (2) The annual credit to the reserve account should not exceed one-
tenth of the maximum reserve balance, as set forth above, or a lesser 
amount needed to maintain the reserve at the maximum level.
    (3) No reserve should be considered for losses to outside plant or 
for other coverages not required by RUS.
    (4) Accounts used for such reserves shall be as specified in the 
applicable Uniform System of Accounts.



Sec. 1788.3  Certification of insurance coverage.

    Borrowers shall furnish written evidence to RUS within sixty (60) 
days of the close of each calendar year stating that during such year 
all insurance required by this part 1788 was in force and renewals have 
been obtained for all policies. The annual certification will be subject 
to audit verification.



Sec. 1788.4  New borrowers' procedure.

    New borrowers shall furnish RUS, by letter, a schedule of their 
insurance policies in force, showing the name of the insurance company, 
specific type of policy, policy number, expiration date,

[[Page 1160]]

and the amounts of coverage. In the case of fire insurance policies, new 
borrowers shall specify amounts of coverage (building, contents) and a 
complete description of the locations. For workers' compensation, in 
those states where a state agency administers the workers' compensation 
fund, new borrowers shall provide the file or account number in lieu of 
a policy number.



Sec. 1788.5  RUS endorsement required.

    (a) Each insurance policy, other than fidelity bonds or policies, 
purchased by borrowers to meet the requirements of RUS shall contain the 
following RUS Endorsement:

    The insurer agrees with the Rural Utilities Service as follows:
    1. That this endorsement forms a part of the original policy.
    2. Changes in policy forms or endorsements, as a result of approval 
by a regulatory authority, will be submitted to the Rural Utilities 
Service prior to use for a borrower of said Administration.
    3. That it will mail to said Administration, at least 10 days before 
the effective date thereof, notice of cancellation or termination of 
said policy.
    4. That each endorsement subsequently issued will become a part of 
said original policy.

    (b) When the RUS Borrower is a subsidiary of a parent corporation, 
RUS requires the following endorsement for policies covering subsidiary 
companies be included as a part of each public liability and fire 
policy.

    The Insurer agrees with the Rural Utilities Service, as follows:
    1. That this endorsement forms a part of the original policy.
    2. Changes in policy forms or endorsements, as a result of approval 
by a regulatory authority, will be submitted to the Rural Utilities 
Service prior to use for a borrower of said Administration.
    3. That it will mail to said Administration, at least ten days 
before the effective date thereof, notice of cancellation or termination 
of said policy, or cessation of coverage for any reason of any affiliate 
or subsidiary of the assured which is a borrower from the 
administration.
    4. That each endorsement subsequently issued will become a part of 
said original policy.

    (c) In the case of a cooperative or mutual organization, RUS 
requires that the following: ``Endorsement Waiving Immunity From Tort 
Liability'' be included as a part of each public liability, owned, 
nonowned, hired automobile, and aircraft liability, employers' liability 
policy, and boiler policy:
    The Insurer agrees with the Rural Utilities Service that such 
insurance as is afforded by the policy applies subject to the following 
provisions:

    1. The company agrees that it will not use, either in the adjustment 
of claims or in the defense of suits against the Insured, the immunity 
of the Insured from tort liability, unless requested by the Insured to 
interpose such defense.
    2. The Insured agrees that the waiver of the defense of immunity 
shall not subject the company to liability of any portion of a claim, 
verdict or judgment in excess of the limits of liability stated in the 
policy.
    3. The company agrees that if the Insured is relieved of liability 
because of its immunity, either by interposition of such defense at the 
request of the Insured or by voluntary action of a court, the insurance 
applicable to the injuries on which such suit is based, to the extent to 
which it would otherwise have been available to the Insured, shall apply 
to officers and employees of the Insured in their capacity as such; 
provided that all defenses other than immunity from tort liability which 
would be available to the company but for said immunity in suits against 
the Insured or against the company under the policy shall be available 
to the company with respect to such officers and employees in suits 
against such officers and employees or against the company under the 
policy.



Sec. 1788.6  Analysis of deductibles.

    When deductibles are considered, careful analysis should be given to 
the size of the deductible and its effect on the financial position of 
the borrower. A periodic review should be made of the policy to 
determine the economy and advisability of continuing the deductible.



Sec. 1788.7  Specialized requirements.

    Borrowers with specialized requirements or equipment, such as 
nuclear facilities, private generation connection, hydro, solar, wind, 
watercraft, and aircraft, or who do not operate their own systems, will 
be advised of RUS insurance requirements in each specific case.

[[Page 1161]]



Sec. 1788.8  Procedure for fidelity notices and claims.

    Upon discovery by the borrower or RUS of any fraudulent or dishonest 
act of any officer, employee, or collection agent, the borrower shall 
notify the bonding company of such discovery promptly in writing. Such 
notice, a copy of which shall be sent immediately to RUS and each 
supplemental lender, shall be given on behalf of both the borrower and 
RUS. If a proof of loss is filed, it shall also be filed on behalf of 
both the borrower and RUS. A copy of the proof of loss, if any, shall be 
sent immediately to RUS and each supplemental lender by the borrower.



Sec. 1788.9  Recovering claims.

    The borrow shall, when necessary to protect all rights under the 
fidelity bond, initiate suit against the insurance company to recover 
all claims.



Sec. 1788.10  Reporting accidents.

    Borrowers shall promptly provide the insurance company providing 
coverage a written report of all accidents involving injury to persons, 
damage to the property of others, or direct damage to the insured 
property of the borrower and forward at the same time a copy of all 
reports except those involving only employees of the borrower to RUS and 
each supplemental lender.



Sec. 1788.11  Reporting claims to RUS.

    The borrower shall furnish RUS and each supplemental lender a copy 
of any claim submitted to an insurance company seeking recovery of loss 
for damage or destruction of property.



Sec. 1788.12  Use of insurance proceeds.

    In the event of damage, loss, or destruction of property mortgaged 
to the government covered by insurance, the borrower shall repair or 
replace the damaged, lost, or destroyed property so that the property is 
in substantially the same condition as before the damage, loss, or 
destruction. Unless mortgagees direct otherwise, the proceeds of the 
insurance shall be used for that purpose.



Sec. 1788.13  Package-type policies.

    RUS recommends that borrowers secure broad form, package-type 
policies (special multi-peril, combined fire, and boiler), when 
possible, combining all or as many as many as possible of the various 
coverages into a single policy to reduce the number of policies issued 
by individual insurance companies and to avoid any question between the 
insurance companies about responsibility.



Sec. 1788.14  Obtaining minimum cost.

    Borrowers should request proposals from several companies, both 
stock and mutual, for initial and renewal of insurance policies to 
obtain a minimum cost for their insurance. Borrowers should maintain an 
accurate loss record for all insurance coverages to establish trends and 
evaluate the effect of losses on premiums.



Sec. 1788.15  Type of policies.

    RUS recommends term policies, either 1- or 3-years, for insuring 
buildings, contents, stock, and equipment and reporting policies for 
insuring fluctuating material inventories.



Sec. 1788.16  Telephone building rates.

    Telephone borrowers should investigate the possibility of having the 
building fire rate applied to both the buildings and contents in those 
states that permit the single rate. Buildings and contents coverages 
should be combined in the same policy.



Sec. 1788.17  Coinsurance recommended.

    RUS recommends coinsurance where it is available. In accepting a 
policy with a coinsurance clause, the insured agrees to maintain 
insurance in an amount equal to at least a percentage of the actual cash 
value stated in the coinsurance clause.



Sec. 1788.18  Advantageous fire rates.

    To eliminate delays and costly alterations, and to secure the most 
advantageous fire rates for buildings (generation plants, headquarters 
buildings, etc.) borrowers should have plans and specifications for 
buildings reviewed by the state fire rating bureau, the insurance agent 
of record, or competent,

[[Page 1162]]

independent consultant for their recommendations.



              Subpart B--Specific RUS Minimum Requirements



Sec. 1788.19  General.

    This subpart sets forth specific RUS minimum requirements for 
insurance and fidelity coverages for electric and telephone borrowers.



Sec. 1788.20  Officers and employees.

    Borrowers shall provide fidelity coverage for each officer and 
employee based on the estimated annual gross revenue of the borrower.



Sec. 1788.21  Types of coverage.

    A new Commercial Crime Policy came into use January 1, 1986. This 
new policy form should be used in lieu of the Blanket Position Bond or 
Comprehensive 3D policies.
    Under this Commercial Crime Policy the amounts of coverage required 
are as follows:

------------------------------------------------------------------------
                                                              Amounts of
                    Annual gross revenue                       coverage 
------------------------------------------------------------------------
Less than $200,000.........................................      $50,000
$200,001 to 400,000........................................      100,000
400,001 to 600,000.........................................      250,000
600,001 to 800,000.........................................      300,000
800,001 to 1,000,000.......................................      400,000
1,000,001 and over.........................................      500,000
------------------------------------------------------------------------

    The Rural Utilities Service Endorsement, Exhibit A, is necessary on 
all separate policies or where the fidelity coverage is added to a 
package policy. For a municipal borrower, a public employees' blanket 
bond covering employees and officers responsible for activities of the 
RUS-financed facilities is acceptable.



Sec. 1788.22  Collection agents.

    Each collection agent of the borrower shall be included in the bond 
for not less than $2,500, or 10 percent of the highest amount collected 
annually by any one collection agent, whichever is greater. When banks 
are designated as collection agents, borrowers shall advise RUS 
regarding any special arrangements for fidelity coverage.
    When annual gross revenues for a previous twelve-month period exceed 
the limit for the amount of fidelity coverage maintained, the borrower 
shall increase the coverage to the required amount.



Sec. 1788.23  When revenues exceed $1 million.

    When annual gross revenues exceed $1 million, RUS recommends that 
borrowers obtain additional excess fidelity insurance.



Sec. 1788.24  Single bond provisions.

    When the borrower is one of several affiliated companies and this 
coverage is provided by naming the borrower as one of several insureds 
under a single policy, the joint insured paragraph under general or 
insuring agreements shall be amended to include the provisions of the 
fidelity rider in exhibit B.



Sec. 1788.25  Responsibilities of borrowers.

    (a) Termination of fidelity coverage. The new Comprehensive Crime 
Policy provides for fidelity coverage on a term basis. Borrowers should 
renew on a timely basis.
    (b) Effect of fraudulent or dishonest acts. Upon discovery by the 
borrower or RUS of an fraudulent or dishonest act of any officer or 
employee, fidelity coverage for this person is automatically cancelled, 
but remains in effect for all other officers and employees not in 
collusion with this person. Therefore, borrowers must notify their 
fidelity insurer of the discovery.
    (c) Effect of borrower's inaction. Upon discovery of a dishonest 
act, the borrower's inaction, by its failure to report such acts, 
whether motivated by restitution or the apparent insignificance of the 
amount involved, or for any other reason, can affect more than merely 
the validity of the present claim; it may bar some future loss of real 
significance caused by the same person.
    (d) Avoiding future risks. To avoid this risk of future uninsured 
loss, the borrower shall obtain written assurance of continued coverage 
for that individual by the same or another bonding company.
    (e) Disclosure of dishonest acts. Assurance of continued coverage, 
to be effective, requires the borrower to make full disclosure to the 
bonding company

[[Page 1163]]

of the dishonest or fraudulent acts. This disclosure, however, need not 
be of the same degree required to establish a claim under a proof of 
loss or conviction of a false report violation.



Sec. 1788.26  Disbursement of recovered sums.

    Sums recovered under any fidelity bond by the borrower for a loss of 
funds advanced under the notes or recovered by the government for any 
loss under such bond shall, unless otherwise directed by the mortgagees, 
be applied to the prepayment of indebtedness pro rata on the notes 
secured by the mortgage or to construct or acquire facilities, approved 
by the mortgagees, which will become part of the mortgaged property.



Sec. 1788.27  Requirements of coverage.

    Workers' compensation and employers' liability insurance covering 
all employees of the borrower shall be maintained by borrowers in 
amounts required by law. If the borrower or any of its employees is not 
subject to the workers' compensation laws of the state, or states, in 
which the borrower conducts its operations, then its workers' 
compensation policy shall provide voluntary compensation coverage to the 
same extent as though the borrower and its employees were subject to 
such laws. The policy shall include:
    (a) Occupational disease liability.
    (b) Employers' liability insurance.
    (c) ``Additional medical'' coverage of not less than $10,000 in 
those states where full medical coverage is not statutory.

When employers' liability insurance is provided by a separate policy 
issued to a cooperative or mutual organization, it shall include 
``Endorsement Waiving Immunity From Tort Liability.'' See 1788.5(c).



Sec. 1788.28  Limits required.

    RUS requires that public liability insurance be maintained covering 
the ownership liability and all operations of the borrower with limits 
for bodily injury or death of not less than $1 million each occurrence--
$1 million aggregate per policy period and with limits for property 
damage of not less than $1 million per occurrence and $1 million 
aggregate for the policy period. Borrowers have the option to purchase a 
$1 million single limit coverage for bodily injury and property damage. 
This required insurance may be in a policy or policies of insurance, 
primary and excess including the umbrella or catastrophe form.



Sec. 1788.29  Contractual liability insurance.

    Contractual liability insurance shall be included as part of the 
public liability policy when the borrower executes an agreement or 
contract in which it assumes additional liability. The provisions of any 
``hold harmless'' agreement should be referred to the borrower's 
insurance company for specific references in the policy.



Sec. 1788.30  Provision on explosives.

    When explosives are used by employees of the borrower, the property 
damage exclusion clause for blasting shall be deleted.



Sec. 1788.31  Buried plant provision.

    Borrowers contemplating construction of buried plant shall 
immediately obtain an endorsement from their insurance carrier deleting 
the exclusion in the standard public liability insurance policy which 
provides that the policy does not apply to injury to, or destruction of, 
wires, pipes, conduits, mains, sewers, or other similar property below 
the surface of the ground if the injury or destruction is caused by, or 
occurs during, the use of mechanical equipment for the purpose of 
excavating or drilling. For electric borrowers the rating classification 
includes this coverage automatically.



Sec. 1788.32  Appliance sales coverage.

    When there are retail sales, repair, or installations of electrical 
appliances involved in borrowers' operations, borrowers shall purchase 
product liability damage.



Sec. 1788.33  Railroad right-of-way exclusion.

    General liability policies in use contain a restriction pertaining 
to easement agreements involving construction on or adjacent to a 
railroad which are not automatically covered. Where

[[Page 1164]]

construction is on a railroad right-of-way under an easement, borrowers 
shall purchase a general liability policy that specifically includes 
this necessary insurance coverage.



Sec. 1788.34  Pollution exclusion.

    Liability policy forms exclude coverage for ``bodily injury'' or 
``property damage'' arising out of the actual, alleged or threatened 
discharge, dispersal, release or escape of pollutants. Borrowers may 
wish to discuss this exclusion with their insurance companies.



Sec. 1788.35  Liability requirements.

    RUS requires borrowers have liability insurance on all motor 
vehicles, trailers, semitrailers, and aircraft used in the conduct of 
the borrower's business, whether owned, nonowned, or hired by the 
borrower, with bodily injury limits of not less than $1 million for each 
person and $1 million for each occurrence, and property damage limits of 
$1 million for each occurrence; in connection with aircraft liability, 
also passenger bodily injury limits of $1 million per person and $1 
million for each occurrence.



Sec. 1788.36  Comprehensive requirements.

    RUS requires borrowers have comprehensive or separate fire, theft, 
and windstorm insurance on all owned motor vehicles, trailers, and 
aircraft having a unit value in excess of $1,000. The amount of coverage 
shall not be less than the actual cash value of the property insured.



Sec. 1788.37  Coverage requirement.

    Borrowers shall have fire insurance, including the extended coverage 
endorsement, on each building and its contents, and on each storage 
location of materials, supplies, poles, and crossarms having a value at 
any one location in excess of $5,000, or in excess of 1 percent of the 
total plant value, whichever is larger. Such coverage shall be in an 
amount of not less than 80 percent of the current cost to replace the 
property new, less depreciation. Surveys should be conducted 
periodically, every two years at a minimum, to establish property values 
on an actual cash value basis.



Sec. 1788.38  RUS endorsement.

    When the borrower is one of several affiliated companies and the 
coverage is provided by naming the borrower as one of several insureds 
under a single policy, the policy shall be amended to include the 
provisions of the RUS Endorsement in Sec. 1788.5(b).



Sec. 1788.39  Types of fire insurance policies.

    A fire insurance policy may be written on the following basis:
    (a) Specified amount basis.
    (b) Blanket form basis.
    (c) Monthly reporting form basis. The reporting type of policy 
should include the limit of liability for each location. Whenever it 
appears that the value at any one location may exceed the limit of 
liability included in the policy, an endorsement to the policy should be 
promptly secured increasing the limit of liability for that particular 
location.
    (d) Inland Marine Floater basis. Floater form policies on an all-
risk basis are recommended to provide coverage for construction 
equipment, radio/telephone equipment, and pay stations furnished for use 
by subscribers and located on their premises or vehicles, and for radio 
or telephone equipment installed in borrowers' vehicles, for equipment 
being transported, and for materials stored at various locations.



Sec. 1788.40  Coverage requirement.

    Borrowers shall purchase and maintain flood insurance for buildings 
in flood hazard areas to the extent available and required under the 
National Flood Insurance Act of 1968, as amended by the Flood Disaster 
Protection Act of 1973 (Pub. L. 93-234). The insurance should cover, in 
addition to the building, any machinery, equipment, fixtures, and 
furnishings contained in the building.



Sec. 1788.41  Endorsements required.

    The National Flood Insurance Program provides for a standard flood 
insurance policy; however, other existing insurance policies which 
provide flood

[[Page 1165]]

coverages may be used where flood insurance is available in lieu of the 
standard flood insurance policy. Such policies, in order to satisfy the 
insurance requirements of section 102 of the Flood Disaster Protection 
Act of 1973, should be endorsed to provide:
    (a) That the insurer give 30 days written notice of cancellation or 
nonrenewal to the insured with respect to the flood insurance coverage. 
To be effective, such notice must be mailed to both the insured and the 
lender or Federal agency and must include information as to the 
availability of flood insurance coverage under the National Flood 
Insurance Program, and
    (b) That the flood insurance coverage offered by the insurer is at 
least as broad as the coverage offered by the Standard Flood Insurance 
Policy.



Sec. 1788.42  Coverage requirement.

    Electric borrowers having steam generating facilities shall maintain 
boiler and machinery insurance. Electric borrowers having internal 
combustion, gas turbine or hydro-generating facilities shall maintain 
machinery insurance. The limit for each accident shall not be less than 
the actual current cash value of the property of the borrower and of the 
adjacent property that would be damaged by explosion or breakdown of the 
insured object.



Sec. 1788.43  Suspension notice.

    The standard RUS Endorsement, see Sec. 1788.5(a), should be amended 
to provide written notice of suspension to RUS in the event of 
suspension of coverage.



Sec. 1788.44  Annual inspection report.

    Borrowers shall provide RUS a copy of the annual inspection report 
by the insurance company's engineer.



Sec. 1788.45  Modifications considered.

    When requested by the borrower and if loan security is not 
jeopardized, RUS will consider modifying the boiler and machinery 
insurance requirements for those borrowers with special or unusual 
circumstances, such as limited planned annual use of generating 
facilities, or where the value of generating facilities at a location is 
less than $1 million.



     Subpart C--Insurance for Contractors, Engineers and Architects



Sec. 1788.46  General.

    This part sets forth RUS policy on minimum insurance requirements 
for contractors, engineers, and architects performing work under 
contracts with borrowers, and requirements for bonds to be furnished by 
contractors.



Sec. 1788.47  Policy requirements.

    (a) Contractors, engineers, and architects performing work for 
borrowers under construction, engineering and architectural service 
contracts shall obtain insurance coverage, as required in Sec. 1788.51, 
and maintain it in effect until work under the contracts is completed.
    (b) Contractors entering into construction contracts with borrowers 
shall furnish a contractors' bond, except as provided for in 
Sec. 1788.52, covering all of the contractors' undertaking under the 
contract.
    (c) Borrowers shall make sure that their contractors, engineers, and 
architects comply with the insurance and bond requirements of their 
contracts.



Sec. 1788.48  Contract requirements.

    Contracts entered into between borrowers and contractors, engineers, 
and architects shall provide that they take out and maintain throughout 
the contract period insurance of the following types and minimum 
amounts:
    (a) Workers' compensation and employers' liability insurance, as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to the workers' 
compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    (b) Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage

[[Page 1166]]

of not less than $1 million each occurrence, and $1 million aggregate 
for accidents during the policy period. A single limit of $1 million of 
bodily injury and property damage is acceptable. This required insurance 
may be in a policy or policies of insurance, primary and excess 
including the umbrella or catastrophe form.
    (c) Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, nonowned, or hired, shall 
have limits for bodily injury or death of not less than $1 million per 
person and $1 million per occurrence, and property damage limits of $1 
million for each occurrence. This required insurance may be in a policy 
or policies of insurance, primary and excess including the umbrella or 
catastrophe form.



Sec. 1788.49  Bond requirements.

    Construction contracts for facilities in amounts in excess of 
$100,000 shall require contractors to secure a contractors' bond on a 
form approved by the Administrator attached to the contract in a penal 
sum of not less than the contract price, which is the sum of all labor 
and materials including owner-furnished materials installed in the 
project. RUS Form 168b is for use when the contract exceeds $100,000. 
RUS Form 168c is for use when the contractor's surety has accepted a 
Small Business Administration guarantee and the contract is for $1 
million or less. On line extension contracts under which work will be 
done in sections and no section will exceed a total cost of $100,000, 
the borrower may waive the requirement for a contractors' bond.



Sec. 1788.50  Acceptable sureties.

    Surety companies providing contractors' bonds shall be listed as 
acceptable sureties in the U.S. Department of Treasury Circular No. 570. 
A copy of the executed bond shall be furnished RUS. For construction 
contracts, other than buildings, amounting to $100,000 or less, the 
borrower shall determine whether a contractors' bond is required.



Sec. 1788.51  Borrower options.

    For construction contracts for buildings amounting to $100,000 or 
less, the borrower has the option to require the contractors to furnish:
    (a) A contractors' bond, as described in Secs. 1788.52 and 1788.53, 
or
    (b) A builders' risk policy.



Sec. 1788.52  Builders' risk policy.

    The builders' risk policy shall be on a completed value form, 
effective from the date equipment or material is first delivered to the 
building site, and shall name both the borrower and the contractors as 
insureds.
    (a) The policy shall insure against loss by fire or lightning and 
the named perils in the extended coverage endorsement.
    (b) The amount of coverage shall be not less than the actual cash 
value of the property constructed, including all materials to be used in 
the construction and stored at the site, whether furnished by the 
borrower or the contractor.



Sec. 1788.53  Major equipment insurance.

    When a borrower contracts for the installation of major equipment by 
other than the supplier or for the moving of major equipment from one 
location to another, RUS recommends that these contracts require the 
contractor to furnish the borrower with an installation floater policy. 
The policy should cover all risks of damage to the equipment until 
completion of the installation contract.



Sec. 1788.54  Compliance with contracts.

    It is the responsibility of the borrower to make sure, before the 
commencement of work, that the engineer, architect, and the contractor 
have insurance which complies with their contract requirements. 
Compliance with contract requirements should be a certificate signed by 
a representative of the insurance company, including a provision that no 
change in, or cancellation of, any policy listed in the certificate will 
be made without prior written notice to the borrower.



Sec. 1788.55  Providing RUS evidence.

    When RUS shall specifically so direct, the borrower shall also 
require the engineer, the architect, or the contractor to forward to RUS 
evidence of

[[Page 1167]]

compliance with their contract requirements. The evidence shall be in 
the form of a certificate of insurance signed by a representative of the 
insurance company and include a provision that no change in, or 
cancellation of, any policy listed in the certificate will be made 
without the prior written notice to the borrower and to RUS.

       Exhibit A to Part 1788--Rural Utilities Service Endorsement

                        POLICY NUMBER: __________

                            COMMERCIAL CRIME

    This endorsement applies to all forms forming part of the Commercial 
Crime Policy.

                    Employee Dishonesty Coverage Form

    The Employee Dishonesty Coverage Form is amended by deleting the 
Cancellation As to Any Employee section and by substituting the 
following:

                     Cancellation as to any Employee

    Coverage for any Employee shall be deemed cancelled (a) immediately 
upon discovery by you, or by any of your partners or officers thereof 
not in collusion with such Employee, or by the Administration of any 
dishonest act on the part of such Employee (b) at 12:01 a.m., standard 
time, upon the effective date specified in a written notice served upon 
you and the Administration or sent by registered mail to you and the 
Administration.

                      Crime General Provisions Form

    B. General Conditions:
    1. Section 4 is replaced by the following:
    Duties in the Event of Loss
    After you or the Rural Utilities Service of the United States of 
America (the Administration) discover a loss or situation that may 
result in a loss of, or loss from damage to, Covered Property either you 
or the Administration must:
    a. Notify us as soon as possible.
    b. Submit to examination under oath at our request and give us a 
signed statement of answers.
    c. Give us a detailed, sworn proof of loss within four months.
    d. Cooperate with us in the investigation and settlement of any 
claim.
    Prior discovery of loss by you shall not affect the right of the 
Administration to notify us of loss, and to file proof of loss even 
though such prior discovery by you may have occurred more than four 
months prior to the discovery of the loss by the Administration.
    2. Section 6 is replaced by the following:
    Legal Action Against Us: You or the Administration may not bring 
legal action against us involving loss:
    a. Unless all the terms of this insurance have been complied with.
    b. Until 60 days after proof of loss has been filed with us.
    c. Unless brought within two years from the date the loss is 
discovered by you or the Administration.
    3. Section 16 is replaced by the following:
    Territory: This insurance covers only acts committed or events 
occurring within the United States of America, U.S. Virgin Islands, 
Puerto Rico, Canal Zone, Guam, Micronesia, or Canada.
    A new section 19 is added to read as follows:
    Any action, approval or consent which by the provisions of this 
Policy is required to be taken or signed by the Administration shall be 
effective if taken or signed by the Administrator of the Administration 
or by his authorized representative.
    A new section 20 is added to read as follows:
    Discovery by you shall be deemed to mean discovery by any officer or 
employee of the Insured not in collusion with the employee responsible 
for the loss discovered, and discovery by the Administration shall be 
deemed to mean discovery by any employee, agent or attorney of the 
Administration not in collusion with the employee responsible for the 
loss discovered.
    C. General Definitions:
    ``Employee'' also includes non-salaried officers and collection 
agents in your service.

                        Common Policy Conditions

    A. Cancellation:
    1. Paragraph 2 is replaced by the following:
    We may cancel this policy by mailing or delivering to the first 
Named Insured and to the Administration written notice of cancellation 
at least:
    a. 10 days before the effective date of cancellation if we cancel 
for nonpayment of premium; or
    b. 30 days before the effective date of cancellation if we cancel 
for any other reason.
    A new section G is added to read as follows:
    G. Notices:
    1. It is agreed that settlement of any claim under this Policy shall 
be made check or draft payable to you, but no settlement shall be made 
without prior written approval of the Administration. It is further 
agreed if you cancel this Policy, the Administration may, within ten 
days after we receive such notice from you, advise us that the 
cancellation notice is inoperative. In such case, coverage shall 
continue as if such notice of cancellation had never been sent. Notices, 
approvals, and requests by the provisions of this Policy shall be sent 
as follows:

[[Page 1168]]

    a. To us, at our home office.
    b. To you, addressed to you at the city or town at which your 
principal office is located.
    c. To the Administration, addressed to the Rural Utilities Service, 
United States Department of Agriculture, South Building, Washington, DC, 
20250.

      Exhibit B to Part 1788--Rural Utilities Service Joint Insured

    This Endorsement applies to the CRIME GENERAL PROVISIONS FORM and 
all Crime Coverage forms forming part of the policy.

PROVISIONS
    1. Section 5.a of the the CRIME GENERAL PROVISIONS FORM is amended 
by adding the following:
 Payment by us will be made to the first named insured for the use and 
benefit of the insured sustaining the loss.
    2. Section 5.b is amended by deleting the period at the end thereof 
and adding the following:
, except that in the case of a borrowing corporation from the Rural 
Utilities Service knowledge of any information relevant to this 
insurance shall be deemed knowledge of such information by the Insured 
sustaining the loss.
    3. Section 2.a of the EMPLOYEE DISHONESTY COVERAGE FORM is replaced 
by the following:
    Immediately upon discovery by:
    (1) The Rural Utilities Service:
    (2) The borrowing corporation employing such ``employee''; or
    (3) Any of the partners, officers or directors of the Administration 
or the borrowing corporation not in collusion with the ``employee''; of 
any dishonest act committed by that ``employee'' whether before or after 
becoming employed by the borrowing corporation.



PART 1789--USE OF CONSULTANTS FUNDED BY BORROWERS--Table of Contents




  Subpart A--Policy and Procedures With Respect to Consultant Services 
                      Funded by Borrowers--General

Sec.
1789.150  Purpose.
1789.151  Definitions.
1789.152  Policy.
1789.153  Borrower funding.
1789.154  Eligible borrowers.
1789.155  Approval criteria.
1789.156  Proposal procedure.
1789.157  Consultant contract.
1789.158  Implementation.
1789.159  Contract administration.
1789.160  Access to information.
1789.161  Conflicts of interest.
1789.162  Indemnification agreement.
1789.163  Waiver.
1789.164--1789.165  [Reserved]

             Subpart B--Escrow Account Funding and Payments

1789.166  Terms and conditions of funding agreement.
1789.167  Terms and conditions of escrow agreement.
1789.168--1789.175  [Reserved]

    Authority: 7 U.S.C. 901-950b; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.).

    Source: 61 FR 48606, Sept. 16, 1996, unless otherwise noted.



  Subpart A--Policy and Procedures With Respect to Consultant Services 
                      Funded by Borrowers--General



Sec. 1789.150  Purpose.

    This part sets forth policies and the procedures for implementing 
subsection (c) of section 18 of the Rural Electrification Act of 1936, 
as amended (7 U.S.C. 901 et seq.)(RE Act) which authorizes the Rural 
Utilities Service (RUS) to use the services of Consultants funded by the 
Borrowers to facilitate timely action on Applications by Borrowers for 
financial assistance and other approvals.



Sec. 1789.151  Definitions.

    As used in this part:
    Administrator means the Administrator of the Rural Utilities Service 
(RUS).
    Application means a request for financial assistance under the RE 
Act or such other approvals as may be required of the RUS pursuant to 
the terms of outstanding loan or security instruments or otherwise.
    Borrower means any organization which has an outstanding loan(s) 
made or guaranteed by RUS or its predecessor agency, the Rural 
Electrification Administration (REA) under the RE Act or any 
organization which has submitted or submits an Application before RUS.
    Consultant means a person or firm which has been retained pursuant 
to

[[Page 1169]]

this subpart under a contract to provide financial, legal, engineering, 
environmental, or other technical advice and services.
    Consultant Contract means a contract for the performance of 
consulting services for RUS, to be paid using funds provided by a 
Borrower, which may be in the form of a Retainer Contract, purchase 
order, or other form as may be appropriate.
    Escrow Account means an account established pursuant to 
Sec. 1789.158.
    Escrow Agreement means an agreement, between a Borrower, a 
Consultant and a Third-party Commercial Institution, meeting the 
requirements of Sec. 1789.167.
    Final Invoice means the closing Invoice prepared for a given Task 
Order.
    Financial Consultant means a Consultant retained pursuant to this 
part to provide financial advisory services.
    Funding Agreement means an agreement, between a Borrower and a 
Consultant, providing for the Borrower to fund the costs of a Task Order 
and otherwise meeting the requirements of Sec. 1789.166.
    Indemnification Agreement means an agreement by a Borrower meeting 
the requirements of Sec. 1789.162.
    Invoice means an invoice prepared by a Consultant pursuant to the 
terms of a Consultant Contract.
    Legal Consultant means any Consultant retained pursuant to this part 
to provide legal services to RUS.
    Notice of Proposal to Fund means a notice meeting the requirements 
of Sec. 1789.156 provided to RUS by the Borrower.
    Organizational conflict of interest means that because of other 
activities or relationships with other persons, a person is unable or 
potentially unable to render impartial assistance or advice to the 
Government, or the person's objectivity in performing the contract work 
is or might be otherwise impaired, or a person has an unfair competitive 
advantage.
    Retainer Contract means a Consultant Contract providing for a 
minimum required payment to a Consultant irrespective of whether 
services are utilized by RUS thereunder.
    Task Order means a written request for consultant services pursuant 
to the terms of a Consultant Contract.
    Third-party Commercial Institution means a commercial financial 
institution mutually acceptable to the Borrower and the Consultant.



Sec. 1789.152  Policy.

    (a) As provided in this subpart, RUS may, at its discretion, use the 
services of Consultants funded by a Borrower where such services will 
facilitate timely action on an Application by such Borrower for 
financial assistance or other approvals. Such Consultants may provide 
financial, legal, engineering, environmental or other technical advice 
and services in connection with the review of an Application.
    (b) With the approval of RUS, a Borrower may fund the cost of 
consulting services in connection with the review by RUS of an 
Application by such Borrower. Such funding shall be provided pursuant to 
the terms of a Funding Agreement between the Borrower and the Consultant 
designated by RUS.
    (c) RUS may not, without the consent of the Borrower, require, as a 
condition of processing any Application for approval, that the Borrower 
agree to pay the costs of a Consultant hired to provide services to RUS.
    (d) The government shall retain sole discretion in the selection of 
Consultants to provide services to RUS and the form of contract 
utilized. RUS may either use the services of one or more Consultants 
retained under Retainer Contracts or the government may elect to retain 
a Consultant not otherwise on retainer. The government shall have sole 
discretion to prescribe terms and conditions of Consultant Contracts. 
The Borrower may bring considerations to the attention of the government 
which the Borrower deems pertinent to the selection process.
    (e) RUS shall retain sole discretion as to whether to further pursue 
use of an outside consultant for the relevant application in the event 
the Borrower does not enter into the agreements referenced in 
Sec. 1789.158(c)(3)(iii) within 60 days of the government providing to 
the Borrower the information set forth in Sec. 1789.158(c)(3).

[[Page 1170]]



Sec. 1789.153  Borrower funding.

    Borrowers shall use their general funds for the purposes of funding 
consultant services hereunder. Borrowers may not use the proceeds of 
loans made or guaranteed under the RE Act for costs incurred by 
Borrowers pursuant to the funding of consultant services for RUS.



Sec. 1789.154  Eligible borrowers.

    All Borrowers are eligible to fund consultant services under this 
part.



Sec. 1789.155  Approval criteria.

    RUS will consider approving the use of consultant services funded by 
a Borrower on a case by case basis taking into account, among other 
matters, the following:
    (a) Whether such services are required to facilitate timely action 
on a Borrower's Application. RUS shall determine what represents timely 
action with respect to each Application considering, among other 
matters, the review period normally required for such projects by RUS 
and other lenders and the consequences to the Borrower of adjusting the 
review period.
    (b) The availability of staff resources, the priorities of other 
projects then before RUS, and the efficiencies to be realized from the 
use of consultant services.
    (c) Whether it is in the best interest of RUS to use Borrower-funded 
Consultants. Certain types of projects, such as those involving issues 
of program-wide significance, may not be well suited for the use of 
Borrower funded Consultants.



Sec. 1789.156  Proposal procedure.

    (a) In the event RUS determines that consideration should be given 
to the use of a Borrower-funded consultant in connection with the review 
of an Application, the RUS Regional Director or the Director of the 
Power Supply Division, as appropriate, will discuss with the Borrower 
the nature of the Application and the projected review period required 
of RUS. If RUS concludes that the projected review period will not 
result in timely action on the Application, and after being so notified 
in writing by RUS the Borrower wishes to fund consultant services to 
facilitate RUS review, the Borrower shall submit to the same Director a 
funding proposal. The proposal shall set forth the following:
    (1) Identification in the heading or caption as a Notice of Proposal 
to Fund Consulting Services;
    (2) Borrower's REA/RUS designation;
    (3) Borrower's legal name and address;
    (4) A description of the Application, critical issues and concerns 
relating to the Application, time deadlines, and the consequences of any 
delays in RUS review;
    (5) A description of the consulting service(s) that would facilitate 
timely RUS review of the Application; and
    (6) Such additional documents and information as RUS may request.
    (b) RUS will review the Notice of Proposal to Fund and any 
additional information RUS deems relevant in determining whether to 
proceed with procuring Borrower funded Consultants. If RUS proposes to 
utilize Legal Consultants, RUS must obtain the concurrence of the Office 
of General Counsel (OGC) of the Department of Agriculture. RUS will 
notify the Borrower in writing of its determination.



Sec. 1789.157  Consultant contract.

    (a) The Federal Acquisition Regulation (FAR), 48 CFR Ch. 1, and the 
Agriculture Acquisition Regulation (AGAR), 48 CFR Ch. 4, shall apply to 
all Consultant Contracts entered into pursuant to this part except as 
provided in this section.
    (1) Contracts for Legal Consultants shall provide for a technical 
representative from OGC.
    (2) All Consultant Contracts shall provide for an escrow account 
funding mechanism pursuant to this part and for the government's sole 
discretion in determining whether payments are to be made from the 
Escrow Account to the Consultant.
    (3) All Consultant Contracts shall provide that payment of all 
obligations for work performed thereunder must be satisfied by amounts 
available in the Escrow Account; with the exception of the annual 
retainer fee, if any, Consultants shall not be entitled to any payments 
from the government.

[[Page 1171]]

    (b) The provisions of paragraph (a) of this section shall be given 
prominent emphasis in requests for proposals issued under this part.



Sec. 1789.158  Implementation.

    (a) Upon making a determination to go forward with Borrower funding 
for consulting services, RUS shall initiate a procurement request for a 
Consultant to provide the services. The government may either contract 
with a Consultant on a case by case basis or elect to use a Consultant 
pursuant to an outstanding Retainer Contract. The Borrower will not be 
informed of the Consultant selected until such time as the government 
provides the information set forth in paragraph (c)(3) of this section.
    (b) If the government determines to contract with a Consultant on a 
case by case basis, the government shall notify the Borrower of the 
applicable procedures.
    (c) If the government determines to contract with a Consultant under 
an outstanding Retainer Contract, the following procedures will normally 
apply:
    (1) Pursuant to the terms of the contract, the government will 
prepare a draft Task Order requesting consultant services in connection 
with the review of the Borrower's Application. The draft Task Order 
shall set forth for the Consultant's review and acceptance, a 
description of the services to be provided and applicable time frames 
for the provision of such services.
    (2) The government will request that the Consultant:
    (i) Notify the government as to the acceptability of the form and 
substance of the draft Task Order;
    (ii) Notify the government as to its ability to provide a 
satisfactory conflict of interest certification consistent with the 
requirements of the FAR (48 CFR ch. 1); and
    (iii) Provide a cost estimate for the draft Task Order.
    (3) When the government is satisfied with the response(s) received 
pursuant to paragraph (c)(2) of this section, the government shall 
promptly provide to the Borrower:
    (i) A copy of the draft Task Order identifying the Consultant;
    (ii) The Consultant's cost estimate for the draft Task Order; and
    (iii) Contract information required to enable the Borrower to 
develop a Funding Agreement, an Escrow Agreement and an Indemnification 
Agreement (the ``agreements'').
    (4) The Borrower shall develop and submit to the government for 
approval executed originals of:
    (i) The agreements; and
    (ii) A certified copy of a resolution of the board of directors 
authorizing the Borrower to enter into the agreements and to take such 
other action as is necessary to effect the purposes of the agreements.
    (5) Upon receiving written RUS approval of the agreements and the 
form and substance of the board resolution, the Borrower shall:
    (i) Establish and fund the Escrow Account; and
    (ii) Provide written notice to the government of the Escrow Account 
number, the funding thereof, and such other information as required 
pursuant to the agreements.
    (6) After the Borrower has funded the Escrow Account, the government 
shall issue Task Order(s) for consultant services in accordance with the 
terms and conditions of the applicable Retainer Contract.



Sec. 1789.159  Contract administration.

    The government shall be solely responsible for the administration of 
a Consulting Contract and shall have complete control over the scope of 
the Consultant's work, the timetable for performance, the standards to 
be applied in determining the acceptability of deliverables and the 
approval of payment of Invoices.



Sec. 1789.160  Access to information.

    The Borrower shall not have rights in nor right of access to the 
work product of the Consultant. All analyses, studies, opinions, 
memoranda, and other documents and information provided by the 
Consultant pursuant to a Consulting Contract may be released and made 
available to the Borrower only with the approval of RUS. This section 
does not restrict release of information

[[Page 1172]]

by RUS pursuant to the Freedom of Information Act (5 U.S.C. 552(a)(2)) 
or other legal process.



Sec. 1789.161  Conflicts of interest.

    The standard for determining organizational conflicts of interest 
shall be as set forth in the FAR subpart 9.5 (48 CFR part 9, subpart 
9.5); however, the identification of the existence of an organizational 
conflict of interest may be made by either the Administrator or the 
cognizant Contracting Officer. In the event an organizational conflict 
of interest is determined to exist, the cognizant Contracting Officer 
shall take the actions prescribed at FAR 9.504 (48 CFR 9.504) to attempt 
to avoid, neutralize or mitigate the conflict. Should these actions be 
deemed by the Administrator and the Contracting Officer to adequately 
resolve the conflict, the contracting action with the offeror/contractor 
may proceed. Should the Administrator or the Contracting Officer 
determine that an organizational conflict of interest still exists such 
that contract award or other contracting action cannot be taken (award 
of task/delivery order, etc.) the offeror/contractor shall be so 
informed by the Contracting Officer and be provided a reasonable 
opportunity to respond in accordance with FAR 9.504(e) (48 CFR 
9.504(e)). After considering the contractor's response, if it is found 
by both the Administrator and Contracting Officer to remedy the conflict 
of interest, the contracting action may proceed. If the Administrator 
and Contracting Officer determine that the contractor's response does 
not resolve the conflict of interest, yet continuing with the 
contracting action with the offeror/contractor in question is considered 
in the best interest of the United States, a waiver in accordance with 
FAR 9.503 (48 CFR 9.503) may be executed. This waiver shall be submitted 
under the Contracting Officer's signature and approved by the 
Administrator. The Administrator has been delegated Head of Contracting 
Activity authority by the USDA Senior Procurement Executive solely for 
the purpose of waiver approval.



Sec. 1789.162  Indemnification agreement.

    As a condition of approving Borrower funding, the government will 
require the Borrower to enter into an Indemnification Agreement, in form 
and substance satisfactory to RUS, providing that the Borrower will 
indemnify and hold harmless the government and any officers, agents or 
employees of the government from any and all liability, including costs, 
fees, and settlements arising out of, or in any way connected with the 
payment of the Consultant's fee pursuant to the Consultant Contract. The 
Indemnification Agreement may recognize, as a condition of liability 
thereunder, the rights of the borrower to prompt notice, to use of 
counsel of its own choosing, and to participation in any settlement of a 
claim against which indemnification is sought.



Sec. 1789.163  Waiver.

    RUS may waive any requirement or procedure of this subpart by 
determining that its application in a particular situation would not be 
in the government's interest, except that certain provision that the 
subject contracts are subject to the provisions of the FAR (48 CFR ch. 
1) and AGAR (48 CFR ch. 4).
Secs. 1789.164--1789.165  [Reserved]



             Subpart B--Escrow Account Funding and Payments



Sec. 1789.166  Terms and conditions of funding agreement.

    Funding Agreements between the Borrower and a Consultant shall be in 
form and substance satisfactory to RUS and provide for, among other 
matters, the following:
    (a) Specific reference by number to the applicable Consulting 
Contract entered into between the government and the Consultant;
    (b) Specific reference by number to the applicable Task Order (where 
applicable);
    (c) A brief description of the Application;
    (d) A requirement that Invoices make specific reference to:
    (1) The applicable contract and Task Order(s); and

[[Page 1173]]

    (2) The Escrow Account from which payment is to be made;
    (e) A requirement that the Final Invoice for a Task Order be clearly 
identified as such;
    (f) A description of the services to be provided by the Consultant 
to RUS and the applicable time frames for the provision of such 
services;
    (g) Agreement that the Borrower shall pay for the Consultant 
services provided to RUS under the applicable contract through an Escrow 
Account established pursuant to an Escrow Agreement, the Consultant 
shall not provide services to RUS under the applicable contract unless 
there are sufficient funds in the Escrow Account to pay for such 
services, the Consultant shall seek compensation for services provided 
under the applicable contract from, and only from, funds made available 
through the Escrow Account, and the Consultant must submit all Invoices 
to the government for approval.
    (h) A form of Escrow Agreement satisfactory to the Borrower, 
Consultant and the designated Third-party Commercial Institution;
    (i) A schedule setting forth when and in what amounts the Borrower 
shall fund the Escrow Account;
    (j) Acknowledgment by the Consultant of the Indemnification 
Agreement provided by the Borrower to the government; and
    (k) The Funding Agreement shall not be effective unless and until 
approved in writing by RUS.



Sec. 1789.167  Terms and conditions of escrow agreement.

    Escrow Agreements between and among the Borrower, Consultant and 
Third-party Commercial Institution shall be in form and substance 
satisfactory to RUS and provide for, among other matters, the following:
    (a) Specific reference by number to the applicable contract for 
services;
    (b) Specific reference by number to the applicable Task Order;
    (c) Specific reference by number to the Escrow Account into which 
funds are to be deposited;
    (d) Invoices to specifically identify the applicable contract and 
Task Order(s);
    (e) Funds to be held in the Escrow Account by the escrow agent until 
paid to the Consultant pursuant to the government's authorization;
    (f) The Escrow Account to be closed and all remaining funds remitted 
to the Borrower after payment of the Final Invoice, unless otherwise 
directed by the government;
    (g) The government, the Consultant and the Borrower to have the 
right to be informed, in a timely manner and in such form as they may 
reasonably request, as to the status of and activity in the Escrow 
Account; and
    (h) The Escrow Agreement shall not be effective unless and until 
approved in writing by RUS.
Secs. 1789.168--1789.175  [Reserved]



PART 1792--COMPLIANCE WITH OTHER FEDERAL STATUTES, REGULATIONS, AND EXECUTIVE ORDERS--Table of Contents




                      Subparts A and B--[Reserved]

      Subpart C--Seismic Safety of Federally Assisted New Building 
                              Construction

Sec.
1792.101  General.
1792.102  Definitions.
1792.103  Design and construction standards for seismic safety.
1792.104  Seismic safety certifications.

    Authority: 7 U.S.C. 901 et seq.; 42 U.S.C. 7701 et seq.; Pub. L. 
103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.); E.O. 12699 (3 CFR, 1990 
Comp., p. 269).

    Source: 58 FR 32437, June 10, 1993, unless otherwise noted.



                      Subparts A and B--[Reserved]



      Subpart C--Seismic Safety of Federally Assisted New Building 
                              Construction



Sec. 1792.101  General.

    (a) The Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 et 
seq.) was enacted to reduce risks to life and property through the 
establishment and maintenance of an effective earthquake hazards 
reduction program (the National Earthquake Hazards Reduction Program or 
NEHRP). The Federal

[[Page 1174]]

Emergency Management Agency (FEMA) is designated as the agency with the 
primary responsibilities to plan and coordinate the NEHRP. This program 
includes the development and implementation of feasible design and 
construction methods to make structures earthquake resistant. Executive 
Order 12699 of January 5, 1990, Seismic Safety of Federal and Federally 
Assisted or Regulated New Building Construction (3 CFR, 1990 Comp., p. 
269), requires that measures to assure seismic safety be imposed on 
federally assisted new building construction.
    (b) This subpart identifies acceptable seismic standards which must 
be employed in new building construction funded by loans, grants, or 
guarantees made by the Rural Utilities Service (RUS) or the Rural 
Telephone Bank (RTB) or through lien accommodations or subordinations 
approved by RUS or RTB. This subpart implements and explains the 
provisions of the loan contract utilized by the RUS for both electric 
and telephone borrowers and by the RTB for its telephone borrowers 
requiring construction certifications affirming compliance with the 
standards set out in Sec. 1792.103 of this subpart.
    (c) This subpart applies to both RUS and RTB borrowers. For the 
purposes of RTB borrowers, as used in this subpart, RUS means RTB and 
Administrator means Governor.
    (d) This subpart applies to the recipients of RUS grants.
    (e) This subpart applies to the federally assisted buildings for 
which designs are prepared on or after the effective date hereof.



Sec. 1792.102  Definitions.

    As used in this subpart, the following terms have the following 
meaning:
    Administrator--Administrator of RUS or the Governor of the Rural 
Telephone Bank or his or her designee.
    Borrower--An entity which borrows or seeks to borrow money from, or 
arranges financing with the assistance of RUS through guarantees, lien 
accommodations or lien subordinations.
    Building--Any structure, fully or partially enclosed, used or 
intended for sheltering persons or property.
    Federally assisted--The provision of financing assistance by RUS 
through loans, loan guarantees, grants, and lien accommodations and 
subordinations.
    Grant recipient--Any entity which receives a grant from RUS.
    Lien accommodation--The consensual sharing of the government's 
(RUS's) lien on property or the release of government's lien on 
property.
    Lien subordination--Agreement that the government's (RUS) lien on 
property will rank below the lien of another entity.
    NEHRP--National Earthquake Hazards Reduction Program.
    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.
    Registered--A person licensed by the State(s) or Authority(ies) to 
perform architectural or engineering services in the State(s) where 
construction occurs.
    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.
    Seismic--To do with or caused by earthquakes.
    Seismic factor--The factor used in design based on the seismic zone 
(Z = .4, .3, .2, etc.) or based on acceleration (Av or Aa, whichever 
controls) for the location of the building, and given on the seismic 
maps in the model codes.
    State--Each of the 50 States of the United States, the District of 
Columbia, and territories and possessions of the United States which are 
authorized to receive loans, loan guarantees, or grants from RUS.

[58 FR 32437, June 10, 1993, as amended at 59 FR 66440, Dec. 27, 1994]



Sec. 1792.103  Design and construction standards for seismic safety.

    (a) Borrowers and grant recipients of grants must utilize in the 
design and construction of federally assisted buildings, the seismic 
provisions of the most recent edition of those standards and practices 
that are substantially

[[Page 1175]]

equivalent to or exceed the seismic safety level in the most recent or 
immediately preceding edition of the NEHRP Recommended Provisions for 
the Development of Seismic Regulation for New Buildings. The NEHRP 
Recommended Provisions are updated triennially.
    (b) Each of the following model codes has been found to provide a 
level of seismic safety substantially equivalent to that provided by the 
use of the 1988 NEHRP Recommended Provisions and appropriate for 
federally assisted new building construction:
    (1) 1991 International Conference of Building Officials (ICBO) 
Uniform Building Code;
    (2) 1992 Supplement to the Building Officials and Code 
Administration, International, Inc. (BOCA) National Building Code; and
    (3) 1992 Amendments to the Southern Building Code Congress (SBCC) 
Standard Building Code.
    (c) The model codes identified in Sec. 1792.103(b) can be obtained 
from the following organizations:
    (1) ICBO Uniform Building Code. International Conference of Building 
Officials, Austin Regional Office, 9300 Jollyville Road, suite 101, 
Austin, Texas 78759-7455.
    (2) BOCA National Building Code. Building Officials and Code 
Administrators International, Inc., 4051 West Flossmoor Road, Country 
Club Hills, Illinois 60478-5795.
    (3) SBCC Standard Building Code. Southern Building Code Congress 
International, Inc., 900 Montclair Road, Birmingham, Alabama 35213-1206.
    (d) The NEHRP Recommended Provisions for the Development of Seismic 
Regulations for New Building is available from the Office of Earthquakes 
and Natural Hazards, Federal Emergency Management Agency, 500 C Street, 
SW., Washington, DC 20472.



Sec. 1792.104  Seismic safety certifications.

    Borrowers and grant recipients must with respect to federally 
assisted buildings:
    (a) Provide to RUS a written acknowledgement from a registered 
architect or engineer responsible for the design of such building 
project stating that the seismic provisions of one of the model codes 
listed in Sec. 1792.103(b) of this subpart will be used in the design 
and construction of the building project. This written acknowledgement 
must include a description of the building project, estimated costs, 
approximate square footage, the seismic factor for the building 
location, and the identification and date of the Model Code to be used 
in the seismic design of the building. The written acknowledgement must 
be received by RUS prior to the preparation of preliminary plans and 
specifications for the building.
    (b) Include on the final plans and specifications, which are 
otherwise required to be submitted to RUS, the identification and date 
of the model code that was used for the seismic design of the building 
project and the seismic factor for the building location. The plans and 
specifications must be dated, signed, and sealed by the registered 
architect or engineer.
    (c) Provide to RUS, upon completion of construction, the written 
certification of the architect or engineer responsible for the design of 
the project that the building project was designed to meet and that the 
completed construction meets the seismic requirements set forth in the 
model code identified in the written acknowledgement required in 
paragraph (a) of this section. This certification must include the 
following information:
    (1) Project designation and project owner's name;
    (2) Name of architectural/engineering firm;
    (3) Name and registration no. (for the State in which the building 
project is located) of the certifying architect or engineer;
    (4) Purpose and location of the facility;
    (5) Seismic factor for the building location;
    (6) The code identity and the date of the model code used for the 
design and construction of the building project(s);
    (7) Total square footage of the building project;
    (8) Total cost of the building project; and
    (9) Estimated cost of the structural systems affected by the 
requirements of this subpart.

[[Page 1176]]

    (d) The written acknowledgement required by paragraph (a) of this 
section, the plans and specifications referred to in paragraph (b) of 
this section, and the written certification required by paragraph (c) of 
this section are to be submitted to the appropriate Director of the 
Regional Electric Division, Power Supply Division, Regional Telephone 
Division, or Rural Development Assistance Staff. When plans and 
specifications are not otherwise required to be submitted to the RUS 
Washington's offices, the data required to be included on the plans and 
specifications by paragraph (b) of this section must be submitted in 
letter form to the appropriate Director prior to the release of the 
plans and specifications for construction purposes.

(The information and recordkeeping requirements of this section have 
been approved by the Office of Management and Budget (OMB) under the 
control number 0572-0099.)



PART 1794--ENVIRONMENTAL POLICIES AND PROCEDURES FOR ELECTRIC AND TELEPHONE BORROWERS--Table of Contents




                           Subpart A--General

Sec.
1794.1  Purpose.
1794.2  Actions requiring environmental review.
1794.3  Compliance.
1794.4  Trivial violations.
1794.5  Responsible officials.
1794.6  Metric units.
1794.7  Guidance.

   Subpart B--Implementation of the National Environmental Policy Act

1794.10  Apply NEPA early in the planning process.
1794.11  Consideration of alternatives.
1794.12  Public involvement.
1794.13  Interagency involvement.

        Subpart C--Provisions Applicable to EA or EIS Preparation

1794.20  Interagency coordination.
1794.21  Limitation on actions during the NEPA process.
1794.22  Tiering.

                 Subpart D--Classification of Proposals

1794.30  Control.
1794.31  Categorical exclusions (proposals normally requiring neither an 
          EIS nor an EA.)
1794.32  Proposals normally requiring an EIS.
1794.33  Proposals normally requiring an Environmental Assessment 
          without scoping.
1794.34  Proposals normally requiring an Environmental Assessment with 
          scoping.
1794.35  Work plan proposals.

             Subpart E--Procedure for Categorical Exclusions

1794.40  General.
1794.41  Proposals with no BER.
1794.42  BER proposals.

      Subpart F--Procedure for Proposals Normally Requiring an EIS

1794.50  Normal sequence.
1794.51  Preparation for scoping.
1794.52  Scoping meeting.
1794.53  Borrower's environmental analysis.
1794.54  EIS.
1794.55  Timing of agency action.

  Subpart G--Procedure for Environmental Assessment Proposals Without 
                                 Scoping

1794.60  General.
1794.61  Document requirements.
1794.62  Notice of availability.
1794.63  FONSI and notice requirements.
1794.64  Timing of agency action.

Subpart H--Procedure for Environmental Assessment Proposals With Scoping

1794.70  General.
1794.71  RUS determination.
1794.72  Notice requirements for a FONSI determination.
1794.73  Timing of agency action for FONSI determination.

             Subpart I--Adoption of Environmental Documents

1794.80  General.
1794.81  Adoption as a final EIS.
1794.82  Adoption as a draft EIS.
1794.83  Adoption of an EA.
1794.84  Adoption of environmental materials.
1794.85  Timing of agency action.

                       Subpart J--Supplemental EIS

1794.90  Circulation and notices.
1794.91  Timing of agency action.

Appendix A to Part 1794--Procedure for Proposals Which Normally Require 
          an EIS


[[Page 1177]]


    Authority: National Environmental Policy Act of 1969 (NEPA) (42 
U.S.C. 4321 et seq.); Pub. L. 103-354, 108 stat. 3178 (7 U.S.C. 6941 et 
seq.); Council on Environmental Quality Regulations for Implementing the 
Procedural Provisions of NEPA (40 CFR parts 1500-1508); Executive Order 
(EO) 11988, Floodplain Management; and EO 11990, Protection of Wetlands.

Source: 49 FR 9550, Mar. 13, 1984, unless otherwise noted.



                           Subpart A--General



Sec. 1794.1  Purpose.

    This part contains the policies and procedures of the Rural 
Utilities Service (RUS) for implementing the National Environmental 
Policy Act (NEPA), as amended (42 U.S.C. 4321 et seq.); the Council on 
Environmental Quality (CEQ) Regulations for Implementing the Procedural 
Provisions of NEPA (40 CFR parts 1500-1508); and certain related 
statutes, regulations and orders. Among those statutes, regulations and 
orders are the National Historic Preservation Act of 1966, as amended 
(16 U.S.C. 470 et seq.); the Advisory Council on Historic Preservation 
regulations on Protection of Historic and Cultural Properties (36 CFR 
Part 800); the Endangered Species Act of 1973, as amended (16 U.S.C. 
1531 et seq.); Executive Order (EO) 11514, ``Protection and Enhancement 
of Environmental Quality''; EO 11593, ``Protection and Enhancement of 
the Cultural Environment''; EO 11988, ``Floodplain Management''; EO 
11990, ``Protection of Wetlands''; and the Farmland Protection Policy 
Act (Pub. L. 97-98).



Sec. 1794.2  Actions requiring environmental review.

    The provisions of part 1794 apply to proposed administrative actions 
by RUS including, without limitation, loans, loan guarantees, 
reclassification of loan funds, lien accommodations, and approvals 
provided pursuant to loan contracts and security instruments (e.g., 
approvals of the use of the general funds).



Sec. 1794.3  Compliance.

    The effective date of provisions contained in part 1794 is the date 
of publication of the final rule in the Federal Register. Any 
environmental document accepted or prepared by RUS prior to the 
effective date may be developed in accordance with the RUS environmental 
requirements in effect at the time the document was accepted or prepared 
by RUS.



Sec. 1794.4  Trivial violations.

    It is the intent of this part that a trivial violation of its 
provisions will not give rise to an independent cause of action.



Sec. 1794.5  Responsible officials.

    The agency contact points for environmental matters shall be the 
Assistant Administrator, Electric or Telephone (as appropriate); Rural 
Utilities Service; U.S. Department of Agriculture; South Building, 
Washington, DC 20250. The Assistant Administrators, Electric and 
Telephone, are responsible for determining the proper definition of 
proposals and the need for the preparation and approval of draft 
Environmental Impact Statements (EIS). Final EIS's will be issued and 
approved by the Administrator.



Sec. 1794.6  Metric units.

    It is RUS's policy to prepare environmental documents using metric 
units with British system equivalents in parentheses. Environmental 
documents prepared by or for an RUS borrower (Borrower) should follow 
the same format.



Sec. 1794.7  Guidance.

    For further guidance in the preparation of notices and environmental 
documents RUS has prepared an RUS Environmental Guide. A copy of this 
RUS Environmental Guide is available upon request to the Assistant 
Administrator, Electric or Assistant Administrator, Telephone; Rural 
Utilities Service; U.S. Department of Agriculture, Washington, DC 20250.



   Subpart B--Implementation of the National Environmental Policy Act



Sec. 1794.10  Apply NEPA early in the planning process.

    The environmental review process requires early coordination with 
and involvement of RUS. Borrowers should

[[Page 1178]]

consult with RUS at the earliest stages of planning for any proposal 
which may require RUS action. Since planning efforts and environmental 
evaluation for power supply facilities, including power plants, 
transmission lines, coal or other fuel development, are interrelated, 
these activities should take place within the same time frame.



Sec. 1794.11  Consideration of alternatives.

    In determining what are reasonable alternatives, RUS will consider a 
number of factors including, but not limited to, state of the 
technology, availability of resources and the time frame in which the 
identified need must be fulfilled.



Sec. 1794.12  Public involvement.

    In carrying out its responsibilities under NEPA, RUS shall make 
diligent efforts to involve the public in the environmental review 
process through the following means:
    (a) RUS notices required by part 1794 shall be published in the 
Federal Register and shall describe the nature, location and extent of 
the proposed action and indicate the availability and location of 
additional information.
    (b) Borrower's notices, when required by this part or otherwise 
required by RUS, shall consist of both a legal notice and a paid 
advertisement published in a timely manner in a newspaper or newspapers 
of general circulation in the counties in which the proposal will take 
place or such other places as RUS determines. It shall generally 
describe the nature, location and extent of the Borrower's proposal and 
indicate the availability and location of additional information. If 
both the paid advertisement and legal notice appear in the same edition, 
the advertisement need not be lengthy and can refer the reader to the 
legal notice for a more detailed explanation. The Borrower shall consult 
with RUS prior to issuance of Borrower's notices where an EIS or 
Environmental Assessment (EA) will be prepared.
    (c) The Borrower shall submit to RUS, as soon as practicable after 
publication, copies and publication dates of all Borrower's legal 
notices and paid advertisements published. A copy of all comments 
received by the Borrower (including the Borrower's position, if any) 
concerning environmental aspects of the proposal shall be provided to 
RUS in a timely manner.
    (d) Public hearings or meetings may be held at reasonable times and 
locations concerning environmental aspects of a proposed action in all 
cases where, in the Assistant Administrator's opinion, the need for 
hearings or meetings is indicated in order to develop adequate 
information on the environmental implications of the proposed action. 
The following shall be required in connection with a meeting or a 
hearing:
    (1) Where an environmental document is the subject of the hearing or 
meeting, that document will be made available to the public at least ten 
(10) days in advance.
    (2) Any person, organization or government body desiring to make a 
statement at the hearing or meeting may make such statement in writing 
or orally. Public hearings or meetings normally will be informal and 
will generally be confined to the environmental aspects of the proposal.
    (3) RUS notice shall be published at least thirty (30) days before 
the hearings or meetings. The Borrower's notice of the hearings or 
meetings shall be published at least ten (10) days but no more than 
thirty (30) days before the hearings or meetings. RUS shall determine 
the counties in which the Borrower's notice shall be published in 
newspapers of general circulation to assure that persons most likely to 
be affected by the proposal will be made aware of the hearings. The 
notice shall present the date, time, location and purpose of the hearing 
or meeting. If an environmental document is the subject of the hearing 
or meeting, the notice shall inform the public where it can be obtained 
or is available for review.
    (e) A list of RUS administrative actions for which EIS's and EA's 
are being prepared or contemplated will be available for public 
inspection at RUS's offices in Washington, DC.



Sec. 1794.13  Interagency involvement.

    In carrying out its responsibilities under NEPA, RUS shall, to the 
extent

[[Page 1179]]

practicable, coordinate its environmental review and combine its 
meetings and hearings with those of other Federal, state and local 
agencies. The Borrower shall inform RUS of potential involvement of 
other agencies in the proposal at the earliest practicable time to 
facilitate such coordination.



        Subpart C--Provisions Applicable to EA or EIS Preparation



Sec. 1794.20  Interagency coordination.

    (a) Whenever practicable, RUS will encourage the use of a lead 
agency in preparation of an EIS or EA so that a single document and 
review process will cover all Federal agency actions arising from the 
proposal or directly related group of proposals. It is the policy of RUS 
to volunteer to act as lead agency in the preparation of an EA or EIS 
when the Borrower so requests, and when RUS would normally prepare an EA 
or EIS for the proposal.
    (b) Where RUS acts as a cooperating agency, RUS shall rely upon the 
lead agency's procedures for implementing NEPA and CEQ regulations in 
the preparation and issuance of an EA or EIS, unless the lead and 
cooperating agencies agree to a modification of these procedures.
    (1) RUS shall request that the lead agency indicate that RUS is a 
cooperating agency in all NEPA related notices published for the 
proposal. In addition, RUS shall request that the lead agency permit RUS 
to review and comment on the EA or draft and final EIS prior to 
issuance.
    (2) The Borrower shall inform RUS in a timely manner of its 
involvement in a proposal where another Federal agency is preparing an 
EIS or EA to permit RUS to adequately fulfill its duties as a 
cooperating agency.
    (c) Where practicable and in order to eliminate duplication and 
delay, RUS will coordinate its NEPA process with state and local 
environmental procedures. Where state or local agencies control siting 
of electric transmission lines or electric generating stations, RUS 
shall consult and coordinate with those state and local agencies in 
determining what are the reasonable siting and route alternatives.



Sec. 1794.21  Limitations on actions during the NEPA process.

    In determining which Borrower activities related to a proposal 
requiring development of an EA or EIS may be approved prior to 
completion of the NEPA process, RUS must determine, among other matters 
that:
    (a) The activity will not have an adverse environmental impact. For 
example, purchase of water rights, optioning or transfer of land title, 
or continued use of land as historically employed will not have an 
adverse environmental impact. However, site preparation or construction 
at or near the proposed site (e.g., rail spur) or development of a 
related facility (e.g., opening a captive mine) normally will have an 
adverse environmental impact.
    (b) The expenditure is ``minimal.'' To be minimal the expenditure:
    (1) Must not exceed the amount of loss which the borrower could 
absorb without jeopardizing the government's security interest in the 
event the proposed project is not approved by the Administrator, and
    (2) Must not compromise the objectivity of RUS's environmental 
review. Notwithstanding other considerations, expenditures up to 10 
percent of the proposed project cost normally will not compromise RUS's 
objectivity.



Sec. 1794.22  Tiering.

    It is RUS's policy to tier EIS's and EA's where:
    (a) It is practicable, and
    (b) There will be a reduction of delay and paperwork, or where 
better decisionmaking will be fostered.

[49 FR 9550, Mar. 13, 1984; 49 FR 10083, Mar. 19, 1984]



                 Subpart D--Classification of Proposals



Sec. 1794.30  Control.

    For environmental review purposes, RUS has identified and set forth 
categories of Borrower proposals. A Borrower or Borrowers may propose to 
participate with other parties in the ownership of a project where the 
Borrowers do not have sufficient control and responsibility to alter the 
development of the project. In such a case the

[[Page 1180]]

proposal will be considered a categorical exclusion regardless of the 
category into which the proposal would otherwise be included. Where the 
Borrowers propose to cumulatively own 5 percent or less of a project, 
the proposal will normally be considered a categorical exclusion. Where 
the Borrowers propose to cumulatively own 33\1/3\ percent or more of a 
project, the proposal will be treated in its usual category. Where the 
Borrowers propose to cumulatively own more than 5 percent but less than 
33\1/3\ percent of a project, RUS will determine whether the Borrowers 
have sufficient control and responsibility to alter the development of 
the project. Consideration will be given to such factors as: (a) Whether 
construction would be completed regardless of RUS financing assistance; 
(b) the stage of project planning and construction; (c) total Borrower 
participation; (d) participation percentage of each utility in the 
project; and (e) managerial arrangements and contractual provisions.



Sec. 1794.31  Categorical exclusions (proposals normally requiring neither an EIS nor an EA).

    (a) Borrower proposals that do not individually or cumulatively have 
a significant effect on the environment and do not normally involve 
significant unresolved conflicts concerning alternate use of available 
resources, do not require an EIS or EA. In order to provide for 
extraordinary circumstances, such proposals may require development of a 
Borrower's Environmental Report (BER) or the equivalent.
    (b) Certain types of Borrower proposals do not require a BER. 
Proposals of this type are subject to the requirements of Sec. 1794.41. 
Proposals within this classification are:
    (1) Purchase of land where use will remain unchanged.
    (2) Routine approvals made pursuant to loan and security documents 
(e.g., contracts for bulk commodities, fuel, goods and services, capital 
credit retirements, technical specifications).
    (3) Agreements for transmission, wheeling, interconnection with, 
power purchase from, or sale to other utilities where no associated 
Borrower construction or financing of construction is involved.
    (4) Additional or substitute financing assistance for proposals 
which have previously received environmental review and approval from 
RUS, provided that environmental considerations have not changed.
    (5) Rehabilitation or reconstruction of roads, railroad tracks, 
roadbed, bridges and other transportation facilities within 
transportation rights-of-way or generating facility sites where there is 
no substantial increase in use. A description of the rehabilitation or 
reconstruction shall be provided to RUS.
    (6) Primary fuel or mineral contracts where, considering all the 
facts and circumstances, the Borrower does not have effective control 
over or responsibility to alter the development of the specific fuel or 
mineral source (e.g., mine).
    (7) Changes or additions to existing substations or switching 
stations or external changes to buildings or small structures requiring 
new physical disturbance or fencing of less than 0.4 hectare (0.99 
acre). A description of changes and additions shall be provided to RUS.
    (8) Internal modifications or equipment additions (e.g., computer 
facilities, relocating interior walls) to small structures or buildings.
    (9) Internal or minor external changes to electric generating or 
fuel processing facilities and related support facilities where there is 
negligible impact on the outside environment. A description of the 
changes shall be provided to RUS.
    (10) Ordinary maintenance or replacement of equipment or small 
structures (e.g., line support structures, microwave facilities, 
valves).
    (11) The construction of telephone and communication lines and 
cables at existing power related facilities sites.
    (12) Supervisory control and data acquisition systems (SCADA) and 
energy management systems involving no new external construction.
    (13) Testing work (e.g., test borings or cores, water test wells).

[[Page 1181]]

    (14) Studies and engineering undertaken to define a proposal or 
alternatives sufficiently so that environmental effects can be assessed.
    (15) The construction of electric power lines within an existing 
substation, switching station or electric generating facility site. A 
description of the facilities to be constructed shall be provided to 
RUS.
    (16) Contracts for certain items of equipment which are part of a 
proposal for which RUS is preparing an EA or EIS, and which meet the 
limitations on actions during the NEPA process set forth in Sec. 1794.21 
(e.g., long lead time items such as turbines or boilers).
    (17) Internal RUS administrative actions (e.g., personnel actions, 
procurement) and RUS bulletins that do not concern environmental matters 
or substantial facility design, construction or maintenance practices.
    (c) Certain types of Borrower proposals normally require Borrower 
submission of a BER or its equivalent. Proposals of this type are 
subject to the requirements of Sec. 1794.42. Proposals within this 
classification are:
    (1) The construction of electric power lines and associated 
facilities designed for or capable of operation at a nominal voltage of 
either:
    (i) Less than 69 kV (low side) or
    (ii) Less than 230 kV (low side) if both:
    (A) No more than 40 kilometers (24.85 miles) of power line are 
involved, and
    (B) Substations and switching stations require new physical 
disturbance or fencing of no more than 2 hectares (4.94 acres) at any 
single site nor more than 4 hectares (9.88 acres) for all sites.
    (2) The construction of electric power lines where less than 5 
kilometers (3.11 miles) of line are involved.
    (3) The construction of telephone and communication lines, cables 
and facilities.
    (4) The construction of other small structures or buildings such as 
microwave facilities, cooperative headquarters, maintenance facilities, 
etc., involving no more than 2 hectares (4.94 acres) of physical 
disturbance or fencing.
    (5) Participation by a Borrower(s) in any proposed project where 
total Borrower financial participation in the underlying project will be 
five (5) percent or less.
    (6) Purchase of existing facilities or a portion thereof where use 
or operation will remain unchanged and which presently are in compliance 
with environmental laws and regulations.
    (7) Additional bulk commodity storage (e.g., coal, peat, lignite, 
limestone, etc.) within existing generating station boundaries.
    (8) SCADA and energy management systems which require new external 
construction.
    (9) Reconductoring or upgrading of existing telephone or power lines 
where either the same or substantially equivalent support structures at 
the approximate existing support structure locations are used.
    (10) Proposals designed to reduce the amount of pollutants released 
into the environment (e.g., precipitators, baghouse or scrubber 
installation, coal washing plant and equipment) which have no other 
environmental impact outside of the existing facility site.
    (11) Changes or additions to existing substations or switching 
stations or external changes to buildings or small structures requiring 
0.4 hectare (0.99 acre) or more but no more than 2 hectares (4.94 acres) 
of new physically disturbed land or fenced property.
    (12) Construction of diesel electric generating facilities of less 
than 3 megawatts (MW) (nameplate rating) at an existing generating site. 
All new associated facilities and electric power lines related to the 
generating proposal shall be covered in the BER.
    (13) Modification of an existing hydroelectric project or dam that 
will have a total installed capacity of 1.5 MW (nameplate rating) or 
less and which will result in no change in the normal maximum surface 
area or normal maximum surface elevation of an existing impoundment. All 
new associated facilities and electric power lines related to the 
generating proposal shall be covered in the BER.



Sec. 1794.32  Proposals normally requiring an EIS.

    (a) Actions that may significantly affect the quality of the human 
environment require preparation of an EIS. An

[[Page 1182]]

EIS normally will be required in connection with Borrower proposals for 
construction and operation of the following types of facilities:
    (1) New electric generating facilities of 40 MW or more (nameplate 
rating) other than diesel generators or combustion turbines. All new 
associated facilities and electric power lines related to the generating 
proposal shall be covered in the EIS.
    (2) A new mining operation when the Borrower or Borrowers have 
effective control (e.g., dedicated mine or purchase of a substantial 
portion of the mining equipment).
    (b) Proposals of this type are subject to the requirements of 
Secs. 1794.50 to 1794.55.



Sec. 1794.33  Proposals normally requiring an Environmental Assessment without scoping.

    (a) RUS will normally prepare an EA for all proposals which are 
neither categorical exclusions (Sec. 1794.31) nor are proposals normally 
requiring an EIS (Sec. 1794.32). For certain actions within this class, 
scoping and document procedures set forth in Secs. 1794.50 to 1794.53 
shall be followed (see Sec. 1794.34). The following are examples of 
specific Borrower proposals which normally require an EA without 
scoping.
    (1) Construction of combustion turbine and diesel generating 
facilities of less than 40 MW (nameplate rating), except for diesel 
generating facilities of less than 3 MW (nameplate rating) at an 
existing generating site. All new associated facilities and electric 
power lines related to the subject generating proposal shall be covered 
in the EA.
    (2) Construction of any other type of new electric generating 
facilities of less than 5 MW (nameplate rating). All new associated 
facilities and electric power lines related to the subject generating 
proposal shall be covered in the EA.
    (3) Modification of an existing hydroelectric project or dam if:
    (i) The project or dam will have a total installed capacity of more 
than 1.5 MW (nameplate rating); or
    (ii) The modification will result in a change in the normal maximum 
surface area or normal maximum surface elevation of an existing 
impoundment.

All new associated facilities and electric power lines related to the 
generating proposal shall be covered in the EA.
    (4) The expansion of a mining or drilling operation or a new 
drilling operation.
    (5) Purchase of existing facilities or a portion thereof which are 
presently in violation of Federal, state or local environmental laws or 
regulations.
    (6) The construction of electric power lines and related facilities 
designed for or capable of operation at a nominal voltage of 230 kV or 
more (low side) not covered by Sec. 1794.31 (categorical exclusions) or 
Sec. 1794.34 (normally requiring an EA with scoping).
    (7) The construction of electric power lines and related facilities 
designed for or capable of operation at a nominal voltage of 69 kV or 
more (low side) but less than 230 kV (low side) where:
    (i) More than 40 kilometers (24.85 miles) of power line are involved 
or
    (ii) Substations and switching stations require new physical 
disturbance of fencing of more than 2 hectares (4.94 acres) at any 
single site or more than 4 hectares (9.88 acres) for all sites.
    (8) Proposals designed to reduce the amount of pollutants released 
into the environment which may have other environmental impacts outside 
of the existing facility site.
    (9) Issuance of RUS regulations concerning environmental matters or 
substantial facility design, construction or maintenance practices.
    (b) Proposals of this type are subject to the requirements of 
Secs. 1794.60 to 1794.64.



Sec. 1794.34  Proposals normally requiring an Environmental Assessment with scoping.

    (a) There are certain actions which require the use of a scoping 
procedure in the development of an EA. After the scoping process is 
completed and an acceptable Environmental Analysis has been submitted by 
the Borrower, RUS will determine whether to prepare an EIS or finding of 
no significant impact (FONSI). The types of proposals falling within 
this category are:
    (1) The construction of electric power lines and related facilities 
designed for or capable of operation at a nominal

[[Page 1183]]

voltage of 230 kV or more (low side) where:
    (i) More than 40 kilometers (24.85 miles) of power line are 
involved; or
    (ii) Substations and switching stations require new physical 
disturbance or fencing involving a total of more than 2 hectares (4.94 
acres) at any single site or more than 8 hectares (19.77 acres) for all 
sites.
    (2) Construction of combustion turbines and diesel generators of 40 
MW (nameplate rating) or more; and the construction of any other type of 
electric generating facilities of 5 or more MW but less than 40 MW 
(nameplate rating). All new associated facilities and electric power 
lines related to the subject generating project shall be covered in any 
EA or EIS prepared.
    (b) Proposals of this type are subject to the requirements of 
Secs. 1794.70 to 1794.73.



Sec. 1794.35  Work plan proposals.

    Borrowers frequently request financing assistance for a number of 
relatively minor unrelated projects all of which are described in a 
single ``work plan.'' In determining the proper environmental 
classification of construction projects contained in a work plan, RUS 
will consider as a single proposal all related construction included in 
the work plan and any additional construction related thereto which, 
although not included in the work plan, is reasonably foreseeable.



             Subpart E--Procedure for Categorical Exclusions



Sec. 1794.40  General.

    The following procedure, which applies to action classified as 
categorical exclusions in Sec. 1794.31 hereof, provides RUS with 
information necessary to determine if the proposed action meets the 
criteria for a categorical exclusion. Where, because of extraordinary 
circumstances, an action may have a significant effect on the quality of 
the human environment, RUS may require additional environmental 
documentation.



Sec. 1794.41  Proposals with no BER.

    Normally the Borrower shall not submit a BER for proposals included 
in Sec. 1794.31(b). However, if so noted in Sec. 1794.31(b) the Borrower 
shall submit a description of the proposal. Such description shall 
include, where applicable, a plan for erosion and sedimentation control. 
No public notice is required unless the proposal is located in and may 
affect wetlands or floodplains.



Sec. 1794.42  BER proposals.

    For proposals included in Sec. 1794.31(c) the Borrower normally 
shall submit a BER or its equivalent which will assist RUS in 
identifying extraordinary circumstances in which a normally excluded 
action may have a significant environmental effect. No public notice is 
required unless the proposal is located in and may affect wetlands or 
floodplains. RUS shall not permit construction or other activities which 
would have an environmental effect until it has received, reviewed and 
accepted an adequate BER.



      Subpart F--Procedure for Proposals Normally Requiring an EIS



Sec. 1794.50  Normal sequence.

    Appendix A to part 1794 (Procedure for Proposals which Normally 
Require an EIS) describes the normal sequence of EIS preparation to be 
employed by RUS. For proposals normally requiring an EA with scoping 
(see Sec. 1794.34), the NEPA process shall proceed in the same manner as 
for proposals normally requiring an EIS through the point at which the 
Environmental Analysis is submitted (see Sec. 1794.53). After the 
Environmental Analysis has been submitted, RUS shall make a judgment to 
prepare either an EIS or a finding of no significant impact (FONSI).



Sec. 1794.51  Preparation for scoping.

    (a) RUS has developed a general approach to the NEPA process, 
including scoping, for proposals normally requiring an EIS 
(Sec. 1794.32) and for proposals normally requiring an EA with scoping 
(Sec. 1794.34). Scoping procedures are designed to determine the scope 
of issues to be addressed and to identify significant issues related to 
a proposed action. RUS may require scoping procedures to be followed for 
other proposals where appropriate to achieve the purposes of NEPA.

[[Page 1184]]

    (b) As soon as practicable, RUS will publish its notice of intent to 
prepare an EIS (see 40 CFR 1508.22). The Borrower shall publish, in a 
timely manner, a notice similar to RUS's notice. If the proposal is one 
which normally requires an EA with scoping (Sec. 1794.34), the notice 
shall indicate that: (1) RUS may prepare an EA before or without 
necessarily preparing an EIS, and (2) the decision whether or not to 
prepare an EIS will be based on information received from the Borrower, 
Federal, state and local agencies, organizations and the general public 
during the scoping process, preparation of the Environmental Analysis, 
and the review period for a finding of no significant impact (if 
originally issued).
    (c) As part of the early project planning the Borrower should 
consult with expert and interested Federal, state and local agencies to 
inform them of the proposed project, and to identify permits and 
approvals which must be obtained and administrative procedures which 
must be followed.
    (d) Before any scoping meetings are held RUS shall require the 
Borrower to submit two environmental documents:
    (1) Alternative evaluation;
    (2) Siting study (for electric generation or new mines) or Macro-
Corridor study (for electric transmission).
    (e) The Borrower is encouraged to hold additional public information 
meetings in the general location of the proposed project and any 
reasonable alternatives when such borrower meetings will make the 
scoping process more meaningful. A written summary of the comments made 
at such meetings should be submitted to RUS as soon as practicable after 
the meetings.



Sec. 1794.52  Scoping meeting.

    (a) Both RUS and the Borrower shall publish a notice of the public 
scoping meeting which shall:
    (1) Provide a brief description of the nature and location of the 
Borrower's recommended alternative (if any) and reasonable alternatives;
    (2) State the intent to hold public scoping meetings, giving the 
date, time, location and purpose of these meetings;
    (3) State where copies of the scoping documents are available for 
public review, which shall include the Borrower's headquarters, RUS 
offices in Washington, and other locations as determined by RUS;
    (4) Provide the name and address of the person to whom questions and 
comments should be sent;
    (5) Set forth a thirty (30) day period after the scoping meeting(s) 
to enter comments into the meeting record.
    (b) The RUS notice will be published at least thirty (30) days prior 
to the meeting(s). The Borrower's notice shall be published at least ten 
(10) days, but not more than thirty (30) days prior to the meeting(s).
    (c) The scoping meeting(s) will normally be held in the vicinity of 
the Borrower's recommended alternative and, where appropriate, the 
reasonable alternatives or such other places as RUS determines will best 
afford an opportunity for public involvement. Any person, organization 
or government body desiring to make a statement at the meeting may make 
such statement in writing or orally. A record will be made of the 
scoping meeting.
    (d) As soon as practicable after the scoping meetings(s), RUS, as 
lead agency, shall determine the significant issues to be analyzed in 
depth and identify and eliminate from detailed study the issues which 
are not significant or which have been covered by prior environmental 
review. RUS will develop a proposed scope for further environmental 
study and review. A copy of this proposed scope will be sent to 
cooperating agencies and the Borrower, which shall be given thirty (30) 
days to comment on its adequacy and emphasis. After expiration of the 
thirty (30) day period RUS will provide formal guidance to the Borrower 
concerning the scope of environmental study to be performed and 
information to be gathered.



Sec. 1794.53  Borrower's environmental analysis.

    (a) After scoping procedures have been completed, RUS shall require 
the Borrower to develop and submit an Environmental Analysis 
satisfactory in form and substance to RUS. The Environmental Analysis 
will be prepared under the guidance of the RUS staff and all information 
set forth therein

[[Page 1185]]

shall be subject to independent verification by RUS.
    (b) The Environmental Analysis will normally provide a basis for 
preparation of RUS's EA or EIS and may be made an appendix to the RUS 
document. After RUS has reviewed and found an Environmental Analysis to 
be satisfactory, the Borrower will be required to provide RUS with a 
sufficient number of copies of the Environmental Analysis to satisfy 
RUS's distribution plan.
    (c) The Environmental Analysis shall include a summary of the 
construction and operation monitoring and mitigation measures for the 
proposed project. This summary shall appear in the draft and final EIS. 
These measures may be revised as appropriate in response to comments on 
the draft and final EIS and other information. These measures also shall 
be incorporated by summary or reference into RUS's Record of Decision.



Sec. 1794.54  EIS.

    (a) After a draft or final EIS has been prepared, RUS and the 
Borrower shall issue a notice of availability for the document. The 
notice shall:
    (1) Provide a brief description of the nature and location of the 
preferred and reasonable alternatives;
    (2) State the availability of a draft or final EIS for public 
review;
    (3) State how copies of the EIS can be obtained and where copies are 
available for public review which shall include the Borrower's 
headquarters, RUS offices in Washington, DC, selected libraries in the 
area of the preferred and reasonable alternatives and such other 
reasonable places as RUS shall select;
    (4) Provide the name and address of the person to whom questions and 
comments should be sent;
    (5) Set forth the time period for review and comment. This time 
period normally shall be forty-five (45) days for a draft EIS and thirty 
(30) days for a final EIS, measured from the date that the U.S. 
Environmental Protection Agency's notice or the Borrower's notices are 
first published, whichever is later.

RUS and the Borrower notices for the final EIS shall also request 
persons, organizations or governmental bodies which wish to be notified 
when the Record of Decision is available to inform RUS of such interest.
    (b) In addition to circulation required by 40 CFR 1502.19, draft and 
final EIS's (or summaries thereof, at RUS's discretion) shall be 
circulated to the appropriate state, regional, and metropolitan 
clearinghouses.
    (c) Where a final EIS does not require that substantial changes be 
made in the draft EIS, RUS may document required changes through errata 
sheets, insertion pages and revised sections to be incorporated into the 
draft EIS. In such cases, RUS will circulate such changes together with 
comments on the draft EIS, responses to comments, and other appropriate 
information, as its final EIS. RUS will not circulate the draft EIS 
again, although the draft EIS will be provided if requested within 
thirty (30) days of publication of notice of availability of the final 
EIS.
    (d) In individual situations, upon mutual agreement between RUS and 
the Borrower, the EIS may be prepared by an independent contractor. If 
RUS acts as lead agency, the contractor will be chosen by RUS. Under 
this procedure, the Borrower normally will not be required to submit an 
Environmental Analysis.

[49 FR 9550, Mar. 13, 1984; 49 FR 10083, Mar. 19, 1984]



Sec. 1794.55  Timing of agency action.

    (a) Where an RUS action requires an EIS, RUS shall prepare a Record 
of Decision. The Record of Decision will not be prepared, and RUS will 
not take any action or execute commitments before expiration of the 
thirty (30) day period starting with either EPA's notice in the Federal 
Register that the final EIS is available or the Borrower's notices of 
availability, whichever is later.
    (b) For budgetary purposes some financing assistance may be approved 
conditionally with a stipulation that no funds will be advanced until a 
Record of Decision has been prepared.

[[Page 1186]]



  Subpart G--Procedure for Environmental Assessment Proposals Without 
                                 Scoping



Sec. 1794.60  General.

    The following procedure applies to all actions classified as 
Environmental Assessment projects in Sec. 1794.33 hereof. Where 
appropriate to carry out the purposes of NEPA, RUS may require, on a 
case by case basis, that additional action be taken in connection with 
preparation of an EA. If at any point in the preparation of an EA, RUS 
determines that the action will have a significant impact on the 
environment, the preparation of an EIS will be required and the 
procedures applicable thereto will be followed.



Sec. 1794.61  Document requirements.

    For those proposals covered by Sec. 1794.33, the Borrower shall 
submit a BER or its equivalent. The BER may serve as RUS's EA if RUS 
makes an independent evaluation of the environmental issues and concurs 
in the BER's scope and content. The BER also may be made an Appendix to 
RUS's EA to provide information on the proposal and reduce unnecessary 
paperwork.



Sec. 1794.62  Notice of availability.

    The Borrower shall publish a public notice of availability of the 
BER.
    (a) The Borrower's notice shall:
    (1) Provide a brief description of the nature and location of its 
recommended and reasonable alternatives;
    (2) State the availability of the BER for public review;
    (3) State how copies of the BER can be obtained and where copies are 
available for public review, which shall include the Borrower's 
headquarters, RUS offices in Washington, DC, and other locations as 
determined by RUS;
    (4) Provide the name and address of the person to whom questions and 
comments should be sent:
    (5) Set forth a thirty (30) day time period for review and comment.
    (b) The Borrower's notice shall be published after RUS has 
determined that the BER provides a satisfactory basis for public 
comment.

[49 FR 9550, Mar. 13, 1984; 49 FR 10083, Mar. 19, 1984]



Sec. 1794.63  FONSI and notice requirements.

    (a) If RUS, after reviewing the EA, finds that the proposal will not 
have a significant effect on the human environment, RUS shall prepare a 
FONSI. After the FONSI has been made, RUS shall publish a notice of 
availability of the EA and FONSI. The Borrower shall have published, in 
a timely manner, a similar notice.
    (b) Both the RUS and Borrower's notice shall:
    (1) Provide a brief description of the nature and location of the 
preferred and reasonable alternatives:
    (2) State that an EA and FONSI have been prepared;
    (3) State how copies of the EA and FONSI can be obtained, and where 
copies are available for public review which shall include the 
Borrower's headquarters, RUS offices in Washington, and other locations 
as determined by RUS;
    (4) Provide the name and address of the person to whom questions and 
comments should be sent.
    (c) RUS shall not permit construction or other activities which 
would have an environmental effect until it has received, reviewed and 
accepted an adequate BER and the public notice requirements in 
paragraphs (a) and (b) of this section have been met.



Sec. 1794.64  Timing of agency action.

    RUS may take its final action on proposals requiring an EA without 
scoping (Sec. 1794.33) at any time after publication of the RUS and 
Borrower notices that a FONSI has been made.



Subpart H--Procedure for Environmental Assessment Proposals With Scoping



Sec. 1794.70  General.

    For those proposals covered by Sec. 1794.34, RUS and the Borrower 
shall follow the procedures for scoping and the requirements for notices 
and documents set forth in Secs. 1794.50 through 1794.53 of Subpart F, 
``Procedure for Proposals Normally Requiring an EIS.''

[[Page 1187]]



Sec. 1794.71  RUS determination.

    After the scoping process and receipt of an acceptable Environmental 
Analysis, RUS shall make a judgment as to whether or not RUS's action 
will be a major Federal action significantly affecting the quality of 
the human environment. If a significant effect is evident, RUS shall 
continue with the procedures in Secs. 1794.54 through 1794.55 of Subpart 
F, ``Procedure for Proposals Normally Requiring an EIS.'' If a 
significant effect is not evident, RUS shall develop and prepare an EA 
and FONSI.



Sec. 1794.72  Notice requirements for a FONSI determination.

    If RUS prepares a FONSI for a proposal covered by Sec. 1794.34, RUS 
and, in a timely manner, the Borrower shall publish notices of 
availability of the EA and FONSI. The EA and FONSI shall be made 
available for public review and comment for at least thirty (30) days, 
and the RUS and Borrower notices shall solicit public comments. 
Additional RUS and Borrower notice requirements are included in 
Sec. 1794.63.



Sec. 1794.73  Timing of agency action for FONSI determination.

    RUS may take its final action at any time after expiration of the 
thirty (30) day period measured from the date of publication of the RUS 
notice in the Federal Register. Normally RUS shall wait thirty (30) days 
after publication of the Borrower's notice before taking a final action.



             Subpart I--Adoption of Environmental Documents



Sec. 1794.80  General.

    Where Borrowers participate in projects for which other agencies 
have already prepared an EIS or EA, RUS will adopt the existing EIS or 
EA consistent with the provisions of 40 CFR 1506.3.



Sec. 1794.81  Adoption as a final EIS.

    (a) If RUS acted as a cooperating agency, the lead agency's EIS may 
be adopted as a final EIS without recirculation if RUS has reviewed the 
comments received on the final EIS and concluded that comments and 
suggestions have been adequately considered.
    (b) If RUS was not a cooperating agency but determines that another 
Federal agency's EIS is adequate it will adopt the EIS as its final EIS.
    (1) RUS and the Borrower shall publish a notice stating RUS's 
adoption of the EIS and independent determination of its adequacy. The 
notices are governed by Secs. 1794.12 (general) and 1794.54(a) (EIS).
    (2) If the adopted EIS is generally available, RUS will circulate 
its written finding that the adopted EIS meets the standards for an 
adequate EIS. The adopted EIS shall be made available to interested 
parties upon request.
    (3) If the adopted EIS is not generally available, RUS will 
circulated its written finding that the adopted statement is an adequate 
EIS, along with either the adopted EIS or a summary thereof in 
accordance with 40 CFR 1502.19. The adopted EIS shall be circulated in 
the same manner as a final EIS (see Sec. 1794.54(b)).



Sec. 1794.82  Adoption as a draft EIS.

    Where RUS determines that an existing Federal EIS requires 
additional information to meet the standards for an adequate statement 
for a proposed RUS action, RUS may adopt all or a portion of the EIS as 
a part of its draft EIS. The circulation provisions of Sec. 1794.54(b) 
for draft and final EIS's apply. The general notice provisions 
(Sec. 1794.12) and notice provisions for EIS's (Sec. 1794.54(a)) apply.



Sec. 1794.83  Adoption of an EA.

    RUS may adopt a Federal EIS or EA or a portion thereof as its EA. 
RUS shall make the EA available and assure that notice is provided in 
the same manner as if RUS had prepared the EA.



Sec. 1794.84  Adoption of environmental materials.

    RUS may adopt environmental documents or portions thereof prepared 
by Federal, state or local agencies or other parties independently of 
the requirements of NEPA. RUS may adopt such materials into its 
environmental documents. RUS will circulate the adopted document as a 
part of its environmental assessment or draft and

[[Page 1188]]

final EIS in the same manner as if prepared by RUS.



Sec. 1794.85  Timing of agency action.

    Where RUS has adopted another agency's environmental documents, the 
timing of the RUS action shall be subject to the same requirements as if 
RUS had prepared the required EA or EIS.



                       Subpart J--Supplemental EIS



Sec. 1794.90  Circulation and notices.

    (a) A supplement to a draft or final EIS shall be prepared, 
circulated and given notice by RUS and the Borrower in the same manner 
(exclusive of scoping) as a draft and then final EIS (see Sec. 1794.54).
    (b) Normally RUS and the Borrower shall have published notices of 
intent to prepare a supplement to a final EIS in those cases where a 
Record of Decision has already been issued.
    (c) RUS, at its discretion, may issue an information supplement to a 
final EIS where RUS determines that the purposes of NEPA are furthered 
by doing so even though such supplement is not required by 40 CFR 
1502.9(c)(1). RUS and the Borrower shall publish a notice of 
availability. The notice requirements shall be the same as for a final 
EIS indicated in Sec. 1794.54(a). The information supplement shall be 
circulated in the same manner as a final EIS (see Sec. 1794.54(b)). RUS 
shall take no final action on any proposed modification discussed in the 
information supplement until thirty (30) days after the RUS notice of 
availability is published or thirty (30) days after the Borrower's 
notice is published, whichever occurs later.



Sec. 1794.91  Timing of agency action.

    Timing of RUS's action shall be subject to the same requirements as 
apply to a typical EIS.
[GRAPHIC] [TIFF OMITTED] TC16SE91.028



[[Page 1189]]



                             Diagram Legend

 On-going activity in the EIS process
B, C, D, Discrete events in the Siting Study and Environmental Analysis 
          path
B1, C1, Discrete events in the Alternative 
          Evaluation path

    As the diagram illustrates, there will be two separate but 
interrelated study processes leading to the preparation of the EIS. One 
process B1 through H, will examine alternatives to building a 
generating (or transmission or new mining) facility. The other process, 
B through H will examine a range of potentially acceptable sites for a 
generating (or transmission or new mining) facility.
    In order to facilitate long-range planning and reduce delays, a 
Borrower may undertake preliminary evaluations of alternative means of 
providing power and begin the study of a range of potentially acceptable 
sites for a generation (or transmission or new mining) facility before 
demonstrating a need for the proposal. However, the obligation to show a 
need for the proposal will still remain before RUS financing assistance 
can be obtained.
    Equal spacing between points on the diagram is not meant to suggest 
equal time intervals. Where two letters are the same (except for 
subscripts), generally the two indicated events should occur within the 
same time frame. For BD and B1D1, this is only 
true where the Borrower initiates site selection at a time when there is 
a specific need to be filled. For major transmission projects, events 
occurring with reference to the Macro-Corridor Study are analogous to 
the generation and mining Siting Study procedures.
    The flow diagram is intended to indicate the normal sequence of 
events although some variance may be acceptable in individual cases if 
good cause is demonstrated. However, in all instances RUS shall assure 
that the requirements of the NEPA and CEQ regulations are fulfilled.

                             Discrete Events

    A: The Borrower presents to RUS the underlying needs which form the 
basis of its proposal. RUS undertakes for electric generation proposals, 
when necessary, the preparation or update of the power requirements 
study (PRS) utilizing RUS procedures. For electric generation and 
transmission and mining proposals, the need for the proposal shall be 
presented in the draft and final EIS's (or EA, as applicable).
    B and B1: The Borrower consults with RUS on the 
procedures and general parameters for the Siting Study and on potential 
alternative ways to meet the need, including guidance on preparing the 
Alternative Evaluation. Consultation may be initiated even if a specific 
need has not been identified.
    BC: Work is performed on the Siting Study by the Borrower and/or 
consultant. This includes ``macroanalysis'' in which general criteria, 
literature search and consultation are used to identify a reasonable 
range of potentially acceptable sites.
    Borrower/consultant contact Soil Conservation Service (SCS), U.S. 
Environmental Protection Agency (EPA), U.S. Fish and Wildlife Service 
(FWS), U.S. Army Corps of Engineers (COE), Federal land use agencies and 
state agencies for early guidance and input.
    As soon as practicable during this period, RUS publishes its 
``Notice of Intent'' in the Federal Register and the Borrower publishes 
similar information in local newspapers of general circulation. (See 
Sec. 1794.51(b)).
    B1C1: Borrower does research and consultation, 
contacts other utilities, etc., to determine whether there are 
reasonable alternatives to a new generating (or transmission or mining 
facility). The Alternative Evaluation should include discussion, as 
appropriate, of joint projects, alternate fuels, alternate energy 
sources, conservation, etc. Alternatives eliminated from detailed study 
should be identified and reasons given for the elimination. The Borrower 
should also indicate which alternatives are reasonably available to it 
if its recommended alternative is not approved.
    C and C1: Borrower submits draft of Siting Study and 
Alternative Evaluation to RUS for review. RUS reviews each draft for 
major flaws. If such flaws are not present, RUS submits both the draft 
Siting Study and Alternative Evaluation to potentially involved Federal 
and state agencies (including, but not limited to, all agencies invited 
to the field investigation) for review and comment.
    D and D1: RUS invites other Federal and state agencies to 
make a field investigation of potentially acceptable siting areas 
discussed in the draft Siting Study and critique the study methodology, 
and point out potential problems with these alternative siting areas. 
The Borrower at this time presents site and nonsite specific 
alternatives included in the Siting Study and Alternative Evaluation to 
these agencies for their comments. Participating agencies may critique 
alternative means of meeting the need and point out potential problems 
with alternative siting areas. The agencies set up a strategy for 
conducting the scoping process and tentatively identify the lead and 
cooperating agencies for the EIS.
    DE: Federal agencies are given the opportunity to comment on the 
potentially acceptable alternatives to point out fatal flaws. During 
this stage the Borrower may secure land, water or other critical factors 
for potentially acceptable sites by option or other means (subject to 
the limitations in Sec. 1794.21). If RUS's notice of intent and the

[[Page 1190]]

Borrower's notice did not give the date and time of the scoping meeting, 
scoping meeting notices are published now.
    E and E1: Scoping meeting(s) is held to receive input 
from the public, interested parties, and Federal, state and local 
officials and agencies. Among the topics open to discussion are 
reasonable alternatives to meet the need, potentially acceptable sites, 
participation projects or conservation, significant issues to be 
addressed in the EIS, and the need for the project.
    EF: Borrower submits revised Siting Study (or addenda if 
appropriate) to RUS for review after revising it to reflect input from 
scoping meeting(s). RUS consults with cooperating agencies on the scope 
of the EIS and gives the Borrower guidance on scope of the Environmental 
Analysis. Borrower prepares the draft Environmental Analysis which 
includes a fatal flaw study of potentially acceptable sites and a 
``microanalysis'' in which detailed field work is conducted on the 
Borrower's recommended site(s). The Borrower continues consultation with 
RUS and other interested Federal, state, and local agencies, and the 
public, and reflects their comments in the Environmental Analysis.
    D1F1: Borrower updates and expands, as 
necessary, the Alternative Evaluation on the basis of comments received 
from Federal, State and local officials and agencies, input from 
participants at the scoping meeting(s), the general public and new 
developments (e.g., negotiations with other electric power utilities), 
RUS provides guidance to the Borrower during this period based on 
cooperating agency and public input.
    F and F1: The Borrower submits draft Environmental 
Analysis to RUS for review and comment. If the draft Environmental 
Analysis has no readily apparent critical flaws, RUS distributes copies 
of the Environmental Analysis to cooperating agencies for review. 
Borrower submits Alternative Evaluation, which has been updated after 
the scoping meeting, and also includes new alternatives, if any, which 
have developed. RUS submits updated Alternative Evaluation to requesting 
cooperating agencies. The Environmental Analysis may incorporate the 
Alternative Evaluation leading to a single review document.
    FG and F1G1: RUS and cooperating agencies 
independently evaluate, for accuracy, scope and content, the information 
submitted to them. RUS collates responses and reconciles them with the 
Borrower. RUS may begin writing the draft EIS at this point.
    H and H1: RUS Borrower submits, as appropriate, a final 
revised Environmental Analysis and Alternative Evaluation to RUS.
    HJ and H1J: RUS independently evaluates the revised 
documents and verifies the information therein before use in the EIS. 
During this time, RUS prepares the draft EIS, utilizing the borrower--
supplied data, interagency expertise, and other information.
    J: RUS issues draft EIS for public review and comment publishing 
notice of availability in the Federal Register.
    K: Public comment period ends on draft EIS. This date may be 
extended in certain instances.
    KL: RUS (and cooperating agencies, as appropriate) review comments 
received on draft EIS and responds, by modifying alternatives, 
developing alternatives not previously given sufficient consideration, 
supplementing, improving or modifying the analyses, etc. A final EIS or 
supplemental draft EIS is prepared, as appropriate, with cooperating 
agencies' assistance.
    M: Record of decision is issued. RUS will take no final action on 
any loan guarantee, etc., sooner than 30 days after issuance of the 
final Federal EIS.
    MN: Implementation of mitigation measures is checked, as necessary, 
by RUS and other Federal, state, and local agencies during construction 
and operation of the project.

[[Page 1191]]



    CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF 
                               AGRICULTURE




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

  Editorial Note: Nomenclature changes to Chapter XVIII appear at 59 FR 
  66443, Dec. 27, 1994; 61 FR 1109, Jan. 16, 1996; and 61 FR 2899, Jan. 
  30, 1996.

                    SUBCHAPTER A--GENERAL REGULATIONS
Part                                                                Page
1804      [Reserved]
1806            Insurance...................................        1190

1807      [Reserved]

1809      [Reserved]
1810            Interest rates, terms, conditions, and 
                    approval authority......................        1208
    SUBCHAPTER B--LOANS AND GRANTS PRIMARILY FOR REAL ESTATE PURPOSES
1822            Rural housing loans and grants..............        1210
1823            Association loans and grants--community 
                    facilities, development, conservation, 
                    utilization.............................        1222
                       SUBCHAPTERS C-D--[RESERVED]
                     SUBCHAPTER E--ACCOUNT SERVICING
1863-1866  [Reserved]
            SUBCHAPTER F--SECURITY SERVICING AND LIQUIDATIONS
1872      [Reserved]
                 SUBCHAPTER G--MISCELLANEOUS REGULATIONS
1890-1899  [Reserved]

  Editorial Note: Chapter XVIII-Farmers Home Administration or its 
successor agency under Public Law 103-354 is continued in the volumes 
containing 7 CFR parts 1900 to 1939, 1940 to 1949, 1950 to 1999, and 
2000 to End.

[[Page 1192]]




                   SUBCHAPTER A--GENERAL REGULATIONS






                         PART 1804--[RESERVED] 






PART 1806--INSURANCE--Table of Contents




                   Subpart A--Real Property Insurance

Sec.
1806.1  General.
1806.2  Companies and policies.
1808.3  Coverage requirements.
1806.4  Examining and general servicing of insurance.
1806.5  Losses.
1806.6  Failure of borrower to provide insurance.
Exhibit A to Subpart A--Escrow Agreement Real Property Insurance

                   Subpart B--National Flood Insurance

1806.21  General.
1806.22  Areas of responsibility.
1806.23  Definitions.
1806.24  Eligibility.
1806.25  Conditions.
1806.26  Coverage and premium rates.
1806.27  Acceptable policies and servicing.
1806.28  Borrowers required to escrow.
Exhibit A to Subpart B--Coverage and Premium Rates
Exhibit B to Subpart B--Servicing Company

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.



                   Subpart A--Real Property Insurance

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 2942; 5 U.S.C. 
301; delegation of authority by the Sec. of Agri., 7 CFR 2.23; 
delegation of authority by the Asst. Sec. for Rural Development, 7 CFR 
2.70; delegations of authority by Dir., OEO 29 FR 14764, 33 FR 9850.



Sec. 1806.1   General.

    (a) Authority. This subpart sets forth the policies and procedures 
regarding insurance requirements on real property which serves as 
security for a debt under the Farm Credit Programs of the Farm Service 
Agency (FSA) or the Multi-Family Housing Programs of the Rural Housing 
Service (RHS). Any references herein to the Farmers Home Administration 
(FmHA) or its employees are intended to mean FSA or RHS, as applicable, 
and their employees.
    (b) Borrower to furnish insurance. The real estate mortgage executed 
by the borrower provides that he will furnish and continually maintain 
and pay for insurance on buildings situated or constructed on the 
property with companies, in amounts, and on terms and conditions 
satisfactory to the FmHA or its successor agency under Public Law 103-
354 until the loan is repaid.
    (c) Borrower's selection of company. The borrower may select the 
insurance company provided that the company and insurance policy comply 
with all the requirements set forth in this Instruction.
    (d) Responsibility. The County Supervisor is responsible for taking 
all actions in connection with insurance as may be necessary to protect 
the security interest of the FmHA or its successor agency under Public 
Law 103-354. Any unusual situation that may arise with respect to 
obtaining or servicing insurance should be referred to the State 
Director. The State Director will refer any questions of a legal nature 
to the Office of the General Counsel (OGC).
    (e) Use of Form FmHA or its successor agency under Public Law 103-
354 426-1, ``Valuations of Buildings.'' The minimum insurance required 
will be indicated in the appraisal report by the employee who makes the 
appraisal of property that includes insurable buildings. In the case 
where no real estate appraisal is required or the appraisal report does 
not indicate the minimum insurance coverage, Form FmHA or its successor 
agency under Public Law 103-354 426-1 will be prepared by the County 
Supervisor. Reevaluation of the buildings will not be done on appraisal 
reports; however, when new buildings are constructed or values increase 
or decrease materially and reevaluation is necessary to properly reflect 
the buildings' security interest of the FmHA or its successor agency 
under Public Law 103-354, the County Supervisor will prepare or revise 
Form FmHA or its successor agency under Public Law 103-354 426-1 as 
appropriate. Changes made on an existing Form FmHA or its successor 
agency under Public Law 103-354

[[Page 1193]]

426-1 will be dated and initialed. The reason for any deletion will be 
noted on the Form.

[41 FR 34571, Aug. 16, 1976, as amended at 61 FR 59777, Nov. 22, 1996]



Sec. 1806.2   Companies and policies.

    Property insurance policies or other evidence of insurance will be 
accepted from borrowers when the requirements outlined herein are 
complied with fully.
    (a) Companies. It is desirable that companies be licensed to do 
business in the particular State or other jurisdiction where the 
property is located, or that they be otherwise authorized by law to 
transact business within such State or other jurisdiction (hereinafter 
called ``State''). If the required insurance is not available locally at 
comparable rates from an insurance company licensed or otherwise 
authorized to do business in the State, insurance may be accepted from 
another company if (1) the OGC advises that policies issued by such 
company will not be rendered unenforceable by virtue of the company's 
failure to be licensed or otherwise authorized to transact business in 
the State and that the company is a legal entity which may be sued in 
the State where the insured property is located, and (2) the State 
Director determines that the company is reputable and financially sound. 
In making the above determinations, the State Director will consider all 
relevant available information such as that which may be obtained from 
financial statements, Best's Insurance Reports, State insurance 
authorities, and other lending institutions.
    (b) Insurance policies--(1) Standardpolicies. If a standard fire 
insurance policy has been adopted for the State, it should be used 
unless State statutes exempt the company from the regulations requiring 
its use. The standard policy is one containing substantially the same 
standard provisions adopted or recommended by legislative action or by 
order of the supervisory insurance authorities of the State in which the 
security is located.
    (2) Other policies. To be acceptable, any other insurance policies 
must conform to the requirements of this Instruction.
    (i) ``Homeowner's'' policies, ``All Physical Loss'' policies, 
``Broad Form'' policies, and other such all-inclusive policies are 
acceptable if they otherwise meet the requirements of this Instruction.
    (ii) A builder's risk policy naming the borrower as the insured or a 
builder's risk endorsement for a policy issued to the borrower may be 
accepted during the period a building is under construction if the 
policy otherwise meets the requirements of this Instruction. If such a 
policy or endorsement does not automatically convert to full coverage 
when the building is completed, acceptable insurance must be obtained 
simultaneously with the expiration of the builder's isk provisions of 
the policy.
    (iii) A builder's risk insurance policy issued to a contractor only 
may not be substituted for the property insurance, the borrower is 
required to provide.
    (iv) Borrowers eligible for insurance under the National Flood 
Insurance Act of 1968, as amended by the Flood Disaster Act of 1973, 
will be serviced in accordance with subpart B of this part.
    (3) State instructions. If the State Director and the OGC consider 
it advisable, a State Instruction may be issued to help County 
Supervisors identify standard insurance policies adopted for the State. 
The Instruction should also furnish a guide to assist in identifying 
other acceptable insurance policy forms that are commonly used by 
insurance companies in the State, recognizing that such information is 
not all inclusive.
    (4) Binders. Whenever there is a justifiable reason for not issuing 
a policy or endorsement, as required, a written binder will be 
acceptable for a period not to exceed 60 days from the effective date of 
the insurance. The written binder must have attached thereto the 
approved form of mortgage clause. Such a binder will be submitted to the 
County Supervisor in lieu of an insurance policy or endorsement and the 
insurance policy or endorsement will be submitted on or before the 
expiration date of the binder. The State Director, with the advice of 
the OGC and subject

[[Page 1194]]

to prior approval of the National Office, may issue a State Instruction 
authorizing such binders to be accepted for periods longer than 60 days.
    (5) Submission of Policies. (i) For Farmer Program (FP) loans 
secured by a first lien, the original policy or declaration page must be 
delivered to the County Supervisor. The original policy or declaration 
page will be returned to the borrower after one year using Form FmHA or 
its successor agency under Public Law 103-354 426-4, ``Notice of 
Expiration of Insurance.''
    (ii) For Single Family Housing (SFH) loans secured by a first lien, 
the original policy or declaration page must be delivered to the closing 
agent.
    (iii) In cases where an FP or SFH loan is secured by other than a 
first lien and the mortgage clauses include the names of the prior 
mortgagees, a certificate of insurance, copy of the policy, or other 
evidence of insurance is acceptable.
    (iv) The County Supervisor will process an advance to pay for 
insurance only in strict compliance with provisions of Sec. 1806.6 of 
this subpart.
    (6) Master sets. If the master sets meet all of the requirements of 
this Instruction they may be accepted in lieu of an original policy for 
each FmHA or its successor agency under Public Law 103-354 borrower.
    (i) One complete master set of the different insurance forms for 
policies issued by the insurance company must be on file in each County 
Office where the company insures property of FmHA or its successor 
agency under Public Law 103-354 borrowers.
    (ii) The ``Declaration Page'' furnished by the insurance company for 
each borrower insured, in lieu of a complete policy, will be filed in 
the borrower's case folder. When a ``Declaration Page'' in the form of a 
computer printout is used by an insurance company an endorsement on 
every policy issued by that company or a letter from that company will 
be obtained and attached to the printout. However, a letter signed by an 
authorized official of the company and addressed to the State Director 
may cover all policies issued by that company in the State. Any such 
endorsements or letters should clearly state that the company considers 
the printout to be an original ``Declaration Page''. Such endorsements 
or letters are not necessary if the printout itself clearly states that 
it is an original ``Declaration Page.''
    (7) Name and location. The policy should contain names of all the 
borrowers who are owners of the property being insured, and it will be 
returned for correction if it does not do so. The location of the 
property should be so described in the policy that the property can 
easily be identified. The complete legal description of the property by 
metes and bounds is not required. Any deviation from the requirements of 
this paragraph must first be cleared with the National Office.
    (8) Loss or damage covered. Buildings must be insured against loss 
or damage by fire, lightning, windstorm, hail, explosion, riot, civil 
commotion, aircraft, vehicles, and smoke.
    (9) Effective date of insurance. If there are insurable buildings 
located on the property, the borrower will arrange with his agent or 
company to have adequate insurance in force at the time the loan, 
assumption, or credit sale is closed so that the policy will properly 
insure the borrower and the mortgagees. When new buildings are erected 
or major improvements are made to existing buildings, such insurance 
will be made effective as of the date materials are delivered to the 
property. The County Supervisor will make no payments from loan funds 
for labor or materials until the borrower has furnished adequate 
insurance to protect the interest of the FmHA or its successor agency 
under Public Law 103-354 in the buildings being erected or improved.
    (10) Term. The borrower will be required to furnish insurance for a 
term of at least one year with evidence that a full year's premium is 
paid. The term ``premium'' as used herein includes any assessments which 
may be charged to the borrower. If the assessments are of the type 
imposed only after a loss occurs involving property insured by the 
insurance company, then the borrower must present evidence (such as a 
letter from the company) that he currently does not owe any such 
assessments. The borrower may receive a discount for insuring for a 
longer period such as three years or five years and with an

[[Page 1195]]

annual premium. If the insurance contains an automatic renewal clause, 
its provision should be substantially the following to be acceptable to 
FmHA or its successor agency under Public Law 103-354:

This policy will be automatically extended for successive terms at 
expiration of the original term and of each extension thereof, upon 
payment of renewal premiums. It is a condition of this policy that if 
the policy expires or is canceled for nonpayment of premium, or for any 
other reason, the mortgagee will be given 10 days notice.

    (11) Mortgage clause. The standard mortgage clause adopted by the 
State must be attached to or printed in the policy, or Form FmHA or its 
successor agency under Public Law 103-354 426-2, ``Property Insurance 
Mortgage Clause (Without Contribution),'' must be attached to or the 
provisions thereof printed in the policy. A letter signed by an 
authorized official of an insurance company to the State Director, 
stating that all insurance policies the company issues in the State and 
in which the FmHA or its successor agency under Public Law 103-354 has a 
mortgage interest incorporates all of the provisions of Form FmHA or its 
successor agency under Public Law 103-354 426-2 may be accepted in lieu 
of attaching Form FmHA or its successor agency under Public Law 103-354 
426-2 to each policy. If such a blanket letter is used, the FmHA or its 
successor agency under Public Law 103-354 will be named in the loss 
payable clause and a State Instruction will be issued, after prior 
approval is obtained from the National Office, authorizing the use of 
such method.
    (i) If the use of a mortgage clause, other than the standard 
mortgage clause (without contribution), has been made mandatory by State 
laws or insurance regulations, a State Instruction will be issued, after 
prior approval is obtained from the National Office, authorizing the use 
of such a form.
    (ii) When an approved mortgage clause is printed in the policy a 
``Loss Payable Clause'' is acceptable provided the FmHA or its successor 
agency under Public Law 103-354, as mortgagee, would receive payment in 
case of loss even though the company would not be liable to the 
borrower. A ``Loss Payable Clause'' which contains the statement that 
the mortgagee is ``subject to all terms and conditions of the policy'' 
is not acceptable.
    (iii) Whenever a new mortgage clause including the interest of the 
FmHA or its successor agency under Public Law 103-354 is issued after 
the policy has been in force, the new mortgage clause must be signed by 
an authorized agent or officer of the company that issued the policy. 
Form FmHA or its successor agency under Public Law 103-354 426-6, 
``Transmittal of Property Insurance Mortgage Clause,'' may be used to 
transmit the mortgage clause to the insurance official.
    (iv) The FmHA or its successor agency under Public Law 103-354 and 
all other mortgagees whose interests are insured by the policy will be 
shown either in the mortgage clause or in the ``Declaration Page'' in 
the order of priority of their mortgages.
    (A) ``United States of America (Farmers Home Administration or its 
successor agency under Public Law 103-354)'' will be named in the 
mortgage clause for direct and insured loan mortgages naming FmHA or its 
successor agency under Public Law 103-354 as mortgagee, whether in its 
own right or as trustee under a 2(f) or other agreement with a State 
Rural Rehabilitation Corporation.
    (B) ``United States of America (Farmers Home Administration or its 
successor agency under Public Law 103-354), as first mortgagee or as 
statutory agent and insurer of such mortgagee,'' will be named in the 
mortgage clause for insured FO mortgages naming the lender as mortgagee, 
whether the mortgage is held by the original or a subsequent lender or 
by the insurance fund or by FmHA or its successor agency under Public 
Law 103-354 under a trust agreement or declaration of trust.
    (C) If the designation is not identical to that set forth in 
paragraphs (b)(11)(iv)(A) or (B) of this section, whichever is 
applicable, it will be sufficient if the mortgagee is readily 
identifiable as the Farmers Home Administration or its successor agency 
under Public Law 103-354.
    (c) Evidence of premium payment. (1) When Form FmHA or its successor

[[Page 1196]]

agency under Public Law 103-354 426-2 is attached to or the provisions 
thereof are printed in the policy, or a blanket letter from an insurance 
company incorporating the provisions of Form FmHA or its successor 
agency under Public Law 103-354 426-2 in all policies in which the FmHA 
or its successor agency under Public Law 103-354 has a mortgagee 
interest in effect, in accordance with paragraph (b)(11) of this 
section, no evidence of premium or assessment payment is required except 
for the first year of the loan. When a subsequent FP or section 502 RH 
loan is made to build, buy or rehabilitate essential buildings an 
endorsement to the existing policy including coverage for the property 
improved will be sufficient.
    (d) Policy restrictions. (1) Any insurance on essential buildings as 
defined in Sec. 1806.3 having restrictions which limit the amount of 
collectable insurance must meet the FmHA or its successor agency under 
Public Law 103-354 requirements set forth below (except for the clause 
described in paragraph (d)(1)(iv) of this section which is never 
acceptable); otherwise, such restrictions must be eliminated or modified 
to afford the required protection.
    (i) Coinsurance clause. This clause generally provides that in 
consideration of a reduced rate, the borrower agrees to maintain 
insurance on his buildings up to a specified percentage (usually 80 
percent) of their value and that the company will not be liable for a 
greater proportion of any partial loss than the amount of insurance 
bears to the specified percentage of either the undepreciated 
replacement value or the depreciated replacement value or the 
depreciated replacement value (actual cash value) of the buildings at 
the time of the loss. When the buildings are insured for the specified 
percentage of their value, the company, in the event of a partial loss, 
will be liable for the full amount of the loss not to exceed the amount 
of insurance. A coinsurance clause can be accepted only where the amount 
of insurance is at least equal to the specified percentage of either the 
undepreciated replacement value or the depreciated replacement value 
(actual cash value). For example, an 80 percent coinsurance clause can 
be accepted only where the amount of insurance on each insured building 
is at least equal to 80 percent of the appropriate replacement value of 
the insured building.
    (ii) Three-fourths' value clause. This clause provides that the 
liability of the company shall be limited to three-fourths of the 
depreciated replacement value of the buildings covered at the time of 
the loss, not to exceed the amount of insurance. This clause may be 
accepted if the unpaid balance of the loan is not greater than three-
fourths of the depreciated replacement value of the building and the 
amount of insurance is at least equal to the unpaid balance of the loan 
and any prior liens and no building is insured for more than three-
fourths of its depreciated replacement value.
    (iii) Loss deductible clause. (A) For all loans other than RRH, RCH, 
and LH organizations this clause generally provides that loss to each 
building to the extent of the limitation is not recoverable. The company 
is liable only for loss to each building in excess of such limitation 
stated in the clause. This clause may be accepted where the limitation 
does not exceed $150, or one percent of the insurance coverage whichever 
is greater. In no case, however, may the limitation on any one building 
exceed $500.00.
    (B) For RRH, RCH, and LH organization loans this clause generally 
provides that loss to each project to the extent of the limitation is 
not recoverable. The company is liable only for loss to each project in 
excess of such limitation stated in the clause. This clause may be 
accepted where the limitation does not exceed the option shown below 
that is chosen by the borrower and agreed to by the Loan Approving 
Official and properly annotated in the borrower file. The borrower and 
FmHA or its successor agency under Public Law 103-354 Official should 
consider the economic impact to the project when selecting the 
appropriate option.
    (1) Option 1--Up to one-fourth of one percent (0.0025) of the 
insurable value. Maximum deductible $5,000.
    (2) Option 2--Up to a maximum deductible of $500 on any project with 
an insurable value not exceeding $200,000.

[[Page 1197]]

    (3) Option 3--Option 1 may be chosen and increased above the maximum 
deductible by an amount equivalent to funds specifically escrowed in the 
project replacement reserve account as an offset to the increased 
deductible.
    (4) Option 4--Option 2 may be chosen and increased above the maximum 
deductible by an amount equivalent to funds specifically escrowed in the 
project replacement reserve account as an offset to the increased 
deductible.
    (5) The funds used to increase the deductible in Option 3 or Option 
4 may be from project funds if it does not create an unsecure financial 
situation for the project. Also, non-project funds may be used for 
Option 3 or 4 and then repaid by withdrawal from the project at the rate 
of 75 percent of the annual insurance premium savings earned by the 
amount of escrow deposit, up to the amount deposited.
    (6) The funds escrowed to increase the authorized deductible will be 
placed in the project reserve account as an increased amount in and 
above the amount required by the Loan Agreement/Resolution and so 
annotated in the borrower's accounting system.
    (iv) Three-fourths' loss clause. This clause provides that the 
company will not pay more than three-fourths of any loss, nor more than 
three-fourths of the amount of insurance in force. This clause is never 
acceptable and must be eliminated.
    (v) Deferred loss payable clause. This clause provides that, if the 
amount payable under the policy for any loss to any building insured 
shall be in excess of a specified portion, (usually 60 percent) of the 
amount of insurance on such building, the company will withhold from its 
initial loss payment any sum in excess of the specified portion of the 
amount of insurance on such building. If the building sustaining such 
loss is repaired or replaced within six months from the date of the fire 
and at or within 300 feet of the original location, as described in the 
policy, the company upon receipt of evidence to that effect from the 
insured will pay the full balance withheld from the initial payment, 
provided the amount expended in repairing or replacing the building 
damaged or destroyed will equal or exceed the amount of loss as 
determined under the terms of the policy. Failure to repair or replace 
any insured building within the time and manner provided will constitute 
acceptance of the initial payment as full and final settlement under the 
policy with respect to the loss. This clause may be accepted if the 
amount of insurance is for the full depreciated replacement value 
(actual cash value) of the building and the unpaid balance of the loan 
and any prior lien(s) is not greater than the initial loss payment made 
by the company.
    (vi) Construction specifications and use conditions. If the 
insurance policy contains clauses which specify certain standards of 
construction or prescribes certain uses of the property for the 
insurance to be valid, the policy is acceptable only if the property 
meets such specifications or conditions at the time of acceptance. For 
example, if the policy provides that the chimney be constructed of a 
certain type of material, the County Supervisor should be assured that 
the required material has been used, or if the policy provides that 
farming operations are not carried out on the premises he should be 
assured that this condition is met.
    (2) Policies generally will not be accepted if, under the terms of 
the policies or local laws, contributions or assessments may be made 
against the FmHA or its successor agency under Public Law 103-354. 
However, policies which impose assessments on the borrower may be 
accepted only if the FmHA or its successor agency under Public Law 103-
354 mortgage will be recorded prior to any failure of the borrower to 
pay any such assessments. Policies also will not be accepted if, by 
their terms or other conditions, loss payments are contingent upon 
collective action by the Board of Directors, or the stockholders, or the 
members.
    (e) Buildings on leaseholds. The policy will indicate that the 
insured is the lessee or tenant and not the owner of the buildings 
securing the FmHA or its successor agency under Public Law 103-354 loan; 
or, if he is the owner of the building on the leased land, the policy 
will indicate that the insured is the owner of the building, but not of 
the land. State Directors, with the advice

[[Page 1198]]

of the OGC will issue State Instructions to meet any other special 
requirements needed to conform with the insurance requirements of the 
State to enable leaseholders to obtain property insurance for buildings 
which are security for FmHA or its successor agency under Public Law 
103-354 loans.

(7 U.S.C. 1989; 42 U.S.C. 1480; 40 U.S.C. 442; 42 U.S.C. 1480; 42 U.S.C. 
2942; 5 U.S.C. 301; Sec. 10 Pub. L. 93-357, 88 Stat. 392; delegation of 
authority by the Secretary of Agriculture, 7 CFR 2.23; delegation of 
authority by the Assistant Secretary for Rural Development, 7 CFR 2.70; 
delegations of authority by Director, OEO, 29 FR 14764, 33 FR 9850)

[41 FR 34571, Aug. 16, 1976, as amended at 41 FR 49990, Nov. 12, 1976; 
42 FR 33262, June 30, 1977; 43 FR 56013, Nov. 30, 1978; 44 FR 45115, 
Aug. 1, 1979; 51 FR 17921, May 16, 1986; 54 FR 35869, Aug. 30, 1989; 56 
FR 6945, Feb. 21, 1991]



Sec. 1806.3   Coverage requirements.

    The County Supervisor should encourage the borrower for his own 
protection to insure for their depreciated replacement value (actual 
cash value) all essential buildings. Essential buildings include the 
dwelling and any other buildings that are necessary for the operation of 
the property or that provide income to assure orderly repayment of the 
loan. If insurance is for less than the depreciated replacement value of 
all essential buildings, the County Supervisor will see that the 
coverage is obtained on one or more of the most essential buildings. The 
minimum amount of coverage will be furnished as prescribed below:
    (a) Loans secured by a first lien. (1) When the unpaid balance of 
the FmHA or its successor agency under Public Law 103-354 loan secured 
by a first lien is equal to or greater than the depreciated replacement 
value of the essential buildings, or the cost of adequate essential 
buildings which can be constructed for amounts less than the depreciated 
replacement value of the existing buildings, the essential buildings 
will be insured, to the nearest multiple of insurance that is available, 
for the lesser of (i) their depreciated replacement value, or (ii) the 
cost of constructing adequate essential buildings. For example, if 
insurance is available in only multiples of $1,000, the minimum 
insurance required on an essential building valued at $6,600 would be 
$7,000, and that required on an essential building valued at $6,400 
would be $6,000.
    (2) When the unpaid balance of the loan is less than the sum of the 
depreciated replacement value of the essential buildings to be insured, 
the total amount of insurance must be at least equal to the lesser of 
(i) the unpaid balance of the loan, or (ii) the cost of adequate 
essential buildings which can be constructed for amounts less than the 
depreciated replacement value of the existing buildings to be insured.
    (3) When, by the use of loan funds or otherwise, buildings are 
erected or substantial improvements are made to essential buildings, the 
amount of insurance will be adjusted in accordance with paragraphs 
(a)(1) or (2) of this section, whichever is applicable.
    (b) Loans secured by other than first liens. The amount of insurance 
on buildings in the case of FmHA or its successor agency under Public 
Law 103-354 loans secured by other than a first lien will be the same as 
required in paragraph (a) of this section, with the understanding that 
the unpaid balance of the loan will be deemed for this purpose to be the 
amount of the total real estate mortgage indebtedness owed all prior 
mortgagees named in the mortgage clause, plus the debt to the FmHA or 
its successor agency under Public Law 103-354 which is secured by real 
estate mortgage.
    (c) Exception of buildings from insurance. (1) Insurance will not be 
required on a building:
    (i) That is not essential.
    (ii) In such a state of disrepair that the cost of insurance would 
be prohibitive.
    (iii) Which has a depreciated replacement value of $2,500 or less.
    (iv) Which is being or has been repaired with a section 504 loan of 
$7,500 or less. Families receiving section 504 loans should be 
encouraged but not required to carry insurance on their home.
    (v) On LH security property which was not built or repaired with 
FmHA or its successor agency under Public Law 103-354 loan funds 
provided that the State Director determines that the land and other 
structures adequately

[[Page 1199]]

secure the FmHA or its successor agency under Public Law 103-354 loan 
and any prior liens.
    (vi) On which the hazards are so slight because of the character and 
construction of the building, or the cost of the insurance is so high in 
comparison with the value of the building that, according to common 
standards of judgment, it should not be insured, including but not 
limited to windmills, silos, and fire-cured tobacco barns.
    (vii) In cases where the unpaid balance of the FmHA or its successor 
agency under Public Law 103-354 loans and any prior liens have been 
reduced to $2,500 or less, property insurance need not be required if 
the borrower wants to discontinue it, provided the County Supervisor 
determines that the value of the land security itself is sufficient to 
protect the FmHA or its successor agency under Public Law 103-354 in its 
collection of the amount of the outstanding indebtedness.
    (viii) If insurance for windstorm and hail to meet all FmHA or its 
successor agency under Public Law 103-354 requirements is not available 
in a hurricane area, the County Supervisor may accept from the borrower 
or applicant the windstorm and hail insurance policy that most nearly 
conforms to FmHA or its successor agency under Public Law 103-354 
requirements. If such an exception is made, the situation should be 
fully documented in the borrower's case file. However, if the best 
insurance policy a borrower or applicant can obtain at the time he 
receives a loan contains a loss deductible clause for windstorm and hail 
damage exceeding $250 or 10 percent of the actual cash value of the 
buildings, whichever amount is greater, the insurance policy, with an 
explanation of the reasons why more adequate insurance is not available 
will be submitted to the State Office for prior approval.

[41 FR 34571, Aug. 16, 1976, as amended at 56 FR 6945, Feb. 21, 1991]



Sec. 1806.4   Examining and general servicing of insurance.

    (a) Examination by county office of policies, endorsements, binders, 
and other evidence of insurance. Upon receipt in the County Office of a 
policy, endorsement, binder, or other evidence of insurance, submitted 
by a borrower, it will be examined promptly for compliance with the 
requirements of this Instruction. If the evidence of insurance is found 
to be acceptable, it will be placed in the borrower's case folder.
    (1) Unacceptable policies. (i) When the borrower furnishes any 
policy or other evidence of insurance which does not meet the 
requirements of this Instruction such policy or other evidence of 
insurance will be returned to the borrower with the reasons why it is 
not acceptable.
    (ii) If the borrower does not furnish acceptable insurance by the 
date the previous policy expired or was canceled, the County Supervisor 
will proceed as provided in Sec. 1806.6.
    (2) Expiration Records and Notices. After the insurance has been 
accepted, the expiration date will be inserted on Form FmHA or its 
successor agency under Public Law 103-354 1905-1, ``Management System 
Card--Individual,'' or Form FmHA or its successor agency under Public 
Law 103-354 1905-5, ``Management System Card--Individual (Rural Housing 
Only),'' or Form FmHA or its successor agency under Public Law 103-354 
1905-10, ``Management System Card--Association or Organization,'' or 
Form 1905-12, ``Monthly Expirations,'' as provided in FmHA or its 
successor agency under Public Law 103-354 Instruction 1905-A for 
servicing the renewal of insurance.
    (i) In cases other than those involving FP or section 502 RH 
borrowers, the County Supervisor will notify the borrower of the 
expiration of his insurance at least 30 days in advance of such 
expiration unless he has received written evidence that the insurance 
has been renewed.
    (ii) FP and Section 502 RH borrowers will be informed during the 
tenth month after the date of loan closing of their responsibility to 
carry insurance. Form FmHA or its successor agency under Public Law 103-
354 426-4 will be sent to these borrowers, regardless of whether there 
is evidence that the insurance has been renewed. Thereafter, the County 
Supervisor will not be required to further determine whether the 
borrower has adequately maintained insurance; however, if a further 
notice of expiration is received in the

[[Page 1200]]

County Office, the County Supervisor will again notify the borrower by 
using Form FmHA or its successor agency under Public Law 103-354 426-4 
of his responsibility.
    (3) Release of mortgage interest. When the borrower's loan has been 
paid in full and the satisfaction or release of the mortgage has been 
executed, the County Supervisor or his delegate will execute the 
following Release of Mortgage Interest on the mortgage clause attached 
to the policy or other evidence of insurance and transmit it with the 
policy or other evidence of insurance, the paid-in-full note, and the 
satisfaction to the borrower:

It is understood and agreed that the interest of the United States of 
America in the property insured hereunder ceased as of (Date of Final 
Payment), and that the Government shall have no interest in any loss or 
damage to such property occurring thereafter.

    (4) Lost or misplaced policies. When an unexpired insurance policy 
or other evidence of insurance is lost or misplaced, it will be 
necessary to obtain a replacement policy or other evidence of insurance. 
The County Supervisor is authorized to sign a Lost Policy Receipt on 
behalf of the FmHA or its successor agency under Public Law 103-354. For 
FP and section 502 RH loans, this paragraph applies only during the 
period the policy is retained in the County Office.
    (5) Disposition of expired and canceled policies. An expired or 
canceled policy or other evidence of insurance will be returned to the 
borrower, unless there is a loss settlement pending.
    (b) Special servicing of insurance. (1) Vacancy or unoccupancy--
tenant occupancy--increased hazard. If the County Supervisor has 
knowledge that insured property is vacant or unoccupied or that the 
ownership or occupancy has changed from owner to tenant, or that the 
hazards otherwise are increased, he will examine the policy to determine 
whether the policy permits such conditions. Unless the insurance permits 
such conditions, the County Supervisor will immediately notify the 
company or agent in writing. In any case where there is an additional 
premium due because of vacancy, unoccupancy, tenant occupancy, or other 
increased hazard, and upon demand to FmHA or its successor agency under 
Public Law 103-354 from the company or agent because the borrower 
cannot, or will not, pay the additional premium, it may be paid in 
accordance with FmHA or its successor agency under Public Law 103-354 
Instruction 2024-A, to the company or agent. For FP and section 502 RH 
borrowers, property insurance will not be obtained except in cases where 
an unusual and severe hazard exists and insurance is necessary to 
protect the interests of the Government.
    (2) Transfer of property. (i) When a borrower or transferee requests 
the consent of FmHA or its successor agency under Public Law 103-354 to 
a transfer of the security property which already has been made, or when 
the County Supervisor learns that any such transfer has been made, he 
will immediately inform the transferee that the mortgage requires the 
owner to provide and maintain adequate insurance acceptable to, and with 
loss payable to, FmHA or its successor agency under Public Law 103-354 
as mortgagee. The transferee may obtain a new insurance policy or the 
transferor may have the insurance company or agent issue an endorsement 
to the current insurance policy changing the name of the assured to that 
of the transferee. If a new insurance policy is obtained, the old policy 
or other evidence of insurance will be returned to the transferor unless 
there is an unsettled loss. If there is an unsettled loss, the policy or 
other evidence of insurance will not be returned until the claim has 
been settled. The County Supervisor, with the concurrence of the State 
Director and the OGC, will notify the borrower and transferee that 
acceptance of the new policy or endorsement will not constitute consent 
by the Government to the transfer even though the Government is 
protected by a loss payable clause in such an insurance policy.
    (ii) In a transfer with assumption, insurance will be required in 
the same amount and according to the same provisions as for an initial 
loan of the same type.
    (3) Voluntary conveyance of property to the Government and 
foreclosure. Insurance will not be carried on buildings which the 
Government has acquired.

[[Page 1201]]

After a foreclosure sale has been held, or after a deed of conveyance to 
the Government in lieu of foreclosure has been filed for record, 
insurance will not be maintained by the Government (whether or not 
subject to redemption).

[41 FR 34571, Aug. 16, 1976, as amended at 42 FR 33262, June 30, 1977; 
50 FR 39638, Sept. 30, 1985; 54 FR 35869, Aug. 30, 1989; 57 FR 36590, 
Aug. 14, 1992]



Sec. 1806.5   Losses.

    (a) Protecting property. It is the responsibility of the borrower to 
immediately notify the County Supervisor and insurance company or agent 
of any loss or damage to insured property and collect the amount of the 
loss. When the County Supervisor learns of a loss to property which 
secures an FmHA or its successor agency under Public Law 103-354 loan, 
he will:
    (1) Check the borrower's casefile for an insurance policy or other 
evidence of insurance. When a policy or other evidence of insurance has 
not been retained by the FmHA or its successor agency under Public Law 
103-354, such as for FP and section 502 RH borrowers, the County 
Supervisor will determine whether the property was insured and whether 
FmHA or its successor agency under Public Law 103-354 was named as 
mortgagee in the insurance policy.
    (2) Determine that the borrower has taken such steps as are 
necessary to protect the interest of the FmHA or its successor agency 
under Public Law 103-354 in the security property against further 
damage. When serious problems arise with respect to protecting the 
property from further damage, the borrower cannot or will not arrange 
adequate protection for the property, or when legal action appears to be 
necessary, the County Supervisor will arrange for emergency protection 
and immediately refer the case with complete information to the State 
Director.
    (b) Loss covered by insurance. (1) If the FmHA or its successor 
agency under Public Law 103-354 is listed as mortgagee in the insurance 
policy, the County Supervisor will collect the amount of the loss and 
may consent to the borrower using funds to repair or replace damaged or 
destroyed property or to apply loss proceeds to his loan account or to 
any prior liens that might exist in the order of their priority.
    (2) If the FmHA or its successor agency under Public Law 103-354 is 
not listed as mortgagee in the insurance policy, the County Supervisor 
will contact the borrower to determine whether he has received the loss 
proceeds. If the borrower has received the loss proceeds but not yet 
paid for improvements to repair or replace the property, or has not 
received the loss proceeds the County Supervisor will:
    (i) Notify the insurance company in writing of the FmHA or its 
successor agency under Public Law 103-354's interest in the security 
property and request that the loss proceeds be made payable jointly to 
the FmHA or its successor agency under Public Law 103-354 and the 
borrower.
    (ii) Inform the borrower of his responsibility for repairing or 
replacing the damaged or destroyed property or for authorized 
disposition of the loss proceeds as outlined in paragraph (b)(1) of this 
section.
    (c) Loss drafts--when loan is secured by a first mortgage. (1) A 
loss draft which in the opinion of the County Supervisor represents a 
satisfactory adjustment of the loss will be endorsed immediately without 
recourse and deposited in a supervised bank account to be used in 
repairing or replacing the damaged building, except:
    (i) Where the amount of the loss is $1,000 or less and the borrower 
will use the funds for repairing or replacing an essential building, the 
loss draft may be endorsed without recourse and given to the borrower 
upon satisfactory proof that the repairs or replacements have been made, 
or upon satisfactory assurance that the work will be performed.
    (ii) When (A) the essential buildings are not to be repaired or 
replaced and other suitable buildings are not to be erected, or (B) a 
balance remains after all repairs, replacements, and other authorized 
disbursements have been made, such insurance funds will be applied on 
prior liens or as an extra payment to the borrower's loan accounts 
secured by the real estate or disposed of in accordance with the general 
principles applicable to the use of proceeds from the sale of a part of 
the security

[[Page 1202]]

contained in applicable security servicing regulations for the type loan 
involved.
    (iii) An insurance payment for loss or damage to a nonessential 
building the borrower voluntarily insured will be (A) applied on prior 
liens, or to current delinquencies to FmHA or its successor agency under 
Public Law 103-354 or as an extra payment on the borrower's loan 
accounts secured by real estate, (B) disposed of as authorized by the 
State Director in accordance with the general principles applicable to 
the use of proceeds from the sale of a part of the security contained in 
applicable security servicing regulations for the type loan involved, or 
(C) used for other purposes as authorized by the State Director if the 
loan is adequately secured and the loan account is current.
    (iv) When the indebtedness secured by the insured property has been 
paid in full or the draft is in payment for loss of property on which 
the FmHA or its successor agency under Public Law 103-354 has no claim, 
a loss draft which includes the FmHA or its successor agency under 
Public Law 103-354 as a joint payee may be endorsed without recourse and 
delivered to the borrower.
    (d) Loss drafts--When loan is secured by other than first mortgage. 
(1) When the loss draft does not include the interest of a prior 
mortgagee, it will be processed as provided in paragraph (c) of this 
section.
    (2) When the loss draft includes the interest of a prior mortgagee, 
the County Supervisor is authorized to endorse and process the draft as 
follows:
    (i) When the prior mortgagee will permit the use of such loss funds 
to repair or replace the damaged building, the draft may be endorsed 
without recourse upon satisfactory proof that the repairs or 
replacements have been made or upon satisfactory assurance that the work 
will be performed.
    (ii) When the amount of the draft does not exceed the amount of the 
indebtedness then secured by the prior mortgage as stated in writing by 
the holder of the prior mortgage, and the holder of the prior mortgage 
has agreed in a written statement to the County Supervisor that he will 
apply such funds as a payment on the borrower's prior mortgage 
indebtedness, the draft may be endorsed without recourse.
    (iii) When the amount of the draft exceeds the amount of the 
indebtedness then secured by the prior mortgage, as stated in writing by 
the holder, and he has agreed in writing to pay such indebtedness from 
the loss funds, the draft will be endorsed without recourse only after 
all parties named as payees in the draft have signed an agreement to 
deliver the draft ``in escrow'' to a bank acceptable to the named 
parties. The agreement will specify the manner in which the funds will 
be disbursed by the bank, as escrow agent, to the several mortgagees 
named in the draft. After the loss funds have been collected by the 
bank, it will issue cashier's checks in the manner prescribed in the 
escrow agreement (see exhibit A for suggested form). If this procedure 
is found to be impractical in an individual instance, the State Director 
may authorize an alternative method for disbursing the loss funds to 
protect the Government's financial interest.
    (iv) Drafts which have been endorsed by all other payees will be 
endorsed immediately without recourse. Such drafts or other loss funds 
will be processed in accordance with the methods described in paragraph 
(c) of this section.
    (e) Servicing insurance losses under special circumstances--(1) 
Foreclosures and voluntary conveyances. Losses on properties in process 
of foreclosure or voluntary conveyance will be handled with the advice 
of the OGC. If the necessary cooperation of the borrower cannot be 
obtained, the State Director, with the advice of the OGC, will determine 
the proper action to be taken. To the extent feasible from a legal and 
practical standpoint, all loss payments should be received for a damaged 
or destroyed building and applied on the borrower's real estate 
indebtedness before title to the property is taken by the Government 
through foreclosure sale, voluntary conveyance, or otherwise, unless 
absolute assignment has been made by the borrower to the Government of 
all loss funds due from the insurance company.
    (2) Subrogation agreements. When a company claims nonliability to 
the borrower and subrogation to the rights

[[Page 1203]]

of the FmHA or its successor agency under Public Law 103-354, the County 
Supervisor will forward a full report of the facts in the case to the 
State Director. The State Director will upon advice from OGC, instruct 
the County Supervisor regarding further action to be taken.
    (f) Repairs and replacements. When any loss payments have been 
deposited in a supervised bank account, all repairs and replacements 
done by or under the direction of the borrower, or by contract, will be 
planned, performed, inspected, and paid for in the same manner as 
improvements financed with loan funds.
    (g) Completing adjustment. The borrower must complete the adjustment 
of the loss with the company or its authorized representatives. The 
County Supervisor, upon request of the borrower may consult with the 
borrower regarding the loss adjustment, but will not enter into 
negotiations with insurance adjusters or company representatives 
relative to the adjustment or settlement of losses on borrower property, 
or make any commitments, or sign any forms in connection with the 
adjustment of the loss. The FmHA or its successor agency under Public 
Law 103-354 will not waive any rights which it may have against the 
company except when the borrower's account or the FmHA or its successor 
agency under Public Law 103-354 claim has been paid-in-full.
    (1) The County Supervisor will maintain a proper followup on all 
losses until satisfactory settlement has been made by the company.
    (2) Where the County Supervisor has evidence that the adjustment 
agreed to by the borrower is significantly less than the amount of 
damage to which the borrower is entitled under the terms of the policy, 
the loss draft accompanied by a report will be sent to the State 
Director so that he may reopen the adjustment, if he considers it is in 
the interest of the FmHA or its successor agency under Public Law 103-
354 to do so.
    (3) When it appears evident that the amount of the loss is $1,000 or 
less, the County Supervisor may rely on estimates of contractors, 
building supply firms, reliable carpenters, or other evidence rather 
than personal inspection in determining whether the adjustment is 
equitable and the Government's interest is protected.
    (h) Reinstatement after loss. In cases where insurance in the amount 
of the loss is not reinstated automatically by the provisions of the 
policy, it will be the responsibility of the County Supervisor to have 
the borrower reinstate as much of the insurance as may be necessary to 
fulfill the requirements of the FmHA or its successor agency under 
Public Law 103-354.
    (i) Losses not covered by insurance. When a loss occurs and 
insurance is not in force, the County Supervisor will:
    (1) Inform the borrower that he has violated the security instrument 
by not providing insurance coverage and that it is his responsibility to 
make the needed replacements or repairs.
    (2) If the borrower is unable or unwilling to make needed repairs or 
replacements from his own resources, the County Supervisor will submit 
complete information to the FmHA or its successor agency under Public 
Law 103-354 official authorized to determine whether FmHA or its 
successor agency under Public Law 103-354 will or will not continue with 
the loan. The County Supervisor's report will include recommendations on 
the following items:
    (i) The advisability and possibility of making a subsequent loan to 
pay for needed repairs.
    (ii) Subordination of the FmHA or its successor agency under Public 
Law 103-354 real estate lien to permit the borrower to obtain funds for 
needed repairs from another source.
    (iii) The possibility of the borrower obtaining funds secured by a 
junior lien from another source.
    (iv) Whether an advance is needed to protect the Government's 
interest in the property.
    (3) If the loan will not be continued with the borrower, it must be 
serviced in accordance with the applicable Instructions.
    (4) If the borrower has improperly disposed of loss proceeds, the 
County Supervisor will refer the case with complete information and 
recommendations to the State Director. The State Director will consult 
the Regional Attorney when necessary and

[[Page 1204]]

advise the County Supervisor as to appropriate servicing actions.

[41 FR 34571, Aug. 16, 1976, as amended at 50 FR 39638, Sept. 30, 1985]



Sec. 1806.6   Failure of borrower to provide insurance.

    When a borrower fails to provide and maintain property insurance 
which meets the requirements set forth in Sec. 1806.2 of this subpart, 
every effort will be made to have the borrower provide coverage 
acceptable to FmHA or its successor agency under Public Law 103-354. It 
will be emphasized that under the terms of the security instrument, it 
is the borrower's responsibility to provide and maintain proper 
insurance coverage. Existing borrowers required to escrow will be 
notified by letter at least 90 days prior to initiating escrowing for 
insurance. Failure to provide insurance is a nonmonetary default and 
will be a consideration in determining if the loan is to be continued. 
For FP or SFH borrowers not required to escrow, the County Supervisor 
will obtain insurance coverage and voucher for the insurance premium 
only in cases where: An unusual and severe hazard, such as recurring 
fires or unstable ground conditions, exists, or, an SFH borrower on a 
moratorium is unable to pay the insurance premium and the borrower 
requests that FmHA or its successor agency under Public Law 103-354 pay 
the premium. For SFH borrowers required to escrow, force placed 
insurance will be obtained if the borrower fails to provide acceptable 
insurance. Borrowers being phased into escrow will be given at least 30 
days to obtain coverage, after which force placed insurance will be 
obtained. If the escrow account contains insufficient funds to pay the 
insurance when due, the County Supervisor will request the borrower to 
pay an amount equal to the difference between the premium due and the 
escrow balance in a lump sum within 30 days after notification. If the 
borrower fails to remit the amount requested, the amount will be 
advanced and charged to the borrower's account as a recoverable cost. 
The amortization period for an advance due to an escrow shortage will be 
one year. Insurance coverage shall be provided continuously unless the 
property is acquired by FmHA or its successor agency under Public Law 
103-354. The cost of obtaining such a policy shall be advanced and 
charged to the borrower's account as a recoverable cost. Amortization of 
the charge will be handled in accordance with Sec. 1951.310 of subpart G 
of part 1951 of this chapter. If a borrower indebted for other than an 
FP or SFH loan fails to provide acceptable insurance, the Servicing 
Official will take the following action:
    (a) Expired policies. (1) The County Supervisor will request the 
insurance agency or broker who issued the expired policy to issue a new 
policy which is acceptable to the FmHA or its successor agency under 
Public Law 103-354.
    (i) The new policy will be effective as of the date of the County 
Supervisor's contact with the insurance agency or broker or as soon 
thereafter as possible, and will be for a term of one year. If State 
insurance regulations require a longer term, the State Director will 
issue a State Instruction authorizing County Supervisors to obtain 
policies for the minimum period permitted by State insurance 
regulations.
    (ii) The FmHA or its successor agency under Public Law 103-354 will 
be shown in the loss payable clause and in the mortgage clause in the 
proper order of priority.
    (iii) Insurance coverage on each building usually will be the same 
as shown on the expired policy if it meets or exceeds FmHA or its 
successor agency under Public Law 103-354 requirements. If the coverage 
shown on the expired policy does not meet FmHA or its successor agency 
under Public Law 103-354 requirements, proper coverage will be obtained.
    (iv) The County Supervisor will, if possible, have an automatic 
renewal provision included in the policy.
    (v) If the borrower refuses to pay the insurance premium with his 
own funds or arrange with the agent for subsequent payment by premium 
not or otherwise, the County Supervisor will pay the amount of the 
insurance premium in accordance with FmHA or its successor agency under 
Public Law 103-354 Instruction 2024-A. The amount of the premium payment 
will be charged to the borrower's FmHA or its successor

[[Page 1205]]

agency under Public Law 103-354 account with the highest lien priority 
as a recoverable cost item.
    (vi) If the insurance agency or broker who issued the expired policy 
refuses to issue a new policy, the County Supervisor will have the 
borrower designate in writing another insurance agency or broker from 
whom the insurance can be obtained.
    (vii) After the County Supervisor and the borrower exhaust all 
efforts to obtain acceptable insurance, the County Supervisor will 
request advice from the State Office as to companies issuing acceptable 
policies in the State and from which the borrower might be able to 
obtain an acceptable policy. If the borrower still cannot obtain an 
acceptable policy from any such company, and the determination has been 
made to continue with the borrower, the County Supervisor will 
temporarily accept from the borrower the available insurance policy the 
FmHA or its successor agency under Public Law 103-354 determines most 
nearly conforms to the requirements of Sec. 1806.2 of this subpart.
    (A) In making this determination, the following deficiencies become 
more objectionable in the order from (1) to (5) paragraphs 
(a)(1)(vii)(A) of this section:
    (1) A policy written for an initial term of less than one year.
    (2) A policy which will insure the most essential buildings but will 
not cover all essential buildings.
    (3) A policy which covers major risks such as fire and lightning, 
but does not include one or more of the other risks specified in 
Sec. 1806.2(8).
    (4) A policy for a lesser amount of insurance than is required by 
Sec. 1806.3.
    (5) A policy that is issued by a company which is not licensed to do 
business in the State or otherwise does not meet the requirements of 
Sec. 1806.3.
    (B) Whenever adequate insurance becomes available, the County 
Supervisor will require the borrower to deliver to the County Office an 
acceptable insurance policy. The temporary policy will be returned to 
the borrower for cancellation after all losses claimed under the policy 
have been settled.
    (C) If the borrower is unable to furnish a property insurance policy 
of any kind, he is still responsible for the debt in the event of loss.
    (D) If the County Supervisor accepts an inadequate insurance policy 
under these conditions or the borrower fails to furnish any insurance 
policy, the County Supervisor will include in his report to the State 
Director an explanation of the efforts he and the borrower made to 
obtain acceptable insurance and his justification for accepting an 
inadequate policy, or for not obtaining an insurance policy of any kind.
    (b) Insurance canceled for reasons other than nonpayment of 
insurance premium. (1) The County Supervisor, immediately upon receipt 
of a 10-day notice of cancellation for a policy, will urge the borrower 
to provide acceptable insurance.
    (2) If the borrower fails to provide acceptable insurance before the 
cancellation is effective, the County Supervisor will contact the 
insurance agency or broker who issued the insurance policy to determine 
the reasons for cancellation and, if possible, have the policy 
reinstated.
    (3) If the insurance company will not reinstate the policy, the 
County Supervisor will attempt to obtain an acceptable insurance policy 
from another agency or broker in accordance with the provisions of 
paragraph (a) of this section.
    (c) Insurance canceled for nonpayment of premium. (1) The County 
Supervisor, immediately upon receiving a 10-day cancellation notice for 
a policy, will, if possible, contact the borrower in an effort to have 
him pay the insurance premium from his own funds or arrange with the 
agent for subsequent payment by premium note, or otherwise.
    (2) If the borrower does not pay or arrange to pay the premium 
before the policy cancellation is effective, the County Supervisor will, 
before the cancellation becomes effective, notify the insurance company 
or broker by certified mail (return receipt requested), that the FmHA or 
its successor agency under Public Law 103-354 as mortgagee (or trustee) 
will pay the premium for one year to continue the policy in effect for 
that period. The County Supervisor will, in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A, pay the

[[Page 1206]]

amount of the premium for a period of one year. The amount of the 
premium will be charged to the borrower's loan account as a recoverable 
cost item.
    (3) If a property insurance mortgage clause other than Form FmHA or 
its successor agency under Public Law 103-354 426-2 is used in 
connection with the policy and the insurance company or broker refuses 
to accept payment from the FmHA or its successor agency under Public Law 
103-354 in this manner to reinstate or continue the policy, the County 
Supervisor will attempt to obtain an acceptable insurance policy from 
another insurance company or broker in accordance with the provisions of 
paragraph (a) of this section.

(7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 2942; 5 U.S.C. 301; Sec. 10 
Pub. L. 93-357, 88 Stat. 392; delegation of authority by the Secretary 
of Agriculture, 7 CFR 2.23; delegation of authority by the Assistant 
Secretary for Rural Development, 7 CFR 2.70; delegation of authority by 
Director OEO 29 FR 14764, 33 FR 9850)

[41 FR 34571, Aug. 16, 1976, as amended at 42 FR 33263, June 30, 1977; 
43 FR 34430, Aug. 4, 1978; 50 FR 39638, Sept. 30, 1985; 56 FR 6945, Feb. 
21, 1991; 57 FR 36590, Aug. 14, 1992]

    Exhibit A to Subpart A--Escrow Agreement Real Property Insurance

Date____________________________________________________________________
(Name of bank)__________________________________________________________
(City or town)__________________________________________________________
(State)_________________________________________________________________

    Gentlemen: Attached is Draft No. ------, for $------, issued by the 
------------ Insurance Company in payment of ------ loss which damage 
the buildings on the farm of ------------------, of -------------- 
County, State of --------------.
    This draft has been endorsed by the undersigned payees who request 
that you collect these funds and issue cashier's checks to the following 
payees for the following amounts:
----------------, First Mortgage $------
----------------, Second Mortgage $------
----------------, Third Mortgage $------
    The balance only, if any, will be paid to ----------------, the 
owner of the property.
________________________________________________________________________
First Mortgagee  _______________________________________________________
________________________________________________________________________
Second Mortgagee _______________________________________________________
________________________________________________________________________
Third Mortgagee  _______________________________________________________
________________________________________________________________________
Owner      _____________________________________________________________



                   Subpart B--National Flood Insurance

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 40 U.S.C. 442; 42 U.S.C. 
2942; 5 U.S.C. 301; delegation of authority by the Sec. of Agri., 38 FR 
14944 (7 CFR 2.23); delegation of authority by the Asst. Sec. for Rural 
Development, 38 FR 14944, 14952 (7 CFR 2.70).

    Source: 39 FR 17093, May 13, 1974, unless otherwise noted.



Sec. 1806.21   General.

    (a) Authority. This subpart prescribes the policies and procedures 
to be followed in implementing the National Flood Insurance Act of 1968 
as amended by the Flood Disaster Protection Act of 1973. The provisions 
of these Acts are applicable to Farmers Home Administration (FmHA) or 
its successor agency under Public Law 103-354 authorities permitting 
financing of buildings of any type now located in or to be located in 
special flood or mudslide prone areas as designated by the Federal 
Insurance Administration (FIA) of the Department of Housing and Urban 
Development (HUD), and any machinery, equipment, fixtures and 
furnishings contained or to be contained therein.
    (b) Background. The Congress has found that annual losses throughout 
the nation caused by floods and mudslides are increasing at an alarming 
rate, largely as a result of the accelerated development and 
concentration of populations in areas subject to floods and mudslides. 
The availability of Federal funds in the form of loans, grants, 
guarantees, insurance and other forms of financial assistance are often 
determining factors in the utilization of land and the location and 
construction of industrial, commercial and residential facilities.
    (c) Scope. The National Flood Insurance Program (the program) was 
authorized and created because the private insurance industry has been 
unable to provide insurance coverage at reasonable prices for such 
natural disasters as floods and mudslides. Subsidized and affordable 
insurance has been made available under the Act through an agreement 
between the Federal Insurance Administration and

[[Page 1207]]

the National Flood Insurers Association.



Sec. 1806.22   Areas of responsibility.

    (a) Federal Insurance Administration (FIA). (1) Identify and publish 
information with respect to all areas in the country which are subject 
to floods and mudslides and designate those areas on Flood Hazard 
Boundary maps.
    (2) Notify affected communities of their designations and encourage 
them to adopt and enforce land use and other control measures and to 
adopt ordinances or laws which will regulate and control construction in 
areas designated as having special flood or mudslide hazards.
    (3) Make flood insurance available at reasonable rates in sufficient 
amounts, within the statutory limits, to adequately protect owners 
against loss to their buildings and contents when those buildings are 
located in or will be located in designated special flood and mudslide 
prone areas in communities participating in the National Flood Insurance 
Program.
    (b) Farmers Home Administration or its successor agency under Public 
Law 103-354. The State Director, after being notified by the FmHA or its 
successor agency under Public Law 103-354 National Office or FIA of 
designated flood or mudslide hazard areas and receiving flood hazard 
boundary maps identifying the hazard areas, FIA insurance rate charts, 
or other information concerning the program, will inform the appropriate 
County Supervisors and provide them the maps, rate charts, and other 
relevant information concerning the program in areas they serve. 
Permanent records indicating the date a community was notified as 
containing identified flood hazard areas, communities participating in 
the program, and communities eligible to participate but not 
participating in the program will be maintained in the State Office. 
County Supervisors will notify, in writing, those borrowers whose 
insurable buildings are located in designated flood or mudslide hazard 
areas of the availability of national flood insurance and encourage them 
to obtain flood insurance to protect their and the Government's 
financial interest.
    (c) Community. Communities are required to participate in the 
National Flood Insurance Program within 1 year after notification of its 
formal identification as a community containing one or more special 
flood and mudslide prone areas, or by July 1, 1975, whichever is later, 
or be denied Federal financial assistance or Federally-related financial 
assistance for acquisition or construction purposes in such areas. 
Communities wishing to qualify for the program may submit a completed 
application to: Administrator, Federal Insurance Administration, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410.
    (d) Lender. The lender must determine whether real property is 
located in an area identified as having special flood or mudslide 
hazards and cannot discharge the responsibility merely by obtaining a 
self-certification from the applicant that the property is not located 
in an area having special flood hazards.



Sec. 1806.23   Definitions.

    For the purpose of this subpart, the following definitions apply:
    (a) Financial assistance means any form of direct, insured or 
guaranteed loan, including reamortization and assumption on new terms of 
any loan, any form of grant, or other form of direct or indirect 
assistance extended by the FmHA or its successor agency under Public Law 
103-354.
    (b) Financial assistance for acquisition or construction purposes 
means any form of Federal financial assistance which is intended in 
whole or in part for the acquisition, construction, reconstruction, or 
substantial improvement of any building and for any machinery, 
equipment, fixtures and furnishings contained or to be contained in such 
buildings.
    (c) Community means any state or political subdivision thereof, such 
as county, parish, township, city or other local government which has 
zoning and building code jurisdiction over a particular area having 
special flood hazards.
    (d) Eligible community means a community in which the Administrator 
of

[[Page 1208]]

FIA has authorized the sale of flood insurance under the program.
    (e) Designated special flood ormudslide prone area means those areas 
in a community subject to flood or mudslide which have been identified 
by flood hazard boundary maps or those areas not identified by maps but 
where, due to emergency, the FIA Administrator has authorized the sale 
of flood insurance.
    (f) Flood means a general and temporary condition of partial or 
complete inundation of normally dry land areas from the overflow of 
streams, rivers, or other inland water, the collapse or subsidence of 
land along the shore of a lake or other body of water as a result of 
erosion or undermining caused by waves or currents of water exceeding 
anticipated cyclical levels, or abnormally high tidal water or rising 
coastal waters resulting from severe storms, hurricanes, or tidal waves 
resulting from volcano eruptions or earthquakes.
    (g) Mudslide or mudflow means a major occurrence involving the 
appearance of a large river or flow of ``liquid mud'' down a hillside, 
usually as a result of earlier brushfires followed by heavy rains over a 
widespread area.
    (h) Flood insurance means insurance coverage for floods and/or 
mudslides under the program or otherwise acceptable to FIA.
    (i) Building means any walled and roofed structure, other than a gas 
or liquid tank, that is principally above ground and affixed to a 
permanent site. Residential and most types of industrial, commercial, 
and agricultural buildings, such as lumber sheds, machinery storage 
sheds, grain storage bins, and silos, are included in this definition.
    (j) Substantial improvement means any repair, reconstruction or 
improvement of a structure, the cost of which equals or exceeds 50 
percent of the actual cash value of the structure either before the 
improvement is started or, if the structure has been damaged and is 
being restored, before the damage occurred.



Sec. 1806.24   Eligibility.

    In addition to an applicant meeting the requirements for the type of 
financial assistance requested, the following requirements for 
eligibility of applicants for financial assistance for acquisition and 
construction purposes in designated special flood and mudslide prone 
areas must be met:
    (a) If flood insurance is available, to be eligible after March 1, 
1974, the applicant must have purchased a flood insurance policy at the 
time the loan or grant is closed.
    (b) Applicants will not receive financial assistance in those 
communities that have been notified as having special flood and mudslide 
prone areas and where flood insurance is not available within 1 year 
after such notification or by July 1, 1975, whichever is later.



Sec. 1806.25   Conditions.

    FmHA or its successor agency under Public Law 103-354 financial 
assistance may be extended to eligible applicants meeting the 
eligibility requirements of Sec. 1806.24 of this subpart, provided the 
following conditions are also met:
    (a) Dwelling and multi-unit housing facilities. (1) If the financial 
assistance is to buy a dwelling or multi-unit housing facility:
    (i) The first floor elevation of the habitable space of the dwelling 
or housing unit must be above the 100-year flood level.
    (ii) The housing must be served by public utilities and facilities, 
such as sewer, gas, electrical and water systems that are located and 
constructed to minimize or eliminate flood damage, or have an onsite 
water supply system and waste disposal system located so as to avoid 
impairment of such systems and contamination from the waste disposal 
system to the water supply system from flooding.
    (2) If the financial assistance is to build or provide substantial 
improvement, the requirements of paragraph (a)(1) of this section must 
be met and all construction must meet requirements of the applicable 
development standards, and:
    (i) A building permit must be issued by the appropriate governing 
officials having jurisdiction in the area and compliance must be had 
with the zoning code or other established legal requirements of the area 
for reducing or eliminating flood or mudslide damage.

[[Page 1209]]

    (ii) The structure must be designed and anchored to prevent 
flotation, collapse or lateral movement of the structure.
    (iii) Construction materials and utility equipment that are 
resistant to flood damage must be used.
    (iv) Construction methods and practices that will minimize flood 
damage must be followed.
    (3) If the financial assistance is to make minor repairs, the 
conditions of paragraphs (a)(1) (i) and (ii) and (2) (i), (ii) and (iii) 
of this section must be met or the building must have existed on the 
site prior to the date the area was identified as having special flood 
or mudslide hazards and the loan approval official must determine that 
the dwelling is suitable as a residence.
    (4) When applications for financial assistance are received in areas 
identified as having special flood and mudslide hazards, the loan 
approval official will consider the expected severity and frequency of 
floods and mudslides in determining whether any housing loans should be 
made in the area. He should be sure, if loans are made, that the 
objectives of the loans can be accomplished and the Government's 
financial interest will be adequately protected.
    (b) Nonresidential buildings. Construction plans and specifications 
for new buildings or improvements to existing buildings must comply with 
flood plain area management or control laws, regulations or ordinances.
    (c) Flood insurance coverage. (1) Any property on which flood 
insurance is required must be covered by such insurance during its 
anticipated economic and useful life in an amount at least equal to its 
development or replacement cost (except estimated land cost), or to the 
maximum limit of coverage made available with respect to the particular 
type of property under the National Flood Insurance Program, whichever 
is less. However, if the financial assistance provided is in the form of 
a loan, the amount of flood insurance required need not exceed the 
outstanding principal balance of the loan and need not be required 
beyond the term of the loan.
    (2) The contents of a building must be insured separately from a 
building but coverage cannot be written on the contents of a three-
walled machinery shed or similar type open building.
    (3) Flood insurance shall not be required on any state owned 
property that is covered under an adequate state policy of self-
insurance satisfactory to the Secretary of HUD, who will publish a list 
of states with such policies.
    (4) It will be emphasized that under the terms of the security 
instrument it is the borrower's responsibility to provide and maintain 
proper flood insurance coverage. If flood insurance is not provided on 
any property for which it is required, the flood insurance premium will 
be paid to protect the Government's security interest. For borrowers 
required to escrow for flood insurance, payment of the premium will be 
handled in accordance with Sec. 1806.28 of this subpart. Existing 
borrowers required to escrow will be notified by letter at least 90 days 
prior to initiating escrowing for flood insurance. If FmHA or its 
successor agency under Public Law 103-354 pays the flood insurance 
premium for borrowers not required to escrow, the cost will be charged 
to the borrower's account as a recoverable cost. Failure to provide 
flood insurance is a nonmonetary default and will be a consideration in 
determining if the loan is to be continued.

[39 FR 17093, May 13, 1974, as amended at 52 FR 8002, Mar. 13, 1987; 56 
FR 6945, Feb. 21, 1991]



Sec. 1806.26   Coverage and premium rates.

    Exhibit A sets forth limits of coverage and chargeable premium rates 
under the program. Insurance policies under the program can be obtained 
from any licensed property insurance agent or broker serving the 
eligible community or from the National Flood Insurers Association 
Serving Company (Serving Company) for the state. The Servicing Company 
for each state is shown in exhibit B.



Sec. 1806.27   Acceptable policies and servicing.

    The general acceptance of policies and servicing of insurance will 
be performed in accordance with Subpart A of this part. Any unusual 
situations that may arise with respect to obtaining or servicing flood 
insurance should be referred to the State Director. The

[[Page 1210]]

State Director will attempt to resolve any problems concerning the flood 
insurance program in the state with the Servicing Company. Flood hazard 
boundary maps, insurance rate tables, the insurability of specific 
structures, and other information concerning the program may be obtained 
from the Servicing Company. Difficulties in administering the program 
which the State Director is unable to resolve should be referred to the 
National Office for Assistance.



Sec. 1806.28  Borrowers required to escrow.

    For borrowers required to use escrow accounts for the payment of 
real estate taxes and insurance, the flood insurance premium will be 
paid when due from funds contained in the escrow account. If the escrow 
account contains insufficient funds to pay the flood insurance premium 
when due, the County Supervisor will request the borrower to pay an 
amount equal to the difference between the premium due and the escrow 
balance in a lump sum within 30 days after notification. If the borrower 
fails to remit the amount requested, the amount will be advanced and 
charged to the borrower's account as a recoverable cost. The 
amortization period for an advance due to an escrow shortage will be one 
year. Amortization of the charge will be handled in accordance with 
Sec. 1951.310 of subpart G of part 1951 of this chapter. When a borrower 
has more than one loan secured by the real estate on which the flood 
insurance premium is being paid, the advance will be charged to the 
initial or lowest numbered loan.

[56 FR 6946, Feb. 21, 1991]

           Exhibit A to Subpart B--Coverage and Premium Rates

    1. The following table sets forth the limits of coverage available 
under the program:

------------------------------------------------------------------------
                               Structure coverage        Contents of    
                             ----------------------       coverage4     
      Type of structure                            ---------------------
                              Subsidized   Total3   Subsidized   Total3 
------------------------------------------------------------------------
Single family, residential1.    $35,000    $70,000    $10,000    $20,000
All other, residential1.....    100,000    200,000     10,000     20,000
All nonresidential2.........    100,000    200,000    100,000    200,000
------------------------------------------------------------------------
1 For Alaska, Hawaii, and the Virgin Islands, the following limits of   
  coverage apply: Structure coverage for one family residential is      
  $50,000 subsidized and $100,000 total coverage, and structure coverage
  for other residential is $150,000 subsidized and $300,000 total       
  coverage.                                                             
2 Includes hotels and motels with normal occupancy of less than 6       
  months.                                                               
3 Coverage in amounts exceeding the subsidized limits is available only 
  after an actuarial cost has been established and flood insurance rate 
  may be issued.                                                        
4 Contents of a building must be insured separately from the building.  
  However, coverage is applicable to contents only while in an enclosed 
  building. Therefore, coverage cannot be written on the contents of a  
  three-walled machinery shed or a similar type open building.          

    2. The following table sets forth the applicable premium rates:

------------------------------------------------------------------------
                                                     Rates per $100 of  
                                                   coverage (subsidized 
                Type of structure                          only)        
                                                 -----------------------
                                                  Structures   Contents 
------------------------------------------------------------------------
All residential.................................      1$0.25       $0.35
All nonresidential..............................        1.40         .75
------------------------------------------------------------------------
1Actuarial (nonsubsidized) rates are applicable to any structure, the   
  construction or substantial improvement of which started after Dec.   
  31, 1974, or the date on which the initial rate map was issued,       
  whichever is later, in identified areas having special flood or       
  mudslide hazards.                                                     

                Exhibit B to Subpart B--Servicing Company

    The servicing company office to be contacted for information 
relative to the availability of coverage under the national flood 
insurance program, flood hazard boundary maps, insurance rate tables, 
and related material.
E.D.S. Federal Corporation, National Flood Insurance, P.O. Box 34294, 
Bethesda, Md. 20034, phone toll-free 800-638-6620; commercial phone 301-
898-5900.

(7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 2942; 5 U.S.C. 301; delegation 
of authority by the Secretary of Agriculture, 7 CFR 2.23; delegation of 
authority by the Assistant Secretary for Rural Development, 7 CFR 2.70)

[43 FR 18538, May 1, 1978]




                         PART 1807--[Reserved] 




  




                         PART 1809--[Reserved] 




  



PART 1810--INTEREST RATES, TERMS, CONDITIONS, AND APPROVAL AUTHORITY--Table of Contents




  

[[Page 1211]]

 Subpart A--Interest Rates, Amortization, Guarantee Fee, Annual Charge, 
                            and Fixed Period

Sec.
1810.1  Information concerning interest rates, amortization, guarantee 
          fee, annual charge, and fixed period.
1810.2  Adjustment of interest rates for certain loans involving use of 
          or construction on prime or unique farmland.

                          Subpart B--[Reserved]

    Authority: 7 U.S.C. 1989; 14 U.S.C. 1480; 7 CFR 2.23; 7 CFR 2.70.



 Subpart A--Interest Rates, Amortization, Guarantee Fee, Annual Charge, 
                            and Fixed Period



Sec. 1810.1  Information concerning interest rates, amortization, guarantee fee, annual charge, and fixed period.

    (a) Tables for computing the interest rates (including the annual 
charge rates and length of fixed period for initial repurchase agreement 
for insured loans), tables for use in determining the amounts of 
interest on loans at different rates, tables providing factors in 
amortizing loans, and the guarantee fee for guaranteed loans, may be 
obtained from any County, District, or State Office of FmHA or its 
successor agency under Public Law 103-354 or from its National Office at 
14th and Independence Avenue SW., Washington, DC 20250.
    (b) In the event that the tables provided for in paragraph (a) of 
this section do not furnish adequate information, questions should be 
directed to the Assistant Administrator, Finance Office, Farmers Home 
Administration or its successor agency under Public Law 103-354, 1520 
Market Street, St. Louis, Missouri 63103.

[56 FR 11503, Mar. 19, 1991]



Sec. 1810.2  Adjustment of interest rates for certain loans involving use of or construction on prime or unique farmland.

    (a) For essential community facility loans, insured farm ownership 
loans for recreation or non-farm enterprises, insured farm operating 
loans for recreation enterprises, soil and water loans for recreation 
purposes, individual recreation loans, and insured business and industry 
loans, the interest rate will be increased by two per centum per annum 
if the project being financed will involve the use of, or construction 
on, prime or unique farmland. Prime or unique farmland is as defined in 
Sec. 657.5 (a) and (b) of title 7, Code of Federal Regulations (1980).
    (b) The two per centum interest rate increase will not apply if the 
applicant/borrower is a public body or Indian tribe and has demonstrated 
to FmHA or its successor agency under Public Law 103-354 that there are 
no suitable options for locating the proposed essential community 
facility project on land that is not prime or unique farmland.
    (c) For each essential community facility loan and insured business 
and industry loan the District Director, after consultation with the 
Soil Conservation Service (SCS), will determine whether the proposed 
project will involve the use of, or construction on, prime or unique 
farmland. For each insured farm ownership loan for a recreation or non-
farm enterprise, insured farm operating loan for a recreation 
enterprise, soil and water loan for a recreational purpose, or 
individual recreation loan, the County Supervisor, after consultation 
with SCS, will determine whether the proposed project will involve the 
use of, or construction on, prime or unique farmland. The determination 
will be documented by FmHA or its successor agency under Public Law 103-
354 and made a part of the official case file.

[46 FR 47763, Sept. 30, 1981, as amended at 56 FR 11503, Mar. 19, 1991]



                          Subpart B--[Reserved]

[[Page 1212]]



    SUBCHAPTER B--LOANS AND GRANTS PRIMARILY FOR REAL ESTATE PURPOSES





PART 1822--RURAL HOUSING LOANS AND GRANTS--Table of Contents




                        Subparts A-F--[Reserved]

      Subpart G--Rural Housing Site Loan Policies, Procedures, and 
                             Authorizations

Sec.
1822.261  General.
1822.262  Objective.
1822.263  Definitions.
1822.264  Eligibility requirements.
1822.265  Loan purposes.
1822.266  Limitations.
1822.267  Special conditions.
1822.268  Rates, terms, and source of funds.
1822.269  Security.
1822.270  Technical, legal, and other services.
1822.271  Processing applications.
1822.272  Approval or disapproval of a loan.
1822.273  Actions subsequent to loan approval.
1822.274  Loan closing.
1822.275  Actions after sites are developed.
1822.276  Subsequent RHS loans.
1822.277  Complaints regarding discrimination in opportunity to buy 
          developed sites.
1822.278  Special requirements for RHS section 523 loans (loans to 
          organizations providing sites for self-help housing).
1822.279  Loan supervision and servicing.

Exhibits A--B to Subpart G [Reserved]
Exhibit C to Subpart G--Subordination by the Government for Use with 
          Rural Housing Site Loans

    Authority: 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR 2.23; 7 CFR 2.70.



                        Subparts A-F--[Reserved]



      Subpart G--Rural Housing Site Loan Policies, Procedures, and 
                             Authorizations

    Authority: Sec. 523, 82 Stat. 553, 42 U.S.C. 1490c; sec. 524, 83 
Stat. 399; sec. 502, 63 Stat. 433, as amended, 42 U.S.C. 1472; sec. 
101(a), 82 Stat. 477, 12 U.S.C. 1715z; sec. 201, 82 Stat. 498, 12 U.S.C. 
1715z-1; Orders of Secy. of Agr., 29 FR 16210, 32 FR 6650.

    Source: 35 FR 16087, July 1, 1970, unless otherwise noted.



Sec. 1822.261   General.

    This subpart sets forth the policies and procedures and delegates 
authority for making Rural Housing Site (RHS) loans under sections 523 
and 524 of the Housing Act of 1949. Any processing or servicing activity 
conducted pursuant to this subpart involving authorized assistance to 
FmHA or its successor agency under Public Law 103-354 employees, members 
of their families, known close relatives, or business or close personal 
associates, is subject to the provisions of subpart D of part 1900 of 
this chapter. Applicants for this assistance are required to identify 
any known relationship or association with an FmHA or its successor 
agency under Public Law 103-354 employee. Section 523 loans are direct 
loans for the purchase and development of building sites for housing to 
be built by the self-help method; they have additional requirements 
which are contained in Sec. 1822.278.

[35 FR 16087, July 1, 1970, as amended at 58 FR 224, Jan. 5, 1993]



Sec. 1822.262   Objective.

    The basic objective of RHS loans is to assist public or private 
nonprofit organizations interested in providing sites for housing, to 
acquire and develop land in rural areas. This land will be subdivided 
into adequate building sites and sold on a nonprofit basis to (a) 
families eligible for low and moderate income section 502 Rural Housing 
(RH) loans, including self-help housing; (b) cooperative Rural 
Cooperative Housing (RCH) applicants and broadly based nonprofit Rural 
Rental Housing (RRH) applicants; and (c) applicants eligible for Housing 
and Urban Development (HUD) sections 235 and 236 insured mortgages.



Sec. 1822.263   Definitions.

    As used in this subpart:
    (a) A private nonprofit organization is a corporation which: is 
owned and controlled by private persons; is organized and operated for 
purposes other than

[[Page 1213]]

making gains or profits for the corporation or members; and, is legally 
precluded from distributing to its members any gains or profits.
    (b) A public nonprofit organization is a nonprofit corporation other 
than a private nonprofit corporation, including a municipal corporation 
or other corporate agency of a State or local government.
    (c) Rural area is open country or rural places as defined in 
Sec. 1944.10 of subpart A.
    (d) Development cost means the cost of purchasing and developing the 
sites including engineering and legal fees, streets, roads, utilities, 
minimum essential administrative costs, necessary equipment and 
estimated interest which the borrower cannot pay from other sources.
    (e) RHS section 523 loan means a loan to an organization which will 
provide sites for housing to be built by the self-help method.
    (f) RHS section 524 loan means a loan to an organization which will 
provide sites for housing to be built with no limitation as to the 
method of construction that will be used.
    (g) OGC means the Office of the General Counsel, including the 
regional attorney or attorney in charge serving the State in which the 
RHS project is located.

[35 FR 10687, July 1, 1970, as amended at 40 FR 52837, Nov. 13, 1975; 46 
FR 61989, Dec. 21, 1981]



Sec. 1822.264   Eligibility requirements.

    (a) Eligibility of applicant. To be eligible for an RHS loan, the 
applicant must be a private or public nonprofit organization as defined 
in Sec. 1822.263 (a) or (b) which is authorized to provide housing sites 
on a nonprofit basis.
    (1) If it is a private nonprofit organization as defined in 
Sec. 1822.263(a), it should also:
    (i) Have a membership of at least 10 community leaders.
    (ii) Plan to adopt, if it is being newly organized, articles of 
incorporation and bylaws that generally conform to model articles and 
bylaws provided by the State director which will be consistent with 
State law and with changes appropriate to the purposes and powers of an 
eligible applicant under this subpart.
    (b) Authorized representative of applicant. The Farmers Home 
Administration (FmHA) or its successor agency under Public Law 103-354 
will deal only with the applicant or bona fide representative or the 
applicant or the representative's technical advisors. An authorized 
representative of the applicant must have no pecuniary interest in the 
award of the engineering, architectural or construction contracts, 
necessary equipment, or the purchase or development of the land.



Sec. 1822.265   Loan purposes.

    RHS loans may be made to qualified applicants:
    (a) For the purchase and development of adequate sites, including 
the construction of essential access roads, streets, utility lines, and 
necessary equipment which will become a permanent part of the 
development. If public water and waste disposal facilities are not 
available and cannot reasonably be provided on a community basis with 
other financing, including FmHA or its successor agency under Public Law 
103-354 Water and Waste Disposal Association loans, funds may be 
included for this purpose.
    (b) For the payment of necessary engineering fees, legal fees, and 
closing costs.
    (c) For the payment of actual cash cost of incidental administrative 
expenses such as postage, telephone, advertising, and temporary 
secretarial help, if funds to pay these expenses are not otherwise 
available. The estimated cost of these items should be identified and 
shown in the budget.
    (d) To provide for needed landscaping, planting, seeding, or 
sodding, or other necessary facilities related to buildings such as 
walks, parking areas, and driveways.
    (e) When legally required by proper local, county, and State 
Governmental bodies as a condition for subdivision approval, RHS loan 
funds may be used to provide common areas playgrounds and tot lots, 
provided such facilities

[[Page 1214]]

are dedicated to, and maintained by, a public body.

(42 U.S.C. 1480; delegation of authority by the Sec. of Agri., 7 CFR 
2.23; delegation of authority by the Asst. Sec. for Rural Development, 7 
CFR 2.70)

[35 FR 16087, July 1, 1970, as amended at 43 FR 24264, June 5, 1978]



Sec. 1822.266   Limitations.

    (a) Loan limits. No RHS loan(s) will be made to any applicant which 
will result in the applicant's owning an unpaid principal balance of 
more than $100,000 on such loan(s) unless prior authorization for a 
larger loan is obtained from the national office. No such loan will 
exceed the development cost as defined in Sec. 1822.263(d), or the value 
of the property as improved with the loan. These limitations also apply 
to cases in which the same persons hold a majority of the membership 
interests or constitute a majority of the directors of two or more 
applicants.
    (b) Limitations of use of loan funds. Loans will not be made for:
    (1) The purchase of land in excess of the immediate and identified 
needs in the locality.
    (2) The purchase of land from a member of an applicant-organization, 
or from another organization in which any member of the applicant-
organization has an interest, without prior consent of the national 
office.
    (3) Refinancing of debts, except in accordance with paragraph (e) of 
this section.
    (4) Payment of any fee, charge, or commission to any broker, 
negotiator, or other person for the referral of a prospective applicant 
or solicitation of a loan.
    (5) Payment of any fee, salary, commission, profit, or compensation 
to an applicant, or to any officer, director, trustee, stockholder, 
member or agent of an applicant, except as provided in Sec. 1822.265(b). 
No contract or agreement for services to be paid for with loan funds 
should be executed by the applicant without prior approval by the State 
director.
    (c) Sale of developed sites. The sites developed with a section 524 
loan must be for housing low- and moderate-income families and may be 
sold to families, nonprofit organizations, public agencies, and 
cooperatives eligible for assistance under any section of title V of the 
Housing Act of 1949, or under any other law which provides financial 
assistance. For example, this may include:
    (1) Individuals with low and moderate incomes eligible for HUD 
mortgages.
    (2) Individuals with low and moderate incomes eligible for VA 
guaranteed loans.
    (3) Individuals with low or moderate incomes eligible for a loan 
from any private lender which is authorized by law to provide financial 
assistance for housing.
    (4) Nonprofit organizations funded by Federal, State, or local 
governments carrying out programs for low- and moderate-income families 
to obtain housing.
    (5) State or local public agencies such as a housing authority or a 
housing finance development agency carrying out programs for low- and 
moderate-income families to obtain housing.
    (d) Suitability of sites. Sites will meet the requirements of the 
planned use; for example, individual housing or multiple housing or any 
combination thereof. Building sites must be well located and designed to 
provide a desirable living environment. Generally a loan will not be 
made for the development of less than 10 units, but they need not be 
contiguous.
    (e) Obligations incurred before loan closing. When an applicant 
files an application for a loan, the county supervisor will advise the 
applicant that development work must not be started and obligations for 
work, materials, or land purchase must not be incurred before the loan 
is closed. If, nevertheless, the applicant incurs obligations for work, 
materials, or land purchase before the loan is closed, the State 
director may authorize the use of loan funds to pay such obligations 
only when he finds that all the following conditions exist:
    (1) The obligations were incurred after the applicant filed a 
written application for a loan.
    (2) The applicant is unable to pay such obligations from its own 
resources or to obtain credit from other sources, and failure to 
authorize the use of loan

[[Page 1215]]

funds to pay such debts would impair the applicant's financial position.
    (3) The obligations were incurred for authorized loan purposes.
    (4) Contracts, materials, development and any land purchase meet 
FmHA or its successor agency under Public Law 103-354 standards and 
requirements.
    (5) Payment of the obligations will remove any liens which have 
attached, and any basis for liens that may attach, to the property on 
account of such obligations or such work, materials, or land purchase.

[35 FR 10687, July 1, 1970, as amended at 40 FR 6951, Feb. 18, 1975]



Sec. 1822.267   Special conditions.

    (a) Evidence of need. Loans will be made on the basis of the 
applicant providing firm information as to the number of sites to be 
developed and evidence of a need for the proposed building sites in the 
locality.
    (b) Nondiscrimination. The borrower will be required to agree not to 
discriminate or permit discrimination, in accordance with section 3 of 
the loan resolution form ``(`Rural Housing Site' Loan to Nonprofit 
Corporation),'' available at all FmHA or its successor agency under 
Public Law 103-354 offices.
    (c) Supervisory assistance. Supervision will be provided borrowers 
to the extent necessary to achieve the objectives of the loan and to 
protect the interests of the Government. County supervisors will counsel 
with applicants in selecting locations that will provide essential 
services and facilities and will result in the development of desirable 
residential communities.
    (d) Loan resolution. A Loan Resolution will be adopted by the 
applicant's Board of Directors or similar governing body using a form 
entitled, ``((Rural Housing Site) Loan to Nonprofit Corporation)'' 
available at all FmHA or its successor agency under Public Law 103-354 
offices. If any provisions are not appropriate to a particular case, 
proposed substitute language should be submitted to the national office 
with the recommendations of the State director.
    (e) Development policies. Development will be planned and performed 
in accordance with subparts A and C of part 1924 of this chapter, and 
certain information in a guide entitled ``Planning and Developing 
Building Sites'' available at all FmHA or its successor agency under 
Public Law 103-354 offices.
    (f) Water and waste disposal facilities. If public water and waste 
disposal facilities are not available and these facilities will be 
provided on a community basis with funds included in the RHS loan or 
with other financing, provision should be made to form an organization 
with members who will provide continuing maintenance and management of 
facilities. The cost of the facilities should be considered as a cost of 
developing the sites and included in the price charged for the lots when 
they are sold.
    (g) Compliance with local codes and regulations. Planning and 
development of sites will comply with all State, county, and local 
planning and zoning requirements, and will be for housing that will 
conform with any applicable laws, ordinances, codes, and regulations 
governing such matters as construction, heating, plumbing, electrical 
installation, fire prevention, health, and sanitation.
    (h) Optioning of land. If a loan includes funds to purchase real 
estate, the applicable provisions of subpart A of part 1943 regarding 
options will be followed. After the loan is approved, the county 
supervisor will have Form FmHA or its successor agency under Public Law 
103-354 440-35, ``Form Letter--Acceptance of Option,'' or other 
appropriate form of acceptance, completed, signed by the applicant, and 
mailed to the seller.
    (i) Use of and accountability for loan funds. Supervised bank 
accounts will not be used except when their requirement is made or 
authorized by the State director for cases where adequate bonding is not 
available. If a supervised bank account is used, collateral for deposits 
of funds will be pledged when the supervised bank account exceeds 
$100,000. All loan funds and funds from other sources to be used to pay 
the development costs of the site, as well as proceeds from the sale of 
any sites, will be deposited in accordance with part 1902, subpart A of 
this chapter. The county supervisor will see that funds for land 
purchase are paid to the seller simultaneously with loan closing.

[[Page 1216]]

After the loan is closed, monthly reports will be provided to FmHA or 
its successor agency under Public Law 103-354 of all disbursements made 
and income received by the borrower. Reports for each month will be 
submitted to the FmHA or its successor agency under Public Law 103-354 
county office during the first 10 days of the next month. No 
expenditures will be made without prior FmHA or its successor agency 
under Public Law 103-354 consent for items which are not included in the 
FmHA or its successor agency under Public Law 103-354 approved 
development cost estimate or for amounts greater than those set forth in 
such estimate.
    (j) Insurance. The State director will determine the minimum amounts 
and types of insurance the applicant will carry.
    (1) Suitable workman's compensation insurance will be carried by the 
applicant for all its employees.
    (2) The applicant will be advised of the possibility of incurring 
liability and encouraged, or required when appropriate, to obtain 
liability insurance.
    (k) Bonding. (1) Approved corporate surety bonds will be required in 
all cases involving a development contract in excess of $20,000, unless 
an exception is made by the national office. In other cases, the county 
supervisor will determine whether a surety bond is required.
    (2) The applicant will provide fidelity bond coverage for its 
officers and employees entrusted with the receipt, custody, and 
disbursement of its funds and the custody of any other negotiable or 
readily saleable personal property. The amount of the bond will be at 
least equal to the maximum amount of such funds including funds in bank 
accounts, and property that the applicant will have in its possession or 
control at any one time. If permitted by State law, the United States 
will be named coobligee in the bond. Form FmHA or its successor agency 
under Public Law 103-354 440-24, ``Position Fidelity Schedule Bond,'' 
may be used if permitted by State law.
    (l) Conditional commitments for construction of homes on developed 
sites. Conditional commitments may be issued on sites developed with an 
RHS section 524 loan to permit homes to be constructed on sites prior to 
the sale of the site to an eligible purchaser in accordance with the 
following:
    (1) The requirements of Sec. 1944.45 of part 1944, subpart A must be 
met and a conditional commitment issued prior to the start of 
construction of the home.
    (2) The conditional commitment must be issued to an RHS borrower who 
can legally provide the proposed housing and has the experience and 
training in construction to the extent necessary to assure that the 
housing will be built or jointly to the RHS loan borrower and a builder 
who has the legal capacity, training and experience necessary to 
construct the housing. In all cases the following language will be added 
under ``other conditions'' on Form FmHA or its successor agency under 
Public Law 103-354 1944-11, ``Conditional Commitment'':
    (i) ``Not withstanding the other provisions of this commitment the 
sale of completed homes on sites developed with section 524 Rural 
Housing Site loans will be limited to families eligible for assistance 
under any section of title V of the Housing Act of 1949 or under any 
other law which provides financial assistance for housing low- and 
moderate-income families. The approval of FmHA or its successor agency 
under Public Law 103-354 will be obtained prior to the sale of each 
home. The request for approval shall be submitted to the local FmHA or 
its successor agency under Public Law 103-354 office along with an 
application for an RH 502 loan or a financial statement from the 
purchaser and verification of the other credit that is available.''
    (ii) The benefits of the nonprofit development of the site(s) must 
be passed on to the purchaser. This will result in this site being sold 
for $------ (price to be determined as provided for in 
(Sec. 1822.275(b))).
    (3) In arriving at the commitment price for the site and the 
completed home, the value will be based on the present market value of 
the house only, plus the nonprofit selling price of the lot.
    (4) If in order to obtain interim financing for the construction of 
the homes, the RHS loan borrower requests

[[Page 1217]]

a subordination by FmHA or its successor agency under Public Law 103-354 
on individual lots, the State Director may approve the subordination by 
completing and executing a subordination in the format of exhibit C of 
this subpart.
    (5) FmHA or its successor agency under Public Law 103-354's lien on 
any lot will be released only at the time of sale to an eligible 
purchaser.
    (6) The County Supervisor should provide the necessary supervision 
to assure that the RHS loan borrower takes the necessary action to 
assure that all qualified builders in the area are aware of the 
availability of rural housing sites and are given an equal opportunity 
to participate in this conditional commitment program. As a minimum, the 
borrower will be required to submit a signed statement indicating the 
actions taken including names and dates of contacts with builders.

(7 U.S.C. 1989; 5 U.S.C. 301; sec. 10, Pub. L. 93-347, 88 Stat. 392; 42 
U.S.C. 1480; delegation of authority by the Sec. of Agr., 7 CFR 2.23; 
delegation of authority by the Asst. Sec. for Rural Development, 7 CFR 
2.70)

[35 FR 16087, July 1, 1970, as amended at 41 FR 47460, Oct. 29, 1976; 42 
FR 44669, Sept. 6, 1977; 43 FR 24264, June 5, 1978; 44 FR 1702, Jan. 8, 
1979; 45 FR 39793, June 12, 1980; 46 FR 36106, July 14, 1981; 46 FR 
61989, Dec. 21, 1981; 52 FR 8002, Mar. 13, 1987; 52 FR 19283, May 22, 
1987]



Sec. 1822.268   Rates, terms, and source of funds.

    (a) Interest rate. Upon request of the applicant, the interest rate 
charged by FmHA or its successor agency under Public Law 103-354 will be 
the lower of the interest rates in effect at the time of loan approval 
or loan closing. If an applicant does not indicate a choice, the loan 
will be closed at the interest rate in effect at the time of loan 
approval. Interest rates are specified in exhibit B of FmHA or its 
successor agency under Public Law 103-354 Instruction 440.1 (available 
in any FmHA or its successor agency under Public Law 103-354 office) for 
the type assistance involved.
    (b) Repayment period. Final payment will be due 2 years after the 
date of the loan. When necessary to carry out the loan purposes, the 
national office may authorize extension of maturity dates. As lots are 
sold before the final due date of the note, the proceeds of the sales 
will be applied on the account or any prior lien, or, with the prior 
approval of the national office, used in a manner consistent with the 
purposes of the loan and the security interest of the Government.
    (c) Source of funds. Loans under this subpart will be made as 
insured loans, except that loans under Sec. 1822.278 to develop building 
sites for sale in connection with self-help projects will be made as 
direct loans.

[35 FR 10687, July 1, 1970, as amended at 51 FR 6733, Feb. 26, 1986]



Sec. 1822.269   Security.

    Each loan will be secured by a mortgage on the property purchased or 
improved with the loan, and a security interest in the funds held by the 
corporation in trust for the Government, in accordance with the 
provisions of the required Loan Resolution.



Sec. 1822.270   Technical, legal, and other services.

    (a) Appraisals. The property will be appraised by an FmHA or its 
successor agency under Public Law 103-354 employee authorized to make 
real estate appraisals. The appraisal will consist of a narrative 
statement prepared and signed by the authorized employee describing in 
detail the items considered in arriving at the value of the property. 
Two values will be established by the appraiser:
    (1) The fair market value of the total property ``as is''.
    (2) The aggregate fair market value of the building sites after 
development.
    (i) In determining the value of the property, the appraiser will 
consider the value and selling prices of similar building sites in the 
area. The selling prices of similar sites must be fully documented.
    (b) Title Clearance and Legal Services. For a loan to a public 
nonprofit organization, title clearance and legal services will be 
obtained in accordance with instructions from the OGC, observing the 
provisions of subpart B of part 1927 of this chapter to the extent 
feasible. For a loan to a private nonprofit organization, the provisions 
of subpart B of part 1927 of this chapter

[[Page 1218]]

regarding title clearance and legal services will apply. The applicant 
will be encouraged to have the same approved closing agent, where 
practical, perform the title clearance work in connection with the 
purchase of the land and the sale of the individual sites.
    (c) Contracts for legal services. On projects requiring more legal 
services than are customarily required for title clearance alone, the 
applicant will be required to have a written contract when loan funds 
will be used for legal services. All such contracts will be subject to 
review and approval by the State director and therefore should be 
submitted to the State Director before execution by the applicant. 
Contracts will provide for the types of service to be performed and the 
amount of fees to be paid either in lump sum on the completion of all 
services or in installments as services are performed.
    (d) Engineering services. On projects requiring engineering 
services, a written contract will be required between the engineer and 
the borrower. All such contracts will be subject to review and approval 
by the State director and therefore should be submitted to the State 
Director before execution by the applicant. The form of contract must 
conform with standard professional practices and describe the types of 
services to be performed and fees to be paid.

[35 FR 16087, July 1, 1970, as amended at 51 FR 6733, Feb. 26, 1986; 56 
FR 67471, Dec. 31, 1991]



Sec. 1822.271   Processing applications.

    (a) Application. The application will be in the form of a letter to 
the county supervisor with the following information included in or 
attached to the letter:
    (1) Name and address of applicant.
    (2) A copy of, or an accurate citation to, the specific provisions 
of State law under which the applicant is organized; a copy of the 
applicant's articles of incorporation, bylaws, and other authorizing 
documents; the names and addresses of the applicant's members, 
directors, and officers; and if another organization is a member of the 
applicant organization its name, address, and principal business.
    (3) A current, dated, and signed financial statement showing assets, 
and liabilities, together with information on the repayment schedule and 
status of each debt.
    (4) Evidence of inability to obtain credit from other sources.
    (5) General description of the project.
    (i) Location and size of tract or tracts to be bought and/or 
developed.
    (ii) Number and size of individual sites planned together with a 
detailed plot plan.
    (iii) Preliminary engineering plans, if available.
    (6) Estimated cost and amount of loan needed.
    (7) Explanation of applicant's financial contribution to the 
project.
    (8) A map showing the location of and other supporting information 
on neighborhood and existing facilities such as distance to shopping 
area, neighborhood churches, available transportation, drainage, 
sanitation facilities, water supply available or planned, and access to 
essential services such as doctors, dentists, and hospitals.
    (9) If facilities such as water and sewage systems, paved streets, 
and utilities are not currently available, information on when and how 
they will be provided.
    (10) Evidence of the need for the proposed sites in the locality by 
low- and moderate-income families and other qualified applicants that 
are likely to be able to obtain financing for a home.
    (11) Written evidence of any State, county, or local planning, 
zoning, or other ordinances imposing additional restrictions or 
requirements upon the proposed sites.
    (b) County supervisor's review and evaluation of applications. The 
county supervisor will:
    (1) Determine that the applicant meets the eligibility requirements 
of Sec. 1822.264.
    (2) Verify that the information provided is accurate and complete.
    (3) Determine that:
    (i) The sites will be located in a good residential area and that 
essential facilities and services will be provided.
    (ii) The lots will be reasonable in cost and of a type FmHA or its 
successor agency under Public Law 103-354 can appropriately finance.

[[Page 1219]]

    (iii) There is an immediate and ready market for the proposed sites 
in the planned location.
    (iv) The total number of sites planned does not exceed the number of 
loans the county supervisor can reasonably expect to include in the 
rural housing program or for which other credit is reasonably assured 
when the sites are developed.
    (v) Proposed subdivisions will comply with the local codes and 
ordinances and also meet the requirements of subpart C of part 1924 of 
this chapter.
    (4) Evaluate the manner in which the applicant plans to conduct its 
business and financial affairs.
    (5) Comment on the background of the members, directors and 
officials.
    (6) If he has questions about the proposal, send the incomplete 
docket to the State office for advice.
    (7) If for any reason the loan cannot be made, inform the applicant.
    (c) Completion of the docket. If the county supervisor determines 
that the applicant is eligible and the loan will be sound and proper, he 
should request the applicant to make any needed revisions. In addition 
to the items required in the application the docket must include:
    (1) A plot plan and detailed preliminary plans and specifications 
for development of the building sites.
    (2) A detailed cost breakdown of the project for such items as land 
and rights-of-way, utility installations or connections, on-site 
improvements, engineering and legal services, and estimated interest.
    (3) If water and sanitary facilities are not publicly owned, a 
complete statement as to how they will be provided and details about 
their ownership and operation.
    (4) Satisfactory evidence of review and approval of the proposed 
development by applicable State and local officials whose approval is 
required by State or local laws, ordinances, or regulations.
    (5) Satisfactory evidence that the appropriate public bodies will 
accept and maintain all public facilities, including common areas, 
playgrounds, and tot lots, when dedicated to such bodies.
    (d) Preparation of docket forms--(1) Request for obligation of funds 
and fund analysis. Forms FmHA or its successor agency under Public Law 
103-354 1944-50, ``Multiple Family Housing Borrower/Project 
Characteristics,'' and FmHA or its successor agency under Public Law 
103-354 1944-51, ``Multiple Family Housing Obligation-Fund Analysis,'' 
will be completed in accordance with the Forms Manual Insert (FMI).
    (2) County committee certification or recommendation. County 
committees will not be used to review RHS loan applications.
    (e) Assembly, review and distribution of complete loan docket items. 
When all items required for the complete loan docket have been 
furnished, they will be examined thoroughly to make sure they are 
properly and accurately prepared and are complete in all respects, 
including dates and signatures. The loan docket items will be assembled 
in the following order and distributed as follows:

------------------------------------------------------------------------
                                    Total    Signed    Number           
   Form No.      Name of form or   No. of      by     for loan  Copy for
                    document       copies   borrower   docket   borrower
------------------------------------------------------------------------
                Application              2                 1-0       1-C
                 Letter and                                             
                 Attachments.                                           
FmHA or its     Applicant                2     2-O&C       1-O       1-C
 successor       Certification,                                         
 agency under    Federal                                                
 Public Law      Collection                                             
 103-354 1910-   Policies for                                           
 11              Consumer or                                            
                 Commercial                                             
                 Debts.                                                 
                Evidence of              2         1       1-0       1-C
                 Legal Authority                                        
                 (copy or                                               
                 citation of                                            
                 specific                                               
                 provisions of                                          
                 State statutory                                        
                 authority).                                            
                Proof of                 2         1       1-0       1-C
                 Organization                                           
                 (certified copy                                        
                 of Articles of                                         
                 Incorporation).                                        
                Certified copy           2         1       1-0       1-C
                 of Bylaws.                                             
                List of names            2         1       1-0       1-C
                 and addresses                                          
                 of officers,                                           
                 directors and                                          
                 members.                                               
                Narrative plan           2         1       1-0       1-C
                 and other                                              
                 supporting                                             
                 information.                                           
                Evidence of Need                                        
                Certified Copy           1         1       1-0          
                 of Loan                                                
                 Resolution.                                            

[[Page 1220]]

                                                                        
FmHA or its     Assurance                2         1       1-0       1-C
 successor       Agreement.                                             
 agency under                                                           
 Public Law                                                             
 103-354 440-4                                                          
FmHA or its     Equal                    2         1       1-0       1-C
 successor       Opportunity                                            
 agency under    Agreement (when                                        
 Public Law      applicable).                                           
 103-354 400-1                                                          
FmHA or its     Notice to                3                 1-C       1-C
 successor       Contractors and                                        
 agency under    Applicants.                                            
 Public Law                                                             
 103-354 400-3                                                          
FmHA or its     Compliance               3                 1-C       1-C
 successor       Statement (when                                        
 agency under    applicable).                                           
 Public Law                                                             
 103-354 400-6                                                          
                Survey of land           3         1       1-0       1-C
                 given as                                               
                 security, plans                                        
                 specifications,                                        
                 cost estimates,                                        
                 and proposed                                           
                 manner of                                              
                 development.                                           
                Operating budget         2         1       1-0       1-C
                 (if                                                    
                 administrative                                         
                 expenses are to                                        
                 be included in                                         
                 loan).                                                 
                Appraisal Report         1                 1-0          
                 with                                                   
                 Attachments.                                           
                Preliminary                                             
                 Title Opinion                                          
                 and a Final                                            
                 Title Opinion                                          
                 or a title                                             
                 insurance                                              
                 binder and a                                           
                 mortgage title                                         
                 insurance                                              
                 policy.                                                
                Option or copy                                          
                 of deed,                                               
                 purchase                                               
                 contract, or                                           
                 other                                                  
                 instruments of                                         
                 ownership.                                             
FmHA or its     Multiple Family          1               \1\ 1          
 successor       Housing                                                
 agency under    Borrower/                                              
 Public Law      Project                                                
 103-354 1944-   Characteristics.                                       
 50                                                                     
FmHA or its     Multiple Family          2         2     \1\ 1         1
 successor       Housing                                                
 agency under    Obligation-Fund                                        
 Public Law      Analysis.                                              
 103-354 1944-                                                          
 51                                                                     
------------------------------------------------------------------------
\1\ Data input to Finance Office through field office terminals.        

    (f) Submission of complete docket. The complete docket will be sent 
to the State office together with the District Director's comments and 
recommendations and a draft for a press release.
    (g) Loan approval authority and State Office action. The State 
Director is authorized to approve loans in accordance with this subpart 
and subpart A of part 1901 of this chapter. As soon as it is evident 
that a loan will be approved, the State Director will complete exhibit A 
to subpart C of part 2015 of this chapter and submit to the FmHA or its 
successor agency under Public Law 103-354 Finance Office through field 
office terminals that information contained in Form FmHA or its 
successor agency under Public Law 103-354 1944-50, ``Multiple Family 
Housing Borrower/Project Characteristics.'' The State Director may 
redelegate approval authority to qualified State Office employees. When 
a docket or preliminary application is received in the State Office, the 
State Director will:
    (1) Utilize the services of technicians on his staff and from other 
agencies in evaluating the application.
    (2) Review the applicant's articles of incorporation and bylaws. If 
they conform to approved forms for the State as

[[Page 1221]]

provided in Sec. 1822.264(a)(1)(ii), the State director need not obtain 
a preliminary opinion from the OGC. In all other cases the State 
director will, and in any case may, submit the docket with any comments 
or questions to the OGC for a preliminary opinion as to whether the 
applicant and the proposed loan meet or can meet the requirements of 
State law and this subpart.
    (3) If additional information is needed to adequately evaluate the 
application, return the loan docket to the District Director with any 
comments and recommendations for further processing.
    (4) If the docket is sufficiently complete to enable the State 
Director to determine that the applicant is eligible and the loan would 
be sound and proper, issue a proposed memorandum of approval listing any 
specific conditions that must be met before loan closing.
    (5) If the applicant is not eligible or the loan would not be sound 
and proper and the deficiencies cannot be corrected, inform the District 
Director accordingly.

(42 U.S.C. 1480; delegation of authority by the Sec. of Agr., 7 CFR 
2.23; delegation of authority by the Asst. Sec. for Rural Development, 7 
CFR 2.70)

[35 FR 16087, July 1, 1970, as amended at 41 FR 7487, Feb. 19, 1976; 41 
FR 20392, May 18, 1976; 43 FR 24264, June 5, 1978; 44 FR 4435, Jan. 22, 
1979; 50 FR 8583, Mar. 4, 1985; 52 FR 19283, May 22, 1987; 54 FR 29330, 
July 12, 1989]



Sec. 1822.272  Approval or disapproval of a loan.

    The provisions of part 1944, subpart E of this chapter will be 
followed.

[56 FR 2202, Jan. 22, 1991]



Sec. 1822.273   Actions subsequent to loan approval.

    After the loan is approved, actions to be taken will be in 
accordance with Sec. 1944.235.

[35 FR 16087, July 1, 1970, as amended at 45 FR 70777, Oct. 27, 1980]



Sec. 1822.274   Loan closing.

    (a) Applicable instructions. The complete loan docket will be sent 
to the OGC for loan closing instructions. RHS loans will be closed in 
accordance with applicable provisions of subpart B of part 1927 of this 
chapter, and State Instructions which supplement this Instruction, and 
closing instructions of the OGC, and with the assistance of the approved 
attorney, representatives of the title insurance company, or local 
attorney, whichever is appropriate.
    (b) Mortgage. Unless the OGC determines the Form to be 
inappropriate, real estate mortgage Form FmHA or its successor agency 
under Public Law 103-354 1927-1 (state), ``Real Estate Mortgage for 
__________,'' will be used for all RHS section 524 loans modified as 
prescribed by or with the advice of the OGC with respect to the name, 
address, and other identification of the borrower, the style of 
execution, and the acknowledgement. Additional paragraphs will be 
included in the mortgage to read as follows:

    The borrower agrees not to discriminate in the sale of the dwelling 
financed under this mortgage due to a prospective purchaser's race, 
color, national origin, sex, religion, age, marital status, or handicap. 
The borrower further agrees to comply with all Federal, State, or local 
laws and ordinances prohibiting discrimination in the sale of housing. 
The borrower's failure or refusal to comply with this agreement will be 
a basis for the FmHA or its successor agency under Public Law 103-354 to 
deny future requests for participation in its rural housing programs and 
activities.
    This instrument also secures the obligations and covenants of 
borrower set forth in Borrower's Loan Resolution of __________ (date), 
which is hereby incorporated herein by reference.

    (c) Promissory note. Form FmHA or its successor agency under Public 
Law 103-354 1944-52, ``Promissory Note,'' will be used. Instructions for 
preparation will be in accordance with the FMI and the following:
    (1) The total amount to be shown in the note will be the amount of 
the loan shown on Form FMHA or its successor agency under Public Law 
103-354 1944-51. The note will be dated the date of the loan closing.
    (2) The note will be signed in accordance with subpart B of part 
1927 of this chapter and the forms manual insert for Form FmHA or its 
successor agency under Public Law 103-354 1944-52 (available in any FmHA 
or its successor agency under Public Law 103-354 office).

[[Page 1222]]

    (3) Payments shall not be deferred.
    (d) Recorded mortgage. When the real estate mortgage is returned by 
the recording official, the county supervisor will retain the original 
in the borrower's case folder. If the original is retained by the 
recording official for the county records, a conformed copy including 
the recording data showing the date and place of recordation and book 
and page number will be prepared and filed in the borrower's case 
folder. A copy of the mortgage will be delivered to the borrower but 
will be conformed only if required by State law or if it is the custom 
of other lenders in the area.
    (e) Date of loan closing. An RHS loan is considered closed when the 
mortgage is filed of record.

[35 FR 16087, July 1, 1970, as amended at 42 FR 4408, Jan. 25, 1977; 50 
FR 8584, Mar. 4, 1985; 56 FR 67472, Dec. 31, 1991]



Sec. 1822.275   Actions after sites are developed.

    The building sites will be sold on a nonprofit basis to eligible 
families or organizations as described in Sec. 1822.266(c).
    (a) An option, Form FmHA or its successor agency under Public Law 
103-354 440-34, ``Option to Purchase Real Property,'' will be executed. 
The site will be clearly identified by a land survey.
    (b) The sale price of each individual site will not be more than a 
sufficient amount to pay a proportionate part of the RHS loan and any 
other actual costs of buying, developing, and selling the building site.
    (c) The proceeds from sale of the building sites will be applied on 
the RHS loan and any prior lien or, with the prior approval of the 
National Office, used in a manner consistent with the purpose of the 
loan and the security interest of the Government. The sites will be 
released from the mortgage in accordance with Sec. 1965.110 of subpart C 
of part 1965 of this chapter or otherwise in accordance with prior 
approval of the National Office.

[35 FR 16087, July 1, 1970, as amended at 51 FR 4135, Feb. 3, 1986]



Sec. 1822.276   Subsequent RHS loans.

    A subsequent RHS loan is an RHS loan to an applicant indebted for an 
initial RHS loan. Subsequent RHS loans will be made on the same basis as 
initial RHS loans.



Sec. 1822.277   Complaints regarding discrimination in opportunity to buy developed sites.

    Any applicant wishing to purchase a site financed by an RHS loan who 
believes he or she has been discriminated against because of race, 
color, national origin, religion, sex, handicap, or age, may file a 
complaint with the County Supervisor or State Director. Any such 
complaint will be handled in accordance with Sec. 1944.239 of part 1944, 
subpart E of this chapter.

[56 FR 67472, Dec. 31, 1991]



Sec. 1822.278   Special requirements for RHS section 523 loans (loans to organizations providing sites for self-help housing).

    Loans to organizations which will provide sites for self-help 
housing (RHS sec. 523 loans) will be made under the provisions of this 
subpart with the following exceptions:
    (a) Eligibility. The applicant must be a nonprofit organization 
engaged in assisting self-help projects.
    (b) Interest. The interest rate will be 3 percent per annum on the 
unpaid principal balance.
    (c) Source of funds. These will be direct loans made from the self-
help fund.
    (d) Evidence of need. Loans to newly formed organizations will be 
made on the basis of the applicant's providing firm information as to 
the number of sites to be developed and the names of eligible bona fide 
prospective purchasers who are assured of available home financing. 
Loans to organizations currently involved in mutual self-help housing 
projects may be made without submitting a list of the names of 
prospective site purchasers. There must, however, be definite evidence 
that enough families are available who are eligible and who will buy the 
sites when they are developed.
    (e) Multiple advances. These loans may be disbursed over a period 
not to exceed 18 months from the date of the first advance.
    (f) Note forms. Form FmHA or its successor agency under Public Law 
103-354 1944-52, ``Multiple Family Housing

[[Page 1223]]

Promissory Note,'' will be used. See Sec. 1822.274 (c).
    (g) Mortgage. Unless the OGC determines the Form to be 
inappropriate, real estate mortgage Form FmHA or its successor agency 
under Public Law 103-354 1927-1 (state), ``Real Estate __________ for 
__________ (Direct Loan),'' will be used modified as prescribed by or 
with the advice of the OGC with respect to the name, address, and other 
identification of the borrower, the style of execution, and the 
acknowledgement. Additional paragraphs will be included in the mortgage 
to read as follows:

    The borrower agrees not to discriminate in the sale of the dwelling 
financed under this mortgage due to a prospective purchaser's race, 
color, national origin, sex, religion, age, marital status, or handicap. 
The borrower further agrees to comply with all Federal, State, or local 
laws and ordinances prohibiting discrimination in the sale of housing. 
The borrower's failure or refusal to comply with this agreement will be 
a basis for the FmHA or its successor agency under Public Law 103-354 to 
deny future requests for participation in its rural housing programs and 
activities.
    This instrument also secures the obligations and covenants of 
borrower set forth in Borrower's Loan Resolution of ________ (date), 
which is hereby incorporated herein by reference.

[35 FR 16087, July 1, 1970, as amended at 42 FR 4408, Jan. 25, 1977; 50 
FR 8584, Mar. 4, 1985; 56 FR 67472, Dec. 31, 1991]



Sec. 1822.279  Loan supervision and servicing.

    Loan supervision will be provided according to subpart C of part 
1930 of this chapter. Loan servicing will be provided according to 
subpart B of part 1965 of this chapter.

[48 FR 56139, Dec. 19, 1983]

                  Exhibits A-B to Subpart G--[Reserved]

  Exhibit C to Subpart G--Subordination by the Government for Use with 
                        Rural Housing Site Loans

    Whereas, The United States of America acting through the Farmers 
Home Administration or its successor agency under Public Law 103-354 
(hereinafter called the ``Government'') is the holder of the following-
described instrument(s) executed by
........................................................................
of _____________________________________________________________________
County, State of _______________________________________________________
                                   (hereinafter called the ``Borrower'')

--------------------------------------------------------------------------------------------------------------------------------------------------------
        Title of instrument            Date of instrument          Date filed             Office filed             Book No.               Page No.      
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------

    And whereas, ---------------- (hereinafter called the ``Lender'') 
has agreed to provide a loan to the borrower or to a builder designated 
by the borrower to construct a home on the property described in this 
instrument.
    Now Therefore, in consideration of the Lender's agreement to make 
such loan to the borrower, the Government hereby consents to the 
Borrower obtaining said loan from the lender, and agrees to and hereby 
subordinates in favor of the Lender and his successors and assigns its 
liens or security interests created or evidenced by the above-described 
instrument(s) insomuch as they cover the following described property:
    Except That, The Government shall retain a first lien or security 
interest in the above-described property in an amount of $------. Such 
first lien will be released only when satisfactory evidence is provided 
indicating that the lot with completed home is being sold to a family 
eligible for assistance under any section of Title V of the Housing Act 
of 1949 or under any other law which provides financial assistance for 
housing low- and moderate-income families and that the benefits of the 
nonprofit development of the site are being passed on to the eligible 
purchaser and that the amount of that first lien is paid on the 
Borrower's Rural Housing Site Loan debt to the Government.
    This subordination is limited to the amount actually loaned by the 
Lender to the Borrower for the foregoing purpose, but shall not exceed 
$------.
    Only the above described property is affected by this subordination. 
This subordination shall not otherwise affect or modify the obligations 
secured by the aforesaid lien instrument(s), and the said obligations 
shall continue in force and effect until fully paid, satisfied, and 
discharged.
    No member of Congress shall be admitted to any share or part of this 
agreement or to any benefit that may arise thereupon.
    In Witness Whereof, The United States of America has caused these 
presents to be signed on the -------- day of --------, 19--, pursuant to 
delegated authority published in 7 CFR, Part 1800.


[[Page 1224]]



Witness:        United States of America                                
  ------------------                        By: ------------------      
  ------------------                       Title: ----------------      
                                     Farmers Home Administration or its 
                                      successor agency under Public Law 
                                      103-354, U.S. Department of       
                                      Agriculture.                      
                                                                        


(42 U.S.C. 1480; delegation of authority by the Secretary of 
Agriculture, 7 CFR 2.23; delegation of authority by the Assistant 
Secretary for Rural Development, 7 CFR 2.70)

[41 FR 47460, Oct. 29, 1976]



PART 1823--ASSOCIATION LOANS AND GRANTS--COMMUNITY FACILITIES, DEVELOPMENT, CONSERVATION, UTILIZATION--Table of Contents




                        Subparts A-M--[Reserved]

        Subpart N--Loans to Indian Tribes and Tribal Corporations

Sec.
1823.401  General.
1823.402  Definitions.
1823.403  Eligibility.
1823.404  Loan purposes.
1823.405  Ineligible loan purposes.
1823.406  Rates and terms.
1823.407  Use of acquired land.
1823.408  Special requirements.
1823.409  Security.
1823.410  Appraisals.
1823.411  Land rights.
1823.412  Loan docket.
1823.413  Loan approval.
1823.414  Title to security property.
1823.415  Supervision and servicing.
1823.416  Check request and loan closing.
1823.417  Civil rights.
1823.418  State requirements.

Exhibit A to Subpart N--Loan Docket Items--Loans to Indian Tribes and 
          Tribal Corporations
Exhibit B to Subpart N--Tribal Council Resolution No. ----------
Exhibit C to Subpart N--Assignment of Tribal Income and Funds
Exhibit D to Subpart N--Subordination Agreement

    Authority: 7 U.S.C. 1989, 5 U.S.C. 301, 7 CFR 2.23, 7 CFR 2.70.

    Source: 35 FR 15091, Sept. 29, 1970, unless otherwise noted.



                        Subparts A-M--[Reserved]



        Subpart N--Loans to Indian Tribes and Tribal Corporations

    Source: 39 FR 3662, Jan. 29, 1974, unless otherwise noted.



Sec. 1823.401   General.

    This subpart contains policies and procedures of the Farmers Home 
Administration (FmHA)or its successor agency under Public Law 103-354 
applicable to making initial and subsequent insured loans to Indian 
tribes or tribal corporations for the acquisition of land within tribal 
reservations and Alaskan communities. Any processing or servicing 
activity conducted pursuant to this subpart involving authorized 
assistance to FmHA or its successor agency under Public Law 103-354 
employees, members of their families, known close relatives, or business 
or close personal associates, is subject to the provisions of subpart D 
of part 1900 of this chapter. Applicants for this assistance are 
required to identify any known relationship or association with an FmHA 
or its successor agency under Public Law 103-354 employee. The Secretary 
of the Interior or authorized representative will determine whether 
lands lie within a tribal reservation or community.

[39 FR 3662, Jan. 29, 1974, as amended at 51 FR 6733, Feb. 26, 1986; 58 
FR 224, Jan. 5, 1993]



Sec. 1823.402   Definitions.

    The following definitions are applicable to the subsequent 
provisions of this subpart.
    (a) Land. The term ``land'' includes any or all rights or interests 
therein.
    (b) Tribe. The term ``tribe'' means, an Indian Tribe recognized by 
the Secretary of the Interior or a tribal corporation established 
pursuant to the Indian Reorganization Act, and/or a community in Alaska 
incorporated by the Secretary of the Interior pursuant to the Indian 
Reorganization Act.
    (c) Tribal. The term ``tribal'' refers to an Indian tribe or Alaskan 
community described in paragraph (b) of this section, and ``tribal 
members'' refers to the members of such a tribe or community.

[[Page 1225]]

    (d) Reservation. The term ``reservation'' means the lands or 
interests therein within the tribe's reservation as determined by the 
Secretary of the Interior, or within a community in Alaska incorporated 
by the Secretary of the Interior pursuant to the Indian Reorganization 
Act.
    (e) Mortgage. The term ``mortgage'' includes deeds of trust and 
other liens on land.



Sec. 1823.403   Eligibility.

    To be eligible for a loan, the tribe must:
    (a) Be without adequate uncommitted funds to acquire needed land 
within the reservation.
    (b) Be unable to obtain sufficient credit elsewhere at reasonable 
rates and terms to finance the proposed land acquisition.
    (c) Show reasonable prospects of repaying the loan as determined by:
    (1) A feasible plan for the use of the tribe's land.
    (2) Satisfactory evidence of financial ability to develop and 
operate the land.
    (3) A satisfactory management and repayment plan.



Sec. 1823.404   Loan purposes.

    Loan funds may be used by the tribe to:
    (a) Acquire land within the reservation for use of the tribe or its 
members. The land acquisition may be made for purposes such as 
elimination of fractional heirships and rounding out farming and 
ranching units.
    (b) Pay costs incidental to land acquisition, such as those for 
appraisals, title clearance, legal services, land surveys, and loan 
closing.



Sec. 1823.405  Ineligible loan purposes.

    Loan funds may not be used for any improvement or development 
purposes, acquisition or repair of buildings or personal property, 
payment of operating costs, refinancing of debts, payment of finder's 
fees, or similar costs. Loans also may not be made for any purpose that 
will contribute to excessive erosion of highly erodible land or to the 
conversion of wetlands to produce an agricultural commodity, as further 
explained in exhibit M of subpart G of part 1940 of this chapter.

[53 FR 7332, Mar. 8, 1988]



Sec. 1823.406   Rates and terms.

    Each loan will be amortized over a period not to exceed 40 years. 
Upon request of the applicant, the interest rate charged by FmHA or its 
successor agency under Public Law 103-354 will be the lower of the 
interest rates in effect at the time of loan approval or loan closing. 
If an applicant does not indicate a choice, the loan will be closed at 
the interest rate in effect at the time of loan approval. Interest rates 
are specified in exhibit B of FmHA or its successor agency under Public 
Law 103-354 Instruction 440.1 (available in any FmHA or its successor 
agency under Public Law 103-354 office) for the type assistance 
involved.

[39 FR 3662, Jan. 29, 1974, as amended at 51 FR 6733, Feb. 26, 1986]



Sec. 1823.407   Use of acquired land.

    The land acquired with the FmHA or its successor agency under Public 
Law 103-354 loan may be leased or sold to tribal members for dwelling, 
farming, grazing, recreational, and other purposes approved by the 
National Office as beneficial to the tribe or its members. The plan for 
use of the land must have the approval of the tribal council or other 
authorized governing body, and should be in accordance with the 
recommendations of appropriate Bureau of Indian Affairs (BIA) officials. 
It should also be consistent with the land use in the area unless other 
uses are justified. The plan should make maximum use of cost sharing and 
technical assistance of Federal and State programs.



Sec. 1823.408   Special requirements.

    (a) Loan authorization. The tribe will take appropriate action to 
authorize obtaining and giving security for the loan, using exhibit B of 
this subpart N, Tribal Council Resolution, as a guide.
    (b) Right to mortgage. If a mortgage is to be obtained on trust or 
restricted property and the tribe's constitution or charter does not 
specifically authorize

[[Page 1226]]

a mortgage of such property, the mortgage must be authorized by tribal 
referendum.
    (c) Waiver of immunity. The appropriate tribal official(s) will 
execute on behalf of the tribe and in favor of FmHA or its successor 
agency under Public Law 103-354 a waiver of any immunity from suit or 
liability which it possesses. The waiver will be approved by the 
Secretary of the Interior or his authorized representative.
    (d) Mortgages or assignments to third parties. At the time of loan 
closing an agreement will be obtained form the tribe that as long as any 
indebtedness on the loan is outstanding it will not, without the written 
consent of FmHA or its successor agency under Public Law 103-354;
    (1) Give assignments or pledges to other parties of income, revenue, 
or other property assigned or pledged to FmHA or its successor agency 
under Public Law 103-354.
    (2) Mortgage, sell, or otherwise dispose of any land (except sales 
to tribal members for market value) regardless of whether it is or is 
not mortgaged to FmHA or its successor agency under Public Law 103-354.
    (3) This agreement will be submitted to the Office of the General 
Counsel (OGC) for review as to content and validity. For trust lands, a 
copy will be forwarded to the BIA. For other than trust lands, it will 
be recorded in the land records if OGC advises that such recordation is 
legally necessary.
    (e) Land acquisition, debt service, and reserve accounts. The 
following accounts will be established at the time of loan closing. A 
properly bonded official of the tribe will receive the monies for each 
account and issue receipts therefor. The bonded official will deposit 
all such monies in the appropriate trust or counter-signature accounts. 
As a basis for withdrawals, the deposit agreement for each account will 
require the signatures of appropriate tribal official(s) and the FmHA or 
its successor agency under Public Law 103-354 County Supervisor or a BIA 
official, depending on whether the account is a BIA trust account or an 
FmHA or its successor agency under Public Law 103-354 supervised account 
in a commercial bank.
    (1) Land acquisition account. The loan funds will be deposited in 
this account which will be established as a ``Supervised Bank Account.'' 
If funds in this account exceed $100,000, it shall be secured by the 
financial institution in advance in accordance with U.S. Treasury 
Department Circular No. 176.
    (2) Debt service account. A debt service account will be established 
at the time of loan closing for deposit of income assigned to FmHA or 
its successor agency under Public Law 103-354 to be used in making 
repayments on the loan and payments to the reserve account.
    (3) Reserve account. This account will be established for debt 
service reserve purposes. On or before the first installment due date, 
an amount equal to one-tenth (\1/10\) of the amount to be paid annually 
on the loan will be deposited in this reserve account. An equal amount 
will be deposited in the account during each succeeding year until a 
full annual payment is accumulated.
    (i) Funds in the reserve account may be used to make repayments on 
the loan when the tribe cannot meet the installments from other sources 
as they fall due. Any funds used for that purpose will be replaced as 
soon as possible before the next installment due date.
    (ii) The reserve fund may be invested in short-term investments that 
are issued, guaranteed, or insured by the Federal or a State Government 
and name FmHA or its successor agency under Public Law 103-354 as co-
owner.

[39 FR 3662, Jan. 29, 1974, as amended at 46 FR 36106, July 14, 1981]



Sec. 1823.409   Security.

    All loans will be secured in a manner that will adequately protect 
the interests of FmHA or its successor agency under Public Law 103-354. 
Ordinarily, the security will include a lien on land acquired with loan 
funds plus assignment(s) of income. However, the security may consist 
only of assignments of income if the State Director determines that it 
will provide as good or better security than the land acquired with loan 
funds. Such security may be supplemented by security interests in 
personal property which is available and needed to protect the interests 
of

[[Page 1227]]

FmHA or its successor agency under Public Law 103-354.
    (a) Land plus assignments of income. When land security is taken, it 
will be coupled with assignment(s) of uncommitted tribal, trust, or 
other income sufficient to cover loan repayments and payments to the 
reserve account.
    (b) Assignments of income without land security. One or more 
assignments of income determined to be sufficient to cover the 
installment repayments plus reserve on the loan will be taken using 
exhibit C in this subpart N as a guide. The assignment may consist of 
one or more of the following:
    (1) Assignment of uncommitted income. A general assignment of 
uncommitted tribal, trust, or other income, together with a BIA 
Subordination Agreement using exhibit D in this subpart N as a guide. A 
statement will be obtained from BIA on the amount of such income that 
will be available to cover repayments and payments to the reserve 
account.
    (2) Assignment of land sale or lease income. An assignment of any 
net proceeds from the sale, lease, or other disposition of real estate, 
including minerals, timber, water, water rights, or other interests in 
real estate, if a real estate mortgage is not taken on such property.
    (3) Assignment of other income. An assignment or pledge of other 
income or revenue.
    (c) Recordation of assignments. Each assignment of income will be 
approved by BIA and recorded in the appropriate public records.



Sec. 1823.410  Appraisals.

    The amount of loan funds used to acquire property will not exceed 
its market value as determined by FmHA or its successor agency under 
Public Law 103-354. Market value will be based on an appraisal made by 
authorized FmHA or its successor agency under Public Law 103-354 
personnel, BIA appraisers or appraisers approved by the State Director. 
The value of any existing buildings that pass with the land will be 
deducted from the market value.

[43 FR 18161, Apr. 28, 1978]



Sec. 1823.411   Land rights.

    Title to land acquired may, with the approval of the Secretary of 
the Interior or his designee, be in the name of the United States in 
trust for the tribe.



Sec. 1823.412   Loan docket.

    The loan docket will consist of those items set forth in exhibit A. 
Forms and guides are available in all FmHA or its successor agency under 
Public Law 103-354 County Offices. Part of the docket will be prepared 
by the tribe with the assistance of BIA in accordance with exhibits 
A(1), B, C, and D of this subpart N. FmHA or its successor agency under 
Public Law 103-354 will provide items in exhibit A(2) of subpart N.



Sec. 1823.413   Loan approval.

    State Directors are authorized to approve all loans except those in 
excess of $500,000 which must first be authorized by the National 
Office. Information to be furnished the National Office will include the 
completed loan docket, proposed letter of conditions to be met by the 
applicant, any comments of OGC, and the State Director's 
recommendations. The State Director will forward an executed Form FmHA 
or its successor agency under Public Law 103-354 440-1, ``Request for 
Obligations of Funds,'' to the Finance Office for each loan approved. If 
approval was authorized by the National Office, a copy of the memorandum 
authorizing approval will be attached to the Form FmHA or its successor 
agency under Public Law 103-354 440-3. An executed Form FmHA or its 
successor agency under Public Law 103-354 440-1 will be forwarded to the 
applicant on the same date the loan is approved, that is, on the same 
date it is forwarded to the Finance Office.

[39 FR 3662, Jan. 29, 1974, as amended at 41 FR 7488, Feb. 19, 1976]



Sec. 1823.414   Title to security property.

    The applicant will provide evidence of title satisfactory to the 
FmHA or its successor agency under Public Law 103-354 for all property 
that will serve as security for the loan.
    (a) Real estate security. (1) Trust property. The applicant will 
request BIA to furnish Title Status Reports to the

[[Page 1228]]

County Supervisor. The County Supervisor will review the reports in 
accordance with subpart B of part 1927 of this chapter. Form FmHA or its 
successor agency under Public Law 103-354 1927-13, ``Waiver of 
Encumbrances, Exceptions, and Reservations,'' will be used as 
appropriate. The County Supervisor will ask the State Director for 
advice if necessary.
    (i) If administrative closing requirements can be met, BIA will 
prepare the deeds and obtain the needed signatures. The County 
Supervisor will supply BIA with Forms 1927-1, ``Real Estate Mortgage for 
(State)'', and FmHA or its successor agency under Public Law 103-354 
440-22, ``Promissory Note (Association or Organization).'' BIA will 
insert the appropriate land descriptions.
    (ii) The partly completed real estate mortgage and note will be 
returned to the County Supervisor. The loan check can then be ordered 
and the loan closed. The mortgage and note will be completed and signed, 
but no funds will be disbursed.
    (iii) A conformed copy of the note with the original mortgage and 
two copies will be forwarded to BIA. They will insert a certification on 
the mortgage and return it to the County Supervisor. BIA will also 
indicate that the deeds have been recorded and the priority of the 
Government's lien in a continuation of the Title Status Report. However, 
the certification about the lien priority may be made on the old Status 
Report if BIA prefers this.
    (iv) The certified original mortgage will then be recorded by the 
County Supervisor in the county where the land is located if OGC 
determines that such recordation is necessary. Funds can be disbursed as 
soon as the mortgage is recorded or the determination is made that 
recordation is not necessary.
    (2) Nontrust land. Title clearance will be obtained in accordance 
with subpart B of part 1927 of this chapter.
    (b) Rights of way. The applicant will be responsible for obtaining 
adequate, continuous, and valid rights-of-way for operation, and 
maintenance of its property. The following documentary evidence will be 
furnished FmHA or its successor agency under Public Law 103-354.
    (1) A copy of the form of right-of-way instrument to be used if it 
differs from Form FmHA or its successor agency under Public Law 103-354 
442-20, ``Right-of-Way Easement.'' Rights-of-way with restrictive 
provisions should be accepted only in very unusual circumstances. 
Whenever the form of the instrument differs from Form FHA or its 
successor agency under Public Law 103-354 442-20 or contains special 
provisions that are required by either the applicant or the grantor, 
copies of such instruments will be submitted to the FHA or its successor 
agency under Public Law 103-354 for review prior to acceptance and 
recording. Either specific rights-of-way containing a legal property 
description of a centerline description of the rights-of-way or general 
rights-of-way containing only a description of the tract or parcel of 
land affected, may be used.
    (2) A certificate by a duly authorized official of the applicant 
that it has obtained and presently holds adequate and sufficient legal 
title to all rights-of-way, permits and other authorizations deemed 
necessary by the applicant and its attorney for an uninterrupted right-
of-way for the operation and maintenance of the property. Use Form FmHA 
or its successor agency under Public Law 103-354 442-21, ``Right-of-Way 
Certificate.''
    (3) An opinion by the applicant's attorney relating to the adequacy 
and legality of the rights-of-way covered by the right-of-way 
certificate. Use Form FmHA or its successor agency under Public Law 103-
354 442-22, ``Opinion of Counsel Relative to Rights-of-Way,'' to the 
extent possible.
    (c) Lien on water rights. When a mortgage or an assignment will be 
taken on water rights, the applicant's attorney will furnish a statement 
regarding the nature of the water rights owned such as convenance of 
title, appropriation and decree, application and permit, public notice 
of appropriation and use, and so forth.
    (d) Lien on chattel property. When liens will be taken on chattel 
property, the following will be furnished:
    (1) Description of the property for use in preparing security 
instruments.
    (2) Form FmHA or its successor agency under Public Law 103-354 440-
13,

[[Page 1229]]

``Report of Lien Search,'' or similar form prepared in accordance wiith 
the State requirements prescribing the use of such form for Operating 
loans.
    (e) Disposition of title evidence. All title evidence other than the 
opinion of title, mortgage title insurance policy, and water stock 
certificates will be returned to the borrower when the loan has been 
closed. The opinion of title or title insurance policy and any water 
stock certificates will be retained in the borrower's county office case 
folder.

[39 54 3662, Jan. 29, 1974, as amended at 56 FR 67472, Dec. 31, 1991]



Sec. 1823.415   Supervision and servicing.

    Borrowers will be supervised in accordance with subpart A of part 
1942 of this chapter. Loans will be serviced in accordance with subpart 
E of part 1951 of this chapter. The cooperation, assistance, and advice 
of appropriate BIA officials will be sought at all times.

[39 FR 3662, Jan. 29, 1974, as amended at 47 FR 52119, Nov. 19, 1982; 54 
FR 47196, Nov. 13, 1989]



Sec. 1823.416   Check request and loan closing.

    Before any loan can be closed, the District Director must notify the 
State Director in writing that all loan closing conditions have been 
met. Checks will be requested and loans will be closed in accordance 
with subpart A of part 1942 of this chapter.

[39 FR 3662, Jan. 29, 1974, as amended at 54 FR 47196, Nov. 13, 1989]



Sec. 1823.417   Civil rights.

    Indian tribes, for the purpose of this subpart, are not subject to 
title VI of the Civil Rights Act of 1964 so long as the expected use of 
land acquired does not include operation of a facility which would be 
open to the public. Therefore, such tribes are not subject to part 1816 
of this chapter.



Sec. 1823.418   State requirements.

    Each State Director will, with the assistance of OGC, supplement 
this Subpart with State regulations, forms, worksheets, sample 
documents, and such other guidance as necessary to successfully carry 
out the program.

 Exhibit A to Subpart N--Loan Docket Items--Loans to Indian Tribes and 
                           Tribal Corporations

    (1) The tribe with the assistance of BIA will provide the following:
    SF 424.1: Application for Federal Assistance (For Non-construction).
    Form FmHA or its successor agency under Public Law 103-354 1910-11: 
Applicant Certification, Federal Collection Policies for Consumer or 
Commercial Debts. (O & 1C--Sign O);
    Official audit report of the preceding 4 years including income and 
expenses;
    List of tribal officers, including title and addresses and signature 
identifications;
    Copy of tribe's constitution and bylaws or charter or other evidence 
of organization and rules of operation;
    Legal services contract approved by BIA if a private law firm. A 
written statement will be provided when a BIA attorney performs the 
legal services.
    Land Utilization Plan including:
    (a) A short narrative description of why the land is being 
purchased, what use is to be made of it, and the annual net income 
expected to be derived from the land. If it has proven income record, 
that information should be included. If not, it should be so stated. If 
any development work is contemplated by the tribe, this should be 
explained, including assurance of the source of funds to carry out such 
development. If the land is to be operated by the tribe, this should be 
described, including assurance of availability of the necessary money to 
meet operating costs and method of management. If the land is to be 
leased, there should be a description of how it will be used and 
assurance that its intended use will conform to the overall land use 
pattern of the reservation or any variations justified; (b) 
Recommendation of BIA Soil Conservation Specialist.
    Form FmHA or its successor agency under Public Law 103-354 440-34: 
Option to Purchase Real Property or similar purchase agreement 
containing the provisions of the option.
    Form FmHA or its successor agency under Public Law 103-354 440-35: 
Acceptance of Option.
    Form FmHA or its successor agency under Public Law 103-354 442-7: 
Operating Budget or Statement of Income and Expenses including income 
and expenses from all sources.
    Resolution of Tribal Council or other governing body approving and 
providing for the proposed land acquisition and any actions necessary to 
carry it out, such authority to encumber real estate and waiver of 
immunity and, where legally necessary, evidence of any required tribal 
election or referendum. The resolution should substantially conform with 
Exhibit B.

[[Page 1230]]

    Subordination Agreement by BIA using Exhibit D as a guide.
    Form FmHA or its successor agency under Public Law 103-354 1942-46: 
Letter of Intent to Meet Loan Conditions Fidelity Bond for tribal 
officers authorized to handle monies.
    Form FmHA or its successor agency under Public Law 103-354 1927-9: 
Preliminary Title Opinion, if required.
    Form FmHA or its successor agency under Public Law 103-354 442-20: 
Right-of-Way easement, or right-of-way instrument, if appropriate.
    Form FmHA or its successor agency under Public Law 103-354 442-21: 
Right-of-Way Certificate, if appropriate.
    Form FmHA or its successor agency under Public Law 103-354 442-22: 
Opinion of Counsel Relative to Right-of-Way, if appropriate.
    Form FmHA or its successor agency under Public Law 103-354 440-13: 
Report of Lien Search, if appropriate.
    Form FmHA or its successor agency under Public Law 103-354 1927-10: 
Final Title Opinion, if required.
    (2) The FmHA or its successor agency under Public Law 103-354 County 
Supervisor will provide the following:
    Form FmHA or its successor agency under Public Law 103-354 1922-1: 
Appraisal Report-- Farm Tract if BIA or commercial appraisers have not 
provided a present market appraisal.
    Form FmHA or its successor agency under Public Law 103-354 1927-13: 
Waiver of Encumbrances, Exceptions and Reservations, if required.
    Form FmHA or its successor agency under Public Law 103-354 440-2: 
County Committee Certification or Recommendation.
    Form FmHA or its successor agency under Public Law 103-354 424-49: 
Project Summary (Loans to Indian Tribes and Tribal Corporations).
    Form FmHA or its successor agency under Public Law 103-354 1942-14: 
Association Project Fund Analysis Letter of Conditions.
    Form FmHA or its successor agency under Public Law 103-354 1940-1: 
Request for Obligation of Funds.
    Form FmHA or its successor agency under Public Law 103-354 440-22: 
Promissory Note.
    Form FmHA or its successor agency under Public Law 103-354 440-9: 
Supplementary Payment Agreement, if required.
    Form FmHA or its successor agency under Public Law 103-354 1927-1 
(State): Real Estate Mortgage.
    Form FmHA or its successor agency under Public Law 103-354 402-1: 
Deposit Agreement, if required.

[39 FR 3662, Jan. 22, 1974, as amended at 41 FR 7488, Feb. 19, 1976; 54 
FR 29330, July 12, 1989; 54 FR 47196, Nov. 13, 1989; 55 FR 13503, Apr. 
11, 1990; 56 FR 67472, Dec. 31, 1991; 58 FR 44752, Aug. 25, 1993]

   Exhibit B to Subpart N--Tribal Council Resolution No. ------------

    A RESOLUTION OF THE TRIBAL COUNCIL OF THE ------------------ TRIBE 
AUTHORIZING AND PROVIDING FOR: (1) THE ISSUANCE OF AN INSTALLMENT 
PROMISSORY NOTE IN THE PRINCIPAL AMOUNT OF -------- TO FINANCE THE 
PURCHASE OF LAND, (2) THE GIVING OF SECURITY, (3) THE COLLECTION, 
HANDLING, AND DISPOSITION OF REVENUES OF THE LAND TO BE PURCHASED AND 
ANY OTHER LAND TO BE ENCUMBERED AS SECURITY, AND (4) RELATED ACTIONS AND 
MATTERS.

    The ----------, (hereafter referred to as ``Tribe''), is an Indian 
Tribe recognized by the Secretary of the Interior or is a tribal 
corporation established pursuant to the Indian Reorganization Act;
    The Tribe wishes to acquire interests in approximately ---------- 
acres of real estate (hereinafter called ``the land'') within its 
reservation or community for the use of and the improvement of the 
economic standing of the Tribe or its members but does not have adequate 
uncommitted funds for such acquisition.
    A meeting of the tribal council or other governing body (hereafter 
called the ``Council'') with the required number of Council members 
present was held at ---------- on the ---------- day of ----------, 19--
--, pursuant to notice thereof as required by its constitution, by-laws, 
corporate charter, or other organizational documents, (hereafter called 
the ``constitution'') to consider a plan to finance the proposed land 
acquisition.
    The Tribe has the authority to acquire lands or interests therein.
    The Tribe is authorized to mortgage or otherwise hypothecate its 
land either by its constitution, or by a tribal referendum whereby such 
mortgage or other hypothecation was approved by at least a majority of 
the qualified voters at an election in which at least 20 percent of 
those eligible voted, or under such other rules as may be prescribed by 
the constitution of the Secretary of the Interior.
    The Secretary of the Interior or his authorized representative has 
approved the mortgaging or hypothecation of the land.
    As shown by the minutes of said meeting, of the ------------ 
(Number) Council members of record of the Tribe there were present and 
voting ------------ Council Members and by a recorded majority vote, 
determinations were made and actions authorized as follows:
    That in order to acquire the land, the Council was authorized and 
empowered, in its discretion, for and in the name of the Tribe, to make 
application to the Farmers Home Administration or its successor agency 
under Public Law 103-354 of the United

[[Page 1231]]

States Department of Agriculture (hereafter referred to as the 
``Government'') for financial assistance; to cause the execution and 
delivery of promissory note or notes or other evidence of indebtedness 
and a mortgage, or other appropriate security instrument, to secure any 
loan or loans made, or insured, by the Government; to comply with any 
requirements, terms or conditions prescribed by the Government or by 
Government regulations; and to pay, extend or renew any such 
indebtedness; and to execute contracts or enter into agreements and, 
without limitation, to take any and all other action as may be 
necessary, incidental, or appropriate to finance acquisition of the land 
or interests therein in behalf of the Tribe.
    Now therefore, it is hereby resolved by the Council of the Tribe as 
follows:
    Section 1. (Determination of Council) It is necessary to defray all 
of a portion of the costs of acquiring the land or interests therein by 
obtaining a loan to be made or insured by the Government in accordance 
with applicable provisions of the Consolidated Farm and Rural 
Development Act and Pub. L. 91-229, it being determined that the Tribe 
is unable to obtain sufficient credit elsewhere to finance the 
acquisition taking into consideration prevailing private and cooperative 
rates and terms currently available.
    Section 2. (Amount and Terms of Loan) The Tribe shall borrow $------
------ and issue as evidence thereof installment promissory note(s) in 
the form prescribed by the Government for the full principal amount of 
the loan. The note(s) shall be signed by the -------------- (Appropriate 
Official) and attested by the -------------- (Appropriate Official) and 
the corporate or other seal of the Tribe affixed thereto, and shall bear 
interest from its date, which shall be the date of loan closing, at a 
rate prescribed by the Government in its approval of the loan, but not 
to exceed ------ percent per annum. The security instruments shall be in 
such form and contain the terms and conditions required by the 
Government.
    Section 3. (Pledge of Revenue) The indebtedness hereby authorized 
shall be payable from the gross income and revenue to be derived from 
the operation of the tribal land, a portion of which sufficient to pay 
the principal and interest as and when the same shall be come due is 
hereby pledged and shall be set aside for that purpose.
    Section 4. (Pledge of Additional Security) If the revenue pledged in 
Section 3 is insufficient to pay the principal and interest as and when 
the same shall become due or if it appears the revenue will be 
insufficient, the Council hereby pledges its taxing authority and the 
funds held in the United States Treasury in trust for the Tribe, for the 
purpose of making up the deficiency or expected deficiency shall be 
deposited in the debt service and reserve accounts established by 
Sections 5 B and C hereof and used as therein prescribed.
    Section 5. (Protection and Disposition of Funds) The -------------- 
(Appropriate Official) of the Tribe shall be the custodian of all loan 
funds of the Tribe and all revenues pledged for the repayment of the 
loan. All such funds shall be deposited in accordance with Part 1902, 
Subpart A of this chapter. The -------------- (Appropriate Official) 
shall execute a fidelity bond in an amount not less than $---------- 
with a surety company approved by the Government. The United States of 
America shall be named as coobligee in such bond, and the amount thereof 
shall not be reduced without the prior written consent of the 
Government. The -------------- (Appropriate Official) is hereby directed 
to establish the following accounts into which proceeds of the note, the 
revenues from the land, and any other income pledged for repayment shall 
be deposited, which accounts shall be continually maintained, except as 
otherwise provided, so long as the indebtedness hereby authorized 
remains unpaid:
    A. Land Acquisition Account. The proceeds of the loan hereby 
authorized shall be deposited in the Land Acquisition Account which 
shall be established as a ``supervised bank account'' as required by the 
Government. If funds in this account exceed $100,000, it shall be 
secured by the financial institution in advance in accordance with U.S. 
Treasury Department Circular No. 176. When all land acquisition costs 
have been paid in full, any balance remaining in the Land Acquisition 
Account shall be applied as a refund on the loan and the Land 
Acquisition Account shall be closed.
    B. Debt Service Account. All assigned revenues shall be deposited in 
the Debt Service Account until there is an amount equal to the next 
annual installment to become due plus any delinquencies and payments are 
made to the Reserve Account. The Debt Service Account will be used for 
making annual installment payments on the loan, payments on any 
delinquencies that might occur, and payments to the Reserve Account.
    C. Reserve Account. Out of the funds in the Debt Service Account, 
there shall be transferred annually to the Reserve Account the sum of 
$---------- (\1/10\ of an annual payment of principal and interest) 
until there is accumulated in that fund the sum of $ ---------- (one 
annual installment of principal and interest), after which no further 
transfers need be made to said account except that transfers shall be 
made to replace any withdrawals. Funds in the Reserve Account shall be 
used only for the purpose of making payments of principal and interest 
in the event the amount in the Debt Service Account is insufficient to 
meet such payments.
    Section 6. (Other Covenants and Agreements of the Tribe) The Tribe 
covenants and

[[Page 1232]]

agrees that, so long as the indebtedness hereby authorized remains 
unpaid, the Tribe will--
    A. Comply with applicable Federal, State, and Tribal laws and 
regulations and maintain the land in good condition.
    B. Impose and collect such rates and charges that gross revenues 
will be sufficient at all times for the maintenance of the land and the 
funding of the Debt Service and Reserve Accounts.
    C. Cause to be levied and collected such taxes or assessments as may 
be necessary to maintain the land in good condition, meet payments on 
the loan, and make the deposits required by Sections 5 B and C, if for 
any reason gross revenues are insufficient.
    D. Maintain complete books and records relating to the operation and 
maintenance of the land and its financial affairs and will cause such 
books and records to be audited annually at the end of each fiscal year 
and an audit report prepared, and will furnish the Government without 
request a copy of each annual audit report. The audit will be conducted 
by independent Certified Public Accountants or by licensed Public 
Accountants, licensed before December 31, 1970, who are certified or 
licensed by a regulatory authority of a state or other political 
subdivision of the United States. At all reasonable times, the 
Government shall have the right to inspect the land and to inspect and 
copy the records, accounts, and data of the Tribe relating thereto.
    E. Maintain such insurance coverage as may be required by the 
Government.
    F. Not borrow any money from any source or enter into any contract 
or agreement or incur any other liabilities in connection with making 
improvements to the land (exclusive of normal maintenance) without 
obtaining the prior written consent of the Government.
    G. Not cause or permit any voluntary dissolution of its 
organization; merge or consolidate with any other organization; dispose 
of, transfer, or convey its title to any land or any part thereof or 
interest therein, by sale, mortgage, lease or other encumbrance, without 
obtaining the prior written consent of the Government.
    H. Not modify or amend its constitution in any way that would affect 
the Government's security without the written consent of the Government.
    Section 7. (Security Instruments) In order to secure the payment of 
the principal and interest or the note and any related obligations of 
the Tribe to the Government the ------------------ (Appropriate 
Official) and ------------------(Appropriate Official) of the Tribe are 
hereby authorized and directed to execute and deliver a good and 
sufficient security instrument encumbering the land or other property 
and an assignment of revenues and funds held in the United States 
Treasury for the Tribe. The security instrument shall give the 
Government the lien on the land, Tribal revenues, Tribal Treasury funds 
or other property and said officials are authorized and directed to 
acquire such subordination agreements as are necessary to achieve the 
required priority.
    Section 8. (Refinancing) If at any time it shall appear to the 
Government that the Tribe is able to refinance the loan, in whole or in 
part, by obtaining a loan for such purposes from responsible cooperative 
or private credit sources, at reasonable rates and terms for loans for 
similar purposes and periods of time, the Tribe will, upon request of 
the Government, apply for and accept such loan in sufficient amount to 
repay the Government and will take such action as may be required in 
connection with such refinancing loan.
    Section 9. (Waiver of Immunity) In order to secure the payment of 
the principal and interest of the note and any related obligations, the 
Tribe hereby waives for the benefit of the Government any immunity from 
suit or liability which it may possess except that this waiver shall not 
extend to the acquiring of any judgment, lien, or attachment upon the 
property of the Tribe other than property of the Tribe other than 
property specifically pledged, assigned, or mortgaged to the Government 
in connection with this loan provided that if no real estate is 
mortgaged to the Government this waiver shall extend to acquiring of 
judgment, lien or attachment on real estate purchased with the loan 
herein authorized.
    Section 10. (Resolution a Contract) The provisions of this 
resolution shall constitute a contract between the Tribe and the 
Government so long as the loan made or insured by the Government remains 
unpaid.
    Section 11. This resolution shall take effect and be in force 
immediately.
    The vote was:

  YEAS:_________________________________________________________________
  NAYS:_________________________________________________________________
  ABSENT:_______________________________________________________________
Date____________________________________________________________________
________________________________________________________________________
                                                  (Appropriate official)
________________________________________________________________________
                                                  (Appropriate official)

                              Certification

    I, the undersigned, as -------------- (Appropriate Official) of the 
---------- hereby certify that the Tribal Council or such Tribe is 
composed of ------ members, of whom ------ (constituting a quorem) were 
present at a meeting thereof duly called and held on the ------ day of 
----------, 19 ------: that the foregoing resolution was adopted at such 
meeting by the affirmative vote of ------ members of such Council and 
that said resolution has not been rescinded or amended in any way.

[[Page 1233]]

    Dated this ------ day of ----------, 19 ------.
........................................................................
Secretary of____________________________________________________________

[39 FR 3662, Jan. 22, 1974, as amended at 46 FR 36106, July 14, 1981]

      Exhibit C to Subpart N--Assignment of Tribal Income and Funds

    Whereas, the United States of America, acting through the Farmers 
Home Administration or its successor agency under Public Law 103-354, 
United States Department of Agriculture (hereinafter called the ``FmHA 
or its successor agency under Public Law 103-354'') is the holder or 
insurer of a promissory note (hereinafter called the ``Note'') in the 
sum of -------------- bearing interest at the rate of ---------- percent 
per annum; and
    Whereas, ther Note was given by -------------- (hereinafter called 
the ``Tribe'') to evidence the indebtedness incurred by the Tribe under 
a loan (hereinafter call the ``Loan'' made or insured by the FmHA or its 
successor agency under Public Law 103-354, and
    Whereas, Tribal Council Resolution No. ---------- dated ------------
--, authorized the acceptance of the Loan and the issuance of the Note 
and pledged and assigned income and funds as security for the payment 
thereof; and
    Whereas, the Tribe has entered into a subordination agreement with 
the United States Department of the Interior, Bureau of Indian Affairs 
(hereinafter called the BIA), whereby the General Assignment of Income 
dated -------------- and an Assignment of Income dated -------------- in 
favor of the BIA is fully subordinated to the Assignment made herein;
    Now, therefore, in consideration of the FmHA or its successor agency 
under Public Law 103-354's making or insuring the Loan and to secure the 
payment when due of the installments on the Note, the Tribe does hereby 
grant, convey, pledge and assign to the FmHA or its successor agency 
under Public Law 103-354 (1) all annual gross income from the land 
purchased with the loan, and (2) all annual gross income from other 
sources. If the Tribe shall pay the entire principal of and interest on 
the Note, this Assignment shall terminate and be of no further force and 
effect.
    In Witness Whereof, the --------------Tribe of the -------------- 
Reservation causes this Assignment to be executed by its President and 
its Tribal seal to be affixed and duly attested.

(Seal)      -------------------- Tribe of the --------------------
Reservation.
Attest:  By_____________________________________________________________
                                                  (Appropriate Official)
Date ----------------

    The terms and conditions of the foregoing Assignment are hereby 
agreed to as of the date hereof.

                        BUREAU OF INDIAN AFFAIRS

                     U.S. Department of the Interior

By______________________________________________________________________
Title___________________________________________________________________

             Exhibit D to Subpart N--Subordination Agreement

    This Agreement, dated ------------------, between the United States 
of America, Department of the Interior (hereinafter called the ``BIA'', 
and the ------------------ tribe of the ------------------ Reservation 
(hereinafter called the ``Tribe''), for the benefit of the Tribe and to 
induce the United States of America, acting through the Farmers Home 
Administration or its successor agency under Public Law 103-354, United 
States Department of Agriculture (hereinafter called the ``FmHA or its 
successor agency under Public Law 103-354''), to make or insure a loan 
to the Tribe:
    Witnesseth:
    Whereas, under date of ------------------, the Tribe executed and 
delivered to the BIA a ``General Assignment and Assignment of Income'' 
(hereinafter called the ``General Assignment''), a copy of which is 
attached hereto and marked Exhibit A; and under date of ----------------
-- an ``Assignment of Specific Income'' a copy of which is attached 
hereto and marked Exhibit B, and Whereas, the FmHA or its successor 
agency under Public Law 103-354 has offered to loan or insure a loan to 
the Tribe in the sum of -------- for the purpose of paying part or all 
of the cost of acquiring interests in approximately -------- acres of 
real estate within its reservation pursuant to the provisions of the Act 
of April 11, 1970, Pub. L. 91-229; and
    Whereas, FmHA or its successor agency under Public Law 103-354 
requires that the annual gross income from the real estate purchased 
with the loan and the annual gross income from all other sources in such 
amount as may be necessary to pay debt service on such loan be pledged 
to pay the principal and interest on the loan; and
    Whereas, the BIA is willing to subordinate to FmHA or its successor 
agency under Public Law 103-354 as security for said loan its rights 
under the General Assignment and under the Assignment of Specific Income 
to a lien on the income of the Tribe from all sources;
    Now, Therefore, the BIA does agree as follows:
    1. That the right it has under the General Assignment and under the 
Assignment of Specific Income as referred to in the first WHEREAS above, 
or any other instrument not mentioned herein to receive the income

[[Page 1234]]

derived by the Tribe from all sources shall be in all respects 
subordinate, subject to and junior in right to the right of FmHA or its 
successor agency under Public Law 103-354 in and to said income as said 
rights are created and defined in the Assignment Pledge Agreements, or 
other agreements now or hereafter given resulting from the loan from the 
Farmers Home Administration or its successor agency under Public Law 
103-354 to the Tribe.
    2. That this subordination Agreement shall be effective as of the 
date hereof.

    Dated this -------- day of ------------, 19----.
-------------------------------- Tribe of the
-------------------------------- Reservation
By______________________________________________________________________

                        United States of America

                       Department of the Interior

By______________________________________________________________________
Title___________________________________________________________________

[[Page 1235]]



                       SUBCHAPTERS C-D--[RESERVED]





                     SUBCHAPTER E--ACCOUNT SERVICING






                         PARTS 1863-1866--[RESERVED] 






            SUBCHAPTER F--SECURITY SERVICING AND LIQUIDATIONS






                         PART 1872--[RESERVED] 






                 SUBCHAPTER G--MISCELLANEOUS REGULATIONS






                         PARTS 1890-1899--[RESERVED]




[[Page 1237]]



                              FINDING AIDS




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

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Material Approved for Incorporation by Reference
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  Redesignation Tables
  List of CFR Sections Affected

[[Page 1239]]

            Material Approved for Incorporation by Reference

                     (Revised as of January 1, 1997)

  The Director of the Federal Register has approved under 5 U.S.C. 
552(a) and 1 CFR Part 51 the incorporation by reference of the following 
publications. This list contains only those incorporations by reference 
effective as of the revision date of this volume. Incorporations by 
reference found within a regulation are effective upon the effective 
date of that regulation. For more information on incorporation by 
reference, see the preliminary pages of this volume.


7 CFR CHAPTER XVII

RURAL ELECTRIFICATION ADMINISTRATION, DEPARTMENT OF AGRICULTURE
  Copies of Bulletins may be obtained upon request                 7 CFR
  in person or by mail from the Administrative 
  Services Division, Room 0175-S, Washington, DC 
  20250. Bulletins 50-1 through 50-5 and 50-18 and 
  345-150 may be purchased from the Superintendent 
  of Documents, U.S. Government Printing Office, 
  Washington, DC 20402. Tel.: 202-783-3238.


Rural Electrification Administration

50-1 (T-805-B) Electric Transmission                             1728.97
  Specifications and Drawings for 115 kV to 230 kV 
  10/88.
50-2 (T-805-A) Electric Transmission                             1728.97
  Specifications and Drawings for 34.5 kV to 69 kV 
  2/73.
50-3 (D-804) Specifications and Drawings for 12.5/               1728.97
  7.2 kV Line Construction 5/83.
50-5 (D-803) Specificatiaons and Drawings for                    1728.97
  14.4/24.9 kV Line Construction 9/69.
50-6 (D-806) Specifications and Drawings for                     1728.97
  Underground Electric Distribution 3/90.
50-15 (DT-3) REA Specifications for Pole Top Pins                1728.97
  with 1\3/8\'' Diameter Lead Threat 1/51.
50-16 (DT-4), REA Specifications for Angle                       1728.97
  Suspension Brackets 3/52.
1728F-700 REA Specification for Wood Poles, Stubs                1728.97
  and Anchor Logs 7/93.
50-19 (DT-7) REA Specifications for Clevis Bolts                 1728.97
  8/53.
50-23 (DT-18) REA Specifications for 60'' Wood                   1728.97
  Crossarm Braces 2/71.
50-31 (D-3) REA Specifications for Pole Top Pins                 1728.97
  with 1'' Diameter Lead Threads 2/79.
50-32 (D-4) REA Specifications for Steel Crossarm                1728.97
  Mounted Pins with 1'' Diameter Lead Threads 10/
  50.
50-33 (D-5) REA Specifications for Single and                    1728.97
  Double Upset Spool Bolts 2/51.
50-34 (D-6) REA Specifications for Secondary                     1728.97
  Swinging Clevises 12/70.
50-35 (D-7) REA Specifications for Service                       1728.97
  Swinging Clevises 9/52.
50-36 (D-8) REA Specifications for Servcice                      1728.97
Deadend Clevises 9/52.
[[Page 1240]]

50-40 (D-14) REA Specifications for Pole Top                     1728.97
  Brackets for Channel Type Pins 9/51.
50-41 (D-15) REA Specifications for Service                      1728.97
  Wireholders 11/51.
50-55 (T-2) REA Specifications for Overhead Ground               1728.97
  Wire Support Brackets 5/53.
50-56 (T-3) REA Specifications for Steel Plate                   1728.97
  Anchors for Transmission Lines 12/53.
50-60 (T-9) REA Specification--Single Pole Steel                 1728.97
  Structures, Complete with Arms 12/71.
50-70 (U-1) REA Specification for 15 kV and 25 kV                1728.97
  Primary Underground Power Cable 12/87.
50-72 (U-4) REA Specifications for Electrical                    1728.97
  Equipment Enclosures (5-35 kV) 10/79.
50-73 (U-5) REA Specifications for Pad-Mounted                   1728.97
  Transformers (Single and Three-Phase) 1/77.
50-74 (U-6) REA Specification for Secondary                      1728.97
  Pedestals (600 Volts and Below) 10/79.
50-91 (S-3) REA Specifications for Step-Down                     1728.97
  Distribution Substation Transformers (34.4-138 
  kV) 1/78.
345-6 REA standard for splicing plastic-insulated                1755.97
  cables (PC-2) 1/78.
345-13 REA specification for aerial and                          1755.97
  underground telephone cable (PE-22) 1/83.
345-22 REA specification for voice frequency                     1755.97
  loading coils (PE-26) 1/89.
345-29 REA specification for self-supporting cable               1755.97
  (PE-38) 2/82.
345-39 REA specification for Telephone Station                   1755.97
  Protectors 3/83.
345-50 REA Specification for Trunk Carrier Systems   1755.97; 1755.397; 
  (PE-60) 9/79.                                                 1755.522
345-52 REA standard for service entrance and                     1755.97
  station protector installations (PC-5A) 1/80.
345-52 REA standard for station installations (PC-               1755.97
  5B) 4/81.
345-54 REA specification for telephone cable                     1755.97
  splicing connectors (PE-52) 12/71.
345-55 REA specification for central office loop                 1755.97
  extenders and loop extender voice frequency 
  repeater combinations (PE-61) 12/73.
345-55 REA specification for central office loop                1755.522
  extenders and loop extender voice frequency 
  repeater combinations (PE-61) 12/73.
345-63 REA standard for acceptance tests and                     1755.97
  measurements of telephone plant (PC-4) 5/76.
345-65 REA specification for cable shield bonding                1755.97
  connectors (PE-33) 6/78.
345-66 REA specification for subscriber carrier                  1755.97
  systems (PE-64) 9/79.
345-67 REA specification for filled telephone                    1755.97
  cables (PE-39) 11/81.
345-69 REA specification for two-wire voice                      1755.97
  frequency repeater equipment (PE-29) 1/78.
345-72 REA specification for filled splice cases                 1755.97
  (PE-74) 1/76.
345-75 REA specification for electronic trunk                    1755.97
circuits (PE-65) 1/77.
[[Page 1241]]

345-78 REA specification for carbon arrester                     1755.97
  assemblies for use in protectors (PE-78) 2/80.
345-150 REA specifications and drawings for                      1755.97
  construction of direct buried plant (Form 515a) 
  7/89.
345-151 REA specifications and drawings for                      1755.97
  conduit and manhole construction (Form 515c) 7/
  89.
345-152 REA specifications and drawings for                      1755.97
  underground cable installation (Form 515d) 7/89.
345-153 REA specifications and drawings for                      1755.97
  construction of pole lines, aerial cables and 
  wires (Form 515f) 7/89.
345-154 REA specifications and drawings for                      1755.97
  service entrance and station protector 
  installations (Form 515g) 7/89.
345-168 REA specification for equipment for direct               1755.97
  distance dialing (Form 538) 10/77.
345-180 REA specifications for voice frequency                   1755.97
  repeaters and voice frequency repeatered trunks 
  (Form 397a) 1/63.
345-183 REA design specifications for point-to-                  1755.97
  point microwave radio systems (Form 397d) 6/70.
345-184 REA design specifications for mobile and                 1755.97
  fixed dial radio telephone equipment (Form 397e) 
  5/71.
Raptor Research Foundation, c/o Department of 
  Veterinary Biology, University of Minnesota, St. 
  Paul, Minnesota 55101.
Suggested Practices for Raptor Protection on Power               1724.45
  Lines, Raptor Research Report No. 4 (1981).


American Institute of Timber Construction (AITC)

  333 West Hampden Avenue, Englewood, Colorado 
  80110, telephone (303) 761-3212
American Institute of Timber Construction--200-83,    1728.201; 1728.202
  Inspection Manual, 1987 edition.
American National Standards Institute/American                  1728.202
  Institute of Timber Construction--ANSI/AITC 
  A190.1-1983, American National Standard for Wood 
  Products--Structural Glued Laminated Timber.


American National Standards Institute/Electronic Industries Association 
(ANSI/EIA)

  EIA, 201 Pennsylvania Ave., NW., suite 900, 
  Washington, DC 20006, tel.: 202-457-4966
ANSI/EIA 359-A-84, EIA Standard Colors for Color                1755.860
  Identification and Coding.


American National Standards Institute/Electronic Industries Association 
(ANSI/EIA).

  Copies made available through Global Engineering 
  Documents, 15 Inverness Way East, Englewood, CO 
  80112
ANSI/EIA 359-A-84, EIA Standard Colors for Color                1755.870
  Identification and Coding.


American National Standards Institute/Institute of Electrical and 
Electronics Engineers, Inc. (ANSI/IEEE)

  IEEE Service Center, 445 Hoes Lane, Piscataway, 
  NJ 08854, Telephone: 1-800-678-4333
1993 National Electrical Safety Code..............      1755.900(a)(6); 
                                                                  (o)(2)


American National Standard Institute/Insulated Cable Engineers 
Association, Inc. (ICEA)

  ICEA, P.O. Box 440, South Yarmouth, MA 02664, 
  tel.: 508-394-4424

[[Page 1242]]

ANSI/ICEA S84-608-1988 Standard for                   1755.390; 1755.890
  Telecommunications Cable, Filled, Polyolefin 
  Insulated, Copper Conductor Technical 
  Requirements.
ANSI/ICEA S-89-648-1993, Standard for               1755.702; 1755.703; 
  Telecommunications Aerial Service Wire,                       1755.704
  Technical Requirements (Approved by ANSI July 
  11, 1994).


American National Standards Institute/National Fire Protection 
Association (ANSI/NFPA)

  Copies are available from NFPA, Batterymarch 
  Park, Quincy, Massachusetts 02269, telephone 
  number 1 (800) 344-3555
NFPA 70-1993, National Electrical Code............              1755.870


American National Standards Institute

  1430 Broadway, New York, New York 10018
ANSI 05.1983 Standard for Wood Products Structural    1728.201; 1728.202
  Glued Laminated Timber for Utility Structures.
ANSI S1.4-1983, Specification for Sound Level         1755.397; 1755.522
  Meters, including Amendment S1.4A-1985.


American Society for Testing and Materials

  1916 Race Street, Philadelphia, PA 19103, Tel.: 
  215-299-5400
ASTM A 109-91, Standard Specification for Steel,                1755.910
  Strip, Carbon, Cold-Rolled.
ASTM A 153-82 (Reapproved 1987), Standard                       1755.910
  Specification for Zinc Coating (Hot-Dip) on Iron 
  and Steel Hardware.
ASTM A 366/A 366M-91, Standard Specification for                1755.910
  Steel, Sheet, Carbon, Cold-Rolled, Commercial 
  Quality.
ASTM A 475-78 Specification for Zinc-Coated Steel               1772.370
  Wire Strand.
ASTM A 505-87 Standard Specification for Steel,     1755.390; 1755.860; 
  Sheet and Strip, Alloy, Hot-Rolled and Cold-                  1755.890
  Rolled, General Requirements for.
ASTM A 525-91b, Standard Specification for General              1755.910
  Requirements for Steel Sheet, Zinc-Coated 
  (Galvanized) by the Hot-Dip Process.
ASTM A 526/A 526/M-90, Standard Specification for               1755.910
  Steel Sheet, Zinc-Coated (Galvanized) by the 
  Hot-Dip process, Commercial Quality.
ASTM A 569/A 569M-91a, Standard Specification for               1755.910
  Steel, Carbon (0.15 Maximum, Percent), Hot-
  Rolled Sheet and Strip Commercial Quality.
ASTM A 621/A 621M-92, Standard Specification for                1755.910
  Steel, Sheet and Strip, Carbon, Hot-Rolled, 
  Drawing Quality.
ASTM A 640-91, Standard Specification for Zinc-         1755.900(a)(7); 
  Coated Steel Strand for Messenger Support of      (1)(2); (1)(2)(ii); 
  Figure 8 Cable.                                            (1)(2)(iii)
ASTM B 3-90, Standard Specification for Soft or                 1755.860
  Annealed Copper Wire.
ASTM B 33-91, Standard Specification for Tinned     1755.397; 1755.522; 
  Soft or Annealed Copper Wire for Electrical                   1755.870
  Purposes.
ASTM B 117-90, Standard Test Method of Salt Spray               1755.910
  (Fog) Testing.
ASTM B 193-87 Standard Test Method for Resistivity  1755.390; 1755.860; 
  of Electrical Conductor Materials.                            1755.890
ASTM B 244-80 Standard Classification of Coppers..  1755.390; 1755.860; 
                                                                1755.890
ASTM B 539-90, Standard Test Methods for Measuring              1755.910
Contact Resistance of Electrical Connections 
[[Page 1243]]acts).

ASTM B 633-85, Standard Specification for                       1755.910
  Electrodeposited Coatings of Zinc on Iron and 
  Steel.
ASTM B 694-86 Standard Specification for Copper,    1755.390; 1755.860; 
  Copper Alloy, and Copper-Clad Stainless Steel                 1755.890
  Sheet and Strip for Electrical Cable Shielding.
ASTM B 736-92a, Standard Specification for              1755.900(a)(7); 
  Aluminum, Aluminum Alloy, and Aluminum-Clad           (k)(8); 1755.870
  Steel Cable Shielding Stock.
ASTM D9-87 (Reapproved 1992), Standard Terminology    1728.201; 1728.202
  Relating to Wood.
ASTM D 150-87, Standard Test Methods for A-C Loss               1755.868
  Characteristics and Permittivity (Dielectric 
  Constant) of Solid Electrical Insulating 
  Materials.
ASTM D 257-91, Standard Test Methods for D-C                    1755.860
  Resistance of Conductance of Insulating 
  Materials.
ASTM D 523-89, Standard Test Method for Specular                1755.910
  Gloss.
ASTM D 610-85 (Reapproved 1989), Standard Test                  1755.910
  Method for Evaluating Degree of Rusting on 
  Painted Steel Surfaces.
ASTM D 822-89, Standard Practice for Conducting                 1755.910
  Tests on Paint and Related Coatings and 
  materials using Filtered Open-Flame Carbon-Arc 
  Light and Water Exposure Apparatus.
ASTM D 1238-90b, Standard Test Method for Flow                1755.860; 
  Rates of Thermoplastics by Extrusion                  1755.900(a)(7); 
  Plastometer.                                                 (m)(5)(i)
ASTM D 1248-84 (1989), Standard Specification for   1755.860; 1755.870; 
  Polyethylene Plastics Molding and Extrusion          1755.900 (a)(7); 
  Materials.                                                 (m)(3)(i); 
                                                            (m)(3)(ii); 
                                                           (m)(3)(iii); 
                                                   (m)(3)(iv); (m)(3)(v)
ASTM D 1535-89, Standard Test Method for            1755.860; 1755.870; 
  Specifying Color by the Munsell System.               1755.900(a)(7); 
                                                        (d)(2); 1755.910
ASTM D 1654-92, Standard Test Method for                        1755.910
  Evaluation of Painted or Coated Specimens 
  Subjected to Corrosive Environments.
ASTM D 1693-70 (Reapproved 1988), Standard Test                 1755.910
  Method for Environmental Stress-Cracking of 
  Ethylene Plastics.
ASTM D 2197-86 (Reapproved 1991), Standard Test                 1755.910
  Method for Adhesion of Organic Coatings by 
  Scrape Adhesion.
ASTM D 2247-92, Standard Practice for Testing                   1755.910
  Water Resistance of Coatings in 100% Relative 
  Humidity.
ASTM D 2287-81 (Reapproved 1988), Standard                      1755.870
  Specification for Nonrigid Vinyl Chloride 
  Polymer and Copolymer Molding and Extrusion 
  Compounds.
ASTM D 2436-85, Standard Specification for Forced-              1755.870
  Convection Laboratory Ovens for Electrical 
  Insulation.
ASTM D 2565-92, Standard Practice for Operating                 1755.910
  Xenon Arc-Type Light-Exposure Apparatus With and 
  Without Water for Exposure of Plastics.
ASTM D 2633-82 (Reapproved 1989), Standard Methods              1755.870
  of Testing Thermoplastic Insulations and Jackets 
  for Wire and Cable.
ASTM D 2794-92, Standard Test Method for                        1755.910
Resistance of Organic Coatings to the Effects of 
[[Page 1244]]ation (Impact).

ASTM D 3349-86, Standard Test Method for                      1755.860; 
  Absorption Coefficient of Carbon Black Pigmented      1755.900(a)(7); 
  Ethylene Plastic.                                          (m)(3)(vii)
ASTM D 3928-89, Standard Test Method for                        1755.910
  Evaluation of Gloss or Sheen Uniformity.
ASTM D 4101-82 (1988), Standard Specification for     1755.860; 1755.870
  Propylene Plastic Injection and Extrusion 
  Materials.
ASTM D 4565-90a, Standard Test Methods for          1755.390; 1755.860; 
  Physical and Environmental Performance            1755.870; 1755.890; 
  Properties of Insulations and Jackets for             1755.900(a)(7); 
  Telecommunications Wire and Cable.                (c)(6)(i); (k)(10); 
                                                           (m)(5)(iii); 
                                                       (m)(5)(v); App. A
ASTM D 4566-90, Standard Test Methods for           1755.390; 1755.860; 
  Electrical Performance Properties of Insulations  1755.870; 1755.890; 
  and Jackets for Telecommunications Wire and           1755.900(a)(7); 
  Cable.                                                          (s)(5)
ASTM D 4568-86, Standard Test Methods for                     1755.860; 
  Evaluating Compatibility between Cable Filling        1755.900(a)(7); 
  and Flooding Compounds and Polyolefin Cable           (g)(3); (j)(2); 
  Materials.                                                      (k)(9)
ASTM D 4872-88, Standard Test Method for                        1755.860
  Dielectric Testing of Wire and Cable Filling 
  Compounds.
ASTM E 8-91, Standard Test Methods of Tension                   1755.860
  Testing of Metallic Materials; and.
ASTM E 29-90, Standard Practice for Using           1755.860; 1755.870; 
  Significant Digits in Test Data to Determine          1755.900(a)(7); 
  Conformance with Specifications.                                (t)(2)
ASTM G 21-90, Standard Practice for Determining                 1755.910
  Resistance of Synthetic Polymeric Materials to 
  Fungi.
ASTM G 23-90, Standard Practice for Operating                   1755.910
  Light-Exposure Apparatus (Carbon-Arc Type) With 
  and Without Water for Exposure of Nonmetallic 
  Materials.


American Wood Preservers' Association (AWPA)

  P.O. Box 286, Woodstock, Maryland 21163-0286
American Wood Preservers' Association--Book of        1728.201; 1728.202
  Standards, 1991 edition:.
  A1-91, Standard Methods for Analysis of Creosote 
  and Oil-Type Preservatives.
  A2-91, Standard Methods for Analysis of 
  Waterborne Preservatives and Fire-Retardant 
  Formulations.
  A3-91, Standard Methods for Determining 
  Penetration of Preservatives and Fire 
  Retardants.
  A5-91, Standard Methods for Analysis of Oil-
  Borne Preservatives.
  A6-89, Method for the Determination of Oil-Type 
  Preservatives and Water in Wood.
  A7-75, Standard Wet Ashing Procedure for 
  Preparing Wood for Chemical Analysis.
  A9-90, Standard Method for Analysis of Treated 
  Wood and Treating Solutions by X-Ray 
  Spectroscopy.

[[Page 1245]]

  A11-83, Standard Method for Analysis of Treated 
  Wood and Treating Solutions by Atomic Absorption 
  Spectroscopy.
  C1-91, All Timber Products--Preservative 
  Treatment by Pressure Processes.
  C4-91, Poles--Preservative Treatment by Pressure 
  Processes.
  C8-91, Western Red Cedar and Alaska Yellow Cedar 
  Poles--Preservative Treatment by the Full-Length 
  Thermal Process.
  C10-91, Lodgepole Pine Poles--Preservative 
  Treatment by the Full-Length Thermal Process.
  C12-90, Western Larch Poles--Full-Length 
  Preservative Treatment by Thermal Process.
  M1-90, Standard for the Purchase of Treated Wood 
  Products.
  M2-91, Standard for Inspection of Treated Timber 
  Products.
  M3-81, Standard Quality Control Procedures for 
  Wood Preserving Plants.
  M4-91, Standard for the Care of Preservative-
  Treated Wood Products.
  P1/P13-91, Standard for Coal Tar Creosote for 
  Land and, Fresh Water and Marine (Coastal Water 
  Use).
  P5-91, Standards for Waterbone Preservatives....
  P8-91, Standards for Oil-Borne Preservatives....
  P9-91, Standards for Solvents and Formulations 
  for Organic Preservative Systems.


Bell Communications Research (Bellcore)

  Bellcore Customer Service, 60 New England Ave., 
  Piscataway, NJ 08854, tel.: 1-800-521-2673
Document SR-TSV-002275, BOC Notes on the LEC                    1755.522
  Networks--1990, Issue 1, March 1993.
Document TR-TSY-000508, Automatic Message                       1755.522
  Accounting, Section 8.1, Issue 2, July 1987.
Document TR-TSY-000008, Issue 2, August 1987,                   1755.397
  Digital Interface between the SLC 96 Digital 
  Loop Carrier System and a Local Digital Switch.
Document TR-TSY-000057, Issue 1, April 1987,                    1755.397
  including Revision 1, November 1988, Funcational 
  Criteria for Digital Loop Carrier Systems.
Document TR-NWT-000303, Issue 2, December 1992,                 1755.397
  including Revision 1, December 1993, Integrated 
  Digital Loop Carrier System Generic 
  Requirements, Objectives, and Interface.


Electronic Industries Association and/or Telecommunications Industries 
Association (EIA/TIA)

  Global Engineering Documents, 15 Inverness Way 
  East, Englewood, CO 80112, Telephone: 303-792-
  2181
EIA 455-20, Measurement of Change in Optical            1755.900(a)(8); 
  Transmittance.                                          (q)(1)(iii)(B)
EIA/TIA 455-25A, Repeated Impact Testing of Fiber       1755.900(a)(9); 
  Optic Cables and Cable Assemblies.                         (q)(2)(iii)
EIA/TIA 455-30B, Frequency Domain Measurement of        1755.900(a)(9); 
  Multimode Optical Fiber Information Transmission            (p)(2)(vi)
  Capacity.
EIA/TIA 455-31B, Fiber Tensile Proof Test Method..      1755.900(a)(9); 
                                                                 (b)(10)

[[Page 1246]]

EIA/TIA 455-37A, Low or High Temperature Bend Test      1755.900(a)(9); 
  for Fiber Optic Cable.                                     (q)(1)(iii)
EIA 455-41, Compressive Loading Resistance of           1755.900(a)(8); 
  Fiber Optic Cables.                                        (q)(3)(iii)
EIA/TIA 455-45B, Method for Measuring Optical           1755.900(a)(9); 
  Fiber Geometry Using a Laboratory Microscope.         (b)(5); (b)(7); 
                                                               (b)(8)(i)
EIA/TIA 455-46A, Spectral Attenuation Measurement       1755.900(a)(9); 
  for Long-Length, Graded-Index Optical Fibers.            (p)(2)(i)(A);
EIA/TIA 455-48B, Measurement of Optical Fiber           1755.900(a)(9); 
  CladdingDiameter Using Laser-Based Instruments.            (b)(8)(iii)
EIA/TIA 455-51A, Pulse Distortion Measurement of        1755.900(a)(9); 
  MultimodeGlass Optical Fiber Information                    (p)(2)(vi)
  Transmission Capacity.
EIA/TIA 455-53A, Attenuation by Substitution            1755.900(a)(9); 
  Measurement for Multimode Graded-Index Optical            (p)(2)(i)(B)
  Fibers or Fiber Assemblies Used in Long Length 
  Communications Systems.
EIA/TIA 455-55B, End-View Methods for Measuring         1755.900(a)(9); 
  Coating and Buffer Geometry of Optical Fibers.                 (b)(12)
EIA/TIA 455-58A, Core Diameter Measurement of           1755.900(a)(9); 
  Graded-Index Optical Fibers.                                    (b)(6)
EIA/TIA 455-59, Measurement of Fiber Point Defects      1755.900(a)(9); 
  Using an OTDR.                                           (p)(1)(iii); 
                                                              (p)(2)(ii)
EIA/TIA 455-61, Measurement of Fiber or Cable           1755.900(a)(9); 
  Attenuation Using an OTDR.                              (p)(1)(i)(B); 
                                                            (p)(2)(i)(C)
EIA/TIA 455-78A, Spectral-Attenuation Cutback           1755.900(a)(9); 
  Measurement for Single-Mode Optical Fibers.               (p)(1)(i)(A)
EIA/TIA 455-81A, Compound Flow (Drip) Test for          1755.900(a)(9); 
  Filled Fiber Optic Cable.                                    (q)(7)(i)
EIA/TIA 455-82B, Fluid Penetration Test for Fluid-      1755.900(a)(9); 
  Blocked Fiber Optic Cable.                                   (q)(6)(i)
EIA/TIA 455-85A, Fiber Optic Cable Twist Test.....      1755.900(a)(9); 
                                                             (q)(4)(iii)
EIA/TIA 455-86, Fiber Optic Cable Jacket Shrinkage      1755.900(a)(8); 
                                                              (m)(5)(iv)
EIA/TIA 455-89A, Fiber Optic Cable Jacket               1755.900(a)(8); 
  Elongation and Tensile Strength.                            (m)(5)(ii)
EIA/TIA 455-104A, Fiber Optic Cable Cyclic Flexing      1755.900(a)(9); 
  Test.                                                      (q)(5)(iii)
EIA/TIA 455-164A, Single-Mode Fiber, Measurement        1755.900(a)(9); 
  of ModeField Diameter by Far-Field Scanning.                 (b)(3)(i)
  EIA/TIA 455-165A, Mode-Field Diameter Measurement by N1755.900(a)(9); 
  Scanning echnique.                                          (b)(3)(ii)
EIA/TIA 455-167A, Mode Field Diameter, Variable         1755.900(a)(9); 
  Aperture in the Far Field.                                 (b)(3)(iii)
EIA/TIA 455-168A, Chromatic Dispersion Measurement      1755.900(a)(9); 
  of Multimode Graded-Index and Single-Mode                (p)(1)(vi)(A)
  Optical Fibers by Spectral Group Delay 
  Measurement in the Time Domain.
EIA/TIA 455-169A, Chromatic Dispersion Measurement      1755.900(a)(9); 
  by Single-Mode Optical Fibers by the Phase-Shift         (p)(1)(vi)(B)
  Method.
EIA/TIA 455-170, Cable Cutoff Wavelength of             1755.900(a)(9); 
  Single-Mode Fiber by Transmitted Power.                   (p)(1)(viii)

[[Page 1247]]

EIA/TIA 455-173, Coating Geometry Measurement for       1755.900(a)(9); 
  Optical Fiber Side-View Method.                                (b)(12)
EIA/TIA 455-174, Mode Field Diameter of Single-         1755.900(a)(8); 
  Mode Optical Fiber by Knife-Edge Scanning in the            (b)(3)(iv)
  Far Field.
EIA/TIA 455-175A, Chromatic Dispersion Measurement      1755.900(a)(9); 
  of Single-Mode Optical Fibers by the                     (p)(1)(vi)(C)
  Differential Phase Shift Method.
EIA/TIA 455-176, Method for Measuring Optical           1755.900(a)(9); 
  Fiber Cross-Sectional Geometry by Automated           (b)(5); (b)(6); 
  Grey-Scale Analysis.                                (b)(7); (b)(8)(ii)
EIA/TIA 455-177A, Numerical Aperture Measurement        1755.900(a)(9); 
  of Graded-Index Optical Fibers.                                 (p)(3)
EIA/TIA 455-178, Measurements of Strip Force            1755.900(a)(9); 
  Required for Mechanically Removing Coatings from               (b)(13)
  Optical Fibers.
EIA/TIA 455-598, Color Coding of Fiber Optic            1755.900(a)(9); 
  Cables.                                                         (d)(2)


General Services Administration

  Specification Section, 490 East L'Enfant Plaza, 
  SW., Washington, DC 20407. tel.: 202-755-0325
Federal Standard H28, Screw-Thread Standards for      1755.397; 1755.522
  Federal Services, March 31, 1978, including 
  Change Notice 1, May 28, 1986; Change Notice 2, 
  January 20, 1989; and Change Notice 3, March 12, 
  1990.


Institute of Electrical and Electronics Engineers

  IEEE Service Center, 445 Hoes Lane, P.O. Box 
  1331, Piscataway, NJ 08854, tel.: 201-981-0060
IEEE Std 730-1989, IEEE Standard for Software                   1755.522
  Quality Assurance Plans.
IEEE Std 455-1985, IEEE Standard Test Procedure       1755.397; 1755.522
  for Measuring Longitudinal Balance of Telephone 
  Equipment Operating in the Voice Band.


Southern Pine Inspection Bureau

  4709 Scenic Highway, Pensacola, Florida 32504, 
  telephone (904) 434-2611
Southern Pine Inspection Bureau--Standard Grading               1728.201
  Rules for Southern Pine Lumber, October 15, 
  1991.
Southern Pine Inspection Bureau--Special Product                1728.201
  Rules for Structural, Industrial, and Railroad-
  Freight Car Lumber, October 15, 1991.


Underwriters Laboratories, Inc. (UL)

  P.O. Box 75530, Chicago, IL 60675-5330, 
  Telephone: 706-272-8800
UL 94, Standard for Safety Tests for Flammability               1755.910
  of Plastic Materials for Parts in Devices and 
  Appliances, fourth edition, June 18, 1991.
UL 1666, Test for Flame Propagation Height of                   1755.870
  Electrical and Optical-Fiber Cables Installed 
  Vertically in Shafts, January 22, 1991.


West Coast Lumber Inspection Bureau

  P.O. Box 23145, Portland, Oregon 97223, 
  telephone (503) 639-0651, Fax (503) 684-8928
West Coast Lumber Inspection Bureau--Standard No.               1728.201
  17, Grading Rules for West Coast Lumber, 
  September 1, 1991.



[[Page 1249]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 1997)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2--[Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)
        II  Federal Claims Collection Standards (General 
                Accounting Office--Department of Justice) (Parts 
                100--299)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Advisory Committee on Federal Pay (Parts 1400--1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
       VII  Advisory Commission on Intergovernmental Relations 
                (Parts 1700--1799)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3202)
     XXIII  Department of Energy (Part 3301)

[[Page 1250]]

      XXIV  Federal Energy Regulatory Commission (Part 3401)
      XXVI  Department of Defense (Part 3601)
    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                          Title 6--[Reserved]

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Consumer Service, Department of Agriculture 
                (Parts 210--299)

[[Page 1251]]

       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of Finance and Management, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  [Reserved]
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)

[[Page 1252]]

     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Immigration and Naturalization Service, Department of 
                Justice (Parts 1--499)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Meat and Poultry 
                Inspection, Department of Agriculture (Parts 300--
                599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
        XI  United States Enrichment Corporation (Parts 1100--
                1199)
        XV  Office of the Federal Inspector for the Alaska Natural 
                Gas Transportation System (Parts 1500--1599)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)

[[Page 1253]]

       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Thrift Depositor Protection Oversight Board (Parts 
                1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700-1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Export Administration, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)

[[Page 1254]]

       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  United States Customs Service, Department of the 
                Treasury (Parts 1--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)

[[Page 1255]]

      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development, International 
                Development Cooperation Agency (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  United States Information Agency (Parts 500--599)
        VI  United States Arms Control and Disarmament Agency 
                (Parts 600--699)
       VII  Overseas Private Investment Corporation, International 
                Development Cooperation Agency (Parts 700--799)
        IX  Foreign Service Grievance Board Regulations (Parts 
                900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Board for International Broadcasting (Parts 1300--
                1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

[[Page 1256]]

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs and Section 202 Direct Loan Program) 
                (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--999)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Part 1001)

[[Page 1257]]

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--799)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Bureau of Alcohol, Tobacco and Firearms, Department of 
                the Treasury (Parts 1--299)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--199)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Programs, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Pension and Welfare Benefits Administration, 
                Department of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)

[[Page 1258]]

       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
        VI  Bureau of Mines, Department of the Interior (Parts 
                600--699)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)
      XXIX  Presidential Commission on the Assignment of Women in 
                the Armed Forces (Part 2900)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Transportation (Parts 1--
                199)

[[Page 1259]]

        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799)
        XI  National Institute for Literacy (Parts 1100-1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
       XIV  Assassination Records Review Board (Parts 1400-1499)

[[Page 1260]]

             Title 37--Patents, Trademarks, and Copyrights

         I  Patent and Trademark Office, Department of Commerce 
                (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--799)
         V  Council on Environmental Quality (Parts 1500--1599)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans 
                Employment and Training, Department of Labor 
                (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       301  Travel Allowances (Parts 301-1--301-99)
       302  Relocation Allowances (Parts 302-1--302-99)

[[Page 1261]]

       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Parts 303-1--303-2)
       304  Payment from a Non-Federal Source for Travel Expenses 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Health Care Financing Administration, Department of 
                Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10005)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services, 
                General Administration (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)

[[Page 1262]]

         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  ACTION (Parts 1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
      XXII  Christopher Columbus Quincentenary Jubilee Commission 
                (Parts 2200--2299)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)

[[Page 1263]]

        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  United States Information Agency (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)
        54  Defense Logistics Agency, Department of Defense (Part 
                5452)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)

[[Page 1264]]

       III  Federal Highway Administration, Department of 
                Transportation (Parts 300--399)
        IV  Coast Guard, Department of Transportation (Parts 400--
                499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            Acts Requiring Publication in the Federal Register
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR



[[Page 1265]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 1997)

                                                  CFR Title, Subtitle or
                     Agency                               Chapter

ACTION                                            45, XII
Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Commission on Intergovernmental          5, VII
     Relations
Advisory Committee on Federal Pay                 5, IV
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Finance and Management, Office of               7, XXX
  Food and Consumer Service                       7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Alaska Natural Gas Transportation System, Office  10, XV
     of the Federal Inspector
Alcohol, Tobacco and Firearms, Bureau of          27, I
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
Animal and Plant Health Inspection Service        7, III; 9, I

[[Page 1266]]

Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Arms Control and Disarmament Agency, United       22, VI
     States
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Assassination Records Review Board                36, XIV
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Board for International Broadcasting              22, XIII
Census Bureau                                     15, I
Central Intelligence Agency                       32, XIX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Christopher Columbus Quincentenary Jubilee        45, XXII
     Commission
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Commerce Department                               44, IV
  Census Bureau                                   15, I`
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Export Administration, Bureau of                15, VII
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office                     37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Customs Service, United States                    19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54

[[Page 1267]]

  Defense Mapping Agency                          32, I
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Mapping Agency                            32, I
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Enrichment Corporation, United States             10, XI
Environmental Protection Agency                   5, LIV; 40, I
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                25, III, LXXVII; 48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export Administration, Bureau of                  15, VII
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               4, II

[[Page 1268]]

Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II; 49, III
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Inspector for the Alaska Natural Gas      10, XV
     Transportation System, Office of
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Pay, Advisory Committee on                5, IV
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Property Management Regulations System    41, Subtitle C
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Finance and Management, Office of                 7, XXX
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Consumer Service                         7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I, II
General Services Administration                   5, LVII
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Property Management Regulations System  41, 101, 105
  Federal Travel Regulation System                41, Subtitle F
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Travel Allowances                               41, 301
Geological Survey                                 30, IV

[[Page 1269]]

Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Great Lakes Pilotage                              46, III
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Health Care Financing Administration            42, IV
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Health Care Financing Administration              42, IV
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Human Development Services, Office of             45, XIII
Immigration and Naturalization Service            8, I
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Information Agency, United States                 22, V
  Federal Acquisition Regulation                  48, 19
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Intergovernmental Relations, Advisory Commission  5, VII
     on
Interior Department
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  Mines, Bureau of                                30, VI
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A

[[Page 1270]]

  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, Agency for             22, II
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
  International Development, Agency for           22, II; 48, 7
  Overseas Private Investment Corporation         5, XXXIII; 22, VII
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             4, II
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration and Naturalization Service          8, I
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Relations and Cooperative      29, II
       Programs, Bureau of
  Labor-Management Programs, Office of            29, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Pension and Welfare Benefits Administration     29, XXV
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training, Office of    41, 61; 20, IX
       the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Relations and Cooperative        29, II
     Programs, Bureau of
Labor-Management Programs, Office of              29, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Management and Budget, Office of                  5, III, LXXVII; 48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Mines, Bureau of                                  30, VI
Minority Business Development Agency              15, XIV

[[Page 1271]]

Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National and Community Service, Corporation for   45, XXV
National Council on Disability                    34, XII
National Credit Union Administration              12, VII
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office                       37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension and Welfare Benefits Administration       29, XXV
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
   Fellowships
[[Page 1272]]

Presidential Commission on the Assignment of      32, XXIX
     Women in the Armed Forces
Presidential Documents                            3
Prisons, Bureau of                                28, V
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Depositor Protection Oversight Board       12, XV
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Coast Guard                                     33, I; 46, I; 49, IV
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II; 49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
Transportation, Office of                         7, XXXIII
Travel Allowances                                 41, 301
Treasury Department                               5, XXI; 17, IV
  Alcohol, Tobacco and Firearms, Bureau of        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I

[[Page 1273]]

  Customs Service, United States                  19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
United States Enrichment Corporation              10, XI
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training, Office of the  41, 61; 20, IX
     Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 1275]]

                                     

                                     



                          Redesignation Table I



------------------------------------------------------------------------
            Old part or section                  New part or section    
------------------------------------------------------------------------
                      Rural Development Regulation                      
                                                                        
------------------------------------------------------------------------
1709......................................  1703.                       
                                                                        
------------------------------------------------------------------------
                          Electric Regulations                          
                                                                        
------------------------------------------------------------------------
1710 Subparts A-B [Reserved...............  Removed.                    
1710 Subpart C............................  1714 Subpart D.             
1710.50...................................  1714.150.                   
1710.51...................................  1714.151.                   
1710.52...................................  1714.152.                   
1710.53...................................  1714.152.                   
1710.54...................................  1714.153.                   
1710.55...................................  1714.155.                   
Part 1711.................................  1721 Subpart A.             
1711.1....................................  1721.1.                     
1715 Subpart A [Reserved].................  Removed.                    
1715 Subpart B............................  1717 Subpart N.             
1715.20...................................  1717.650.                   
1715.21...................................  1717.651.                   
1715.22...................................  1717.652.                   
1715.23...................................  1715.653.                   
1715.24...................................  1717.654.                   
1715.25...................................  1717.655.                   
1715.26...................................  1717.656.                   
1715.27...................................  1717.657.                   
1715.28...................................  1717.658.                   
1729 Subpart A-B [Reserved]...............  Removed.                    
Part 1729 Subpart C.......................  Part 1724 Subpart E.        
1729.6....................................  1724.41.                    
1729.7-1729.9.............................  1724.42-1724.44.            
1729.10...................................  1724.45.                    
Part 1735.................................  Part 1726 Subpart G.        
1735.1....................................  1726.300.                   
Part 1736.................................  Part 1728.                  
                                                                        
------------------------------------------------------------------------
                          Telephone Regulations                         
                                                                        
------------------------------------------------------------------------
1745 Subpart A............................  1735 Subpart A.             
1745.1....................................  Removed.                    
1745.2....................................  1735.2.                     
1745.2(a).................................  1735.2(e).                  
1745.2(b).................................  1735.2(g).                  
1745.2(c).................................  1735.2(j).                  
1745.2(d).................................  1735.2(m).                  
1745.2(e).................................  1735.2(s).                  
1745.2(f).................................  1735.2(u).                  
1745.2(g).................................  1735.2(v).                  
1745.3....................................  1735.3.                     
1745 Subpart B............................  1735 Subpart B.             
1745 Subpart C............................  1735 Subpart C.             
1745 Subpart D............................  1735 Subpart D.             
1745 Subpart E............................  1735 Subpart E.             
Part 1747.................................  1744 Subpart B.             
1747.1....................................  1744.20.                    
1747.2....................................  1744.21.                    
1747.10...................................  1744.30.                    
1747.20...................................  1744.40.                    
1747.30...................................  1744.50.                    
1749.1....................................  1737.1(a).                  
1749.2....................................  1737.2.                     
1749.2(a).................................  1737.2(b).                  
1749.2(b).................................  1737.2(c).                  
1749.2(c).................................  1737.2(e).                  
1749.2(d).................................  1737.2(h).                  
1749.2(e).................................  1737.2(i).                  
1749.2(f).................................  1737.2(j).                  
1749.2(g).................................  1737.2(k).                  
1749.2(h).................................  1737.2(p).                  
1749.2(i).................................  1737.2(r).                  
1749.3....................................  1737.3.                     
1749 Subpart B............................  1737 Subpart B.             
1749 Subpart C............................  1737 Subpart C.             
1749 Subpart D............................  1737 Subpart D.             
1749 Subpart E............................  1737 Subpart E.             
1750.1(a).................................  1735.1(b).                  
1750.1(b).................................  1735.1(c).                  
1750.2....................................  1735.1(d).                  
1750.3(a).................................  1735.2(a).                  
1750.3(b).................................  1735.2(b).                  
1750.3(c).................................  1735.2(c).                  
1750.3(d).................................  1735.2(d).                  
1750.3(e).................................  1735.2(e).                  
1750.3(f).................................  1735.2(f).                  
1750.3(g).................................  1735.2(g).                  
1750.3(h).................................  1735.2(h).                  
1750.3(i).................................  1735.2(i).                  
1750.3(j).................................  1735.2(k).                  
1750.3(k).................................  1735.2(l).                  
1750.3(l).................................  1735.2(m).                  
1750.3(m).................................  1735.2(n).                  
1750.3(n).................................  1735.2(o).                  
1750.3(o).................................  1735.2(p).                  
1750.3(p).................................  1735.2(q).                  
1750.3(q).................................  1735.2(r).                  
1750.3(r).................................  1735.2(s).                  
1750.3(s).................................  1735.2(t).                  
1750.3(t).................................  1735.2(u).                  
1750.4....................................  1735.3.                     
1750 Subpart B............................  1735 Subpart F.             
1750.10...................................  1735.60.                    
1750.11...................................  1735.61.                    
1750.12...................................  1735.62.                    
1750 Subpart C............................  1735 Subpart G.             
1750.20...................................  1735.70.                    
1750.21...................................  1735.71.                    
1750.22...................................  1735.72.                    
1750.23...................................  1735.73.                    
1750.24...................................  1735.74.                    
1750.25...................................  1735.75.                    
1750.26...................................  1735.76.                    
1750.27...................................  1735.77.                    
1750 Subpart D............................  1735 Subpart H.             
1750.30...................................  1735.80.                    
1750 Subpart E............................  1735 Subpart I.             
1750.40...................................  1735.90.                    
1750.41...................................  1735.91.                    
1750.42...................................  1735.92.                    
1750.43...................................  1735.93.                    

[[Page 1276]]

                                                                        
1750.44...................................  1735.94.                    
1750.45...................................  1735.95.                    
1750 Subpart F............................  1735 Subpart J.             
1750.50...................................  1735.100.                   
1750.51...................................  1735.101.                   
1751.1(a).................................  1737.1(b).                  
1751.1(b).................................  1737.1(c).                  
1751.2(a).................................  1737.2(a).                  
1751.2(b).................................  1737.2(b).                  
1751.2(c).................................  1737.2(d).                  
1751.2(d).................................  1737.2(e).                  
1751.2(e).................................  1737.2(f).                  
1751.2(f).................................  1737.2(g).                  
1751.2(g).................................  1737.2(j).                  
1751.2(h).................................  1737.2(k).                  
1751.2(i).................................  1737.2(l).                  
1751.2(j).................................  1737.2(m).                  
1751.2(k).................................  1737.2(n).                  
1751.2(l).................................  1737.2(o).                  
1751.2(m).................................  1737.2(p).                  
1751.2(n).................................  1737.2(q).                  
1751.2(o).................................  1737.2(s).                  
1751 Subpart B............................  1737 Subpart F.             
1751.10...................................  1737.50.                    
1751.11...................................  1737.51.                    
1751.12-1751.19...........................  1737.52-1737.59.            
1751 Subpart C............................  1737 Subpart G.             
1751.20...................................  1737.60.                    
1751.21...................................  1737.61.                    
1751.22-1751.29...........................  1737.62-1737.69.            
1751 Subpart D............................  1737 Subpart H.             
1751.30...................................  1737.70.                    
1751.31-1751.39...........................  1737.71-1737.79.            
1751 Subpart E............................  1737 Subpart I.             
1751.40...................................  1737.80.                    
1751.41-1751.49...........................  1737.81-1737.89.            
1751 Subpart F............................  1737 Subpart J.             
1751.50...................................  1737.90.                    
1751.51...................................  1737.91.                    
1751.52...................................  1737.92.                    
1751.53-1751.59...........................  1737.93-1737.99.            
1751 Subpart G............................  1737 Subpart K.             
1751.60...................................  1737.100.                   
1751.61...................................  1737.101.                   
1751.62-1751.69...........................  1737.102-1737.109.          
Part 1754.................................  1744 Subpart C.             
1754.1....................................  1744.60.                    
1754.2....................................  1744.61.                    
1754.3....................................  1744.62.                    
1754.4....................................  1744.63.                    
1754.5....................................  1744.64.                    
1754.6....................................  1744.65.                    
1754.7....................................  1744.66.                    
1754.8....................................  1744.67.                    
1754.9....................................  1744.68.                    
1762.01...................................  1755.93.                    
Part 1763.................................  1753 Subpart B.             
1763.1....................................  1753.15.                    
1763.1....................................  1753.15(a).                 
1763.2....................................  1753.15(b).                 
1763.3....................................  1753.15(c).                 
1763.4....................................  1753.15(d).                 
1763.5....................................  1753.15(e).                 
Subpart B.................................  1753.16.                    
1763.20...................................  1753.16(a).                 
1763.21...................................  1753.16(b).                 
1763.22...................................  1753.16(c).                 
Subpart C.................................  1753.17.                    
1763.40...................................  1753.17(a).                 
1763.41...................................  1753.17(b).                 
1763.42...................................  1753.17(c).                 
1763.43...................................  1753.17(d).                 
1763.44...................................  1753.17(e).                 
1763.45...................................  1753.17(f).                 
1763.46-1763.99...........................  1753.18-1753.20.            
1765.1....................................  1753.1.                     
1765.2....................................  1753.2.                     
1765.3....................................  1753.3.                     
1765.4....................................  1753.4.                     
1765.5....................................  1753.5.                     
1765.6....................................  1753.6.                     
1765.7....................................  1753.7.                     
1765.8....................................  1753.8.                     
1765.9....................................  1753.9.                     
1765.10...................................  1753.10.                    
1765.11...................................  1753.11.                    
1765.12-1765.14...........................  1753.12-1753.14.            
1765 Subpart B............................  1753 Subpart D.             
1765.15...................................  1753.25.                    
1765.16...................................  1753.26.                    
1765.17...................................  1753.27.                    
1765.18...................................  1753.28.                    
1765.19...................................  1753.29.                    
1765.20...................................  1753.30.                    
1765.21-1765.25...........................  1753.31-1753.35.            
1765 Subpart C............................  1753 Subpart E.             
1765.26...................................  1753.36.                    
1765.27...................................  1753.37.                    
1765.28...................................  1753.38.                    
1765.29...................................  1753.39.                    
1765.30-1765.35...........................  1753.40-1753.45.            
1765 Subpart D............................  1753 Subpart F.             
1765.36...................................  1753.46.                    
1765.37...................................  1753.47.                    
1765.38...................................  1753.48.                    
1765.39...................................  1753.49.                    
1765.40-1765.45...........................  1753.50-1753.55.            
1765 Subpart E............................  1753 Subpart G.             
1765.46...................................  1753.56.                    
1765.47...................................  1753.57.                    
1765.48...................................  1753.58.                    
1765.49-1765.55...........................  1753.59-1753.65.            
1765 Subpart F............................  1753 Subpart H.             
1765.56...................................  1753.66.                    
1765.57...................................  1753.67.                    
1765.58...................................  1753.68.                    
1765.59-1765.65...........................  1753.69-1753.75.            
1765 Subpart G............................  1753 Subpart I.             
1765.66...................................  1753.76.                    
1765.67...................................  1753.77.                    
1765.68...................................  1753.78.                    
1765.69...................................  1753.79.                    
1765.70...................................  1753.80.                    
1765.71...................................  1753.81.                    
1765.72...................................  1753.82.                    
1765.73-1765.80...........................  1753.83-1753.90.            
1765 Subpart H............................  1753 Subpart J.             
1765.81...................................  1753.91.                    
1765.82...................................  1753.91.                    
1765.83...................................  1753.93.                    
1765.84...................................  1753.94.                    
1765.85...................................  1753.95.                    
1765.86...................................  1753.96.                    
1765.87-1765.99...........................  1753.97-1753.99.            
Part 1772.................................  Part 1755.                  
1772.3....................................  1755.3.                     
1772.97...................................  1755.97.                    
1772.98...................................  1755.98.                    
1772.370..................................  1755.370.                   
1772.397..................................  1755.397.                   
1789......................................  1773.                       
------------------------------------------------------------------------


[[Page 1277]]

                                     

                                     



                         Redesignation Table II



------------------------------------------------------------------------
            Old part or section                  New part or section    
------------------------------------------------------------------------
1784......................................  1786 subpart C              
1784.1....................................  1786.50                     
1784.2....................................  1786.51                     
1784.3....................................  1786.52                     
1784.4....................................  1786.53                     
1784.5....................................  1786.54                     
1784.6....................................  1786.55                     
1784.7....................................  1786.56                     
1784.8....................................  1786.57                     
1784.9....................................  1786.58                     
1784.10...................................  1786.59                     
1784.11...................................  1786.60                     
1784.12...................................  1786.61                     
1786......................................  1786 subpart B              
1786.1....................................  1786.25                     
1786.2....................................  1786.26                     
1786.3....................................  1786.27                     
1786.4....................................  1786.28                     
1786.5....................................  1786.29                     
1786.6....................................  1786.30                     
1786.7....................................  1786.31                     
1786.8....................................  1786.32                     
1786.9....................................  1786.33                     
1786.10...................................  1786.34                     
1786.11...................................  1786.35                     
1786.12...................................  1786.36                     
1786.13...................................  1786.37                     
1786.14...................................  1786.38                     
1787......................................  1786 subpart D              
1787.1....................................  1786.75                     
1787.2....................................  1786.76                     
1787.3....................................  1786.77                     
1787.4....................................  1786.78                     
1787.5....................................  1786.79                     
1787.6....................................  1786.80                     
1787.7....................................  1786.81                     
1787.8....................................  1786.82                     
1787.9....................................  1786.83                     
1787.10...................................  1786.84                     
1787.11...................................  1786.85                     
1787.12...................................  1786.86                     
------------------------------------------------------------------------


[[Page 1279]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
1986, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 1986, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, and 1973-1985'' published in seven 
separate volumes.

                                  1986

7 CFR
                                                                   51 FR
                                                                    Page
Chapter XVII
1702  Revised......................................................39739
1736  Authority citation revised...................................45451
1736.97  Table amended.............................................45451
1747  Added........................................................32430
1772  Authority citation revised...................................19824
1772.97  Table amended.............................................19824
1784  Added; interim...............................................46999
1788  Added........................................................25855
1789  Added.........................................................2790
Chapter XVIII
1806  Authority citation revised...................................17921
1806.2  (d)(1)(iii) revised........................................17921
1809  Authority citation revised...................................13439
1809.1  Introductory text, (b), and (c) revised; interim...........13440
1809.2  Revised; interim...........................................13440
1809.3  (b)(1)(i) and (vi) and (c) revised; interim................13440
1809.4  Heading, introductory text, (a) introductory text, 
        (b)(1)(i), (c) introductory text and (1), (d), and (e) 
        revised; interim...........................................13440
1809.8  Revised; interim...........................................13441
1822  Authority citation revised..............................4135, 6732
    Technical correction...........................................17922
1822.21  Amendment confirmed........................................6393
1822.268  (a) revised...............................................6733
1822.270  (c) and (d) amended.......................................6733
1822.275  (c) revised...............................................4135
1823  Technical correction.........................................17922
1823.251--1823.289 (Subpart I)  Authority citation revised..........6733
1823.256  (d) revised...............................................6733
1823.401--1823.418 (Subpart N)  Authority citation revised..........6733
1823.401  Amended...................................................6733
1823.406  Amended...................................................6733
1864.1  Revised; eff. 1-20-87......................................45432
1872  Removed.......................................................4135
1872.23  Introductory text revision confirmed.......................6393

                                  1987

7 CFR
                                                                   52 FR
                                                                    Page
Chapter XVI
1610.5  Existing text designated as (a); (b) added.................43553
Chapter XVII
1736  Authority citation revised...................................22289
1736.97  (b) table revised.........................................22289
    (b) table amended..............................................48799
1772  Authority citation revised....................................1182
1772.97  Table amended..............................................1182
1786  Added.........................................................1436
1787  Added; interim................................................2395
Chapter XVIII
1804  Removed......................................................19283

[[Page 1280]]

1806.25  (a)(2) introductory text revised...........................8002
1807.1  (a) revised................................................26132
1822  Authority citation revised...................................19283
1822.21--1822.26 (Subpart B)  Exhibit A amended.....................8002
1822.267  (l)(2) introductory text amended..........................8002
    (e) revised....................................................19283
1822.271  (b)(3)(v) revised........................................19283
1863.1  Revised....................................................26132
1864.2  (a)(5) revised.............................................26132
1866.3  (b)(1) introductory text and (2) introductory text revised
                                                                   26132

                                  1988

7 CFR
                                                                   53 FR
                                                                    Page
Chapter XVI
1610  Authority citation revised....................................1744
    Interest rate determination....................................42938
    Interest rate determination corrected..........................44173
1610.5  (b) removed; (a) designation removed; interim...............6970
1610.9  Added; interim..............................................1744
1610.10  Added; interim.............................................6970
    Revised........................................................36783
    (b)(1) corrected...............................................39014
1610.11  Added; interim.............................................6971
    Revised........................................................36784
Chapter XVII
1710  Added........................................................40719
1736  Authority citation revised...................................39229
1736.97  (b) amended........................................39229, 44176
1762  Added........................................................15546
1786  Revised; interim..............................................2469
1787.3  Amended....................................................37733
1787.6  (a)(2) revised; (c) introductory text amended; (c) (4), 
        (5), and (6) removed; (c) (7), (8) and (9) redesignated as 
        (c) (4), (5), and (6); new (e) added.......................37733
1787.9  (a)(6) revised.............................................37733
Chapter XVIII
1809  Authority citation added.....................................35669
1809.1--1809.8 (Subpart A)  Authority citation removed.............35669
1809.1  Introductory text and (b) revised; interim.................35669
1809.4  (b) revised; interim.......................................35669
1823  Authority citation revised...................................26588
1823.275  (b)(1)(ii) revised.......................................26588
1823.405  Revised...................................................7332
1864  Authority citation revised...................................26588
1864.1  Revised....................................................13099
1864.2  (d), (f), (h)(2), (j), and (l) amended.....................13099
    (c), (f), and (j) amended......................................36955
1864.3  (b)(1)(ii) revised.........................................13099
1864.5  Amended....................................................36955
1864.7  (a) introductory text, (1)(ii), and (3) amended............13099
1864.8  Heading and introductory text amended......................13099
1864.9  Introductory text, (a) and (b) amended.....................13099
1864.10  (a) amended; (d)(1) introductory text revised.............13099
    (d)(1)(i) and (2) amended......................................36955
1864.12  (a) amended...............................................13099
    (b)(2) amended.................................................36955
1864.15  Heading, introductory text, (a) introductory text, (1), 
        and (3), (b)(1), and (c) introductory text and (1) amended
                                                                   13099
    (b)(1) revised.................................................26588
1864.16  Heading, introductory text and (b) amended................36955
1864.17  (a)(1) amended............................................13099
    (a) amended....................................................36955
1864.19  (b) amended...............................................13099
    (c) amended....................................................36955
1864  Exhibit B amended............................................36955

                                  1989

7 CFR
                                                                   54 FR
                                                                    Page
Chapter XV
1550  Added........................................................37784
1560  Added; interim................................................1327
Chapter XVI
1610  Interest rate determination..................................45729
    Interest rate determination tables corrected...................47861
1610.8  Revised....................................................21047
    Correctly revised..............................................43415

[[Page 1281]]

Chapter XVII
1700  Authority citation revised....................................6867
1700.3c  Added......................................................6867
1709  Added.........................................................6870
1715  Added........................................................27325
1735  Added.........................................................5926
1745  Added........................................................13351
1745.2  (g) corrected..............................................16194
1745.32  (b) and (i)(3) corrected..................................16194
1749  Added........................................................13356
1749.32  (b) corrected.............................................16194
1749.42  (a)(3) corrected..........................................16194
1750  Added........................................................14626
1754  Added........................................................12186
1763  Added.........................................................3984
1765  Added........................................................39267
    Technical correction...........................................41713
1772  Authority citation revised; section authority citations 
        removed....................................................20518
    Sectional authority citations removed..........................34141
1772.97  Table amended.............................................4756,
                                                            20518, 34141
1785  Authority citation revised...................................13669
1785.1--1785.17  Designated as (Subpart A).........................13669
1785.17  Correctly designated......................................17856
1785.66--1785.70 (Subpart B)  Added................................13669
1785.70  (a) correctly revised.....................................17703
Chapter XVIII
1806.1--1806.6 (Subpart A)  Exhibit B removed......................35869
1806.2  (b)(4) amended.............................................35869
1806.4  (a)(2) introductory text revised; (a)(2)(i) amended........35869
1806.1--1806.6 (Subpart A) Exhibit B  Removed......................35869
1807.1  (e) amended................................................14334
1809.1  (b) amended.................................................8523
1822.21--1822.26 (Subpart B) and Exhibit A  Removed.................6873
1822.271  (e) table amended........................................29330
1823  Authority citation added.....................................29330
    Authority citation revised.....................................39726
1823.51--1823.67 (Subpart B)  Removed..............................47195
1823.221--1823.238 (Subpart H)  Removed............................47196
1823.251--1823.289 (Subpart I)  Removed............................47196
1823.275  (b)(1)(ii) revised.......................................39726
1823.401--1823.418 (Subpart N)  Authority citation removed.........47196
1823.415  Amended..................................................47196
1823.416  Amended..................................................47196
1823.401--1823.418 (Subpart N)  Exhibit A amended...........29330, 47196
1864.19  (b) revised...............................................42799
1864  Exhibit B amendment at 53 FR 36955 correctly removed.........32953

                                  1990

7 CFR
                                                                   55 FR
                                                                    Page
Chapter XV
1530  Revised; interim.............................................41489
    Comment time extended; interim.................................47740
Chapter XVI
1610  Interest rate determinations.................................42555
1610.8  Revised....................................................39397
Chapter XVII
1700  Revised......................................................39596
    Authority citation revised.....................................53487
1700.2  (c)(2) revised.............................................53487
1700.21  Heading corrected.........................................42807
1700.32  Revised...................................................53487
1701  Removed......................................................39601
1702  Removed......................................................39601
1703  Redesignated from Part 1709..................................39394
    Nomenclature change............................................39397
1709  Redesignated as Part 1703....................................39394
1710  Heading removed..............................................39394
    Heading added..................................................39397
1710.50--1710.55 (Subpart C)  Redesignated as 1714.150--1714.155 
        (Subpart D)................................................39394
1711  Heading removed..............................................39395
1711.1  Redesignated as 1721.1.....................................39395
1712  Heading added................................................39397
1714  Heading added................................................39394
    Nomenclature change............................................39397
1714.150--1714.155 (Subpart D)  Redesignated from 1710.50--1710.55 
        (Subpart C)................................................39394
    Heading revised................................................49249
1715  Heading removed..............................................39394
1715.20--1715.28 (Subpart B)  Redesignated as 1717.650--1717.658 
        (Subpart N)................................................39394

[[Page 1282]]

1717  Added........................................................38646
    Nomenclature change............................................39397
    Subparts A, B, and C headings removed..........................49250
1717.301  (a) corrected............................................53100
1717.305  (b)(1) corrected.........................................53100
1717.306  (a) and (c) corrected....................................53100
1717.350--1717.356 (Subpart H)  Added..............................38653
1717.650--1717.658 (Subpart N)  Redesignated from 1715.20--1715.28 
        (Subpart B)................................................39394
    Appendix A added...............................................53488
1719  Heading added................................................39397
1721  Heading added................................................39394
    Nomenclature change............................................39397
1721.1  Redesignated from 1711.1...................................39395
1724  Heading added................................................39395
    Nomenclature change............................................39397
    Subpart A heading added........................................49250
    Subpart B heading added........................................49250
    Subpart C heading added........................................49250
    Subpart D heading added........................................49250
1724.41--1724.45 (Subpart E)  Redesignated from 1729.6--1729.10 
        (Subpart C)................................................39395
1724.45  (a)(1) revised............................................53487
1726  Heading added................................................39395
    Nomenclature change............................................39397
    Subpart A heading added........................................49250
    Subpart B heading added........................................49250
    Subpart C heading added........................................49250
    Subpart D heading added........................................49250
    Subpart E heading added........................................49250
    Subpart F heading added........................................49250
1726.300 (Subpart G)  Redesignated from 1735.1.....................39395
    Introductory text revised......................................53487
1728  Redesignated from Part 1736 and heading revised..............39395
    Nomenclature change............................................39397
1728.20  (a) amended...............................................53487
1729  Heading removed..............................................39395
1729.6--1729.10 (Subpart C)  Redesignated as 1724.41--1724.45 
        (Subpart E)................................................39395
1730  Heading added................................................39397
1735  Heading removed; new 1735 redesignated from Part 1745........39395
    Nomenclature change............................................39397
1735.1  Redesignated as 1726.300; new 1735.1(b) and (c) 
        redesignated from 1750.1(a) and (b) and new section 
        revised....................................................39395
    (a) corrected..................................................41170
1735.3  Redesignated from 1745.3...................................39395
1735.10--1735.22 (Subpart B)  Redesignated from 1745.10--1745.22 
        (Subpart B)................................................39395
1735.30--1735.32 (Subpart C)  Redesignated from 1745.30--1745.32 
        (Subpart C)................................................39395
1735.40--1735.47 (Subpart D)  Redesignated from 1745.40--1745.47 
        (Subpart D)................................................39395
1735.50--1735.52 (Subpart E)  Redesignated from 1745.50--1745.52 
        (Subpart E)................................................39395
1735.60--1735.62 (Subpart F)  Redesignated from 1750.10--1750.12 
        (Subpart B)................................................39395
1735.70--1735.77 (Subpart G)  Redesignated from 1750.20--1750.27 
        (Subpart C)................................................39395
1735.80 (Subpart H)  Redesignated from 1750.30 (Subpart D).........39395
1735.90--1735.95 (Subpart I)  Redesignated from 1750.40--1750.45 
        (Subpart E)................................................39395
1735.100--1735.101 (Subpart J)  Redesignated from 1750.50--1750.51 
        (Subpart F)................................................39395
1736  Redesignated as Part 1728 and heading revised................39395
1736.97  (b) amended................................................8909
1737  Heading redesignated from Part 1749 heading and revised......39396
    Nomenclature change............................................39397
1737.1--1737.3 (Subpart A)  Redesignated from 1749.1--1749.3 
        (Subpart A)................................................39396
1737.10--1737.11 (Subpart B)  Redesignated from 1749.10--1749.11 
        (Subpart B)................................................39396
1737.20--1737.22 (Subpart C)  Redesignated from 1749.20--1749.22 
        (Subpart C)................................................39396
    Table corrected................................................41170
1737.30--1737.32 (Subpart D)  Redesignated from 1749.30--1749.32 
        (Subpart D)................................................39396
1737.40--1737.42 (Subpart E)  Redesignated from 1749.40--1749.42 
        (Subpart E)................................................39396

[[Page 1283]]

1737.50--1737.51 (Subpart F)  Redesignated from 1751.10--1751.11 
        (Subpart B) and heading revised............................39396
1737.60--1737.61 (Subpart G)  Redesignated from 1751.20--1751.21 
        (Subpart C) and heading revised............................39396
1737.70 (Subpart H)  Redesignated from 1751.30 (Subpart D) and 
        heading....................................................39396
1737.80 (Subpart I)  Redesignated from 1751.40 (Subpart E).........39396
1737.90--1737.92 (Subpart J)  Redesignated from 1751.50--1751.52 
        (Subpart F) and heading revised............................39396
1737.100--1737.101 (Subpart K)  Redesignated from 1751.60--1751.61 
        (Subpart G) and heading revised............................39396
1739  Heading added................................................39397
1741  Heading added................................................39397
1744  Added........................................................39396
    Nomenclature change............................................39397
    Heading corrected..............................................42845
1744.20  Redesignated from 1747.1..................................39396
1744.21  Redesignated from 1747.2..................................39396
1744.30  Redesignated from 1747.10.................................39396
1744.40  Redesignated from 1747.20.................................39396
1744.50  Redesignated from 1747.30.................................39396
1744.60--1744.68 (Subpart C)  Redesignated from 1754.1--1754.9.....39396
1745 Redesignated as Part 1735.....................................39395
1745.1  Removed....................................................39395
    Technical correction...........................................41170
1745.2  Heading, introductory text and (a) through (g) 
        redesignated as 1735.2 heading, introductory text, (e), 
        (g), (j), (m), (s). (u) and (v)............................39395
1745.3  Redesignated as 1735.3.....................................39395
1745.10--1745.22 (Subpart B)  Redesignated as 1735.10--1735.22 
        (Subpart B)................................................39395
1745.30--1745.32 (Subpart C)  Redesignated as 1735.30--1735.32 
        (Subpart C)................................................39395
1745.40--1745.47 (Subpart D)  Redesignated as 1735.40--1735.47 
        (Subpart D)................................................39395
1745.50--1745.52 (Subpart E)  Redesignated as 1735.50--1735.52 
        (Subpart E)................................................39395
1746  Heading added................................................39397
1747  Removed in part..............................................39396
1747.1  Redesignated as 1744.20....................................39396
1747.2  Redesignated as 1744.21....................................39396
1747.10  Redesignated as 1744.30...................................39396
1747.20  Redesignated as 1744.40...................................39396
1747.30  Redesignated as 1744.50...................................39396
1748  Heading added................................................39397
1749  Heading redesignated as Part 1737 heading and revised........39396
    Table corrected................................................41170
1749.1--1749.3 (Subpart A)  Redesignated as 1737.1--1737.3 
        (Subpart A)................................................39396
1749.10--1749.11 (Subpart B)  Redesignated as 1737.10--1737.11 
        (Subpart B)................................................39396
1749.20--1749.22 (Subpart C)  Redesignated as 1737.20--1737.22 
        (Subpart C)................................................39396
1749.30--1749.32 (Subpart D)  Redesignated as 1737.30--1737.32 
        (Subpart D)................................................39396
1749.40--1749.42 (Subpart E)  Redesignated as 1737.40--1737.42 
        (Subpart E)................................................39396
1750  Removed in part..............................................39395
1750.1  (a) and (b) redesignated as 1735.1 (b) and (c).............39395
1750.2  Redesignated as 1735.1 (d).................................39395
1750.3  (a) through (d), (f), (h) through (k) and (m) through (q) 
        and (s) redesignated as 1735.2 (a) through (d), (f), (h), 
        (i), (k), (l), (n) through (r), (s), and (t)...............39395
1750.10--1750.12 (Subpart B)  Redesignated as 1735.60--1735.62 
        (Subpart F)................................................39395
1750.20--1750.27 (Subpart C)  Redesignated as 1735.70--1735.77 
        (Subpart G)................................................39395
1750.30 (Subpart D)  Redesignated as 1735.80 (Subpart H)...........39395

[[Page 1284]]

1750.40--1750.45 (Subpart E)  Redesignated as 1735.90--1735.95 
        (Subpart I)................................................39395
1750.50--1750.51 (Subpart F)  Redesignated as 1735.100--1735.101 
        (Subpart J)................................................39395
1751  Added.........................................................5440
    Removed in part................................................39396
    Heading added..................................................39397
    Heading corrected..............................................42845
1751.1  (a) and (b) redesignated as 1737.1 (b) and (c).............39396
1751.2  (a), (c), (e), (f), (i) through (l), (n), and (o) 
        redesignated as 1737.2 (a), (d), (f), (g), (l) through 
        (o), (q), and (s)..........................................39396
1751.10--1751.11 (Subpart B)  Redesignated as 1737.50--1737.51 
        (Subpart F) and heading revised............................39396
1751.20--1751.21 (Subpart C)  Redesignated as 1737.60--1737.61 
        (Subpart G) and heading revised............................39396
1751.30 (Subpart D)  Redesignated as 1737.70 (Subpart H) and 
        heading revised............................................39396
1751.40 (Subpart E)  Redesignated as 1737.80 (Subpart I)...........39396
1751.50--1751.52 (Subpart F)  Redesignated as 1737.90--1737.92 
        (Subpart J) and heading revised............................39396
1751.60--1751.61 (Subpart G)  Redesignated as 1737.100--1737.101 
        (Subpart K) and heading revised............................39396
1753  Heading redesignated from Part 1765 heading and revised......39396
    Nomenclature change............................................39397
1753.1--1753.11 (Subpart A)  Redesignated from 1765.1--1765.11 
        (Subpart A)................................................39396
1753.15--1753.17 (Subpart B)  Heading revised......................39397
1753.25--1753.30 (Subpart D)  Redesignated from 1765.15--1765.20 
        (Subpart B)................................................39397
1753.36--1753.39 (Subpart E)  Redesignated from 1765.26--1765.29 
        (Subpart C)................................................39397
1753.46--1753.49 (Subpart F)  Redesignated from 1765.36--1765.39 
        (Subpart D)................................................39397
1753.47  (b)(5) revised............................................53488
1753.56--1753.58 (Subpart G)  Redesignated from 1765.46--1765.48 
        (Subpart E)................................................39397
1753.66--1753.68 (Subpart H)  Redesignated from 1765.56--1765.58 
        (Subpart F)................................................39397
1753.76--1753.82 (Subpart I)  Redesignated from 1765.66--1765.72 
        (Subpart G)................................................39397
1753.81  (a) revised...............................................53488
1753.91--1753.96 (Subpart J)  Redesignated from 1765.81--1765.86 
        (Subpart H)................................................39397
1753  Appendixes A through F redesignated from part 1765 
        appendixes A through F.....................................39396
1754  Removed in part..............................................39396
1754.1--1754.9  Redesignated as 1744.60--1744.68 (Subpart C).......39396
1755  Nomenclature change..........................................39397
1755.3  Redesignated from 1772.3...................................39397
1755.93  Redesignated from 1762.01.................................39397
1755.97  Redesignated from 1772.97.................................39397
1755.98  Redesignated from 1772.98.................................39397
1755.370  Redesignated from 1772.370...............................39397
1755.397  Redesignated from 1772.397...............................39397
1757  Heading added................................................39397
1762  Heading removed..............................................39397
1762.01  Table amended.........................................133, 2510
    Redesignated as 1755.93........................................39397
1763  Removed in part..............................................39396
1763.1  Heading, (a) through (c), (d)(1) and (2), and (e) 
        redesignated as 1753.15 heading, (a)(1) through (3), 
        (4)(i) and (ii) and (5)....................................39397
1763.2  Introductory text and (a) through (m) redesignated as 
        1753.15 (b) introductory text and (1) through (13).........39397
1763.3  Redesignated as 1753.15 (c)................................39397
1763.4  (a) and (b) redesignated as 1753.15 (d)(1) and (2).........39397
1763.5  (a) and (b) redesignated as 1753.15 (e)(1) and (2).........39397

[[Page 1285]]

1763.20--1763.22 (Subpart B)  Heading redesignated as 1753.16 
        heading....................................................39397
1763.20  Redesignated as 1753.16 (a)...............................39397
1763.21  (a) through (e) redesignated as 1753.16 (b)(1) through 
        (5)........................................................39397
1763.22  (a) through (c) redesignated as 1753.16 (c)(1) through 
        (3)........................................................39397
1763.40--1763.45 (Subpart C)  Redesignated as 1753.17 heading......39397
1763.40  (a) and (b) redesignated as 1753.17 (a)(1) and (2)........39397
1763.41  (a) introductory text, (1) and (2), (i) through (iv) and 
        (b) redesignated as 1753.17 (b)(1) introductory text, (i), 
        (ii), and (A) through (D) and (b)(2).......................39397
1763.42  Redesignated as 1753.17 (c)...............................39397
1763.43  (a) and (b) redesignated as 1753.17 (d)(1) and (2)........39397
1763.44  (a) and (b) redesignated as 1753.17 (e)(1) and (2)........39397
1763.45  (a) through (d) redesignated as 1753.17 (f)(1) through 
        (4)........................................................39397
1765  Heading redesignated as Part 1753 heading revised............39396
1765.1--1765.11 (Subpart A)  Redesignated as 1753.1--1753.11 
        (Subpart A)................................................39396
1765.15--1765.20 (Subpart B)  Redesignated as 1753.25--1753.30 
        (Subpart D)................................................39397
1765.26--1765.29 (Subpart C)  Redesignated as 1753.36--1753.39 
        (Subpart E)................................................39397
1765.36--1765.39 (Subpart D)  Redesignated as 1753.46--1753.49 
        (Subpart F)................................................39397
1765.46--1765.48 (Subpart E)  Added.................................3572
    Redesignated as 1753.56--1753.58 (Subpart G)...................39397
1765.56--1765.58 (Subpart F)  Redesignated as 1753.66--1753.68 
        (Subpart H)................................................39397
1765.66--1765.72 (Subpart G)  Added.................................3573
    Redesignated as 1753.76--1753.82 (Subpart I)...................39397
1765.81--1765.86 (Subpart H)  Added.................................3574
    Redesignated as 1753.91--1753.96 (Subpart J)...................39397
1765.86  Correctly designated......................................41170
1765  Appendix E added..............................................3576
    Appendixes A through F redesignated as part 1753 appendixes A 
through F..........................................................39396
1767  Heading added................................................49250
1770  Added.........................................................3388
1770.15  Table corrected...........................................17352
    Table amended..................................................53488
1772  Redesignated as Part 1755 and heading revised................39397
1772.97  Table amended.............................................42183
1772.98  Added......................................................1792
    Table amended...................................................7881
1772.370  Added.....................................................1792
    (a) corrected...................................................3685
    Technical correction............................................7867
1772.397  Added.....................................................7881
1773  Redesignated from Part 1789 and nomenclature change..........39397
1784  Removed......................................................49250
1784.1--1784.12  Redesignated as 1786.50--1786.61 (Subpart C); 
        heading added..............................................49250
1785  Heading revised..............................................39397
1786  Authority citation revised....................................1144
    Revised.........................................................1145
    Heading revised; nomenclature changes..........................49250
    Subpart A heading added........................................49250
1786.1--1786.14  Redesignated as 1786.25--1786.38 (Subpart B); 
        heading added..............................................49250
1786.3  (a) amended................................................35426
1786.4  (a)(2), (3) and (f)(2) revised; (a)(4) removed.............35426
1786.5  (d) revised................................................35427
1786.25--1786.38 (Subpart B)  Redesignated from 1786.1--1786.14; 
        heading added..............................................49250
1786.30  (a) amended...............................................49250
1786.50--1786.61 (Subpart C)  Redesignated from 1784.1--1784.12; 
        heading added..............................................49250
1786.75--1786.86 (Subpart D)  Redesignated from 1787.1--1787.12; 
        heading added..............................................49250
1786.80  (a) introductory text amended.............................49250
1787  Removed......................................................49250

[[Page 1286]]

1787.1--1787.12  Redesignated as 1786.75--1786.86 (Subpart D); 
        heading added..............................................49250
1789  Redesignated as Part 1773 and nomenclature change............39397
1794  Heading revised..............................................39397
Chapter XVIII
1809.1  Regulation at 53 FR 35669 confirmed........................21524
1809.4  Regulation at 53 FR 35669 confirmed........................21524
1822.232  (h) and (i) revised......................................26641
1822.233  (a)(1) amended...........................................26641
1823.401--1823.418 (Supbart N)  Exhibit A nomenclature change......13503

                                  1991

7 CFR
                                                                   56 FR
                                                                    Page
Chapter XV
1530.102  (b) and (f) revised......................................30863
1530.103  (g) revised..............................................30863
1530.105  (a) and (b) revised......................................30863
1530.106  (b) and (d) revised......................................30863
1530.107  (b) revised..............................................30863
1530.109  (a) and (d) revised......................................30864
1530.110  Revised..................................................30864
1530.202  (b) revised..............................................30864
1530.203  (g) revised..............................................30865
1530.204  (b) revised..............................................30865
1530.205  (a) and (b) revised......................................30865
1530.206  (b) revised..............................................30865
1530.208  (a) revised..............................................30865
1530.209  (a) and (b) revised......................................30866
1530.303  (g) revised..............................................30866
1530.306  (b) revised..............................................30866
1530.307  Revised..................................................30866
1530.309  (a) and (b) revised......................................30866
1570  Added; interim...............................................42223
Chapter XVI
1600  Added........................................................49134
1600.1--1600.8  Undesignated center heading corrected..............56275
1610  Authority citation revised...................................26596
    Interest rate determination....................................56461
1610.5  Revised....................................................26596
1610.6  Revised....................................................26596
1610.9  Revised....................................................26596
Chapter XVII
1700  Authority citation revised....................................2671
1700.23  Revised....................................................2671
1700.30  Revised...................................................25349
1712  Added; interim...............................................42461
1712.65  (a)(2) heading corrected..................................47832
1712.73  (a) corrected.............................................47832
1712  Appendix A corrected.........................................47832
    Appendix A corrected...........................................55205
1717.650--1717.658 (Subpart N)  Appendix A corrected.................558
1719  Added; interim...............................................42476
1728.97  (b) table amended..........................................1563
1735.2  Amended....................................................26596
1735.10  Amended...................................................26597
1735.17  (b) removed; (c) and (d) redesignated as (b) and (c); new 
        (b)(1) revised.............................................26597
1735.22  (f) and (g) revised.......................................26597
1735.30  (a)(2) revised............................................26597
1735.32  (a) revised; (d) amended..................................26597
1735.42  Removed...................................................26598
1735.43  Revised...................................................26598
1735.47  Revised...................................................26598
1735.51  (a)(1) revised............................................26598
1737.2  Amended....................................................26598
1737.20  Removed...................................................26598
1737.21  (b) amended; (c) added....................................26598
1737.22  Introductory text revised; (a)(17), (18) and (19) added; 
        (b)(5) redesignated as (b)(10); new (b)(5) through (9) 
        added......................................................26599
1737.41  (b) revised; OMB number...................................26599
    (b)(1) corrected...............................................42524
1737.70  (d) through (g) redesignated as (g) through (j); (a) and 
        new (g) revised; (b) and new (h) amended; new (d), (e), 
        (f), (k) and (l) added.....................................26599
1737.80  (a) revised...............................................26600
1737.90  (a)(4) and (8) removed; (a)(5) through (7) redesignated 
        as (a)(4) through (6)......................................26600
1739  Added; interim...............................................42479
1739.71  (c) corrected.............................................55205
1739  Appendixes A, B and F corrected..............................47832
    Appendix A corrected...........................................55205
1744.66  (b)(4)(iv) revised........................................26600
1746  Added; interim...............................................42492
1755.93  Table amended..............................................1484
1773  Revised......................................................63360
1786  Authority citation added.....................................37268

[[Page 1287]]

1786.95--1786.106 (Subpart E)  Added...............................37268
Chapter XVIII
1806.2  (b)(5) revised..............................................6945
1806.3  (c)(1)(iv) revised..........................................6945
1806.6  Introductory text revised...................................6945
1806.25  (c)(4) added...............................................6945
1806.28  Added......................................................6946
1807  Authority citation revised....................................6946
    Removed; eff. 1-30-92..........................................67471
1807.2  (f)(3) revised..............................................6946
1810  Authority citation added.....................................11503
1810.1--1810.2 (SubpartA)  Heading amended.........................11503
1810.1  Revised....................................................11503
1810.2  Authority citation removed.................................11503
1822  Authority citation revised....................................2202
    Authority citation revised.....................................67471
1822.231--1822.245 (Subpart F)  Removed.............................2202
1822.270  (b) revised; eff.1-30-92.................................67472
1822.272  Revised...................................................2202
1822.274  (a), (b) and (c)(2) revised; eff. 1-30-92................67472
1822.277  Revised; eff. 1-30-92....................................67472
1822.278  (g) revised; eff. 1-30-92................................67472
1823.414  (a)(1) introductory text and (2) revised; (a)(1)(i) 
        amended; eff. 1-30-92......................................67472
1823.401--1823.418 (Subpart N)  Exhibit A amended; eff. 1-30-92....67472
1864  Removed......................................................10147
1890t  Removed; eff. 1-30-92.......................................67472

                                  1992

7 CFR
                                                                   57 FR
                                                                    Page
Chapter XV
1530.205  Heading corrected..........................................175
1530.206  (b) correctly designated...................................175
Chapter XVII
1700  Authority citation revised....................................6285
1700.1--1700.9 (Subpart A)  Revised.................................6285
1700.24  Revised....................................................6290
1700.25  Revised....................................................6290
1703  Authority citation revised...................................44317
1703.10--1703.66 (Subpart B)  Revised..............................44317
1710  Added.........................................................1053
1710.2  (a) corrected...............................................4513
1710.6  (a) introductory text and (5) corrected.....................4513
1710.101  (c) corrected.............................................4513
1710.102  Added.....................................................2832
    Technical correction............................................5931
1710.104  (b)(2) corrected..........................................4513
1710.105  (c) corrected.............................................4513
1710.112  (b)(3) and (8) corrected..................................4513
1710.114  (b)(1) corrected..........................................4513
1710.204  (a) corrected.............................................4513
1710.250  (e) corrected.............................................4513
1710.251  (b) and (c) introductory text corrected...................4513
Chapter XVIII
1806.4  (b)(1) amended.............................................36590
1806.6  (a)(1)(v) and (c)(2) amended...............................36590
1807  Removal at 56 FR 67471 effective date delayed to 3-31-92......3276
1822.270  Regulation at 56 FR 67472 effective date delayed to 3-
        31-92.......................................................3276
1822.277  Regulation at 56 FR 67472 effective date delayed to 3-
        31-92.......................................................3276
1822.278  Regulation at 56 FR 67472 effective date delayed to 3-
        31-92.......................................................3276
1823.414  Regulation at 56 FR 67472 effective date delayed to 3-
        31-92.......................................................3276
1823.401--1823.418 (Subpart N)  Exhibit A regulation at 56 FR 
        67472 effective date delayed to 3-31-92.....................3276
1863  Removed......................................................36590
1866  Removed........................................................774
1890t  Removal at 56 FR 67472 effective date delayed to 3-31-92.....3276

[[Page 1288]]

                                  1993

7 CFR
                                                                   58 FR
                                                                    Page
Chapter XV
1540.40--1540.45 (Subpart C)  Added; interim.......................16104
Chapter XVI
1610.1  Amended; interim...........................................66252
1610.2  Redesignated as 1610.3; new 1610.2 added; interim..........66252
1610.3  Redesignated as 1610.4; new 1610.3 redesignated from 
        1610.2; interim............................................66252
1610.4  Redesignated as 1610.5; new 1610.4 redesignated from 
        1610.3 and revised; interim................................66252
1610.5  Redesignated as 1610.6; new 1610.5 redesignated from 
        1610.4; interim............................................66252
1610.6  Removed; new 1610.6 redesignated from 1610.5 and revised; 
        interim....................................................66252
1610.11  Revised; interim..........................................66253
Chapter XVII
1703  Authority citation revised...................................11512
    Extension of application deadline.......................13195, 67306
1703 (Subpart C)  Heading added....................................21639
1703.100--1703.140 (Subpart D)  Added..............................11512
1703.300--1703.313 (Subpart E)  Added..............................21639
1710.1  (b)(1), (2) and (c) revised; interim.......................66262
1710.2  Amended; interim...........................................66262
1710.3  Revised; interim...........................................66263
1710.6  (a) introductory text and (b) revised; interim.............66263
1710.50  Revised; interim..........................................66263
1710.51  Revised; interim..........................................66264
1710.100  Revised; interim.........................................66264
1710.101  (c) and (d) redesignated as (f) and (g) and revised; new 
        (c), (d) and (e) added; interim............................66264
1710.102  (a) and (b) revised; (d) removed; interim................66264
1710.104  (a) revised; (c) removed; interim........................66264
1710.105  (a) revised; interim.....................................66265
1710.106  (a) introductory text and (c) revised; (a)(6) added; 
        interim....................................................66265
1710.109  (c) revised; interim.....................................66265
1710.110  (a), (b) and (c) heading revised; (d) added; interim.....66265
1710.115  Revised; interim.........................................66265
1714  Revised; interim.............................................66266
1717.850--1717.859 (Subpart R)  Added..............................53843
1717.900--1717.903 (Subpart S)  Added..............................53851
1728.97  (b) amended...............................................41398
1728.201  Added....................................................41398
1728.202  Added....................................................41406
1735  Authority citation revised...................................66253
1735.2  Amended; interim...........................................66253
1735.10  Revised; interim..........................................66253
1735.13  (c) amended; (c)(i), (ii) and (iii) redesignated as 
        (c)(1), (2) and (3); (d) added; interim....................66253
1735.14  Revised; interim..........................................66253
1735.17  (a) and (b) revised; (c) redesignated as (d); new (c) 
        added; interim.............................................66253
1735.20  (c) revised; interim......................................66254
1735.21  (a) revised; interim......................................66254
1735.22  (f) revised; interim......................................66254
1735.30  Revised; interim..........................................66254
1735.31  Revised; interim..........................................66255
1735.32  (a) revised; (b) through (k) redesignated as (c) through 
        (l); new (b) added; interim................................66255
    (k) amended; interim...........................................66256
1735.74  (a)(14) redesignated as (a)(15); new (a)(14) added; 
        interim....................................................66256
1737  Authority citation revised...................................66256
1737.2  Amended; interim...........................................66256
1737.11  (h) revised; (i) added; interim...........................66256
1737.22  (a)(20) added; interim....................................66256
1737.32  (a), (f)(1)(viii)(A) and (B) amended; (f)(i)(viii)(C) 
        revised; interim...........................................66256
1737.50  (a)(4) removed; (a)(5) redesignated as (a)(6); new (a)(5) 
        added; interim.............................................66256
1737.70  (d) revised; interim......................................66256
1737.71  Added; interim............................................66257
1744  Authority citation revised...................................52641
1744.61  (h) through (l) and (m) redesignated as (i) through (m) 
        and (o); new (h) and (n) added; interim....................66257

[[Page 1289]]

1744.67  (a) introductory text, (1) and (2) introductory text 
        revised; (e) added; interim................................66257
1744.68  (a) revised; interim......................................66257
1744.200--1744.210 (Subpart E)  Added..............................52642
1751  Added; interim...............................................66257
1753  Authority citation revised...................................66259
1753.2  Amended; interim...........................................66259
1753.3  (a) introductory text revised; (a)(4) added; interim.......66259
1753.15  (b)(3) through (10) and (13) removed; (b)(11) and (12) 
        redesignated as (b)(3) and (4) and revised; interim........66259
1753.66  (d) revised; interim......................................66259
1755  Authority citation revised............................29328, 29338
1755.97  Table amended.................29328, 29338, 30938, 41410, 61004
1755.98  Heading and text revised..................................41410
1755.390  Added....................................................29338
    appendix A corrected...........................................32749
1755.522  Added....................................................30938
    appendix D corrected...........................................36252
1755.860  Added....................................................61004
1755.890  Added....................................................29328
1767  Added........................................................59825
1786.25--1786.49 (Subpart B)  Heading revised; interim.............51008
1786.150--1786.199 (Subpart F)  Added; interim.....................51008
1786.200--1786.210 (Subpart G)  Added; interim.....................51008
1786.206  (c) corrected............................................58729
1792  Added........................................................32440
Chapter XVIII
1809  Removed; interim.............................................44750
1822.261  Amended....................................................224
1823.401  Amended....................................................224
1823.401--1823.418 (Subpart N)  Exhibit A amended; interim.........44752

                                  1994

7 CFR
                                                                   59 FR
                                                                    Page
Chapter XV
1540.40--1540.45 (Subpart C)  Regulation at 58 FR 16104 confirmed 
                                                                   25797
Chapter XVI
1600  Authority citation revised...................................66439
1610  Authority citation revised...................................66439
    Nomenclature change............................................66439
1610.1  Regulation at 58 FR 66252 confirmed........................17464
1610.2  Regulation at 58 FR 66252 confirmed........................17464
    Amended........................................................66439
1610.3  Regulation at 58 FR 66252 confirmed........................17464
1610.4  Regulation at 58 FR 66252 confirmed........................17464
1610.5  Regulation at 58 FR 66252 confirmed........................17464
1610.6  Regulation at 58 FR 66252 confirmed........................17464
1610.11  Regulation at 58 FR 66253 confirmed.......................17464
1627  Correctly removed; CFR Correction............................33641
Chapter XVII
Chapter XVII  Heading revised; nomenclature change.................66440
1700  Authority citation revised...................................66439
1700.1  Revised....................................................66440
1700.40--1700.44 (Subpart D)  Added................................21624
1700.41  Amended...................................................46723
1700.60--1700.61 (Subpart E)  Added................................21625
1700.70--1700.73 (Subpart F)  Added................................21625
1700.73  (c)(3) removed; (c)(4) redesignated as (c)(3).............46724
1700.90--1700.93 (Subpart G)  Added................................21626
1700.100--1700.109 (Subpart H)  Added..............................21626
1700.120--1700.132 (Subpart I)  Added..............................21627
1700.124  (b)(10) added............................................46724
1700.127  (b)(10) added............................................46724
1700.140--1700.150 (Subpart J)  Added..............................21631
1700.145  (c)(8) added; (d)(12) removed; (d)(13), (14) and (15) 
        redesignated as (d)(12), (13) and (14).....................46724
1700.146  (c) amended..............................................46724
1700.147  (b)(5) revised; (b)(6), (7) and (c) amended; (b)(8) 
        added......................................................46724

[[Page 1290]]

1700.160--1700.161 (Subpart K)  Added..............................21633
1700.170--1700.173 (Subpart L)  Added..............................21633
1703  Authority citation revised...................................66439
1703.12  Amended.....................................11706, 53930, 66440
1703.17  (c) added.................................................11706
    (d)  added.....................................................53930
1703.18  Added.....................................................11706
    (b) and (c) corrected..........................................38341
1703.19  Added.....................................................11706
1703.20  Revised...................................................11707
    (a)(10) and (11) redesignated as (a)(11) and (12); new (a)(10) 
added..............................................................53930
1703.21  (b) amended; (d) revised..................................11708
1703.22  Added.....................................................11708
    (a)(10) corrected..............................................38341
    (e) introductory text, (1), (3) and (4) revised................53931
1703.28  (b) revised...............................................11711
1703.30  OMB number................................................11711
    Corrected; OMB number..........................................38341
1703.34  (b)(5)(ii) and (iii) revised; (b)(5)(iv) and (v) added....11711
    OMB number.....................................................38341
1703.46  (e) removed; (f) through (l) redesignated as (e) through 
        (k); (a) and new (g)(6)(iv) amended........................11711
    (a), (d) introductory text and (e) amended.....................38341
    (g)(6)(iii) and (h) introductory text amended..................38342
    (g)(7) and (h)(11) added; (h)(10)(iii) amended.................53931
1703.61  (a) and (b) amended.......................................11712
1703.66  (b), (d), (e) and (g) revised; (h), (i) and (j) added.....11712
1703.67  Added.....................................................11712
1703.68  Added.....................................................11712
1703.102  Amended..................................................66440
1703.302  Amended..................................................66440
1710  Authority citation revised..............................495, 66439
1710.2  (a) amended; interim.........................................495
    Amended........................................................66440
1710.3  Revised....................................................66440
1710.7  Added; interim..............................................3984
1710.118  Removed; interim...........................................496
1710.350--1710.364 (Subpart H)  Heading revised; sections added; 
        interim......................................................496
1712  Authority citation revised...................................66439
1714  Authority citation revised...................................66439
1717  Authority citation revised...................................66439
1717.302  Amended..................................................66440
1717.352  Amended..................................................66440
1717.650--1717.658 (Subpart N)  Authority citation revised.........66439
1717.851  Amended; interim..........................................3986
1717.852  (a)(1)(ii) amended; (b)(1)(ii)(A) revised; interim........3986
1717.860  Added; interim............................................3986
1717.904  Added; interim............................................3987
1719  Authority citation revised...................................66439
1721  Authority citation revised...................................66439
1724  Authority citation revised...................................66439
1726  Authority citation revised...................................66439
1726.300  Introductory text amended................................66440
1728  Authority citation revised...................................66439
1728.97  (a) amended...............................................66440
1735  Authority citation revised...................................66439
1735.2  Regulation at 58 FR 66253 confirmed........................17464
1735.3  Amended....................................................66441
1735.10  Regulation at 58 FR 66253 confirmed; (b) revised..........17464
1735.13  Regulation at 58 FR 66253 confirmed.......................17464
1735.14  Regulation at 58 FR 66253 confirmed.......................17464
1735.17  Regulation at 58 FR 66253 confirmed.......................17464
1735.20  Regulation at 58 FR 66254 confirmed.......................17464
1735.21  Regulation at 58 FR 66254 confirmed.......................17464
1735.22  Regulation at 58 FR 66254 confirmed.......................17464
1735.30  Regulation at 58 FR 66254 confirmed.......................17464
1735.31  Regulation at 58 FR 66255 confirmed.......................17464
1735.32  Regulations at 58 FR 66255 and 66256 confirmed............17464

[[Page 1291]]

1735.46  Existing text designated as (a); (b) through (h) added....29537
1735.74  Regulation at 58 FR 66256 confirmed.......................17464
1737  Authority citation revised...................................66439
1737.2  Regulation at 58 FR 66256 confirmed........................17464
1737.3  Amended....................................................66441
1737.11  Regulation at 58 FR 66256 confirmed.......................17464
1737.22  Regulation at 58 FR 66256 confirmed.......................17464
1737.32  Regulation at 58 FR 66256 confirmed.......................17464
1737.41  (b)(1) revised............................................54381
1737.50  Regulation at 58 FR 66256 confirmed.......................17464
1737.70  Regulation at 58 FR 66256 confirmed.......................17464
1737.71  Regulation at 58 FR 66257 confirmed.......................17464
1739  Authority citation revised...................................66439
1744  Authority citation revised...................................66439
1744.21  Text transfered from 1744.61; amended.....................43716
1744.40  (a)(3) revised............................................43716
1744.61  Regulation at 58 FR 66257 confirmed.......................17464
    Transfered in part to 1744.21; removed.........................43716
1744.67  Regulation at 58 FR 66257 confirmed.......................17464
1744.68  Regulation at 58 FR 66257 confirmed.......................17464
1744.201  Amended..................................................66440
1746  Authority citation revised...................................66439
1751  Authority citation revised...................................66439
1753  Authority citation revised...................................66439
1753.2  Regulation at 58 FR 66259 confirmed and amended............17464
1753.3  Regulation at 58 FR 66259 confirmed; (a) introductory text 
        and (4) amended............................................17464
1753.5  (b)(1) revised.............................................43716
1753.6  (b) revised................................................43716
1753.7  (f)(4) revised.............................................17679
1753.8  (a)(11)(ii), (12)(i), (b)(2), (3) and (4) revised; (b)(5) 
        removed....................................................43716
1753.9  (a) and (c) revised........................................43716
1753.15  Regulation at 58 FR 66259 confirmed; (b)(4) amended.......17464
1753.16  (b)(3), (4) and (5) redesignated as (b)(4), (5) and (6); 
        new (b)(3) added...........................................43717
1753.17  (c)(1)(i)(B) and (e) revised..............................43717
1753.25  (f)(4) added..............................................43717
1753.26  (b) introductory text revised; (c) redesignated as (d); 
        new (c) added..............................................43717
1753.29  (a) removed; (b) through (e) redesignated as (a) through 
        (d)........................................................43717
1753.30  (b)(2)(i) and (c)(2) revised..............................43717
1753.38  (a)(2)(iii) removed; (a)(2)(iv) through (vii) 
        redesignated as (a)(2)(iii) through (vi); (a)(2)(i)(J), 
        new (v) and (c) revised....................................17679
1753.39  (f)(1)(i) revised.........................................31126
    (g) revised....................................................43717
1753.46  (c) added.................................................43717
1753.49  (c)(3) revised............................................43717
1753.50  Added.....................................................43717
1753.66  Regulation at 58 FR 66259 confirmed; (d) amended..........17464
1753.68  (d)(3)(iii) revised.......................................43718
1753.78  (a) revised...............................................43718
1753.80  (a) revised; (b) through (g) redesignated as (c) through 
        (h); new (b) added.........................................43718
1753  Appendixes A through F revised...............................43719
1755  Authority citation revised............................17681, 66439
1755.93  Table amended......................................17681, 31126
    Introductory text amended......................................66440
1755.97  Table amended......................................30507, 34360
    Introductory text amended......................................66440
1755.98  Table amended.............................................53044
    Introductory text amended......................................66440
1755.525  Added....................................................31126
1755.870  Added....................................................30507
    (a)(2) table and (h)(3)(i) corrected...........................34899
1755.900  Added....................................................34360
    (m)(4) table, (p)(1)(vii) and (q)(1)(ii) corrected.............44795
1755.910  Added....................................................53044

[[Page 1292]]

1767  Authority citation revised...................................66439
1767.10  Amended...................................................66440
1767.18  Amended...................................................27436
1767.19  Amended...................................................27436
1767.41  Amended...................................................27436
1770  Authority citation revised...................................66439
1773  Authority citation revised..............................659, 66439
1773.2  Amended....................................................66440
1773.3  (c) revised..................................................659
1773.20  (a)  revised................................................659
1773.21  (b) and (c) revised.........................................659
1773.34  (e)(1)(i) and (2)(i) removed; (e)(1)(ii), (iii), (iv), 
        (2)(ii), (iii) and (iv) redesignated as (e)(1)(i), (ii), 
        (iii), (2)(i), (ii) and (iii) and revised....................659
1773.40  Revised.....................................................660
1773.45  Revised.....................................................660
1773  Appendix C revised.............................................660
1785  Authority citation revised...................................66439
1786  Authority citation revised...................................66439
1786.25--1786.38 (Subpart B)  Authority citation revised...........66439
1786.27  Amended...................................................66440
1786.50--1786.61 (Subpart C)  Authority citation revised...........66439
1786.51  Amended...................................................66441
1786.75--1786.86 (Subpart D)  Authority citation revised...........66439
1786.77  Amended...................................................66440
1786.96  Amended...................................................66440
1786.150--1786.170 (Subpart F)  Added..............................13620
    Authority  citation revised....................................66439
1786.200--1786.210 (Subpart G)  Authority citation revised.........66439
1786.201  Amended..................................................66440
1788  Authority citation revised...................................66439
1792  Authority citation revised...................................66439
1792.102  Amended..................................................66440
1794  Authority citation revised...................................66439
Chapter XVIII
Chapter XVIII  Heading revised; nomenclature change; interim.......66443

                                  1995

7 CFR
                                                                   60 FR
                                                                    Page
Chapter XVII
1710.2  Amended.....................................................3730
    (a) amended; eff. 1-29-96......................................67400
1710.7  (d)(1)(vi) removed..........................................3730
    Revised; eff. 1-29-96..........................................67401
1710.103  (b) amended; eff. 1-29-96................................67404
1710.106  (d) redesignated as (e); new (d) and (f) added............3730
1710.110  (c)(1)(ii) revised; (c)(3) added..........................3730
1710.112  (b)(10) added.............................................3731
1710.114  Revised; eff. 1-29-96....................................67404
1710.115  (b) revised...............................................3731
1710.116  Removed...................................................3731
1710.250  (b) and (e) revised; (k) added; eff. 1-29-96.............67405
1710.251  (b) revised...............................................3731
    (a) amended; eff. 1-29-96......................................67405
1710.252  (b) revised...............................................3731
    (a) amended; eff. 1-29-96......................................67405
1710.400--1710.407 (Subpart I)  Added...............................3731
1710.401  OMB number................................................3732
1712  Removed.......................................................3734
1714.6  (a)(2) revised..............................................3734
1714.50--1714.59 (Subpart B)  Added.................................3734
1717.600--1717.617 (Subpart M)  Added; eff. 1-29-96................67405
1717.650--1717.659 (Subpart N)  Revised............................48877
1717.850  (a), (b), (f), (g)(1)(ii), (h)(2) and (m) revised; eff. 
        1-29-96....................................................67408
1717.851  Amended; eff. 1-29-96....................................67409
1717.852  (a)(1) introductory text and (ii) amended; (a)(3) 
        through (7) and (b) revised; (a)(8) added; eff. 1-29-96....67409
1717.854  Heading, (a), (b), (c)(1) and (2) revised; (c)(7) 
        removed; (c)(3) through (6) redesignated as (c)(4) through 
        (7); new (c)(3) added; new (c)(6)(vi) and new (c)(7) 
        amended; eff. 1-29-96......................................67410
1717.855  Heading and (a) revised; eff. 1-29-96....................67410
1717.856  (d) removed...............................................3735
    Heading, introductory text, (a) introductory text and (c)(3) 
revised; eff. 1-29-96..............................................67410
1717.857  (a)(3) and (4)(ii) amended; (a)(5) removed; eff. 1-29-96
                                                                   67410
1717.860  (e) removed...............................................3735

[[Page 1293]]

    (f) redesignated as (e); eff. 1-29-96..........................67410
1718  Added........................................................36888
1718.50--1718.54 (Subpart B)  appendix A amended; eff. 1-29-96.....67410
1718.100--1718.104 (Subpart C)  Added; eff. 1-29-96................67410
1719  Removed.......................................................3735
1726  Revised......................................................10155
1726.37  OMB number................................................10159
1751  Revised.......................................................8174
1755  Authority citation revised...................................44729
1755.97  Table amended................................5097, 44729, 55992
1755.98  Table amended........................................1712, 5097
1755.200  Added.....................................................5097
    (d)(4)(ii) table corrected......................................9079
1755.390  OMB number................................................1711
1755.397  Introductory text amended (OMB number)....................1711
    Revised (OMB number)...........................................44729
1755.522  OMB number................................................1711
    (e)(5), (6), (7), (11), (19)(vii), (i)(2)(ix), (s)(5)(ii)(A) 
and (6)(ii) revised; (f)(1)(ii), (g)(2)(ii), (iii), (8) and (r)(6) 
removed; (f)(1)(iii), (g)(2)(iv) through (xv), (9) through (12), 
(r)(7) and (8) redesignated as (f)(1)(ii), (g)(2)(ii), through 
(xiii), (8) through (11), (r)(6) and (7); (p)(1)(vi), (3)(i), 
(s)(5)(ii)(C) and appendix A amended; eff. 1-16-96.................64312
    Appendixes B and C amended; eff. 1-16-96.......................64314
1755.525  OMB number................................................1711
1755.860  OMB number................................................1711
1755.870  OMB number................................................1711
1755.890  OMB number................................................1711
1755.900  OMB number................................................1711
1767.13  (a), (c) introductory text and (d) revised................55429
1767.14  Revised (OMB number)......................................55429
1767.18  Amended............................................55429, 55430
1767.19  Amended...................................................55430
1767.41  Amended.......................55430, 55435, 55436, 55437, 55438
1773.2  Correctly designated........................................2874
1785.1--1785.17 (Subpart A)  Removed................................3735

                                  1996

7 CFR
                                                                   61 FR
                                                                    Page
Chapter XV
1520.3  Revised.....................................................2898
1520.4  Revised.....................................................2898
1520.5  Revised.....................................................2898
1520.6  (a) and (b) amended.........................................2898
Chapter XVII
1703.100--1703.140 (Subpart D)  Revised............................33626
1703.104  (d) and (g) corrected....................................37961
1703.105  (a)(11) corrected........................................37961
1703.107  (a)(2) note correctly removed.....................37814, 42462
    (e)(5), (g) and (j)(1) corrected...............................37961
1703.117  (e)(8) corrected.........................................37814
    (c)(1)(i), (v), (d)(1)(i), (2)(i)(C), (e)(2)(i) and (7) 
corrected..........................................................37961
1703.118  (a)(3) corrected.........................................37814
1703.126  (b)(1) corrected.........................................37961
1703.128  Corrected................................................37961
1703.140  Heading and (a)(2) corrected.............................37961
1703.100--1703.140 (Subpart D)  Appendix A corrected...............37961
1710.109  (c) introductory text, (1), (2) and (3) redesignated as 
        (c)(1) introductory text, (i), (ii) and (iii); new (c)(2) 
        added; eff. 1-21-97........................................66870
1710.110  (a) amended; (c)(1)(iii) added; eff. 1-21-97.............66870
1710.114  (b)(3) amended; eff. 1-21-97.............................66871
1710.119  (b)(3) revised; eff. 1-21-97.............................66871
1714.56  (c) introductory text revised; eff. 1-21-97...............66871
1717.150--1717.161 (Subpart D)  Added; eff. 1-21-97................66871
1755.98  Table amended.............................................26074
1755.700  Added....................................................26074
1755.701  Added....................................................26074
1755.702  Added....................................................26075
1755.703  Added....................................................26076
1755.704  Added....................................................26077
1770.26--1770.27 (Subpart C)  Added................................39847
1773.1  (c) revised; interim.........................................107
1773.5  (c) revised; interim.........................................107
1773.6  (a) revised; interim.........................................108
1773.9  (a) and (b) revised; interim.................................108
1773.31  Revised; interim............................................108
1773.32  (a) revised; interim........................................108

[[Page 1294]]

1773.33  Revised; interim............................................108
1773.34  (d)(1), (2) and (3) removed; (e)(1)(iii), (2)(iii) and 
        (g) revised; interim.........................................108
1773  Appendix A amended; interim....................................109
    Appendix B amended; interim......................................111
    Appendix C revised; interim......................................113
1786.167  (a) amended; eff. 1-21-97................................66874
1789  Added........................................................48606
Chapter XVIII
Chapter  XVIII Heading revised; nomenclature change...........1109, 2899
1806  Authority citation revised...................................59777
    Technical correction...........................................63928
1806.1  (a) revised; interim.......................................59777
1841  Removed......................................................21362
1843  Removed......................................................21362
1845  Removed......................................................21362