[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2005 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          7


          Parts 1600 to 1899

                         Revised as of January 1, 2005


          Agriculture
          
          


________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2005
          With Ancillaries
                    Published by:
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



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

  Title 7:
    Subtitle B--Regulations of the Department of Agriculture 
      (Continued)
          Chapter XVI--Rural Telephone Bank, Department of 
          Agriculture                                                5
          Chapter XVII--Rural Utilities Service, Department of 
          Agriculture                                               17
          Chapter XVIII--Rural Housing Service, Rural 
          Business-Cooperative Service, Rural Utilities 
          Service, and Farm Service Agency, Department of 
          Agriculture                                             1183
  Finding Aids:
      Material Approved for Incorporation by Reference........    1223
      Table of CFR Titles and Chapters........................    1233
      Alphabetical List of Agencies Appearing in the CFR......    1251
      List of CFR Sections Affected...........................    1261

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

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

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

[[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

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collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
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    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 
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    (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.
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the daily Federal Register.
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the revision dates of the 50 CFR titles.

[[Page vii]]


REPUBLICATION OF MATERIAL

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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

January 1, 2005.

[[Page ix]]



                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: parts 1-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1899, 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, 2005.

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

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

    For this volume, Robert J. Sheehan was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Frances D. McDonald, assisted by Alomha S. Morris.


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                          TITLE 7--AGRICULTURE




                 (This book contains parts 1600 to 1899)

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

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

                                                                    Part

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

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

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 XVI--RURAL TELEPHONE BANK, DEPARTMENT OF AGRICULTURE



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

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PART 1600--GENERAL INFORMATION--Table of Contents



     Meetings of the Board of Directors of the Rural Telephone Bank

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

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

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

     Meetings of the Board of Directors of the Rural Telephone Bank



Sec. 1600.1  General.

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



Sec. 1600.2  Definitions.

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



Sec. 1600.3  Open meetings.

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



Sec. 1600.4  Scheduling of meetings.

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

[[Page 8]]

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



Sec. 1600.5  Public announcement of meetings.

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



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

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

[[Page 9]]

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



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

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

[[Page 10]]

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



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

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



PART 1610--LOAN POLICIES--Table of Contents


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

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

[[Page 11]]


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



Sec. 1610.1  General.

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

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



Sec. 1610.2  Definitions.

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

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



Sec. 1610.3  Loan authorizations.

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

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



Sec. 1610.4  Loan applications.

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

[58 FR 66252, Dec. 20, 1993]



Sec. 1610.5  Minimum Bank loan.

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

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



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

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

[[Page 12]]

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

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



Sec. 1610.7  Acquisition of certain exchange facilities.

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



Sec. 1610.8  Adoption of applicable RUS policy.

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

[55 FR 39397, Sept. 27, 1990]



Sec. 1610.9  Class B stock.

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

[56 FR 26596, June 10, 1991]

[[Page 13]]



Sec. 1610.10  Determination of interest rate on Bank loans.

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

[[Page 14]]

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

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

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

[[Page 15]]

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

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



Sec. 1610.11  Prepayments.

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

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

[[Page 17]]



    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE



  --------------------------------------------------------------------
Part                                                                Page
1700            General information.........................          19
1703            Rural development...........................          24
1710            General and pre-loan policies and procedures 
                    common to electric loans and guarantees.          90
1714            Pre-loan policies and procedures for insured 
                    electric loans..........................         130
1717            Post-loan policies and procedures common to 
                    insured and guaranteed electric loans...         136
1718            Loan security documents for electric 
                    borrowers...............................         186
1720            Guarantees for bonds and notes issued for 
                    electrification or telephone purposes...         227
1721            Post-loan policies and procedures for 
                    insured electric loans..................         234
1724            Electric engineering, architectural services 
                    and design policies and procedures......         238
1726            Electric system construction policies and 
                    procedures..............................         253
1728            Electric standards and specifications for 
                    materials and construction..............         277
1730            Electric system operations and maintenance..         300
1735            General policies, types of loans, loan 
                    requirements--telecommunications program         306
1737            Pre-loan policies and procedures common to 
                    insured and guaranteed 
                    telecommunications loans................         330
1738            Rural broadband access loans and loan 
                    guarantees..............................         345
1739            Broadband grant program.....................         356
1741

Pre-loan policies and procedures for insured telephone loans [Reserved]

1744            Post-loan policies and procedures common to 
                    guaranteed and insured telephone loans..         363
1748

Post-loan policies and procedures for insured telephone loans [Reserved]

1751            Telecommunications system planning and 
                    design criteria, and procedures.........         390

[[Page 18]]

1753            Telecommunications system construction 
                    policies and procedures.................         395
1755            Telecommunications standards and 
                    specifications for materials, equipment 
                    and construction........................         432
1757

Telephone systems operations and maintenance [Reserved]

1767            Accounting requirements for RUS electric 
                    borrowers...............................         789
1770            Accounting requirements for RUS telephone 
                    borrowers...............................         980
1773            Policy on audits of RUS borrowers...........        1001
1775            Technical assistance and training grants....        1016
1777            Section 306C WWD loans and grants...........        1029
1778            Emergency and imminent community water 
                    assistance grants.......................        1033
1779            Water and waste disposal programs guaranteed 
                    loans...................................        1038
1780            Water and waste loans and grants............        1060
1781            Resource Conservation and Development (RCD) 
                    loans and Watershed (WS) loans and 
                    advances................................        1099
1783            Revolving funds for financing water and 
                    wastewater projects (revolving fund 
                    program)................................        1117
1785            Loan account computations, procedures and 
                    policies for electric and telephone 
                    borrowers...............................        1121
1786            Prepayment of RUS guaranteed and insured 
                    loans to electric and telephone 
                    borrowers...............................        1123
1788            RUS fidelity and insurance requirements for 
                    electric and telecommunications 
                    borrowers...............................        1153
1789            Use of consultants funded by borrowers......        1158
1792            Compliance with other Federal statutes, 
                    regulations, and Executive orders.......        1163
1794            Environmental policies and procedures.......        1165

[[Page 19]]



PART 1700--GENERAL INFORMATION--Table of Contents



                           Subpart A--General

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

              Subpart B--Agency Organization and Functions

1700.25  Office of the Administrator.
1700.26  Deputy Administrators.
1700.27  Electric Program.
1700.28  Telecommunications Program.
1700.29  Water and Environmental Programs.
1700.30  Distance Learning and Telemedicine Loan and Grant Program.
1700.31  Program Accounting and Regulatory Analysis.
1700.32  Financial Services Staff.
1700.33-1700.49  [Reserved]

             Subpart C--Loan and Grant Approval Authorities

1700.50-1700.52  [Reserved]
1700.53  Persons serving as Acting Administrator.
1700.54  Electric Program.
1700.55  Telecommunications Program.
1700.56  Water and Environmental Programs.
1700.57  Distance Learning and Telemedicine Loan and Grant Program.

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

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



                           Subpart A--General



Sec. 1700.1  General.

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



Sec. 1700.2  Availability of information.

    (a) The offices of RUS are located in the South Building of the 
United States Department of Agriculture at 1400 Independence Avenue, SW, 
Washington, DC 20250-1500. Hours of operation are from 8:15 AM to 4:45 
PM, Eastern time on Federal Government business days.
    (b) Information about RUS is available for public inspection and 
copying as required by the Freedom of Information Act, 5 U.S.C. 552 et 
seq. Information about availability and costs of agency publications and 
other agency materials is available from the Director, Program 
Development and Regulatory Analysis, Rural Utilities Service, United 
States Department of Agriculture, Room 4034-S, 1400 Independence Avenue, 
SW, STOP 1522, Washington, DC 20250-1522. Phone 202-720-0736. FAX 202-
720-4120.
    (c) RUS issues indexes of publications in conformance with the 
Freedom of Information Act and Department of Agriculture regulations at 
7 CFR part 1. Many RUS issuances, including regulations, delegations of 
authority for headquarters and field staff, and other documents, are 
available on the world wide web at http://www.usda.gov/rus. Single hard 
copies of publications, forms, forms of basic loan and security 
instruments, and other materials are available either directly from RUS,

[[Page 20]]

from the Superintendent of Documents, U.S. Government Printing Office, 
Washington DC 20402, or from another source as identified. Costs for 
these publications are established in conformance with 7 CFR part 1.



Sec. 1700.3  Requests under the Freedom of Information Act.

    Department of Agriculture procedures for requests for official 
records under the Freedom of Information Act are found at 7 CFR part 1. 
Requests must be in writing and may be submitted in person or by mail to 
United States Department of Agriculture, Rural Development, Room 0164-S, 
1400 Independence Avenue, SW, STOP 0742, Washington, DC 20250-0742; or 
by FAX to 202-720-1915. As set forth in 7 CFR 1.16, fees may be charged 
for processing of requests for records. An appeal of the agency 
determination concerning the request for official records shall be made 
in writing to the Administrator, Rural Utilities Service, United States 
Department of Agriculture, Room 4051-S, 1400 Independence Avenue, SW, 
STOP 1510, Washington, DC 20250-1500.



Sec. 1700.4  Public comments on proposed rules.

    RUS requires that all persons submitting comments to a proposed rule 
or other document published by the agency in the Federal Register 
submit, in hard copy, 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.



Secs. 1700.5-1700.24  [Reserved]



              Subpart B--Agency Organization and Functions



Sec. 1700.25  Office of the Administrator.

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



Sec. 1700.26  Deputy Administrators.

    Deputy Administrators aid and assist the Administrator. The Deputy 
Administrator, Program Policy and Telecommunications, provides overall 
policy direction to all RUS programs and directs and coordinates the 
telecommunications programs. The Deputy Administrator, Water and 
Environmental Programs, directs and coordinates the agency's water and 
waste disposal programs. The Deputy Administrators review agency 
policies in these areas and, as necessary, implement changes, and 
participate with the Administrator and other officials in planning and 
formulating the programs and activities of the agency, including the 
making and servicing of loans and grants.



Sec. 1700.27  Electric Program.

    RUS, through the Electric Program, makes loans and loan guarantees 
for rural electrification and the furnishing of electric service to 
persons in rural areas.
    (a) The Assistant Administrator, Electric Program, directs and 
coordinates the rural electrification programs, participating with the 
Administrator, and others, in planning and formulating the programs and 
activities of the agency, and performs other activities as the 
Administrator may prescribe from time to time.
    (b) Primary point of contact with borrowers.Two regional divisions, 
one for the Northern Region and one for the Southern Region, are the 
primary points of contact between RUS and its electric distribution 
borrowers. Each office administers the rural electric program for its 
assigned geographical area through headquarters staff and general field 
representatives. The Power Supply Division is the primary point of 
contact between RUS and its electric power supply borrowers.

[[Page 21]]

    (c) Staff office.The Electric Staff Division is responsible for 
engineering aspects of RUS' standards, specifications and other 
requirements for design, construction, and technical operation and 
maintenance of RUS borrowers' electric systems. The Electric Staff 
Division oversees the activities of Technical Standards Committees ``A'' 
and ``B'', Electric, which determine whether engineering specifications, 
drawings, material and equipment are acceptable for use in RUS 
borrowers' electric systems. The Office of the Assistant Administrator 
prepares analyses of loan making activities and the business and 
regulatory environment of RUS borrowers and recommends policies and 
procedures.



Sec. 1700.28  Telecommunications Program.

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

[63 FR 16085, Apr. 2, 1998; 63 FR 18307, Apr. 15, 1998]



Sec. 1700.29  Water and Environmental Programs.

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



Sec. 1700.30  Distance Learning and Telemedicine Loan and Grant Program.

    RUS, through the Telecommunications Program, makes grants and

[[Page 22]]

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

[63 FR 16085, Apr. 2, 1998; 63 FR 18307, Apr. 15, 1998]



Sec. 1700.31  Program Accounting and Regulatory Analysis.

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



Sec. 1700.32  Financial Services Staff.

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



Secs. 1700.33-1700.49  [Reserved]



             Subpart C--Loan and Grant Approval Authorities



Secs. 1700.50-1700.52  [Reserved]



Sec. 1700.53  Persons serving as Acting Administrator.

    The following persons are authorized, in descending order, to act 
for the Administrator when he or she is not on official duty in the 
Washington, DC, Metropolitan Area, is sick, has resigned, or is 
deceased. That is, if the first person on the list is also not on 
official duty in the Washington, DC, Metropolitan Area, is sick, has 
resigned, or is deceased, 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 as the Administrator. The 
Administrator may in his or her discretion in writing, on a case-by-case 
basis, delegate authority to act as Administrator in his or her absence 
outside of this specified order.
    (1) Deputy Administrator, Program Policy and Telecommunications.
    (2) Deputy Administrator, Water and Environmental Programs.
    (3) Assistant Administrator, Electric Program.
    (4) Assistant Administrator, Telecommunications Program.
    (5) Assistant Administrator, Water and Environmental Programs.
    (6) Assistant Administrator, Program Accounting and Regulatory 
Analysis.



Sec. 1700.54  Electric Program.

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

[[Page 23]]

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



Sec. 1700.55  Telecommunications Program.

    (a) Administrator: The authority to approve the following loans, 
loan guarantees, and lien accommodations is reserved to the 
Administrator:
    (1) All loans, loan guarantees, and lien accommodations and 
subordinations of liens to finance operating costs.
    (2) All loans, loan guarantees, or lien accommodations and 
subordinations of liens of $25,000,000 or more.
    (3) Loans and loan guarantees with acquisition costs of $5,000,000 
or more.
    (4) Loans and loan guarantees containing funds to refinance 
outstanding debt of more than $5,000,000.
    (5) All loan contracts, security instruments, and all other 
documents to be executed in connection with loans and loan guarantees 
approved by the Administrator.

[[Page 24]]

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



Sec. 1700.56  Water and Environmental Programs.

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



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

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



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.

[[Page 25]]

1703.29  Terms of zero-interest loan repayment.
1703.30  Approval of agreements.
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 Loan and Grant Program--
                                 General

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

       Subpart E--Distance Learning and Telemedicine Grant Program

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

Subpart F--Distance Learning and Telemedicine Combination Loan and Grant 
                                 Program

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

       Subpart G--Distance Learning and Telemedicine Loan Program

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

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

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

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

[[Page 26]]


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

[[Page 27]]

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 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.

[[Page 28]]

    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.
    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

[[Page 29]]

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 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

[[Page 30]]

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 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

[[Page 31]]

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 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;

[[Page 32]]

    (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 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

[[Page 33]]

(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;
    (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

[[Page 34]]

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 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;

[[Page 35]]

    (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 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

[[Page 36]]

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 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

[[Page 37]]

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 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--

[[Page 38]]

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 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.

[[Page 39]]

    (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 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

[[Page 40]]

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 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

[[Page 41]]

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 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

[[Page 42]]

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).
    (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

[[Page 43]]

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 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;

[[Page 44]]

    (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 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)).

[[Page 45]]

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 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

[[Page 46]]

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-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;

[[Page 47]]

    (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 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

[[Page 48]]

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;
    (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;

[[Page 49]]

    (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 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.

[[Page 50]]

    (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.
    (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

[[Page 51]]

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.
    (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

[[Page 52]]

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 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

[[Page 53]]

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 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

[[Page 54]]

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'' 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

[[Page 55]]

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).
    (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]

[[Page 56]]



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 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-

[[Page 57]]

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 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

[[Page 58]]

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 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 Loan and Grant Program--
                                 General

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



Sec. 1703.100  Purpose.

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



Sec. 1703.101   Policy.

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

[[Page 59]]

    (h) Financial assistance may be provided for end user sites. 
Financial assistance may also be provided for hubs located in rural or 
non-rural areas if they are necessary to provide distance learning or 
telemedicine services to rural residents at end user sites.
    (i) The Administrator will publish, at the end of each fiscal year, 
a notice in the Federal Register of all applications receiving financial 
assistance under this subpart. Subject to the provisions of the Freedom 
of Information Act, (5 U.S.C. 552), applications will be available for 
public inspection at the U.S. Department of Agriculture, 1400 
Independence Avenue, SW., Washington, DC, 20250.



Sec. 1703.102  Definitions.

    1996 Act means the Federal Agriculture Improvement Act of 1996.
    Act means the Rural Electrification Act of 1936 (7 U.S.C. 901 et 
seq.).
    Administrator means the Administrator of the Rural Utilities 
Service, or designee or successor.
    Applicant means an eligible organization that applies for financial 
assistance under this subpart.
    Approved purposes means project purposes for which grant, loan, or 
combination loan and grant financial assistance may be expended.
    Champion community means any community that submitted a valid 
application to become a USDA Empowerment Zone/Enterprise Community (EZ/
EC) area, that met the requirements to be designated an EZ/EC area, but 
not chosen because their score was not high enough to be selected.
    Combination loan and grant means a grant in combination with a loan 
made under the DLT program.
    Completed application means an application that includes all those 
items specified in Secs. 1703.125, 1703.134, and 1703.144 in form and 
substance satisfactory to the Administrator.
    Computer networks mean computer hardware and software, terminals, 
signal conversion equipment including both modulators and demodulators, 
or related devices, used to communicate with other computers to process 
and exchange data through a telecommunication network in which signals 
are generated, modified, or prepared for transmission, or received, via 
telecommunications terminal equipment and telecommunications 
transmission facilities.
    Consortium means a combination or group of entities formed to 
undertake the purposes for which the distance learning and telemedicine 
financial assistance is provided. At least one of the entities in a 
consortium must meet the requirements of Sec. 1703.103.
    Construct means to acquire, construct, extend, improve, or install a 
facility or system.
    Data terminal equipment means equipment that converts user 
information into data signals for transmission, or reconverts the 
received data signals into user information, and is normally found on 
the terminal of a circuit and on the premises of the end user.
    Distance learning means a telecommunications link to an end user 
through the use of eligible equipment to:
    (1) Provide educational programs, instruction, or information 
originating in one area, whether rural or not, to students and teachers 
who are located in rural areas; or
    (2) Connect teachers and students, located in one rural area with 
teachers and students that are located in a different rural area.
    DLT borrower means an entity that has an outstanding loan under the 
provisions of the DLT program.
    DLT program means the Distance Learning and Telemedicine Loan and 
Grant Program administered by RUS.
    Economic useful life as applied to equipment and facilities financed 
under the DLT program means the number of years resulting from dividing 
100 percent by the depreciation rate (expressed as a percent) based on 
Internal Revenue Service depreciation rules or recognized 
telecommunications industry guidelines.
    Eligible equipment means computer hardware and software, audio or 
video equipment, computer network components, telecommunications 
terminal equipment, data terminal equipment, inside wiring, interactive 
video equipment, or other facilities that would further telemedicine 
services or distance learning services.

[[Page 60]]

    Eligible facilities means land, buildings, or building construction 
needed to carry out an eligible distance learning or telemedicine 
project for loan financial assistance only.
    Empowerment Zone and Enterprise Community (EZ/EC) means any 
community whose designation as such by USDA pursuant to 26 U.S.C. 1391 
et seq., is in effect at the time RUS agrees to provide financial 
assistance.
    End user is one or more of the following:
    (1) Rural elementary, secondary schools, and other educational 
institutions, such as institutions of higher education, vocational and 
adult training and education centers, libraries, and teacher training 
centers, and students, teachers and instructors using such rural 
educational facilities, that participate in a rural distance learning 
telecommunications program through a project funded under this subpart;
    (2) Rural hospitals, primary care centers or facilities, such as 
medical centers, nursing homes, and clinics, and physicians and staff 
using such rural medical facilities, that participate in a rural 
telemedicine program through a project funded under this subpart; and
    (3) Other rural community facilities, institutions, or entities that 
receive distance learning or telemedicine services.
    End user site means a facility that is part of a network or 
telecommunications system that is utilized by end users.
    Financial assistance means a grant, combination loan and grant, or 
loan.
    GFR means RUS telecommunications program General Field 
Representative.
    Grant documents means the grant agreement, including any amendments 
and supplements thereto, between RUS and the grantee.
    Grantee means a recipient of a grant from RUS to carry out the 
purposes of the DLT program.
    Guarantee means a guarantee for a loan provided by a RUS borrower or 
other qualified third party.
    Hub means a facility that is part of a network or telecommunications 
system that provides educational or medical services to end user sites.
    Instructional programming means educational material, including 
computer software, which would be used for educational purposes in 
connection with eligible equipment but does not include salaries, 
benefits, and overhead of medical or educational personnel.
    Interactive equipment means equipment used to produce and prepare 
for transmission audio and visual signals from at least two distant 
locations so that individuals at such locations can orally and visually 
communicate with each other. Such equipment includes monitors, other 
display devices, cameras or other recording devices, audio pickup 
devices, and other related equipment.
    Loan means a loan made under the DLT program bearing interest at a 
rate equal to the then current cost-of-money to the government.
    Loan documents mean the loan agreement, note, and security 
instrument, including any amendments and supplements thereto, between 
RUS and the DLT borrower.
    Local exchange carrier means a commercial, cooperative or mutual-
type association, or public body that is engaged in the provision of 
telephone exchange service or exchange access.
    Matching contribution means the applicant's contribution for 
approved purposes.
    National school lunch program (NSLP) means the federally assisted 
meal program established under the National School Lunch Act of 1946 (42 
U.S.C. 1751).
    Project means approved purposes for which financial assistance has 
been provided.
    Project service area means the area in which at least 90 percent of 
the persons to be served by the project are likely to reside.
    Recipient means a grantee, borrower, or both of a DLT program grant, 
loan or combination loan and grant.
    Rural community facility means a facility such as a school, library, 
learning center, training facility, hospital, or medical facility that 
provides educational or health care benefits primarily to residents of 
rural areas.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture, successor to the Rural Electrification 
Administration.

[[Page 61]]

    Secretary means the Secretary of Agriculture.
    Technical assistance means:
    (1) Assistance in learning to manage, operate, or use equipment or 
systems; and
    (2) Studies, analyses, designs, reports, manuals, guides, 
literature, or other forms of creating, acquiring, or disseminating 
information.
    Telecommunications carrier means any provider of telecommunications 
services.
    Telecommunications or electric borrower means an entity that has 
outstanding RUS or Rural Telephone Bank electric or telecommunications 
loans or loan guarantees under the provisions of the Act.
    Telecommunications systems plan means the plan submitted by an 
applicant in accordance with Sec. 1703.125 for grants, Sec. 1703.134 for 
a combination loan and grant, or Sec. 1703.144 for loans.
    Telecommunications terminal equipment means the assembly of 
telecommunications equipment at the end of a circuit or path of a 
signal, including but not limited to facilities that receive or transmit 
over the air broadcast, satellite, and microwave, normally located on 
the premises of the end user, that interfaces with telecommunications 
transmission facilities, and that is used to modify, convert, encode, or 
otherwise prepare signals to be transmitted via such telecommunications 
facilities, or that is used to modify, reconvert, or carry signals 
received from such facilities, the purpose of which is to accomplish the 
goal for which the circuit or signal was established.
    Telecommunications transmission facilities means facilities that 
transmit, receive, or carry voice, video, or data between the 
telecommunications terminal equipment at each end of the 
telecommunications circuit or path. Such facilities include microwave 
antennae, relay stations and towers, other telecommunications antennae, 
fiber-optic cables and repeaters, coaxial cables, communication 
satellite ground station complexes, copper cable electronic equipment 
associated with telecommunications transmissions, and similar items.
    Telemedicine means a telecommunications link to an end user through 
the use of eligible equipment which electronically links medical 
professionals at separate sites in order to exchange health care 
information in audio, video, graphic, or other format for the purpose of 
providing improved health care services primarily to residents of rural 
areas.

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



Sec. 1703.103  Applicant eligibility and allocation of funds.

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

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



Sec. 1703.104  [Reserved]



Sec. 1703.105  Processing of selected applications.

    (a) During the period between the submission of an application and 
the

[[Page 62]]

execution of documents, the applicant must inform RUS if the project is 
no longer viable or the applicant no longer is requesting financial 
assistance for the project. When the applicant so informs RUS, the 
selection will be rescinded or the application withdrawn and written 
notice to that effect sent to the applicant.
    (b) If an application has been selected and the scope of the project 
changes substantially, the applicant may be required to submit a new 
application to RUS for review and consideration depending on the degree 
of change. A new application will be subject to review in accordance 
with this subpart. The financial assistance may not be transferred by 
the applicant for use for another project.
    (c) If State or local governments raise objections to a proposed 
project under the intergovernmental review process that are not resolved 
within 90 days of the Administrator's selection of the application, the 
Administrator will rescind the selection and written notice to that 
effect will be sent to the applicant. The Administrator, in his sole 
discretion may extend the 90 day period if it appears resolution is 
imminent.
    (d) RUS may request additional information to complete the 
appropriate documents covering financial assistance.
    (e) Financial assistance documents. (1) The documents will include a 
grant agreement for grants; loan documents, including third party 
guarantees, notes and security instruments for loans; or any other legal 
documents the Administrator deems appropriate, including suggested forms 
of certifications and legal opinions.
    (2) The grant agreement and the loan documents will include, among 
other things, conditions on the release or advance of funds and include 
at a minimum, a project description, approved purposes, the maximum 
amount of the financial assistance, supplemental funds required for the 
project, and certain agreements or commitments the applicant may have 
proposed in its application. In addition, the loan documents may contain 
covenants and conditions the Administrator deems necessary or desirable 
to provide additional assurance that loans will be repaid and the 
purposes of the loan will be accomplished.
    (3) The recipient of a loan will be required to execute a security 
instrument in form and substance satisfactory to RUS and must, before 
receiving any advance of loan funds, provide security that is adequate, 
in the opinion of RUS, to assure repayment, within the time agreed, of 
all loans to the borrower under the DLT program. This assurance will 
generally be provided by a first lien upon all facilities and equipment 
financed by the loan. RUS may require additional security as it deems 
necessary.
    (4) Adequate security may also be provided by third-party 
guarantees, letters of credit, pledges of revenue, or other forms of 
security satisfactory to RUS.
    (5) The security instrument and other loan documents required by RUS 
in connection with a loan under the DLT program shall contain such 
pledges, covenants, and other provisions as may, in the opinion of RUS, 
be required to secure repayment of the loan.
    (6) If the project does not constitute a complete operating system, 
the DLT recipient shall provide evidence, in form and substance 
satisfactory to RUS, demonstrating that the recipient has sufficient 
contractual, financing, or other arrangements to assure that the project 
will provide adequate and efficient service.
    (f) Prior to the execution of a grant and loan document, RUS 
reserves the right to require any changes in the project or legal 
documents covering the project to protect the integrity of the DLT 
program and the interests of the government.
    (g) If the applicant fails to submit, within 120 calendar days from 
the date of RUS' selection of an application, all of the information 
that RUS determines to be necessary to prepare legal documents and 
satisfy other requirements of this subpart, RUS may rescind the 
selection of the application.

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

[[Page 63]]



Sec. 1703.106  Disbursement of loans and grants.

    (a) For financial assistance of $100,000 or greater, prior to the 
disbursement of a grant and a loan, the recipient, if it is not a unit 
of government, will provide evidence of fidelity bond coverage as 
required by 7 CFR part 3019.
    (b) Grants and loans will be disbursed to recipients on a 
reimbursement basis, or with unpaid invoices for the eligible purposes 
contained in this subpart, by the following process:
    (1) An SF 270, ``Request for Advance or Reimbursement,'' will be 
completed by the recipient and submitted to RUS not more frequently than 
once a month;
    (2) RUS will review the SF 270 for accuracy when received and will 
schedule payment if the form is satisfactory. Payment will ordinarily be 
made within 30 days; and
    (3) For financial assistance approved during and subsequent to FY 
1999, funds will be advanced in accordance with 7 CFR 1744.69.
    (c) The recipient's share in the cost of the project must be 
disbursed in advance of the loan and grant, or if the recipient agrees, 
on a pro rata distribution basis with financial assistance during the 
disbursement period. Recipients will not be permitted to provide their 
contributions at the end of the project.
    (d) A combination loan and grant will be disbursed on a pro rata 
basis based on the respective amounts of financial assistance provided.



Sec. 1703.107  Reporting and oversight requirements.

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



Sec. 1703.108  Audit requirements.

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

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

[[Page 64]]



Sec. 1703.109  Grant and loan administration.

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



Sec. 1703.110  Changes in project objectives or scope.

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



Sec. 1703.111  Grant and loan termination.

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



Sec. 1703.112  Expedited telecommunications loans

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



Secs. 1703.113-1703.119  [Reserved]



       Subpart E--Distance Learning and Telemedicine Grant Program

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



Sec. 1703.120  [RESERVED]



Sec. 1703.121  Approved purposes for grants.

    For distance learning and telemedicine projects, grants shall 
finance only the costs for approved purposes. Grants shall be expended 
only for the costs associated with the initial capital assets associated 
with the project. The following are approved grant purposes:
    (a) Acquiring, by lease or purchase, eligible equipment as defined 
in Sec. 1703.102;
    (b) Acquiring instructional programming; and
    (c) Providing technical assistance and instruction for using 
eligible equipment, including any related software; developing 
instructional programming; providing engineering or environmental 
studies relating to the establishment or expansion of the

[[Page 65]]

phase of the project that is being financed with the grant (this purpose 
shall not exceed 10 percent of the grant).

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



Sec. 1703.122  Matching contributions.

    (a) The grant applicant's minimum matching contribution must equal 
15 percent of the grant amount requested and shall be used for approved 
purposes for grants listed in Sec. 1703.121. Matching contributions 
generally must be in the form of cash. However, in-kind contributions 
solely for the purposes listed in Sec. 1703.121 may be substituted for 
cash.
    (b) In-kind items listed in Sec. 1703.121 must be non-depreciated or 
new assets with established monetary values. Manufacturers' or service 
providers' discounts are not considered in-kind matching.
    (c) Costs incurred by the applicant, or others on behalf of the 
applicant, for facilities or equipment installed, or other services 
rendered prior to submission of a completed application, shall not be 
considered as an eligible in-kind matching contribution.
    (d) Costs incurred for non-approved purposes for grant outlined in 
Sec. 1703.123 shall not be used as an in-kind matching contribution.
    (e) Any financial assistance from Federal sources will not be 
considered as matching contributions under this subpart unless there is 
a Federal statutory exception specifically authorizing the Federal 
financial assistance to be considered as a matching contribution.

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



Sec. 1703.123  Nonapproved purposes for grants.

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

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



Sec. 1703.124  Maximum and minimum grant amounts.

    Applications for grants under this subpart will be subject to 
limitations on the proposed amount of grant funds. The Administrator 
will establish the maximum amount of a grant to be

[[Page 66]]

made available to an individual recipient for each fiscal year under 
this subpart by publishing notice of the maximum amount in the Federal 
Register not sooner than 45 days before the period for accepting 
applications begins. The minimum amount of a grant is $50,000.



Sec. 1703.125  Completed application.

    The following items are required to be submitted to RUS in support 
of an application for grant funds:
    (a) An application for Federal Assistance. A completed Standard Form 
424.
    (b) An executive summary of the project. The applicant must provide 
RUS with a general project overview that addresses the following 8 
categories:
    (1) A description of why the project is needed;
    (2) An explanation of how the applicant will address the need cited 
in paragraph (b)(1) of this section, why the applicant requires 
financial assistance, the types of educational or medical services to be 
offered by the project, and the benefits to rural residents;
    (3) A description of the applicant, documenting eligibility in 
accordance with Sec. 1703.103;
    (4) An explanation of the total project cost including a breakdown 
of the grant required and the source of matching contribution and other 
financial assistance for the remainder of the project;
    (5) A statement specifying whether the project is either a distance 
learning or telemedicine facility as defined in Sec. 1703.102. If the 
project provides both distance learning and telemedicine services, the 
applicant must identify the predominant use of the system;
    (6) A general overview of the telecommunications system to be 
developed, including the types of equipment, technologies, and 
facilities used;
    (7) A description of the participating hubs and end user sites and 
the number of rural residents that will be served by the project at each 
end user site; and
    (8) A certification by the applicant that facilities constructed 
with grants do not duplicate adequate established telemedicine or 
distance learning services.
    (9) A listing of the location of each end user site (city, town, 
village, borough, or rural areas) plus the State.
    (c) Scoring criteria documentation. Each grant applicant must 
address and provide documentation on how it meets each of the scoring 
criteria contained in Sec. 1703.126.
    (d) A scope of work. The scope of work must include, at a minimum:
    (1) The specific activities to be performed under the project;
    (2) Who will carry out the activities;
    (3) The time-frames for accomplishing the project objectives and 
activities; and
    (4) A budget for all capital expenditures reflecting the line item 
costs for approved purposes for both the grant funds and other sources 
of funds for the project. Separately, the budget must specify any line 
item costs that are nonapproved purposes for grants as contained in 
Sec. 1703.123.
    (e) Financial information and sustainability. The applicant must 
provide a narrative description demonstrating: feasibility of the 
project, including having sufficient resources and expertise necessary 
to undertake and complete the project; and, how the project will be 
sustained following completion of the project.
    (f) A statement of experience. The applicant must provide a written 
narrative (not exceeding three single spaced pages) describing its 
demonstrated capability and experience, if any, in operating an 
educational or health care endeavor and any project similar to the 
project. Experience in a similar project is desirable but not required.
    (g) Funding commitment from other sources. The applicant must 
provide evidence, in form and substance satisfactory to RUS, that 
funding agreements have been obtained to ensure completion of the 
project. These agreements shall be sufficient to ensure:
    (1) Payment of all proposed expenditures for the project;
    (2) All required matching contribution in 1703.120;
    (3) any additional matching funding provided in accordance with 
Sec. 1703.126(b)(4); and
    (4) Any other funds necessary to complete the project.

[[Page 67]]

    (h) A telecommunications system plan. A telecommunications system 
plan consisting of the following:
    (1) The capabilities of the telecommunications terminal equipment, 
including a description of the specific equipment which will be used to 
deliver the proposed service. The applicant must document discussions 
with various technical sources which could include consultants, 
engineers, product vendors, or internal technical experts, provide 
detailed cost estimates for operating and maintaining the end user 
equipment and provide evidence that alternative equipment and 
technologies were evaluated.
    (2) A listing of the proposed telecommunications terminal equipment, 
telecommunications transmission facilities, data terminal equipment, 
interactive video equipment, computer hardware and software systems, and 
components that process data for transmission via telecommunications, 
computer network components, communication satellite ground station 
equipment, or any other elements of the telecommunications system 
designed to further the purposes of this subpart, that the applicant 
intends to build or fund using RUS financial assistance.
    (3) A description of the consultations with the appropriate 
telecommunications carriers (including other interexchange carriers, 
cable television operators, enhanced service providers, providers of 
satellite services and telecommunications equipment manufacturers and 
distributors) and the anticipated role of such providers in the proposed 
telecommunications system.
    (i) Compliance with other Federal statutes. The applicant must 
provide evidence of compliance with other Federal statutes and 
regulations including, but not limited to the following:
    (1) E.O. 11246, Equal Employment Opportunity, as amended by E.O. 
11375 and as supplemented by regulations contained in 41 CFR part 60;
    (2) Architectural barriers;
    (3) Flood hazard area precautions;
    (4) Assistance and Real Property Acquisition Policies Act of 1970;
    (5) Drug-Free Workplace Act of 1998 (41 U.S.C. 701);
    (6) E.O.s 12549 and 12689, Debarment and Suspension;
    (7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352).
    (j) Environmental impact and historic preservation. (1) The 
applicant must provide details of the project's impact on the 
environment and historic preservation. Grants made under this part are 
subject to part 1794 of this chapter which contains RUS' policies and 
procedures for implementing a variety of Federal statutes, regulations, 
and executive orders generally pertaining to the protection of the 
quality of the human environment that are listed in 7 CFR 1794.1. The 
application shall contain a separate section entitled ``Environmental 
Impact of the Project.''
    (2) The applicant may use the ``Environmental Questionnaire,'' 
available from RUS, to assist in complying with the requirements of this 
section.
    (k) Evidence of legal authority and existence. The applicant must 
provide evidence of its legal existence and authority to enter into a 
grant agreement with RUS and perform the activities proposed under the 
grant application.
    (l) Federal debt certification. The applicant must provide a 
certification that it is not delinquent on any obligation owed to the 
government (7 CFR parts 3016 and 3019).
    (m) Consultation with USDA State Director, Rural Development. The 
applicant must provide evidence that it has consulted with the USDA 
State Director, Rural Development, concerning the availability of other 
sources of funding available at the State or local level.
    (n) State strategic plan conformity. The applicant must provide 
evidence from the USDA State Director, Rural Development, that the 
application conforms with the State strategic plan as prepared under 
section 381D of the Consolidated Farm and Rural Development Act (7 
U.S.C. 1921 et seq.). The applicant should indicate if such a plan does 
not exist.
    (o) Supplemental information. The applicant should provide any 
additional information it considers relevant to the project and likely 
to be helpful in determining the extent to which the project would 
further the purposes of the 1996 Act.

[[Page 68]]

    (p) Additional information required by RUS. The applicant must 
provide any additional information RUS may consider relevant to the 
application and necessary to adequately evaluate the application. RUS 
may request modifications or changes, including changes in the amount of 
financial assistance requested, in any proposal described in an 
application submitted under this subpart.

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



Sec. 1703.126  Criteria for scoring grant applications.

    (a) Criteria. The criteria in this section will be used by RUS to 
score applications that have been determined to be in compliance with 
the requirements of this subpart. Applications for grants must meet the 
rurality requirements in paragraph (b)(2)(iv) of this section and 
address each of the following scoring criteria:
    (1) The need for services and benefits derived from services (up to 
55 points);
    (2) The comparative rurality of the project service area (up to 45 
points);
    (3) The economic need of the applicant's service area as estimated 
by the NSLP or other supplemental objective criteria (up to 35 points);
    (4) The ability of the applicant to leverage resources (up to 35 
points);
    (5) Innovativeness of the project (up to 15 points);
    (6) The cost effectiveness of the system (up to 35 points);
    (7) Project participation in EZ/ECs (Empowerment Zone and Enterprise 
Communities) and Champion Communities (up to 15 points).
    (b) Scoring criteria:
    (1) The need for services and benefits derived from services--Up to 
55 Points. (i) This criterion will be used by RUS to score applications 
based on the documentation in support of the need for services, benefits 
derived from the services proposed by the project, and local community 
involvement in planning, implementing, and financial assistance of the 
project. Applicants may receive up to 45 points for documenting the need 
for services and benefits derived from service as explained in this 
section. Applicants with an average NSLP percentage less than 50 percent 
as determined in paragraph (b)(3) of this section may receive up to an 
additional 10 points based on information submitted that evidences the 
economic need of the project's service area. This determination will be 
made by RUS based on information submitted by the applicant under 
paragraph (b)(1) of this section.
    (ii) RUS will consider the extent of the applicant's documentation 
explaining the economic, education, or health care challenges facing the 
community; the applicant's proposed plan to address these challenges; 
how the grant can help; and why the applicant cannot complete the 
project without a grant. RUS will also consider the extent to which the 
applicant provides evidence that economic, education, or health care 
challenges could not be addressed without employing advanced technology. 
The Administrator will also consider any support by recognized experts 
in the related educational or health care field, any documentation 
substantiating the educational or health care underserved nature of the 
applicant's proposed service area, and any justification for specific 
educational or medical services which are needed and will provide direct 
benefits to rural residents.
    (A) Some examples of benefits to be provided by the project include, 
but are not limited to:
    (1) Improved educational opportunities for a specified number of 
students;
    (2) Travel time and money saved by telemedicine diagnoses;
    (3) Number of doctors retained in rural areas;
    (4) Number of additional students electing to attend higher 
education institutions;
    (5) Lives saved due to prompt medical diagnoses and treatment;
    (6) New education courses offered, including college level courses;
    (7) Expanded use of educational facilities such as night training;
    (8) Number of patients receiving telemedicine diagnoses;
    (9) Provision of training, information resources, library assets, 
adult education, lifetime learning, community use of technology, jobs, 
connection to region, nation, and world.

[[Page 69]]

    (B) Other matters that will be considered by RUS under this 
criterion include:
    (1) That rural residents, and other beneficiaries, desire the 
educational or medical services to be provided by the project. A strong 
indication of need is the willingness of local end users or 
institutions, to the extent possible, to contribute to the capital costs 
of establishing the project. This could include letters of financial 
commitment toward the project from local institutions.
    (2) The extent of the project's planning, development, and support 
by local residents and institutions. This may include evidence of 
community involvement, as exemplified in community meetings, public 
forums, and surveys. In addition, applicants should provide evidence of 
local residents' participation in the project planning and development.
    (3) The extent to which the application addresses the problems of 
population out-migration and how the project seeks to slow, halt, or 
prevent population loss.
    (4) The extent to which the application is consistent with the State 
strategic plan prepared by the Rural Development State Director of the 
United States Department of Agriculture.
    (2) The comparative rurality of the project service area--Up to 45 
Points. This criterion will be used to evaluate the relative rurality of 
service areas for various projects. Under this system, the end user 
sites and hubs (as defined in Sec. 1703.102) contained within the 
project service area are identified and given a score according to the 
population of the area where the end user sites are located.
    (i) The following definitions are used in the evaluation of 
rurality:
    (A) Exceptionally Rural Area means any area of the United States not 
included within the boundaries of any incorporated or unincorporated 
city, village, or borough having a population in excess of 5,000 
inhabitants.
    (B) Rural Area means any area of the United States included within 
the boundaries of any incorporated or unincorporated city, village, or 
borough having a population over 5,000 and not in excess of 10,000 
inhabitants.
    (C) Mid-Rural Area means any area of the United States included 
within the boundaries of any incorporated or unincorporated city, 
village, or borough having a population over 10,000 and not in excess of 
20,000 inhabitants.
    (D) Urban Area means any area of the United States included within 
the boundaries of any incorporated or unincorporated city, village, or 
borough having a population in excess of 20,000 inhabitants.
    (ii) There are a total of 45 possible points for this criterion. 
Each end user site will receive points based on its location in 
accordance with paragraph (b)(2)(i) of this section. If a hub is 
utilized as an end user site, the hub will be considered as an end user 
site. The applicant will receive points as follows:
    (A) If the end user site is located in an Exceptionally Rural Area, 
it will receive 45 points.
    (B) If the end user site is located in a Rural Area, it will receive 
30 points.
    (C) If the end user site is located in a Mid-Rural Area, it will 
receive 15 points.
    (D) If the end user site is located in an Urban Area, it will 
receive 0 points.
    (iii) The total score for this criterion will be based on the 
average score for all the end user sites included in the project.
    (iv) An application must receive a minimum of 20 points as an 
average score for all the end user sites under this criterion to be 
eligible for a grant.
    (3) The economic need of the applicant's service area as estimated 
by NSLP--Up to 35 points. This criterion will be used to evaluate the 
relative financial need of the applicant, community, and project. All 
applicants are required to provide the applicable percentage of students 
eligible to participate in the NSLP for each area to be served by the 
end user site. The appropriate State or local organization administering 
the program must certify the percentages as being correct. The applicant 
must provide RUS with a listing of the location of each end user site 
(city, town, village, borough or rural area plus the State) discussing 
how the appropriate NSLP percentage was determined in accordance with 
this section. These percentages may be obtained from the State or local 
organization that administers the

[[Page 70]]

program and must be certified by that organization as being correct. For 
purposes of this subpart, the NSLP percentage will reflect the 
percentage of eligibility rather than the percentage of actual 
participation.
    (i) The following guidelines will be used to determine the 
applicable NSLP percent for a particular application:
    (A) Public schools or non-profit private schools of high school 
grade or under will use the actual eligibility percentage for that 
particular school.
    (B) Schools and institutions of higher learning ineligible to 
participate in the NSLP and non-school end user sites (medical 
facilities, libraries, etc.) will use the eligibility percentage of all 
students in the school district where the end user will be located.
    (C) Percentage ratios will be rounded up to the next highest or 
rounded down to the next lowest whole number for fraction of percentages 
at or greater than .5 or less than .5, respectively.
    (D) The project NSLP percentage will be determined by the average of 
the NSLP percentages of the end user sites. If end user sites fall 
within different percentile categories, the eligibility percentages 
associated with each end user site will be averaged to determine the 
percentile category. For purposes of averaging, if a hub is also 
utilized as an end user site, the hub will be considered as an end user 
site.
    (ii) The applicant will receive points as follows:
    (A) NSLP percentage greater than or equal to 75 percent--35 points
    (B) NSLP percentage greater than or equal to 50 percent but less 
than 75 percent--25 points
    (C) NSLP percentage greater than or equal to 25 percent but less 
than 50 percent--15 points
    (D) NSLP percentage less than 25% percent--0 points
    (4) The ability of the applicant to leverage financial resources--Up 
to 35 points. This criterion will be used to evaluate the ability of the 
applicant to provide a matching contribution for the project using other 
non-Federal financial assistance. Documentation submitted in support of 
the application should reflect any additional financial support for the 
project from non-Federal sources above the applicant's minimum matching 
contribution of 15 percent as required by Sec. 1703.122. The applicant 
must include evidence, from authorized representatives of the sources, 
of a commitment that the funds are available and will be used for the 
project. The applicant will receive points as follows:
    (i) Matching contribution for approved purposes greater than 15 
percent, but less than or equal to 30 percent of the grant requested--0 
points.
    (ii) Matching contribution for approved purposes greater than 30 
percent, but less than or equal to 50 percent of the grant requested--15 
points.
    (iii) Matching contribution for approved purposes greater than 50 
percent, but less than or equal to 75 percent of the grant requested--25 
points.
    (iv) Matching contribution for approved purposes greater than 75 
percent, but less than or equal to 100 percent of the grant requested--
30 points.
    (v) Matching contribution for a grant for approved purposes greater 
than 100 percent of the grant requested--35 points.
    (5) Innovativeness of the project--Up to 15 points. This criterion 
will be used to evaluate the innovativeness of application based on 
documentation that shows how the project utilizes advanced 
telecommunications in a unique way to address the needs of the 
community. Innovativeness should be addressed in the context of how the 
project will deliver distance learning or telemedicine services more 
effectively or at a lower cost. The following issues may be addressed to 
show how the project differs from a typical distance learning and 
telemedicine network as follows:
    (i) The extent to which the project differs from a technical 
standpoint;
    (ii) The extent to which the project differs from an educational or 
medical programmatic standpoint;
    (iii) The extent to which the project reflects a unique adaptation 
of technology based on the special needs or circumstances of the 
proposed area to be served by the project; and
    (iv) The potential of the project to influence or lead changes in 
how telecommunications services can be delivered in other areas.

[[Page 71]]

    (6) The cost-effectiveness of the project--Up to 35 points. This 
criterion will be used to evaluate the cost effectiveness of the 
application based on the extent that cost-efficiency is considered in 
delivering the services in the project. The following issues should be 
addressed under this criterion:
    (i) The extent to which the applicant has considered various 
technological options for delivering the services. The applicant must 
provide sufficient documentation reflecting accepted analytical and 
financial methodologies to substantiate its choice of technology as the 
most cost-effective option. RUS will consider the applicant's 
documentation and analysis comparing various systems and technologies.
    (ii) Whether buying or leasing specific equipment is more cost 
effective.
    (iii) The extent to which the project will utilize other existing 
networks at the regional, statewide, national or international levels. 
To the extent possible, educational and health care networks should be 
designed to utilize the widest practicable number of other networks that 
expand the capabilities of the project, thereby affording rural 
residents opportunities that may not be available at the local level. 
The ability to connect to the Internet alone cannot be used as the sole 
basis to fulfill this criteria.
    (iv) The extent to which the facilities being constructed with 
financial assistance, particularly financial assistance under this 
chapter provided to entities other than the applicant, will be utilized 
to extend or enhance the benefits of the project.
    (v) The extent to which the project utilizes existing 
telecommunications transmission facilities that could provide the 
transmission path for the needed services. For projects that do not 
utilize existing transmission facilities, RUS will consider 
documentation explaining the necessity of this option. RUS will also 
consider any agreements between the applicant and other entities for 
sharing transmission facilities to lower the fixed costs of such 
facilities.
    (7) Project participation in EZ/ECs and champion communities--(Up to 
15 Points). This criterion will be used by RUS to score applications 
based on the number of end user sites within an EZ/EC and Champion 
Community. Ten (10) points will be assigned if at least one end user 
site is located in an EZ/EC. Five (5) points will be assigned if at 
least one end user site is located in a Champion Community.

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



Sec. 1703.127  Application selection provisions.

    (a) Applications will be selected for approval based on scores 
assigned, availability of funds, and the provisions of this section. RUS 
will make determinations regarding the reasonableness of all numbers; 
dollar levels; rates; the nature and design of the project; costs; 
location; and other characteristics of the application and the project 
to determine the number of points assigned to a grant application for 
all selection criteria.
    (b) Regardless of the number of points an application receives in 
accordance with Sec. 1703.126, the Administrator may, based on a review 
of the applications in accordance with the requirements of this subpart:
    (1) Limit the number of applications selected for projects located 
in any one State during a fiscal year;
    (2) Limit the number of selected applications for a particular 
project;
    (3) Select an application receiving fewer points than another higher 
scoring application if there are insufficient funds during a particular 
funding period to select the higher scoring application. In this case, 
however, the Administrator will provide the applicant of the higher 
scoring application the opportunity to reduce the amount of its grant 
request to the amount of funds available. If the applicant agrees to 
lower its grant request, it must certify that the purposes of the 
project can be met, and the Administrator must determine the project is 
financially feasible at the lower amount in accordance with 
Sec. 1703.125(e)(1). An applicant or multiple applicants affected under 
this paragraph will have the opportunity to be considered for loan 
financing in accordance with subparts F and G of this part.

[[Page 72]]

    (c) RUS will not approve a grant if RUS determines that:
    (1) The applicant's proposal does not indicate financial feasibility 
or is not sustainable in accordance with the requirements of 
Sec. 1703.125(e)(1);
    (2) The applicant's proposal indicates technical flaws, which, in 
the opinion of RUS, would prevent successful implementation, operation, 
or sustainability of the project;
    (3) Other applications would provide more benefit to rural America 
based on a review of the financial and technical information submitted 
in accordance with Sec. 1703.125(e).
    (4) Any other aspect of the applicant's proposal fails to adequately 
address any requirement of this subpart or contains inadequacies which 
would, in the opinion of RUS, undermine the ability of the project to 
meet the general purpose of this subpart or comply with policies of the 
DLT Program contained in Sec. 1703.101.
    (d) Grant applications will be ranked by the type of application 
(health care or educational) and total points scored. Grants available 
for medical and educational applicants may be allocated based on the 
total number of medical and educational applications scoring in the top 
50 percent of all applications received for that fiscal year. Based on 
the number and type of applications received, applications may be ranked 
only in one category based on the predominant use of the project.
    (e) RUS may reduce the amount of the applicant's grant based on 
insufficient program funding for the fiscal year in which the project is 
reviewed. RUS will discuss its findings informally with the applicant 
and make every effort to reach a mutually acceptable agreement with the 
applicant. Any discussions with the applicant and agreements made with 
regard to a reduced grant amount will be confirmed in writing, and these 
actions shall be deemed to have met the notification requirements set 
forth in paragraph (f) of this section.
    (f) RUS will provide the applicant with an explanation of any 
determinations made with regard to paragraphs (c)(1) through (c)(4) of 
this section prior to making final project selections for the year. The 
applicant will be provided 15 days from the date of RUS' letter to 
respond, provide clarification, or make any adjustments or corrections 
to the project. If, in the opinion of the Administrator, the applicant 
fails to adequately respond to any determinations or other findings made 
by the Administrator, the project will not be funded, and the applicant 
will be notified of this determination. If the applicant does not agree 
with this finding an appeal may be filed in accordance with 
Sec. 1703.129.
    (g) Grantees shall comply with all applicable provisions of 7 CFR 
parts 3015, 3016, and 3019.

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



Sec. 1703.128  Submission of applications.

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

[[Page 73]]

submit information, whichever provides the applicant more time. If the 
applicant fails to submit such information by the appropriate deadline, 
the application will be considered during the next established 
application period.
    (c) All applicants must submit an original and two copies of a 
completed application. Applicants must also submit a copy of the 
application to the State government point of contact, if one has been 
designated for the State, at the same time it submits an application to 
RUS. All applications must include the information required by 
Sec. 1703.125.



Sec. 1703.129  Appeals.

    All qualifying applications under this subpart will be scored based 
on the criteria contained in Sec. 1703.126. Awards will be made by RUS 
based on the highest ranking applications and the amount of financial 
assistance available for grants. All applicants will be notified in 
writing of the score each application receives, and included in this 
notification will be a tentative minimum required score to receive 
financial assistance. If the score received by the applicant could 
result in the denial of its application, or if its score, while 
apparently sufficient to qualify for financial assistance, may be 
surpassed by the score awarded to a competing application after appeal, 
that applicant may appeal its numerical scoring. Any appeal must be 
based on inaccurate scoring of the application by RUS and no new 
information or data that was not included in the original application 
will be considered. The appeal must be made, in writing, within 10 days 
after the applicant is notified of the scoring results. Appeals shall be 
submitted to the Administrator, RUS, U.S. Department of Agriculture, 
1400 Independence Ave., SW., STOP 1590, Washington, DC 20250-1590. 
Thereafter, the Administrator will review the original scoring to 
determine whether to sustain, reverse, or modify the original scoring 
determination. Final determinations will be made after consideration of 
all appeals. The Administrator's determination will be final. A copy of 
the Administrator's decision will be furnished promptly to the 
applicant.



Subpart F--Distance Learning and Telemedicine Combination Loan and Grant 
                                 Program

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



Sec. 1703.130  Use of combination loan and grant.

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



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

    The approved purposes for a combination loan and grant are:
    (a) Acquiring, by lease or purchase, eligible equipment or 
facilities as defined in Sec. 1703.102;
    (b) Acquiring instructional programming;
    (c) Providing technical assistance and instruction for using 
eligible equipment, including any related software; developing 
instructional programming; providing engineering or environmental 
studies relating to the establishment or expansion of the phase of the 
project that is being financed with a combination loan and grant (this 
purpose shall not exceed 10 percent of the total requested financial 
assistance);
    (d) Paying for medical or educational equipment and facilities that 
are shown to be necessary to implement the project, including vehicles 
utilizing distance learning and telemedicine technology to deliver 
educational and health care services. The applicant must demonstrate 
that such items are necessary to meet the purposes under this subpart 
and financial assistance

[[Page 74]]

for such equipment and facilities is not available from other sources at 
a cost which would not adversely affect the economic viability of the 
project;
    (e) Providing links between teachers and students or medical 
professionals who are located at the same facility, provided that such 
facility receives or provides distance learning or telemedicine services 
as part of a distance learning or telemedicine network which meets the 
purposes of this subpart;
    (f) Providing for site development and alteration of buildings in 
order to meet the purposes of this subpart. Financial assistance for 
this purpose must be necessary and incidental to the total amount of 
financial assistance requested;
    (g) Purchasing of land, buildings, or building construction 
determined by RUS to be necessary and incidental to the project. The 
applicant must demonstrate that financial assistance funding from other 
sources is not available at a cost that does not adversely impact the 
economic viability of the project as determined by the Administrator. 
Financial assistance for this purpose must be necessary and incidental 
to the total amount of financial assistance requested; and
    (h) Acquiring telecommunications transmission facilities provided 
that no telecommunications carrier will install such facilities under 
the Act or through other financial procedures within a reasonable time 
period and at a cost to the applicant that does not impact the economic 
viability of the project, as determined by the Administrator.



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

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



Sec. 1703.133  Maximum and minimum amounts.

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



Sec. 1703.134  Completed application.

    The following items are required to be submitted to RUS in support 
of an application for a combination loan and grant:
    (a) An application for federal assistance: A completed Standard Form 
424.
    (b) An executive summary of the project: The applicant must provide 
RUS with a general project overview that addresses each of the following 
9 categories:

[[Page 75]]

    (1) A description of why the project is needed;
    (2) An explanation of how the applicant will address the need cited 
in paragraph (b)(1) of this section, why the applicant requires 
financial assistance, the types of educational or medical services to be 
offered by the project, and the benefits to the rural residents;
    (3) A description of the applicant, documenting eligibility in 
accordance with Sec. 1703.103;
    (4) An explanation of the total project cost including a breakdown 
of the combination loan and grant required and the source of funding, if 
applicable, for the remainder of the project;
    (5) A statement specifying whether the project provides 
predominantly distance learning or telemedicine services as defined in 
Sec. 1703.102. If the project provides both distance learning and 
telemedicine services, the applicant must identify the predominant use 
of the system;
    (6) A general overview of the telecommunications system to be 
developed, including the types of equipment, technologies, and 
facilities used;
    (7) A description of the participating hubs and end user sites and 
the number of rural residents that will be served by the project at each 
end user site;
    (8) A certification by the applicant that facilities constructed 
with a combination loan and grant do not duplicate adequately 
established telemedicine or distance learning services.
    (9) A listing of the location of each end user site (city, town, 
village, borough, or rural area plus the State).
    (c) A scope of work. The scope of work must include, at a minimum:
    (1) The specific activities to be performed under the project;
    (2) Who will carry out the activities;
    (3) The time-frames for accomplishing the project objectives and 
activities; and
    (4) A budget for capital expenditures reflecting the line item costs 
for both the combination loan and grant and any other sources of funds 
for the project.
    (d) Financial information. The applicant must show its financial 
ability to complete the project; show project feasibility; and provide 
evidence that it can execute a note for a loan with a maturity period 
greater than one year. For educational institutions participating in a 
project application (including all members of a consortium), the 
financial data must reflect revenue and expense reports and balance 
sheet reports, reflecting net worth, for the most recent annual 
reporting period preceding the date of the application. For medical 
institutions participating in a project application (including all 
members of a consortium), the financial data must include income 
statement and balance sheet reports, reflecting net worth, for the most 
recent completed fiscal year preceding the date of the application. When 
the applicant is a partnership, company, corporation, or other entity, 
current balance sheets, reflecting net worth, are needed from each of 
the entities that has at least a 20 percent interest in such 
partnership, company, corporation or other entity. When the applicant is 
a consortium, a current balance sheet, reflecting net worth, is needed 
from each member of the consortium and from each of the entities that 
has at least a 20 percent interest in such member of the consortium.
    (1) Applicants must include sufficient pro-forma financial data that 
adequately reflects the financial capability of project participants and 
the project as a whole to continue a sustainable project for a minimum 
of 10 years and repay the loan portion of the combination loan and 
grant. This documentation should include sources of sufficient income or 
revenues to pay operating expenses including telecommunications access 
and toll charges, system maintenance, salaries, training, and any other 
general operating expenses, provide for replacement of depreciable 
items, and show repayment of interest and principal for the loan portion 
of the combination loan and grant.
    (2) A list of property which will be used as collateral to secure 
repayment of the loan. The applicant shall purchase and own collateral 
that secures the loan free from liens or security interests and take all 
actions necessary to perfect a security interest in the collateral that 
secures the loan. RUS

[[Page 76]]

considers as adequate security for a loan, a guarantee by a RUS 
telecommunications or electric borrower or by another qualified party. 
Additional forms of security, including letters of credit, real estate, 
or any other items will be considered. RUS will determine the adequacy 
of the security offered.
    (3) As applicable, a depreciation schedule covering all assets of 
the project. Those assets for which a combination loan and grant are 
being requested should be clearly indicated.
    (4) For each hub and end user site, the applicant must identify and 
provide reasonable evidence of each source of revenue. If the projection 
relies on cost sharing arrangements among hub and end user sites, the 
applicant must provide evidence of agreements made among project 
participants.
    (5) For applicants eligible under Sec. 1703.103(a)(3), an 
explanation of the economic analysis justifying the rate structure to 
ensure that the benefit, including cost saving, of the financial 
assistance is passed through to the other persons receiving telemedicine 
or distance learning services.
    (e) A statement of experience. The applicant must provide a written 
narrative (not exceeding three single spaced pages) describing its 
demonstrated capability and experience, if any, in operating an 
educational or health care endeavor similar to the project. Experience 
in a similar project is desirable but not required.
    (f) A telecommunications system plan. A telecommunications system 
plan, consisting of the following (the items in paragraphs (f)(4) and 
(f)(5) of this section are required only when the applicant is 
requesting a combination loan and grant for telecommunications 
transmission facilities):
    (1) The capabilities of the telecommunications terminal equipment, 
including a description of the specific equipment which will be used to 
deliver the proposed service. The applicant must document discussions 
with various technical sources which could include consultants, 
engineers, product vendors, or internal technical experts, provide 
detailed cost estimates for operating and maintaining the end user 
equipment and provide evidence that alternative equipment and 
technologies were evaluated.
    (2) A listing of the proposed purchases or leases of 
telecommunications terminal equipment, telecommunications transmission 
facilities, data terminal equipment, interactive video equipment, 
computer hardware and software systems, and components that process data 
for transmission via telecommunications, computer network components, 
communication satellite ground station equipment, or any other elements 
of the telecommunications system designed to further the purposes of 
this subpart, that the applicant intends to build or fund using a 
combination loan and grant.
    (3) A description of the consultations with the appropriate 
telecommunications carriers (including other interexchange carriers, 
cable television operators, enhanced service providers, providers of 
satellite services, and telecommunications equipment manufacturers and 
distributors) and the anticipated role of such providers in the proposed 
telecommunications system.
    (4) Results of discussions with local exchange carriers serving the 
project area addressing the concerns contained in Sec. 1703.131(h).
    (5) The capabilities of the telecommunications transmission 
facilities, including bandwidth, networking topology, switching, 
multiplexing, standards, and protocols for intra-networking and open 
systems architecture (the ability to effectively communicate with other 
networks). In addition, the applicant must explain the manner in which 
the transmission facilities will deliver the proposed services. For 
example, for medical diagnostics, the applicant might indicate whether 
or not a guest or other diagnosticians can join the network from 
locations off the network. For educational services, indicate whether or 
not all hub and end-user sites are able to simultaneously hear in real-
time and see each other or the instructional material in real-time. The 
applicant must include detailed cost estimates for operating and 
maintaining the network, and include evidence that alternative delivery 
methods and systems were evaluated.

[[Page 77]]

    (g) Compliance with other Federal statutes. The applicant must 
provide evidence of compliance with other federal statutes and 
regulations including, but not limited to the following:
    (1) E.O. 11246, Equal Employment Opportunity, as amended by E.O. 
11375 and as supplemented by regulations contained in 41 CFR part 60;
    (2) Architectural barriers;
    (3) Flood hazard area precautions;
    (4) Assistance and Real Property Acquisition Policies Act of 1970;
    (5) Drug-Free Workplace Act of 1998 (41 U.S.C. 701);
    (6) E.O.s 12549 and 12689, Debarment and Suspension;
    (7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352).
    (h) Environmental impact and historic preservation. (1) The 
applicant must provide details of the project's impact on the 
environment and historic preservation. Loans and grants made under this 
part are subject to 7 CFR part 1794 which contains RUS' policies and 
procedures for implementing a variety of Federal statutes, regulations, 
and Executive orders generally pertaining to the protection of the 
quality of the human environment that are listed in 7 CFR 1794.1. The 
application shall contain a separate section entitled ``Environmental 
Impact of the Project.''
    (2) The applicant may use the ``Environmental Questionnaire,'' 
available from RUS, to assist in complying with the requirements of this 
section.
    (i) Evidence of legal authority and existence. The applicant must 
provide evidence of its legal existence and authority to enter into a 
grant and incur debt with RUS.
    (j) Federal debt certification. The applicant must provide evidence 
that it is not delinquent on any obligation owed to the government.
    (k) Supplemental information. The applicant should provide any 
additional information it considers relevant to the project and likely 
to be helpful in determining the extent to which the project would 
further the purposes of this subpart.
    (l) Additional information required by RUS. The applicant must 
provide any additional information RUS may consider relevant to the 
application and necessary to adequately evaluate the application. RUS 
may also request modifications or changes, including changes in the 
amount of funds requested, in any proposal described in an application 
submitted under this subpart.

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



Sec. 1703.135  Application selection provisions.

    (a) A combination loan and grant will be approved based on 
availability of funds, the financial feasibility of the project in 
accordance with Sec. 1703.134(d), the services to be provided which 
demonstrate that the project meets the general requirements of this 
subpart, the design of the project; costs; location; and other 
characteristics of the application.
    (b) RUS will determine, from the information submitted with each 
application for a combination loan and grant, whether the application 
achieves sufficient priority, based on the criteria set forth in the 
1996 Act, to receive a combination loan and grant from funds available 
for the fiscal year. If such priority is achieved, RUS will process the 
combination loan and grant application on a first-in, first-out basis, 
provided that the total amount of applications on-hand for combination 
loans and grants does not exceed 90 percent of the total loan and grant 
funding available for the fiscal year. At such time as the total amount 
of applications eligible for combination loans and grants, if such 
applications were approved, exceeds 90 percent of amount of combination 
loan and grant funding available, RUS will process the remaining 
applications using the evaluation criteria set forth in Sec. 1703.126.
    (c) RUS will not approve a combination loan and grant if RUS 
determines that:
    (1) The applicant's proposal does not indicate financial 
feasibility, or will not be adequately secured in accordance with the 
requirements contained in Sec. 1703.134(d);
    (2) The applicant's proposal indicates technical flaws, which, in 
the opinion of RUS, would prevent successful implementation, or 
operation of the project; or

[[Page 78]]

    (3) Any other aspect of the applicant's proposal fails to adequately 
address any requirements of this subpart or contains inadequacies which 
would, in the opinion of RUS, undermine the ability of the project to 
meet the general purpose of this subpart or comply with policies of the 
DLT program contained in Sec. 1703.101.
    (d) RUS will provide the applicant with a statement of any 
determinations made with regard to paragraphs (c)(1) through (c)(3) of 
this section. The applicant will be provided 15 days from the date of 
RUS' letter to respond, provide clarification, or make any adjustments 
or corrections to the project. If, in the opinion of the Administrator, 
the applicant fails to adequately respond to any determinations or other 
findings made by the Administrator, the project will not be funded, and 
the applicant will be notified of this determination. If the applicant 
does not agree with this finding, an appeal may be filed in accordance 
with Sec. 1703.137.



Sec. 1703.136   Submission of applications.

    (a) RUS will accept applications for a combination loan and grant 
submitted by RUS telecommunications General Field representatives 
(GFRs), by Rural Development State Directors, or by applicants 
themselves. Applications for a combination loan and grant under this 
subpart may be filed at any time and will be evaluated as received.
    (b) Applications submitted to the State Director, Rural Development, 
in the State serving the headquarters of the project will be evaluated 
as they are submitted. All applicants must submit an original and two 
copies of a completed application. The applicant must also submit a copy 
of the application to the State government point of contact, if one has 
been designated for the State, at the same time it submits an 
application to the State Director. The State Director will:
    (1) Review each application for completeness in accordance with 
Sec. 1703.134, and notify the applicant, within 15 working days of 
receiving the application, of the results of this review, acknowledging 
a complete application, or citing any information that is incomplete. To 
be considered for a combination loan and grant, the applicant must 
submit any additional information requested to complete the application 
within 15 working days of the date of the State Director's written 
response. If the applicant fails to submit such information, the 
application will be returned to the applicant.
    (2) Within 30 days of the determination of a completed application 
in accordance with paragraph (b)(1) of this section, review the 
application to determine suitability for financial assistance in 
accordance with Sec. 1703.135, and other requirements of this subpart. 
Based on its review, the State Director will work with the applicant to 
resolve any questions or obtain any additional information. The 
applicant will be notified, in writing, of any additional information 
required to allow a financial assistance recommendation and will be 
provided a reasonable period of time to furnish the additional 
information.
    (3) Based on the review in accordance with Sec. 1703.135 and other 
requirements of this subpart, make a preliminary determination of 
suitability for financial assistance. A combination loan and grant 
recommendation will be prepared by the State Director with concurrence 
of the RUS telecommunications GFR that addresses the provisions of 
sections Sec. 1703.134 and Sec. 1703.135 and other applicable 
requirements of this subpart.
    (4) If the application is determined suitable for further 
consideration by RUS, forward an original and one copy of the 
application with a financial assistance recommendation, signed jointly, 
to the Assistant Administrator, Telecommunications Program, Rural 
Utilities Service, Washington, DC. The applicant will be notified by 
letter of this action. Upon receipt of the application from the State 
Director, RUS will conduct a review of the application and the financial 
assistance recommendation. A final determination will be made within 15 
days. If the Administrator determines that a combination loan and grant 
can be approved, the State Director will be notified and the State 
Director will notify the applicant. A combination loan and grant will be 
processed, approved, and serviced in accordance with Secs. 1703.105 
through 1703.112 of subpart D.

[[Page 79]]

    (5) If the State Director determines that the application is not 
suitable for further consideration by RUS, notify the applicant with the 
reasons for this determination. The applicant may appeal this 
determination pursuant to section Sec. 1703.137 of this subpart.
    (c) Applications submitted by RUS telecommunications GFRs or 
directly by applicants will be evaluated as they are submitted. All 
applicants must submit an original and two copies of a completed 
application. The applicant must also submit a copy of the application to 
the State government point of contact, if one has been designated for 
the State, at the same time it submits an application to RUS. RUS will:
    (1) Review each application for completeness in accordance with 
Sec. 1703.134, and notify the applicant, within 15 working days of 
receiving the application, of the results of this review, acknowledging 
a complete application, or citing any information that is incomplete. To 
be considered for a combination loan and grant assistance, the applicant 
must submit any additional information requested to complete the 
application within 15 working days of the date of the RUS written 
response. If the applicant fails to submit such information, the 
application will be returned to the applicant.
    (2) Within 30 days of the determination of a completed application 
in accordance with paragraph (c)(1) of this section, review the 
application to determine suitability for financial assistance in 
accordance with Sec. 1703.135, and other requirements of this subpart. 
Based on its review, RUS will work with the applicant to resolve any 
questions or obtain any additional information. The applicant will be 
notified, in writing, of any additional information required to allow a 
financial assistance recommendation and will be provided a reasonable 
period of time to furnish the additional information.
    (3) If the application is determined suitable for further 
consideration by RUS, conduct a review of the application and financial 
assistance recommendation. A final determination will be made within 15 
days. If the Administrator determines that a combination loan and grant 
can be approved, the applicant will be notified. A combination loan and 
grant will be processed, approved, and serviced in accordance with 
Secs. 1703.105 through 1703.112 of subpart D.
    (4) If RUS determines that the application is not suitable for 
further consideration, notify the applicant with the reasons for this 
determination. The applicant will be able to appeal in accordance with 
Sec. 1703.137 of this subpart.



Sec. 1703.137  Appeals.

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



Secs. 1703.138-1703.139  [Reserved]



       Subpart G--Distance Learning and Telemedicine Loan Program

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



Sec. 1703.140  Use of loan funds.

    A loan may be used by eligible organizations as defined in 
Sec. 1703.103 for distance learning and telemedicine projects to finance 
100 percent of the cost of approved purposes contained in Sec. 1703.141 
provided that no financial assistance may exceed the maximum amount for 
the year in which the loan is made. Entities seeking a loan must be able 
to provide security and execute a note with a maturity period greater 
than one year. The following entities are eligible for loans under this 
subpart:
    (a) Organizations as defined in Sec. 1703.103. If a RUS 
telecommunications borrower is seeking a loan, the borrower does not 
need to submit all of the financial security information required by 
Sec. 1703.144(d). The borrower's

[[Page 80]]

latest financial report (Form 479) filed with RUS and any additional 
information relevant to the project, as determined by RUS, will suffice;
    (b) Any non-profit or for-profit entity, public or private entity, 
urban or rural institution, or rural educational broadcaster, which 
proposes to provide and receive distance learning and telemedicine 
services to carry out the purposes of this subpart; or
    (c) Any entity that contracts with an eligible organization in 
paragraphs (a) or (b) of this section for constructing distance learning 
or telemedicine facilities for the purposes contained in Sec. 1703.141, 
except for those purposes in Sec. 1703.141(h).
    (d) Applicants must meet the minimum eligibility requirement for 
determining the extent to which the project serves rural areas as 
contained in Sec. 1703.126(b)(2) (the applicant must receive at least 20 
points to be eligible to receive financial assistance under this 
subpart).

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



Sec. 1703.141  Approved purposes for loans.

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

[[Page 81]]

resources. The Administrator will determine whether such costs will be 
financed based on information submitted by the applicant. Loans shall 
not be made exclusively to finance such costs, and financing for such 
costs will not exceed 20 percent of the loan provided to a project under 
this section; and
    (j) All of the costs needed to provide distance learning 
broadcasting to rural areas. Loans may be used to cover the costs of 
facilities and end-user equipment dedicated to providing educational 
broadcasting to rural areas for distance learning purposes. If the 
facilities are not 100 percent dedicated to broadcasting, a portion of 
the financing may be used to fund such facilities based on a percentage 
of use factor that approximates the distance learning broadcasting 
portion of use.

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



Sec. 1703.142  Nonapproved purposes for loans.

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

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



Sec. 1703.143  Maximum and minimum amounts.

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



Sec. 1703.144  Completed application.

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

[[Page 82]]

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

[[Page 83]]

any, in operating an educational or health care endeavor and any project 
similar to the project. Experience in a similar project is desirable but 
not required.
    (f) A telecommunications system plan. A telecommunications system 
plan, consisting of the following (the items in paragraphs (f)(4) and 
(f)(5) of this section are required only when the applicant is 
requesting a loan for telecommunications transmission facilities):
    (1) The capabilities of the telecommunications terminal equipment, 
including a description of the specific equipment which will be used to 
deliver the proposed service. The applicant must document discussions 
with various technical sources which could include consultants, 
engineers, product vendors, or internal technical experts, provide 
detailed cost estimates for operating and maintaining the end user 
equipment and provide evidence that alternative equipment and 
technologies were evaluated.
    (2) A listing of the proposed purchases or leases of 
telecommunications terminal equipment, telecommunications transmission 
facilities, data terminal equipment, interactive video equipment, 
computer hardware and software systems, and components that process data 
for transmission via telecommunications, computer network components, 
communication satellite ground station equipment, or any other elements 
of the telecommunications system designed to further the purposes of 
this subpart, that the applicant intends to build or fund using a loan.
    (3) A description of the consultations with the appropriate 
telecommunications carriers (including other interexchange carriers, 
cable television operators, enhanced service providers, providers of 
satellite services, and telecommunications equipment manufacturers and 
distributors) and the anticipated role of such providers in the proposed 
telecommunications system.
    (4) Results of discussions with local exchange carriers serving the 
project area addressing the concerns contained in Sec. 1703.141(h).
    (5) The capabilities of the telecommunications transmission 
facilities, including bandwidth, networking topology, switching, 
multiplexing, standards, and protocols for intra-networking and open 
systems architecture (the ability to effectively communicate with other 
networks). In addition, the applicant must explain the manner in which 
the transmission facilities will deliver the proposed services. For 
example, for medical diagnostics, the applicant might indicate whether 
or not a guest or other diagnosticians can join the network from 
locations off the network. For educational services, indicate whether or 
not all hub and end-user sites are able to simultaneously hear in real-
time and see each other or the instructional material in real-time. The 
applicant must include detailed cost estimates for operating and 
maintaining the network, and include evidence that alternative delivery 
methods and systems were evaluated.
    (g) Compliance with other Federal statutes. The applicant must 
provide evidence of compliance with other Federal statutes and 
regulations including, but not limited to the following:
    (1) E.O. 11246, Equal Employment Opportunity, as amended by E.O. 
11375 and as supplemented by regulations contained in 41 CFR part 60;
    (2) Architectural barriers;
    (3) Flood hazard area precautions;
    (4) Assistance and Real Property Acquisition Policies Act of 1970;
    (5) Drug-Free Workplace Act of 1998 (41 U.S.C. 701);
    (6) E.O.s 12549 and 12689, Debarment and Suspension;
    (7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352).
    (h) Environmental impact and historic preservation. (1) The 
applicant must provide details of the project's impact on the 
environment and historic preservation. Loans made under this part are 
subject to 7 CFR part 1794 which contains RUS' policies and procedures 
for implementing a variety of Federal statutes, regulations, and 
executive orders generally pertaining to the protection of the quality 
of the human environment that are listed in 7 CFR 1794.1. The 
application shall contain a separate section entitled ``Environmental 
Impact of the Project.''
    (2) The applicant may use the ``Environmental Questionnaire,'' 
available

[[Page 84]]

from RUS, to assist in complying with the requirements of this section.
    (i) Evidence of legal authority and existence. The applicant must 
provide evidence of its legal existence and authority to enter into debt 
with RUS and perform the activities proposed under the loan application.
    (j) Federal debt certification. The applicants must provide a 
certification that it is not delinquent on any obligation owed to the 
government (7 CFR parts 3016 and 3019).
    (k) Supplemental information. The applicant should provide any 
additional information it considers relevant to the project and likely 
to be helpful in determining the extent to which the project would 
further the purposes of this subpart.
    (l) Additional information required by RUS. The applicant must 
provide any additional information RUS determines is necessary to 
adequately evaluate the application. Modifications or changes, including 
changes in the loan amount requested, may be requested in any project 
described in an application submitted under this subpart.

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



Sec. 1703.145  Application selection provisions.

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

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



Sec. 1703.146  Submission of applications.

    (a) RUS will accept applications for loans submitted by RUS 
telecommunications General Field Representatives (GFRs), by Rural 
Development State Directors, or by applicants themselves. Applications 
for loans under this subpart may be filed at any time and will be 
evaluated as received on a non-competitive basis.
    (b) Applications submitted to the State Director, Rural Development, 
in the State serving the headquarters of the project will be evaluated 
as they

[[Page 85]]

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

[[Page 86]]

reasonable period of time to furnish the additional information.
    (3) If the application is determined suitable for further 
consideration by RUS, conduct a review of the application and financial 
assistance recommendation. A final determination will be made within 15 
days. If the Administrator determines that a loan can be approved, the 
applicant will be notified. Applications will be processed, and approved 
loans serviced, in accordance with Secs. 1703.105 through 1703.112 of 
subpart D.
    (4) If RUS determines that the application is not suitable for 
further consideration, notify the applicant with the reasons for this 
determination. The applicant will be offered appeal rights in accordance 
with Sec. 1703.147 of this subpart.



Sec. 1703.147  Appeals.

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



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

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



Sec. 1703.300  Purpose.

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



Sec. 1703.301  Policy.

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



Sec. 1703.302  Definitions and rules of construction.

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

[[Page 87]]

    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]



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

[[Page 88]]

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.



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.

[[Page 89]]

    (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 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

[[Page 90]]

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 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 ELECTRIC LOANS AND GUARANTEES--Table of Contents



                           Subpart A--General

Sec.
1710.1  General statement.
1710.2  Definitions and rules of construction.

[[Page 91]]

1710.3  Form and bulletin revisions.
1710.4  Exception authority.
1710.5  Availability of forms.
1710.6  Applicability of certain provisions to completed loan 
          applications.
1710.7-1710.49  [Reserved]

              Subpart B--Types of Loans and Loan Guarantees

1710.50  Insured loans.
1710.51  Direct loans.
1710.52  Loan guarantees.
1710.53-1710.99  [Reserved]

              Subpart C--Loan Purposes and Basic Policies.

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

             Subpart D--Basic Requirements for Loan Approval

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

                        Subpart E--Load Forecasts

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

         Subpart F--Construction Work Plans and Related Studies

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

                Subpart G--Long-Range Financial Forecasts

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

Subpart H [Reserved]

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

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


[[Page 92]]


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

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



                           Subpart A--General



Sec. 1710.1  General statement.

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

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

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

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



Sec. 1710.2  Definitions and rules of construction.

    (a) Definitions. For the purpose of this part, the following terms 
shall have the following meanings:
    Administrator means the Administrator of RUS or his or her designee.
    Approved load forecast means a load forecast that RUS has determined 
is current for RUS purposes and has been approved by RUS pursuant to 7 
CFR part 1710, subpart E.
    Approved load forecast work plan means a load forecast work plan 
that RUS has determined is current for RUS' purposes and has been 
approved pursuant to 7 CFR part 1710, subpart E.
    APRR means Average Adjusted Plant Revenue Ratio calculated as a 
simple average of the adjusted plant revenue ratios for 1978, 1979 and 
1980 as follows:
[GRAPHIC] [TIFF OMITTED] TC16SE91.000

where:

A=Distribution (plant), which equals Part E, Line 14(e) of RUS Form 7;
B=General Plant, which equals Part E, Line 24(e) of RUS Form 7;
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

[[Page 93]]

takes over the assets and assumes the liabilities of those 
organizations.
    Consumer means a retail customer of electricity, as reported on RUS 
Form 7, Part R, Lines 1-7.
    Demand side management (DSM) means the deliberate planning and/or 
implementation of activities to influence consumer use of electricity 
provided by a distribution borrower to produce beneficial modifications 
to the system load profile. Beneficial modifications to the system load 
profile ordinarily improve load factor or otherwise help in utilizing 
electric system resources to best advantage consistent with acceptable 
standards of service and lowest system cost. Load profile modifications 
are characterized as peak clipping, valley filling, load shifting, 
strategic conservation, strategic load growth, and flexible load 
profile. (See, for example, publications of the Electric Power Research 
Institute (EPRI), 3412 Hillview Avenue, Palo Alto, CA 94304, especially 
``Demand-Side Management Glossary'' EPRI TR-101158, Project 1940-25, 
Final Report, October 1992.) DSM includes energy conservation programs. 
It does not include sources of electrical energy such as renewable 
energy systems, fuel cells, or traditionally fueled generation, such as 
fossil or nuclear fueled generators.
    Distribution Borrower means a borrower that sells or intends to sell 
electric power and energy at retail in rural areas.
    Distribution Facilities means all electrical lines and related 
facilities beginning at the consumer's meter base, and continuing back 
to and including the distribution substation.
    Distributed generation is the generation of electricity by a 
sufficiently small electric generating system as to allow 
interconnection of the electric generating system near the point of 
service at distribution voltages including points on the customer side 
of the meter. A distributed generating system may be operated in 
parallel or independent of the electric power system. A distributed 
generating system may be fueled by any source, including but not limited 
to renewable energy sources. A distributed generation project may 
include one or more distributed generation systems.
    DSC means Debt Service Coverage of the borrower calculated as:
    [GRAPHIC] [TIFF OMITTED] TR29DE95.000
    
Where:

All amounts are for the same calendar year and are based on the RUS 
system of accounts and RUS Forms 7 and 12. References to line numbers in 
the RUS Forms 7 and 12 refer to the June 1994 version of RUS Form 7 and 
the December 1993 version of RUS Form 12, and will apply to 
corresponding information in future versions of the forms;
A=Depreciation and Amortization Expense of the borrower, which equals 
Part A, Line 12 of RUS Form 7 (distribution borrowers) or Section A, 
Line 20 of RUS Form 12a (power supply borrowers);
B=Interest expense on total long-term debt of the borrower, which equals 
Part A, Line 15 of RUS Form 7 or Section A, Line 22 of RUS Form 12a, 
except that interest expense shall be increased by \1/3\ of the amount, 
if any, by which restricted rentals of the borrower (Part M, Line 3 of 
RUS Form 7 or Section K, Line 4 of RUS Form 12h) exceed 2 percent of the 
borrower's equity (RUS Form 7, Part C, Line 36 [Total 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.

[[Page 94]]

    Electric system means all of the borrower's interests in all 
electric production, transmission, distribution, conservation, load 
management, general plant and other related facilities, equipment or 
property and in any mine, well, pipeline, plant, structure or other 
facility for the development, production, manufacture, storage, 
fabrication or processing of fossil, nuclear, or other fuel or in any 
facility or rights with respect to the supply of water, in each case for 
use, in whole or in major part, in any of the borrower's generating 
plants, including any interest or participation of the borrower in any 
such facilities or any rights to the output or capacity thereof, 
together with all lands, easements, rights-of-way, other works, 
property, structures, contract rights and other tangible and intangible 
assets of the borrower in each case used or useful in such electric 
system.
    Equity means total margins and equities, which equals Part C, Line 
33 of RUS Form 7 (distribution borrowers) or Section B, Line 34 of RUS 
Form 12a (power supply borrowers).
    Final maturity means the final date on which all outstanding 
principal and accrued interest on an electric loan is due and payable.
    Five percent hardship rate means an interest rate of 5 percent 
applicable to a hardship rate loan.
    Fund advance period means the period of time during which the 
Government may advance loan funds to the borrower. See 7 CFR 1714.56.
    Generation Facilities means the generating plant and related 
facilities, including the building containing the plant, all fuel 
handling facilities, and the stepup substation used to convert the 
generator voltage to transmission voltage, as well as related energy 
management (dispatching) systems.
    Hardship rate loan means a loan made at the 5 percent hardship rate 
pursuant to 7 CFR 1714.8.
    Insured Loan means a loan made pursuant to Section 305 of the RE 
Act, and may include a direct loan made under Section 4 of the RE Act.
    Integrated Resources Plan (IRP) means a plan resulting from the 
planning and selection process for new energy resources that evaluates 
the benefits and costs of the full range of alternatives, including new 
generating capacity, power purchases, DSM programs, system operating 
efficiency, and renewable energy systems.
    Interest rate cap means a maximum interest rate of 7 percent 
applicable to certain municipal rate loans as set forth in Sec. 1710.7.
    Interest rate term means a period of time selected by the borrower 
for the purpose of determining the interest rate on an advance of funds. 
See 7 CFR 1714.6.
    Load forecast means the thorough study of a borrower's electric 
loads and the factors that affect those loads in order to determine, as 
accurately as practicable, the borrower's future requirements for energy 
and capacity.
    Load forecast work plan means the plan that contains the resources, 
methods, schedules, and milestones to be used in the preparation and 
maintenance of a load forecast.
    Loan means any loan made or guaranteed by RUS.
    Loan Contract means the agreement, as amended, supplemented, or 
restated from time to time, between a borrower and RUS providing for 
loans made or guaranteed pursuant to the RE Act.
    Loan Feasibility means that the borrower has the capability of 
repaying the loan in full as scheduled, in accordance with the terms of 
the mortgage, note, and loan contract.
    Loan Guarantee means a loan guarantee made by RUS pursuant to the RE 
Act.
    Loan period means the period of time during which the facilities 
included in a loan application will be constructed. It commences with 
the date shown on page 1, in the block headed ``Cost Estimates as of,'' 
of RUS Form 740c, Cost Estimates and Loan Budget for Electric Borrowers, 
which is the same as the date on the Financial and Statistical Report 
submitted with the loan application. The loan period may be up to 4 
years for distribution borrowers and, except in the case of a loan for 
new generating and associated transmission facilities, up to 4 years for 
the transmission facilities and improvements or replacements of 
generation facilities for power supply borrowers.

[[Page 95]]

The loan period for new generating facilities is determined on a case by 
case basis.
    Merger means the combining, pursuant to state law, of borrower or 
nonborrower organizations into an existing survivor organization that 
takes over the assets and assumes the liabilities of the merged 
organizations.
    Mortgage means any and all instruments creating a lien on or 
security interest in the borrower's assets in connection with loans or 
guarantees under the RE Act.
    Municipal rate loan means a loan made at a municipal interest rate 
pursuant to 7 CFR 1714.5.
    ODSC means Operating Debt Service Coverage of the electric system 
calculated as:
[GRAPHIC] [TIFF OMITTED] TR29DE95.001

Where:

All amounts are for the same calendar year and are based on the RUS 
system of accounts and RUS Form 7. References to line numbers in the RUS 
Form 7 refer to the June 1994 version of the form, and will apply to 
corresponding information in future versions of the form;
A=Depreciation and Amortization Expense of the electric system, which 
usually equals Part A, Line 12 of RUS Form 7;
B=Interest expense on total long-term debt of the electric system, which 
usually equals Part A, Line 15 of RUS Form 7, except that such interest 
expense shall be increased by \1/3\ of the amount, if any, by which 
restricted rentals of the electric system (usually Part M, Line 3 of RUS 
Form 7) exceed 2 percent of the borrower's equity (RUS Form 7, Part C, 
Line 36 [Total Margins & Equities] less Line 26 [Regulatory Assets]);
C=Patronage Capital & Operating Margins of the electric system, which 
usually equals Part A, Line 20 of RUS Form 7, plus cash received from 
the retirement of patronage capital by suppliers of electric power and 
by lenders for credit extended for the Electric System; and
D=Debt Service Billed (RUS + other), which equals the sum of all 
payments of principal and interest required to be made on account of 
total long-term debt of the electric system during the calendar year, 
plus \1/3\ of the amount, if any, by which restricted rentals of the 
Electric System (usually Part M, Line 3 of RUS Form 7) exceed 2 percent 
of the borrower's equity (RUS Form 7, Part C, Line 36 [Total Margins & 
Equities] less Line 26 [Regulatory Assets]).

    Off-grid renewable energy system is a renewable energy system not 
interconnected to an area electric power system (EPS). An off-grid 
renewable energy system in areas without access to an area EPS may 
include energy consuming devices and electric wiring to provide for more 
effective or more efficient use of the electricity produced by the 
system.
    On-grid renewable energy system is a renewable energy system 
interconnected to an area electric power system (EPS) through a normally 
open or normally closed device. It can be interconnected to the EPS on 
either side of a customer's meter.
    Ordinary Replacement means replacing one or more units of plant, 
called ``retirement units'', with similar units when made necessary by 
normal wear and tear, damage beyond repair, or obsolescence of the 
facilities.
    OTIER means Operating Times Interest Earned Ratio of the electric 
system calculated as:
[GRAPHIC] [TIFF OMITTED] TR29DE95.002

Where:

All amounts are for the same calendar year and are based on the RUS 
system of accounts and RUS Form 7. References to line numbers in the RUS 
Form 7 refer to the June 1994 version of the form, and will apply to 
corresponding information in future versions of the form;
A=Interest expense on total long-term debt of the electric system, which 
usually equals Part A, Line 15 of RUS Form 7, except that such interest 
expense shall be increased by \1/3\ of the amount, if any, by which 
restricted rentals of the electric system (usually Part M, Line 3 of RUS 
Form 7) exceed 2 percent of the borrower's equity (RUS Form 7, Part C, 
Line 36 [Total Margins & Equities] less Line 26 [Regulatory Assets]); 
and
B=Patronage Capital & Operating Margins of the electric system, which 
usually equals Part A, Line 20 of RUS Form 7, plus cash received from 
the retirement of patronage capital by suppliers of electric power and 
by lenders for credit extended for the Electric System.

    Power requirements study (PRS) has the same meaning as load 
forecast.

[[Page 96]]

    Power Supply Borrower means a borrower that sells or intends to sell 
electric power at wholesale to distribution or power supply borrowers 
pursuant to RUS wholesale power contracts.
    Prepayment option means a provision included in the loan documents 
to allow the borrower to prepay all or a portion of an advance on a 
municipal rate loan on a date other than a rollover maturity date. See 7 
CFR 1714.9.
    PRR means Plant Revenue Ratio calculated as:
    [GRAPHIC] [TIFF OMITTED] TC16SE91.001
    
where:

A = Total Utility Plant, which equals Part C, Line 3 of RUS Form 7;
B = Operating Revenue and Patronage Capital, which equals Part A, Line 1 
of RUS Form 7; and
C = Cost of Power, which equals the sum of Part A, Lines 2, 3, and 4 of 
RUS Form 7.

    PRS work plan has the same meaning as load forecast work plan.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    RE Act beneficiary means a person, business, or other entity that is 
located in a rural area.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    Renewable energy system is an energy conversion system fueled from 
any of the following energy sources: Solar, wind, hydropower, biomass, 
or geothermal. Any of these energy sources may be converted to heat or 
electricity, provided heat is a by-product of electricity generation. 
Non-renewable energy sources may be used by a renewable energy system 
for incidental and necessary means such as, but not limited to, system 
start up, flame stabilization, continuity of system processes, or 
reduction of the moisture content of renewable fuels. Energy from bio-
mass may be converted from any organic matter available on a renewable 
basis, including dedicated energy crops and trees, agricultural food and 
feed crops, agricultural crop wastes and residues, wood wastes and 
residues, aquatic plants, animal wastes, municipal wastes, and other 
waste materials.
    Retirement Unit means a substantial unit of property, which when 
retired, with or without being replaced, is accounted for by removing 
its book cost from the plant account.
    Rollover maturity date means the last day of an interest rate term.
    Rural area means any area of the United States, its territories and 
insular possessions (including any area within the Federated States of 
Micronesia, the Marshall Islands, and the Republic of Palau) not 
included within the boundaries of any urban area, as defined by the 
Bureau of the Census. For purposes of the ``rural area'' definition, the 
character of an area is determined at the time of the initial loan to 
furnish or improve service in the area.
    (i) For initial RUS loans made prior to November 1, 1993, the RE Act 
defined ``rural area'' to mean any area of the United States not 
included within the boundaries of any city, village, or borough having a 
population exceeding 1500. An area determined to be a ``rural area'' for 
the purposes of an initial loan made prior to November 1, 1993, shall 
continue to be considered a ``rural area.''
    (ii) For initial RUS loans made on or after November 1, 1993, this 
definition shall apply. In determining the character of the area, RUS 
will rely on the Bureau of the Census designation.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    Subtransmission Facilities means the transmission facilities that 
connect the high voltage side of the distribution substation to the low 
voltage side of the bulk transmission or generating facilities, as well 
as related supervisory control and data acquisition facilities.
    System Improvement means the change or addition to electric plant 
facilities

[[Page 97]]

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; 65 FR 
14786, Mar. 20, 2000; 68 FR 37953, June 26, 2003]



Sec. 1710.3  Form and bulletin revisions.

    References in this part to RUS or REA forms or line numbers in RUS 
or REA forms are based on RUS or REA Form 7 and Form 12 dated December 
1992, unless otherwise indicated. These references will apply to 
corresponding information in future versions of the forms. The terms 
``RUS form'', ``RUS standard form'', ``RUS specification'', and ``RUS 
bulletin'' have the same meanings as the terms ``REA form'', ``REA 
standard form'', ``REA specification'', and ``REA bulletin'', 
respectively, unless otherwise indicated.

[59 FR 66440, Dec. 27, 1994]



Sec. 1710.4  Exception authority.

    Consistent with the RE Act and other applicable laws, the 
Administrator may waive or reduce any requirement imposed by this part 
or other RUS regulations on an electric borrower, or a lender whose loan 
is guaranteed by

[[Page 98]]

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]



Secs. 1710.7-1710.49  [Reserved]



              Subpart B--Types of Loans and Loan Guarantees



Sec. 1710.50  Insured loans.

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

[58 FR 66263, Dec. 20, 1993]



Sec. 1710.51  Direct loans.

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

[[Page 99]]

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

[66 FR 66294, Dec. 26, 2001]



Sec. 1710.52  Loan guarantees.

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

[58 FR 66264, Dec. 20, 1993]



Secs. 1710.53-1710.99  [Reserved]



               Subpart C--Loan Purposes and Basic Policies



Sec. 1710.100  General.

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

[58 FR 66264, Dec. 20, 1993]



Sec. 1710.101  Types of eligible borrowers.

    (a) RUS makes loans to corporations, states, territories, and 
subdivisions and agencies thereof; municipalities; people's utility 
districts; and cooperative, nonprofit, limited-dividend, or mutual 
associations that provide or propose to provide:
    (1) The retail electric service needs of rural areas, or
    (2) The power supply needs of distribution borrowers under the terms 
of power supply arrangements satisfactory to RUS.
    (b) In making loans, RUS gives preference to states, territories, 
and subdivisions and agencies thereof; municipalities; people's utility 
districts; and

[[Page 100]]

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 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) Direct loans under section 4. Direct loans are normally reserved 
for the financing of distribution and subtransmission facilities of both 
distribution and power supply borrowers, including, under certain 
circumstances, the implementation of demand side management, energy 
conservation programs, and on grid and off grid renewable energy 
systems.
    (c) One hundred percent loan guarantees under section 306. Both 
distribution and power supply borrowers are eligible for 100 percent 
loan guarantees under section 306 of the RE Act for any or all of the 
purposes set forth in Sec. 1710.106, including, under certain 
circumstances, the implementation of demand side management, energy 
conservation programs, and on grid and off grid renewable energy 
systems. (See 7 CFR part 1712). These guarantees are normally used to 
finance bulk transmission and generation facilities, but they may also 
be used to finance distribution and subtransmission facilities. If a 
borrower applies for a section

[[Page 101]]

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.
    (d) One hundred percent loan guarantees under section 306A. Under 
section 306A of the RE Act, both distribution and power supply borrowers 
are eligible under certain conditions to use an existing section 306 
guarantee to refinance advances made on or before July 2, 1986 from a 
loan made by the Federal Financing Bank. (See 7 CFR part 1786.)
    (e) Ninety percent guarantees of private-sector loans under section 
311. Under section 311 of the RE Act, both distribution and power supply 
borrowers in the state of Alaska are eligible under certain conditions 
to obtain from RUS a 90 percent guarantee of a private-sector loan to 
refinance their Federal Financing Bank loans. (See 7 CFR part 1786.)

[57 FR 2832, Jan. 24, 1992, as amended at 58 FR 66264, Dec. 20, 1993; 66 
FR 66294, Dec. 26, 2001]



Sec. 1710.103  Area coverage.

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

[57 FR 1053, Jan. 9, 1992, as amended at 60 FR 67404, Dec. 29, 1995]



Sec. 1710.104  Service to non-RE Act beneficiaries.

    (a) To the greatest extent practical, loans are limited to providing 
and improving electric facilities to serve consumers that are RE Act 
beneficiaries. When it is determined by the Administrator to be 
necessary in order to furnish or improve electric service in rural 
areas, loans may, under certain circumstances, be made to finance 
electric facilities to serve consumers that are not RE Act 
beneficiaries.
    (b) Loan funds may be approved for facilities to serve non-RE Act 
beneficiaries only if:
    (1) The primary purpose of the loan is to furnish or improve service 
for RE Act beneficiaries; and
    (2) The use of loan funds to serve non-RE Act beneficiaries is 
necessary and incidental to the primary purpose of the loan.

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



Sec. 1710.105  State regulatory approvals.

    (a) In States where a borrower is required to obtain approval of a 
project or its financing from a state regulatory authority, RUS may 
require that such approvals be obtained, if feasible for the borrower to 
do so, before the following types of loans are approved by RUS:
    (1) Loans requiring an Environmental Impact Statement;
    (2) Loans to finance generation and transmission facilities, when 
the loan request for such facilities is $25 million or more; and
    (3) Loans for the purpose of assisting borrowers to implement demand 
side management and energy conservation programs and on and off grid 
renewable energy systems.
    (b) At minimum, in the case of all loans in states where state 
regulatory approval is required of the project or its financing, such 
state approvals will

[[Page 102]]

be required before loan funds are advanced.
    (c) In cases where state regulatory authority approval has been 
obtained, but the borrower has failed to proceed with the project in a 
timely manner according to the schedule contained in the borrower's 
project design manual, or if there are cost overruns or other 
developments that threaten loan feasibility or security, RUS may require 
the borrower to obtain a reaffirmation of the project and its financing 
from the state authority before any additional loan funds are advanced.

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



Sec. 1710.106  Uses of loan funds.

    (a) Funds from loans made or guaranteed by RUS may be used to 
finance:
    (1) Distribution facilities. (i) The construction of new 
distribution facilities or systems, the cost of system improvements and 
removals less salvage value, the cost of ordinary replacements and 
removals less salvage value, needed to meet load growth requirements, 
improve the quality of service, or replace existing facilities.
    (ii) The purchase, rehabilitation and integration of existing 
distribution facilities and associated service territory when the 
acquisition is an incidental and necessary means of providing or 
improving service to persons in rural areas who are not receiving 
adequate central station service, and the borrower is unable to finance 
the acquisition from other sources. See Sec. 1710.107.
    (2) Transmission and generation facilities. (i) The construction of 
new transmission and generation facilities or systems, the cost of 
system improvements and removals, less salvage value, the cost of 
ordinary replacements and removals less salvage value, needed to meet 
load growth, improve the quality of service, or replace existing 
facilities.
    (ii) The purchase of an ownership interest in new or existing 
transmission or generation facilities to serve RE Act beneficiaries.
    (3) Warehouse and garage facilities. The purchase, remodeling, or 
construction of warehouse and garage facilities required for the 
operation of a borrower's system. See paragraph (b) of this section.
    (4) Interest. The payment of interest on indebtedness incurred by a 
borrower to finance the construction of generation and transmission 
facilities during the period preceding the date such facilities are 
placed into service, if requested by the borrower and found necessary by 
RUS.
    (5) Certain costs incurred in demand side management, energy 
conservation programs and on and off grid renewable energy systems.
    (b) In cases of financial hardship, as determined by the 
Administrator, loans may also be made to finance the following items:
    (1) The headquarters office and other headquarters facilities in 
addition to those cited in paragraph (a)(4) of this section;
    (2) General plant equipment, including furniture, office, 
transportation, data processing and other work equipment; and
    (3) Working capital required for the initial operation of a new 
system.
    (c) RUS will not make loans to finance the following:
    (1) Electric facilities, equipment, appliances, or wiring located 
inside the premises of the consumer, except qualifying items included in 
a loan for demand side management or energy resource conservation 
programs, or on or off grid renewable energy systems;
    (2) Facilities to serve consumers who are not RE Act beneficiaries 
unless those facilities are necessary and incidental to providing or 
improving electric service in rural areas (See Sec. 1710.104);
    (3) Any facilities or other purposes that a state regulatory 
authority having jurisdiction will not approve for inclusion in the 
borrower's rate base, or will not otherwise allow rates sufficient to 
repay with interest the debt incurred for the facilities or other 
purposes; and
    (4) Any facilities or other specific purposes that were included in 
a loan made or guaranteed by RUS that the borrower has prepaid or that 
has been rescinded.
    (d) A distribution borrower may request a loan period of up to 4 
years. Except in the case of loans for new generating and associated 
transmission facilities, a power supply borrower may

[[Page 103]]

request a loan period of not more than 4 years for transmission and 
substation facilities and improvements or replacements of generation 
facilities. The loan period for new generating facilities is determined 
on a case by case basis. The loan period for DSM activities will be 
determined in accordance with Sec. 1710.355. The Administrator may 
approve a loan period shorter than the period requested by the borrower, 
if in the Administrator's sole discretion, a loan made for the longer 
period would fail to meet RUS requirements for loan feasibility and loan 
security set forth in Secs. 1710.112 and 1710.113, respectively.
    (e)(1) If, in the sole discretion of the Administrator, the amount 
authorized for lending for municipal rate loans, hardship rate loans, 
and loan guarantees in a fiscal year is substantially less than the 
total amount eligible for RUS financing, RUS may limit the size of all 
loans of that type approved during the fiscal year. Depending on the 
amount of the shortfall between the amount authorized for lending and 
the loan application inventory on hand for each type of loan, RUS may 
either reduce the amount on an equal proportion basis for all applicants 
for that type of loan based on the amount of funds for which the 
applicant is eligible, or may shorten the loan period for which funding 
will be approved to less than the maximum of 4 years. All applications 
for the same type of loan approved during a fiscal year will be treated 
in the same manner, except that RUS will not limit funding to any 
borrower requesting an RUS loan or loan guarantee of $1 million or less.
    (2) If RUS limits the amount of loan funds approved for borrowers, 
the Administrator shall notify all electric borrowers early in the 
fiscal year of the manner in which funding will be limited. The portion 
of the loan application that is not funded during that fiscal year may, 
at the borrower's option, be treated as a second loan application 
received by RUS at a later date. This date will be determined by RUS in 
the same manner for all affected loans and will be based on the 
availability of loan funds. The second loan application shall be 
considered complete except that the borrower must submit a certification 
from a duly authorized corporate official stating that funds are still 
needed for loan purposes specified in the original application and must 
notify RUS of any changes in its circumstances that materially affects 
the information contained in the original loan application or the 
primary support documents. See 7 CFR 1710.401(f).
    (f)(1) For borrowers having one or more loans approved on or after 
October 1, 1991, advances of funds will be made only for the primary 
budget purposes included in the loan as shown on RUS Form 740c as 
amended and approved by RUS, or on a construction work plan or a 
construction work plan amendment approved by RUS. Each advance will be 
charged to the oldest outstanding note(s) having unadvanced funds for 
the primary budget purpose for which the request for advances was made, 
regardless of whether such notes are associated with loans approved 
before or after October 1, 1991, unless any conditions on advances under 
any of these notes have not been met by the borrower.
    (2) For borrowers whose most recent loan was approved before October 
1, 1991, advances will be made on the oldest outstanding note having 
unadvanced funds, unless any conditions on advances under such note have 
not been met by the borrower.

[57 FR 1053, Jan. 9, 1992, as amended at 58 FR 66265, Dec. 20, 1993; 60 
FR 3730, Jan. 19, 1995; 62 FR 7922, Feb. 21, 1997; 64 FR 33178, June 22, 
1999]



Sec. 1710.107  Amount lent for acquisitions.

    The maximum amount that will be lent for an acquisition is limited 
to the value of the property, as determined by RUS. If the acquisition 
price exceeds this amount, the borrower shall provide the remainder 
without RUS financial assistance.



Sec. 1710.108  Mergers and consolidations.

    (a) RUS encourages its borrowers to consider merging or 
consolidating with another electric borrower when such action will 
contribute to greater operating efficiency and financial soundness.
    (b) After a merger or consolidation, RUS will give priority 
consideration per Sec. 1710.119 to the processing of loans

[[Page 104]]

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]



Sec. 1710.110  Supplemental financing.

    (a) Except in the case of financial hardship as determined by the 
Administrator, and following certain mergers, consolidations, and 
transfers of systems substantially in their entirety as set forth in 7 
CFR 1717.154, applicants for a municipal rate loan will be required to 
obtain a portion of their loan funds from a supplemental source without 
an RUS guarantee, in the amounts set forth in paragraph (c) of this 
section. RUS will normally grant a lien accommodation to the 
supplemental lender. RUS does not require supplemental financing in 
conjunction with an RUS guaranteed loan. However, if a borrower elects 
to obtain supplemental financing in conjunction with a guaranteed loan, 
the granting of RUS's loan guarantee may be conditioned on the 
borrower's obtaining supplemental financing.
    (b) The terms and conditions of supplemental financing and any 
security offered to the supplemental lender are subject to RUS approval. 
Generally, supplemental loans must have the same final maturity and be 
amortized

[[Page 105]]

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

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

Supplemental financing amount, new loan = 
    (AxC1)+(BxC2)-D


[[Page 106]]


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]



Sec. 1710.111  Refinancing.

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



Sec. 1710.112  Loan feasibility.

    (a) RUS will make a loan only if there is reasonable assurance that 
the loan, together with all outstanding loans and other obligations of 
the borrower, will be repaid in full as scheduled, in accordance with 
the mortgage, notes, and loan contracts. The borrower must provide 
evidence satisfactory to the Administrator that the loan will be repaid 
in full as scheduled, and that all other obligations of the borrower 
will be met.
    (b) Based on evidence submitted by the borrower and other 
information, RUS will use the following criteria to evaluate loan 
feasibility:
    (1) Projections of power requirements, rates, revenues, expenses, 
margins, and other factors for the present system and proposed additions 
are based on reasonable assumptions and adequate supporting data and 
analysis, including analysis of a range of assumptions for the 
significant variables, when required by Sec. 1710.300(d)(5).
    (2) Projected revenues from the rates proposed by the borrower are 
adequate to meet the required TIER and DSC ratios based on the 
borrower's total costs, including the projected maximum debt service 
cost of the new loan.
    (3) The economics of the borrower's operations and service area are 
such that consumers can reasonably be expected to pay the proposed rates 
required to cover all expenses and meet RUS TIER and DSC requirements, 
and the borrower can reasonably compete with other utilities and other 
energy sources to prevent substantial load loss while providing 
satisfactory service to its consumers.
    (4) Risks of possible loss of substantial loads from large consumers 
or from load concentrations in particular industries will not 
substantially impair loan feasibility.
    (5) Risks of loss of portions of the borrower's service territory 
from annexation or other causes will not substantially impair loan 
feasibility. If there appears to be a substantial risk, RUS may require 
additional information from the borrower, such as a summary and analysis 
of the risk by the borrower; state, county or local planning reports 
having information on projected growth or expansion plans of

[[Page 107]]

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.
    (c) RUS considers a loan to be feasible only if the borrower's 
electric system is year 2000 compliant, or if the borrower provides RUS 
with evidence, satisfactory to RUS, that it is taking measures necessary 
to ensure that its electric system will be year 2000 compliant on or 
before December 31, 1999. Year 2000 compliant means that product 
performance and function are not affected by dates before, during, and a 
reasonable time after the year 2000.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5, 1992, as amended at 60 FR 
3731, Jan. 19, 1995; 63 FR 51793, Sept. 29, 1998]



Sec. 1710.113  Loan security.

    (a) RUS makes loans only if, in the judgment of the Administrator, 
the security therefor is reasonably adequate and the loan will be repaid 
according to its terms within the time agreed.
    (b) RUS generally requires that borrowers provide it with a first 
lien on all of the borrower's real and personal property, including 
intangible personal property and any property acquired after the date of 
the loan. This lien shall be in the form of a mortgage by the borrower 
to the Government or a deed of trust between the borrower and a trustee 
satisfactory to the Administrator, together with such security documents 
as RUS may deem necessary in a particular case.
    (c)(1) When a borrower is unable by reason of preexisting 
encumbrances, or otherwise, to furnish a first mortgage lien on its 
entire system the Administrator may accept other forms of security, such 
as a pledge of revenues, if he or she determines such security is 
reasonably adequate and the form and nature thereof is otherwise 
acceptable.
    (2) The Administrator, at his or her discretion, may approve the use 
of an indenture patterned after those indentures commonly used by 
utilities engaged in private market financing, in lieu of a mortgage as 
the security instrument for loans to power supply borrowers. The use of 
an indenture will be by mutual agreement of the borrower and the 
Administrator. The terms of each indenture and related loan agreement 
will be negotiated on a case by case basis to best meet the needs of the 
individual borrower and the Government. The provisions of the indenture 
and loan contract shall control, notwithstanding any provisions of 7 CFR 
Chapter XVII which may be in conflict therewith.
    (d) In the case of loans that include the financing of electric 
facilities that are operated as an integral component of a non-RUS 
financed system (such as generation and transmission facilities co-owned 
with other electric utilities),

[[Page 108]]

the borrower shall, in addition to the mortgage lien on all of the 
borrower's electric facilities, furnish adequate assurance, in the form 
of contractual or other security arrangements, that the system will be 
operated on an efficient and continuous basis. Satisfactory evidence 
must also be provided that the non-RUS financed system is financially 
sound and under capable management. Examples of such evidence include 
financial reports, annual reports, Security and Exchange Commission 10K 
reports if the system is required to file them, credit reports from 
Standard and Poor's, Moodys or other recognized sources, reports to 
state regulatory authorities and the Federal Energy Regulatory 
Commission, and evidence of a successful track record in related 
construction projects.
    (e) Additional controls on the borrower's financial, investment and 
managerial activities appear in the loan contract and mortgage required 
by RUS.

[57 FR 1053, Jan. 9, 1992, as amended at 62 FR 7665, Feb. 20, 1997]



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

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

[[Page 109]]

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; 
65 FR 51748, Aug. 25, 2000]



Sec. 1710.115  Final maturity.

    (a) RUS is authorized to make loans and loan guarantees with a final 
maturity of up to 35 years. The borrower may elect a repayment period 
for a loan not longer than the expected useful life of the facilities, 
not to exceed 35 years. Most of the electric facilities financed by RUS 
have a long useful life, often approximating 35 years. Some facilities, 
such as load management equipment and Supervisory Control and Data 
Acquisition equipment, have a much shorter useful life due, in part, to 
obsolescence. Operating loans to finance working capital required for 
the initial operation of a new system

[[Page 110]]

are a separate class of loans and usually have a final maturity of less 
than 10 years.
    (b) Loans made or guaranteed by RUS for facilities owned by the 
borrower generally must be repaid with interest within a period, up to 
35 years, that approximates the expected useful life of the facilities 
financed. The expected useful life shall be based on the weighted 
average of the useful lives that the borrower proposes for the 
facilities financed by the loan, provided that the proposed useful lives 
are deemed appropriate by RUS. RUS Form 740c, Cost Estimates and Loan 
Budget for Electric Borrowers, submitted as part of the loan application 
must include, as a note, either a statement certifying that at least 90 
percent of the loan funds are for facilities that have a useful life of 
33 years or longer, or a schedule showing the costs and useful life of 
those facilities with a useful life of less than 33 years. If the useful 
life determination proposed by the borrower is not deemed appropriate by 
RUS, RUS will base expected useful life on an independent evaluation, 
the manufacturer's estimated useful-life or RUS experience with like-
property, as applicable. Final maturities for loans for the 
implementation of programs for demand side management and energy 
resource conservation and on and off grid renewable energy sources not 
owned by the borrower will be determined by RUS. Due to the uncertainty 
of predictions over an extended period of time, RUS may add up to 2 
years to the composite average useful life of the facilities in order to 
determine final maturity.
    (c) [Reserved]
    (d) The Administrator may approve a repayment period longer than the 
expected useful life of the facilities financed, up to 35 years, if a 
longer final maturity is required to ensure repayment of the loan and 
loan security is adequate.
    (e) The final maturity of a loan established pursuant to the 
provisions of this section shall not be extended as a result of 
extending loan payments under section 12(a) of the RE Act.

[58 FR 66265, Dec. 20, 1993, as amended at 60 FR 3731, Jan. 19, 1995; 68 
FR 54236, May 7, 2003]



Sec. 1710.116  [Reserved]



Sec. 1710.117  Environmental considerations.

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



Sec. 1710.118  [Reserved]



Sec. 1710.119  Loan processing priorities.

    (a) Generally loans are processed in chronological order based on 
the date the complete application is received in the Regional office.
    (b) The Administrator may give priority to processing loans that are 
required to meet the following needs:
    (1) To restore electric service following a major storm or other 
catastrophe;
    (2) To bring existing electric facilities into compliance with any 
environmental requirements imposed by Federal or state law that were not 
in effect at the time the facilities were originally constructed;
    (3) To finance the capital needs of borrowers that are the result of 
a merger, consolidation, or a transfer of a system substantially in its 
entirety, provided that the merger, consolidation, or transfer has 
either been approved by RUS or does not need RUS approval pursuant to 
the borrower's loan documents (See 7 CFR 1717.154); or
    (4) To correct serious safety problems, other than those resulting 
from borrower mismanagement or negligence.
    (c) The Administrator may also change the normal order of processing 
loan applications when it is necessary to ensure that all loan authority 
for the fiscal year is utilized.

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

[[Page 111]]



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) 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,

[[Page 112]]

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) Load forecast. The load forecast provides the borrower and RUS 
with an understanding of the borrower's future system loads, the factors 
influencing those loads, and estimates of future loads. The load 
forecast provides a basis for projecting annual electricity (kWh) sales 
and revenues, and for engineering estimates of plant additions required 
to provide reliable service to meet the forecasted loads. Subpart E of 
this part contains the information to be included in a load forecast and 
when an approved load forecast is required.
    (b) Construction work plan (CWP). The CWP shall specify and document 
the capital investments required to serve a borrower's planned new 
loads, improve service reliability and quality, and service the changing 
needs of existing loads. The requirements for a CWP are set forth in 
subpart F of this part.
    (c) Long-range financial forecasts. RUS encourages borrowers to 
maintain on a current basis a long-range financial forecast, which 
should be used by a borrower's board of directors and manager to guide 
the system toward its financial goals. The forecast submitted in support 
of a loan application shall show the projected results of future actions 
planned by the board of directors. The requirements for a long-range 
financial forecast are set forth in subpart G of this part.
    (d) Borrower's environmental report (BER). This document is used to 
determine what effect the construction of the facilities included in the 
construction work plan will have on the environment. In developing a BER 
a borrower shall follow the policy and procedural requirements set forth 
in 7 CFR part 1794. After reviewing the BER, RUS will determine whether 
additional environmental studies will be required.

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



Sec. 1710.153  Additional requirements and procedures.

    Additional requirements and procedures for obtaining RUS financial 
assistance are set forth in 7 CFR part 1712 for loan guarantees, and in 
7 CFR part 1714 for insured loans.



Secs. 1710.154-1710.199  [Reserved]



                        Subpart E--Load Forecasts

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

[[Page 113]]



Sec. 1710.200  Purpose.

    This subpart contains RUS policies for the preparation, review, 
approval and use of load forecasts and load forecast work plans. A load 
forecast is a thorough study of a borrower's electric loads and the 
factors that affect those loads in order to estimate, as accurately as 
practicable, the borrower's future requirements for energy and capacity. 
The load forecast of a power supply borrower includes and integrates the 
load forecasts of its member systems. An approved load forecast, if 
required by this subpart, is one of the primary documents that a 
borrower is required to submit to support a loan application.



Sec. 1710.201  General.

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



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

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



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

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

[[Page 114]]

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



Sec. 1710.204  Filing requirements for borrowers that must maintain an approved load forecast on an ongoing basis.

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



Sec. 1710.205  Minimum approval requirements for all load forecasts.

    (a) Documents required for RUS approval of a borrower's load 
forecast. The borrower must provide the following documents to obtain 
RUS approval for a load forecast:
    (1) The load forecast and supporting documentation;
    (2) A memorandum from the borrower's general manager to the board of 
directors recommending that the board approve the load forecast and its 
uses; and
    (3) A board resolution from the borrower's board of directors 
approving the load forecast and its uses.
    (b) Contents of Load Forecast. All load forecasts submitted by 
borrowers for approval must include:

[[Page 115]]

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



Sec. 1710.206  Approval requirements for load forecasts prepared pursuant 
to approved load forecast work plans.

    (a) Contents of load forecasts prepared under an approved load 
forecast work plan. In addition to the minimum requirements for load 
forecasts under Sec. 1710.205, load forecasts developed and submitted by 
borrowers required to have an approved load forecast work plan shall 
include the following:
    (1) Scope of the load forecast. The narrative shall address the 
overall approach, time periods, and expected internal and external uses 
of the forecast. Examples of internal uses include providing information 
for developing or monitoring demand side management programs, supply 
resource planning, load flow studies, wholesale power marketing, retail 
marketing, cost of service studies, rate policy and development, 
financial planning, and

[[Page 116]]

evaluating the potential effects on electric revenues caused by 
competition from alternative energy sources or other electric suppliers. 
Examples of external uses include meeting state and Federal regulatory 
requirements, obtaining financial ratings, and participation in 
reliability council, power pool, regional transmission group, power 
supplier or member system forecasting and planning activities.
    (2) Resources used to develop the load forecast. The discussion 
shall identify and discuss the borrower personnel, consultants, data 
processing, methods and other resources used in the preparation of the 
load forecast. The borrower shall identify the borrower's member and, as 
applicable, member personnel that will serve as project leaders or 
liaisons with the authority to make decisions and commit resources 
within the scope of the current and future work plans.
    (3) A comprehensive description of the database used in the study. 
The narrative shall describe the procedures used to collect, develop, 
verify, validate, update, and maintain the data. A data dictionary 
thoroughly defining the database shall be included. The borrower shall 
make all or parts of the database available or otherwise accessible to 
RUS in electronic format, if requested.
    (4) A narrative for each new load forecast or update of a load 
forecast discussing the methods and procedures used in the analysis and 
modeling of the borrower's electric system loads as provided for in the 
load forecast work plan.
    (5) A narrative discussing the borrower's past, existing, and 
forecast of future electric system loads. The narrative must identify 
and explain substantive assumptions and other pertinent information used 
to support the estimates presented in the load forecast.
    (6) A narrative discussing load forecast uncertainty or alternative 
futures that may determine the borrower's actual loads. Examples of 
economic scenarios, weather conditions, and other uncertainties that 
borrowers may decide to address in their analysis include:
    (i) Most-probable assumptions, with normal weather;
    (ii) Pessimistic assumptions, with normal weather;
    (iii) Optimistic assumptions, with normal weather;
    (iv) Most-probable assumptions, with severe weather;
    (v) Most-probable assumptions, with mild weather;
    (vi) Impacts of wholesale or retail competition; or
    (vii) new environmental requirements.
    (7) A summary of the forecast's results on an annual basis. Include 
alternative futures, as applicable. This summary shall be designed to 
accommodate the transfer of load forecast information to a borrower's 
other planning or loan support documents. Computer-generated forms or 
electronic submissions of data are acceptable. Graphs, tables, 
spreadsheets or other exhibits shall be included throughout the forecast 
as appropriate.
    (8) A narrative discussing the coordination activities conducted 
between a power supply borrower and its members, as applicable, and 
between the borrower and RUS.
    (b) Compliance with an approved load forecast work plan. A borrower 
required to maintain an approved load forecast work plan must also be 
able to demonstrate that both it and its RUS borrower members are in 
compliance with its approved load forecast work plan for the next load 
forecast or update of a load forecast.



Sec. 1710.207  RUS criteria for approval of load forecasts by distribution  borrowers not required to maintain an approved load forecast on an ongoing  basis.

    Load forecasts submitted by distribution borrowers that are 
unaffiliated with a power supply borrower, or by distribution borrowers 
that are members of a power supply borrower that has a total utility 
plant less than $500 million and that is not itself a member of another 
power supply borrower with a total utility plant of $500 million or more 
must satisfy the following minimum criteria:
    (a) The borrower considered all known relevant factors that 
influence the consumption of electricity and the

[[Page 117]]

known number of consumers served at the time the study was developed;
    (b) The borrower considered and identified all loads on its system 
of RE Act beneficiaries and non-RE Act beneficiaries;
    (c) The borrower developed an adequate supporting data base and 
considered a range of relevant assumptions; and
    (d) The borrower provided RUS with adequate documentation and 
assistance to allow for a thorough and independent review.



Sec. 1710.208  RUS criteria for approval of all load forecasts by power 
supply borrowers and by distribution borrowers required to maintain an 
approved load forecast on an ongoing basis.

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



Sec. 1710.209  Approval requirements for load forecast work plans.

    (a) In addition to the approved load forecast required under 
Secs. 1710.202 and 1710.203, any power supply borrower with a total 
utility plant of $500 million or more and any distribution borrower with 
a total utility plant of $500 million or more must maintain an approved 
load forecast work plan. RUS borrowers that are members of a power 
supply borrower with a total utility plant of $500 million or more must 
cooperate in the preparation of and submittal of the load forecast work 
plan of their power supply borrower.
    (b) An approved load forecast work plan establishes the process for 
the preparation and maintenance of a comprehensive database for the 
development of the borrower's load forecast, and load forecast updates. 
The approved load forecast work plan is intended to develop and maintain 
a process that will result in load forecasts that will meet the 
borrowers' own needs and the requirements of this subpart. An approved 
work plan represents a commitment by a power supply borrower and its 
members, or by a large unaffiliated distribution borrower, that all 
parties concerned will prepare their load forecasts in a timely manner 
pursuant to the approved load forecast work plan and they will modify 
the approved load forecast work plan as needed with RUS approval to 
address changing circumstances or enhance the usefulness of the approved 
load forecast work plan.
    (c) An approved load forecast work plan for a power supply borrower 
and its members must cover all member systems, including those that are 
not borrowers. However, only members that are borrowers, including the 
power supply borrower, are required to follow the approved load forecast 
work plan in preparing their respective load forecasts. Each borrower is 
individually responsible for forecasting all its RE Act beneficiary and 
non-RE Act beneficiary loads.
    (d) An approved load forecast work plan must outline the 
coordination and preparation requirements for both the power supply 
borrower and its members.

[[Page 118]]

    (e) An approved load forecast work plan must cover a period of 2 or 
3 years depending on the applicable compliance filing schedule elected 
under Sec. 1710.204.
    (f) An approved load forecast work plan must describe the borrower's 
process and methods to be used in producing the load forecast and 
maintaining current load forecasts on an ongoing basis.
    (g) Approved load forecast work plans for borrowers with residential 
demand of 50 percent or more of total kWh must provide for a residential 
consumer survey at least every 5 years to obtain data on appliance and 
equipment saturation and electricity demand. Any such borrower that is 
experiencing or anticipates changes in usage patterns shall consider 
surveys on a more frequent schedule. Power supply borrowers shall 
coordinate such surveys with their members. Residential consumer surveys 
may be based on the aggregation of member-based samples or on a system-
wide sample, provided that the latter provides for relevant regional 
breakdowns as appropriate.
    (h) Approved load forecast work plans must provide for RUS review of 
the load forecasts as the load forecast is being developed.
    (i) A power supply borrower's work plan must have the concurrence of 
the majority of the members that are borrowers.
    (j) The borrower's board of directors must approve the load forecast 
work plan.
    (k) A borrower may amend its approved load forecast work plan 
subject to RUS approval. If RUS concludes that the existing approved 
load forecast work plan will not result in a satisfactory load forecast, 
RUS may require a new or revised load forecast work plan.



Sec. 1710.210  Waiver of requirements or approval criteria.

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



Secs. 1710.211-1710.249  [Reserved]



         Subpart F--Construction Work Plans and Related Studies



Sec. 1710.250  General.

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

[[Page 119]]

long-range loads in a reliable and environmentally acceptable manner, 
and it should ensure that planned facilities will not become obsolete 
prematurely.
    (d) A CWP shall include investment cost estimates and supporting 
engineering and cost studies to demonstrate the need for each proposed 
facility or activity and the reasonableness of the investment 
projections and the engineering assumptions used in sizing the 
facilities. The CWP must be consistent with the borrower's long range 
engineering plan and both documents must be consistent with the 
borrower's RUS-approved power requirements study.
    (e) Applications for a loan or loan guarantee from RUS (new loans or 
budget reclassifications) must be supported by a current CWP approved by 
both the borrower's board of directors and RUS. RUS approval of these 
plans relates only to the facilities, equipment, and other purposes to 
be financed by RUS, and means that the plans provide an adequate basis 
from a planning and engineering standpoint to support RUS financing. RUS 
approval of the plans does not mean that RUS approves of the facilities, 
equipment, or other purposes for which the borrower is not seeking RUS 
financing. If RUS disagrees with a borrower's estimate of the cost of 
one or more facilities for which RUS financing is sought, RUS may adjust 
the estimate after consulting with the borrower and explaining the 
reasons for the adjustment.
    (f) Except as provided in paragraph (g) of this section, to be 
eligible for RUS financing, the facilities, including equipment and 
other items, included in a CWP must be approved by RUS before the start 
of construction. This requirement also applies to any amendments to a 
CWP required to add facilities to a CWP or to make significant physical 
changes in the facilities already included in a CWP. Provision for 
funding of ``minor projects'' under an RUS loan guarantee is permitted 
on the same basis as that discussed for insured loan funds in 7 CFR part 
1721, Post-Loan Policies and Procedures for Insured Electric Loans.
    (g) In the case of damage caused by storms and other natural 
catastrophes, a borrower may proceed with emergency repair work before a 
CWP or CWP amendment is prepared by the borrower and approved by RUS, 
without loosing eligibility for RUS financing of the repairs. The 
borrower must notify the RUS regional office in writing, not later than 
45 days after the natural catastrophe, of its preliminary estimates of 
damages and repair costs. Not later than 120 days after the natural 
catastrophe, the borrower must submit to RUS for approval, a CWP or CWP 
amendment detailing the repairs.
    (h) A CWP may be amended or augmented when the borrower can 
demonstrate the need for the changes.
    (i) A borrower's CWP or special engineering studies must be 
supported by a Borrower's Environmental Report, and when necessary by an 
Environmental Analysis or Environmental Impact Statement, as set forth 
in 7 CFR 1794 or required by other Federal or state regulations or laws.
    (j) All engineering activities required by this subpart must be 
performed by qualified engineers, who may be staff employees of the 
borrower or outside consultants.
    (k) Upon written request from a borrower, RUS may waive in writing 
certain requirements with respect to long-range engineering plans and 
CWPs if RUS determines that such requirements impose a substantial 
burden on the borrower and that waiving the requirements will not 
significantly affect the accomplishment of the objectives of this 
subpart. For example, if a borrower's load is forecast to remain 
constant or decline during the planning period, RUS may waive those 
portions of the plans that relate to load growth.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5, 1992, as amended at 60 FR 
67405, Dec. 29, 1995; 64 FR 33178, June 22, 1999]



Sec. 1710.251  Construction work plans--distribution borrowers.

    (a) All distribution borrowers must maintain a current CWP approved 
by their board of directors covering all new construction, improvements, 
replacements, and retirements of distribution and transmission plant, 
and improvements replacements, and retirements of any generation plant.

[[Page 120]]

Construction of new generation capacity need not be included in a CWP 
but must be specified and supported by specific engineering and cost 
studies. (See Sec. 1710.253.)
    (b) A distribution borrower's CWP shall cover a construction period 
of between 2 and 4 years, and include all facilities to be constructed 
which are eligible for RUS financing, whether or not RUS financial 
assistance will be sought or be available for certain facilities. Any 
RUS financing provided for the facilities will be limited to a 4 year 
loan period. The construction period covered by a CWP in support of a 
loan application shall not be shorter than the loan period requested for 
financing of the facilities.
    (c) The facilities, equipment and other items included in a 
distribution borrower's CWP may include:
    (1) Line extensions required to connect consumers, improve service 
reliability or improve voltage conditions;
    (2) Distribution tie lines to improve reliability of service and 
voltage regulation;
    (3) Line conversions and changes required to improve existing 
services or provide additional capacity for new consumers;
    (4) New substation facilities or additions to existing substations;
    (5) Transmission and substation facilities required to support the 
distribution system;
    (6) Distribution equipment required to serve new consumers or to 
provide adequate and dependable service to existing consumers, including 
replacement of existing plant facilities;
    (7) Residential security lights;
    (8) Communications equipment and meters;
    (9) Headquarters facilities;
    (10) Improvements, replacements, and retirements of generation 
facilities;
    (11) Load management equipment, automatic sectionalizing facilities, 
and centralized System Control and Data Acquisition equipment. Load 
management equipment eligible for financing, including the related costs 
of installation, is limited to capital equipment designed to influence 
the time and manner of consumer use of electricity, which includes peak 
clipping and load shifting. To be eligible for financing, such equipment 
must be owned by the borrower, although it may be located inside or 
outside a consumer's premises; and
    (12) The cost of engineering, architectural, environmental and other 
studies and plans needed to support the construction of facilities, when 
such cost is capitalized as part of the cost of the facilities.

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



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

    (a) All power supply borrowers must maintain a current CWP approved 
by 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

[[Page 121]]

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

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



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

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



Sec. 1710.254  Alternative sources of power.

    (a) General. (1) RUS will make loans to finance the construction of 
generation facilities by distribution or power supply borrowers and 
transmission facilities by power supply borrowers only under the 
following conditions if said borrowers do not already own and operate 
such types of facilities:
    (i) Where no adequate and dependable source of power is available to 
meet the consumers' needs; or
    (ii) Where the rates offered by other power sources would result in 
a higher cost of power to the consumers than the cost from facilities 
financed by RUS, and the amount of the power cost savings that would 
result from the RUS-financed facilities bears a significant relationship 
to the amount of the proposed loan.
    (2) If a borrower already owns and operates the types of facilities 
included in a loan request, then a loan for the purposes contained in 
paragraph (a)(1) of this section, as well as for the construction of 
transmission facilities by a distribution borrower, will be considered 
and evaluated by RUS in terms of whether the proposed facilities 
constitute an effective and economical means of meeting the power 
requirements of the consumers. A borrower shall contact RUS as soon as 
practicable in order for RUS to review information submitted by the 
borrower and advise the borrower, in writing, whether there is a need 
for the borrower to investigate and seek alternative sources of power. 
RUS will determine, based on information provided by the borrower or 
otherwise available, whether there is a need to investigate

[[Page 122]]

alternative sources of power or whether RUS will require information or 
other methods of determining the need for the generation capacity. RUS 
will base its determination on whether RUS is able to conclude that the 
project is needed, the borrower would incur delays and costs in pursuing 
an RFP, or that an RFP is not likely to produce new alternatives to the 
project.
    (b) Loan requests for the addition of generation capacity, including 
replacement of existing capacity, will be accepted by RUS when the 
applicant has completed the requirements established by RUS, in a manner 
satisfactory to RUS. The investigations of alternative sources of power 
must be coordinated in advance with RUS. This section applies to RUS 
financed generation capacity whether owned solely by the borrower, owned 
on an undivided ownership basis with other utilities or substantially 
controlled by the borrower.
    (c) The applicant may be required to seek and utilize capacity 
available from RUS borrowers and other organizations before developing 
plans for additional generation capacity. RUS may require, on a case by 
case basis, that the applicant, among other things:
    (1) Solicit power and energy purchase proposals from all reasonable 
potential sources of power, such as other electric cooperatives, 
investor-owned utilities, municipal utility organizations, and Federal 
and state power authorities.
    (2) Solicit proposals from independent power producers, including 
co-generators, to determine the terms and conditions under which these 
producers can supply the additional power and energy needs of the 
applicant, without RUS financial assistance. Such solicitations should 
be placed in at least three national newspapers or trade publications, 
and they meet all planning, coordination or other requirements imposed 
by state authorities, as well as the environmental requirements of RUS.
    (d) When solicitations are received in accordance with paragraph (c) 
of this section, the applicant will evaluate all alternative proposals 
on an economic, present-value basis, giving consideration to cost-
effectiveness, reliability of service, the short-term and long-term 
financial viability of the supplier, and the financial risk to the 
borrower and its creditors. The applicant will keep RUS fully informed 
on these evaluations and provide supporting information and analysis as 
requested by RUS.
    (e) After evaluation of all proposals received in accordance with 
paragraph (c) of this section, and having informed RUS of the results, 
the applicant may be required to negotiate final proposals with the 
entities submitting the best acceptable offers. Contracts requiring RUS 
approval will either be approved in advance by the Administrator or 
contain a provision that the contract is not valid until approved, in 
writing, by the Administrator. The Administrator will approve the 
contracts in a timely manner provided that the borrower has met all 
applicable requirements, including, among other matters, evidence that 
the alternative source of power selected is an economical and effective 
alternative.
    (f) RUS may make independent inquiries with potential power 
suppliers as to the availability of power to meet borrowers' needs. 
Information developed by RUS will be shared with borrowers at their 
request.
    (g) Further details of RUS requirements for financing of generation 
and bulk transmission facilities are set forth in 7 CFR part 1712.
    (h) At the request of a borrower, RUS, in its sole discretion, may 
waive specific requirements of paragraphs (b) through (e) of this 
section if such waiver is required to prevent unreasonable delays in 
obtaining generation capacity that could result in system reliability 
problems.

(Approved by the Office of Management and Budget under control number 
0572-0032)

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



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

[[Page 123]]

used by the board of directors and the manager to guide the system 
towards its financial goals.
    (b) A borrower must prepare, for RUS review and approval, a long-
range financial forecast, approved by its board of directors, in support 
of its loan application. The forecast must demonstrate that the 
borrower's system is economically viable and that the proposed loan is 
financially feasible. Loan feasibility will be assessed based on the 
criteria set forth in Sec. 1710.112.
    (c) The financial forecast and related projections submitted in 
support of a loan application shall include:
    (1) The projected results of future actions planned by the 
borrower's board of directors;
    (2) The financial goals established for margins, TIER, DSC, equity, 
and levels of general funds to be invested in plant;
    (3) A pro forma balance sheet, statement of operations, and general 
funds summary projected for each year during the forecast period;
    (4) A full explanation of the assumptions, supporting data, and 
analysis used in the forecast, including the methodology used to project 
loads, rates, revenue, power costs, operating expenses, plant additions, 
and other factors having a material effect on the balance sheet and on 
financial ratios such as equity, TIER, and DSC;
    (5) Current and projected cash flows;
    (6) Projections of future borrowings and the associated interest and 
principal expenses required to meet the projected investment 
requirements of the system;
    (7) Current and projected kW and kWh energy sales;
    (8) Current and projected unit prices of significant variables such 
as retail and wholesale power prices, average labor costs, and interest;
    (9) Current and projected system operating costs, including, but not 
limited to, wholesale power costs, depreciation expenses, labor costs, 
and debt service costs;
    (10) Current and projected revenues from sales of electric power and 
energy;
    (11) Current and projected non-operating income and expense;
    (12) A discussion of the historical experience of the borrower, and 
in the case of a power supply borrower its member systems as 
appropriate, with respect to the borrower's market competitiveness as it 
relates to the rates charged for electricity, competition from other 
fuels, and other factors. Additional data and analysis may be required 
by RUS on a case by case basis to assess the probable future 
competitiveness of those borrowers that have a history of serious 
competitive problems; and
    (13) An analysis of the effects of major factors, such as projected 
increases in rates charged for electricity, on the ability of the 
borrower, and in the case of a power supply borrower its member systems, 
to compete with neighboring utilities and other energy sources.
    (d) The following plans, studies and assumptions shall be used in 
developing the financial forecast:
    (1) The RUS-approved CWP;
    (2) RUS-approved power requirements data;
    (3) The current rate schedules or new rates already approved by the 
board of directors;
    (4) Future plant additions and operating expenses projected at 
anticipated future cost levels rather than in constant dollars, with the 
annual rate of inflation for major items specified; and
    (5) A sensitivity analysis may be required by RUS on a case-by-case 
basis taking into account such factors as the number and type of large 
power loads, projections of future borrowings and the associated 
interest, projected loads, projected revenues, and the probable future 
competitiveness of the borrower. When RUS determines that a sensitivity 
analysis is necessary for distribution borrowers, the variables to be 
tested will be determined by the General Field Representative in 
consultation with the borrower and the regional office. The regional 
office will consult with the Power Supply Division in the case of 
generation projects for distribution borrowers. For power supply 
borrowers, the variables to be tested will be determined by the borrower 
and the Power Supply Division.
    (e) The financial forecast shall use the accrual method, as approved 
by RUS, for analyzing costs and revenues,

[[Page 124]]

and, as applicable, compare the economic results of the various 
alternatives on a present value basis.

[57 FR 1053, Jan. 9, 1992, as amended at 63 FR 53277, Oct. 5, 1998]



Sec. 1710.301  Financial forecasts--distribution borrowers.

    (a) Financial forecasts prepared by distribution borrowers shall 
cover at least a ten-year period, unless a shorter period is authorized 
by other RUS regulations.
    (b) In addition to the requirements set forth in Sec. 1710.300 of 
this part, financial forecasts prepared by distribution borrowers in 
support of a loan application shall:
    (1) Include expenditures for any maintenance determined to be needed 
in the current system's operation and maintenance review and evaluation 
in order to comply with mortgage covenants and prudent utility practice;
    (2) Fully explain the basis for the power cost projections used. 
Generally, the power supplier's most recent forecasted rates shall be 
used; and
    (3) Use RUS Form 325 or computer-generated equivalent reports.



Sec. 1710.302  Financial forecasts--power supply borrowers.

    (a) The requirements of this section apply only to financial 
forecasts submitted by power supply borrowers in support of a loan from 
RUS. The financial forecast prepared by power supply borrowers shall 
demonstrate the effects that the addition of generation, transmission 
and any distribution facilities will have on the power supply borrower's 
sales, costs, and revenues, and on the cost of power to the member 
distribution systems.
    (b) The financial forecast shall cover a period of 10 years. RUS may 
request projections for a longer period of time if RUS deems necessary.
    (c) Financial forecasts prepared in support of loan applications to 
finance additional generation capacity shall include a power cost study 
as set forth in Sec. 1710.303.
    (d) In addition to the requirements set forth in Sec. 1710.300, 
financial forecasts prepared by power supply borrowers shall:
    (1) Identify all plans for generation and transmission capital 
additions and system operating expenses on a year-by-year basis, 
beginning with the present and running for 10 years, unless a longer 
period of time has been requested by RUS.
    (2) Integrate projections of operation and maintenance expenses 
associated with existing plant with those of new proposed facilities to 
determine total costs of system operation as well as the costs of new 
generation and generation-related facilities;
    (3) Provide an in-depth analysis of the regional markets for power 
if loan feasibility depends to any degree on a borrower's ability to 
sell surplus power while its system loads grow to meet the planned 
capacity of a proposed plant;
    (4) If not previously submitted, furnish RUS with all material 
information on operating agreements, ownership agreements, fuel 
contracts and any other special agreements that affect annual cost 
projections, as may be required by RUS on a case by case basis; and
    (5) Include sensitivity analysis if required by RUS pursuant to 
Sec. 1710.300(d)(5).
    (e) The projections shall be coordinated in advance with RUS so that 
agreement can be reached on major aspects of the economic studies. These 
include, but are not limited to, projections of future kW and kWh 
requirements, RE Act beneficiary loads, electricity prices, revenues 
from system and off-system power sales, the cost of prospective plant 
additions, interest and depreciation rates, fuel costs, cost escalation 
factors, the discount rate, and other factors.
    (f) The projections, analysis, and supporting information must be 
included in a report that will provide RUS with the information needed 
to:
    (1) Understand and compare various power supply plans;
    (2) Determine that the facilities to be financed will perform 
satisfactorily; and
    (3) Determine that the overall system is economically viable and the 
loan is financially feasible and secure.

[57 FR 1053, Jan. 9, 1992, as amended at 63 FR 53278, Oct. 5, 1998]

[[Page 125]]



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

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

(Approved by the Office of Management and Budget under control number 
0572-0032)



Secs. 1710.304-1710.349  [Reserved]


Subpart H [Reserved]



      Subpart I--Application Requirements and Procedures for Loans

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



Sec. 1710.400  Initial contact.

    (a) Loan applicants that do not have outstanding loans from RUS 
should write to the Rural Utilities Service Administration, United 
States Department of Agriculture, Washington, DC 20250-1500. A field or 
headquarters staff representative may be assigned by RUS to visit the 
applicant and discuss its financial needs and eligibility. Borrowers 
that have outstanding loans should contact their assigned RUS general 
field representative (GFR) or, in the case of a power supply borrower, 
the Director, Power Supply Division. Borrowers may consult with RUS 
field representatives and headquarters staff, as necessary.
    (b) Before submitting an application for an insured loan the 
borrower shall ascertain from RUS the amount of supplemental financing 
required, as set forth in Sec. 1710.110. If the borrower is applying for 
either a municipal rate loan subject to the interest rate cap or a 
hardship rate loan, the application must provide a preliminary breakdown 
of residential consumers either by county or by census tract. Final data 
must be included with the application. See Sec. 1710.401(a)(8).



Sec. 1710.401  Loan application documents.

    (a) All borrowers. All applications for electric loans shall include 
the documents listed in this paragraph. The first page of the 
application shall be a list of the documents included in the 
application. The borrower may use RUS Form 726, Checklist for Electric

[[Page 126]]

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 type, loan amount, loan term, final maturity 
and method of amortization (Sec. 1710.110(b));
    (ii) The sources and amounts of any supplemental or other financing;
    (iii) Authorization for RUS to release appropriate information to 
supplemental or other lender(s), and authorization for these lenders to 
release appropriate information to RUS; and
    (iv) For an insured loan, a statement of whether the application is 
for a municipal rate loan, with or without the interest rate cap, or a 
hardship loan. If the application is for a municipal rate loan, the 
board resolution must indicate whether the borrower intends to elect the 
prepayment option. See 7 CFR 1714.4(c).
    (3) RUS Form 740c, Cost Estimates and Loan Budget for Electric 
Borrowers. This form together with its attachments lists the 
construction, equipment, facilities and other cost estimates from the 
construction work plan or engineering and cost studies, and the sources 
of financing for each component. The date on page 1 of the form is the 
beginning date of the loan period and shall be the same as the date on 
the Financial and Statistical Report submitted with the application 
(paragraph (a)(5) of this section). Form 740c also includes the 
following information, exhibits, and attachments:
    (i) Description of funds and materials. This description details the 
availability of materials and equipment, any unadvanced funds from prior 
loans, and any general funds the borrower designates, to determine the 
amount of such materials and funds to be applied against the capital 
requirements estimated for the loan period.
    (ii) Useful life of facilities financed by the loan. Form 740c must 
include, as a note, either a statement certifying that at least 90 
percent of the loan funds are for facilities that have a useful life of 
33 years or longer, or a schedule showing the costs and useful life of 
those facilities with a useful life of less than 33 years. This 
statement or schedule will be used to determine the final maturity of 
the loan. See Sec. 1710.115.
    (iii) Reimbursement schedule. This schedule lists the date, amount, 
and identification number of each inventory of work orders and special 
equipment summary that form the basis for the borrower's request for 
reimbursement of general funds on the RUS Form 740c. See Sec. 1710.109. 
If the borrower is not requesting reimbursement, this schedule need not 
be submitted.
    (iv) Location of consumers. If the application is for a municipal 
rate loan subject to the interest rate cap, or for a loan at the 
hardship rate, and the average number of consumers per mile of the total 
electric system exceeds 17, Form 740c must include, as a note, a 
breakdown of funds included in the proposed loan to furnish or improve 
service to consumers located in an urban area. See 7 CFR 1714.7(c) and 
1714.8(d). This breakdown must indicate the method used by the borrower 
for allocating loan funds between urban and non urban consumers.
    (4) RUS Form 740g, Application for Headquarters Facilities. This 
form lists the individual cost estimates from the construction work plan 
or other engineering study that support the need for RUS financing for 
any warehouse and service type facilities included, and funding 
requested for such facilities shown on RUS Form 740c. If no loan funds 
are requested for headquarters facilities, Form 740g need not be 
submitted.

[[Page 127]]

    (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 
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,

[[Page 128]]

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.
    (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.

[[Page 129]]

    (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 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

[[Page 130]]

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 et seq.; 1921 et seq.; and 6941 et seq.

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



                           Subpart A--General



Sec. 1714.1  [Reserved]



Sec. 1714.2  Definitions.

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



Sec. 1714.3  Applicability of provisions.

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

[[Page 131]]

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.

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



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

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

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



Sec. 1714.6  Interest rate term.

    (a) Municipal rate loans. Selection of interest rate terms shall be 
made by the borrower for each advance of funds. The minimum interest 
rate term shall be one year. RUS will send the borrower written 
confirmation of each rollover maturity date and the applicable interest 
rate.
    (1) The initial interest rate term will begin on the date of the 
advance. All rollover interest rate terms will begin on the first day of 
a month, and except for the last interest rate term to final maturity, 
shall end on the last day of a month. All terms except for the initial 
interest rate term on an advance, and the last term to final maturity 
shall be in yearly increments.
    (2) The following limits apply to the number of advances of funds 
that may be made to the borrower on any municipal rate loan:

[[Page 132]]

    (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 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

[[Page 133]]

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 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

[[Page 134]]

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)



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

[[Page 135]]

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, 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.

[[Page 136]]

    (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]



Sec. 1714.57  Sequence of advances.

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



Sec. 1714.58  Amortization of principal.

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



Sec. 1714.59  Rescission of loans.

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



PART 1717--POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND 
GUARANTEED ELECTRIC LOANS--Table of Contents



Subparts A-C [Reserved]

       Subpart D--Mergers and Consolidations of Electric Borrowers

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

Subparts E-F [Reserved]

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

1717.300  Purpose.
1717.301  Policy.
1717.302  Definitions and rules of construction.
1717.303  Requirements of RUS documents.
1717.304  State regulatory authority rate jurisdiction.
1717.305  Pre-emption.
1717.306  RUS required rates.
1717.307  Distribution members' rates.

[[Page 137]]

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

Subpart S--Lien Accommodations for Supplemental Financing Required by 7 
                              CFR 1710.110

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

Subpart T [Reserved]

1717.950-1717.999  [Reserved]

Subpart U [Reserved]

1717.1000-1717.1049  [Reserved]

[[Page 138]]

Subpart V [Reserved]

1717.1050-1717.1099  [Reserved]

Subpart W [Reserved]

1717.1100-1717.1149  [Reserved]

Subpart X [Reserved]

1717.1150-1717.1199  [Reserved]

                      Subpart Y--Settlement of Debt

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

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

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


Subparts A-C [Reserved]



       Subpart D--Mergers and Consolidations of Electric Borrowers

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



Sec. 1717.150  General.

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



Sec. 1717.151  Definitions.

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

[[Page 139]]

    (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.



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

[[Page 140]]

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 may offer loan processing priority for the first loan to a 
successor, provided that the loan is approved by RUS not later than 5 
years after the effective date of the merger. In considering the 
request, the Administrator will take into account, among other factors, 
the amount of the loan application, whether there is a significant 
backlog in pending loan applications, the impact that loan priority 
would have on the backlog, the savings and efficiencies to be realized 
from the merger and the relative importance of loan priority to 
facilitating the merger. The Administrator may, in his or her sole 
discretion, grant or decline to grant priority, or grant priority for a 
limited amount of the loan application while deferring for later 
consideration the remainder of the application.
    (2) For any subsequent loans approved during those 5 years, RUS may 
offer loan processing priority. In reviewing requests for loan 
processing priority on subsequent loans, RUS will consider the loan 
authority for the fiscal year, the borrower's projected cash flows, its 
electric rates and rate disparity, and the likely mitigation effects of 
priority loan processing. See 7 CFR 1710.108 and 1710.119.
    (3) Loan processing priority is available following any merger where 
at least one of the merging parties is an active borrower.
    (b) Supplemental financing.(1) RUS generally requires that an 
applicant for a municipal rate loan obtain a portion of its debt 
financing from a supplemental source without an RUS guarantee. See 7 CFR 
1710.110. RUS will, at the borrower's request, waive the requirement to 
obtain supplemental financing for the first RUS loan approved after the 
effective date if that first loan is a municipal rate loan whose loan 
period does not exceed 2 years, and the loan is approved by RUS not 
later than 5 years after the effective date. For any subsequent loans 
approved during these 5 years, or if the borrower requests a loan period 
longer than 2 years, RUS may, subject to the availability of loan funds, 
waive or reduce the amount of supplemental financing required. In 
reviewing requests to reduce or waive supplemental financing on 
subsequent loans or on loans with a loan period longer than 2 years, RUS 
will consider the differences in interest rates between RUS and 
supplemental loans and the impacts of this difference on the borrower's 
projected cash flows and its electric rates and rate disparity. If 
significant differences would result, the waiver will be granted.
    (2) Waiver of supplemental financing may be available if:
    (i) All parties to the merger are active distribution borrowers, or
    (ii) At least one of the merging parties is an active distribution 
borrower, all merging parties are either active distribution borrowers 
or former distribution borrowers, and the merger is effective after 
December 19, 1996.
    (c) Reimbursement of general funds and interim financing.(1) 
Borrowers may request RUS loan funds to reimburse general funds and/or 
interim financing used to finance equipment and facilities included in a 
RUS approved construction work plan or amendment if the construction was 
completed immediately preceding the current loan period. This 
reimbursement period is generally limited to 24 months. See 7 CFR 
1710.109. RUS may, in connection with the first RUS loan approved after 
the effective date, approve a reimbursement period of up to 48 months 
prior to the current loan period if the loan is approved not later than 
5 years after the effective date. In reviewing requests for this longer 
reimbursement period, RUS will consider the stresses

[[Page 141]]

that the transaction and other costs of entering into the merger places 
on the borrower's rates and cash flows, and the mitigating effects of 
more generous reimbursement.
    (2) A longer reimbursement period may be available if:
    (i) All parties to the merger are active distribution borrowers, or
    (ii) At least one of the merging parties is an active distribution 
borrower, all merging parties are either active distribution borrowers 
of former distribution borrowers, and the merger is effective after 
December 19, 1996.

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



Sec. 1717.155  Transitional assistance affecting new and preexisting loans.

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



Sec. 1717.156  Transitional assistance affecting preexisting loans.

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

[[Page 142]]



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 Secs. 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

[[Page 143]]

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 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 144]]


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 145]]

    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 146]]

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 147]]

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 148]]



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 149]]

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 150]]

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 151]]

    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 152]]

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 153]]

    (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 154]]

of RUS, consolidate or merge with any other corporation or convey or 
transfer the mortgaged property substantially as an entirety if the 
following conditions are met:
    (a) Such consolidation, merger, conveyance or transfer shall be on 
such terms as shall fully preserve the lien and security of the RUS 
mortgage and the rights and powers of the mortgagees;
    (b) The entity formed by such consolidation or with which the 
borrower is merged or the corporation which acquires by conveyance or 
transfer the mortgaged property substantially as an entirety shall 
execute and deliver to the mortgagees a mortgage supplemental in 
recordable form and containing an assumption by such successor entity of 
the due and punctual payment of the principal of and interest on all of 
the outstanding notes and the performance and observance of every 
covenant and condition of the mortgage;
    (c) Immediately after giving effect to such transaction, no default 
under the mortgage shall have occurred and be continuing;
    (d) The borrower shall have delivered to the mortgagees a 
certificate of its general manager or other officer, in form and 
substance satisfactory to each of the mortgagees, which shall state that 
such consolidation, merger, conveyance or transfer and such supplemental 
mortgage comply with this section and that all conditions precedent 
herein provided for relating to such transaction have been complied 
with;
    (e) The borrower shall have delivered to the mortgagees an opinion 
of counsel in form and substance satisfactory to each of the mortgagees; 
and
    (f) The entity formed by such consolidation or with which the 
borrower is merged or the corporation which acquires by conveyance or 
transfer the mortgaged property substantially as an entirety shall be an 
entity having:
    (1) Equity equal to at least 27% of its total assets on a pro forma 
basis after giving effect to such transaction;
    (2) A pro forma TIER of not less than 1.25 and a pro forma DSC of 
not less than 1.25 for each of the two preceding calendar years;
    (3) Net utility plant equal to or greater than 1.0 times its total 
long-term debt on a pro forma basis.

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



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

    A distribution borrower may without the prior approval of RUS sell, 
lease, or transfer any capital asset if the following conditions are 
met:
    (a) The borrower is not in default;
    (b) In the most recent year for which data are available, the 
borrower achieved a TIER of at least 1.25, DSC of at least 1.25, OTIER 
of at least 1.1, and ODSC of at least 1.1 in each case based on the 
average or the best 2 out of the 3 most recent years;
    (c) The sale, lease, or transfer of assets will not reduce the 
borrower's existing or future requirements for energy or capacity being 
furnished to the borrower under any wholesale power contract which has 
been pledged as security to the government;
    (d) Fair market value is obtained for the assets;
    (e) The aggregate value of assets sold, leased, or transferred in 
any 12-month period is less than 10 percent of the borrower's net 
utility plant prior to the transaction;
    (f) The proceeds of such sale, lease, or transfer, less ordinary and 
reasonable expenses incident to such transaction, are immediately:
    (1) Applied as a prepayment of all notes secured under the mortgage 
equally and ratably;
    (2) In the case of dispositions of equipment, materials or scrap, 
applied to the purchase of other property useful in the borrower's 
utility business; or
    (3) Applied to the acquisition of construction of utility plant.

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



Sec. 1717.617  Limitations on distributions.

    If a distribution or power supply borrower is required by its loan 
documents to obtain prior approval from RUS before declaring or paying 
any dividends,

[[Page 155]]

paying or determining to pay any patronage refunds, or retiring any 
patronage capital, or making any other cash distributions, such approval 
is hereby given if the following conditions are met:
    (a) After giving effect to the distribution, the borrower's equity 
will be greater than or equal to 30 percent of its total assets;
    (b) The borrower is current on all payments due on all notes secured 
under the mortgage;
    (c) The borrower is not otherwise in default under its loan 
documents; and
    (d) After giving effect to the distribution, the borrower's current 
and accrued assets will be not less than its current and accrued 
liabilities.



   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

[[Page 156]]

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

[[Page 157]]

Plant and Regulatory Study Costs, and Account 182.3 Other Regulatory 
Assets of the Uniform System of Accounts.
    RUS means the Rural Utilities Service, an agency of the U.S. 
Department of Agriculture established pursuant to Section 232 of the 
Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178, 7 U.S.C. 
6941 et seq.) and, for purposes of this subpart, includes its 
predecessor, the Rural Electrification Administration.
    RUS loan contract means the loan contract between the borrower and 
RUS.
    RUS mortgage means any and all instruments creating a lien on or 
security interest in the borrower's assets in connection with loans or 
guarantees under the RE Act.
    Solid waste disposal system means any system of community 
infrastructure that provides collection and/or disposal of solid waste 
and whose services are available by design to all or a substantial 
portion of the members of the community.
    Subsidiary means a company which is controlled by the borrower 
through ownership of voting stock, and is further defined in 7 CFR 
1767.10.
    Supplemental lender means a lender that has provided a supplemental 
source of financing that is secured by the RUS mortgage.
    Telecommunication and other electronic communication system means 
any community infrastructure that provides telecommunication or other 
electronic communication services and whose services are available by 
design to all or a substantial portion of the members of the community.
    Total assets means the total assets of the borrower as calculated 
according to the Uniform System of Accounts, less regulatory created 
assets.
    Total utility plant means the sum of the borrower's Electric Plant 
Accounts and Construction Work in Progress--Electric Accounts, as such 
terms are used in the Uniform System of Accounts.
    Uniform System of Accounts means the system of accounts prescribed 
for RUS borrowers in 7 CFR part 1767.
    Water and waste disposal system means any system of community 
infrastructure that supplies water and/or collects and treats waste 
water and whose services are available by design to all or a substantial 
portion of the members of the community.



Sec. 1717.653  Borrowers in default.

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



Sec. 1717.654  Transactions below the 15 percent level.

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

[[Page 158]]

make timely payments of principal and interest on loans secured by the 
RUS mortgage remain subject to RUS controls on borrower investments, 
loans and guarantees.
    (b) RUS will not consider requests from borrowers to exclude 
investments, loans, or guarantees made below the 15 percent level. 
(Categorical exclusions are set forth in Sec. 1717.655.)



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

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

[[Page 159]]

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



Sec. 1717.656  Exemption of certain borrowers from controls.

    (a) Any distribution or power supply borrower that meets all of the 
following criteria is exempted from the provisions of the RUS mortgage 
and loan contract that require RUS approval of investments, loans, and 
guarantees, except investments, loans, and guarantees made to extend, 
add to, or modify the borrower's electric system:
    (1) The borrower is in compliance with all provisions of its RUS 
mortgage, RUS loan contract, and any other agreements with RUS;
    (2) The average revenue per kWh for residential service received by 
the borrower during the two most recent calendar years does not exceed 
130 percent of the average revenue per kWh for residential service 
during the same period for all residential consumers located in the 
state or states served by the borrower. This criterion applies only to 
distribution borrowers and does not apply to power supply borrowers. If 
a borrower serves customers in more than one state, the state average 
revenue per kWh will be based on a weighted average using the kWh sales 
by the borrower in each state as the weight. The calculation will be 
based on the two most recent calendar years for which both borrower and 
state-wide data are available. If a borrower fails to qualify for an 
exemption based solely on its failure to meet this criterion on rate 
disparity, at the borrower's request the Administrator may, at his or 
her sole discretion, exempt the borrower if he or she finds that the 
borrower's strengths with respect to the other criteria are sufficient 
to offset any weakness due to rate disparity;
    (3) In the most recent calendar year for which data are available, 
the borrower achieved an operating TIER of at least 1.0 and an operating 
DSC of at least 1.0, in each case based on the average of the two 
highest ratios achieved in the three most recent calendar years;
    (4) The borrower's ratio of net utility plant to long-term debt is 
at least 1.1, based on year-end data for the most recent calendar year 
for which data are available; and
    (5) The borrower's equity is equal to at least 27 percent of its 
total assets, based on year-end data for the most recent calendar year 
for which data are available.
    (b) While borrowers meeting the criteria in paragraph (a) of this 
section are exempt from RUS approval of investments, loans and 
guarantees, they are nevertheless subject to the record-keeping, 
reporting, and other requirements of Sec. 1717.658.
    (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 160]]

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 161]]

    (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 162]]

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



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

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

Subpart O [Reserved]



Secs. 1717.700-1717.749  [Reserved]


Subpart P [Reserved]



Secs. 1717.750-1717.799  [Reserved]


Subpart Q [Reserved]

[[Page 163]]



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;
    (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

[[Page 164]]

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

[[Page 165]]

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

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



Sec. 1717.851  Definitions.

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

[[Page 166]]

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

[[Page 167]]

(.2)(2 years) + (.2)(3 years) + (.2)(4 years) + (.2)(5 years) = .2 years 
+ .4 years + .6 years + .8 years + 1.0 years = 3.0 years. If instead the 
loan had a balloon payment of $5 million at the end of 5 years, the 
weighted average life would be: ($5 million/$5 million)(5 years) = 5 
years.

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



Sec. 1717.852  Financing purposes.

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

[[Page 168]]

infrastructure systems cited in paragraph (a)(3) of this section, except 
for certain rural development investments eligible for a lien 
subordination under Sec. 1717.858.
    (c) Lien subordination for electric utility investments. RUS will 
consider subordinating its lien on specific electric utility assets 
financed by the lender, when the assets can be split off without 
materially reducing the stability, safety, reliability, operational 
efficiency, or liquidation value of the rest of the system.

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



Sec. 1717.853  Loan terms and conditions.

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



Sec. 1717.854  Advance approval--100 percent private financing of 
distribution, subtransmission and headquarters facilities, and certain 
other community infrastructure.

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

[[Page 169]]

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

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



Sec. 1717.855  Application contents: Advance approval--100 percent private 
financing of distribution, subtransmission and headquarters facilities, 
and certain other community infrastructure.

    Applications for a lien accommodation or subordination that meet the 
requirements of Sec. 1717.854 must include the following information and 
documents:
    (a) A certification by an authorized official of the borrower that 
the borrower and, as applicable, the loan are in compliance with all 
conditions set forth in Sec. 1717.854(c) and all applicable provisions 
of 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 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;

[[Page 170]]

    (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;
    (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

[[Page 171]]

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

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



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

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

[[Page 172]]

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

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



Sec. 1717.858  Lien subordination for rural development investments.

    (a) Policy. RUS encourages borrowers to consider investing in 
financially sound projects that are likely to have a positive effect on 
economic development and employment in rural areas. In addition to the 
guidance set forth in Sec. 1717.651, RUS recommends that such 
investments be made through a subsidiary of the borrower in order to 
clearly separate the financial risks and

[[Page 173]]

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

[[Page 174]]



Sec. 1717.859  Application process and timeframes.

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

[[Page 175]]

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

[[Page 176]]

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

[[Page 177]]

    (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;
    (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

[[Page 178]]

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 approval of the investment under 7 CFR 
part 1717, subpart N.

[[Page 179]]

    (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 180]]

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



Sec. 1717.902  Other RUS requirements.

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



Sec. 1717.903  Liability.

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



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

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

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



Secs. 1717.905-1717.949  [Reserved]



                          Subpart T [Reserved]



Secs. 1717.950-1717.999  [Reserved]



                          Subpart U [Reserved]



Secs. 1717.1000-1717.1049  [Reserved]



                          Subpart V [Reserved]



Secs. 1717.1050-1717.1099  [Reserved]



                          Subpart W [Reserved]



Secs. 1717.1100-1717.1149  [Reserved]



                          Subpart X [Reserved]



Secs. 1717.1150-1717.1199  [Reserved]



                      Subpart Y--Settlement of Debt

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



Sec. 1717.1200  Purpose and scope.

    (a) Section 331(b) of the Consolidated Farm and Rural Development 
Act (Con Act), as amended on April 4, 1996 by Public Law 104-127, 110 
Stat. 888 (7 U.S.C. 1981), grants authority to the

[[Page 181]]

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



Sec. 1717.1201  Definitions.

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



Sec. 1717.1202  General policy.

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

[[Page 182]]

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



Sec. 1717.1203  Relationship between RUS and Department of Justice.

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



Sec. 1717.1204  Policies and conditions applicable to settlements.

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

[[Page 183]]

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

[[Page 184]]

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

[[Page 185]]

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



Sec. 1717.1205  Waiver of existing conditions on borrowers.

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



Sec. 1717.1206  Loans subsequent to settlement.

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



Sec. 1717.1207  RUS obligations under loan guarantees.

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



Sec. 1717.1208  Government's rights under loan documents.

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

[[Page 186]]

executed with borrowers, or under law or equity.



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


                           Subpart A--General

Sec.
1718.1-1718.49  [Reserved]

             Subpart B--Mortgage for Distribution Borrowers

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

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

          Subpart C--Loan Contracts With Distribution Borrowers

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

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

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



                           Subpart A--General



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.

[[Page 187]]

    Appendix A to Subpart B of Part 1718--Model Form of Mortgage for 
                     Electric Distribution Borrowers

      RESTATED MORTGAGE AND SECURITY AGREEMENT Made By And Between

________________________________________________________________________
Mortgagor

                    and UNITED STATES OF AMERICA and

________________________________________________________________________
MORTGAGEE

Dated as of_____________________________________________________________

  THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A TRANSMITTING UTILITY

           THIS INSTRUMENT CONTAINS FUTURE ADVANCE PROVISIONS

       THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS

                            TABLE OF CONTENTS

                            GRANTING CLAUSES

FIRST
SECOND
THIRD
FOURTH
EXCEPTED PROPERTY

                                HABENDUM

    ARTICLE I--DEFINITIONS & OTHER PROVISIONS OF GENERAL APPLICATION

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

                      ARTICLE II--ADDITIONAL NOTES

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

           ARTICLE III--PARTICULAR COVENANTS OF THE MORTGAGOR

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

               ARTICLE IV--EVENTS OF DEFAULT AND REMEDIES

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

         ARTICLE V--POSSESSION UNTIL DEFAULT--DEFEASANCE CLAUSE

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

                        ARTICLE VI--MISCELLANEOUS

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

[[Page 188]]

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

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

                                RECITALS

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

                          GRANTING CLAUSE FIRST

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

[[Page 189]]

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

                         GRANTING CLAUSE SECOND

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

                          GRANTING CLAUSE THIRD

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

                         GRANTING CLAUSE FOURTH

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

[[Page 190]]

part thereof (other than Excepted Property with respect to any of the 
foregoing).

                            EXCEPTED PROPERTY

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

                                HABENDUM

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

[[Page 191]]

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

                                ARTICLE I

          DEFINITIONS & OTHER PROVISIONS OF GENERAL APPLICATION

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

[[Page 192]]

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

[[Page 193]]

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

[[Page 194]]

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

[[Page 195]]

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

[[Page 196]]

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

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
    As to the Mortgagee:

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

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

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

                               ARTICLE II

                            ADDITIONAL NOTES

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

[[Page 197]]

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

           ARTICLE III--PARTICULAR COVENANTS OF THE MORTGAGOR

    SECTION 3.01. Payment of Debt Service on Notes: The Mortgagor will 
duly and punctually pay the principal, premium, if any, and interest on 
the Notes in accordance with the terms of the Notes, the Loan Contracts, 
this Mortgage and any Supplemental Mortgage authorizing such Notes.
    SECTION 3.02. Warranty of Title: (a) At the time of the execution 
and delivery of this instrument, the Mortgagor has good and marketable 
title in fee simple to the real property specifically described in 
Granting Clause First as owned in fee and good and marketable title to 
the interests in real property specifically described in Granting Clause 
[First], subject to no mortgage, lien, charge or encumbrance except as 
stated

[[Page 198]]

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

[[Page 199]]

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

[[Page 200]]

all laws, ordinances, regulations, orders, decrees and other legal 
requirements applicable to it or its property the violation of which 
could have a material adverse affect on the Mortgagor's financial 
condition or business.
    SECTION 3.10. Limitations on Consolidations and Mergers: The 
Mortgagor shall not, without the prior written approval of each 
Mortgagee, consolidate or merge with any other corporation or convey or 
transfer the Mortgaged Property substantially as an entirety unless: (1) 
such consolidation, merger, conveyance or transfer shall be on such 
terms as shall fully preserve the lien and security hereof and the 
rights and powers of the Mortgagees hereunder; (2) the entity formed by 
such consolidation or with which the Mortgagor is merged or the 
corporation which acquires by conveyance or transfer the Mortgaged 
Property substantially as an entirety shall execute and deliver to the 
Mortgagees a mortgage supplemental hereto in recordable form and 
containing an assumption by such successor entity of the due and 
punctual payment of the principal of and interest on all of the 
Outstanding Notes and the performance and observance of every covenant 
and condition of this Mortgage; (3) immediately after giving effect to 
such transaction, no default hereunder shall have occurred and be 
continuing; (4) the Mortgagor shall have delivered to the Mortgagees a 
certificate of its general manager or other officer, in form and 
substance satisfactory to each of the Mortgagees, which shall state that 
such consolidation, merger, conveyance or transfer and such supplemental 
mortgage comply with this subsection and that all conditions precedent 
herein provided for relating to such transaction have been complied 
with; (5) the Mortgagor shall have delivered to the Mortgagees an 
opinion of counsel in form and substance satisfactory to each of the 
Mortgagees; and (6) the entity formed by such consolidation or with 
which the Mortgagor is merged or the corporation which acquires by 
conveyance or transfer the Mortgaged Property substantially as an 
entirety shall be an entity--(A) having Equity equal to at least 27% of 
its Total Assets on a pro forma basis after giving effect to such 
transaction, (B) having a pro forma TIER of not less than 1.25 and a pro 
forma DSC of not less than 1.25 for each of the two preceding calendar 
years, and (C) having Net Utility Plant equal to or greater than 1.0 
times its Total Long-Term Debt on a pro forma basis. Upon any 
consolidation or merger or any conveyance or transfer of the Mortgaged 
Property substantially as an entirety in accordance with this 
subsection, the successor entity formed by such consolidation or with 
which the Mortgagor is merged or to which such conveyance or transfer is 
made shall succeed to, and be substituted for, and may exercise every 
right and power of, the Mortgagor under this Mortgage with the same 
effect as if such successor entity had been named as the Mortgagor 
herein.
    SECTION 3.11. Limitations on Transfers of Property: The Mortgagor 
may not, except as provided in [Section 3.10] above, without the prior 
written approval of each Mortgagee, sell, lease or transfer any 
Mortgaged Property to any other person or entity (including any 
subsidiary or affiliate of the Mortgagor), unless (1) there exists no 
Event of Default or occurrence which with the passing of time and the 
giving of notice would be an Event of Default, (2) fair market value is 
obtained for such property, (3) the aggregate value of assets so sold, 
leased or transferred in any 12-month period is less than 10% of Net 
Utility Plant, and (4) the proceeds of such sale, lease or transfer, 
less ordinary and reasonable expenses incident to such transaction, are 
immediately (i) applied as a prepayment of all Notes equally and 
ratably, (ii) in the case of dispositions of equipment, materials or 
scrap, applied to the purchase of other property useful in the 
Mortgagor's utility business, not necessarily of the same kind as the 
property disposed of, which shall forthwith become subject to the Lien 
of the Mortgage, or (iii) applied to the acquisition or construction of 
utility plant.
    SECTION 3.12. Maintenance of Mortgaged Property: (a) So long as the 
Mortgagor holds title to the Mortgaged Property, the Mortgagor will at 
all times maintain and preserve the Mortgaged Property which is used or 
useful in the Mortgagor's business and each and every part and parcel 
thereof in good repair, working order and condition, ordinary wear and 
tear and acts of God excepted, and in compliance with Prudent Utility 
Practice and in compliance with all applicable laws, regulations and 
orders, and will from time to time make all needed and proper repairs, 
renewals and replacements, and useful and proper alterations, additions, 
betterments and improvements, and will, subject to contingencies beyond 
its reasonable control, at all times use all reasonable diligence to 
furnish the consumers served by it through the Mortgaged Property, or 
any part thereof, with an adequate supply of electric power and energy. 
If any substantial part of the Mortgaged Property is leased by the 
Mortgagor to any other party, the lease agreement between the Mortgagor 
and the lessee shall obligate the lessee to comply with the provisions 
of subsections (a) and (b) of this Section in respect of the leased 
facilities and to permit the Mortgagor to operate the leased facilities 
in the event of any failure by the lessee to so comply.
    (b) If in the sole judgement of any Mortgagee, the Mortgaged 
Property is not being maintained and repaired in accordance with 
paragraph (a) of this section, such Mortgagee may send to the Mortgagor 
a written report of needed improvements and the Mortgagor

[[Page 201]]

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

[[Page 202]]

maximum rate permitted by applicable law. All such advances shall be 
included in the obligations and secured by the security interest granted 
hereunder.
    SECTION 3.15. Time Extensions for Payment of Notes: Any Mortgagee 
may, at any time or times in succession without notice to or the consent 
of the Mortgagor, or any other Mortgagee, and upon such terms as such 
Mortgagee may prescribe, grant to any person, firm or corporation who 
shall have become obligated to pay all or any part of the principal of 
(and premium, if any) or interest on any Note held by or indebtedness 
owed to such Mortgagee or who may be affected by the lien hereby 
created, an extension of the time for the payment of such principal, 
(and premium, if any) or interest, and after any such extension the 
Mortgagor will remain liable for the payment of such Note or 
indebtedness to the same extent as though it had at the time of such 
extension consented thereto in writing.
    SECTION 3.16. Application of Proceeds from Condemnation: (a) In the 
event that the Mortgaged Property or any part thereof, shall be taken 
under the power of eminent domain, all proceeds and avails therefrom may 
be used to finance construction of utility plant secured or to be 
secured by this Mortgage. Any proceeds not so used shall forthwith be 
applied by the Mortgagor: first, to the ratable payment of any 
indebtedness secured by this Mortgage other than principal of or 
interest on the Notes; second, to the ratable payment of interest which 
shall have accrued on the Notes and be unpaid; third, to the ratable 
payment of or on account of the unpaid principal of the Notes, to such 
installments thereof as may be designated by the respective Mortgagee at 
the time of any such payment; and fourth, the balance shall be paid to 
whomsoever shall be entitled thereto.
    (b) If any part of the Mortgaged Property shall be taken by eminent 
domain, each Mortgagee shall release the property so taken from the 
Mortgaged Property and shall be fully protected in so doing upon being 
furnished with:
    (1) A certificate of a duly authorized officer of the Mortgagor 
requesting such release, describing the property to be released and 
stating that such property has been taken by eminent domain and that all 
conditions precedent herein provided or relating to such release have 
been complied with; and
    (2) an opinion of counsel to the effect that such property has been 
lawfully taken by exercise of the right of eminent domain, that the 
award for such property so taken has become final and that all 
conditions precedent herein provided for relating to such release have 
been complied with.
    SECTION 3.17. Compliance with Loan Agreements; Notice of Amendments 
to and Defaults under Loan Agreements: The Mortgagor will observe and 
perform all of the material covenants, agreements, terms and conditions 
contained in any Loan Agreement entered into in connection with the 
issuance of any of the Notes, as from time to time amended. The 
Mortgagor will send promptly to each Mortgagee notice of any default by 
the Mortgagor under any Loan Agreement and notice of any amendment to 
any Loan Agreement. Upon request of any Mortgagee, the Mortgagor will 
furnish to such Mortgagee single copies of such Loan Agreements and 
amendments thereto as such Mortgagee may request.
    SECTION 3.18. Rights of Way, etc., Necessary in Business: The 
Mortgagor will use its best efforts to obtain all such rights of way, 
easements from landowners and releases from lienors as shall be 
necessary or advisable in the conduct of its business, and, if requested 
by any Mortgagee, deliver to such Mortgagee evidence satisfactory to 
such Mortgagee of the obtaining of such rights of way, easements or 
releases.
    SECTION 3.19. Limitations on Providing Free Electric Services. The 
Mortgagor will not furnish or supply or cause to be furnished or 
supplied any electric power, energy or capacity free of charge to any 
person, firm or corporation, public or private, and the Mortgagor will 
enforce the payment of any and all amounts owning to the Mortgagor by 
reason of the ownership and operation of the Utility System by 
discontinuing such use, output, capacity, or service, or by filing suit 
therefor within 90 days after any such accounts are due, or by both such 
discontinuance and by filing suit.
    SECTION 3.20. Keeping Books; Inspection by Mortgagee: The Mortgagor 
will keep proper books, records and accounts, in which full and correct 
entries shall be made of all dealings or transactions of or in relation 
to the Notes and the Utility Systems, properties, business and affairs 
of the Mortgagor in accordance with the Accounting Requirements. The 
Mortgagor will at any and all times, upon the written request of any 
Mortgagee and at the expense of the Mortgagor, permit such Mortgagee by 
its representatives to inspect the Utility Systems and properties and 
properties, books of account, records, reports and other papers of the 
Mortgagor and to take copies and extracts therefrom, and will afford and 
procure a reasonable opportunity to make any such inspection, and the 
Mortgagor will furnish to each Mortgagee any and all such information as 
such Mortgagee may request, with respect to the performance by the 
Mortgagor of its covenants under this Mortgage, the Notes and the Loan 
Agreements.

[[Page 203]]

                               ARTICLE IV

                     EVENTS OF DEFAULT AND REMEDIES

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

[[Page 204]]

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

[[Page 205]]

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

          ARTICLE V--POSSESSION UNTIL DEFAULT-DEFEASANCE CLAUSE

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

                               ARTICLE VI

                              MISCELLANEOUS

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

[[Page 206]]

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

(SEAL)

By:_____________________________________________________________________
President

Attest:_________________________________________________________________
Title:__________________________________________________________________

    Executed by the Mortgagor in the presence of:

________________________________________________________________________
________________________________________________________________________

Witnesses

                        UNITED STATES OF AMERICA

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

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

________________________________________________________________________
________________________________________________________________________

Witnesses

By:

(SEAL)

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

________________________________________________________________________
________________________________________________________________________

Witnesses

                               Schedule A

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

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

[[Page 207]]

                      Schedule B--Property Schedule

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

                      Schedule C--Excepted Property

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

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

(Notarial Seal)

    My commission expires:

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

Notary Public

(Notarial Seal)

    My Commission expires:

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

Notary Public

(Notarial Seal)
    My commission expires:

                    Exhibit A--Manager's Certificate

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

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

                Exhibit B--Form of Supplemental Mortgage

________________________________________________________________________
    Supplemental Mortgage and Security Agreement, dated as of ----------
, ------, --------, (hereinafter sometimes called this ``Supplemental 
Mortgage'') is made by and

[[Page 208]]

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

                                Recitals

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

[ACKNOWLEDGEMENTS]

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

    1. The Maximum Debt Limit is ----------.
    2. The Original Mortgage as described in the first WHEREAS clause 
above is ----------.
    3. The outstanding secured indebtedness described in the third 
WHEREAS clause above is ----------.

[[Page 209]]

           Supplemental Mortgage Schedule B--Property Schedule

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

           Supplemental Mortgage Schedule C--Excepted Property

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



          Subpart C--Loan Contracts With Distribution Borrowers

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



Sec. 1718.100  General.

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



Sec. 1718.101  Applicability.

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



Sec. 1718.102  Definitions.

    For the purposes of this subpart:
    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

[[Page 210]]

rural electrification, or that is seeking such financing.
    Distribution borrower means a borrower that sells or intends to sell 
electric power and energy at retail in rural areas, the latter being 
defined in 7 CFR 1710.2.
    Loan documents means the mortgage (or other security instrument 
acceptable to RUS), the loan contract, and the promissory note entered 
into between the borrower and RUS.



Sec. 1718.103  Loan contract provisions.

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

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



Sec. 1718.104  Availability of model loan contract.

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

 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

[[Page 212]]

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

                              Loan Contract

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

                                Recitals

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

                         Article I--Definitions

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

[[Page 213]]

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

Where:

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

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

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

    ``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].

[[Page 214]]

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

               Article II--Representations and Warranties

              Section 2.1. Representations and Warranties.

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

[[Page 215]]

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

                            Article III--Loan

                          Section 3.1. Advances

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

                 Section 3.2. Interest Rate and Payment

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

                         Section 3.3. Prepayment

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

                    Article IV--Conditions of Lending

                     Section 4.1. General Conditions

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

[[Page 216]]

Agreement) which are necessary for, or required as a condition of, the 
validity and enforceability of each of the Loan Documents have been 
obtained and are in full force and effect.
    (e) Event of Default. That no Event of Default specified in Article 
VII and no event which, with the lapse of time or the notice and lapse 
of time specified in Article VII would become such an Event of Default, 
shall have occurred and be continuing, or shall have occurred after 
giving effect to the Advance on the books of the Borrower.
    (f) Continuing Representations and Warranties. That the 
representations and warranties of the Borrower contained in this 
Agreement be true and correct on and as of the date of such Advance as 
though made on and as of such date.
    (g) Opinion of Counsel. That RUS receive an opinion of counsel for 
the Borrower (who shall be acceptable to RUS) in form and content 
acceptable to RUS.
    (h) Mortgage Filing. The Mortgage shall have been duly recorded as a 
mortgage on real property, including after-acquired real property, and 
duly filed, recorded or indexed as a security interest in personal 
property, including after acquired personal property, wherever RUS shall 
have requested, all in accordance with applicable law, and the Borrower 
shall have caused satisfactory evidence thereof to be furnished to RUS.
    (i) Wholesale Power Contract. That the Borrower shall not be in 
default under the terms of, or contesting the validity of, any contract 
for sales for resale that has been pledged by any entity to RUS as 
security for the repayment of any loan made or guaranteed by RUS under 
the Act.
    (j) Material Adverse Change. That there has occurred no material 
adverse change in the business or condition, financial or otherwise, of 
the Borrower and nothing has occurred which in the opinion of RUS 
materially and adversely affects the Borrower's ability to meet its 
obligations hereunder.
    (k) Requisitions. That the Borrower shall requisition all Advances 
by submitting its requisition to RUS in form and substance satisfactory 
to RUS. Requisitions shall be made only for the purpose(s) set forth 
herein. The Borrower agrees to apply the proceeds of the Advances in 
accordance with its loan application with such modifications as may be 
mutually agreed.
    (l) Flood Insurance. That for any Advance used in whole or in part 
to finance the construction or acquisition of any building in any area 
identified by the Secretary of Housing and Urban Development pursuant to 
the Flood Disaster Protection Act of 1973 (the ``Flood Insurance Act'') 
or any rules, regulations or orders issued to implement the Flood 
Insurance Act (``Rules'') as any area having special flood hazards, or 
to finance any facilities or materials to be located in any such 
building, or in any building owned or occupied by the Borrower and 
located in such a flood hazard area, the Borrower has submitted 
evidence, in form and substance satisfactory to RUS, or RUS has 
otherwise determined, that (i) the community in which such area is 
located is then participating in the national flood insurance program, 
as required by the Flood Insurance Act and any Rules, and (ii) the 
Borrower has obtained flood insurance coverage with respect to such 
building and contents as may then be required pursuant to the Flood 
Insurance Act and any Rules.
    (m) Compliance With Loan Contract and Mortgage. That the Borrower is 
in material compliance with all provisions of this Agreement and the 
Mortgage.

                     Section 4.2. Special Conditions

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

                    Article V--Affirmative Covenants

                         Section 5.1. Generally

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

                    Section 5.2. Annual Certificates

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

      Section 5.3. Simultaneous Prepayment of Contemporaneous Loans

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

[[Page 217]]

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

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

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

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

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

                     Section 5.5. Depreciation Rates

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

                    Section 5.6. Property Maintenance

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

                      Section 5.7. Financial Books

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

                    Section 5.8. Rights of Inspection

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

                       Section 5.9. Area Coverage

    (a) The Borrower shall make diligent effort to extend electric 
service to all unserved persons within the service area of the Borrower 
who (i) desire such service and (ii) meet all reasonable requirements 
established by the Borrower as a condition of such service.

[[Page 218]]

    (b) If economically feasible and reasonable considering the cost of 
providing such service and/or the effects on consumers' rates, such 
service shall be provided, to the maximum extent practicable, at the 
rates and minimum charges established in the Borrower's rate schedules, 
without the payment of such persons, other than seasonal or temporary 
consumers, of a contribution in aid of construction. A seasonal consumer 
is one that demands electric service only during certain seasons of the 
year. A temporary consumer is a seasonal or year-round consumer that 
demands electric service over a period of less than five years.
    (c) The Borrower may assess contributions in aid of construction 
provided such assessments are consistent with this section.

                 Section 5.10. Real Property Acquisition

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

               Section 5.11. ``Buy American'' Requirements

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

                Section 5.12. Power Requirements Studies

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

 Section 5.13. Long Range Engineering Plans and Construction Work Plans

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

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

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

                 Section 5.15. Plans and Specifications

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

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

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

               Section 5.17. Contract Bidding Requirements

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

                     Section 5.18. Nondiscrimination

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

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

                     Section 5.19. Financial Reports

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

             Section 5.20. Miscellaneous Reports and Notices

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

               Section 5.21. Special Construction Account

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

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shall be insured by the Federal Deposit Insurance Corporation or other 
federal agency acceptable to RUS and shall be designated by the 
corporate name of the Borrower followed by the words ``Trustee, Special 
Construction Account.'' Moneys in any Special Construction Account shall 
be used solely for the construction and operation of the Utility System 
and may be withdrawn only upon checks, drafts, or orders signed on 
behalf of the Borrower and countersigned by an executive officer 
thereof.

             Section 5.22. Additional Affirmative Covenants

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

                     Article VI--Negative Covenants

                          Section 6.1. General

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

       Section 6.2. Limitations on System Extensions and Additions

    (a) The Borrower shall not extend or add to its Electric System 
either by construction or acquisition without the prior written approval 
of RUS if the construction or acquisition is financed or will be 
financed, in whole or in part, by a RUS loan or loan guarantee.
    (b) The Borrower shall not extend or add to its Electric System with 
funds from other sources without prior written approval of RUS in the 
case of:
    (1) Generating facilities if the combined capacity of the facilities 
to be built, procured, or leased, including any future facilities 
included in the planned project, will exceed the lesser of 5 Megawatts 
or 30 percent of the Borrower's Equity;
    (2) Existing electric facilities or systems in service whose 
purchase price, or capitalized value in the case of a lease, exceeds ten 
percent of the Borrower's Net Utility Plant; and
    (3) Any project to serve a customer whose annual Kwh purchases or 
maximum annual Kw demand is projected to exceed 25 percent of the 
Borrower's total Kwh sales or maximum Kw demand in the year immediately 
preceding the acquisition or start of construction of facilities.

    Section 6.3. Limitations on Changing Principal Place of Business

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

     Section 6.4. Limitations on Employment and Retention of Manager

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

         Section 6.5. Limitations on Certain Types of Contracts

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

[[Page 221]]

    (e) System management and maintenance contracts. Any contract for 
the management and operation of all or substantially all of its Electric 
System; or
    (f) Other contracts. Any contracts of the type described on Schedule 
3.

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

    (a) The Borrower shall not consolidate with, or merge, or sell all 
or substantially all of its business or assets, to another entity or 
person except to the extent it is permitted to do so under the Mortgage. 
The exception contained in this paragraph (a) is subject to the 
additional limitation set forth in paragraph (b) of this section.
    (b) The Borrower shall not, without the written approval of the 
Administrator, voluntarily or involuntarily sell, convey or dispose of 
any portion of its business or assets (including, without limitation, 
any portion of its franchise or service territory) to another entity or 
person if such sale, conveyance or disposition could reasonably be 
expected to reduce the Borrower's existing or future requirements for 
energy or capacity being furnished to the Borrower under any wholesale 
power contract which has been pledged as security to RUS.

     Section 6.7. Limitations on Using non-FDIC Insured Depositories

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

                Section 6.8. Limitation on Distributions

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

  Section 6.9. Limitations on Loans, Investments and Other Obligations

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

                    Section 6.10. Depreciation Rates

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

                   Section 6.11. Historic Preservation

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

                      Section 6.12. Rate Reductions

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

          Section 6.13. Limitations on Additional Indebtedness

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

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

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

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

          Section 6.15. Impairment of Contracts Pledged to RUS

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

               Section 6.16. Additional Negative Covenants

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

                          Article VII--Default

                     Section 7.1. Events of Default

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

[[Page 223]]

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

                         Article VIII--Remedies

                         Section 8.1. Generally

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

                   Section 8.2. Suspension of Advances

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

                        Article IX--Miscellaneous

                          Section 9.1. Notices

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

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

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

                          Section 9.2. Expenses

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

                       Section 9.3. Late Payments

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

[[Page 224]]

charge as may be fixed by RUS Regulations from time to time on the 
delinquent amount for the late-payment period.

                        Section 9.4. Filing Fees

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

                         Section 9.5. No Waiver

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

                       Section 9.6. Governing Law

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

                      Section 9.7. Holiday Payments

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

                         Section 9.8. Rescission

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

                   Section 9.9. Successors and Assigns

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

              Section 9.10. Complete Agreement; Amendments

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

                         Section 9.11. Headings

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

                       Section 9.12. Severability

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

                      Section 9.13. Right of Setoff

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

[[Page 225]]

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

                  Section 9.14. Schedules and Exhibits

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

                   Section 9.15. Prior Loan Contracts

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

            Section 9.16. Authority of Representatives of RUS

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

                           Section 9.17. Term

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

________________________________________________________________________
(Name of Borrower)

(SEAL)

By______________________________________________________________________
President

Attest:_________________________________________________________________

Secretary

                         RURAL UTILITIES SERVICE

By______________________________________________________________________
Administrator

                               Schedule 1

[citations subject to change]

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

Lender:_________________________________________________________________

Amount:_________________________________________________________________

Year of Final Maturity:_________________________________________________

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


[[Page 226]]


------ other

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

                       Schedule 2--Existing Liens

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

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

                    Schedule 3--Additional Contracts

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

[INSERT LIST OF ANY ADDITIONAL CONTRACTS HERE]

                   Exhibit A--Form of Promissory Note

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

            Exhibit B--Equal Opportunity Contract Provisions

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

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

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

[[Page 227]]

not exceed the weighted average of the expected remaining useful lives 
of the assets being financed (-------- years) as evidenced by the 
attached calculation of said weighted average lives.
    (b) The principal of the loan evidenced by such Notes shall either 
be [check one and provide evidence in the second case]:
    ------ (1) repaid based on level payments of principal and interest 
throughout the life of the loan, or
    ------ (2) amortized at a rate that shall yield a weighted average 
life that is not greater than the weighted average life that would 
result from level payments of principal and interest throughout the life 
of the loan as evidenced by the attached analysis of said weighted 
average lives.
    (c) The principal of the loan evidenced by such Notes has a maturity 
of not less than 5 years.

[Signed]________________________________________________________________

[Dated]_________________________________________________________________

[Name]__________________________________________________________________

[Title]_________________________________________________________________

[Name and Address of Borrower]__________________________________________

________________________________________________________________________

________________________________________________________________________

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

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

[Dated]_________________________________________________________________

[Name]__________________________________________________________________

[Title]_________________________________________________________________

[Name and Address of Borrower]__________________________________________

________________________________________________________________________

________________________________________________________________________

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



PART 1720--GUARANTEES FOR BONDS AND NOTES ISSUED FOR ELECTRIFICATION OR TELEPHONE PURPOSES--Table of Contents


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

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

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



Sec. 1720.1  Purpose.

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



Sec. 1720.2  Background.

    The Rural Electrification Act of 1936 (the ``RE Act'') (7 U.S.C. 901 
et seq.) authorizes the Secretary to guarantee and make loans to 
persons, corporations, states, territories, municipalities, and 
cooperative, non-profit, or limited-dividend associations for the 
purpose of furnishing or improving electric and telephone service in 
rural areas. Responsibility for administering electrification and 
telecommunications loan and guarantee programs along with other 
functions the Secretary deemed appropriate have been assigned to RUS 
under the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 
6941 et seq.). The Administrator of RUS has been delegated 
responsibility for administering the programs and activities of RUS, see 
7 CFR 1700.25. Section 6101 of the Farm Security and Rural Investment 
Act of 2002 (Pub. L. 107-171) (FSRIA) amended the RE Act to include a 
new program under section 313A entitled Guarantees for Bonds and Notes 
Issued for Electrification or Telephone Purposes. This measure became 
law on May 13, 2002, and directs the Secretary of Agriculture to 
promulgate regulations that carry out the Program.

[[Page 228]]



Sec. 1720.3  Definitions.

    For the purpose of this part:
    Administrator means the Administrator of RUS.
    Applicant means a bank or other lending institution organized as a 
private, not-for-profit cooperative association, or otherwise on a non-
profit basis, that is applying for RUS to guarantee a bond or note under 
this part.
    Bond Documents means the trust indenture, bond resolution, 
guarantee, guarantee agreement and all other instruments and 
documentation pertaining to the issuance of the guaranteed bonds.
    Borrower means any organization that has an outstanding loan made or 
guaranteed by RUS for rural electrification or rural telephone under the 
RE Act, or that is seeking such financing.
    Concurrent Loan means a loan that a guaranteed lender extends to a 
borrower for up to 30 percent of the cost of an eligible electrification 
or telephone purpose under the RE Act, concurrently with an insured loan 
made by the Secretary pursuant to section 307 of the RE Act.
    Federal Financing Bank (FFB) means a government corporation and 
instrumentality of the United States of America under the general 
supervision of the Secretary of the Treasury.
    Guarantee means the written agreement between the Secretary and a 
guaranteed bondholder, pursuant to which the Secretary guarantees full 
repayment of the principal, interest, and call premium, if any, on the 
guaranteed lender's guaranteed bond.
    Guarantee Agreement means the written agreement between the 
Secretary and the guaranteed lender which sets forth the terms and 
conditions of the guarantee.
    Guaranteed Bond means any bond, note, debenture, or other debt 
obligation issued by a guaranteed lender on a fixed or variable rate 
basis, and approved by the Secretary for a guarantee under this part.
    Guaranteed Bondholder means any investor in a guaranteed bond.
    Guaranteed Lender means an applicant that has been approved for a 
guarantee under this part.
    Loan means any credit instrument that the guaranteed lender extends 
to a borrower for any electrification or telephone purpose eligible 
under the RE Act, including loans as set forth in section 4 of the RE 
Act for electricity transmission lines and distribution systems 
(excluding generating facilities) and as set forth in section 201 of the 
RE Act for telephone lines, facilities and systems.
    Loan documents means the loan agreement and all other instruments 
and documentation between the guaranteed lender and the borrower 
evidencing the making, disbursing, securing, collecting, or otherwise 
administering of a loan.
    Program means the guarantee program for bonds and notes issued for 
electrification or telephone purposes authorized by section 313A of the 
RE Act as amended.
    Rating Agency means a bond rating agency identified by the 
Securities and Exchange Commission as a nationally recognized 
statistical rating organization.
    RE Act means the Rural Electrification Act of 1936 (7 U.S.C. 901 et 
seq.) as amended.
    RUS means the Rural Utilities Service, a Rural Development agency of 
the U.S. Department of Agriculture.
    Secretary means the Secretary of Agriculture acting through the 
Administrator of RUS.
    Subsidy Amount means the amount of budget authority sufficient to 
cover the estimated long-term cost to the Federal government of a 
guarantee, calculated on a net present value basis, excluding 
administrative costs and any incidental effects on government receipts 
or outlays, in accordance with the provisions of the Federal Credit 
Reform Act of 1990 (2 U.S.C. 661 et. seq.)



Sec. 1720.4  General standards.

    (a) In accordance with section 313A of the RE Act, a guarantee will 
be issued by the Secretary only if the Secretary determines, in 
accordance with the requirements set forth in this part, that:
    (1) The proceeds of the guaranteed bonds will be used by the 
guaranteed lender to make loans to borrowers for electrification or 
telephone purposes

[[Page 229]]

eligible for assistance under this chapter, or to refinance bonds or 
notes previously issued by the guaranteed lender for such purposes;
    (2) At the time the guarantee is executed, the total principal 
amount of guaranteed bonds outstanding would not exceed the principal 
amount of outstanding concurrent loans previously made by the guaranteed 
lender;
    (3) The proceeds of the guaranteed bonds will not be used directly 
or indirectly to fund projects for the generation of electricity; and
    (4) The guaranteed lender will not use any amounts obtained from the 
reduction in funding costs provided by the program to reduce the 
interest rates borrowers are paying on new or outstanding loans, other 
than new concurrent loans as provided in 7 CFR part 1710, of this 
chapter.
    (b) During the term of the guarantee, the guaranteed lender shall:
    (1) Limit cash patronage refunds, for guaranteed lenders having a 
credit rating below ``A-'' on its senior secured debt without regard to 
the guarantee. For such guaranteed lenders, cash patronage refunds are 
limited to five percent of the total patronage refund eligible. The 
limit on patronage refunds must be maintained until the credit rating is 
restored to ``A-'' or above. For those guaranteed lenders subject to 
patronage limitations, equity securities issued as part of the patronage 
refund shall not be redeemable in cash during the term of any part of 
the guarantee, and the guaranteed lender shall not issue any dividends 
on any class of equity securities during the term of the guarantee.
    (2) Maintain sufficient collateral equal to the principal amount 
outstanding, for guaranteed lenders having a credit rating below ``A-'' 
on its senior secured debt without regard to the guarantee. Collateral 
shall be in the form of specific and identifiable unpledged securities 
equal to the value of the guaranteed amount. In the case of a guaranteed 
lender's default, the U.S. government claim shall not be subordinated to 
the claims of other creditors, and the indenture must provide that in 
the event of default, the government has first rights on the asset. Upon 
application and throughout the term of the guarantee, guaranteed lenders 
not subject to collateral pledging requirements shall identify, with the 
concurrence of the Secretary, specific assets to be held as collateral 
should the credit rating of its senior secured debt without regard to 
the guarantee fall below ``A-''. The Secretary has discretion to require 
collateral at any time should circumstances warrant.
    (c) The final maturity of the guaranteed bonds shall not exceed 20 
years.
    (d) The guaranteed bonds shall be issued to the Federal Financing 
Bank on terms and conditions consistent with comparable government-
guaranteed bonds and satisfactory to the Secretary.
    (e) The Secretary shall guarantee payment son guaranteed bonds in 
such forms and on such terms and conditions and subject to such 
covenants, representations, warranties and requirements (including 
requirements for audits) as determined appropriate for satisfying the 
requirements of this part. The Secretary shall require the guaranteed 
lender to enter into a guarantee agreement to evidence its acceptance of 
the foregoing. Any guarantee issued under this part shall be made in a 
separate and distinct offering.



Sec. 1720.5  Eligibility criteria.

    (a) To be eligible to participate in the program, a guaranteed 
lender must be:
    (1) A bank or other lending institution organized as a private, not-
for-profit cooperative association, or otherwise on a non-profit basis; 
and
    (2) Able to demonstrate to the Secretary that it possesses the 
appropriate expertise, experience, and qualifications to make loans for 
electrification or telephone purposes.
    (b) To be eligible to receive a guarantee, a guaranteed lender's 
bond must meet the following criteria:
    (1) The guaranteed leader must furnish the Secretary with a 
certified list of the principal balances of concurrent loans then 
outstanding evidencing that such aggregate balance is at least equal to 
the sum of the proposed principal amount of guaranteed bonds to be

[[Page 230]]

issued, and any previously issued guaranteed bonds outstanding; and
    (2) The guaranteed bonds to be issued by the guaranteed lender must 
receive an underlying investment grade rating from a Rating Agency, 
without regard to the guarantee;
    (c) A lending institution's status as an eligible applicant does not 
assure that the Secretary will issue the guarantee sought in the amount 
or under the terms requested, or otherwise preclude the Secretary from 
declining to issue a guarantee.



Sec. 1720.6  Application process.

    (a) Applications shall contain the following:
    (1) Background and contact information on the applicant;
    (2) A term sheet summarizing the proposed terms and conditions of, 
and the security pledged to assure the applicant's performance under, 
the guarantee agreement;
    (3) A statement by the applicant as to how it proposes to use the 
proceeds of the guaranteed bonds, and the financial benefit it 
anticipates deriving from participating in the program;
    (4) A pro-forma cash flow projection or business plan for the next 
five years, demonstrating that there is reasonable assurance that the 
applicant will be able to repay the guaranteed bonds in accordance with 
their terms;
    (5) Consolidated financial statements of the guaranteed lender for 
the previous three years that have been audited by an independent 
certified public accountant, including any associated notes, as well as 
any interim financial statements and associated notes for the current 
fiscal year;
    (6) Evidence of having been assigned an investment grade rating on 
the debt obligations for which it is seeking the guarantee, without 
regard to the guarantee;
    (7) Evidence of a credit rating, from a Rating Agency, on its senior 
secured debt without regard to the government guarantee and satisfactory 
to the Secretary.
    (8) Such other application documents and submissions deemed 
necessary by the Secretary for the evaluation of applicants.
    (b) The application process occurs as follows:
    (1) The applicant submits an application to the Secretary;
    (2) The application is screened by RUS pursuant to 7 CFR 1720.7(a) 
of this part, to ascertain its threshold eligibility for the program;
    (3) RUS evaluates the application pursuant to the selection criteria 
set forth in 7 CFR 1720.7(b) of this part;
    (4) If RUS provisionally approves the application, the applicant and 
RUS negotiate terms and conditions of the bond documents, and
    (5) The applicant offers its guaranteed bonds, and the Secretary 
upon approval of the pricing, redemption provisions and other terms of 
the offering, executes the guarantee.
    (c) If requested by the applicant at the time it files its 
application, the General Counsel of the Department of Agriculture shall 
provide the Secretary with an opinion regarding the validity and 
authority of a guarantee issued to the lender under section 313A of the 
RE Act.



Sec. 1720.7  Application evaluation.

    (a) Eligibility screening. Each application will be reviewed by the 
Secretary to determine whether it is eligible under 7 CFR 1720.5, the 
information required under 7 CFR 1720.6 is complete and the proposed 
guaranteed bond complies with applicable statutes and regulations. The 
Secretary can at any time reject an application that fails to meet these 
requirements.
    (b) Evaluation. Pursuant to paragraph (a) of this section, 
applications will be subject to a substantive review, on a competitive 
basis, by the Secretary based upon the following evaluation factors, 
listed in order of importance:
    (1) The extent to which the proposed provisions indicate the 
applicant will be able to repay the guaranteed bonds;
    (2) The adequacy of the proposed provisions to protect the Federal 
government, based upon items including, but not limited to the nature of 
the pledged security, the priority of the lien position, if any, pledged 
by the applicant, and the provision for an orderly retirement of 
principal such as an amortizing bond structure or an internal sinking 
fund;

[[Page 231]]

    (3) The applicant's demonstrated performance of financially sound 
business practices;
    (4) The extent to which providing the guarantee to the applicant 
will help reduce the cost and/or increase the supply of credit to rural 
America, to generate other economic benefits, including the amount of 
fee income available to be deposited into the Rural Economic Development 
Subaccount, maintained under section 313(b)(2)(A) of the RE Act (7 
U.S.C. 940c-1(b)(2)(B)), after payment of the subsidy amount.
    (c) Independent Assessment. Before a guarantee decision is made by 
the Secretary, the Secretary shall request that the Federal Financing 
Bank review the adequacy of the determination by the Rating Agency, 
required under Sec. 1720.5(b)(2) as to whether the bond or note to be 
issued would be below investment grade without the guarantee.
    (d) Decisions by the Secretary. The Secretary shall approve or deny 
applications in a timely manner as such applications are received. The 
Secretary may limit the number of guarantees made to a maximum of five 
per year, to ensure a sufficient examination is conducted of applicant 
requests. RUS shall notify the applicant in writing of the Secretary's 
approval or denial of an application. Approvals for guarantees shall be 
conditioned upon compliance with 7 CFR 1720.4 and 1720.6.



Sec. 1720.8  Issuance of the guarantee.

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



Sec. 1720.9  Guarantee Agreement.

    (a) The guaranteed lender will be required to sign a guarantee 
agreement

[[Page 232]]

with the Secretary setting forth the terms and conditions upon which the 
Secretary guarantees the payment of the guaranteed bonds.
    (b) The guaranteed bonds shall refer to the guarantee agreement as 
controlling the terms of the guarantee.
    (c) The guarantee agreement shall address the following matters:
    (1) Definitions and principles of construction;
    (2) The form of guarantee;
    (3) Coverage of the guarantee;
    (4) Timely demand for payment on the guarantee;
    (5) Any prohibited amendments of bond documents or limitations on 
transfer of the guarantee;
    (6) Limitation on acceleration of guaranteed bonds;
    (7) Calculation and manner of paying the guarantee fee;
    (8) Consequences of revocation of payment on the guaranteed bonds;
    (9) Representations and warranties of the guaranteed lender;
    (10) Representations and warranties for the benefit of the holder of 
the guaranteed bonds;
    (11) Claim procedures;
    (12) What constitutes a failure by the guaranteed lender to pay;
    (13) Demand on RUS;
    (14) Assignment to RUS;
    (15) Conditions of guarantee which may include requiring the 
guaranteed lender to adopt measures to ensure adequate capital levels 
are retained to absorb losses relative to risk in the guaranteed 
lender's portfolio and requirements on the guaranteed lender to hold 
additional capital against the risk of default;
    (16) Payment by RUS;
    (17) RUS payment does not discharge guaranteed lender;
    (18) Undertakings for the benefit of the holders of guaranteed 
bonds, including: notices, registration, prohibited amendments, 
prohibited transfers, indemnification, multiple bond issues;
    (19) Governing law;
    (20) Notices;
    (21) Benefit of agreement;
    (22) Entirety of agreement;
    (23) Amendments and waivers;
    (24) Counterparts;
    (25) Severability, and
    (26) Such other matters as the Secretary believes to be necessary or 
appropriate.



Sec. 1720.10  Fees.

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



Sec. 1720.11  Servicing.

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



Sec. 1720.12  Reporting requirements.

    (a) As long as any guaranteed bonds remain outstanding, the 
guaranteed lender shall provide the Secretary with the following items 
each year within 90 days of the guaranteed lender's fiscal year end:
    (1) Consolidated financial statements and accompanying footnotes, 
audited by independent certified public accountants;
    (2) A review and certification of the security of the government 
guarantee, audited by reputable, independent certified public 
accountants or a federal banking regulator, who in the judgment of the 
Secretary, has the requisite skills, knowledge, reputation,

[[Page 233]]

and experience to properly conduct such a review;
    (3) Pro forma projection of the guaranteed lender's balance sheet, 
income statement, and statement of cash flows over the ensuing five 
years;
    (4) Credit assessment issued by a Rating Agency;
    (5) Credit rating, by a Rating Agency, on its senior secured debt 
without regard to the guarantee and satisfactory to the Secretary;
    (6) Other such information requested by the Secretary.
    (b) The bond documents shall specify such bond monitoring and 
financial reporting requirements as deemed appropriate by the Secretary.



Sec. 1720.13  Limitations on guarantees.

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



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

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



Sec. 1720.15  Equal opportunity requirements.

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

[[Page 234]]

to application approval or a conditional commitment of guarantee.



PART 1721--POST-LOAN POLICIES AND PROCEDURES FOR INSURED ELECTRIC LOANS--
Table of Contents


                       Subpart A--Advance of Funds

Sec.
1721.1  Advances.

       Subpart B--Extensions of Payments of Principal and Interest

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

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



                       Subpart A--Advance of Funds



Sec. 1721.1  Advances.

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

[64 FR 72489, Dec. 28, 1999]

[[Page 235]]



       Subpart B--Extensions of Payments of Principal and Interest

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



Sec. 1721.100  Purpose.

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



Sec. 1721.101  General.

    (a) The procedures in this subpart are intended to provide Borrowers 
with the flexibility to request an extension of principal and interest 
as authorized under section 12(a) of the RE Act and section 236 of the 
Disaster Relief Act of 1970 (Public Law 91-606).
    (b) The total amount of interest that has been deferred, including 
interest on deferred principal, will be added to the principal balance, 
and the total amount of principal and interest that has been deferred 
will be reamortized over the remaining life of the applicable note 
beginning in the first year the deferral period ends.
    (c) Payment of principal and interest will not be extended more than 
5 years after such payment is due as originally scheduled. However, in 
cases where the extension is being granted because, at the sole 
discretion of the Administrator, a severe hardship has been experienced, 
the Administrator may grant a longer extension provided that the 
maturity date of any such loan does not extend to a date beyond forty 
(40) years from the date of the note.

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



Sec. 1721.102  Definitions.

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



Sec. 1721.103  Policy.

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

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



Sec. 1721.104  Eligible purposes.

    (a) Deferments for financial hardship. (1) In cases of financial 
hardship, a Borrower may request that RUS defer principal or interest or 
both. RUS will consider whether the deferral will help a Borrower place 
its operations on a more stable financial basis and thereby provide 
assurance of repayment of loans within the time when payment of such 
loans are due under the terms of the note or notes as extended.
    (2) RUS will determine whether a Borrower qualifies for the 
deferment on a case-by-case basis, considering such factors as the 
following:
    (i) Substantial unreimbursed or uninsured expenses relating to storm 
damage;

[[Page 236]]

    (ii) Loss of large power load (as defined in Sec. 1710.7(c)(6)(ii) 
of this chapter, Large retail power contracts); or
    (iii) Substantial loss of consumers or load due to hostile 
annexations and condemnations, without adequate compensation.
    (b) Deferments for energy resource conservation (ERC) loans.
    (1) A Borrower may request that RUS defer principal payments to make 
funds available to the Borrower's consumers to conserve energy. Amounts 
deferred under this program can be used to cover the cost of labor and 
materials for the following energy conservation measures:
    (i) Caulking;
    (ii) Weather-stripping;
    (iii) Heat pump systems (including water source heat pumps);
    (iv) Heat pumps, water heaters, and central heating or central air 
conditioning system replacements or modifications, which reduce energy 
consumption;
    (v) Ceiling insulation;
    (vi) Wall insulation;
    (vii) Floor insulation;
    (viii) Duct insulation;
    (ix) Pipe insulation;
    (x) Water heater insulation;
    (xi) Storm windows;
    (xii) Thermal windows;
    (xiii) Storm or thermal doors;
    (xiv) Electric system coordinated customer-owned devices that reduce 
the maximum kilowatt demand on the electric system;
    (xv) Clock thermostats; or
    (xvi) Attic ventilation fans.
    (2) ERC loans will be amortized over not more than 84 months, 
without penalty for prepayment of principal.
    (c) Deferments for renewable energy projects. (1) A Borrower may 
request that RUS defer principal payments to enable the Borrower to 
finance renewable energy projects. Amounts deferred under this program 
can be used to cover costs to install all or part of a renewable energy 
system including, without limitation:
    (i) Energy conversion technology;
    (ii) Electric power system interfaces;
    (iii) Delivery equipment;
    (iv) Control equipment; and
    (v) Energy consuming devices.
    (2) A Borrower may request that RUS defer principal payments for the 
purpose of enabling the Borrower to provide its consumers with loans to 
install all or part of customer-owned renewable energy systems up to 
5kW.
    (3) A renewable energy system is defined in Sec. 1710.2 of this 
chapter.
    (4) For the purpose of this subpart, a renewable energy project 
consists of one or more renewable energy systems.
    (d) Deferments for distributed generation projects.
    (1) A Borrower may request that RUS defer principal payments to 
enable the Borrower to finance distributed generation projects. Amounts 
deferred under this program can be used to cover costs to install all or 
part of a distributed generation system that:
    (i) The Borrower will own and operate, or
    (ii) The consumer owns, provided the system owned by the consumer 
does not exceed 5KW.
    (2) A distributed generation project may include one or more 
individual systems.
    (e) Deferments for contributions-in-aid of construction.
    (1) A Borrower may request RUS to defer principal payments to enable 
the Borrower to make funds available to new full time residential 
consumers to assist them in paying their share of the construction costs 
(contribution-in-aid of construction) needed to connect them to the 
Borrower's system.
    (2) Amounts available for this purpose will be limited to the amount 
of the construction costs that are in excess of the average cost per 
residential consumer incurred by the Borrower to connect new full time 
residential consumers during the last calendar year for which data are 
available. The average cost per residential consumer is the total cost 
incurred by the Borrower and will not be reduced by the amounts received 
as a contribution-in-aid of construction.

[67 FR 485, Jan. 4, 2002, as amended at 68 FR 37954, June 26, 2003]



Sec. 1721.105  Application documents.

    (a) Deferments for financial hardship. A Borrower requesting a 
section 12 deferment because of financial hardship must submit the 
following:

[[Page 237]]

    (1) A summary of the financial position of the Borrower, based on 
the latest information available (usually less than 60 days old).
    (2) A copy of the board resolution requesting an extension due to 
financial hardship.
    (3) A 10-year financial forecast of revenues and expenses on a cash 
basis, by year, for the period of the extension and 5 years beyond to 
establish that the remaining payments can be made as rescheduled.
    (4) A listing of notes or portions of notes to be extended, the 
effective date for the beginning of the extension, and the length of the 
extension.
    (5) A narrative description of the nature and cause of the hardship 
and the strategy that will be instituted to mitigate or eliminate the 
effects of the hardship.
    (b) Deferments for energy resource conservation loans. A Borrower 
requesting principal deferments for an ERC loan program must submit the 
following information:
    (1) A letter from the Borrower's General Manager requesting an 
extension of principal payments for the purpose of offering an ERC loan 
program to its members and describing the details of the program.
    (2) A copy of the board resolution establishing the ERC loan 
program.
    (c) Deferments for renewable energy projects. A Borrower requesting 
principal deferments for its renewable energy project must submit the 
following information:
    (1) A letter from the Borrower's General Manager requesting an 
extension of principal payments for the purpose of financing a renewable 
energy project and describing the details of the project.
    (2) A copy of the board resolution establishing the renewable energy 
project.
    (d) Deferments for distributed generation projects. A Borrower 
requesting principal deferments for distributed generation projects must 
submit the following information and approval is also subject to any 
applicable terms and conditions of the Borrower's loan contract, 
mortgage, or indenture:
    (1) A letter from the Borrower's General Manager requesting an 
extension of principal payments for the purpose of financing distributed 
generation projects and describing the details of the project, and
    (2) A copy of the board resolution establishing the distributed 
generation projects program.
    (e) Deferments for contribution-in-aid of construction. A Borrower 
requesting principal deferments for contribution-in-aid of construction 
must submit the following information:
    (1) A letter from the Borrower's General Manager requesting an 
extension of principal payments for the purpose of offering a 
contribution-in-aid of construction program and describing the details 
of the program.
    (2) A copy of the board resolution establishing the contribution-in-
aid of construction program.
    (3) A summary of the calculations used to determine the average cost 
per residential consumer. (See Sec. 1721.104 (e)(2)).

[67 FR 485, Jan. 4, 2002, as amended at 68 FR 37954, June 26, 2003]



Sec. 1721.106  Repayment of deferred payments.

    (a) Deferments relating to financial hardship. The total amount of 
interest that has been deferred, including interest on deferred 
principal, will be added to the principal balance, and the total amount 
of principal and interest that has been deferred will be reamortized 
over the remaining life of the applicable note beginning in the first 
year the deferral period ends. For example: the amount of interest 
deferred in years 2003, 2004, 2005, 2006, and 2007, will be added to the 
principal balance and reamortized over the life of the applicable note 
for repayment starting in year 2008.
    (b) Deferments relating to the ERC loan program, renewable energy 
project(s), distributed generation project(s), and the contribution(s)-
in-aid of construction. An extension agreement is for a term of two (2) 
years. The installment will be recalculated each time the Borrower 
defers the payment of principal and recognition of the deferred amount 
will begin with the next payment. For example: the amount deferred in 
the October payment will be reamortized over a 84 month period starting 
with the

[[Page 238]]

next payment (November if paying on a monthly basis). When a Borrower 
defers principal under any of these programs the scheduled payment on 
the account will increase by an amount sufficient to pay off the 
deferred amount, with interest, by the date specified in the agreement 
(usually 84 months (28 quarters)).

[67 FR 485, Jan. 4, 2002, as amended at 68 FR 37954, June 26, 2003]



Sec. 1721.107  Agreement.

    After approval of the Borrower's request for a deferment of 
principal and interest, an extension agreement, containing the terms of 
the extension, together with associated materials, will be prepared and 
forwarded to the Borrower by RUS. The extension agreement will then be 
executed and returned to RUS by the Borrower.



Sec. 1721.108  Commencement of the deferment.

    The deferment of principal and interest will not begin until the 
extension agreement and other supporting materials, in form and 
substance satisfactory to RUS, have been executed by the Borrower and 
returned to RUS. Examples of other supporting materials are items such 
as approving legal opinions from the Borrower's attorney and approvals 
from the relevant regulatory body for extending the maturity of existing 
debt and for the additional debt service payment incurred.



Sec. 1721.109  OMB control number.

    The information collection requirements in this part are approved by 
the Office of Management and Budget and assigned OMB control number 
0572-0123.



PART 1724--ELECTRIC ENGINEERING, ARCHITECTURAL SERVICES AND DESIGN POLICIES AND PROCEDURES--Table of Contents


                           Subpart A--General

Sec.
1724.1  Introduction.
1724.2  Waivers.
1724.3  Definitions.
1724.4  Qualifications.
1724.5  Submission of documents to RUS.
1724.6  Insurance requirements.
1724.7  Debarment and suspension.
1724.8  Restrictions on lobbying.
1724.9  Environmental compliance.
1724.10  Standard forms of contracts for borrowers.
1724.11-1724.19  [Reserved]

                    Subpart B--Architectural Services

1724.20  Borrowers' requirements--architectural services.
1724.21  Architectural services contracts.
1724.22-1724.29  [Reserved]

                     Subpart C--Engineering Services

1724.30  Borrowers' requirements--engineering services.
1724.31  Engineering services contracts.
1724.32  Inspection and certification of work order construction.
1724.33-1724.39  [Reserved]

                   Subpart D--Electric System Planning

1724.40  General.
1724.41-1724.49  [Reserved]

                    Subpart E--Electric System Design

1724.50  Compliance with National Electrical Safety Code (NESC).
1724.51  Design requirements.
1724.52  Permitted deviations from RUS construction standards.
1724.53  Preparation of plans and specifications.
1724.54  Requirements for RUS approval of plans and specifications.
1724.55  Dam safety.
1724.56-1724.69  [Reserved]

Appendix A to Subpart E--Hazard Potential Classification for Civil Works 
          Projects

                      Subpart F--RUS Contract Forms

1724.70  Standard forms of contracts for borrowers.
1724.71  Borrower contractual obligations.
1724.72  Notice and publication of listed contract forms.
1724.73  Promulgation of new or revised contract forms.
1724.74  List of electric program standard contract forms.
1724.75-1724.99  [Reserved]

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

    Source: 63 FR 35314, June 29, 1998, unless otherwise noted.

[[Page 239]]



                           Subpart A--General



Sec. 1724.1  Introduction.

    (a) The policies, procedures and requirements in this part implement 
certain provisions of the standard form of loan documents between the 
Rural Utilities Service (RUS) and its electric borrowers.
    (b) All borrowers, regardless of the source of financing, shall 
comply with RUS' requirements with respect to design, construction 
standards, and the use of RUS accepted material on their electric 
systems.
    (c) Borrowers are required to use RUS contract forms only if the 
facilities are financed by RUS.



Sec. 1724.2  Waivers.

    The Administrator may waive, for good cause on a case-by-case basis, 
requirements and procedures of this part.



Sec. 1724.3  Definitions.

    Terms used in this part have the meanings set forth in Sec. 1710.2 
of this chapter. References to specific RUS forms and other RUS 
documents, and to specific sections or lines of such forms and 
documents, shall include the corresponding forms, documents, sections 
and lines in any subsequent revisions of these forms and documents. In 
addition to the terms defined in Sec. 1710.2 of this chapter, the 
following terms have the following meanings for the purposes of this 
part:
    Architect means a registered or licensed person employed by the 
borrower to provide architectural services for a project and duly 
authorized assistants and representatives.
    Engineer means a registered or licensed person, who may be a staff 
employee or an outside consultant, to provide engineering services and 
duly authorized assistants and representatives.
    Force account construction means construction performed by the 
borrower's employees.
    GPO means Government Printing Office.
    NESC means the National Electrical Safety Code.
    RE Act means the Rural Electrification Act of 1936 as amended (7 
U.S.C. 901 et seq.).
    Repowering means replacement of the steam generator or the prime 
mover or both at a generating plant.
    RUS means Rural Utilities Service.
    RUS approval means written approval by the Administrator or a 
representative with delegated authority. RUS approval must be in 
writing, except in emergency situations where RUS approval may be given 
orally followed by a confirming letter.
    RUS financed means financed or funded wholly or in part by a loan 
made or guaranteed by RUS, including concurrent supplemental loans 
required by Sec. 1710.110 of this chapter, loans to reimburse funds 
already expended by the borrower, and loans to replace interim 
financing.

[63 FR 35314, June 29, 1998, as amended at 63 FR 58284, Oct. 30, 1998]



Sec. 1724.4  Qualifications.

    The borrower shall ensure that:
    (a) All selected architects and engineers meet the applicable 
registration and licensing requirements of the States in which the 
facilities will be located;
    (b) All selected architects and engineers are familiar with RUS 
standards and requirements; and
    (c) All selected architects and engineers have had satisfactory 
experience with comparable work.



Sec. 1724.5  Submission of documents to RUS.

    (a) Where to send documents. Documents required to be submitted to 
RUS under this part are to be sent to the office of the borrower's 
respective RUS Regional Director, the Power Supply Division Director, or 
such other office of RUS as designated by RUS. (See part 1700 of this 
chapter.)
    (b) Contracts requiring RUS approval. The borrower shall submit to 
RUS three copies of each contract that is subject to RUS approval under 
subparts B and C of this part. At least one copy of each contract must 
be an original signed in ink (i.e., no facsimile signature). Each 
contract submittal must be accompanied by a certified copy of the board 
resolution awarding the contract.
    (c) Contract amendments requiring RUS approval. The borrower shall 
submit to

[[Page 240]]

RUS three copies of each contract amendment (at least one copy of which 
must be an original signed in ink) which is subject to RUS approval. 
Each contract amendment submittal to RUS must be accompanied by a 
certified copy of the board resolution approving the amendment.



Sec. 1724.6  Insurance requirements.

    (a) Borrowers shall ensure that all architects and engineers working 
under contract with the borrower have insurance coverage as required by 
part 1788 of this chapter.
    (b) Borrowers shall also ensure that all architects and engineers 
working under contract with the borrower have insurance coverage for 
Errors and Omissions (Professional Liability Insurance) in an amount at 
least as large as the amount of the architectural or engineering 
services contract but not less than $500,000.



Sec. 1724.7  Debarment and suspension.

    Borrowers shall comply with the requirements on debarment and 
suspension in connection with procurement activities as set forth in 
part 3017 of this title, particularly with respect to lower tier 
transactions, e.g., procurement contracts for goods or services.



Sec. 1724.8  Restrictions on lobbying.

    Borrowers shall comply with the restrictions and requirements in 
connection with procurement activities as set forth in part 3018 of this 
title.



Sec. 1724.9  Environmental compliance.

    Borrowers shall comply with the requirements of part 1794 of this 
chapter, Environmental Policies and Procedures for Electric and 
Telephone Borrowers.



Sec. 1724.10  Standard forms of contracts for borrowers.

    The standard loan agreement between RUS and its borrowers provides 
that, in accordance with applicable RUS regulations in this chapter, the 
borrower shall use standard forms of contracts promulgated by RUS for 
construction, procurement, engineering services, and architectural 
services financed by a loan made or guaranteed by RUS. This part 
implements these provisions of the RUS loan agreement. Subparts A 
through E of this part prescribe when and how borrowers are required to 
use RUS standard forms of contracts for engineering and architectural 
services. Subpart F of this part prescribes the procedures that RUS 
follows in promulgating standard contract forms and identifies those 
contract forms that borrowers are required to use for engineering and 
architectural services.

[63 FR 58284, Oct. 30, 1998]



Secs. 1724.11-1724.19  [Reserved]



                    Subpart B--Architectural Services



Sec. 1724.20  Borrowers' requirements--architectural services.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) Each borrower shall select a qualified architect to perform the 
architectural services required for the design and construction 
management of headquarters facilities. The selection of the architect is 
not subject to RUS approval unless specifically required by RUS on a 
case by case basis. Architect's qualification information need not be 
submitted to RUS unless specifically requested by RUS on a case by case 
basis.
    (b) The architect retained by the borrower shall not be an employee 
of the building supplier or contractor, except in cases where the 
building is prefabricated and pre-engineered.
    (c) The architect's duties are those specified under the 
Architectural Services Contract and under subpart E of this part, and, 
as applicable, those duties assigned to the ``engineer'' for competitive 
procurement procedures in part 1726 of this chapter.
    (d) If the facilities are RUS financed, the borrower shall submit or 
require the architect to submit one copy of each construction progress 
report to RUS upon request.
    (e) Additional information concerning RUS requirements for electric 
borrowers' headquarters facilities are set forth in subpart E of this 
part. See also RUS Bulletin 1724E-400, Guide to Presentation of Building 
Plans and Specifications, for additional guidance.

[[Page 241]]

This bulletin is available from Program Development and Regulatory 
Analysis, Rural Utilities Service, U.S. Department of Agriculture, Stop 
1522, 1400 Independence Ave., SW., Washington, DC 20250-1522.



Sec. 1724.21  Architectural services contracts.

    The provisions of this section apply only to RUS financed electric 
system facilities.
    (a) RUS Form 220, Architectural Services Contract, must be used by 
electric borrowers when obtaining architectural services.
    (b) The borrower shall ensure that the architect furnishes or 
obtains all architectural services related to the design and 
construction management of the facilities.
    (c) Reasonable modifications or additions to the terms and 
conditions in the RUS contract form may be made to define the exact 
services needed for a specific undertaking. Such modifications or 
additions shall not relieve the architect or the borrower of the basic 
responsibilities required by the RUS contract form, and shall not alter 
any terms and conditions required by law. All substantive changes must 
be approved by RUS prior to execution of the contract.
    (d) Architectural services contracts are not subject to RUS approval 
and need not be submitted to RUS unless specifically requested by RUS on 
a case by case basis.
    (e) Closeout. Upon completion of all services and obligations 
required under each architectural services contract, including, but not 
limited to, submission of final documents, the borrower must closeout 
that contract. The borrower shall obtain from the architect a final 
statement of cost, which must be supported by detailed information as 
appropriate. For example, out-of-pocket expense and per diem types of 
compensation should be listed separately with labor, transportation, 
etc., itemized for each service involving these types of compensation. 
RUS Form 284, Final Statement of Cost for Architectural Service, may be 
used. All computations of the compensation must be made in accordance 
with the terms of the architectural services contract. Closeout 
documents need not be submitted to RUS unless specifically requested by 
RUS on a case by case basis.



Secs. 1724.22-1724.29  [Reserved]



                     Subpart C--Engineering Services



Sec. 1724.30  Borrowers' requirements--engineering services.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) Each borrower shall select one or more qualified persons to 
perform the engineering services involved in the planning, design, and 
construction management of the system.
    (b) Each borrower shall retain or employ one or more qualified 
engineers to inspect and certify all new construction in accordance with 
Sec. 1724.32. The engineer must not be the borrower's manager.
    (c) The selection of the engineer is not subject to RUS approval 
unless specifically required by RUS on a case by case basis. Engineer's 
qualification information need not be submitted to RUS unless 
specifically requested by RUS on a case by case basis.
    (d) The engineer's duties are specified under the Engineering 
Services Contract and under part 1726 of this chapter. The borrower 
shall ensure that the engineer executes all certificates and other 
instruments pertaining to the engineering details required by RUS.
    (e) Additional requirements related to appropriate seismic safety 
measures are contained in part 1792, subpart C, of this chapter, Seismic 
Safety of Federally Assisted New Building Construction.
    (f) If the facilities are RUS financed, the borrower shall submit or 
require the engineer to submit one copy of each construction progress 
report to RUS upon RUS' request.



Sec. 1724.31  Engineering services contracts.

    The provisions of this section apply only to RUS financed electric 
system facilities.
    (a) RUS contract forms for engineering services shall be used. 
Reasonable

[[Page 242]]

modifications or additions to the terms and conditions in the RUS 
contract form may be made to define the exact services needed for a 
specific undertaking. Any such modifications or additions shall not 
relieve the engineer or the borrower of the basic responsibilities 
required by the RUS contract form, and shall not alter any terms and 
conditions required by law. All substantive changes to the RUS contract 
form shall be approved by RUS prior to execution of the contract.
    (b) RUS Form 236, Engineering Service Contract--Electric System 
Design and Construction, shall be used for all distribution, 
transmission, substation, and communications and control facilities. 
These contracts are not subject to RUS approval and need not be 
submitted to RUS unless specifically requested by RUS on a case by case 
basis.
    (c) RUS Form 211, Engineering Service Contract for the Design and 
Construction of a Generating Plant, shall be used for all new generating 
units and repowering of existing units. These contracts require RUS 
approval.
    (d) Any amendments to RUS approved engineering services contracts 
require RUS approval.
    (e) Closeout. Upon completion of all services and obligations 
required under each engineering services contract, including, but not 
limited to, submission of final documents, the borrower must closeout 
the contract. The borrower shall obtain from the engineer a completed 
final statement of engineering fees, which must be supported by detailed 
information as appropriate. RUS Form 234, Final Statement of Engineering 
Fee, may be used. All computations of the compensation shall be made in 
accordance with the terms of the engineering services contract. Closeout 
documents need not be submitted to RUS unless specifically requested by 
RUS on a case by case basis.



Sec. 1724.32  Inspection and certification of work order construction.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) The borrower shall ensure that all field inspection and related 
services are performed within 6 months of the completion of 
construction, and are performed by a licensed engineer, except that a 
subordinate of the licensed engineer may make the inspection, provided 
the following conditions are met:
    (1) The inspection by the subordinate is satisfactory to the 
borrower;
    (2) This practice is acceptable under applicable requirements of the 
States in which the facilities are located;
    (3) The subordinate is experienced in making such inspections;
    (4) The name of the person making the inspection is included in the 
certification; and
    (5) The licensed engineer signs such certification which appears on 
the inventory of work orders.
    (b) The inspection shall include a representative and sufficient 
amount of construction listed on each RUS Form 219, Inventory of Work 
Orders (or comparable form), being inspected to assure the engineer that 
the construction is acceptable. Each work order that was field inspected 
shall be indicated on RUS Form 219 (or comparable form.) The inspection 
services shall include, but not be limited to, the following:
    (1) Determination that construction conforms to RUS specifications 
and standards and to the requirements of the National Electrical Safety 
Code (NESC), State codes, and local codes;
    (2) Determination that the staking sheets or as-built drawings 
represent the construction completed and inspected;
    (3) Preparation of a list of construction clean-up notes and staking 
sheet discrepancies to be furnished to the owner to permit correction of 
construction, staking sheets, other records, and work order inventories;
    (4) Reinspection of construction corrected as a result of the 
engineer's report;
    (5) Noting, initialing, and dating the staking or structure sheets 
or as-built drawings and noting the corresponding work order entry for 
line construction; and
    (6) Noting, initialing, and dating the as-built drawings or sketches 
for generating plants, substations, and other major facilities.

[[Page 243]]

    (c) Certification. (1) The following certification must appear on 
all inventories of work orders:

    I hereby certify that sufficient inspection has been made of the 
construction reported by this inventory to give me reasonable assurance 
that the construction complies with applicable specifications and 
standards and meets appropriate code requirements as to strength and 
safety. This certification is in accordance with acceptable engineering 
practice.

    (2) A certification must also include the name of the inspector, 
name of the firm, signature of the licensed engineer, the engineer's 
State license number, and the date of signature.



Secs. 1724.33-1724.39  [Reserved]



                   Subpart D--Electric System Planning



Sec. 1724.40  General.

    Borrowers shall have ongoing, integrated planning to determine their 
short-term and long-term needs for plant additions, improvements, 
replacements, and retirements for their electric systems. The primary 
components of the planning system consist of long-range engineering 
plans and construction work plans. Long-range engineering plans identify 
plant investments required over a long-range period, 10 years or more. 
Construction work plans specify and document plant requirements for a 
shorter term, 2 to 4 years. Long-range engineering plans and 
construction work plans shall be in accordance with part 1710, subpart 
F, of this chapter. See also RUS Bulletins 1724D-101A, Electric System 
Long-Range Planning Guide, and 1724D-101B, System Planning Guide, 
Construction Work Plans, for additional guidance. These bulletins are 
available from Program Development and Regulatory Analysis, Rural 
Utilities Service, U.S. Department of Agriculture, Stop 1522, 1400 
Independence Ave., SW., Washington, DC 20250-1522.



Secs. 1724.41-1724.49  [Reserved]



                    Subpart E--Electric System Design



Sec. 1724.50  Compliance with National Electrical Safety Code (NESC).

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) A borrower shall ensure that its electric system, including all 
electric distribution, transmission, and generating facilities, is 
designed, constructed, operated, and maintained in accordance with all 
applicable provisions of the most current and accepted criteria of the 
National Electrical Safety Code (NESC) and all applicable and current 
electrical and safety requirements of any State or local governmental 
entity. Copies of the NESC may be obtained from the Institute of 
Electrical and Electronic Engineers, Inc., 445 Hoes Lane, Piscataway, NJ 
08855. This requirement applies to the borrower's electric system 
regardless of the source of financing.
    (b) Any electrical standard requirements established by RUS are in 
addition to, and not in substitution for or a modification of, the most 
current and accepted criteria of the NESC and any applicable electrical 
or safety requirements of any State or local governmental entity.
    (c) Overhead distribution circuits shall be constructed with not 
less than the Grade C strength requirements as described in Section 26, 
Strength Requirements, of the NESC when subjected to the loads specified 
in NESC Section 25, Loadings for Grades B and C. Overhead transmission 
circuits shall be constructed with not less than the Grade B strength 
requirements as described in NESC Section 26.



Sec. 1724.51  Design requirements.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) Distribution. All distribution facilities must conform to the 
applicable RUS construction standards and utilize RUS accepted 
materials.

[[Page 244]]

    (b) Transmission lines. (1) All transmission line design data must 
be approved by RUS.
    (2) Design data consists of all significant design features, 
including, but not limited to, transmission line design data summary, 
general description of terrain, right-of-way calculations, discussion 
concerning conductor and structure selection, conductor sag and tension 
information, design clearances, span limitations due to clearances, 
galloping or conductor separation, design loads, structure strength 
limitations, insulator selection and design, guying requirements, and 
vibration considerations. For lines composed of steel or concrete poles, 
or steel towers, in which load information will be used to purchase the 
structures, the design data shall also include loading trees, structure 
configuration and selection, and a discussion concerning foundation 
selection.
    (3) Line design data for uprating transmission lines to higher 
voltage levels or capacity must be approved by RUS.
    (4) Transmission line design data which has received RUS approval in 
connection with a previous transmission line construction project for a 
particular borrower is considered approved by RUS for that borrower, 
provided that:
    (i) The conditions on the project fall within the design data 
previously approved; and
    (ii) No significant NESC revisions have occurred.
    (c) Substations. (1) All substation design data must be approved by 
RUS.
    (2) Design data consists of all significant design features, 
including, but not limited to, a discussion of site considerations, oil 
spill prevention measures, design considerations covering voltage, 
capacity, shielding, clearances, number of low and high voltage phases, 
major equipment, foundation design parameters, design loads for line 
support structures and the control house, seismic considerations, 
corrosion, grounding, protective relaying, and AC and DC auxiliary 
systems. Reference to applicable safety codes and construction standards 
are also to be included.
    (3) Substation design data which has received RUS approval in 
connection with a previous substation construction project for a 
particular borrower is considered approved by RUS for that borrower, 
provided that:
    (i) The conditions on the project fall within the design data 
previously approved; and
    (ii) No significant NESC revisions have occurred.
    (d) Generating facilities. (1) This section covers all portions of a 
generating plant including plant buildings, the generator step-up 
transformer, and the transmission switchyard at a generating plant. 
Warehouses and equipment service buildings not associated with 
generation plants are covered under paragraph (e) of this section. 
Generation plant buildings must meet the requirements of paragraph 
(e)(1) of this section.
    (2) For all new generation units and for all repowering projects, 
the design outline shall be approved by RUS, unless RUS determines that 
a design outline is not needed for a particular project.
    (3) The design outline will include all significant design criteria. 
During the early stages of the project, RUS will, in consultation with 
the borrower and its consulting engineer, identify the specific items 
which are to be included in the design outline.
    (e) Headquarters--(1) Applicable laws. The design and construction 
of headquarters facilities shall comply with all applicable Federal, 
State, and local laws and regulations, including, but not limited to:
    (i) Section 504 of the Rehabilitation Act of 1973, (29 U.S.C. 794), 
which states that no qualified individual with a handicap shall, solely 
by reason of their handicap, be excluded from participation in, be 
denied the benefits of, or be subject to discrimination under any 
program or activity receiving Federal financial assistance. The Uniform 
Federal Accessibility Standards (41 CFR part 101-19, subpart 101-19.6, 
appendix A) are the applicable standards for all new or altered borrower 
buildings, regardless of the source of financing.
    (ii) The Architectural Barriers Act of 1968 (42 U.S.C. 4151), which 
requires that buildings financed with Federal funds are designed and 
constructed to

[[Page 245]]

be accessible to the physically handicapped.
    (iii) The Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 
et seq.), and Executive Order 12699, Seismic Safety of Federal and 
Federally Assisted or Regulated New Building Construction (3 CFR 1990 
Comp., p. 269). Appropriate seismic safety provisions are required for 
new buildings for which RUS provides financial assistance. (See part 
1792, subpart C, of this chapter.)
    (2) The borrower shall provide evidence, satisfactory in form and 
substance to the Administrator, that each building will be designed and 
built in compliance with all Federal, State, and local requirements.
    (f) Communications and control. (1) This section covers microwave 
and powerline carrier communications systems, load control, and 
supervisory control and data acquisition (SCADA) systems.
    (2) The performance considerations for a new or replacement master 
system must be approved by RUS. A master system includes the main 
controller and related equipment at the main control point. Performance 
considerations include all major system features and their 
justification, including, but not limited to, the objectives of the 
system, the types of parameters to be controlled or monitored, the 
communication media, alternatives considered, and provisions for future 
needs.



Sec. 1724.52  Permitted deviations from RUS construction standards.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) Structures for raptor protection. (1) RUS standard distribution 
line structures may not have the extra measure of protection needed in 
areas frequented by eagles and other large raptors to protect such birds 
from electric shock due to physical contact with energized wires. Where 
raptor protection in the design of overhead line structures is required 
by RUS; a Federal, State or local authority with permit or license 
authority over the proposed construction; or where the borrower 
voluntarily elects to comply with the recommendations of the U.S. Fish 
and Wildlife Service or State wildlife agency, borrowers are permitted 
to deviate from RUS construction standards, provided:
    (i) Structures are designed and constructed in accordance with 
``Suggested Practices for Raptor Protection on Powerlines: The State of 
the Art in 1996'' (Suggested Practices for Raptor Protection); and,
    (ii) Structures are in accordance with the NESC and applicable State 
and local regulations.
    (2) Any deviation from the RUS construction standards for the 
purpose of raptor protection, which is not in accordance with the 
Suggested Practices for Raptor Protection, must be approved by RUS prior 
to construction. ``Suggested Practices for Raptor Protection on 
Powerlines: The State of the Art in 1996,'' published by the Edison 
Electric Institute/Raptor Research Foundation, is hereby incorporated by 
reference. This incorporation by reference is approved by the Director 
of the Office of the Federal Register in accordance with 5 U.S.C. 552(a) 
and 1 CFR part 51. Copies of this publication may be obtained from the 
Raptor Research Foundation, Inc., c/o Jim Fitzpatrick, Treasurer, 
Carpenter Nature Center, 12805 St. Croix Trail South, Hastings, 
Minnesota 55033. It is also available for inspection during normal 
business hours at RUS, Electric Staff Division, 1400 Independence 
Avenue, SW., Washington, DC, Room 1246-S, and at the National Archives 
and Records Administration (NARA). For information on the availability 
of this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html.
    (b) Transformer neutral connections. Where it is necessary to 
separate the primary and secondary neutrals to provide the required 
electric service to a consumer, the RUS standard transformer secondary 
neutral connections may be modified in accordance with Rule 97D2 of the 
NESC.
    (c) Lowering of neutral conductor on overhead distribution lines. 
(1) It is permissible to lower the neutral attachment on standard 
construction pole-

[[Page 246]]

top assemblies an additional distance not exceeding two feet (0.6 m) for 
the purpose of economically meeting the clearance requirements of the 
NESC.
    (2) It is permissible to lower the transformer and associated 
neutral attachment up to two feet (0.6 m) to provide adequate clearance 
between the cutouts and single-phase, conventional distribution 
transformers.
    (3) It is permissible to lower the neutral attachment on standard 
construction pole-top assemblies an additional distance of up to six 
feet (2 m) for the purpose of performing construction and future line 
maintenance on these assemblies from bucket trucks designed for such 
work.

[63 FR 35314, June 29, 1998, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. 1724.53  Preparation of plans and specifications.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) General. (1) The borrower (acting through the engineer, if 
applicable) shall prepare plans and specifications that adequately 
represent the construction to be performed.
    (2) Plans and specifications for distribution, transmission, or 
generating facilities must be based on a construction work plan (as 
amended, if applicable), engineering study or construction program which 
has been approved by RUS if financing for the facilities will at any 
time be requested from RUS.
    (b) Composition of plans and specifications package. (1) Whether 
built by force account or contract, each set of plans and specifications 
must include:
    (i) Distribution lines. Specifications and drawings, staking sheets, 
key map and appropriate detail maps;
    (ii) Transmission lines. Specifications and drawings, transmission 
line design data manual, vicinity maps of the project, a one-line 
diagram, and plan and profile sheets;
    (iii) Substations. Specifications and drawings, including a one-line 
diagram, plot and foundation plan, grounding plan, and plans and 
elevations of structure and equipment, as well as all other necessary 
construction drawings, in sufficient detail to show phase spacing and 
ground clearances of live parts;
    (iv) Headquarters. Specifications and drawings, including:
    (A) A plot plan showing the location of the proposed building plus 
paving and site development;
    (B) A one line drawing (floor plan and elevation view), to scale, of 
the proposed building with overall dimensions shown; and
    (C) An outline specification including materials to be used (type of 
frame, exterior finish, foundation, insulation, etc.); and
    (v) Other facilities (e.g., generation and communications and 
control facilities). Specifications and drawings, as necessary and in 
sufficient detail to accurately define the scope and quality of work 
required.
    (2) For contract work, the appropriate standard RUS construction 
contract form shall be used as required by part 1726 of this chapter.



Sec. 1724.54  Requirements for RUS approval of plans and specifications.

    The provisions of this section apply only to RUS financed electric 
system facilities.
    (a) For any contract subject to RUS approval in accordance with part 
1726 of this chapter, the borrower shall obtain RUS approval of the 
plans and specifications, as part of the proposed bid package, prior to 
requesting bids. RUS may require approval of other plans and 
specifications on a case by case basis.
    (b) Distribution lines. RUS approval of the plans and specifications 
for distribution line construction is not required if standard RUS 
drawings, specifications, RUS accepted material, and standard RUS 
contract forms (as required by part 1726 of this chapter) are used. 
Drawings, plans and specifications for nonstandard distribution 
construction must be submitted to RUS and receive approval prior to 
requesting bids on contracts or commencement of force account 
construction.
    (c) Transmission lines. (1) Plans and specifications for 
transmission construction projects which are not based on RUS approved 
line design data or do not use RUS standard structures must

[[Page 247]]

receive RUS approval prior to requesting bids on contracts or 
commencement of force account construction.
    (2) Unless RUS approval is required by paragraph (a) of this 
section, plans and specifications for transmission construction which 
use previously approved design data and standard structures do not 
require RUS approval. Plans and specifications for related work, such as 
right-of-way clearing, equipment, and materials, do not require RUS 
approval unless required by paragraph (a) of this section.
    (d) Substations. (1)(i) Plans and specifications for all new 
substations must receive RUS approval prior to requesting bids on 
contracts or commencement of force account construction, unless:
    (A) The substation design has been previously approved by RUS; and
    (B) No significant NESC revisions have occurred.
    (ii) The borrower shall notify RUS in writing that a previously 
approved design will be used, including identification of the previously 
approved design.
    (2) Unless RUS approval is required by paragraph (a) of this 
section, plans and specifications for substation modifications and for 
substations using previously approved designs do not require RUS 
approval.
    (e) Generation facilities. (1) This paragraph (e) covers all 
portions of a generating plant including plant buildings, the generator 
step-up transformer, and the transmission switchyard at a generating 
plant. Warehouses and equipment service buildings not associated with 
generation plants are covered under paragraph (f) of this section.
    (2) The borrower shall obtain RUS approval, prior to issuing 
invitations to bid, of the terms and conditions for all generating plant 
equipment or construction contracts which will cost $1,500,000 or more. 
Unless RUS approval is required by paragraph (a) of this section, plans 
and specifications for generating plant equipment and construction do 
not require RUS approval.
    (f) Headquarters buildings. (1) This paragraph (f) covers office 
buildings, warehouses, and equipment service buildings. Generating plant 
buildings are covered under paragraph (e) of this section.
    (2) Unless RUS approval is required by paragraph (a) of this 
section, plans and specifications for headquarters buildings do not 
require RUS approval. The borrower shall submit two copies of RUS Form 
740g, Application for Headquarters Facilities. This form is available 
from Program Development and Regulatory Analysis, Rural Utilities 
Service, United States Department of Agriculture, Stop 1522, 1400 
Independence Ave., SW., Washington, DC 20250-1522. The application must 
show floor area and estimated cost breakdown between office building 
space and space for equipment warehousing and service facilities, and 
include a one line drawing (floor plan and elevation view), to scale, of 
the proposed building with overall dimensions shown. The information 
concerning the planned building may be included in the borrower's 
construction work plan in lieu of submitting it with the application. 
(See 7 CFR part 1710, subpart F.) Prior to issuing the plans and 
specifications for bid, the borrower shall also submit to RUS a 
statement, signed by the architect or engineer, that the building design 
meets the Uniform Federal Accessibility Standards (See 
Sec. 1724.51(e)(1)(i)).
    (g) Communications and control facilities. (1) This paragraph (g) 
covers microwave and powerline carrier communications systems, load 
control, and supervisory control and data acquisition (SCADA) systems.
    (2) The borrower shall obtain RUS approval, prior to issuing 
invitations to bid, of the terms and conditions for communications and 
control facilities contracts which will cost $500,000 or more. Unless 
RUS approval is required by paragraph (a) of this section, plans and 
specifications for communications and control facilities do not require 
RUS approval.
    (h) Terms and conditions include the RUS standard form of contract, 
general and special conditions, and any other non-technical provisions 
of the contract. Terms and conditions which have received RUS approval 
in connection with a previous contract for a particular borrower are 
considered approved by RUS for that borrower.

[63 FR 35314, June 29, 1998, as amended at 65 FR 63196, Oct. 23, 2000]

[[Page 248]]



Sec. 1724.55  Dam safety.

    (a) The provisions of this section apply only to RUS financed 
electric system facilities.
    (1)(i) Any borrower that owns or operates a RUS financed dam must 
utilize the``Federal Guidelines for Dam Safety,''(Guidelines), as 
applicable. A dam, as more fully defined in the Guidelines, is generally 
any artificial barrier which either:
    (A) Is 25 feet (8 m) or more in height; or
    (B) Has an impounding capacity at maximum water storage elevation of 
55 acre-feet (68,000 m3) or more.
    (ii) The``Federal Guidelines for Dam Safety,''FEMA 93, June, 1979, 
published by the Federal Emergency Management Agency (FEMA), is hereby 
incorporated by reference. This incorporation by reference is approved 
by the Director of the Office of the Federal Register in accordance with 
5 U.S.C. 552(a) and 1 CFR part 51. Copies of the``Federal Guidelines for 
Dam Safety''may be obtained from the Federal Emergency Management 
Agency, Mitigation Directorate, PO Box 2012, Jessup, MD 20794. It is 
also available for inspection during normal business hours at RUS, 
Electric Staff Division, 1400 Independence Avenue, SW., Washington, DC, 
Room 1246-S, and at the National Archives and Records Administration 
(NARA). For information on the availability of this material at NARA, 
call 202-741-6030, or go to: http://www.archives.gov/federal--register/
code--of--federal--regulations/ibr--locations.html.
    (2) The borrower shall evaluate the hazard potential of its dams in 
accordance with Appendix E of the U.S. Army Corps of Engineers 
Engineering and Design Dam Safety Assurance Program, ER 1110-2-1155, 
July 31, 1995. A summary of the hazard potential criteria is included 
for information as Appendix A to this subpart. The U.S. Army Corps of 
Engineers Engineering and Design Dam Safety Assurance Program, ER 1110-
2-1155, July 31, 1995, published by the United States Army Corps of 
Engineers, is hereby incorporated by reference. This incorporation by 
reference is approved by the Director of the Office of the Federal 
Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies of 
the U. S. Army Corps of Engineers Engineering and Design Dam Safety 
Assurance Program may be obtained from the U. S. Army Corps of 
Engineers, Publications Depot, 2803 52nd Ave., Hyattsville, MD 20781. It 
is also available for inspection during normal business hours at RUS, 
Electric Staff Division, 1400 Independence Avenue, SW., Washington, DC, 
Room 1246-S, and at the National Archives and Records Administration 
(NARA). For information on the availability of this material at NARA, 
call 202-741-6030, or go to: http://www.archives.gov/federal--register/
code--of--federal--regulations/ibr--locations.html.
    (3) For high hazard potential dams, the borrower must obtain an 
independent review of the design and critical features of construction. 
The reviewer must have demonstrated experience in the design and 
construction of dams of a similar size and nature. The reviewer must be 
a qualified engineer not involved in the original design of the dam or a 
Federal or State agency responsible for dam safety. The reviewer must be 
approved by RUS.
    (4) The independent review of design must include, but not 
necessarily be limited to, plans, specifications, design calculations, 
subsurface investigation reports, hydrology reports, and redesigns which 
result from encountering unanticipated or unusual conditions during 
construction.
    (5) The independent review of construction shall include:
    (i) Foundation preparation and treatment. When the foundation has 
been excavated and exposed, and before critical structures such as earth 
embankments or concrete structures are placed thereon, the borrower 
shall require the reviewer to conduct an independent examination of the 
foundation to ensure that suitable foundation material has been reached 
and that the measures proposed for treatment of the foundation are 
adequate. This examination must extend to the preparation and treatment 
of the foundation for the abutments.
    (ii) Fill placement. During initial placement of compacted fill 
materials, the borrower shall require the reviewer to conduct an 
independent examination

[[Page 249]]

to ensure that the materials being used in the various zones are 
suitable and that the placement and compaction procedures being used by 
the contractor will result in a properly constructed embankment.
    (6) If the reviewer disagrees with any aspect of the design or 
construction which could affect the safety of the dam, then the borrower 
must meet with the design engineer and the reviewer to resolve the 
disagreements.
    (7) Emergency action plan. For high hazard potential dams, the 
borrower must develop an emergency action plan incorporating preplanned 
emergency measures to be taken prior to and following a potential dam 
failure. The plan should be coordinated with local government and other 
authorities involved with the public safety and be approved by the 
borrower's board of directors.
    (b)(1) For more information and guidance, the following publications 
regarding dam safety are available from FEMA:
    (i)``Emergency Action Planning Guidelines for Dams,''FEMA 64.
    (ii)``Federal Guidelines for Earthquake Analysis and Design of 
Dams,''FEMA 65.
    (iii)``Federal Guidelines for Selecting and Accommodating Inflow 
Design Floods for Dams,''FEMA 94.
    (iv)``Dam Safety: An Owner's Guidance Manual,''FEMA 145, August, 
1987.
    (2) These publications may be obtained from the Federal Emergency 
Management Agency, Mitigation Directorate, PO Box 2012, Jessup, MD 
20794.

[63 FR 35314, June 29, 1998, as amended at 69 FR 18803, Apr. 9, 2004]



Secs. 1724.56-1724.69  [Reserved]

 Appendix A to Subpart E of Part 1724--Hazard Potential Classification 
                        for Civil Works Projects

    The source for this appendix is U.S. Army Corps of Engineers 
Engineering and Design Dam Safety Assurance Program, ER 1110-2-1155, 
Appendix E. Appendix E is available from the address listed in 
Sec. 1724.55(a)(2).

[[Page 250]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                 Category 1                                   Low                             Significant                            High
--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct Loss of Life 2.......................         None expected (due to rural  Uncertain (rural location with few      Certain (one or more extensive
                                                      location with no permanent    residences and only transient or          residential, commercial or
                                                structures for human habitation)             industrial development)            industrial development).
Lifeline Losses 3...........................  No disruption of services--repairs  Disruption of essential facilities   Disruption of critical facilities
                                              are cosmetic or rapidly repairable                          and access                         and access.
                                                                          damage
Property Losses 4...........................         Private agricultural lands,            Major public and private        Extensive public and private
                                                equipment and isolated buildings                          facilities                         facilities.
Environmental Losses 5......................          Minimal incremental damage           Major mitigation required        Extensive mitigation cost or
                                                                                                                                 impossible to mitigate.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
1 Categories are based upon project performance and do not apply to individual structures within a project.
2 Loss of life potential based upon inundation mapping of area downstream of the project. Analysis of loss of life potential should take into account
  the extent of development and associated population at risk, time of flood wave travel and warning time.
3 Indirect threats to life caused by the interruption of lifeline services due to project failure, or operation, i.e., direct loss of (or access to)
  critical medical facilities or loss of water or power supply, communications, power supply, etc.
4 Direct economic impact of value of property damages to project facilities and down stream property and indirect economic impact due to loss of project
  services, i.e., impact on navigation industry of the loss of a dam and navigation pool, or impact upon a community of the loss of water or power
  supply.
5 Environmental impact downstream caused by the incremental flood wave produced by the project failure, beyond which would normally be expected for the
  magnitude flood event under a without project conditions.


[[Page 251]]



                      Subpart F--RUS Contract Forms



Sec. 1724.70  Standard forms of contracts for borrowers.

    (a) General. The standard loan agreement between RUS and its 
borrowers provides that, in accordance with applicable RUS regulations 
in this chapter, the borrower shall use standard forms of contract 
promulgated by RUS for construction, procurement, engineering services, 
and architectural services financed by a loan made or guaranteed by RUS. 
(See section 5.16 of appendix A to subpart C of part 1718 of this 
chapter.) This subpart prescribes RUS procedures in promulgating 
electric program standard contract forms and identifies those forms that 
borrowers are required to use.
    (b) Contract forms. RUS promulgates standard contract forms, 
identified in the List of Required Contract Forms, Sec. 1724.74(c), that 
borrowers are required to use in accordance with the provisions of this 
part. In addition, RUS promulgates standard contract forms identified in 
the List of Guidance Contract Forms contained in Sec. 1724.74(c) that 
the borrowers may but are not required to use in the planning, design, 
and construction of their electric systems. Borrowers are not required 
to use these guidance contract forms in the absence of an agreement to 
do so.

[63 FR 58284, Oct. 30, 1998]



Sec. 1724.71  Borrower contractual obligations.

    (a) Loan agreement. As a condition of a loan or loan guarantee under 
the RE Act, borrowers are normally required to enter into RUS loan 
agreements pursuant to which the borrower agrees to use RUS standard 
forms of contracts for construction, procurement, engineering services 
and architectural services financed in whole or in part by the RUS loan. 
Normally, this obligation is contained in section 5.16 of the loan 
contract. To comply with the provisions of the loan agreements as 
implemented by this part, borrowers must use those forms of contract 
(hereinafter sometimes called``listed contract forms'') identified in 
the List of Required Standard Contract Forms contained in 
Sec. 1724.74(c).
    (b) Compliance. If a borrower is required by this part or by its 
loan agreement with RUS to use a listed standard form of contract, the 
borrower shall use the listed contract form in the format available from 
RUS, either paper or electronic format. Exact electronic reproduction is 
acceptable. The approved RUS standard forms of contract shall not be 
retyped, changed, modified, or altered in any manner not specifically 
authorized in this part or approved by RUS in writing on a case-by-case 
basis. Any modifications approved by RUS on a case-by-case basis must be 
clearly shown so as to indicate the modification difference from the 
standard form of contract.
    (c) Amendment. Where a borrower has entered into a contract in the 
form required by this part, no change may be made in the terms of the 
contract, by amendment, waiver or otherwise, without the prior written 
approval of RUS.
    (d) Waiver. RUS may waive for good cause, on a case by case basis, 
the requirements imposed on a borrower pursuant to this part. Borrowers 
seeking a waiver by RUS must provide RUS with a written request 
explaining the need for the waiver.
    (e) Violations. A failure on the part of the borrower to use listed 
contracts as prescribed in this part is a violation of the terms of its 
loan agreement with RUS and RUS may exercise any and all remedies 
available under the terms of the agreement or otherwise.

[63 FR 58285, Oct. 30, 1998, as amended at 69 FR 7108, Feb. 13, 2004]



Sec. 1724.72  Notice and publication of listed contract forms.

    (a) Notice. Upon initially entering into a loan agreement with RUS, 
borrowers will be provided with all listed contract forms. Thereafter, 
new or revised listed contract forms promulgated by RUS, including RUS 
approved exceptions and alternatives, will be sent by regular or 
electronic mail to the address of the borrower as identified in its loan 
agreement with RUS.
    (b) Availability. Listed contract forms are published by RUS. 
Interested parties may obtain the forms from: Rural Utilities Service, 
Program Development and Regulatory Analysis, U.S. Department of 
Agriculture, Stop 1522,

[[Page 252]]

1400 Independence Avenue, SW., Stop 1522, Washington, DC 20250-1522, 
telephone number (202) 720-8674. The list of contract forms can be found 
in Sec. 1724.74(c), List of Required Contract Forms.

[63 FR 58285, Oct. 30, 1998]



Sec. 1724.73  Promulgation of new or revised contract forms.

    RUS may, from time to time, undertake to promulgate new contract 
forms or revise or eliminate existing contract forms. In so doing, RUS 
shall publish notice of rulemaking in the Federal Register announcing, 
as appropriate, a revision in, or a proposal to amend Sec. 1724.74, List 
of Electric Program Standard Contract Forms. The amendment may change 
the existing identification of a listed contract form; for example, 
changing the issuance date of a listed contract form or by identifying a 
new required contract form. The notice of rulemaking will describe the 
new standard contract form or the substantive change in the listed 
contract form, as the case may be, and the issues involved. The standard 
contract form or relevant portions thereof may be appended to the 
supplementary information section of the notice of rulemaking. As 
appropriate, the notice of rulemaking shall provide an opportunity for 
interested persons to provide comments. A copy of each such Federal 
Register document shall be sent by regular or electronic mail to all 
borrowers.

[63 FR 58285, Oct. 30, 1998]



Sec. 1724.74  List of electric program standard contract forms.

    (a) General. The following is a list of RUS electric program 
standard contract forms for architectural and engineering services. 
Paragraph (c) of this section contains the list of required contract 
forms, i.e., those forms of contracts that borrowers are required to use 
by the terms of their RUS loan agreements as implemented by the 
provisions of this part. Paragraph (d) of this section contains the list 
of guidance contract forms, i.e., those forms of contracts provided as 
guidance to borrowers in the planning, design, and construction of their 
systems. All of these forms are available from RUS. See Sec. 1724.72(b) 
for availability of these forms.
    (b) Issuance date. Where required by this part to use a standard 
form of contract in connection with RUS financing, the borrower shall 
use that form identified by issuance date in the List of Required 
Contract Forms in paragraph (c) of this section, as most recently 
published as of the date the borrower executes the contract.
    (c) List of required contract forms. (1) RUS Form 211, Rev. 4-04, 
Engineering Service Contract for the Design and Construction of a 
Generating Plant. This form is used for engineering services for 
generating plant construction.
    (2) RUS Form 220, Rev. 6-98, Architectural Services Contract. This 
form is used for architectural services for building construction.
    (3) RUS Form 236, Rev. 6-98, Engineering Service Contract--Electric 
System Design and Construction. This form is used for engineering 
services for distribution, transmission, substation, and communications 
and control facilities.
    (d) List of guidance contract forms. (1) RUS Form 179, Rev. 9-66, 
Architects and Engineers Qualifications. This form is used to document 
architects and engineers qualifications.
    (2) RUS Form 215, Rev. 5-67, Engineering Service Contract--System 
Planning. This form is used for engineering services for system 
planning.
    (3) RUS Form 234, Rev. 3-57, Final Statement of Engineering Fee. 
This form is used for the closeout of engineering services contracts.
    (4) RUS Form 241, Rev. 3-56, Amendment of Engineering Service 
Contract. This form is used for amending engineering service contracts.
    (5) RUS Form 244, Rev. 12-55, Engineering Service Contract--Special 
Services. This form is used for miscellaneous engineering services.
    (6) RUS Form 258, Rev. 4-58, Amendment of Engineering Service 
Contract--Additional Project. This form is used for amending engineering 
service contracts to add an additional project.
    (7) RUS Form 284, Rev. 4-72, Final Statement of Cost for 
Architectural Service. This form is used for the closeout of 
architectural services contracts.

[[Page 253]]

    (8) RUS Form 297, Rev. 12-55, Engineering Service Contract--Retainer 
for Consultation Service. This form is used for engineering services for 
consultation service on a retainer basis.
    (9) RUS Form 459, Rev. 9-58, Engineering Service Contract--Power 
Study. This form is used for engineering services for power studies.

[63 FR 58285, Oct. 30, 1998, as amended at 65 FR 63196, Oct. 23, 2000; 
69 FR 52595, Aug. 27, 2004]



Secs. 1724.75-1724.99  [Reserved]



PART 1726--ELECTRIC SYSTEM CONSTRUCTION POLICIES AND PROCEDURES--Table of Contents

                           Subpart A--General

Sec.
1726.1-1726.9  [Reserved]
1726.10  Introduction.
1726.11  Purpose.
1726.12  Applicability.
1726.13  Waivers.
1726.14  Definitions.
1726.15  ``Buy American''.
1726.16  Debarment and suspension.
1726.17  Restrictions on lobbying.
1726.18  Preloan contracting.
1726.19  Use of competitive procurement.
1726.20  Standards and specifications.
1726.21  New materials.
1726.22  Methods of construction.
1726.23  Qualification of bidders.
1726.24  Standard forms of contracts for borrowers.
1726.25  Subcontracts.
1726.26  Interest on overdue accounts.
1726.27  Contractor's bonds.
1726.28-1726.34  [Reserved]
1726.35  Submission of documents to RUS.
1726.36  Documents subject to RUS approval.
1726.37  OMB control number.
1726.38-1726.49  [Reserved]

                   Subpart B--Distribution Facilities

1726.50  Distribution line materials and equipment.
1726.51  Distribution line construction.
1726.52-1726.74  [Reserved]

            Subpart C--Substation and Transmission Facilities

1726.75  General.
1726.76  Substation and transmission line materials and equipment.
1726.77  Substation and transmission line construction.
1726.78-1726.124  [Reserved]

                    Subpart D--Generation Facilities

1726.125  Generating plant facilities.
1726.126-1726.149  [Reserved]

                          Subpart E--Buildings

1726.150  Headquarters buildings.
1726.151-1726.174  [Reserved]

                        Subpart F--General Plant

1726.175  General plant materials.
1726.176  Communications and control facilities.
1726.177-1726.199  [Reserved]

                    Subpart G--Procurement Procedures

1726.200  General requirements.
1726.201  Formal competitive bidding.
1726.202  Informal competitive bidding.
1726.203  Multiparty negotiation.
1726.204  Multiparty unit price quotations.
1726.205  Multiparty lump sum quotations.
1726.206-1726.249  [Reserved]

         Subpart H--Modifications to RUS Standard Contract Forms

1726.250  General.
1726.251  Prior approved contract modification related to price 
          escalation on transmission equipment, generation equipment, 
          and generation construction contracts.
1726.252  Prior approved contract modification related to liability for 
          special and consequential damages.
1726.253  Prior approved contract modification related to alternative 
          bid provision for payment to contractor for bulk purchase of 
          materials.
1726.254  [Reserved]
1726.255  Prior approved contract modifications related to 
          indemnification.
1726.256-1726.299  [Reserved]

                      Subpart I--RUS Standard Forms

1726.300  Standard forms of contracts for borrowers.
1726.301  Borrower contractual obligations.
1726.302  Notice and publication of listed contract forms.
1726.303  Promulgation of new or revised contract forms.
1726.304  List of electric program standard contract forms.
1726.305-1726.399  [Reserved]

                      Subpart J--Contract Closeout

1726.400  Final contract amendment.
1726.401  Material contract closeout.
1726.402  Equipment contract closeout.
1726.403  Project construction contract closeout.

[[Page 254]]

1726.404  Non-site specific construction contract closeout.
1726.405  Inventory of work orders (RUS Form 219).

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

    Source: 60 FR 10155, Feb. 23, 1995, unless otherwise noted.



                           Subpart A--General



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.



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.

[[Page 255]]

    ``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).
    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.

[[Page 256]]

    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 1728 of this chapter, Electric Standards and Specifications for 
Materials and Construction, which is applicable regardless of the source 
of funding.)

[69 FR 7109, Feb. 13, 2004]



Sec. 1726.21  New materials.

    The borrower shall purchase only new materials and equipment unless 
otherwise approved by RUS, on a case by case basis, prior to the 
purchase.



Sec. 1726.22  Methods of construction.

    The borrower is generally responsible for determining whether 
construction will be by contract or force account. If construction is by 
contract, the borrower must determine whether materials will be supplied 
by the contractor or will be furnished by the borrower. RUS reserves the 
right to require contract construction in lieu of force account 
construction on a case by case basis.

[[Page 257]]



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  Standard forms of contracts for borrowers.

    (a) General. The standard loan agreement between RUS and the 
borrowers provides that, in accordance with applicable RUS regulations 
in this chapter, the borrower shall use standard forms of contracts 
promulgated by RUS for construction, procurement, engineering services, 
and architectural services financed by a loan made or guaranteed by RUS. 
This part implements these provisions of the RUS loan agreement. 
Subparts A through H and J of this part prescribe when and how borrowers 
are required to use RUS standard forms of contracts in procurement and 
construction. Subpart I of this part prescribes the procedures that RUS 
follows in promulgating standard contract forms and identifies those 
contract forms that borrowers are required to use for procurement and 
construction.
    (b) Amendments to contracts--(1) Contract forms. The borrower must 
use RUS Form 238, Construction or Equipment Contract Amendment, for any 
change or addition in any contract for construction or equipment.
    (2) Special considerations. Each time an amendment to a construction 
contract is executed, the borrower must ensure that contractor's bond is 
adequate, that all necessary licenses and permits have been obtained, 
and that any environmental requirements associated with the proposed 
construction have been met.
    (3) Amendment approval requirements. (i) If a RUS approved form of 
contract is required by this part, an amendment must not alter the terms 
and conditions of the RUS approved form of contract without prior RUS 
approval.
    (ii) The borrower must make a contract amendment subject to RUS 
approval if the underlying contract was made subject to RUS approval and 
the total amended contract price exceeds 120 percent of the original 
contract price (excluding any escalation provision contained in the 
contract).
    (iii) Contract amendments, except as provided in paragraph 
(b)(3)(ii) of this section, are not subject to RUS approval and need not 
be submitted to RUS unless specifically requested by RUS on a case by 
case basis.

[60 FR 10155, Feb. 23, 1995, as amended at 63 FR 58286, Oct. 30, 1998; 
69 FR 7109, Feb. 13, 2004]



Sec. 1726.25  Subcontracts.

    Subcontracts are not subject to RUS approval and need not be 
submitted to

[[Page 258]]

RUS unless specifically requested by RUS on a case by case basis.

[69 FR 7109, Feb. 13, 2004]



Sec. 1726.26  Interest on overdue accounts.

    Certain RUS contract forms contain a provision concerning payment of 
interest on overdue accounts. Prior to issuing the invitation to 
bidders, the borrower must insert an interest rate equal to the lowest 
``Prime Rate'' listed in the ``Money Rates'' section of the Wall Street 
Journal on the date such invitation to bid is issued. If no prime rate 
is published on that date, the last such rate published prior to that 
date must be used. The rate must not, however, exceed the maximum rate 
allowed by any applicable state law.

[63 FR 58286, Oct. 30, 1998]



Sec. 1726.27  Contractor's bonds.

    (a) RUS Form 168b, Contractor's Bond, shall be used when a 
contractor's bond is required by RUS Forms 200, 257, 786, 790, or 830 
unless the contractor's surety has accepted a Small Business 
Administration guarantee and the contract is for $1 million or less.
    (b) RUS Form 168c, Contractor's Bond, shall be used when a 
contractor's bond is required by RUS Forms 200, 257, 786, 790, or 830 
and the contractor's surety has accepted a Small Business Administration 
guarantee and the contract is for $1 million or less.
    (c) Surety companies providing contractor's bonds shall be listed as 
acceptable sureties in the U.S. Department of the Treasury Circular No. 
570, Companies Holding Certificates of Authority as Acceptable Sureties 
on Federal Bonds and as Acceptable Reinsuring Companies. Copies of the 
circular and interim changes may be obtained directly from the 
Government Printing Office (202) 512-1800. Interim changes are published 
in the Federal Register as they occur. The list is also available 
through the Internet at http://www.fms.treas.gov/c570/index.html and on 
the Department of the Treasury's computerized public bulletin board at 
(202) 874-6887.

[63 FR 58286, Oct. 30, 1998, as amended at 69 FR 7109, Feb. 13, 2004]



Secs. 1726.28-1726.34  [Reserved]



Sec. 1726.35  Submission of documents to RUS.

    (a) Where to send documents. Documents required to be submitted to 
RUS under this part are to be sent to the office of the borrower's 
respective RUS Regional Director, the Power Supply Division Director, or 
such other office of RUS as designated by RUS (see part 1700 of this 
chapter.)
    (b) Borrower certification. When a borrower certification is 
required by this part, it must be made by the borrower's manager unless 
the board of directors specifically authorizes another person to make 
the required certification. In such case, a certified copy of the 
specific authorizing resolution must accompany the document or be on 
file with RUS.
    (c) Contracts requiring RUS approval. The borrower shall submit to 
RUS three copies of each contract that is subject to RUS approval under 
subparts B through F of this part. At least one copy of each contract 
must be an original signed in ink (i.e., no facsimile signature). Each 
contract submittal must be accompanied by:
    (1) A bid tabulation and evaluation and, if applicable, a written 
recommendation of the architect or engineer.
    (2) For awards made under the informal competitive bidding procedure 
or the multiparty negotiation procedure, a written recommendation of the 
contracting committee (See 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.

[[Page 259]]

    (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;
    (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

[[Page 260]]

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 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 material and equipment to be used in distribution 
line construction.
    (d) Contract approval. Contracts for purchases of distribution line 
materials and equipment are not subject to RUS approval and need not be 
submitted to RUS unless specifically requested by RUS on a case by case 
basis.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



Sec. 1726.51  Distribution line construction.

    (a) Contract forms. The borrower must use RUS Form 790, or 830, as 
outlined in this paragraph (a), for distribution line construction, 
except for minor modifications or improvements.
    (1) The borrower may use RUS Form 790, Electric System Construction 
Contract--Non-Site Specific Construction, under the following 
circumstances:
    (i) For contracts for which the borrower supplies all materials and 
equipment; or
    (ii) For non-site specific construction contracts accounted for 
under the work order procedure; or
    (iii) If neither paragraph (a)(1)(i) or (a)(1)(ii) of this section 
are applicable, the borrower may use RUS Form 790 for contracts, up to a 
cumulative total of $250,000 or one percent of net utility plant (NUP), 
whichever is greater, per calendar year of distribution line 
construction, exclusive of the cost of owner furnished materials and 
equipment.
    (2) The borrower must use RUS Form 830, Electric System Construction 
Contract--Project Construction, for all other distribution line 
construction.
    (b) Procurement procedures. (1) It is the responsibility of each 
borrower to determine the procurement method that best meets its needs 
to award contracts in amounts of up to a cumulative total of $250,000 or 
one percent of NUP, whichever is greater, per calendar year of 
distribution line construction (including minor modifications or 
improvements), exclusive of the cost of owner furnished materials and 
equipment.
    (2) In addition to the cumulative total stipulated in paragraph 
(b)(1) of this section, a borrower may use Multiparty Unit Price 
Quotations to award contracts in amounts of up to a cumulative total of 
$350,000 or 1.5 percent of NUP, whichever is greater, per calendar year 
of distribution line construction (including minor modifications or 
improvements), exclusive of the cost of owner furnished materials and 
equipment.
    (3) The borrower shall use formal competitive bidding for all other 
distribution line contract construction. The amount of contracts bid 
using the formal competitive bidding procedure do not apply to the 
cumulative total stipulated in paragraph (b)(1) of this section.

[[Page 261]]

    (4) An amendment which increases the scope of the contract by adding 
a project is not considered competitively bid, therefore, the amount of 
that amendment does apply to the cumulative total stipulated in 
paragraph (b)(1) of this section.
    (c) Contract approval. Contracts for distribution line construction 
are not subject to RUS approval and need not be submitted to RUS unless 
specifically requested by RUS on a case by case basis.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



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.
    (2) The borrower may, in its discretion, use RUS Form 198, Equipment 
Contract, or a written purchase order for purchases of equipment of less 
than $500,000 and for all materials.
    (b) Standards and specifications. Substation and transmission line 
materials and equipment must meet the minimum requirements of RUS 
standards as determined in accordance with the provisions of part 1728 
of this chapter, Electric Standards and Specifications for Materials and 
Construction. The borrower must obtain RUS approval prior to purchasing 
of any unlisted substation or transmission line material or equipment of 
the types listed in accordance with the provisions of part 1728 of this 
chapter.
    (c) Procurement procedures. It is the responsibility of each 
borrower to determine the procurement method that best meets its needs 
for purchase of material and equipment to be used in substation and 
transmission line construction.
    (d) Contract approval. Contracts for purchases of substation and 
transmission line materials and equipment are not subject to RUS 
approval and need not be submitted to RUS unless specifically requested 
by RUS on a case by case basis.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



Sec. 1726.77  Substation and transmission line construction.

    (a) Contract forms. The borrower must use RUS Form 830, Electric 
System Construction Contract--Project Construction, for construction of 
substations, except for minor modifications or improvements.
    (b) Procurement procedures. (1) It is the responsibility of each 
borrower to determine the procurement method that best meets its needs 
to award contracts not requiring RUS approval in amounts of up to a 
cumulative total of $250,000 or one percent of NUP (not to exceed 
$2,000,000), whichever is greater, per calendar year of substation and 
transmission line construction (including minor modifications or 
improvements), exclusive of the cost of owner furnished materials and 
equipment.
    (2) The borrower shall use formal competitive bidding for all other 
contract construction, including all contracts requiring RUS approval. 
The amount of contracts bid using the formal competitive bidding 
procedure do not apply to the cumulative total stipulated in paragraph 
(b)(1) of this section.
    (3) An amendment which increases the scope of the contract by adding 
a project is not considered competitively bid, therefore, the amount of 
that amendment does apply to the cumulative total stipulated in 
paragraph (b)(1) of this section.
    (c) Contract approval. Individual contracts in amounts of $250,000 
or more or one percent of NUP (not to exceed $500,000 for distribution 
borrowers or $1,500,000 for power supply borrowers), whichever is 
greater, exclusive of the cost of owner furnished materials and

[[Page 262]]

equipment, are subject to RUS approval.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



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.
    (a) Contract forms. (1) The borrower must use RUS Form 198, 
Equipment Contract, for the purchase of generating plant equipment in 
the amount of $1,500,000 or more and for any generating plant equipment 
contract requiring RUS approval.
    (2) The borrower must use RUS Form 200, Construction Contract--
Generating, for generating project construction contracts in the amount 
of $1,500,000 or more and for any generating project construction 
contract requiring RUS approval.
    (3) The borrower may, in its discretion, use other contract or 
written purchase order forms for those contracts in amounts of less than 
$1,500,000 and that do not require RUS approval.
    (b) Procurement procedures. (1) It is the responsibility of each 
borrower to determine the procurement method that best meets its needs 
to award contracts in amounts of less than $1,500,000 each.
    (2) If the amount of the contract is $1,500,000 or more or if the 
contract requires RUS approval, the borrower must use formal or informal 
competitive bidding to award the contract.
    (3) Where formal or informal competitive bidding is not applicable, 
or does not result in a responsive bid, multiparty negotiation may be 
used only after RUS approval is obtained.
    (c) Contract approval. During the early stages of generating plant 
design or project design, RUS will, in consultation with the borrower 
and its consulting engineer, identify the specific contracts which 
require RUS approval based on information supplied in the plant design 
manual. The following are typical contracts for each type of generating 
project which will require RUS approval. Although engineering services 
are not covered by this part, they are listed in this paragraph (d) to 
emphasize that RUS approval is required for all major generating station 
engineering service contracts in accordance with applicable RUS rules. 
For types of projects not shown, such as nuclear and alternate energy 
projects, RUS will identify the specific contracts which will require 
RUS approval on a case by case basis.
    (1) Fossil generating stations. Engineering services, steam 
generator, turbine generator, flue gas desulfurization system, 
particulate removal system, electric wiring and control systems, 
mechanical equipment installation (including turbine installation and 
plant piping), power plant building (foundation and superstructure), 
site preparation, coal unloading and handling facilities, main step-up 
substation, cooling towers, and dams or reservoirs.
    (2) Diesel and combustion turbine plants. Engineering services, 
prime mover and generator, building (foundation and superstructure), and 
electrical control systems.
    (3) Hydro installations. Engineering services, turbine/generator, 
civil works and powerhouse construction, electrical control system, and 
mechanical installation.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



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

[[Page 263]]

construction of new headquarters facilities, and additions to, or 
modifications of existing headquarters facilities (except for minor 
modifications or improvements).
    (b) Procurement procedures. A borrower may use Multiparty Lump Sum 
Quotations to award contracts in amounts of up to a cumulative total of 
$250,000 or one percent of NUP (not to exceed $1,000,000), whichever 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 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.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



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

[[Page 264]]

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 
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,

[[Page 265]]

or reject all bids and correct the specification. If a significant error 
or ambiguity in the specification is discovered after the bids are 
opened, the borrower must reject all bids, correct the specification and 
invite new bids.
    (3) Minor errors or omissions in the specification. If minor errors 
or omissions in the specification are found, the borrower must issue an 
addendum to each prospective bidder correcting the error or omission 
prior to opening any bids. After bid opening, the error or omission must 
be corrected in the executed contract.
    (4) Minor errors or irregularities in bid. The borrower may waive 
minor errors or irregularities in any bid, if the borrower determines 
that such minor errors or irregularities were made through inadvertence. 
Any such minor errors or irregularities so waived must be corrected on 
the bid in which they occur prior to the acceptance thereof by the 
borrower.
    (5) Non-minor error or irregularity in bid. If a bid contains a non-
minor error or irregularity, the bid must be rejected and the bid price 
must not be disclosed.
    (6) Unbalanced bid. If a bid contains disproportionate prices 
between labor and materials or between various construction units, the 
borrower may reject the bid.
    (7) No acceptable price quoted. If none of the bidders quote an 
acceptable price, the borrower may reject all bids.
    (g) Evaluating bids. The borrower (acting through the engineer, if 
applicable) must conduct the evaluation of bids on the basis of the 
criteria set out in the ``Notice and Instructions to Bidders.'' The 
contract, if awarded, must be awarded to the bidder with the lowest 
evaluated responsive bid.
    (h) Announcement of bids. If possible, the borrower will announce 
bids at the bid opening. However, where extensive evaluation is 
required, the borrower may elect to adjourn and make formal written 
announcement to all bidders at a later time. Any discrepancy in a 
rejected bid must be indicated in the bid announcement.
    (i) Award of contract. Upon completion of the bid evaluations and 
based upon the findings and recommendations of the borrower's management 
and engineer, the borrower's board of directors will either:
    (1) Resolve to award the contract to the lowest evaluated responsive 
bidder; or
    (2) Reject all bids.
    (j) Certification by the borrower and its engineer. The borrower 
shall certify and the engineer shall certify as follows: ``The 
procedures for formal competitive bidding, as described in 7 CFR 
1726.201, were followed in awarding this contract.'' The certification 
executed by and on behalf of the borrower and its engineer shall be 
submitted to RUS in writing where required by subpart A of this part.



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

[[Page 266]]

substance of the bidder's proposal and to arrive at a final price for a 
responsive bid.
    (d) Evaluation basis. Any factors, other than lowest dollar amount 
of the bid, which are to be considered in evaluating the proposals of 
qualified bidders (e.g., power consumption, losses, etc.) must be stated 
in the ``Notice and Instructions to Bidders.'' The borrower will not 
evaluate a bidder's performance record, safety record, and similar 
factors when evaluating a bid from a qualified and invited bidder. Such 
factors are to be considered when determining whether to include a 
particular bidder on the qualified bidders list.
    (e) Handling of bids received. The borrower or the engineer, as 
applicable, will indicate, in writing, the date and time of receipt by 
the borrower or the engineer on the outside envelope of each bid and all 
letters and other transmittals amending or modifying the bids. Any bid 
received at the designated location after the time specified must be 
returned to the bidder unopened.
    (f) Bid opening. The contracting committee will conduct the bid 
opening in private. The contracting committee will open each bona fide 
bid which has been received prior to the deadline, and review it for any 
irregularities, errors, or exceptions. It must be verified that any 
addendum to the specification has been acknowledged by each bidder. The 
adequacy of bid bonds or certified checks must also be verified.
    (g) Conditions affecting acceptability of bids. The borrower must 
take the following specified action if any of the following exist:
    (1) Fewer than three bona fide bids received. If fewer than three 
bona fide bids are received for the contract project, the borrower must 
determine that all reasonable measures have been taken to assure 
competition prior to awarding the contract. This determination must be 
documented and such documentation submitted to RUS where required by 
subpart A of this part. The borrower may, however, elect to reject all 
bids, make changes in the specification or the qualified bidders list or 
both and invite new bids.
    (2) Significant error or ambiguity in the specification. If a 
significant error or ambiguity in the specification is found which could 
result in the bidders having varying interpretations of the requirements 
of the bid, the borrower must either issue an addendum to each 
prospective bidder correcting the error or ambiguity before bids are 
received, or reject all bids and correct the specification. If a 
significant error or ambiguity in the specification is discovered after 
the bids are opened, the borrower must reject all bids, correct the 
specification and invite new bids.
    (h) Clarification of proposals. The contracting committee may elect 
not to hold any clarifying discussions and recommend awarding the 
contract to the low responsive bidder. Otherwise, the contracting 
committee must give at least each of the three apparent lowest evaluated 
bidders an equal opportunity to participate in discussions for the 
purpose of resolving questions regarding the specification and contract 
terms and to arrive at a final price. Neither prices of other bids nor 
relative ranking of any bidder are to be revealed under any 
circumstances. Such discussions may be held by telephone or similar 
means provided at least each of the three apparent lowest evaluated 
bidders have an equal opportunity to participate. Upon completion of the 
clarifying discussions, the contracting committee will determine the 
lowest evaluated responsive bid. If no bids are responsive after the 
contracting committee has completed clarifying discussions, no contract 
award can be made under the informal bidding procedure.
    (i) Award of the contract. Upon completion of the bid evaluations, 
the contracting committee will promptly report all findings and 
recommendations to the borrower's board of directors. The board will 
either:
    (1) Resolve to award the contract to the lowest evaluated responsive 
bidder; or
    (2) Reject all bids.
    (j) Certifications by the contracting committee. The chairperson of 
the contracting committee shall certify as follows: ``The procedures for 
informal competitive bidding as described in 7 CFR 1726.202 were 
followed in awarding

[[Page 267]]

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, 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.

[[Page 268]]

    (h) Negotiations. The contracting committee may elect not to hold 
any negotiations and recommend award of the contract. Otherwise, the 
contracting committee must give at least each of the three apparent 
lowest evaluated bidders an equal opportunity to participate in 
negotiations for the purpose of resolving questions regarding the 
specification and contract terms and to arrive at a final price. Neither 
prices of other bids nor relative ranking of any bidder are to be 
revealed under any circumstances. Such discussions may be held by 
telephone or similar means provided at least each of the three apparent 
lowest evaluated bidders have an equal opportunity to participate. Upon 
completion of the negotiations, the contracting committee will determine 
the bid that is in the borrower's best interest.
    (i) Award of the contract. Upon completion of the bid evaluations, 
the contracting committee will promptly report all findings and 
recommendations to the borrower's board of directors. The board will 
either:
    (1) Resolve to award the contract to the selected bidder; or
    (2) Reject all bids.
    (j) Certifications by the contracting committee. The chairperson of 
the contracting committee shall certify as follows: ``The procedures for 
multiparty negotiation as described in 7 CFR 1726.203 were followed in 
awarding this contract.'' The certification executed by the chairperson 
of the contracting committee shall be submitted to RUS in writing where 
required by subpart A of this part.



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 forms of contract for the procurement of 
materials, equipment, and construction and for contract amendments and 
various related forms for use by RUS borrowers. See Sec. 1726.304 for a 
listing of these forms and how to obtain them. The standard forms of 
contract shall be used by the borrowers in accordance with the 
provisions of this part. RUS will give prior approval to certain 
modifications to these forms without changing the applicable 
requirements for RUS approval. Such approved modifications are set forth 
in this subpart. These are the only modifications given prior RUS 
approval.

[69 FR 7109, Feb. 13, 2004]



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'

[[Page 269]]

corporate indexes may not be used. Labor and materials indexes are 
reported in the BLS's monthly publications entitled ``Employment and 
Earnings'' and ``Producer Prices and Price Indexes.'' These publications 
may be ordered through the Superintendent of Documents, U.S. Government 
Printing Office, Washington, DC 20402, or any of the BLS regional 
offices.
    (b) Material and equipment contracts. The approved provisions needed 
to reflect the modifications to provide for price escalation in the 
material or equipment contract forms for generation facilities are as 
follows:
    (1) Insert new paragraphs in the Notice and Instructions to Bidders 
as follows:

    ``Proposals are invited on the basis of firm prices (or prices with 
a stated maximum percentage escalation) or on the basis of nonfirm 
prices to be adjusted as provided for below or on both bases. The owner 
may award the contract on either basis.
    Nonfirm prices. The prices are subject to adjustment upward or 
downward based on change in the Bureau of Labor Statistics labor and 
material indexes.
    A proportion of ---- percent [the borrower will enter the 
appropriate percentage amount] of the contract price shall be deemed to 
represent labor cost and shall be adjusted based on changes in the 
Bureau of Labor Statistics, Average Hourly Earnings Rate---- [the 
borrower will enter the appropriate BLS index] from the month in which 
the bids are opened to the month in which the labor is incorporated in 
the equipment or materials. The adjustment for labor costs shall be 
obtained by applying the percentage of increase or decrease in such 
index, calculated to the nearest one-tenth of one percent, to the 
percentage of the contract prices deemed to represent labor costs. A 
portion of ---- percent [the borrower will enter the appropriate 
percentage amount] of the contract price shall be deemed to represent 
material costs and shall be adjusted based on changes in the Bureau of 
Labor Statistics, material index ---- [the borrower will enter the 
appropriate BLS index] for the period and in a manner similar to the 
labor cost adjustment.''

    (2) Insert the following in the contract documents under the 
``Proposal'' section:

``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

[[Page 270]]

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 $--------''



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 Clause 
Numbers 1 and 2. The Owner will determine on which Liability Clause 
basis the award will be made. Any other liability clauses in the 
proposal or any other modifications will be considered not responsive 
and unacceptable. These Liability Clauses are defined as follows:
    Liability Clause Number 1. This will include unmodified all of the 
standard terms and conditions of the form of contract furnished by the 
Owner and attached hereto.
    Liability Clause Number 2. This will include the following 
paragraph, in addition to all of the standard terms and conditions, 
otherwise unmodified, of the form of contract furnished by the Owner and 
attached hereto:
    `Except for the Bidder's willful delay or refusal to perform the 
contract in accordance with its terms, the Bidder's liability to the 
Owner for special or consequential damages on account of breach of this 
contract shall not exceed in total an amount equal to ---- percent [the 
borrower will insert an appropriate percentage between 0 and 100 
percent, inclusive] of the contract price.' ''

    (b) Insert the following in the contract documents under the 
``Proposal'' section:

``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--------.''


[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



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  [Reserved]



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 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

[[Page 271]]

apply to any alleged negligence or condition caused by the Owner'' so 
that the first paragraph reads as follows:

    ``i. To the maximum extent permitted by law, Bidder shall defend, 
indemnify, and hold harmless Owner and Owner's directors, officers, and 
employees from all claims, causes of action, losses, liabilities, and 
expenses (including reasonable attorney's fees) for personal loss, 
injury, or death to persons (including but not limited to Bidder's 
employees) and loss, damage to or destruction of Owner's property or the 
property of any other person or entity (including but not limited to 
Bidder's property) in any manner arising out of or connected with the 
Contract, or the materials or equipment supplied or services performed 
by Bidder, its subcontractors and suppliers of any tier. But nothing 
herein shall be construed as making Bidder liable for any injury, death, 
loss, damage, or destruction caused by the sole negligence of Owner, 
otherwise this provision shall apply to any negligence or condition 
caused by the Owner.''

    (b) As an alternative to the indemnification provision required in 
RUS standard construction contract forms in those jurisdictions that 
have a legal prohibition against one party indemnifying another for the 
other's negligence, the borrower may replace the words ``defend, 
indemnify, and hold harmless'' with the words `` shall pay on behalf 
of'' so that the first paragraph reads as follows:

    ``i. To the maximum extent permitted by law, Bidder shall pay on 
behalf of Owner and Owner's directors, officers, and employees from all 
claims, causes of action, losses, liabilities, and expenses (including 
reasonable attorney's fees) for personal loss, injury, or death to 
persons (including but not limited to Bidder's employees) and loss, 
damage to or destruction of Owner's property or the property of any 
other person or entity (including but not limited to Bidder's property) 
in any manner arising out of or connected with the Contract, or the 
materials or equipment supplied or services performed by Bidder, its 
subcontractors and suppliers of any tier. But nothing herein shall be 
construed as making Bidder liable for any injury, death, loss, damage, 
or destruction caused by the sole negligence of Owner, otherwise this 
provision shall apply to any negligence or condition caused by the 
Owner.''

    (c) If the alternative indemnification provision in paragraph (a) or 
(b) of this section is chosen by the borrower, the language of paragraph 
(a) or (b) of this section would be inserted in lieu of paragraph (i) of 
the section indicated in the RUS standard construction contract forms as 
follows:
    (1) RUS Form 198, Equipment Contract, article IV, section 1(d).
    (2) RUS Form 200, Construction Contract--Generating, article IV, 
section 1(d).
    (3) RUS Form 257, Contract to Construct Buildings, article IV, 
section 1(d).
    (4) RUS Form 786, Electric System Communications and Control 
Equipment Contract, article IV, section 1(d).
    (5) RUS Form 790, Electric System Construction Contract--Non-Site 
Specific Construction, article IV, section 1(g).
    (6) RUS Form 830, Electric System Construction Contract--Project 
Construction, article IV, section 1(g).

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7110, Feb. 13, 2004]



Secs. 1726.256-1726.299  [Reserved]



                      Subpart I--RUS Standard Forms



Sec. 1726.300  Standard forms of contracts for borrowers.

    (a) General. The standard loan agreement between RUS and its 
borrowers provides that, in accordance with applicable RUS regulations 
in this chapter, the borrower shall use standard forms of contract 
promulgated by RUS for construction, procurement, engineering services, 
and architectural services financed by a loan made or guaranteed by RUS. 
(See section 5.16 of appendix A to subpart C of part 1718 of this 
chapter.) This subpart prescribes RUS procedures in promulgating 
standard contract forms and identifies those forms that borrowers are 
required to use.
    (b) Contract forms. RUS promulgates standard contract forms, 
identified in the List of Required Contract Forms, Sec. 1726.304(c), 
that borrowers are required to use in accordance with the provisions of 
this part. In addition, RUS promulgates standard contract forms 
contained in Sec. 1726.304(d) that the borrowers may but are not 
required to use in the construction of their electric systems. Borrowers 
are not required to

[[Page 272]]

use these guidance contract forms in the absence of an agreement to do 
so.

[63 FR 58286, Oct. 30, 1998]



Sec. 1726.301  Borrower contractual obligations.

    (a) Loan agreement. As a condition of a loan or loan guarantee under 
the Rural Electrification Act, borrowers are normally required to enter 
into RUS loan agreements pursuant to which the borrower agrees to use 
RUS standard forms of contracts for construction, procurement, 
engineering services and architectural services financed in whole or in 
part by the RUS loan. Normally, this obligation is contained in section 
5.16 of the loan contract. To comply with the provisions of the loan 
agreements as implemented by this part, borrowers must use those forms 
of contract (hereinafter sometimes called ``listed contract forms'') 
identified in the List of Required Contract Forms, Sec. 1724.304(c).
    (b) Compliance. If a borrower is required by this part or by its 
loan agreement with RUS to use a listed standard form of contract, the 
borrower shall use the listed contract form in the format available from 
RUS, either paper or electronic format. Exact electronic reproduction is 
acceptable. The approved RUS standard forms of contract shall not be 
retyped, changed, modified, or altered in any manner not specifically 
authorized in this part or approved by RUS in writing on a case-by-case 
basis. Any modifications approved by RUS on a case-by-case basis must be 
clearly shown so as to indicate the modification difference from the 
standard form of contract.
    (c) Amendment. Where a borrower has entered into a contract in the 
form required by this part, no change may be made in the terms of the 
contract, by amendment, waiver or otherwise, without the prior written 
approval of RUS.
    (d) Waiver. RUS may waive for good cause, on a case by case basis, 
the requirements imposed on a borrower pursuant to this part. Borrowers 
seeking a waiver by RUS must provide RUS with a written request 
explaining the need for the waiver. Waiver requests should be made prior 
to issuing the bid package to bidders.
    (e) Violations. A failure on the part of the borrower to use listed 
contracts as prescribed in this part is a violation of the terms of its 
loan agreement with RUS and RUS may exercise any and all remedies 
available under the terms of the agreement or otherwise.

[63 FR 58286, Oct. 30, 1998, as amended at 69 FR 7110, Feb. 13, 2004]



Sec. 1726.302  Notice and publication of listed contract forms.

    (a) Notice. Upon initially entering into a loan agreement with RUS, 
borrowers will be provided with all listed contract forms. Thereafter, 
new or revised listed contract forms promulgated by RUS, including RUS 
approved exceptions and alternatives, will be sent by regular or 
electronic mail to the address of the borrower as identified in its loan 
agreement with RUS.
    (b) Availability. Listed standard forms of contract are available 
from: Rural Utilities Service, Program Development and Regulatory 
Analysis, U.S. Department of Agriculture, Stop 1522, 1400 Independence 
Avenue, SW., Washington DC 20250-1522, telephone number (202) 720-8674. 
The listed standard forms of contract are also available on the RUS Web 
site at: http://www.usda.gov/rus/electric/forms/index.htm. The listed 
standard forms of contract can be found in Sec. 1724.304(c), List of 
Required Contract Forms.

[63 FR 58287, Oct. 30, 1998, as amended at 69 FR 7110, Feb. 13, 2004]



Sec. 1726.303  Promulgation of new or revised contract forms.

    RUS may, from time to time, undertake to promulgate new contract 
forms or revise or eliminate existing contract forms. In so doing, RUS 
shall publish notice of rulemaking in the Federal Register announcing, 
as appropriate, a revision in, or a proposal to amend Sec. 1726.304, 
List of Electric Program Standard Contract Forms. The amendment may 
change the existing identification of a listed contract form; for 
example, changing the issuance date of a listed contract form or by 
identifying a new required contract form. The notice of rulemaking will 
describe the new standard contract form or the substantive change in the 
listed contract form, as the case may be, and the

[[Page 273]]

issues involved. The standard contract form or relevant portions thereof 
may be appended to the supplementary information section of the notice 
of rulemaking. As appropriate, the document shall provide an opportunity 
for interested persons to provide comments. A copy of each such Federal 
Register document will be sent by regular or electronic mail to all 
borrowers.

[63 FR 58287, Oct. 30, 1998]



Sec. 1726.304  List of electric program standard contract forms.

    (a) General. This section contains a list of RUS electric program 
standard contract forms. Paragraph (c) of this section contains the list 
of required contract forms, i.e., those forms of contracts that 
borrowers are required to use by the terms of their RUS loan agreements 
as implemented by the provisions of this part. Paragraph (d) of this 
section sets forth the list of guidance contract forms, i.e., those 
forms of contracts provided as guidance to borrowers in the construction 
of their systems. See Sec. 1726.302(b) for availability of these forms.
    (b) Issuance date. Where required by this part to use a standard 
form of contract in connection with RUS financing, the borrower shall 
use that form identified by issuance date in the List of Required 
Contract Forms in paragraph (c) of this section, as most recently 
published as of the date the borrower issues the bid package to bidders.
    (c) List of required contract forms.
    (1) RUS Form 168b, Rev. 2-04, Contractor's Bond. This form is used 
to obtain a surety bond and is used with RUS Forms 200, 257, 786, 790, 
and 830.
    (2) RUS Form 168c, Rev. 2-04, Contractor's Bond (less than $1 
million). This form is used in lieu of RUS Form 168b to obtain a surety 
bond when contractor's surety has accepted a Small Business 
Administration guarantee.
    (3) RUS Form 187, Rev. 2-04, Certificate of Completion, Contract 
Construction. This form is used for the closeout of RUS Forms 200, 257, 
786, and 830.
    (4) RUS Form 198, Rev. 4-04, Equipment Contract. This form is used 
for equipment purchases.
    (5) RUS Form 200, Rev. 2-04, Construction Contract--Generating. This 
form is used for generating plant construction or for the furnishing and 
installation of major items of equipment.
    (6) RUS Form 213, Rev. 2-04, Certificate (``Buy American''). This 
form is used to document compliance with the ``Buy American'' 
requirement.
    (7) RUS Form 224, Rev. 2-04, Waiver and Release of Lien. This form 
is used for the closeout of RUS Forms 198, 200, 257, 786, 790, and 830.
    (8) RUS Form 231, Rev. 2-04, Certificate of Contractor. This form is 
used for the closeout of RUS Forms 198, 200, 257, 786, 790, and 830.
    (9) RUS Form 238, Rev. 2-04, Construction or Equipment Contract 
Amendment. This form is used for amendments.
    (10) RUS Form 254, Rev. 2-04, Construction Inventory. This form is 
used for the closeout of RUS Form 830. Minor electronic modifications 
are acceptable for RUS Form 254.
    (11) RUS Form 257, Rev. 2-04, Contract to Construct Buildings. This 
form is used to construct headquarters buildings and other structure 
construction.
    (12) RUS Form 307, Rev. 2-04, Bid Bond. This form is used to obtain 
a bid bond.
    (13) RUS Form 786, Rev. 2-04, Electric System Communications and 
Control Equipment Contract (including installation). This form is used 
for delivery and installation of equipment for system communications.
    (14) RUS Form 790, Rev. 2-04, Electric System Construction Contract-
-Non-Site Specific Construction. This form is used for limited 
distribution construction accounted for under work order procedure.
    (15) RUS Form 792b, Rev. 2-04, Certificate of Construction and 
Indemnity Agreement. This form is used for the closeout of RUS Form 790.
    (16) RUS Form 830, Rev. 2-04, Electric System Construction Contract-
-Project Construction. This form is used for distribution and 
transmission line project construction.
    (d) List of guidance contract forms. RUS does not currently publish 
any guidance forms for electric borrowers.

[63 FR 58287, Oct. 30, 1998, as amended at 69 FR 7110, Feb. 13, 2004; 69 
FR 52595, Aug. 27, 2004]

[[Page 274]]



Secs. 1726.305-1726.399  [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.

    (a) Delivery inspection. The borrower (acting through its engineer, 
if applicable) will verify that all materials are delivered in proper 
quantities, in good condition, and in compliance with applicable 
specifications.
    (b) Closeout documents. The borrower (acting through its engineer, 
if applicable) will obtain from the supplier a ``Buy American'' 
certificate, RUS Form 213, any manufacturer's guarantee(s) and, if 
applicable, a copy of RUS Form 224, Waiver and Release of Lien. Closeout 
documents for materials contracts need not be submitted to RUS unless 
specifically requested by RUS on a case by case basis.
    (c) Final payment. Upon completion of the actions required under 
paragraphs (a) and (b) of this section, the borrower shall make final 
payment to the supplier in accordance with the provisions of the 
material contract or written purchase order.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7110, Feb. 13, 2004]



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, 
257, 786, and 830.
    (a) Final test of equipment supplied under a construction contract. 
If equipment is supplied under a construction contract, the borrower 
(acting through its architect or engineer, if applicable) will perform 
the final inspection and testing of equipment as appropriate for the 
specific equipment. The borrower

[[Page 275]]

(acting through its architect or engineer, if applicable) will schedule 
such inspection and testing at a time mutually agreeable to the 
borrower, architect or engineer, and the contractor. Within thirty (30) 
days after completion of the inspection and testing, the borrower 
(acting through its architect or engineer, if applicable) will prepare a 
report of the inspection and testing, obtain a copy of the report from 
its architect or engineer, and submit a copy to the contractor. This 
report must include a detailed description of the methods of conducting 
the test(s), observed data, comparison of guaranteed and actual 
performance, and recommendations concerning acceptance. The borrower 
will obtain from its architect or engineer a written certification 
stating that the equipment has been installed, placed in satisfactory 
operation and tested, and meets the contract requirements. Where more 
than one-hundred and eighty (180) days have elapsed since the delivery 
of the equipment and the equipment has not been installed or tested, the 
contract may be closed out upon certification by its architect or 
engineer that the equipment has been inspected and appears to be in 
accordance with the contract requirements.
    (b) Final inspection of construction. The borrower will require the 
contractor to notify the architect or engineer when construction is 
complete. The borrower (acting through the architect or engineer, if 
applicable) will schedule such final inspection at a time mutually 
agreeable to the borrower, architect or engineer, contractor, and the 
respective RUS General Field Representative (GFR), if the GFR has 
notified the borrower or its architect or engineer of a desire to 
observe the final inspection. The borrower (acting through its architect 
or engineer, if applicable) will perform a final inspection of the 
construction and notify the contractor of any required changes or 
corrections.
    (c) Closeout documents. (1) Upon satisfactory completion of 
construction (including all changes and corrections by the contractor), 
the borrower (acting through its architect or engineer, if applicable) 
will obtain executed copies of the following documents:
    (i) RUS Form 187, Certificate of Completion, Contract Construction.
    (ii) RUS Form 213, ``Buy American'' certificate.
    (iii) RUS Form 224, Waiver and Release of Lien, from each 
manufacturer, supplier, and contractor which has furnished material or 
services or both in connection with the construction.
    (iv) RUS Form 231, Certificate of Contractor.
    (v) RUS Form 254, Construction Inventory, including all supporting 
documents, such as RUS Forms 254a-c, construction change orders, and 
amendments for contracts executed on RUS Form 830.
    (vi) Certification by the project architect or engineer in 
accordance with 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 187, Certificate of Completion, Contract Construction.
    (B) RUS Form 231, Certificate of Contractor.
    (C) RUS Form 254, Construction Inventory, including all supporting 
documents, such as RUS Forms 254a-c and construction change orders, for 
contracts executed on RUS Form 830.
    (iii) For contracts not subject to RUS approval, the closeout is not 
subject to RUS approval. The borrower will send one copy of RUS Form 187 
to RUS for information prior to or in conjunction with the applicable 
RUS Form 219, Inventory of Work Orders. The remaining closeout documents 
need not be sent to RUS unless specifically requested by RUS.
    (d) Final payment. (1) The borrower will make final payment to the 
contractor upon completion of approval of all closeout documents by the 
parties to the contract, in accordance with the terms of the 
construction contract.

[[Page 276]]

    (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 
certification. This certification is not a replacement for itemized 
invoices.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7110, Feb. 13, 2004]



Sec. 1726.404  Non-site specific construction contract closeout.

    This section is applicable to contracts executed on RUS Form 790.
    (a) Final test of equipment supplied under a construction contract. 
If equipment is supplied under a construction contract, the borrower 
(acting through its engineer, if applicable) will perform the final 
inspection and testing of equipment as appropriate for the specific 
equipment. The borrower (acting through its engineer, if applicable) 
will schedule such inspection and testing at a time mutually agreeable 
to the borrower, its engineer, and the contractor. Within thirty (30) 
days after completion of the inspection and testing, the borrower 
(acting through its engineer, if applicable) will prepare a report of 
the inspection and testing, obtain a copy of the report from its 
engineer, and submit a copy to the contractor. This report must include 
a detailed description of the methods of conducting the test(s), 
observed data, comparison of guaranteed and actual performance, and 
recommendations concerning acceptance. The borrower will obtain from the 
engineer a written certification stating that the equipment has been 
installed, placed in satisfactory operation and tested, and meets the 
contract requirements. Where more than one-hundred and eighty (180) days 
have elapsed since the delivery of the equipment and the equipment has 
not been installed or tested, the contract may be closed out upon 
certification by the engineer that the equipment has been inspected and 
appears to be in accordance with the contract requirements.
    (b) Final inspection of construction. The borrower will require the 
contractor to notify its engineer when construction of a section of the 
project is complete. The borrower (acting through its engineer, if 
applicable) will schedule such final inspection at a time mutually 
agreeable to the borrower, its engineer, contractor, and the respective 
GFR, if the GFR has notified the borrower or its engineer of a desire to 
observe the final inspection. The borrower (acting through its engineer, 
if applicable) will perform a final inspection of the construction of 
that section of the project and notify the contractor of any required 
changes or corrections.
    (c) Closeout documents. (1) Upon satisfactory completion of 
construction of a section of the project (including all changes and 
corrections by the contractor), the borrower (acting through its 
engineer, if applicable) will obtain executed copies of the following 
documents:
    (i) RUS Form 792b, Certificate of Contractor and Indemnity Agreement
    (ii) RUS Form 213, ``Buy American'' certificate.
    (iii) Certification by the project engineer in accordance with 
paragraph (a) of this section, if applicable.
    (iv) Final design documents, as outlined in part 1724 of this 
chapter.
    (2) Distribution of closeout documents. (i) The borrower will retain 
one copy of each of the documents identified in paragraph (c)(1) of this 
section in accordance with applicable RUS requirements regarding 
retention of records.
    (ii) For contracts not subject to RUS approval, the closeout is not 
subject to

[[Page 277]]

RUS approval and the closeout documents need not be sent to RUS unless 
specifically requested by RUS.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7111, Feb. 13, 2004]



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.
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., 1921 et seq., 6941 et seq.



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

[[Page 278]]

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 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

[[Page 279]]

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]



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

[[Page 280]]

    (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.
    (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

[[Page 281]]

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 
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 standards (50-3 to 50-6 
and 1728F-803 to 1728F-811), 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 and 1728F-700) may be obtained from the Rural Utilities 
Service, Program Development and Regulatory Analysis, Stop 1522, Room 
4028-S, Washington, DC 20250-1522. 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 National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. These materials are incorporated as 
they exist on the date of the approval and a notice of any

[[Page 282]]

change in these materials will be published in the Federal Register.
    (b) List of Bulletins.

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 50-6 (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\[foot] 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)
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).
Bulletin 1728F-803, Specifications and Drawings for 24.9/14.4 kV Line 
Construction (10-98).
Bulletin 1728F-806 (D-806), Specifications and Drawings for Underground 
Electric Distribution, June 2000.
Bulletin 1728F-810, Electric Transmission Specifications and Drawings, 
34.5 kV to 69 kV (3-98).
Bulletin 1728F-811, Electric Transmission Specifications and Drawings, 
115 kV to 230 kV (3-98).

[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; 63 FR 11591, Mar. 10, 1998; 63 FR 
72104, Dec. 31, 1998; 65 FR 34047, May 26, 2000; 69 FR 18803, Apr. 9, 
2004]



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

[[Page 283]]

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, 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

[[Page 284]]

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 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 National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html. 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.

[[Page 285]]

    (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. 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;

[[Page 286]]

    (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:

                    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
------------------------------------------------------------------------
4-5/8x5-5/8 or less                                1   1-1/4     1-1/4
5-5/8x7-3/8                                    1-1/4   1-3/8     1-7/8
3-5/8x9-3/8                                      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

[[Page 287]]

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 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

[[Page 288]]

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 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]

[[Page 289]]

    (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 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.

[[Page 290]]

    (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 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 291]]

     Exhibit A to Sec. 1728.201--Distribution and Transmission Arms
[GRAPHIC] [TIFF OMITTED] TC16SE91.002


[[Page 292]]



           Exhibit B to Sec. 1728.201--Crossarm Drilling Guide
[GRAPHIC] [TIFF OMITTED] TC16SE91.003


[58 FR 41396, Aug. 3, 1993, as amended at 69 FR 18803, Apr. 9, 2004]

[[Page 293]]



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 National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. 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.

[[Page 294]]

    (5) American Society for Testing and Materials (ASTM) D9-87 (1992), 
Standard Terminology Relating to Wood, available from ASTM, 1916 Race 
Street, 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

[[Page 295]]

plans are Insured Warranty Plan, Independent Inspection Plan, or a 
Quality Assurance Plan. Under the Independent Inspection Plan, all poles 
in a lot shall 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

[[Page 296]]

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 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

[[Page 297]]

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.
    (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.

[[Page 298]]

    (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.
    (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

[[Page 299]]

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, 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.

[[Page 300]]

    (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:

American Wood Preservers' Association, P.O. Box 286, Woodstock, Maryland 
21163, Phone: (410) 456-3169.

[58 FR 41406, Aug. 3, 1993, as amended at 69 FR 18803, Apr. 9, 2004]



PART 1730--ELECTRIC SYSTEM OPERATIONS AND MAINTENANCE--Table of Contents



                           Subpart A--General

Sec.
1730.1  Introduction.
1730.2  RUS policy.
1730.3  RUS addresses.
1730.4  Definitions.
1730.5-1730.19  [Reserved]

           Subpart B--Operations and Maintenance Requirements

1730.20  General.
1730.21  Inspections and tests.
1730.22  Borrower analysis.
1730.23  Review rating summary, RUS Form 300.
1730.24  RUS review and evaluation.
1730.25  Corrective action.
1730.26  Certification.
1730.27  Vulnerability and Risk Assessment (VRA).
1730.28  Emergency Restoration Plan (ERP).
1730.29  Grants and Grantees.
1730.30-1730.99  [Reserved]

Appendix A to Subpart B--Review Rating Summary, RUS Form 300

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

    Source: 63 FR 3450, Jan. 23, 1998, unless otherwise noted.



                           Subpart A--General



Sec. 1730.1  Introduction.

    (a) This part contains the policies and procedures of the Rural 
Utilities Service (RUS) related to electric borrowers' operation and 
maintenance practices and RUS' review and evaluation of such practices.
    (b) The policies and procedures included in this part apply to all 
electric borrowers (both distribution borrowers and power supply 
borrowers) and are intended to clarify and implement certain provisions 
of the security instrument and loan contract between RUS and electric 
borrowers regarding operations and maintenance. This part is not 
intended to waive or supersede any provisions of the security instrument 
and loan contract between RUS and electric borrowers.
    (c) The Administrator may waive, for good cause, on a case by case 
basis, certain requirements and procedures of this part.



Sec. 1730.2  RUS policy.

    It is RUS policy to require that all property of a borrower be 
operated and maintained properly in accordance with the requirements of 
each borrower's loan documents. It is also RUS policy to provide 
financial assistance only to borrowers whose operations and maintenance 
practices and records are satisfactory or to those who are taking 
corrective actions expected to make their operations and maintenance 
practices and records satisfactory to RUS.



Sec. 1730.3  RUS addresses.

    (a) Persons wishing to obtain forms referred to in this part should 
contact: Program Support and Regulatory Analysis, Rural Utilities 
Service, U.S. Department of Agriculture, Stop 1522, 1400 Independence 
Ave., SW., Washington, DC 20250-1522, telephone (202) 720-8674. 
Borrowers or others may reproduce any of these forms in any number 
required.
    (b) Documents required to be submitted to RUS under this part are to 
be sent to the office of the borrower's assigned RUS General Field 
Representative (GFR) or such other office as designated by RUS.



Sec. 1730.4  Definitions.

    Terms used in this part have the meanings set forth in 7 CFR Part 
1710.2. References to specific RUS forms and other RUS documents, and

[[Page 301]]

to specific sections or lines of such forms and documents, shall include 
the corresponding forms, documents, sections and lines in any subsequent 
revisions of these forms and documents. In addition to the terms defined 
in 7 CFR Part 1710.2, the term Prudent Utility Practice has the meaning 
set forth in Article 1, Section 1.01 of Appendix A to Subpart B of 7 CFR 
Part 1718--Model Form of Mortgage for Electric Distribution Borrowers, 
for the purposes of this Part.



Secs. 1730.5-1730.19  [Reserved]



           Subpart B--Operations and Maintenance Requirements



Sec. 1730.20  General.

    Each electric program distribution, transmission and generation 
borrower (as defined in Sec. 1710.2) shall operate and maintain its 
system in compliance with prudent utility practice, in compliance with 
its loan documents, and in compliance with all applicable laws, 
regulations and orders, shall maintain its systems in good repair, 
working order and condition, and shall make all needed repairs, 
renewals, replacements, alterations, additions, betterments and 
improvements, in accordance with applicable provisions of the borrower's 
security instrument. Each borrower is responsible for on-going 
operations and maintenance programs, individually or regionally 
performing a system security Vulnerability and Risk Assessment (VRA), 
establishing and maintaining an Emergency Restoration Plan (ERP), 
maintaining records of the physical, cyber and electrical condition and 
security of its electric system and for the quality of services provided 
to its customers. The borrower is also responsible for all necessary 
inspections and tests of the component parts of its system, and for 
maintaining records of such inspections and tests. Each borrower shall 
budget sufficient resources to operate and maintain its system and 
annually exercise its ERP in accordance with the requirements of this 
part. An actual manmade or natural event on the borrowers system in 
which a borrower utilizes a significant portion of its ERP shall count 
as an annual exercise for that calendar year, provided that after 
conclusion of the event, the borrower verifies accuracy of the emergency 
points-of-contact (POC) and the associated contact numbers as listed in 
their ERP. For portions of the borrower's system that are not operated 
by the borrower, if any, the borrower is responsible for ensuring that 
the operator is operating and maintaining the system properly in 
accordance with the operating agreement.

[69 FR 60540, Oct. 12, 2004]



Sec. 1730.21  Inspections and tests.

    (a) Each borrower shall conduct all necessary inspections and tests 
of the component parts of its electric system, annually exercise its 
ERP, and maintain records of such inspections and tests. For the purpose 
of this part, ``Exercise'' means a borrower's Tabletop execution of, or 
actual implementation of, the ERP to verify the operability of the ERP. 
Such Exercise may be performed singly by an individual borrower, or as 
an active participant in a multi-party (to include utilities, government 
agencies and other participants or combination thereof) Tabletop 
execution or actual full implementation of the ERP. For the purpose of 
this part, ``Tabletop'' means a hypothetical emergency response scenario 
in which participants will identify the policy, communication, 
resources, data, coordination, and organizational elements associated 
with an emergency response.
    (b) The frequency of inspection and testing will be determined by 
the borrower in conformance with applicable laws, regulations, national 
standards, and Prudent Utility Practice. The frequency of inspection and 
testing will be determined giving due consideration to the type of 
facilities or equipment, manufacturer's recommendations, age, operating 
environment and hazards to which the facilities are exposed, 
consequences of failure, and results of previous inspections and tests. 
The records of such inspections and tests will be retained in accordance 
with applicable regulatory requirements and Prudent Utility Practice. 
The retention period should be of a sufficient time period to identify 
long-term trends. Records must be retained at

[[Page 302]]

least until the applicable inspections or tests are repeated.
    (c) Inspections of facilities must include a determination of 
whether the facility complies with the National Electrical Safety Code, 
National Electrical Code (as applicable), and applicable State or local 
regulations and whether additional security measures are considered 
necessary to reduce the vulnerability of those facilities which, if 
damaged or destroyed, would severely impact the reliability and security 
of the electric power grid, cause significant risk to the safety and 
health of the public and/or impact the ability to provide service to 
consumers over an extended period of time. The electric power grid, also 
known as the transmission grid, consists of a network of electrical 
lines and related facilities, including certain substations, used to 
connect distribution facilities to generation facilities, and includes 
bulk transmission and subtransmission facilities as defined in 
Sec. 1710.2 of this title. Any serious or life-threatening deficiencies 
shall be promptly repaired, disconnected, or isolated in accordance with 
applicable codes or regulations. Any other deficiencies found as a 
result of such inspections and tests are to be recorded and those 
records are to be maintained until such deficiencies are corrected or 
for the retention period required by paragraph (b) of this section, 
whichever is longer.

[63 FR 3450, Jan. 23, 1998, as amended at 69 FR 60540, Oct. 12, 2004]



Sec. 1730.22  Borrower analysis.

    (a) Each borrower shall periodically analyze and document its 
security, operations and maintenance policies, practices, and procedures 
to determine if they are appropriate and if they are being followed. The 
records of inspections and tests are also to be reviewed and analyzed to 
identify any trends which could indicate deterioration in the physical 
or cyber condition or the operational effectiveness of the system or 
suggest a need for changes in security, operations or maintenance 
policies, practices and procedures. For portions of the borrower's 
system that are not operated by the borrower, if any, the borrower's 
written analysis would also include a review of the operator's 
performance under the operating agreement.
    (b) When a borrower's security, operations and maintenance policies, 
practices, and procedures are to be reviewed and evaluated by RUS, the 
borrower shall:
    (1) Conduct the analysis required by paragraph (a) of this section 
not more than 90 days prior to the scheduled RUS review;
    (2) Complete RUS Form 300, Review Rating Summary, and other related 
forms, prior to RUS' review and evaluation; and
    (3) Make available to RUS the borrower's completed RUS Form 300 
(including a written explanation of the basis for each rating) and 
records related to the operations and maintenance of the borrower's 
system.
    (c) For those facilities not included on the RUS Form 300 (e.g., 
generating plants), the borrower shall prepare and complete an 
appropriate supplemental form for such facilities.

[63 FR 3450, Jan. 23, 1998, as amended at 69 FR 60541, Oct. 12, 2004]



Sec. 1730.23  Review rating summary, RUS Form 300.

    RUS Form 300 in Appendix A shall be used when required by this part.



Sec. 1730.24  RUS review and evaluation.

    RUS will initiate and conduct a periodic review and evaluation of 
the operations and maintenance practices of each borrower for the 
purpose of assessing loan security and determining borrower compliance 
with RUS policy as outlined in this part. This review will normally be 
done at least once every three years. The borrower will make available 
to RUS the borrower's policies, procedures, and records related to the 
operations and maintenance of its complete system. Reports made by other 
inspectors (e.g., other Federal agencies, State inspectors, etc.) will 
also be made available, as applicable. RUS will not duplicate these 
other reviews but will use their reports to supplement its own review. 
RUS may inspect facilities, as well as records, and may also observe 
construction and maintenance work in the field. Key borrower personnel 
responsible for the facilities being inspected

[[Page 303]]

are to accompany RUS during such inspections, unless otherwise 
determined by RUS. RUS personnel may prepare an independent summary of 
the operations and maintenance practices of the borrower. The borrower's 
management will discuss this review and evaluation with its Board of 
Directors.



Sec. 1730.25  Corrective action.

    (a) For any items on the RUS Form 300 rated unsatisfactory (i.e., 0 
or 1) by the borrower or by RUS, the borrower shall prepare a corrective 
action plan (CAP) outlining the steps (both short term and long term) 
the borrower will take to improve existing conditions and to maintain an 
acceptable rating. The CAP must include a time schedule and cost 
estimate for corrective actions, and must be approved by the borrower's 
Board of Directors. The CAP must be submitted to RUS for approval within 
90 days after the completion of RUS' evaluation noted in Sec. 1730.24.
    (b) The borrower must periodically report to RUS in writing progress 
under the CAP. This report must be submitted to RUS every six months 
until all unsatisfactory items are corrected unless RUS prescribes a 
different reporting schedule.



Sec. 1730.26  Certification.

    (a) Engineer's Certification. Where provided for in the borrower's 
loan documents, RUS may require the borrower to provide an ``Engineer's 
Certification'' as to the condition of the borrower's system (including, 
but not limited to, all mortgaged property.) Such certification shall be 
in form and substance satisfactory to RUS and shall be prepared by a 
professional engineer satisfactory to RUS. If RUS determines that the 
Engineer's Certification discloses a need for improvements to the 
condition of its system or any other operations of the borrower, the 
borrower shall, upon notification by RUS, promptly undertake to 
accomplish such improvements.
    (b) Emergency Restoration Plan certification. The borrower's Manager 
or Chief Executive Officer shall provide written certification to RUS 
stating that a VRA has been satisfactorily completed that meets the 
criteria of Sec. 1730.27 (a), (b), (c), or (d), as applicable and 
Sec. 1730.27(e)(1) through (e)(8), and that the borrower has an ERP that 
meets the criteria of Sec. 1730.28 (a), (b), (c), or (d), as applicable, 
and Sec. 1730.28 (e), (f), and (g). The written certification shall be 
in letter form. Applicants for new RUS electric loans, loan guarantees 
or grants shall include the written certification in the application 
package submitted to RUS. If the self-certification of an ERP and VRA 
are not received as set forth in this section, approval of the loan, 
loan guarantees or grants will not be considered until the 
certifications are received by RUS.

[63 FR 3450, Jan. 23, 1998, as amended at 69 FR 60541, Oct. 12, 2004]



Sec. 1730.27  Vulnerability and Risk Assessment (VRA).

    (a) Each borrower with an approved RUS electric program loan as of 
October 12, 2004 shall perform an initial VRA of its electric system no 
later than July 12, 2005. Additional or periodic VRA's may be necessary 
if significant changes occur in the borrower's system, and records of 
such additional assessments shall be maintained by the borrower.
    (b) Each applicant that has submitted an application for an RUS 
electric program loan or grant prior to October 12, 2004, but whose 
application has not been approved by RUS by such date, shall perform an 
initial VRA of its electric system in accordance with Sec. 1730.27(a).
    (c) Each applicant that submits an application for an RUS electric 
program loan or grant between October 12, 2004 and July 12, 2005 shall 
perform an initial VRA of its electric system in accordance with 
Sec. 1730.27(a).
    (d) Each applicant that submits an application for an RUS electric 
program loan or grant on or after July 12, 2005 shall include with its 
application package a letter certification that such applicant has 
performed an initial VRA of its electric system. Additional or periodic 
VRA's may be necessary if significant changes occur in the borrower's 
system, and records of such additional assessments shall be maintained 
by the borrower.
    (e) The VRA shall include identifying:

[[Page 304]]

    (1) Critical assets or facilities considered necessary for the 
reliability and security of the electric power grid as described in 
Sec. 1730.21(c);
    (2) Facilities that if damaged or destroyed would cause significant 
risk to the safety and health of the public;
    (3) Critical assets or infrastructure owned or served by the 
borrower's electric system that are determined, identified and 
communicated as elements of national security by the consumer, State or 
Federal government;
    (4) External system impacts (interdependency) with loss of 
identified system components;
    (5) Threats to facilities and assets identified in paragraphs 
(e)(1), (e)(2), (e)(3), and (e)(4) of this section;
    (6) Criticality and risk level of the borrower's system;
    (7) Critical asset components and elements unique to the RUS 
borrower's system; and
    (8) Other threats, if any, identified by an individual borrower.

[69 FR 60541, Oct. 12, 2004]



Sec. 1730.28  Emergency Restoration Plan (ERP).

    (a) Each borrower with an approved RUS electric program loan as of 
October 12, 2004 shall have a written ERP no later than January 12, 
2006. The ERP should be developed by the borrower individually or in 
conjunction with other electric utilities (not all having to be RUS 
borrowers) through the borrower's unique knowledge of its system, 
prudent utility practices (which includes development of an ERP) and the 
borrower's completed VRA. If a joint electric utility ERP is developed, 
each RUS borrower shall prepare an addendum to meet the requirements of 
paragraphs (e), (f), and (g) of this section as it relates to its 
system.
    (b) Each applicant that has submitted an application for an RUS 
electric program loan or grant prior to October 12, 2004, but whose 
application has not been approved by RUS by such date, shall have a 
written ERP in accordance with Sec. 1730.28(a).
    (c) Each applicant that submits an application for an RUS electric 
program loan or grant between October 12, 2004 and January 12, 2006, 
shall have a written ERP in accordance with Sec. 1730.28(a).
    (d) Each applicant that submits an application for an RUS electric 
program loan or grant on or after January 12, 2006 shall include with 
its application package a letter certification that such applicant has a 
written ERP.
    (e) The ERP shall include:
    (1) A list of key contact emergency telephone numbers (emergency 
agencies, borrower management and other key personnel, contractors and 
equipment suppliers, other utilities, and others that might need to be 
reached in an emergency);
    (2) A list of key utility management and other personnel and 
identification of a chain of command and delegation of authority and 
responsibility during an emergency;
    (3) Procedures for recovery from loss of power to the headquarters, 
key offices, and/or operation center facilities;
    (4) A Business Continuity Section describing a plan to maintain or 
re-establish business operations following an event which disrupts 
business systems (computer, financial, and other business systems); and
    (5) Other items, if any, identified by the borrower as essential for 
inclusion in the ERP.
    (f) The ERP must be approved and signed by the borrower's Manager or 
Chief Executive Officer, and approved by the borrower's Board of 
Directors.
    (g) Copies of the most recent approved ERP must be made readily 
available to key personnel at all times.
    (h) The ERP shall be Exercised at least annually to ensure 
operability and employee familiarity. Completion of the first exercise 
of the ERP must occur on or before January 12, 2007.
    (i) If modifications are made to an existing ERP:
    (1) The modified ERP must be prepared in compliance with the 
provisions of paragraphs (e), (f), and (g) of this section; and
    (2) Additional Exercises may be necessary to maintain employee 
operability and familiarity.
    (j) Each borrower shall maintain records of such Exercises.

[69 FR 60541, Oct. 12, 2004]

[[Page 305]]



Sec. 1730.29  Grants and Grantees.

    For the purposes of this part, the terms ``borrower'' shall include 
recipients of RUS electric program grants, and ``applicant'' shall 
include applicants for such grants. References to ``security documents'' 
shall, with respect to recipients of RUS electric program grants, 
include grant agreements and other grant-related documents.

[69 FR 60541, Oct. 12, 2004]



Secs. 1730.30-1730.99  [Reserved]

 Appendix A to Subpart B of Part 1730--Review Rating Summary, RUS Form 
                                   300

Borrower Designation --------
Date Prepared --------

    Ratings on form are:

0: Unsatisfactory--no records
    1: Unsatisfactory--corrective action needed
    2: Acceptable, but should be improved--see attached recommendations
    3: Satisfactory--no additional action required at this time
    N/A: Not applicable

            PART I--TRANSMISSION and DISTRIBUTION FACILITIES

1. Substations (Transmission and Distribution)
    a. Safety, Clearance, Code Compliance--Rating: --------
    b. Physical Condition: Structure, Major Equipment, Appearance--
    Rating: --------
    c. Inspection Records Each Substation--Rating: --------
    d. Oil Spill Prevention--Rating: --------
2. Transmission Lines
    a. Right-of-Way: Clearing, Erosion, Appearance, Intrusions--
    Rating: --------
    b. Physical Condition: Structure, Conductor, Guying--Rating: ------
--
    c. Inspection Program and Records--Rating: --------
3. Distribution Lines--Overhead
    a. Inspection Program and Records--Rating: --------
    b. Compliance with Safety Codes: Clearances--Rating: --------
    Compliance with Safety Codes: Foreign Structures--Rating: --------
    Compliance with Safety Codes: Attachments--Rating: --------
    c. Observed Physical Condition from Field Checking: Right-of-Way--
Rating: --------
    Observed Physical Condition from Field Checking: Other--Rating: ----
----
4. Distribution--Underground Cable
    a. Grounding and Corrosion Control--Rating: --------
    b. Surface Grading, Appearance--
    Rating: --------
    c. Riser Poles: Hazards, Guying, Condition--Rating: --------
5. Distribution Line Equipment: Conditions and Records
    a. Voltage Regulators--Rating: --------
    b. Sectionalizing Equipment--
    Rating: --------
    c. Distribution Transformers--
    Rating: --------
    d. Pad Mounted Equipment--Safety: Locking, Dead Front, Barriers--
Rating: --------
    Pad Mounted Equipment--Appearance: Settlement, Condition--Rating: --
------
    e. Kilowatt-hour and Demand Meter Reading and Testing--Rating: ----
----

                   PART II--OPERATION AND MAINTENANCE

6. Line Maintenance and Work Order Procedures
    a. Work Planning and Scheduling--
    Rating: --------
    b. Work Backlogs: Right-of-Way Maintenance--Rating: --------
    Work Backlogs: Poles--Rating: --------
    Work Backlogs: Retirement of Idle Services--Rating: --------
    Work Backlogs: Other--Rating: --------
7. Service Interruptions
    a. Average Annual Hours/Consumer by Cause (Complete for each of the 
previous 5 years)
1. Power Supplier --------
2. Major Storm --------
3. Scheduled --------
4. All Other --------
5. Total --------
    Rating: --------
    b. Emergency Restoration Plan--Rating:--------
8. Power Quality
    General Freedom from Complaints--Rating:--------
9. Loading and Load Balance
    a. Distribution Transformer Loading--Rating:--------
    b. Load Control Apparatus--Rating:--------
    c. Substation and Feeder Loading--Rating:--------
10. Maps and Plant Records
    a. Operating Maps: Accurate and Up-to-Date--Rating:--------
    b. Circuit Diagrams--Rating:--------
    c. Staking Sheets--Rating:--------

                          PART III--ENGINEERING

11. System Load Conditions and Losses
    a. Annual System Loses, --------%--Rating:--------
    b. Annual Load Factor, --------%--Rating:--------

[[Page 306]]

    c. Power Factor at Monthly Peak, --------%--Rating:--------
    d. Ratio of Individual Substation Peak kW to kVA, ----------
Rating:--------
12. Voltage Conditions
    a. Voltage Surveys--Rating:--------
    b. Substation Transformer Output Voltage Spread--Rating:--------
13. Load Studies and Planning
    a. Long Range Engineering Plan--Rating:--------
    b. Construction Work Plan--Rating:--------
    c. Sectionalizing Study--Rating:--------
    d. Load Data for Engineering Studies--Rating:--------
    e. Load Forecasting Data--Rating:--------

               PART IV--OPERATION AND MAINTENANCE BUDGETS

    For Previous 2 Years:

Normal Operation--Actual $--------
Normal Maintenance--Actual $--------
Total--Actual $--------

    For Present Year:

Normal Operation--Budget $--------
Normal Maintenance--Budget $--------
Total--Budget $--------

    For Future 3 Years:

Normal Operation--Budget $--------
Normal Maintenance--Budget $--------
Additional (Deferred) Maintenance--Budget $--------
Total--Budget $--------

    14. Budgeting:
Adequacy of Budgets For Needed Work--Rating:--------
    15. Date Discussed with Board of Directors --------
Remarks: --------

                            EXPLANATORY NOTES

Item No. -------- Comments --------
Rated by -------- -------- Title -------- Date --------
Reviewed by -------- Manager -------- Date --------
Reviewed by -------- RUS GFR -------- Date --------



PART 1735--GENERAL POLICIES, TYPES OF LOANS, LOAN REQUIREMENTS--TELECOMMUNICATIONS 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  Variable interest rate loans.
1735.34-1735.39  [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.

[[Page 307]]

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., 1921 et seq., and 6941 et seq.



                           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, 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.
    Administrator means the Administrator of RUS.
    Advance of funds means the transferring of funds by RUS to the 
borrower's construction fund.
    Appropriated means funds appropriated based on subsidy.
    Affiliate means an organization that directly, or indirectly through 
one or more intermediaries, controls or is controlled by, or is under 
common control with, the borrower.
    Borrower means any organization which has an outstanding loan made 
or guaranteed by RUS, or which is seeking such financing.
    Cash distribution means investments, guarantees, extensions of 
credit, advances, loans, non-affiliated company joint ventures, 
affiliated company investments, and dividend and capital credit 
distributions. Not included in this definition are qualified investments 
(see 7 CFR part 1744, subpart D).
    Composite economic life as applied to facilities financed by loan 
funds means the weighted (by dollar amount of each class of facility in 
the loan) average economic life of all classes of facilities in the 
loan.
    Consolidation means the combination of two or more borrower or 
nonborrower organizations, pursuant to state law, into a new successor 
organization that takes over the assets and assumes the liabilities of 
those organizations.

[[Page 308]]

    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.
    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.
    Exchange access means the offering of access to telephone exchange 
services or facilities for the purpose of the origination or termination 
of telephone toll services.
    Feasibility study means the pro forma financial analysis performed 
by RUS to determine the economic feasibility of a loan. See 7 CFR part 
1737.
    Forecast period means the time period beginning on the date (base 
date) of the borrower's balance sheet used in preparing the feasibility 
study and ending on a date equal to the base date plus the number of 
years estimated in the feasibility study for completion of the project. 
Feasibility projections are usually for 5 years, see 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.
    Local exchange carrier (LEC) means an organization that is engaged 
in the provision of telephone exchange service or exchange access.
    Majority noteholders means the holder or holders of a majority in 
principal amount of the notes outstanding at a particular time.
    Merger means the combining, pursuant to state law, of one or more 
borrower or nonborrower organizations into an existing survivor 
organization that takes over the assets and assumes the liabilities of 
the merged organizations. While the terms merger and consolidation have 
different meanings, for the purpose of this part, ``mergers'' also 
include consolidations as defined above. Furthermore, ``mergers'' also 
include acquisitions where the acquired systems, lines, or facilities 
and the acquiring system are operated as one system.
    Mobile telecommunications service means radio communication voice 
service between mobile and land or fixed stations, or between mobile 
stations.

[[Page 309]]

    Modernization Plan (State Telecommunications Modernization Plan) 
means a State plan, which has been approved by RUS, for improving the 
telecommunications network of those telecommunications providers covered 
by the plan. A Modernization Plan must conform to the provisions of 7 
CFR 1751, subpart B.
    Mortgage means the security agreement between RUS and the borrower, 
including any amendments and supplements thereto.
    Net worth means the sum of the balances of the following accounts of 
the borrower:

------------------------------------------------------------------------
                        Account names                            Number
------------------------------------------------------------------------
(1) Capital stock............................................       4510
(2) Additional paid-in capital...............................       4520
(3) Treasury stock...........................................       4530
(4) Other capital............................................       4540
(5) Retained earnings........................................       4550
------------------------------------------------------------------------
Note: For nonprofit organizations, owners' equity is shown in
  subaccounts of 4540 and 4550. All references regarding account numbers
  are to the Uniform System of Accounts (47 CFR part 32).

    Public switched network means any common carrier switched network, 
whether by wire or radio, including local exchange carriers, 
interexchange carriers, and mobile telecommunications service providers, 
that use the North American Numbering Plan in connection with the 
provision of switched services.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture, successor to the Rural Electrification 
Administration.
    RUS cost-of-money loan means a loan made under section 305(d)(2) of 
the RE Act bearing an interest rate as determined under 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.
    Specialized telecommunications service means any telephone service 
other than telephone exchange service, exchange access, or mobile 
telecommunications service.
    Subscriber means the same as access line.
    Survivor means (1) the successor corporation formed by the 
consolidation of one or more borrowers, (2) the corporation remaining 
after completion of a merger involving one or more borrowers, and (3) a 
corporation assuming all or a portion of an RUS loan in connection with 
an acquisition.
    Telecommunications means the transmission or reception of voice, 
data, sounds, signals, pictures, writings, or signs of all kinds, by 
wire, fiber, radio, light, or other visual or electromagnetic means.
    Telephone exchange service means: (1) Service provided primarily to 
fixed locations within a telephone exchange, or within a connected 
system of telephone exchanges within the same exchange area operated to 
furnish to subscribers intercommunicating service of the character 
ordinarily furnished by a single exchange, and which is covered by the 
exchange service charge; or
    (2) Comparable service provided through a system of switches, 
transmission equipment, or other facilities (or combination thereof) by 
which a subscriber can originate and terminate a telecommunications 
service.
    Telephone service means any communication service for the 
transmission or reception of voice, data, sounds, signals, pictures, 
writing, or signs of all kinds by wire, fiber, radio, light, or other 
visual or electromagnetic means

[[Page 310]]

and includes all telephone lines, facilities and systems to render such 
service. It does not mean:
    (1) Message telegram service;
    (2) Community antenna television system services or facilities other 
than those intended exclusively for educational purposes; or
    (3) Radio broadcasting services or facilities within the meaning of 
section 3(o) of the Communications Act of 1934, as amended.
    Times Interest Earned Ratio (TIER) means the ratio of a borrower's 
net income (after taxes) plus interest expense, all divided by interest 
expense. For the purpose of this calculation, all amounts will be annual 
figures and interest expense will include only interest on debt with a 
maturity greater than one year.
    Total assets means the sum of the balances of the following accounts 
of the borrower:

------------------------------------------------------------------------
               Account names                           Number
------------------------------------------------------------------------
(1) Current assets........................  1100s through 1300s.
(2) Noncurrent Assets.....................  1400s through 1500s.
(3) Total telecommunications plant........  2001 through 2007.
(4) Less: Accumulated depreciation........  3100 through 3300s.
(5) Less: Accumulated amortization........  3400 through 3600s.
------------------------------------------------------------------------
Note: All references regarding account numbers are to the Uniform System
  of Accounts (47 CFR part 32).


[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; 62 FR 46869, Sept. 5, 1997; 65 FR 42619, 
July 11, 2000; 65 FR 54402, Sept. 8, 2000]



Sec. 1735.3  Availability of forms.

    Single copies of RUS forms and publications cited in this part are 
available from Program Support Regulatory Analysis, Rural Utilities 
Service, STOP 1522, 1400 Independence Ave., SW., Washington, DC 20250-
1522. These RUS forms and publications may be reproduced. The terms 
``RUS form'', ``RUS standard form'', and ``RUS specification'' have the 
same meanings as the terms ``REA form'' ``REA standard form'', and ``REA 
specification'', respectively, unless otherwise indicated.

[54 FR 13351, Apr. 3, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, 
and amended at 59 FR 66441, Dec. 27, 1994; 62 FR 46870, Sept. 5, 1997]



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 wireline local exchange service or similar fixed-
station voice service that, in RUS' opinion, is inconsistent with the 
borrower achieving the requirements stated in the State's 
telecommunication modernization plan within the time frame stated in the 
plan (see 7 CFR part 1751, subpart B), unless RUS has determined that 
achieving the requirements as stated in such plan is not technically or 
economically feasible.
    (c) A borrower receiving a loan to provide mobile telecommunications 
services or special telecommunications services shall be considered to 
be participating in the state telecommunications plan (TMP) with respect 
to the particular loan so long as the loan funds are not used in a 
manner that, in RUS' opinion, is inconsistent with the borrower 
achieving the goals set forth in the plan, except that a borrower must 
comply with any portion of a TMP made applicable to the borrower

[[Page 311]]

by a state commission with jurisdiction.
    (d) RUS will not deny or reduce a loan or an advance of loan funds 
based on a borrower's level of general funds.
    (e) No fees or charges are assessed for any type of loan or 
guarantee provided by RUS or the Rural Telephone Bank (RTB).
    (f) 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; 
65 FR 42619, July 11, 2000; 65 FR 54403, Sept. 8, 2000]



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 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 for any wireline local 
exchange service or similar fixed-station voice service provided by a 
local exchange carrier (LEC) in determining whether such service is 
reasonably adequate:
    (1) The LEC is providing area coverage as described in Sec. 1735.11.
    (2) The LEC is providing all one-party service or, if the State 
commission has mandated a lower grade of service, the LEC is eliminating 
that service in accordance with the requirements of the 
Telecommunications Act of 1996, 47 U.S.C. 151 et seq.
    (3) The LEC's network is capable of providing transmission and 
reception of data at a rate of at least 1,000,000 bits per second (1 
Mbps) with reasonable modification to any subscriber who requests it.
    (4) The LEC makes available custom calling features (at a minimum, 
call waiting, call forwarding, abbreviated dialing, and three-way 
calling).
    (5) The LEC is able to provide E911 service to all subscribers, when 
requested by the government entity responsible for this service.
    (6) The LEC is able to offer local service with blocked toll access 
to those subscribers who request it.
    (7) The LEC's network is capable of accommodating Internet access at 
speeds of at least 28,800 bits per second (28.8 Kbps) via modem dial-up 
from any subscriber location.
    (8) There is an absence of frequent service interruptions.
    (9) The LEC is interconnected with the public switched network.
    (10) No Federal or State regulatory commission having jurisdiction 
has determined that the quality, availability, or reliability of the 
service provided is inadequate.
    (11) Services are provided at reasonably affordable rates.
    (12) Any other criteria the Administrator determines to be 
applicable to the particular case.
    (d) RUS shall consider the following criteria for any of mobile 
telecommunications service in determining whether such service is 
reasonably adequate:
    (1) The extent to which area coverage is being provided as described 
in 7 CFR 1735.11.
    (2) Clear and reliable call transmission is provided with sufficient 
channel availability.
    (3) The mobile telecommunications service signal strength is at 
least

[[Page 312]]

-85dBm (decibels expressed in miliwatts).
    (4) The mobile telecommunications service is interconnected with the 
public switched network.
    (5) Mobile 911 service is available to all subscribers, when 
requested by the local government entity responsible for this service.
    (6) No Federal or State regulatory commission having jurisdiction 
has determined that the quality, availability, or reliability of the 
service provided is inadequate.
    (7) Mobile telecommunications service is not provided at rates which 
render the service unaffordable to a significant number of rural 
persons.
    (8) Any other criteria the Administrator determines to be applicable 
to the particular case.
    (e) RUS does not consider mobile telecommunications service a 
duplication of existing wireline local exchange service or similar 
fixed-station voice service. RUS may finance mobile telecommunications 
systems designed to provide eligible services in rural areas under the 
Rural Electrification Act even though the services provided by the 
system may incidentally overlap services of existing mobile 
telecommunications providers.
    (f) RUS shall consider the following criteria for any provider of a 
specialized telecommunications service in determining whether such 
service is reasonably adequate:
    (1) The provider of a specialized telecommunications service is 
providing area coverage as described in Sec. 1735.11.
    (2) An adequate signal strength is provided throughout the largest 
practical portion of the service area.
    (3) There is an absence of frequent service interruptions.
    (4) The quality and variety of service provided is comparable to 
that provided in nonrural areas.
    (5) The service provided complies with industry standards.
    (6) No Federal, State, or local regulatory commission having 
jurisdiction has determined that the quality, availability, or 
reliability of the service provided is inadequate.
    (7) Services are provided at reasonably affordable rates.
    (8) Any other criteria the Administrator determines to be applicable 
to the particular case.

[54 FR 13351, Apr. 3, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, 
as amended at 65 FR 42619, July 11, 2000; 65 FR 54403, Sept. 8, 2000]



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

[[Page 313]]

areas, the loan may include funds to finance the acquisition.
    (3) When a system is being converted to modern service for rural 
subscribers, the loan may include funds for the conversion of the 
nonrural facilities, if the rural service will be improved as a result 
of such nonrural improvements and it is impractical to finance and serve 
the nonrural and rural areas separately.
    (4) A loan may include funds to serve nonrural subscribers located 
in community centers frequently called by the rural subscribers if the 
construction to serve such nonrural subscribers will be incidental to, 
and contribute substantially to, the provision of adequate service for 
the rural subscribers.
    (d) RUS may also approve financing for facilities to serve nonrural 
areas if, at the time financing was first approved by RUS:
    (1) The nonrural area had a population of 1,500 or less when first 
financed by RUS and that financing was approved prior to November 1, 
1993; or
    (2) The nonrural area had a population of 5,000 or less when first 
financed by RUS and that financing was approved on or after November 1, 
1993.

[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:
    (1) Must have sufficient authority to carryout the purposes of the 
RE Act; and
    (2) Must be incorporated or a limited liability company.

[58 FR 66253, Dec. 20, 1993, as amended at 64 FR 50429, Sept. 17, 1999; 
65 FR 42619, July 11, 2000]



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 provide service other than 1-party; and
    (4) System designs or facilities to provide service that cannot 
withstand or are not designed to minimize damage caused by storms and 
other natural catastrophes, including, but not limited to hurricanes, 
floods, tornadoes,

[[Page 314]]

mudslides, lightning, windstorms, hail, fire, and smoke, unless an 
alternate design or facility for modern telecommunications is more 
economically or technically feasible. Economic and technical feasibility 
will be determined using total long range economic costs and risk 
analysis.
    (d) Generally, RUS will not make a loan to another entity to provide 
the same telecommunications service in an area served by an incumbent 
RUS telecommunications borrower providing such service. RUS may, 
however, consider an application for a loan to provide the same type of 
service being provided by an incumbent RUS borrower if the Administrator 
determines that the incumbent borrower is unable to meet its obligations 
to the government, including the obligation to provide service set forth 
in its loan documents and to repay its loans.
    (e) If an unadvanced loan, or portion thereof, is rescinded, a new 
loan shall not be made for the same purposes as in the rescinded loan, 
except as provided in 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; 62 FR 46870, Sept. 5, 1997; 
65 FR 42619, July 11, 2000]



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. 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]

[[Page 315]]



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. In addition, RUS considers 
a system to be feasible only if the system, in addition to being 
feasible in all other respects, is year 2000 compliant or if the 
borrower provides RUS with a certification, satisfactory to RUS, that 
the system will be year 2000 compliant at a reasonable time before 
December 31, 1999. Year 2000 compliant means that product performance 
and function are not affected by dates before, during, and after the 
year 2000.
    (f) For purposes of determining compliance with TIER requirements, 
unless a borrower whose existing mortgage contains TIER maintenance 
requirements notifies RUS in writing differently, RUS will apply the 
requirements described in paragraph (g) of this section to the borrower 
regardless of the provisions of the borrower's existing mortgage.
    (g) For loans approved after October 6, 1997 loan contracts and 
mortgages covering hardship loans, RUS cost-of-money loans, RTB loans, 
and guaranteed loans will 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 at least 1.0 
and not greater than 1.5.
    (h) Nothing in this section shall affect any rights of supplemental 
lenders under the RUS mortgage, or other creditors of the borrower, to 
limit a borrower's TIER requirement to a level above that established in 
paragraph (g) of this section.
    (i) A borrower will not be required to raise its TIER as a condition 
for receiving a loan. Additional financial, investment, and managerial 
controls appear in the loan contract and mortgage required by RUS.

[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; 62 
FR 46870, Sept. 5, 1997; 63 FR 45678, Aug. 27, 1998]



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:

[[Page 316]]

    (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:
    (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

[[Page 317]]

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 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

[[Page 318]]

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) Generally, no more than 10 percent of lending authority from 
appropriations in any fiscal year for RUS cost-of-money and RTB loans 
may be loaned to a single borrower. RUS will publish by notice in the 
Federal Register the dollar limit that may be loaned to a single 
borrower in that particular fiscal year based on approved RUS and RTB 
lending authority.
    (e) 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.
    (f) Concurrent RUS cost-of-money and RTB loans may be made 
simultaneously with hardship loans or guaranteed loans.

[58 FR 66255, Dec. 20, 1993, as amended at 62 FR 46870, Sept. 5, 1997]



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 a projected TIER (including the proposed loan or loans) of at least 
1.2 as determined by the feasibility study prepared in connection with 
the loan. In addition, a borrower must meet all requirements set forth 
in the regulations applicable to a loan made by RUS with the exception 
that it is not required to participate in a state telecommunications 
modernization plan and is not subject to a subscriber per mile 
eligibility requirement, as provided in 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. RUS will, however, consider loan guarantees for borrowers with a 
net worth less than 20 percent.
    (d) Full amount guaranteed. Loans are guaranteed in the full amount 
of principal and interest. Because of the Government's full faith and 
credit 100 percent guarantee of these loans, only RUS obtains a mortgage 
on the borrower's assets.

[[Page 319]]

    (e) Federal Register notice. After RUS has reviewed an application 
and determined that it shall consider guaranteeing a loan for the 
proposed project and if the borrower has not specified that the loan be 
made from the FFB, RUS shall publish a notice in the 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.
    (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

[[Page 320]]

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; 62 FR 46870, Sept. 5, 1997]



Sec. 1735.33  Variable interest rate loans.

    After June 10, 1991, and prior to November 1, 1993, RUS made certain 
variable rate loans at interest rates less than 5 percent but not less 
than 2 percent. For those borrowers that received variable rate loans, 
this section describes the method by which interest rates are adjusted. 
The interest rate used in determining feasibility is the rate charged to 
the borrower until the end of the Forecast Period for that loan. At the 
end of the Forecast Period, the interest rate for the loan may be 
annually adjusted by the Administrator upward to a rate not greater than 
5 percent, or downward to a rate not less than the rate determined in 
the feasibility study on which the loan was based, based on the 
borrower's ability to pay debt service and maintain a minimum TIER of 
1.0. Downward and upward adjustments will be rounded down to the nearest 
one-half or whole percent. To make this adjustment, projections set 
forth in the loan feasibility study will be revised annually by RUS 
(beginning within four months after the end of the Forecast Period) to 
reflect updated revenue and expense factors based on the borrower's 
current operating condition. Any such adjustment will be effective on 
July 1 of the year in which the adjustment was determined. If the 
Administrator determines that the borrower is capable of meeting the 
minimum TIER requirements of Sec. 1735.22(f) at a loan interest rate of 
5 percent on a loan made as described in this section, then the loan 
interest rate shall be fixed, for the remainder of the loan repayment 
period, at the standard interest rate of 5 percent.

[62 FR 46870, Sept. 5, 1997]



Secs. 1735.34-1735.39  [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) Except as described in this paragraph (a), RUS loans approved 
after October 6, 1997 must be repaid with interest within a period that, 
rounded to the nearest whole year, equals the expected composite 
economic life of the facilities to be financed, as calculated by RUS; 
expected composite economic life means the depreciated life plus three 
years. The expected composite economic life shall be based on the 
depreciation rates for the facilities financed by the loan. In states 
where the borrower must obtain state regulatory commission approval of 
depreciation rates, the depreciation rates used shall be the rates 
currently approved by the state commission or rates for which the 
borrower has received state commission approval. In cases where a state 
regulatory commission does not approve depreciation rates, the expected 
composite economic life shall be

[[Page 321]]

based on the most recent median depreciation rates published by RUS for 
all borrowers (see 7 CFR 1737.70). Borrowers may request a repayment 
period that is longer or shorter than the expected composite economic 
life of the facilities financed. If the Administrator determines that a 
repayment period based on the expected composite economic life of the 
facilities financed is likely to cause the borrower to experience 
hardship, the Administrator may agree to approve a period longer than 
requested. A shorter period may be approved as long as the Administrator 
determines that the loan remains feasible.
    (b) Borrowers with RTB loans approved after October 6, 1997 with a 
maturity that exceeds the expected 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 establishing and maintaining, 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. 
Funding of the reserve must begin within one year of approval of release 
of funds and must continue regularly over the expected composite 
economic life of the facilities financed.
    (c) Borrowers that have demonstrated to the satisfaction of the 
Administrator an inability to maintain the funded reserve or net plant 
to secured debt ratio requirements, if any, contained in their mortgage, 
may elect to replace notes with an original maturity that exceeded the 
composite economic life of the facilities financed with notes bearing a 
shorter maturity approximating the expected composite economic life of 
the facilities financed, if this will result in a shorter maturity for 
the loan. The principal balance of the notes (hereinafter in this 
section called the ``refunding notes'') issued to refund and substitute 
for the original notes would be the unpaid principal balance of the 
original notes. The refunding notes would mature at a date no later than 
the remaining economic life of the facilities financed by the loan, plus 
three years, as determined by the original feasibility study prepared in 
connection with the loan. Interest on the original note must continue to 
be paid through the closing date. All other payment terms, including the 
rate of interest on the refunding notes, would remain unchanged. 
Disposition of funds in the funded reserve will be determined by RUS at 
the closing date. RUS will notify the borrower in writing of the 
amendment of loan payment requirements and the terms and conditions 
thereof.
    (d) A borrower qualifying under paragraph (c) of this section shall 
not be required to pay a prepayment premium on such portion of the 
payments under its new notes as exceeds the payments required under the 
notes being replaced.
    (e) To apply for refunding notes, borrowers must send to the Area 
Office the following:
    (1) A certified copy of a board resolution requesting an amendment 
of loan payment requirements and that certain notes be replaced;
    (2) If applicable, evidence of approval by the regulatory body with 
jurisdiction over the telecommunications service provided by the 
borrower to issue refunding notes; and
    (3) Such other documents as may be required by the RUS.
    (f) 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, as amended at 62 FR 46871, Sept. 5, 1997]

[[Page 322]]



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) Loan security documents of borrowers with loans approved after 
October 6, 1997 will provide limits on allowable cash distributions in 
any calendar year as follows:
    (1) No more than 25 percent of the prior calendar year's net 
earnings or margins if the borrower's net worth is at least 1 percent of 
its total assets after the distribution is made;
    (2) No more than 50 percent of the prior calendar year's net 
earnings or margins if the borrower's net worth is at least 20 percent 
of its total assets after the distribution is made;
    (3) No more than 75 percent of the prior calendar year's net 
earnings or margins if the borrower's net worth is at least 30 percent 
of its total assets after the distribution is made; or
    (4) No limit on distributions if the borrower's net worth is at 
least 40 percent of its total assets after the distribution is made.
    (c) Borrowers that have not received a loan after October 6, 1997 
may request the Administrator to apply these requirements to them. 
Borrowers may request in writing that RUS substitute the new 
requirements described in paragraphs (b)(1) through (b)(4) of this 
section. Upon request by the borrower, the provisions of the borrower's 
loan documents restricting cash distributions or investments shall not 
be enforced to the extent that such provisions are inconsistent with 
this section.
    (d) Rural development investments meeting the criteria set forth in 
7 CFR part 1744, subpart D, will not be counted against a borrower's 
allowable cash distributions in any calendar year (7 U.S.C. 926).
    (e) References to a borrower's mortgage in this section include 
deeds of trust and any other loan document applying the same 
requirements to a borrower.
    (f) This section does not limit the rights of any parties to the 
mortgage other than RUS or RTB.

[54 FR 13351, Apr. 3, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, 
as amended at 59 FR 29537, June 8, 1994; 62 FR 46871, Sept. 5, 1997]



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:

[[Page 323]]

    (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.
    (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]

[[Page 324]]



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 contains certain provisions 
concerning mergers and acquisitions:
    (1) Article II, section 4(a) requires the borrower to obtain the 
written approval of the majority noteholders before taking any action to 
reorganize, or to consolidate with or merge into any other corporation.
    (2) Article II, section 4(b), if made applicable, provides certain 
exceptions to the requirements of section 4(a).
    (b) Similar provisions are contained in other forms of documents 
executed by borrowers that have not entered into the standard form of 
mortgage.
    (c) Mortgages and loan contracts may contain other provisions 
concerning mergers and acquisitions.

[54 FR 14626, Apr. 12, 1989. Redesignated at 55 FR 39395, Sept. 27, 
1990, as amended at 62 FR 46871, Sept. 5, 1997]



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:
    (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.

[[Page 325]]

    (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.
    (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.

[[Page 326]]



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.
    (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.

[[Page 327]]

    (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 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 of an affiliate.

[54 FR 14626, Apr. 12, 1989. Redesignated at 55 FR 39395, Sept. 27, 
1990, as amended at 62 FR 46871, Sept. 5, 1997]



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

[[Page 328]]

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.
    (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

[[Page 329]]

    (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 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

[[Page 330]]

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 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 INSURED AND GUARANTEED TELECOMMUNICATIONS 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]

[[Page 331]]

                    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., 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.



                           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.
    (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.

[[Page 332]]

    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 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]

[[Page 333]]



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.
    (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

[[Page 334]]

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).
    (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

[[Page 335]]

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 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

[[Page 336]]

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 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

[[Page 337]]

RUS review and approval after loan approval, but before staking is 
started and plans and specifications are prepared. By scheduling 
preparation of the outside plant design closer to preparation for 
construction, the need for redesign resulting from changing conditions 
and its attendant costs are reduced.
    (e) Guidelines on preparing an LD are provided in RUS 
Telecommunications Engineering and Construction Manual section 205.
    (f) The LD shall include a narrative, several exhibits, and a 
certification, as explained below:
    (1) Narrative. This section discusses the following topics, as 
appropriate.
    (i) General. The purposes and amount of the proposed construction 
and both immediate and long range plans must be covered. The source and 
amount of any nonloan funds to be used for this construction must be 
discussed.
    (ii) Subscriber data. The basis for the subscriber forecast, 
including any unusual factors expected to influence growth, must be 
discussed. Reasons for growth projections which vary from historic 
trends must be explained.
    (iii) Proposed construction. All proposed construction must be 
described fully. Reference to the BER must be made here.
    (iv) Service area. For subsequent loans only, proposed construction 
which is not within the boundaries of prior loan projects must be 
discussed. New areas to be served (even if from existing exchanges) must 
be shown on maps submitted with the proposal.
    (v) Toll and EAS. Proposed new toll or extended area service (EAS) 
facilities, including any changes from the existing trunking 
arrangements, must be described fully. Minutes of meetings and 
correspondence with connecting companies, and connecting company 
concurrences, if any, must be included.
    (vi) Radio telephone service. Proposed radio telephone service must 
be discussed. Results of studies demonstrating demand and/or need most 
be included as an exhibit.
    (vii) Special projects. Facilities involving investment in excess of 
$100,000 for any single subscriber must be discussed fully. Contractual 
arrangements with the subscriber, including a termination agreement 
providing for (A) the full recovery by the borrower of its capital costs 
of the facilities no later than the maturity date of the note 
representing the loan, (B) the immediate repayment of all remaining 
capital costs, if terminated, and (C) repayment to RUS of the 
outstanding amount of the special note shall be submitted. Usually a 
separate short-term note is prepared for loans to finance Special 
Projects.
    (viii) Investment in nonrural areas.(A) For initial loans, or loans 
for areas not previously financed by RUS, the borrower must fully 
discuss proposed improvements or expansions in an exchange serving a 
community over 5,000 population. The name of the community, the number 
of existing and projected new subscribers by grades of service within 
the community, detailed cost estimates of the facilities involved, and 
information sufficient to establish the necessity for the use of loan 
funds must be provided.
    (B) For subsequent loans, the borrower must fully discuss as 
specified in paragraph (f)(1)(viii)(A) of this section proposed 
improvements or expansions in an exchange serving a community over 5,000 
population which had a population of more than 5,000 at the time the 
facilities to serve the community were first financed by RUS. The 
population determination is based on the corporate limits or boundaries 
of unincorporated areas in existence at the time the facilities to serve 
the community were first financed by RUS.
    (C) For subsequent loans, the borrower shall state whether the 
population of a community, which is currently more than 5,000, was 
considered rural at the time RUS first financed the facilities to serve 
the community. Detailed cost estimates are not required if the 
population was considered rural at the time RUS first financed 
facilities to serve the community, see 7 CFR 1735.13(d).
    (ix) Prior loan project. For subsequent loans only, the reason for 
and amount of additional loan funds needed to complete construction in 
progress which was part of a prior loan project in central office areas 
not included in the current LD must be discussed fully.

[[Page 338]]

    (x) Route miles. Route miles of outside plant in central office 
areas not shown on RUS Form 495 must be provided.
    (xi) Future plans. Where the loan application is to finance part of 
a system-wide upgrading plan, plans for those remaining exchanges not 
included in the current loan proposal must be discussed.
    (2) Exhibits. (i) An RUS Form 569, ``Area Coverage Survey Report,'' 
or its equivalent shall be included for the total system and for each 
exchange in which system improvements or additions are proposed.
    (ii) An RUS Form 495, ``Construction Cost Estimates,'' or its 
equivalent shall be prepared for each exchange in which system 
improvements or additions are proposed. An explanation of the method 
used in developing these cost estimates must be included.
    (iii) RUS Form 494, ``Loan Design Summary,'' or its equivalent shall 
be prepared for each loan. This must show all expected 5-year 
construction costs, loan and nonloan.
    (iv) A schematic trunking diagram shall be included showing the 
number and type, length, ownership and makeup of existing and proposed 
toll and EAS trunks, plus transmission and traffic data for each trunk 
group.
    (v) Detailed outside plant design maps must be submitted for all 
central office areas of initial loan applicants and for areas not 
previously served by existing borrowers or financed by RUS. These design 
maps must be in sufficient detail to substantiate the construction cost 
estimates.
    (vi) For subsequent loans only, if a change in system boundaries is 
proposed, a map must be furnished showing present and proposed 
boundaries, and existing establishments and subscribers in the new 
areas.
    (vii) Any other special exhibits needed to support particular items 
in the loan proposal must be included.
    (3) Certification. The following certification shall be signed by a 
principal of the engineering firm and the borrower:

    We, the undersigned, certify that the data in this Loan Design are 
correct to the best of our knowledge and belief and reasonably reflect 
the cost to serve the subscribers as proposed on the Forms 569, ``Area 
Coverage Survey Report,'' which are integral parts hereof, and that this 
Loan Design adheres to RUS engineering and construction standards and 
practices.

    (g) The RUS field representative shall review and make a 
recommendation on each LD.
    (1) After completion of the LD, the borrower arranges a meeting with 
its engineer and RUS's field representative to review:
    (i) Design and cost estimates.
    (ii) Reserves available from prior loans, if any, or internally 
generated funds which may be applied against the requirements of the 
current application.
    (2) One copy of RUS Form 567, ``Checklist for Review of Loan 
Design,'' completed and signed by the borrower's engineer must be 
attached to the LD submitted to the RUS field representative.
    (3) The RUS field representative recommends acceptance of the LD as 
the basis for RUS financing.
    (4) Three copies of the final LD with the RUS field representative's 
recommendation are then sent to the relevant Area Office in RUS. A 
fourth copy is retained by the RUS field representative.
    (5) A transmittal letter from the borrower must accompany the LDs, 
requesting that the application previously submitted be amended so as to 
be consistent with the approved LD.
    (6) Final approval of the LD is given by the relevant Area Office in 
RUS. To be approved, the LD must be cost effective, include appropriate 
technology, and provide area coverage.
    (7) Upon receipt of the LD and any other required information, RUS 
makes a preliminary analysis of the loan proposal. Before final 
consideration of the loan, RUS reviews the results of its preliminary 
analysis with the borrower.

(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]

[[Page 339]]



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:
    (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-

[[Page 340]]

13, 382-1, 382-2, 382-3, 383-1, 383-4, 384-1, 384-2, 384-3, 385-1, 385-
2, 385-3, 385-4, 385-5, 385-6, 387-1, 387-2, 387-3, 387-4, and 387-5) 
except for the following:
    (1) All sellers and contractors invited to bid must be informed that 
funds from sources other than RUS will be used to pay for construction.
    (2) Contracts involving the interim construction must contain a 
provision, in form and substance satisfactory to RUS, stating that RUS 
is not committed to lend or advance funds to finance the project.
    (3) Contracts will not be approved by RUS until the borrower 
demonstrates to RUS's satisfaction that funds from sources other than 
RUS will be available when needed to pay invoices submitted in 
accordance with contract payment terms.
    (4) The borrower shall not begin interim construction until all 
necessary licenses, permits, and other governmental approvals have been 
obtained.
    (b) After RUS loan funds are released, the borrower can obtain 
reimbursement for interim financing by submitting a Financial 
Requirement Statement. See 7 CFR Part 1744, subpart C (or RUS Bulletin 
327-1).
    (1) The first advance of loan funds to a borrower that has received 
interim financing approval generally will be limited to funds to repay 
any interim financing indebtedness and such additional amounts as RUS 
deems necessary. RUS will make no further advances of loan funds until 
the borrower has submitted evidence, in form and substance satisfactory 
to the Administrator, that (i) any indebtedness created by the interim 
financing and any liens associated therewith have been fully discharged 
of record and (ii) the borrower has satisfied all other conditions on 
the advance of additional loan funds.
    (2) If the source of funds for interim financing is the borrower's 
internally generated funds, the borrower may request reimbursement of 
those funds along with advances for other purposes on the first 
Financial Requirement Statement.

[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

[[Page 341]]

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, 
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

[[Page 342]]

costs between rural and nonrural areas. This allocation will be used to 
determine whether the use of loan funds in nonrural areas is necessary 
and incidental to furnishing and improving telephone service in rural 
areas. Cost estimates shall be provided by the borrower in the LD. See 
subpart D of this part. RUS will use the following method to review the 
cost breakdowns and to determine their appropriateness:
    (1) The costs of facilities associated directly with particular 
subscribers shall be allocated to those subscribers.
    (2) The costs of facilities that serve both rural and nonrural 
subscribers shall be allocated based on the relative number of rural and 
nonrural subscribers receiving service from those facilities.
    (3) When a borrower's exchange that includes a nonrural community 
will have an extended area of service (EAS) with other exchanges of the 
borrower, the breakdown of subscribers and funds in the allocation for 
rural and nonrural areas included in the proposed loan shall show the 
number of rural and nonrural subscribers and the costs to serve each 
group, as determined per paragraphs (a)(1) and (a)(2) of this section, 
in the subject exchange and in all exchanges connected by EAS.
    (b) If RUS determines that costs cannot be adequately allocated 
using the procedures in paragraphs (a)(1) through (a)(3) of this 
section, RUS shall, on a case by case basis, allocate costs between the 
rural and nonrural subscribers using whatever methodology it deems 
reasonable. All allocations in paragraphs (a) and (b) of this section 
shall be documented.



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) [Reserved]
    (e) Depreciation expense will be determined using depreciation rates 
appropriate to the normal operation of the borrower, based on:
    (1) The borrowers regulatory body approved depreciation rates; and
    (2) Where such rates as described in paragraph (e)(1) of this 
section do not exist for items which the borrower is seeking financing, 
the most recent median depreciation rates published by RUS for all 
borrowers. RUS will publish such depreciation rates annually in RUS's 
``Statistical Report, Rural Telephone Borrowers.''
    (f) Projected scheduled debt service payments will generally be 
based on all

[[Page 343]]

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; 62 
FR 46872, Sept. 5, 1997]



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'' 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]

[[Page 344]]



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:
    (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.

[[Page 345]]


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).
    (b) [Reserved]

[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 1738--RURAL BROADBAND ACCESS LOANS AND LOAN GUARANTEES--Table of 
Contents



                           Subpart A--General

Sec.
1738.1  General statement.
1738.2  Definitions.
1738.3-1738.9  [Reserved]

               Subpart B--Loan Purposes and Basic Policies

1738.10  General.
1738.11  Availability of broadband service.
1738.12  Location of facilities.
1738.13  Allocation of funds.

[[Page 346]]

1738.14  One-time priority for unfunded applications from the broadband 
          pilot program.
1738.15  Priorities.
1738.16  Eligible entities.
1738.17  Civil rights.
1738.18  Minimum and maximum loan amount.
1738.19  Facilities financed.
1738.20  Credit support requirement.
1738.21  Interim financing.
1738.22  Loan security.
1738.23-1738.29  [Reserved]

                        Subpart C--Types of Loans

1738.30  Rural broadband access loans and loan guarantees.
1738.31  Full faith and credit.
1738.32-1738.39  [Reserved]

                        Subpart D--Terms of Loans

1738.40  General.
1738.41  Payments on loans.
1738.42-1738.49  [Reserved]

    Authority: Pub. L. 107-171, 7 U.S.C. 901 et seq.

    Source: 68 FR 4867, Jan. 30, 2003, unless otherwise noted



                           Subpart A--General



Sec. 1738.1  General statement.

    (a) This part sets forth the general policies, types of loans and 
loan guarantees, and program requirements under the Rural Broadband 
Access Loan and Loan Guarantee Program to provide funds for the costs of 
the construction, improvement, and acquisition of facilities and 
equipment for broadband service in eligible rural communities.
    (b) Additional information regarding the Rural Broadband Access Loan 
and Loan Guarantee Program can be found in RUS Bulletin 1738-1, ``Rural 
Broadband Access Loan and Loan Guarantee Application Guide'' and RUS 
Bulletin 1738-2, ``Rural Broadband Access Loan and Loan Guarantee 
Advance and Construction Procedures Guide''.
    (c) When reference is made in this part to existing RUS regulations, 
an applicant or borrower under this part will follow the requirements 
applicable to an RUS telecommunications borrower.



Sec. 1738.2  Definitions.

    As used in this part:
    Acquisition means the purchase of operating broadband facilities or 
another broadband system whether by acquiring broadband facilities or 
equipment, or majority stock interest of one or more organizations.
    Administrator means the Administrator of the Rural Utilities 
Service, or his or her designee.
    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 applicant.
    Applicant means an eligible entity requesting approval of a loan or 
loan guarantee under this part.
    Borrower means any organization that has an outstanding loan made or 
guaranteed by RUS.
    Broadband pilot program means that program implemented through 
Notices of Funds Availability, published in the Federal Register at 65 
FR 75920 and at 67 FR 3140.
    Broadband service means any technology identified by the 
Administrator as having the capacity to transmit data to enable a 
subscriber to the service to originate and receive high-quality voice, 
data, graphics, and video. To qualify as broadband, the project must 
offer data transmission services, and may provide voice, graphics, 
video, and other services. At the beginning of each fiscal year, RUS 
will publish a notice in the Federal Register defining the minimum rate-
of-data transmission criteria to qualify as broadband service during 
that fiscal year's funding period.
    Composite economic life 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.
    Economic life means the estimated useful service life of an asset as 
determined by RUS.
    Eligible rural community means any incorporated or unincorporated 
place in 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) that:

[[Page 347]]

    (1) Has no more than 20,000 inhabitants based on the most recent 
available population statistics of the Bureau of the Census and
    (2) Is not located in an area designated as a standard metropolitan 
statistical area. For purposes of this part, ``place'' may include any 
area located outside the boundaries of any incorporated or 
unincorporated city, village or borough having a population exceeding 
20,000 that is not within an area designated as a standard metropolitan 
statistical area.
    Feasibility study means the pro forma financial analysis prepared by 
the applicant, and acceptable to RUS, to determine the economic 
feasibility of a loan.
    Fiscal year means the fiscal year of the federal government.
    Forecast period means the time period beginning on the date (base 
date) of the applicant's balance sheet used in preparing the feasibility 
study and ending on a date equal to the base date plus the number of 
years estimated in the feasibility study for completion of the 
construction covered by the loan. Feasibility projections are usually 
for 5 years.
    Initial loan means the first loan made under section 601 of the RE 
Act to each eligible entity.
    Interim construction means the construction, improvement, or 
acquisition of facilities and equipment prior to loan approval and 
release of funds.
    Interim financing means funding for a project that RUS has 
acknowledged could be included in a loan prior to approving the loan.
    Loan means any loan made or guaranteed under this part by RUS, 
unless otherwise noted.
    Loan contract means the loan agreement between RUS and the borrower, 
including all amendments thereto.
    Loan documents means the loan contract, note, and security 
instrument between the borrower and RUS and any associated document 
pertaining to a loan.
    Loan funds means funds provided pursuant to a loan made or 
guaranteed under this part by RUS.
    Mortgage means the security document between the borrower, as 
debtor, and RUS, as creditor, including any amendments and supplements 
thereto.
    Private loan guarantee means a loan made by a non-Federal lender and 
guaranteed by RUS.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Release of funds means a determination by RUS that an applicant has 
complied with all of the conditions prerequisite to the advance of funds 
as set forth in the loan contract.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture, and successor to the Rural 
Electrification Administration.
    RUS telecommunications borrower means any organization that has an 
outstanding telecommunications loan made or guaranteed by RUS under 
Titles II, III, or IV of the RE Act.
    Service area means the geographical area within which the applicant 
proposes to make broadband service available with a loan provided under 
this part.
    Telecommunications means the transmission and reception of voice, 
data, sounds, signals, pictures, writings, or signs of all kinds, by 
wire, fiber, radio, light, or other visual or electromagnetic means.
    TIER means Times Interest Earned Ratio. TIER is the ratio of an 
applicant's net income (after taxes) plus interest expense, all divided 
by interest expense. 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.



Secs. 1738.3-1738.9  [Reserved]



               Subpart B--Loan Purposes and Basic Policies



Sec. 1738.10  General.

    (a) The purpose of the Rural Broadband Access Loan and Loan 
Guarantee Program is to provide loans to provide funds, on a technology 
neutral basis, for the costs of construction, improvement, and 
acquisition of facilities and equipment for broadband service in 
eligible rural communities.

[[Page 348]]

    (b) The proceeds of any loan made under this part may be used to 
refinance an outstanding obligation on another telecommunications loan 
made or guaranteed under the RE Act if the use of the proceeds will 
further the construction, improvement, or acquisition of facilities in 
eligible rural communities.
    (1) Funds used for refinancing may not constitute more than 40 
percent of the loan. The remainder of the proceeds shall only be used 
for the construction or improvement of facilities and equipment for 
broadband services.
    (2) In calculating the expected composite economic life under 
Sec. 1738.41 of this part, the economic life of any loan refinanced 
under this section will be based on the remaining economic life of the 
assets underlying that loan.
    (c) RUS will not assess fees or charges for any loan made under this 
part.
    (d) Loans will only be made under this part if the applicant's 
financial operations, taking into account the impact of the facilities 
financed with the proceeds of the loan and the associated debt, are 
economically feasible, as determined by RUS.

[68 FR 4867, Jan. 30, 2003; 68 FR 8989, Feb. 27, 2003]



Sec. 1738.11  Availability of broadband service.

    (a) As provided in Sec. 1738.15 of this part, priority will be given 
to loans to finance service to eligible rural communities in which 
broadband service is not available to residential customers in the 
applicant's proposed service area.
    (b) RUS shall consider the following criteria in determining whether 
broadband service is not available to residential customers:
    (1) Broadband service is not being provided to residential customers 
in the applicant's proposed service area and no entity is committed to 
provide such service before the service would reasonably be expected to 
be available pursuant to the loan application;
    (2) Broadband service is not provided at rates comparable to those 
of similar services in neighboring urban and suburban areas, as 
determined by RUS; and
    (3) The quality of existing service, including, but not limited to, 
the availability of specified data rates, system latency, and data rate 
restrictions, is not satisfactory as determined by RUS.
    (c) All applicants, as part of submitting a completed application, 
shall:
    (1) Certify to RUS the extent to which paragraphs (b)(1) through 
(b)(3) of this section, apply to residential customers in the proposed 
service area, and
    (2) Publish legal notice stating the applicant's intent to offer 
broadband service in a particular community.
    (i) The notice must set forth the applicant's proposed service area, 
and request any incumbent broadband service provider to submit to RUS 
within 30 days:
    (A) The number of residential customers receiving broadband service 
in the applicant's proposed service area, the rates of data 
transmission, and the cost of each level of service, or proof of 
commitment to provide service in the proposed service area, and
    (B) A map of its service territory.
    (ii) The notice must satisfy all other requirements to constitute 
legal notice within the areas proposed to be served.
    (iii) The notice must be published in state and local newspapers 
covering the applicant's proposed service area if such publication is 
not included in the legal notice requirement.



Sec. 1738.12  Location of facilities.

    RUS will make broadband loans for facilities which RUS determines 
are necessary to serve subscribers located in eligible rural 
communities. RUS may determine that it is necessary for facilities 
financed with loan funds to be located outside of eligible rural 
communities.



Sec. 1738.13  Allocation of funds.

    (a) On October 1, of each fiscal year, or as soon as possible after 
funds become available, RUS will:
    (1) Establish a national reserve for broadband loans, and
    (2) Allocate amounts in the reserve to each State, territory, and 
insular possession, based on the ratio of the number of communities with 
a population of 2,500 inhabitants or less in the state, territory, and 
insular possession

[[Page 349]]

to the number of communities with a population of 2,500 inhabitants or 
less in all states, territories, and insular possessions. Population 
will be based upon the Bureau of the Census' latest decennial census.
    (b) To be considered eligible for funding from the State reserve 
during the fiscal year, an application, determined by RUS to be 
complete, must be postmarked no later than January 31 of the fiscal 
year.
    (c) On April 1 of each fiscal year, RUS will return all unobligated 
amounts in each state's reserve to the national reserve and will make 
the national reserve available to eligible entities in any state.
    (d) To be considered eligible for funding from the national reserve 
during the current fiscal year, a completed application, satisfactory to 
RUS, must be postmarked no later than July 31 of the fiscal year.
    (e) Completed applications that are economically and technically 
feasible, as determined by RUS, will be considered for funding in 
accordance with the priority requirements set forth in Sec. 1738.15 of 
this part.



Sec. 1738.14  One-time priority for unfunded applications from the 
broadband pilot program.

    (a) Each application that was submitted and remains unfunded from 
the broadband pilot program will be given a one-time priority for 
funding for a loan under this part.
    (b) Each applicant will be given 30 days from the date of 
publication of this part in the Federal Register to resubmit a completed 
application in accordance with the provisions of this part.
    (c) Completed applications submitted within the 30-day time-frame 
will be considered for financing:
    (1) First, where broadband service is not available to residential 
customers, as set forth in Sec. 1738.11 of this part.
    (i) Completed applications will be funded on a first-in, first-out 
basis, as long as funds remain available in the applicable state's 
reserve.
    (ii) When the state reserve is not adequate to fund the next 
completed application on a first-in, first-out basis, RUS will consider 
subsequent completed applications for that state for funding on a first-
in, first-out basis. All unfunded, completed applications will be 
carried forward for consideration for funding from the national reserve.
    (2) Second, where broadband service is available to residential 
customers:
    (i) On January 1, 2003, after all new applications submitted under 
this part proposing to provide service where none is available have been 
considered under Sec. 1738.15(b) of this part, all completed 
applications will be considered for funding on a first-in, first-out 
basis, as long as funds remain available in the applicable state's 
reserve.
    (ii) When the state reserve is not adequate to fund the next 
completed application on a first-in, first-out basis, RUS will consider 
subsequent completed applications for that state for funding on a first-
in, first-out basis. All unfunded, completed applications will be 
carried forward for consideration for funding from the national reserve.



Sec. 1738.15  Priorities.

    Subject to the one-time priority set forth in Sec. 1738.14 of this 
part, in making loans under this part, priority will be given to 
eligible entities submitting completed applications for the 
construction, improvement, or acquisition of facilities and equipment 
for broadband service in eligible rural communities as follows:
    (a) As of October 1 of the fiscal year, completed applications 
remaining unfunded from the previous fiscal year where broadband service 
is not available to residential customers, as set forth in 
Sec. 1738.11(b)(1) of this part, will be considered for funding on a 
first-in, first-out basis, as long as funds remain available in the 
applicable state's reserve. When the state reserve is not adequate to 
fund the next completed application on a first-in, first-out basis, RUS 
will consider subsequent completed applications for that state for 
funding on a first-in, first-out basis. All unfunded, completed 
applications will be carried forward for consideration for funding from 
the national reserve.
    (b) New completed applications proposing to provide service where 
none is

[[Page 350]]

available to residential customers, as set forth in Sec. 1738.11 of this 
part, will be considered for funding, from the state reserve prior to 
April 1 and the national reserve after April 1, on a first-in, first-out 
basis, as long as funds remain available. As applications are processed 
using the first-in, first-out process, RUS may expedite for 
consideration for funding applications proposing to provide service 
where none is available, as set forth in Sec. 1738.11(b)(1). When funds 
are not adequate to fund the next completed application on a first-in, 
first-out basis, RUS will consider subsequent completed applications for 
funding on a first-in, first-out basis.
    (c) On January 1, March 30, April 1, July 1 and September 30 of the 
fiscal year, all unfunded, completed applications on hand will be 
prioritized and considered for funding, from the state reserve prior to 
April 1 and the national reserve after April 1, as follows:
    (1) First, where broadband service is not available to residential 
customers, as set forth in Sec. 1738.11(b)(1) of this part, on a first-
in, first-out basis, as long as funds remain available.
    (2) Second, where broadband service is not available to residential 
customers, as set forth in Sec. 1738.11(b)(2) and (3) of this part, on a 
first-in, first-out basis, as long as funds remain available.
    (3) Third, where broadband service is available to residential 
customers, on a first-in, first-out basis, so long as funds remain 
available.



Sec. 1738.16  Eligible entities.

    (a) RUS makes broadband loans to legally organized entities 
providing, or proposing to provide, broadband services in eligible rural 
communities.
    (1) Types of eligible entities include cooperative, nonprofit, 
limited dividend or mutual associations, limited liability companies, 
commercial organizations and Indian tribes and tribal organizations as 
defined in 25 U.S.C. 450b (b) and (c). Individuals or partnerships of 
individuals are not eligible entities.
    (2) An entity is not eligible if it serves more than 2 percent of 
the telephone subscriber lines installed in the United States.
    (3) To be eligible, an entity must have sufficient authority to 
enter into a contract with RUS and to carry out the purposes of the 
proposed loan.
    (b) A State or local government, including any agency, subdivision, 
or instrumentality thereof (including consortia thereof) shall be 
eligible for a broadband loan only if, not later than April 30, 2003, no 
other eligible entity is already offering or has committed to offer 
broadband services to the eligible rural community. RUS will determine 
whether the commitment is sufficient for purposes of this paragraph.



Sec. 1738.17  Civil rights.

    Applicants are required to comply with certain regulations on 
nondiscrimination and equal employment opportunity. See RUS Bulletin 
1790-1, ``Nondiscrimination Among Beneficiaries of RUS Programs'' and 
RUS Bulletin 20-15:320-15, ``Equal Employment Opportunity in 
Construction Financed with RUS Loans''; 7 CFR parts 15 and 15b and 45 
CFR part 90.



Sec. 1738.18  Minimum and maximum loan amount.

    Recognizing plant costs, the applicant's cost of system design, and 
RUS' administrative costs, RUS will not consider applications for loans 
or loan guarantees of less than $100,000. Maximum loan amounts apply 
only to an applicant for a direct 4-percent broadband loan, as provided 
for in Sec. 1738.30(b)(2) of this part.



Sec. 1738.19  Facilities financed.

    (a) RUS makes broadband loans to finance the construction, 
improvement, and acquisition of facilities and equipment to provide 
broadband service in eligible rural communities.
    (b) RUS makes broadband loans to finance broadband facilities leased 
under the terms of a capital lease as defined in generally accepted 
accounting principles. RUS will not make a broadband loan to finance 
facilities leased under the terms of an operating lease as defined in 
generally accepted accounting principles.

[[Page 351]]

    (c) RUS makes broadband loans to finance an acquisition by an 
eligible entity only when the acquisition is necessary and incidental to 
furnishing or improving rural broadband service.
    (d) RUS will not approve the use of broadband loans to acquire any 
stock or any facilities or equipment of an affiliate of the applicant.
    (e) RUS will not make a broadband loan to finance the following 
items:
    (1) Customer terminal equipment (including modems) not owned by the 
applicant during its economic life and any associated inside wiring;
    (2) Vehicles not used primarily in construction; and
    (3) Operating expenses.
    (f) RUS will not make a broadband loan to finance systems or 
facilities that have not been designed and constructed to RUS' 
satisfaction. See RUS' Bulletins 1738-1 and 1738-2.
    (g) Prior to October 1, 2004, RUS will not make a broadband loan 
under this part to provide broadband service in an area receiving local 
exchange telephone service from an RUS telecommunications borrower to 
any entity other than the incumbent RUS telecommunications borrower if, 
not later than 90 days after RUS receives an application proposing to 
provide broadband service in the borrower's local exchange service 
territory, the incumbent RUS telecommunications borrower submits to RUS 
a letter of intent to provide or begin to construct residential 
broadband service in its local exchange service territory prior to 
October 1, 2004. The incumbent RUS telecommunications borrower must 
provide, prior to October 1, 2004, support of their intent to provide 
broadband service through submitting either a loan application to 
construct broadband facilities or proof that construction of broadband 
facilities has begun. Thereafter, unless the RUS telecommunications 
borrower has constructed or begun to construct broadband facilities in 
its service area, RUS will consider an application for a loan under this 
part to provide the broadband service in an area served by an RUS 
telecommunications borrower according to the criteria for determining 
broadband availability in Sec. 1738.11(b) of this part.
    (h) RUS will not approve loans to more than one applicant to provide 
broadband service within the same eligible rural community, nor to an 
applicant proposing to provide service in a community served by a 
borrower using funds under this part regardless of the definition of 
broadband service at the time of loan approval.
    (i) If an unadvanced loan, or a portion thereof, is rescinded, a new 
loan shall not be made to the same applicant for the same purposes as in 
the rescinded loan.



Sec. 1738.20  Credit support requirement.

    (a) To be eligible for a loan, RUS will require an applicant to 
provide credit support in an amount equal to 20 percent of the requested 
loan amount.
    (b) The applicant must have, as part of the minimum 20 percent 
requirement, cash or, in the case of State and local governments, cash 
equivalents in an amount equal to operating expenses for the first full 
year of providing service, as determined by a feasibility study 
satisfactory to RUS. This cash requirement will be waived for applicants 
operating as telecommunications companies which have positive cash flow 
for the two calendar years immediately preceding the date of 
application.
    (c) The remainder of the minimum requirement can be met by 
undepreciated assets which would normally be financed as part of a loan 
under this part, additional cash or cash equivalents, licenses, or an 
unconditional letter of credit, or the equivalent, satisfactory to RUS.
    (d) For purposes of this section, assets and licenses will be valued 
based on the lower of cost or market value, net of liens or other 
obligations of payments for those assets and licenses.



Sec. 1738.21  Interim financing.

    (a) Upon notification by RUS that an applicant's application is 
considered complete, the applicant may enter into an interim financing 
agreement with a lender other than RUS or use its own internally 
generated funds for interim construction.

[[Page 352]]

    (b) For an applicant to preserve the option of obtaining loan funds 
for reimbursement of interim financing, the following procedures must be 
followed:
    (1) Interim construction shall be conducted in accordance with RUS 
Bulletin 1738-2 and 7 CFR part 1788, except that the applicant shall not 
begin interim construction until all necessary licenses, permits, and 
other governmental approvals have been obtained;
    (2) Equal employment opportunity requirements apply to interim 
construction. See RUS Bulletin 20-15: 320-15; and
    (3) Interim construction shall be covered by an Environmental Report 
prepared in accordance with 7 CFR part 1794 and approved by RUS.
    (c) RUS approval of interim financing is not a commitment that RUS 
will make loan funds available.



Sec. 1738.22  Loan security.

    (a) RUS makes loans only if, in the judgment of the Administrator, 
the security therefore is reasonably adequate and the loan will be 
repaid within the time agreed.
    (b) RUS generally requires that an applicant provide RUS with a 
first lien, in form and substance satisfactory to RUS, on all of the 
applicant's property and such additional security as RUS may require. If 
necessary, RUS will share in the first lien with another lender provided 
the RUS loan is adequately secured and will be repaid within the time 
agreed.
    (c) Unless otherwise approved by RUS, the applicant shall purchase 
and own the collateral for the loan free from liens or security 
interests, other than those securing the RUS loan.
    (d) In the case of loans that include the financing of broadband 
facilities that do not constitute self-contained operating systems or 
units, the applicant shall, in addition to the mortgage lien on all of 
the applicant's facilities financed by RUS, furnish adequate assurance, 
in the form of contractual or other arrangements, satisfactory to RUS, 
that continuous and efficient broadband service will be rendered.
    (e) Beginning with the first calendar year following the end of the 
forecast period, RUS will require the recipient of a broadband loan 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 at least 1.25 and not greater than 2.0.
    (f) Additional financial, investment, operational, and managerial 
controls appear in the loan documents required by RUS.



Secs. 1738.23-1738.29  [Reserved]



                        Subpart C--Types of Loans



Sec. 1738.30  Rural broadband access loans and loan guarantees.

    (a) Direct cost-of-money broadband loans shall bear interest at a 
rate (the ``Cost of Money Interest Rate'') equal to the cost of 
borrowing to the Department of Treasury for obligations of comparable 
maturity. The Cost of Money Interest Rate will be provided by RUS when 
the funds are advanced to the borrower.
    (b) Direct 4 percent broadband loan.
    (1) To be eligible for a direct loan bearing an interest rate of 4 
percent, the applicant must be proposing to serve:
    (i) A community that:
    (A) Has a population of less than 2,500 inhabitants;
    (B) Is not currently receiving broadband service as set forth in 
Sec. 1738.11(b)(1) of this part, and
    (C) Is located in a county with per capita personal income that is 
less than or equal to that percent of the national average per capita 
personal income which RUS will publish in the Federal Register at the 
beginning of each fiscal year. County per capita personal income as a 
percent of the national average per capita personal income is published 
by the Bureau of Economic Analysis, U.S. Department of Commerce, at 
http://www.bea.doc.gov/bea/regional/reis/. RUS will use the most recent 
statistics published on October 1 of the fiscal year in which the 
application is deemed complete by RUS; and
    (ii) A service area with a certain maximum population density, 
calculated as the total number of persons in the service area divided by 
the square miles of the service area. The maximum population density 
requirement will be published by RUS in the

[[Page 353]]

Federal Register at the beginning of each fiscal year.
    (2) The total amount of financing made available by RUS, in each 
fiscal year, for direct loans bearing an interest rate of 4 percent and 
the maximum of any one loan will be published by RUS in the Federal 
Register at the beginning of each fiscal year.
    (3) When an approved application exceeds the maximum amount of 4 
percent financing that may be made available to the borrower, a direct 
loan made at 4 percent may be made simultaneously with a ``Cost-of-Money 
Interest Rate'' loan.
    (4) A 4 percent direct loan may be made simultaneously with a Cost-
of-Money Interest Rate loan or a private loan guarantee.
    (c) Private loan guarantees. A private loan guarantee shall bear 
interest at a rate set by the lender consistent with the current 
applicable market rate for a loan of comparable maturity.
    (1) A private loan guarantee is available to any legally organized 
lending agency which includes commercial banks, trust companies, 
mortgage banking firms, insurance companies, and any other institutional 
investor authorized by law to loan money, hereafter referred to as 
``lender''. At the time of application, applicants must provide RUS the 
name of the lender who will be providing the funding and a commitment 
from that lender to provide the funds.
    (i) The lender 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.
    (ii) The lender shall demonstrate to RUS the capability to 
adequately service guaranteed loans. The lender shall also be in good 
standing with its licensing authority and meet the loan making, loan 
servicing, and other requirements of the jurisdiction in which the 
lender makes loans guaranteed under this part.
    (2) The lender selected by the borrower shall provide evidence 
satisfactory to RUS of its qualification under this part, along with the 
name of the authority that supervises such lender.
    (3) The lender may establish charges and fees for the loan provided 
they are not greater than those normally charged other applicants for 
the same type of loan in the ordinary course of business. RUS will not 
guarantee any portion of the loan used to pay lender charges and fees.
    (4) Loans are guaranteed for no more than 80 percent of the amount 
of principal except for those purposes in Sec. 1738.30(c)(3) of this 
part for which RUS will not provide a guarantee. RUS' 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.
    (5) The interest rate must be fixed and must be the same for the 
Guaranteed Loan Amount or the respective Guaranteed Loan Portion Amount 
or the respective Guaranteed-Amount Equivalent, as the case may be, and 
Unguaranteed Loan Amount or the respective Unguaranteed Loan Portion 
Amount or the respective Unguaranteed-Amount Equivalent, as the case may 
be.
    (6) The entire loan will be secured by the same security with equal 
lien priority for the Guaranteed Loan Amount or the respective 
Guaranteed Loan Portion Amount or the respective Guaranteed-Amount 
Equivalent, as the case may be, and Unguaranteed Loan Amount or the 
respective Unguaranteed Loan Portion Amount or the respective 
Unguaranteed-Amount Equivalent, as the case may be. The Unguaranteed 
Loan Amount or the respective Unguaranteed Loan Portion Amount or the 
respective Unguaranteed-Amount Equivalent, as the case may be, will 
neither be paid first nor given any preference or priority over the 
Guaranteed Loan Amount or the respective Guaranteed Loan Portion Amount 
or the respective Guaranteed-Amount Equivalent, as the case may be.
    (7) All loan documents, including, but not limited to, a loan 
guarantee agreement between RUS and the lender, the loan note guarantee, 
the guaranteed loan note, and the mortgage will be prepared by RUS. 
Contact RUS for copies of forms of the loan documents. The guaranteed 
loan agreement between

[[Page 354]]

the borrower and the lender shall be subject to RUS approval.
    (8) Once a private loan guarantee is approved, the lender will be 
required to fully service the loan including:
    (i) 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 documents have been 
fulfilled. The lender must obtain RUS approval to advance funds prior to 
each advance of funds.
    (ii) Billing and collecting loan payments from the borrower.
    (iii) Notifying the Administrator promptly of any default in the 
payment of principal and interest on the loan and submit a report, as 
soon thereafter as possible, 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.
    (iv) 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.
    (9) Upon notice to the lender, RUS may assume loan servicing 
responsibilities for the loan or the Guaranteed Loan Amount or the 
respective Guaranteed Loan Portion Amount or the respective Guaranteed-
Amount Equivalent, as the case may be, or require the lender to assign 
such responsibilities to a different entity, if the lender fails to 
perform its loan servicing responsibilities under the loan guarantee 
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 in good standing with its 
licensing authority, or ceases to meet the eligibility requirements of 
this section. Such negligent servicing is defined as the failure to 
perform those services which a reasonable 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.
    (10)(i) The Guarantee shall cease to be effective with respect to 
any Guaranteed Loan Amount or any Guaranteed Loan Portion Amount or any 
Guaranteed-Amount Equivalent to the extent that:
    (A) The Guaranteed Loan Amount or the respective Guaranteed Loan 
Portion Amount or the respective Guaranteed-Amount Equivalent, as the 
case may be, is separated at any time from the Unguaranteed Loan Amount 
or the respective Unguaranteed Loan Portion Amount or the respective 
Unguaranteed-Amount Equivalent, as the case may be, in any way, directly 
or through the issuance of any Guaranteed-Amount Equity Derivative or 
any Guaranteed-Amount Debt Derivative; or
    (B) Any holder of the Guaranteed Loan Note or any Guaranteed Loan 
Portion Note or any Derivative, as the case may be, having a claim to 
payments on the Guaranteed Loan receives more than its pro-rata 
percentage of any payment due to such holder from payments made under 
the Guarantee at any time during the term of the Guaranteed Loan.
    (ii) The assignment by the lender requires prior written approval 
from RUS.
    (iii) The assignment shall entitle the holder to all of the lender's 
rights. However, the lender shall remain responsible for servicing the 
entire loan.
    (iv) 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.
    (11) RUS will not guarantee any loan under this subpart that 
provides for:
    (i) A balloon payment of principal or interest at the final maturity 
date of the loan; or
    (ii) The payment of interest on interest.
    (12) For purposes of this subsection:
    (i) Derivative means any right, interest, instrument or security 
issued or traded on the credit of the Guaranteed

[[Page 355]]

Loan or any Guaranteed Loan Portion, including but not limited to:
    (A) Any participation share of, or undivided ownership or other 
equity interest in, the Guaranteed Loan or any Guaranteed Loan Portion;
    (B) Any note, bond or other debt instrument or obligation which is 
collateralized or otherwise secured by a pledge of, or security interest 
in, the Guaranteed Loan or any Guaranteed Loan Portion; or
    (C) Any such interest in such an interest or any such instrument 
secured by such an instrument.
    (ii) Guaranteed-Amount Debt Derivative means any note, bond or other 
debt instrument or obligation which is collateralized or otherwise 
secured by a pledge of, or security interest in, the Guaranteed Loan 
Note or any Guaranteed Loan Portion Note or any Derivative, as the case 
may be, which has an exclusive or preferred claim to the Guaranteed Loan 
Amount or the respective Guaranteed Loan Portion Amount or the 
respective Guaranteed-Amount Equivalent, as the case may be.
    (iii) Guaranteed-Amount Equity Derivative means any participation 
share of, or undivided ownership or other equity interest in, the 
Guaranteed Loan or any Guaranteed Loan Portion or any Derivative, as the 
case may be, which has an exclusive or preferred claim to the Guaranteed 
Loan Amount or the respective Guaranteed Loan Portion Amount or the 
respective Guaranteed-Amount Equivalent, as the case may be.
    (iv) Guaranteed-Amount Equivalent means:
    (A) With respect to any Derivative which is equal in principal 
amount to the Guaranteed Loan or any Guaranteed Loan Portion, that 
amount of payment on account of such Derivative which is equal to the 
Guaranteed Loan Amount or the respective Guaranteed Loan Portion Amount, 
as the case may be; or
    (B) With respect to any Derivatives which in the aggregate are equal 
in principal amount to the Guaranteed Loan or any Guaranteed Loan 
Portion, that amount of payment on account of such derivatives which is 
equal to the Guaranteed Loan Amount or the respective Guaranteed Loan 
Portion Amount, as the case may be.
    (v) Guaranteed Loan Amount means that amount of payment on account 
of the Guaranteed Loan which is guaranteed under the terms of the 
Guarantee.
    (vi) Guaranteed Loan Portion Amount means that amount of payment on 
account of any Guaranteed Loan Portion which is guaranteed under the 
terms of the Guarantee.
    (vii) Guaranteed Loan Note means, collectively, the note or notes 
executed and delivered by the Borrower to evidence the Guaranteed Loan.
    (viii) Guaranteed Loan Portion means any portion of the Guaranteed 
Loan.
    (ix) Guaranteed Loan Portion Note means any note executed and 
delivered by the Borrower to evidence a Guaranteed Loan Portion.
    (x) Unguaranteed-amount equivalent means all amounts of payment on 
account of any Derivative other than the respective Guaranteed-Amount 
Equivalent.
    (xi) Unguaranteed loan amount means all amounts of payment on 
account of the Guaranteed Loan other than the Guaranteed Amount.
    (xii) Unguaranteed loan portion Amount means all amounts of payment 
on account of any Guaranteed Loan Portion other than the respective 
Guaranteed Loan Portion Amount.



Sec. 1738.31  Full faith and credit.

    Loan guarantees made under this part are supported by the full faith 
and credit of the United States.



Secs. 1738.32-1738.39  [Reserved]



                        Subpart D--Terms of Loans



Sec. 1738.40  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. Standard 
forms of the mortgage, note, and loan contract can be obtained from RUS. 
However, RUS reserves the right to establish terms and conditions, 
including security requirements, on a case-by-case basis.

[[Page 356]]



Sec. 1738.41  Payments on loans.

    (a) Broadband loans must be repaid with interest within a period 
that, rounded to the nearest whole year, equals the expected composite 
economic life of the facilities to be financed, as calculated by RUS.
    (1) The expected composite economic life shall be based upon the 
depreciation rates for the facilities financed by the loan.
    (2) The depreciation rates used shall be the rates currently in 
place, as long as RUS finds them to be reasonable for the 
telecommunications industry.
    (b) Applicants may request a repayment period that is shorter than 
the expected composite economic life of the facilities financed. A 
shorter period may be approved as long as the Administrator determines 
that the loan remains feasible.
    (c) Interest is payable on funds advanced each month as it accrues 
beginning with the first billing after the advance, as defined in the 
note. Principal payments on each note are scheduled to begin one year 
after the date of the first advance. After this deferral period, 
interest and principal payments on all funds advanced during this one-
year period shall be made in equal monthly installments. Principal 
payments on funds advanced 1 year or more after the date of the first 
advance will begin with the first billing after the advance. The 
interest and principal payments on each of these advances shall be made 
in equal monthly installments.



Secs. 1738.42-1738.49  [Reserved]



PART 1739--BROADBAND GRANT PROGRAM--Table of Contents



               Subpart A--Community Connect Grant Program

Sec.
1739.1  Purpose.
1739.2  Funding availability and application dates and addresses.
1739.3  Definitions.
1739.4-1739.9  [Reserved]
1739.10  Eligible applicant.
1739.11  Eligible project.
1739.12  Eligible grant purposes.
1739.13  Ineligible grant purposes.
1739.14  Matching contributions.
1739.15  Completed application.
1739.16  Review of grant applications.
1739.17  Scoring of applications.
1739.18  Grant documents.
1739.19  Reporting and oversight requirements.
1739.20  Audit requirements.
1739.21  OMB control number.

Subpart B [Reserved]

    Authority: Title III, Pub. L. 108-199, 118 Stat. 3.

    Source: 69 FR 44899, July 28, 2004, unless otherwise noted.



               Subpart A--Community Connect Grant Program



Sec. 1739.1  Purpose.

    (a) The provision of broadband transmission service is vital to the 
economic development, education, health, and safety of rural Americans. 
The purpose of the Community Connect Grant Program is to provide 
financial assistance in the form of grants to eligible applicants that 
will provide, on a ``community-oriented connectivity'' basis, broadband 
transmission service that fosters economic growth and delivers enhanced 
educational, health care, and public safety services. RUS will give 
priority to rural areas that it believes have the greatest need for 
broadband transmission services, based on the criteria contained in this 
subpart.
    (b) Grant authority will be used for the deployment of broadband 
transmission service to extremely rural, lower-income communities on a 
``community-oriented connectivity'' basis. The ``community-oriented 
connectivity'' concept will stimulate practical, everyday uses and 
applications of broadband by cultivating the deployment of new broadband 
transmission services that improve economic development and provide 
enhanced educational and health care opportunities in rural areas. Such 
an approach will also give rural communities the opportunity to benefit 
from the advanced technologies that are necessary to achieve these 
goals.

[[Page 357]]



Sec. 1739.2  Funding availability and application dates and addresses.

    (a) RUS will publish, annually in the Federal Register, a Notice of 
Funds Availability (hereinafter ``NOFA'') that will set forth the total 
amount of funding available; the maximum and minimum funding for each 
grant; the application submission dates; and the appropriate addresses 
and agency contact information. The NOFA will also outline and explain 
the procedures for submission of applications, including electronic 
submissions. RUS may publish more than one NOFA should additional 
funding become available.
    (b) Notwithstanding paragraph (a) of this section, RUS may, in 
response to a surplus of qualified eligible applications which could not 
be funded from the previous fiscal year, decline to publish a NOFA for 
the following fiscal year and fund said applications without further 
public notice.



Sec. 1739.3  Definitions.

    As used in this subpart:
    Bandwidth means the capacity of the radio frequency band or physical 
facility needed to carry the Broadband Transmission Service.
    Basic Broadband Transmission Service means the broadband 
transmission service level provided by the applicant at the lowest rate 
or service package level for residential or business customers, as 
appropriate, provided that such service meets the requirements of this 
part.
    Broadband Transmission Service means providing an information-rate 
equivalent to at least 200 kilobits/second in the consumer's connection 
to the network, both from the provider to the consumer (downstream) and 
from the consumer to the provider (upstream).
    Community means any incorporated or unincorporated town, village, or 
borough recognized in the U.S. Census in a Rural Area.
    Community Center means a public building, or a section of a public 
building with at least ten (10) Computer Access Points, that is used for 
the purposes of providing free access to and/or instruction in the use 
of broadband Internet service, and is of the appropriate size to 
accommodate this purpose. The community center must be open and 
accessible to area residents before, during, and after normal working 
hours and on Saturday or Sunday. Examples of facilities that may be 
partially used for the described purposes include school, library, or 
city hall.
    Computer Access Point means a new computer terminal with access to 
Basic Broadband Transmission Service.
    Critical Community Facilities means every public school or education 
center, public library, public medical clinic, public hospital, 
community college, public university, or law enforcement, fire and 
ambulance stations in the proposed Service Area.
    Eligible Applicant shall have the meaning as set forth in 
Sec. 1739.10.
    Eligible Grant Purposes shall have the meaning as set forth in 
Sec. 1739.12.
    End-User Equipment means computer hardware and software, audio or 
video equipment, computer network components, telecommunications 
terminal equipment, inside wiring, interactive video equipment, or other 
facilities required for the provision and use of Broadband Transmission 
Service.
    Matching Contribution means the applicant's qualified contribution 
to the Project, as outlined in Sec. 1739.14.
    Project means the applicant's proposed Basic Broadband Transmission 
Service financed by the grant and Matching Contribution for the proposed 
Service Area.
    Rural Area means any area of the United States not included within 
the boundaries of any incorporated or unincorporated city, village, or 
borough having a population in excess of 20,000 inhabitants.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture, which is part of the Rural Development 
Utilities Program.
    Service Area means a single Community, and may include the 
unincorporated areas or locally recognized communities, not recognized 
in the U.S. Census, located outside and contiguous to the Community's 
boundaries, in which the applicant proposes to provide Broadband 
Transmission Service.
    Spectrum means a defined band of frequencies that will accommodate 
the Broadband Transmission Service.

[[Page 358]]

    Telecommunications Terminal Equipment means the assembly of 
telecommunications equipment at the end of a circuit or path of a 
signal, including but not limited to facilities that receive or transmit 
over-the-air broadcast, satellite, and microwave, normally located on 
the premises of the end user, that interfaces with telecommunications 
transmission facilities, and that is used to modify, convert, encode, or 
otherwise prepare signals to be transmitted via such telecommunications 
facilities, or that is used to modify, reconvert, or carry signals 
received from such facilities, the purpose of which is to accomplish the 
goal for which the circuit or signal was established.
    USDA means the United States Department of Agriculture.



Secs. 1739.4-1739.9  [Reserved]



Sec. 1739.10  Eligible applicant.

    To be eligible for a grant, the applicant must:
    (a) Be legally organized as an incorporated organization, an Indian 
tribe or tribal organization, as defined in 25 U.S.C. 450b(b) and (c), a 
state or local unit of government, or other legal entity, including 
cooperatives or private corporations or limited liability companies 
organized on a for-profit or not-for-profit basis.
    (b) Have the legal capacity and authority to own and operate the 
broadband facilities as proposed in its application, to enter into 
contracts and to otherwise comply with applicable federal statutes and 
regulations.



Sec. 1739.11  Eligible project.

    To be eligible for a grant, the Project must:
    (a) Serve a Rural Area where Broadband Transmission Service does not 
currently exist, to be verified by RUS prior to the award of the grant;
    (b) Serve one Community recognized in the latest U.S. Census. 
Additional communities located in the contiguous areas outside the 
Community's boundaries that are not recognized (due to size) in the U.S. 
Census, can be included in the applicant's proposed Service Area, but 
must be supported by documentation, acceptable to RUS, as to their 
existence;
    (c) Deploy Basic Broadband Transmission Service, free of all charges 
for at least 2 years, to all Critical Community Facilities located 
within the proposed Service Area;
    (d) Offer Basic Broadband Transmission Service to residential and 
business customers within the proposed Service Area; and
    (e) Provide a Community Center with at least ten (10) Computer 
Access Points within the proposed Service Area, and make Broadband 
Transmission Service available therein, free of all charges to users for 
at least 2 years.



Sec. 1739.12  Eligible grant purposes.

    Grant funds may be used to finance:
    (a) The construction, acquisition, or leasing of facilities, 
including spectrum, to deploy Broadband Transmission Service to all 
participating Critical Community Facilities and all required facilities 
needed to offer such service to residential and business customers 
located within the proposed Service Area;
    (b) The improvement, expansion, construction, or acquisition of a 
Community Center that furnishes free access to broadband Internet 
service, provided that the Community Center is open and accessible to 
area residents before, during, and after normal working hours and on 
Saturday or Sunday. Grant funds provided for such costs shall not exceed 
the greater of five percent (5%) of the grant amount requested or 
$100,000;
    (c) End-User Equipment needed to carry out the Project;
    (d) Operating expenses incurred in providing Broadband Transmission 
Service to Critical Community Facilities for the first 2 years of 
operation and in providing training and instruction. Salary and 
administrative expenses will be subject to review, and may be limited by 
RUS for reasonableness in relation to the scope of the Project; and
    (e) The purchase of land, buildings, or building construction needed 
to carry out the Project.

[[Page 359]]



Sec. 1739.13  Ineligible grant purposes.

    (a) Grant funds may not be used to finance the duplication of any 
existing Broadband Transmission Service provided by another entity.
    (b) Facilities financed with grant funds cannot be utilized, in any 
way, to provide local exchange telecommunications service to any person 
or entity already receiving such service.



Sec. 1739.14  Matching contributions.

    (a) The grant applicant must contribute a Matching Contribution 
which is at least fifteen percent (15%) of the grant amount requested 
and shall be in the form of:
    (1) Cash for eligible grant purposes.
    (2) In-kind contributions for purposes that could have been financed 
with grant funds under this part. In-kind contributions must be new or 
non-depreciated assets with established monetary values. Manufacturers' 
or service providers' discounts shall not be considered as a Matching 
Contribution.
    (3) The rental value of space provided within an existing Community 
Center, provided that the space is provided free of charge to the 
applicant, for the first 2 years of operation.
    (4) Salary expenses incurred for the individual(s) operating the 
Community Center, for the first 2 years of operation.
    (5) Expenses incurred in operating the Community Center, for the 
first 2 years of operation.
    (b) Costs incurred by the applicant, or by others on behalf of the 
applicant, for facilities, installed equipment, or other services 
rendered prior to submission of a completed application shall not be 
considered as an Eligible Grant Purpose or Matching Contribution.
    (c) Rental values of space provided must be substantiated by rental 
agreements documenting the cost of space of a similar size in a similar 
location.
    (d) Rental values, salaries, and other expenses incurred in 
operating the Community Center will be subject to review by RUS for 
reasonableness in relation to the scope of the Project.
    (e) Any financial assistance from federal sources shall not be 
considered as a Matching Contribution unless there is a federal 
statutory exception specifically authorizing the federal financial 
assistance to be considered as such.



Sec. 1739.15  Completed application.

    A completed application must include the following documentation, 
studies, reports and information in form satisfactory to RUS. 
Applications should be prepared in conformance with the provisions of 
this part and applicable USDA regulations including 7 CFR parts 3015, 
3016, and 3019. Applicants must use the RUS Application Guide for this 
program, found at http://www.usda.gov/rus/telecom/ containing 
instructions and all necessary forms, as well as other important 
information, in preparing their application. Completed applications must 
include the following:
    (a) An Application for Federal Assistance. A completed Standard Form 
424.
    (b) An executive summary of the Project. The applicant must provide 
RUS with a general project overview that addresses the following 
categories:
    (1) A description of why the Project is needed;
    (2) A description of the applicant;
    (3) An explanation of the total Project cost;
    (4) A general overview of the broadband telecommunications system to 
be developed, including the types of equipment, technologies, and 
facilities to be used;
    (5) Documentation describing the procedures used to determine the 
unavailability of existing Broadband Transmission Service; and
    (6) A description of the participating Critical Community 
Facilities.
    (c) Scoring criteria documentation. Each grant applicant must 
address and provide documentation on how it meets each of the scoring 
criteria detailed in Sec. 1739.17.
    (d) System design. The applicant must submit a system design that 
contains the following, satisfactory to RUS:
    (1) A narrative discussing the proposed Community Center, all costs 
of the Project, all existing and proposed facilities that are a part of 
the Project, the services to be provided by the Project, and the 
proposed Service Area;

[[Page 360]]

    (2) Engineering design studies providing an economical and practical 
engineering design of the Project, including a detailed description of 
the facilities to be funded, technical specifications, data rates, and 
costs; and
    (3) A map of the proposed Service Area reflecting the proposed 
location of the Community Center and all participating Critical 
Community Facilities.
    (e) Scope of work. The scope of work must include, at a minimum:
    (1) The specific activities and services to be performed under the 
Project;
    (2) Who will carry out the activities and services;
    (3) The time-frames for accomplishing the Project objectives and 
activities; and
    (4) A budget for all capital and administrative expenditures 
reflecting the line item costs for Eligible Grant Purposes, the Matching 
Contribution, and other sources of funds necessary to complete the 
Project.
    (f) Community-Oriented Connectivity Plan. The applicant must provide 
a Community-Oriented Connectivity Plan consisting of the following:
    (1) A listing of all participating Critical Community Facilities to 
be connected. For those Critical Community Facilities in the Service 
Area which will not be included in the Project, an explanation of why 
they are not being included should be provided. The applicant must also 
provide documentation that it has consulted with agents of all Critical 
Community Facilities in the Service Area, and must provide statements as 
to their willingness to participate, or not to participate, in the 
proposed Project;
    (2) A description of the services available to local residents 
through the use of the Community Center;
    (3) A listing of the proposed Telecommunications Terminal Equipment, 
telecommunications transmission facilities, data terminal equipment, 
interactive video equipment, computer hardware and software systems, and 
components that process data for transmission via telecommunications, 
computer network components, communication satellite ground station 
equipment, or any other elements of the Project designed to further the 
deployment and use of Broadband Transmission Service, that the applicant 
intends to build or fund using RUS grant funds and the Matching 
Contribution; and
    (4) If other telecommunications carriers (including interexchange 
carriers, cable television operators, enhanced service providers, 
providers of satellite services and telecommunications equipment 
manufacturers and distributors) are participating in the delivery of 
services, a description of the consultations and the anticipated role of 
such providers in the proposed Project.
    (g) Financial information and sustainability. The applicant must 
provide a narrative description demonstrating the sustainability of the 
Project during the first two years and after completion and the 
sufficiency of resources and expertise necessary to undertake and 
complete the Project. The following financial information is required:
    (1) Certified financial statements, if available; otherwise, the 
most current income statement and balance sheet for existing operations; 
and
    (2) Pro forma financial information for 5 years, evidencing the 
sustainability of the Project.
    (h) A statement of experience. Information on the owners' and 
principal employees' relevant work experience that would ensure the 
success of the Project. The applicant must provide a written narrative 
describing its demonstrated capability and experience, if any, in 
operating a broadband telecommunications system.
    (i) Evidence of legal authority and existence. The applicant must 
provide evidence of its legal existence and authority to enter into a 
grant agreement with RUS and to perform the activities proposed under 
the grant application.
    (j) Funding commitment from other sources. If the Project requires 
additional funding from other sources in addition to the RUS grant, the 
applicant must provide evidence that funding agreements have been 
obtained to ensure completion of the Project.
    (k) Compliance with other federal statutes. The applicant must 
provide evidence of compliance with other federal statutes and 
regulations, including, but not limited to the following:

[[Page 361]]

    (1) 7 CFR part 15, subpart A--Nondiscrimination in Federally 
Assisted Programs of the Department of Agriculture--Effectuation of 
Title VI of the Civil Rights Act of 1964.
    (2) 7 CFR part 3015--Uniform Federal Assistance Regulations.
    (3) 7 CFR part 3017--Governmentwide Debarment and Suspension (Non-
procurement).
    (4) 7 CFR part 3018--New Restrictions on Lobbying.
    (5) 7 CFR part 3021--Governmentwide Requirements for Drug-Free 
Workplace (Financial Assistance).
    (6) Certification regarding Architectural Barriers.
    (7) Certification regarding Flood Hazard Precautions.
    (8) An environmental report, in accordance with 7 CFR part 1794.
    (9) Certification that grant funds will not be used to duplicate 
lines, facilities, or systems providing Broadband Transmission Service.
    (10) Federal Obligation Certification on Delinquent Debt.



Sec. 1739.16  Review of grant applications.

    (a) All applications for grants must be delivered to RUS at the 
address and by the date specified in the NOFA (see Sec. 1739.2) to be 
eligible for funding. RUS will review each application for conformance 
with the provisions of this part. RUS may contact the applicant for 
additional information or clarification.
    (b) Incomplete applications as of the deadline for submission will 
not be considered. If an application is determined to be incomplete, the 
applicant will be notified in writing and the application will be 
returned with no further action.
    (c) Applications conforming with this part will then be evaluated 
competitively by a panel of RUS employees selected by the Administrator 
of RUS, and will be awarded points as described in the scoring criteria 
in Sec. 1739.17. Applications will be ranked and grants awarded in rank 
order until all grant funds are expended.
    (d) Regardless of the score an application receives, if RUS 
determines that the Project is technically or financially infeasible, 
RUS will notify the applicant, in writing, and the application will be 
returned with no further action.



Sec. 1739.17  Scoring of applications.

    (a) All eligible applications will receive points for the following 
scoring criteria:
    (1) The rurality of the Project (up to 40 points);
    (2) The economic need of the Project's Service Area (up to 30 
points); and
    (3) The ``community-oriented connectivity'' benefits derived from 
the proposed service (up to 30 points).
    (b) Scoring criteria:
    (1) The rurality of the project--up to 40 points.
    (i) This criterion will be used to evaluate the rurality of the 
Community served by the Project, in accordance with the following method 
of scoring. Rurality shall be determined by the 2000 population data 
contained in the U.S. Bureau of the Census at http://
factfinder.census.gov. The following categories are used in the 
evaluation of rurality:
    (A) Level 1 means any Community having a population of less than 500 
inhabitants.
    (B) Level 2 means any Community having a population of at least 500 
and not in excess of 1,000 inhabitants.
    (C) Level 3 means any Community having a population over 1,000 and 
not in excess of 2,000 inhabitants.
    (D) Level 4 means any Community having a population over 2,000 and 
not in excess of 3,000 inhabitants.
    (E) Level 5 means any Community having a population over 3,000 and 
not in excess of 4,000 inhabitants.
    (F) Level 6 means any Community having a population over 4,000 and 
not in excess of 5,000 inhabitants.
    (G) Level 7 means any Community having a population over 5,000 and 
not in excess of 10,000 inhabitants.
    (H) Level 8 means any Community having a population over 10,000 and 
not in excess of 20,000 inhabitants.
    (ii) Each application will receive points based on the location of 
the facilities financed using the definitions in paragraphs (b)(1)(i)(A) 
through (H) of this section.

[[Page 362]]

    (A) For a Service Area that includes a Level 1 Community, it will 
receive 40 points.
    (B) For a Service Area that includes a Level 2 Community, it will 
receive 35 points.
    (C) For a Service Area that includes a Level 3 Community, it will 
receive 30 points.
    (D) For a Service Area that includes a Level 4 Community, it will 
receive 25 points.
    (E) For a Service Area that includes a Level 5 Community, it will 
receive 20 points.
    (F) For a Service Area that includes a Level 6 Community, it will 
receive 15 points.
    (G) For a Service Area that includes a Level 7 Community, it will 
receive 10 points.
    (H) For a Service Area that includes a Level 8 Community, it will 
receive 5 points.
    (2) The economic need of the Project Service Area--up to 30 points.
    (i) This criterion will be used to evaluate the economic need of the 
Service Area. Applicants must utilize the per capita personal income for 
the Community serviced, as determined by the U.S. Bureau of the Census 
at http://factfinder.census.gov. Applicants will be awarded points as 
outlined below for service provided in the Community where the per 
capita personal income (PCI) is less than 70 percent of the national 
average per capita personal income (NAPCI):
    (A) PCI is 75 percent or greater of NAPCI; 0 points;
    (B) PCI is less than 75 percent and greater than or equal to 70 
percent of NAPCI; 5 points;
    (C) PCI is less than 70 percent and greater than or equal to 65 
percent of NAPCI; 10 points;
    (D) PCI is less than 65 percent and greater than or equal to 60 
percent of NAPCI; 15 points;
    (E) PCI is less than 60 percent and greater than or equal to 55 
percent of NAPCI; 20 points;
    (F) PCI is less than 55 percent and greater than or equal to 50 
percent of NAPCI; 25 points;
    (G) PCPI is less than 50 percent of NAPCPI; 30 points;
    (ii) [Reserved]
    (3) The ``community-oriented connectivity'' benefits derived from 
the proposed service--up to 30 points.
    (i) This criterion will be used to score applications based on the 
documentation in support of the need for services, benefits derived from 
the services proposed by the Project, and local community involvement in 
planning and implementation of the Project. Applicants may receive up to 
30 points for documenting the need for services and benefits derived 
from service as explained in this section.
    (ii) RUS will consider:
    (A) The extent of the applicant's documentation explaining the 
economic, education, health care, and public safety issues facing the 
community and the applicant's proposed plan to address these challenges 
on a community-wide basis;
    (B) The extent of the Project's planning, development, and support 
by local residents, institutions, and community facilities will be 
considered. This includes evidence of community-wide involvement, as 
exemplified in community meetings, public forums, and surveys. In 
addition, applicants should provide evidence of local residents' 
participation in the Project planning and development;
    (C) The extent to which the Community Center will be used for 
instructional purposes including Internet usage, Web-based curricula, 
and Web page development; and
    (D) Web-based community resources enabled or provided by the 
applicant, such as community bulletin boards, directories, and public 
web-hosting.



Sec. 1739.18  Grant documents.

    The terms and conditions of grants shall be set forth in grant 
documents prepared by RUS. The documents shall require the applicant to 
own all equipment and facilities financed by the grant. Among other 
matters, RUS may prescribe conditions to the advance of funds that 
address concerns regarding the Project feasibility and sustainability. 
RUS may also prescribe terms and conditions applicable to the 
construction and operation of the Project and the delivery of Broadband 
Transmission Service to Rural Areas, as well

[[Page 363]]

as other terms and conditions applicable to the individual Project.



Sec. 1739.19  Reporting and oversight requirements.

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



Sec. 1739.20  Audit requirements.

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



Sec. 1739.21  OMB control number.

    The information collection requirements in this part are approved by 
the Office of Management and Budget (OMB) and assigned OMB control 
number 0572-0127.

Subpart B [Reserved]

PART 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  Automatic lien accommodations.
1744.31-1744.39  [Reserved]
1744.40  Act purposes.
1744.41-1744.49  [Reserved]
1744.50  Non-Act purposes.
1744.51-1744.54  [Reserved]
1744.55  Application procedures.
1744.56-1744.59  [Reserved]

Appendix A to Subpart B--Statement, Certification, and Agreement of 
          Borrower's President of Board of Directors Regarding 
          Refinancing and Refunding Notes Pursuant to 7 CFR 1744.30(c)
Appendix B to Subpart B--Certification of Independent Certified Public 
          Accountant Regarding Notes To Be Issued Pursuant to 7 CFR 
          1744.30(c)

[[Page 364]]

Appendix C to Subpart B--Statement, Certification, and Agreement of 
          Borrower's President of Board of Directors Regarding Notes To 
          Be Issued Pursuant to 7 CFR 1744.30(d)
Appendix D to Subpart B--Certification of Independent Certified Public 
          Accountant Regarding Notes To Be Issued Pursuant to 7 CFR 
          1744.30
Appendix E to Subpart B--Statement, Certification, and Agreement of 
          Borrower's President of Board of Directors Regarding Notes To 
          Be Issued Pursuant to 7 CFR 1744.30(e)
Appendix F to Subpart B--Form of Supplemental Mortgage

              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.
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., 1921 et seq., and 6941 et seq.


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.

    (a) Recent changes in the telecommunications industry, including 
deregulation and technological developments, have caused Rural Utilities 
Service (RUS) borrowers and other organizations providing 
telecommunications services to consider undertaking projects that 
provide new telecommunications services and other telecommunications 
services not ordinarily financed by RUS. Although some of these services 
may not be eligible for financing under the Rural Electrification Act of 
1936 (RE Act), these services may nevertheless advance RE Act objectives 
where the borrower obtains financing from private lenders. The 
borrower's financial strength and the assurance of repayment of 
outstanding Government debt may be improved as a result of providing 
such telecommunications services.
    (b) To facilitate the financing of new services and other services 
not ordinarily financed by RUS, RUS is willing to consider accommodating 
the Government's lien on telecommunications borrowers' systems or 
accommodating or subordinating the Government's lien on after-acquired 
property of telecommunications borrowers. To expedite this process, 
requests for lien accommodations meeting the requirements of 
Sec. 1744.30 will receive automatic approval from RUS.
    (c) This subpart establishes RUS policy with respect to all requests 
for lien accommodations and subordinations for loans from private 
lenders. For borrowers that do not qualify for automatic lien 
accommodations in accordance with Sec. 1744.30, RUS will consider lien 
accommodations for RE Act purposes under Sec. 1744.40 and non-Act 
purposes under Sec. 1744.50.

[66 FR 41758, Aug. 9, 2001]

[[Page 365]]



Sec. 1744.21  Definitions.

    The following definitions apply to this subpart:
    Administrator means the Administrator of RUS and includes the 
Governor of the RTB.
    Advance means transferring funds from RUS, RTB, or a lender 
guaranteed by RUS to the borrower's construction fund.
    After-acquired property means property which is to be acquired by 
the borrower and which would be subject to the lien of the Government 
mortgage when acquired.
    Amortization expense means the sum of the balances of the following 
accounts of the borrower:

------------------------------------------------------------------------
                        Account names                            Number
------------------------------------------------------------------------
(1) Amortization expense.....................................     6560.2
(2) Amortization expense--tangible...........................       6563
(3) Amortization expense--intangible.........................       6564
(4) Amortization expense--other..............................       6565
------------------------------------------------------------------------

    Note: All references to account numbers are to the Uniform System of 
Accounts (7 CFR part 1770, subpart B).
    Asset means a future economic benefit obtained or controlled by the 
borrower as a result of past transactions or events.
    Automatic lien accommodation means the approval, by RUS, of a 
request to share the Government's lien on a pari passu or pro-rata basis 
with a private lender in accordance with the provisions of Sec. 1744.30.
    Borrower means any organization that has an outstanding 
telecommunications loan made or guaranteed by RUS, or that is seeking 
such financing. See 7 CFR part 1735.
    Construction Fund means the RUS Construction Fund Account into which 
all advances of loan funds are deposited pursuant to the provisions of 
the loan documents.
    Debt Service Coverage (DSC) ratio means the ratio of the sum of the 
borrower's net income, depreciation and amortization expense, and 
interest expense, all divided by the sum of all payments of principal 
and interest required to be paid by the borrower during the year on all 
its debt from any source with a maturity greater than 1 year and capital 
lease obligations.
    Default means any event or occurrence which, unless corrected, will, 
with the passage of time and the giving of proper notices, give rise to 
remedies under one or more of the loan documents.
    Depreciation expense means the sum of the balances of the following 
accounts of the borrower:

------------------------------------------------------------------------
                        Account names                            Number
------------------------------------------------------------------------
(1) Depreciation expense.....................................     6560.1
(2) Depreciation expense--telecommunications plant in service       6561
(3) Depreciation expense--property held for future                  6562
 telecommunications use......................................
------------------------------------------------------------------------

    Note: All references to account numbers are to the Uniform System of 
Accounts (7 CFR part 1770, subpart B).
    Disbursement means a transfer of money by the borrower out of the 
construction fund in accordance with the provisions of the fund.
    Equity percentage means the total equity or net worth of the 
borrower expressed as a percentage of the borrower's total assets.
    FFB means the Federal Financing Bank.
    Financial Requirement Statement (FRS) means RUS Form 481 (OMB--No. 
0572--0023). (This RUS Form is available from RUS, Program Development 
and Regulatory Analysis, Washington, DC 20250-1522).
    Government mortgage means any instrument to which the Government, 
acting through the Administrator, is a party and which creates a lien or 
security interest in the borrower's property in connection with a loan 
made or guaranteed by RUS whether the Government is the sole mortgagee 
or is a co-mortgagee with a private lender.
    Hardship loan means a loan made by RUS under section 305(d)(1) of 
the RE Act.
    Interim construction means the purchase of equipment or the conduct 
of construction under an RUS-approved plan of interim financing. See 7 
CFR part 1737.
    Interest expense means the sum of the balances of the following 
accounts of the borrower:

------------------------------------------------------------------------
                        Account names                            Number
------------------------------------------------------------------------
(1) Interest and related items...............................       7500
(2) Interest on funded debt..................................       7510
(3) Interest expense--capital leases.........................       7520
(4) Amortization of debt issuance expense....................       7530

[[Page 366]]

 
(5) Less Allowance for funds used during construction........      7340/
                                                                  7300.4
(6) Other interest deductions................................       7540
------------------------------------------------------------------------

    Note: All references to account numbers are to the Uniform System of 
Accounts (7 CFR part 1770, subpart B).
    Interim financing means funding for a project which RUS has 
acknowledged may be included in a loan, should said loan be approved, 
but for which RUS loan funds have not yet been made available.
    Lien accommodation means sharing the Government's lien on a pari 
passu or pro-rata basis with a private lender.
    Loan means any loan made or guaranteed by RUS.
    Loan documents means the loan contract, note and mortgage between 
the borrower and RUS and any associated document pertinent to a loan.
    Loan funds means the proceeds of a loan made or guaranteed by RUS.
    Material and supplies means any of the items properly recordable in 
the following account of the borrower:

------------------------------------------------------------------------
                        Account names                            Number
------------------------------------------------------------------------
(1) Material and Supplies....................................     1220.1
------------------------------------------------------------------------

    Note: All references to account numbers are to the Uniform System of 
Accounts (7 CFR part 1770, subpart B).
    Net income/Net margins means the sum of the balances of the 
following accounts of the borrower:

------------------------------------------------------------------------
               Account names                           Number
------------------------------------------------------------------------
(1) Local Network Services Revenues.......  5000 through 5069
(2) Network Access Services Revenues......  5080 through 5084
(3) Long Distance Network Services          5100 through 5169
 Revenues.
(4) Miscellaneous Revenues................  5200 through 5270
(5) Nonregulated Revenues.................  5280
(6) Less Uncollectible Revenues...........  5200 through 5302
(7) Less Plant Specific Operations Expense  6110 through 6441
(8) Less Plant Nonspecific Operations       6510 through 6565
 Expense.
(9) Less Customer Operations Expense......  6610 through 6623
(10) Less Corporate Operations Expense....  6710 through 6790
(11) Other Operating Income and Expense...  7100 through 7160
(12) Less Operating Taxes.................  7200 through 7250/7200.5
(13) Nonoperating Income and Expense......  7300 through 7370
(14) Less Nonoperating Taxes..............  7400 through 7450/7400.5
(15) Less Interest and Related Items......  7500 through 7540
(16) Extraordinary Items..................  7600 through 7640/7600.4
(17) Jurisdictional Differences and         7910 through 7990
 Nonregulated Income Items.
------------------------------------------------------------------------

    Note: All references to account numbers are to the Uniform System of 
Accounts (7 CFR part 1770, subpart B).
    Net plant means the sum of the balances of the following accounts of 
the borrower:

------------------------------------------------------------------------
               Account names                           Number
------------------------------------------------------------------------
(1) Property, Plant and Equipment.........  2001 through 2007
(2) Less Depreciation and Amortization....  3100 through 3600
------------------------------------------------------------------------

    Note: All references to account numbers are to the Uniform System of 
Accounts (7 CFR part 1770, subpart B).
    Notes means evidence of indebtedness secured by or to be secured by 
the Government mortgage.
    Pari Passu means equably; ratably; without preference or precedence.
    Plant means any of the items properly recordable in the following 
accounts of the borrower:

------------------------------------------------------------------------
               Account names                           Number
------------------------------------------------------------------------
(1) Property, Plant and Equipment.........  2001 through 2007
------------------------------------------------------------------------

    Note: All references to account numbers are to the Uniform System of 
Accounts (7 CFR part 1770, subpart B).
    Private lender means any lender other than the RUS or the lender of 
a loan guaranteed by RUS.
    Private lender notes means the notes evidencing a private loan.
    Private loan means any loan made by a private lender.
    RE Act (Act) means the Rural Electrification Act of 1936 (7 U.S.C. 
901 et seq.) RTB means the Rural Telephone Bank.
    RUS means the Rural Utilities Service, and includes its predecessor, 
the Rural Electrification Administration. The term also includes the 
RTB, unless otherwise indicated.
    RUS cost-of-money loan means a loan made under section 305(d)(2) of 
the RE Act.
    Subordination means allowing a private lender to have a lien on 
specific property which will have priority over the Government's lien on 
such property.
    Tangible plant means any of the items properly recordable in the 
following accounts of the borrower:

[[Page 367]]



------------------------------------------------------------------------
               Account names                           Number
------------------------------------------------------------------------
(1) Telecommunications Plant in Service--   2110 through 2124
 General Support Assets.
(2) Telecommunications Plant in Service--   2210 through 2232
 Central Office Assets.
(3) Telecommunications Plant in Service--   2310 through 2362
 Information Origination/Termination
 Assets.
(4) Telecommunications Plant in Service--   2410 through 2441
 Cable and Wire Facilities Assets.
(5) Amortizable Tangible Assets...........  2680 through 2682
(6) Nonoperating Plant....................  2006
------------------------------------------------------------------------

    Note: All references to account numbers are to the Uniform System of 
Accounts (7 CFR part 1770, subpart B).
    Telecommunication services means any service for the transmission, 
emission, or reception of signals, sounds, information, images, or 
intelligence of any nature by optical waveguide, wire, radio, or other 
electromagnetic systems and shall include all facilities used in 
providing such service as well as the development, manufacture, sale, 
and distribution of such facilities.
    Times interest earned ratio (TIER) means the ratio of the borrower's 
net income or net margins plus interest expense, divided by said 
interest expense.
    Total assets means the sum of the balances of the following accounts 
of the borrower:

------------------------------------------------------------------------
               Account names                           Number
------------------------------------------------------------------------
(1) Current Assets........................  1100s through 1300s
(2) Noncurrent Assets.....................  1400s through 1500s
(3) Total telecommunications plant........  2001 through 2007
(4) Less accumulated depreciation.........  3100 through 3300s
(5) Less accumulated amortization.........  3400 through 3600s
------------------------------------------------------------------------

    Note: All references to account numbers are to the Uniform System of 
Accounts (7 CFR part 1770, subpart B).
    Total equity or net worth means the excess of a borrower's total 
assets over its total liabilities.
    Total liabilities means the sum of the balances of the following 
accounts of the borrower:

------------------------------------------------------------------------
               Account names                           Number
------------------------------------------------------------------------
(1) Current Liabilities...................  4010 through 4130.2
(2) Long-Term Debt........................  4210 through 4270.3
(3) Other Liabilities and Deferred Credits  4310 through 4370
------------------------------------------------------------------------

    Note: All references to account numbers are to the Uniform System of 
Accounts (7 CFR part 1770, subpart B).
    Total long-term debt means the sum of the balances of the following 
accounts of the borrower:

------------------------------------------------------------------------
               Account names                           Number
------------------------------------------------------------------------
(1) Long-Term Debt........................  4210 through 4270.3
------------------------------------------------------------------------

    Note: All references to account numbers are to the Uniform System of 
Accounts (7 CFR part 1770, subpart B).
    Weighted-average life of the loans or notes means the average life 
of the loans or notes based on the proportion of original loan principal 
paid during each year of the loans or notes. It shall be determined by 
calculating the sum of all loan or note principal payments expressed as 
a fraction of the original loan or note principal amount, times the 
number of years and fractions of years elapsed at the time of each 
payment since issuance of the loan or note. For example, given a $5 
million loan, with a maturity of 5 years and equal principal payments of 
$1 million due on the anniversary date of the loan, the weighted-average 
life would be: (.2)(1 year) + (.2)(2 years) + (.2)(3 years) + (.2)(4 
years) + (.2)(5 years) = .2 years + .4 years + .6 years + .8 years + 1.0 
years = 3.0 years. If instead the loan had a balloon payment of $5 
million at the end of 5 years, the weighted-average life would be: ($5 
million/$5 million)(5 years) = 5 years.
    Weighted-average remaining life of the loans or notes means the 
remaining average life of the loans or notes based on the proportion of 
remaining loan or note principal expressed in years remaining to 
maturity of the loans or notes. It shall be determined by calculating 
the sum of the remaining principal payments of each loan or note 
expressed as a fraction of the total remaining loan or note amounts 
times the number of years and fraction of years remaining until maturity 
of the loan or note.
    Weighted-average remaining useful life of the assets means the 
estimated original average life of the assets to be acquired with the 
proceeds of the private lender notes expressed in years based on 
depreciation rates less the number

[[Page 368]]

of years those assets have been in service (or have been depreciated). 
It shall be determined by calculating the sum of each asset's remaining 
value expressed as a fraction of the total remaining value of the 
assets, times the estimated number of years and fraction of years 
remaining until the assets are fully depreciated.
    Wholly-owned subsidiary means a corporation owned 100 percent by the 
borrower.

[66 FR 41758, Aug. 9, 2001]



Secs. 1744.22-1744.29  [Reserved]



Sec. 1744.30  Automatic lien accommodations.

    (a) Purposes and requirements for approval. Automatic lien 
accommodations are available only for refinancing and refunding of notes 
secured by the borrower's existing Government mortgage; financing 
assets, to be owned by the borrower, to provide telecommunications 
services; or financing assets, to be owned by a wholly-owned subsidiary 
of the borrower, to provide telecommunications services in accordance 
with the procedures set forth in this section.
    (b) Private lender responsibility. The private lender is responsible 
for ensuring that its notes, for which an automatic lien accommodation 
has been approved as set forth in this section, are secured under the 
mortgage. The private lender is responsible for ensuring that the 
supplemental mortgage is a valid and binding instrument enforceable in 
accordance with its terms, and recorded and filed in accordance with 
applicable law. If the private lender determines that additional 
documents are required or that RUS must take additional actions to 
secure the notes under the mortgage, the private lender shall follow the 
procedures set forth in Sec. 1744.40 or Sec. 1744.50, as appropriate.
    (c) Refinancing and refunding. The Administrator will automatically 
approve a borrower's execution of private lender notes and the securing 
of such notes on a pari passu or pro-rata basis with all other notes 
secured under the Government mortgage, when such private lender notes 
are issued for the purpose of refinancing or refunding any notes secured 
under the Government mortgage, provided that all of the following 
conditions are met:
    (1) No default has occurred and is continuing under the Government 
mortgage;
    (2) The borrower has delivered to the Administrator, at least 10 
business days before the private lender notes are to be executed, a 
certification and agreement executed by the President of the borrower's 
Board of Directors, such certification and agreement to be substantially 
in the form set forth in Appendix A of this subpart, providing that:
    (i) No default has occurred and is continuing under the Government 
mortgage;
    (ii) The principal amount of such refinancing or refunding notes 
will not be greater than 112 percent of the then outstanding principal 
balance of the notes being refinanced or refunded;
    (iii) The weighted-average life of the private loan evidenced by the 
private lender notes will not exceed the weighted-average remaining life 
of the notes being refinanced or refunded;
    (iv) The private lender notes will provide for substantially level 
debt service or level principal amortization over a period not less than 
the original remaining years to maturity;
    (v) Except as provided in the Government mortgage, the borrower has 
not agreed to any restrictions or limitations on future loans from RUS; 
and
    (vi) If the private lender determines that a supplemental mortgage 
is necessary, the borrower will comply with those procedures contained 
in paragraph (h) of this section for the preparation, execution, and 
delivery of a supplemental mortgage and take such additional action as 
may be required to secure the notes under the Government mortgage.
    (d) Financing assets to be owned directly by a borrower. The 
Administrator will automatically approve a borrower's execution of 
private lender notes and the securing of such notes on a pari passu or 
pro-rata basis with all other notes secured under the Government 
mortgage, when such private lender notes are issued for the purpose of 
financing the purchase or construction of plant and material and 
supplies to provide telecommunication services

[[Page 369]]

and when such assets are to be owned and the telecommunications services 
are to be offered by the borrower, provided that all of the following 
conditions are met:
    (1) The borrower has achieved a TIER of not less than 1.5 and a DSC 
of not less than 1.25 for each of the borrower's two fiscal years 
immediately preceding the issuance of the private lender notes;
    (2) The ratio of the borrower's net plant to its total long-term 
debt at the end of any calendar month ending not more than 90 days prior 
to execution of the private lender notes is not less than 1.2, on a pro-
forma basis, after taking into account the effect of the private lender 
notes and additional plant on the total long-term debt of the borrower;
    (3) The borrower's equity percentage, as of the most recent fiscal 
year-end, was not less than 25 percent;
    (4) No default has occurred and is continuing under the Government 
mortgage;
    (5) The borrower has delivered to the Administrator, at least 10 
business days before the private lender notes are to be executed, a 
certification by an independent certified public accountant that the 
borrower has met each of the requirements in paragraphs (d)(1) and 
(d)(3) of this section, such certification to be substantially in the 
form in Appendix B of this subpart; and
    (6) The borrower has delivered to the Administrator, at least 10 
business days before the private lender notes are to be executed, a 
certification and agreement executed by the President of the borrower's 
Board of Directors, such certification and agreement to be substantially 
in the form in Appendix C of this subpart: provided, that:
    (i) The borrower has met each of the requirements in paragraphs 
(d)(2) and (d)(4) of this section;
    (ii) The proceeds of the private lender notes are to be used for the 
construction or purchase of the plant and materials and supplies to 
provide telecommunications services in accordance with this section and 
such construction or purchase is expected to be completed not later than 
4 years after execution of such notes;
    (iii) The weighted-average life of the private loan evidenced by the 
private lender notes does not exceed the weighted-average remaining 
useful life of the assets being financed;
    (iv) The private lender notes will provide for substantially level 
debt service or level principal amortization over a period not less than 
the original remaining years to maturity;
    (v) All of the assets financed by the private loans will be 
purchased or otherwise procured in bona fide arm's length transactions;
    (vi) The financing agreement with the private lender will provide 
that the private lender shall cease the advance of funds upon receipt of 
written notification from RUS that the borrower is in default under the 
RUS loan documents;
    (vii) Except as provided in the Government mortgage, the borrower 
has not agreed to any restrictions or limitations on future loans from 
RUS; and
    (viii) If the private lender determines that a supplemental mortgage 
is necessary, the borrower will comply with those procedures set forth 
in paragraph (h) of this section for the preparation, execution, and 
delivery of a supplemental mortgage and take such additional action as 
may be required to secure the notes under the Government mortgage.
    (e) Financing assets to be owned by a wholly-owned subsidiary of the 
borrower. The Administrator will automatically approve a borrower's 
execution of private lender notes and the securing of such notes on a 
pari passu or pro-rata basis with all other notes secured under the 
Government mortgage, when such private lender notes are issued for the 
purpose of financing the purchase or construction of tangible plant and 
material and supplies to provide telecommunication services and when 
such services are to be offered and the associated tangible assets are 
to be owned by a wholly-owned subsidiary of the borrower, provided that 
all of the following conditions are met:
    (1) The borrower has achieved a TIER of not less than 2.5 and a DSC 
of not less than 1.5 for each of the borrower's two fiscal years 
immediately preceding the issuance of the private lender notes;

[[Page 370]]

    (2) The ratio of the borrower's net plant to its total long-term 
debt at the end of any calendar month ending not more than 90 days prior 
to execution of the private lender notes is not less than 1.6, on a pro-
forma basis, after taking into account the effect of the private lender 
notes and additional plant on the total long-term debt of the borrower;
    (3) The borrower's equity percentage, as of the most recent fiscal 
year-end, was not less than 45 percent;
    (4) No default has occurred and is continuing under the Government 
mortgage;
    (5) The borrower has delivered to the Administrator, at least 10 
business days before the private lender notes are to be executed, a 
certification by an independent certified public accountant that the 
borrower has met each of the requirements in paragraphs (e)(1) and 
(e)(3) of this section, such certification to be substantially in the 
form in Appendix D of this subpart; and
    (6) The borrower has delivered to the Administrator, at least 10 
business days before the private lender notes are to be executed, a 
certification and agreement executed by the President of the borrower's 
Board of Directors, such certification and agreement to be substantially 
in the form in Appendix E of this subpart; providing that:
    (i) The borrower has met each of the requirements in paragraphs 
(e)(2) and (e)(4) of this section;
    (ii) The proceeds of the private lender notes are to be used for the 
construction or purchase of the tangible plant and materials and 
supplies to provide telecommunications services in accordance with this 
section and such construction or purchase is expected to be completed 
not later than 4 years after execution of such notes;
    (iii) The weighted-average life of the private loan evidenced by the 
private lender notes does not exceed the weighted-average remaining 
useful life of the assets being financed;
    (iv) The private lender notes will provide for substantially level 
debt service or level principal amortization over a period not less than 
the original remaining years to maturity;
    (v) All of the assets financed by the private loans will be 
purchased or otherwise procured in bona fide arm's length transactions;
    (vi) The proceeds of the private lender notes will be lent to a 
wholly-owned subsidiary of the borrower pursuant to terms and conditions 
agreed upon by the borrower and subsidiary;
    (vii) The borrower will, whenever requested by RUS, provide RUS with 
a copy of the financing or guarantee agreement between the borrower and 
the subsidiary or any similar or related material including security 
instruments, loan contracts, or notes issued by the subsidiary to the 
borrower;
    (viii) The borrower will promptly report to the Administrator any 
default by the subsidiary or other actions that impair or may impair the 
subsidiary's ability to repay its loans;
    (ix) The financing agreement with the private lender will provide 
that the private lender shall cease the advance of funds upon receipt of 
written notification from RUS that the borrower is in default under the 
RUS loan documents;
    (x) Except as provided in the Government mortgage, the borrower has 
not agreed to any restrictions or limitations on future loans from RUS; 
and
    (xi) If the private lender determines that a supplemental mortgage 
is necessary, the borrower will comply with those procedures contained 
in paragraph (h) of this section for the preparation, execution, and 
delivery of a supplemental mortgage and take such additional action as 
may be required to secure the notes under the Government mortgage.
    (f) Borrower notification. The borrower shall notify RUS of its 
intention to obtain an automatic lien accommodation under Sec. 1744.30 
by providing the following:
    (1) The board resolution cited in Sec. 1744.55(b)(1) and the opinion 
of counsel cited in Sec. 1744.55(b)(2);
    (2) The applicable certification or certifications required by 
paragraph (c)(2); paragraphs (d)(5) and (d)(6); or paragraphs (e)(5) and 
(e)(6), respectively, of this section, in substantially the form 
contained in the applicable appendices to this subpart.

[[Page 371]]

    (g) RUS acknowledgment. Within 5 business days of receipt of the 
completed certifications and any other information required under this 
section, RUS will review the information and provide written 
acknowledgment to the borrower and the private lender of its 
qualification for an automatic lien accommodation. Upon receipt of the 
acknowledgment, the borrower may execute the private lender notes.
    (h) Supplemental mortgage. If the private lender determines that a 
supplemental mortgage is required to secure the private lender notes on 
a pari passu or pro-rata basis with all other notes secured under the 
Government mortgage, the private lender may prepare the supplemental 
mortgage using the form attached as Appendix F to this subpart or the 
borrower may request RUS to prepare such supplemental mortgage in 
accordance with the following procedures:
    (1) The private lender preparing the supplemental mortgage shall 
execute and forward the completed document to RUS. Upon ascertaining the 
correctness of the form and the information concerning RUS, RUS will 
execute and forward the supplemental mortgage to the borrower.
    (2) When requested by the borrower, RUS will expeditiously prepare 
the supplemental mortgage, using the form in Appendix F to this subpart, 
upon submission by the private lender of:
    (i) The name of the private lender;
    (ii) The Property Schedule for inclusion as supplemental mortgage 
Schedule B, containing legally sufficient description of all real 
property owned by the borrower; and
    (iii) The amount of the private lender note.
    (3) The government is not responsible for ensuring that the 
supplemental mortgage has been executed by all parties and is a valid 
and binding instrument enforceable in accordance with its terms, and 
recorded and filed in accordance with applicable law. If the private 
lender determines that additional security instruments or other 
documents are required or that RUS must take additional actions to 
secure the private lender notes under the mortgage, the private lender 
shall follow the procedures established in Secs. 1744.40 or 1744.50, as 
appropriate. Except for the actions of the government expressly 
established in Sec. 1744.40, the government undertakes no obligation to 
effectuate an automatic lien accommodation. When processing of the 
supplemental mortgage has been completed to the satisfaction of the 
private lender, the borrower shall provide RUS with the following:
    (i) A fully executed counterpart of the supplemental mortgage, 
including all signatures, seals, and acknowledgements; and
    (ii) Copies of all opinions rendered by borrower's counsel to the 
private lender.
    (i) Other approvals. (1) The borrower is responsible for meeting all 
requirements necessary to issue private lender notes and to accommodate 
the lien of the Government mortgage to secure the private lender notes 
including, but not limited to, those of the private lender, of any other 
mortgagees secured under the existing RUS mortgage, and of any 
governmental entities with jurisdiction over the issuance of notes or 
the execution and delivery of the supplemental mortgage.
    (2) To the extent that the borrower's existing mortgage requires RUS 
approval before the borrower can make an investment in an affiliated 
company, approval is hereby given for all investments made in affiliated 
companies with the proceeds of private lender notes qualifying for an 
automatic lien accommodation under paragraph (e) of this section. Any 
reference to an approval by RUS under the mortgage shall apply only to 
the rights of RUS and not to any other party.

[66 FR 41760, Aug. 9, 2001]



Sec. 1744.40  Act purposes.

    (a) Borrowers are encouraged to submit requests for accommodation of 
the Government's lien on the borrower's system in order to facilitate 
obtaining financing from private lenders for purposes provided in the RE 
Act.
    (b) The Administrator will consider requests for the subordination 
of the Government's lien on after-acquired property which will enable 
borrowers to obtain financing from private lenders for purposes provided 
in the Act:

[[Page 372]]

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.

[51 FR 32430, Sept. 12, 1986, unless otherwise noted. Redesignated at 55 
FR 39396, Sept. 27, 1990. And further redesignated at 66 FR 41760, Aug. 
9, 2001]



Secs. 1744.41-1744.49  [Reserved]



Sec. 1744.50  Non-Act purposes.

    (a) The Administrator will consider requests for the accommodation 
of the Government's lien on the borrower's system or the subordination 
of the Government's lien on after-acquired property which will enable 
the borrowers to obtain financing from private lenders for the purpose 
of providing new telecommunication services which may not be eligible 
for financing under the Act if the Administrator is satisfied that:
    (1) The borrower will have the ability to repay its existing and 
proposed indebtedness;
    (2) The security for outstanding Government loans and guarantees is 
reasonably adequate and will not be adversely affected by the 
accommodation or subordination; and
    (3) Approval of the request is in the interests of the Government 
with respect to the financial soundness of the borrower and other 
matters, such as assuring that the borrower's system is constructed 
cost-effectively using sound engineering practices.
    (b) In determining that the security for outstanding Government 
loans and guarantees is reasonably adequate and will not be adversely 
affected by the accommodation or subordination the Administrator will 
consider, among other matters, when applicable, the following:
    (1) Market forecasts for the project;
    (2) Projected revenues, expenses and net income of the borrower's 
existing system and the project;
    (3) Maximum debt service on indebtedness of both the borrower's 
system and the project;
    (4) Projected rate of return on the borrower's investment in the 
project;
    (5) Fair market value of property acquired by the borrower as part 
of the project;
    (6) Impact of the project on the ratio of the borrower's secured 
debt to assets;
    (7) Projected growth in borrower's system and project equity; and
    (8) Amount of funds available for plant additions, replacements and 
other similar costs of the system and the project.
    (c) In determining whether the accommodation or subordination is in 
the interests of the Government, the Administrator may consider, among 
other matters, whether the project will improve the borrower's financial 
strength and the assurance of repayment of Government debt.

[51 FR 32430, Sept. 12, 1986. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 43716, Aug. 25, 1994. Further redesignated at 
66 FR 41760, Aug. 9, 2001 and amended at 66 FR 41763, Aug. 9, 2001]



Secs. 1744.51-1744.54  [Reserved]



Sec. 1744.55  Application procedures.

    (a) Requests for information regarding applications for lien 
accommodations or subordination under this part should be addressed to 
the Assistant Administrator, Telecommunications Program, Rural Utilities 
Service, Washington, DC 20250-1590.
    (b) An application for a lien accommodation or subordination shall 
include the following supporting information:
    (1) A board Resolution from the applicant requesting the lien 
accommodation or subordination and stating the general purpose for which 
the funds from the private lender will be used, the proposed amount of 
the loan, and the proposed terms and conditions of the loan;
    (2) An opinion from counsel representing the applicant that the 
applicant has the authority under its articles of incorporation, bylaws, 
and under applicable state law to undertake the project;
    (3) Engineering and pertinent studies related to the projects or 
purposes to be financed, when applicable;

[[Page 373]]

    (4) Feasibility studies with pro forma financial statements showing 
the ability to repay the loan and provide an appropriate margin or net 
income;
    (5) Any other information or documentation deemed pertinent by the 
borrower or the Administrator in support of the application.
    (c) When the Administrator makes a determination that an application 
for an accommodation or subordination will not be approved the 
Administrator shall set forth the reasons therefor in writing and 
furnish such determination and reasons to the borrower within 30 days of 
the determination.

[51 FR 32430, Sept. 12, 1986 Redesignated at 55 FR 39396, Sept. 27, 
1990. And further redesignated at 66 FR 41760, Aug. 9, 2001 and amended 
at 66 FR 41763, Aug. 9, 2001]



Secs. 1744.56-1744.59  [Reserved]

[[Page 374]]

  Appendix A to Subpart B of Part 1744--Statement, Certification, and 
   Agreement of Borrower's President of Board of Directors Regarding 
      Refinancing and Refunding Notes Pursuant to 7 CFR 1744.30(c)
[GRAPHIC] [TIFF OMITTED] TR09AU01.026


[66 FR 41763, Aug. 9, 2001]

[[Page 375]]

   Appendix B to Subpart B of Part 1744--Certification of Independent 
 Certified Public Accountant Regarding Notes To Be Issued Pursuant to 7 
                             CFR 1744.30(c)
[GRAPHIC] [TIFF OMITTED] TR09AU01.027


[66 FR 41763, Aug. 9, 2001]

[[Page 376]]

  Appendix C to Subpart B of Part 1744--Statement, Certification, and 
Agreement of Borrower's President of Board of Directors Regarding Notes 
                To Be Issued Pursuant to 7 CFR 1744.30(d)
[GRAPHIC] [TIFF OMITTED] TR09AU01.028


[66 FR 41763, Aug. 9, 2001]

[[Page 377]]

   Appendix D to Subpart B of Part 1744--Certification of Independent 
 Certified Public Accountant Regarding Notes To Be Issued Pursuant to 7 
                               CFR 1744.30
[GRAPHIC] [TIFF OMITTED] TR09AU01.029


[66 FR 41763, Aug. 9, 2001]

[[Page 378]]

  Appendix E to Subpart B of Part 1744--Statement, Certification, and 
Agreement of Borrower's President of Board of Directors Regarding Notes 
                To Be Issued Pursuant to 7 CFR 1744.30(e)
[GRAPHIC] [TIFF OMITTED] TR09AU01.030


[[Page 379]]


[GRAPHIC] [TIFF OMITTED] TR09AU01.031


[66 FR 41763, Aug. 9, 2001]

[[Page 380]]

   Appendix F to Subpart B of Part 1744--Form of Supplemental Mortgage
[GRAPHIC] [TIFF OMITTED] TR09AU01.032


[[Page 381]]


[GRAPHIC] [TIFF OMITTED] TR09AU01.033


[[Page 382]]


[GRAPHIC] [TIFF OMITTED] TR09AU01.034


[66 FR 41763, Aug. 9, 2001]

              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.

[[Page 383]]



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 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.

[[Page 384]]

    (ii) Postloan engineering contracts. The amount shown on the 
engineering estimate, RUS Form 506, less the amount estimated for 
construction contract closeouts. The balance is approved when the 
engineering contract is closed.
    (iii) Force account engineering. Ninety percent of the total amount 
of the RUS approved force account engineering proposal. The balance is 
approved when the force account engineering proposal is closed.
    (3) Office equipment, vehicles and work equipment. Based on copies 
of invoices for the equipment.
    (4) General--(i) Organization and loan expenditures. Based on an 
itemized list of requirements prepared by the borrower.
    (ii) Construction overhead. Based on an itemized list of 
expenditures. If funds are required for employee salaries, the 
itemization shall include the employee's position, the period covered, 
total compensation for the period, and the portion of compensation 
attributable to the itemized construction.
    (iii) Legal fees. Based on itemized invoices from the attorney.
    (iv) Bank stock.Based on the requirements for purchase of class B 
Rural Telephone Bank stock established in the loan. Funds for class B 
stock will be advanced in an amount equal to 5 percent of the amount, 
exclusive of the amount for class B stock, of each loan advance, at the 
time of such advance.
    (5) Operating expenses--(i) Working capital--new system. Based on 
the borrower's itemized estimate.
    (ii) Current operating deficiencies. Based on a current and 
projected balance sheet submitted by the borrower.
    (6) Debt retirement and refinancing. Upon release of the loan, based 
on the amount in the approved budget.
    (7) Acquisitions. Based on final itemized costs, but cannot exceed 
the amount in the approved loan budget.
    (c) Funds other than loan funds deposited in the construction fund, 
which shall include proceeds from the sale of property on which RUS has 
a lien, (lines 10 and 11 on the FRS) are reported as a credit under 
total disbursements. Disbursements of these funds are subject to the 
same RUS approvals as loan funds.
    (d) The borrower shall request advances as needed to meet its 
obligations promptly. Generally, RUS does not approve an advance 
requested more than 60 days before the obligation is payable.
    (e) Funds should be disbursed for the item for which they were 
advanced. If the borrower needs to pay an invoice for which funds have 
not been advanced, and disbursement of advanced funds for another item 
has been delayed, the latter funds may be disbursed to pay the invoice 
up to the amount approved for advance for that item on the FRS. The 
borrower shall make erasable entries on the next FRS showing the changes 
under ``Total Advances to Date'' and shall explain the changes in 
writing before RUS will process the next FRS.
    (f) Advances will be rounded down to the nearest thousands of 
dollars except for final amounts.
    (g) The certification on each of the three copies of the FRS sent to 
RUS shall be signed by a corporate officer of manager authorized by 
resolution of the board of directors to sign such statements. At the 
time of such authorization a certified copy of the resolution and one 
copy of RUS Form 675, Certificate of Authority, shall be submitted to 
RUS.
    (h) The documentation required for the FRS transactions are the 
deposit slips, the canceled construction fund checks and the supporting 
invoices or reimbursement schedules. These shall be kept in the 
borrower's files for periodic audits by RUS.

[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.

[[Page 385]]

    (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 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.

[[Page 386]]

    (2) If borrower's bank is not a member of the Federal Reserve 
System, the name and address of its correspondent bank that is a member 
of the Federal Reserve System.
    (3) American Bankers Association (ABA) nine digit identifier of the 
receiving banks (routing number and check digit).
    (4) Borrower's bank account title and number.
    (5) Any other necessary identifying information.

[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:

[[Page 387]]



------------------------------------------------------------------------
                 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).

    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

[[Page 388]]

problems of low income, elderly, minority, and otherwise disadvantaged 
rural residents;
    (2) Improve the business and employment opportunities, occupational 
training and employment services, health care services, educational 
opportunities, energy utilization and availability, housing, 
transportation, community services, community facilities, water 
supplies, sewage and solid waste management systems, credit 
availability, and accessibility to and delivery of private and public 
financial resources in the maintenance and creation of jobs in rural 
areas;
    (3) Improve state and local government management capabilities, 
institutions, and programs related to rural development and expand 
educational and training opportunities for state and local officials, 
particularly in small rural communities;
    (4) Strengthen the family farm system; or
    (5) Maintain and protect the environment and natural resources of 
rural areas.
    (e) As used in paragraph (d) of this section, the term rural 
development investment shall include investments by a borrower in its 
own name, in affiliated companies, and in entities not affiliated with 
the borrower.



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.

[[Page 389]]



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 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 1748--POST-LOAN POLICIES AND PROCEDURES FOR INSURED TELEPHONE LOANS 
                               [RESERVED]

[[Page 390]]



PART 1751--TELECOMMUNICATIONS SYSTEM PLANNING AND DESIGN CRITERIA, AND PROCEDURES--Table of Contents



Subpart A [Reserved]

1751.1-1751.99  [Reserved]

         Subpart B--State Telecommunications Modernization Plan

Sec.
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.
    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

[[Page 391]]

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 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

[[Page 392]]

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.
    (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.

[[Page 393]]



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.
    (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

[[Page 394]]

Modernization Plan shall name the Telecommunications Providers in the 
State, in addition to Borrowers, that are covered by the Modernization 
Plan.
    (e) The Modernization Plan must require that the design of the 
network provided by Telecommunications Providers allow for the 
expeditious deployment and integration of such emerging technologies as 
may from time to time become commercially feasible.
    (f) The Modernization Plan must provide guidelines to 
Telecommunications Providers for the development of affordable tariffs 
for medical links and distance learning services.
    (g) With regard to the uniform deployment requirement of the law 
restated in paragraph (a)(5) of this section, if services cannot be 
deployed at the same time, only the minimum feasible interval of time 
shall separate availability of the services in rural and nonrural areas.
    (h) The Modernization Plan must make provision for reliable powering 
of ordinary voice telephone service operating over those portions of the 
telecommunications network which are not network powered. In the event 
of electric utility power outages, an alternative source of power must 
be available to ensure reliable voice service.
    (i) Short-term requirements. (1) The ``short-term requirements start 
date'' is the date one year after the date RUS approves the 
Modernization Plan for the State.
    (2) All New Facilities providing Wireline Service after the short-
term requirements start date, even if the construction began before such 
date, shall be constructed so that:
    (i) Every subscriber can be provided 1-party service.
    (ii) The New Facilities are suitable, as built or with additional 
equipment, to provide transmission and reception of data at a rate no 
lower than 1 Mb/sec.
    (3) All switching equipment installed by a Telecommunications 
Provider after the short-term requirements start date shall be capable 
of:
    (i) Providing custom calling features. At a minimum, custom calling 
features must include call waiting, call forwarding, abbreviated 
dialing, and three-way calling; and
    (ii) Providing E911 service for areas served by the 
Telecommunication Provider when requested by the government responsible 
for this service.
    (j) Medium-term requirements. (1) The ``medium-term requirements 
start date'' is the date six years after the date RUS approves the 
Modernization Plan for the State, or such earlier date as the 
Modernization Plan shall provide.
    (2) All New Facilities providing Wireline Service after the medium-
term requirements start date, even if the construction began before such 
date, shall be capable, as built or with additional equipment, of 
transmitting video to a subscriber. The video must be capable of 
depicting a reasonable representation of motion. The frame rate, 
resolution, and other measures of audio and video quality shall be 
determined by the Plan Developer.
    (3) No later than the medium-term requirements start date, all 
switching equipment of Telecommunications Providers covered by the 
Modernization Plan must be capable of providing E911 service when 
requested by the government responsible for this service.
    (4) No later than five years after the medium-term requirements 
start date, one-party service must be provided upon demand to any 
subscriber of a Telecommunications Provider covered by the Modernization 
Plan.
    (k) Long-term goals. RUS suggests, but does not require, that the 
provisions of each Modernization Plan be consistent with the 
accomplishment of the following:
    (1) The elimination of party line service.
    (2) For subscribers that desire the service, universal availability 
of:
    (i) Digital voice and data service (56-164 kb/sec).
    (ii) Service that provides transmission and reception of high bit 
rate (no less than 1 Mb/sec) data.
    (iii) Service that provides reception of video as described in 
paragraph (j)(2) of this section.

[[Page 395]]



PART 1753--TELECOMMUNICATIONS 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  Engineer and architect contract closeout certifications.
1753.19-1753.20  [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.
1753.50-1753.55  [Reserved]

      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]

    Authority: 5 U.S.C. 501, 7 U.S.C. 901 et seq.



                           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 Telecommunications Loan Documents contain 
provisions regarding procurement of materials and equipment and 
construction of telecommunications facilities by telecommunications 
borrowers. This part implements certain of the provisions by setting 
forth requirements and procedures. Borrowers shall follow these 
requirements and procedures whenever using loan funds to purchase 
materials and equipment or perform construction, unless they have 
received the Administrator's written approval to do otherwise.
    (b) The typical procedure followed in constructing a project 
financed by an RUS loan begins with the prospective borrower obtaining 
the necessary preloan engineering and developing a complete loan 
application, including an LD (See 7 CFR part 1737). If a loan

[[Page 396]]

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 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.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, as amended at 64 FR 16604, Apr. 6, 1999]



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,

[[Page 397]]

with the borrower furnishing all materials, equipment, tools, and 
transportation.
    FRS--RUS Form 481 (OMB control number 0572-0023), Financial 
Requirement Statement.
    GFR--RUS General Field Representative.
    Installation--The act of setting up or placing in position equipment 
for service or use in the borrower's system.
    Interim construction--The purchase of equipment or the conduct of 
construction under an RUS-approved plan of interim financing. See 7 CFR 
part 1737.
    Interim financing--Funding for a project which RUS has acknowledged 
may be included in a loan, should said loan be approved, but for which 
RUS loan funds have not yet been made available.
    Labor and materials--All the labor and materials required for 
construction.
    LD (loan design)--Supporting data for a loan application. See 7 CFR 
part 1737.
    Loan--Any loan made or guaranteed by RUS. See 7 CFR part 1735.
    Loan funds--Funds provided by RUS through direct or guaranteed 
loans. See 7 CFR part 1744 subpart C.
    Loan purposes--The high level objectives of the loan are to fund the 
construction. These purposes are first stated in the characteristics 
letter described in 7 CFR 1737.80, which is sent to the applicant to 
offer a loan after RUS has completed its preloan studies.
    Major construction--A telecommunications plant project estimated to 
cost more than $250,000, including all labor and materials.
    Minor construction--A telecommunications plant project estimated to 
cost $250,000 or less, including all labor and materials.
    Minor errors or irregularities--A defect or variation in a seller's 
bid that is a matter of form and not of substance. Errors or 
irregularities are ``minor'' if they can be corrected or waived without 
being prejudicial to other bidders and when they do not affect the 
price, quantity, quality, or timeliness of construction. Unless 
otherwise noted, the borrower determines whether an error or 
irregularity is ``minor.''
    Modernization plan--A State plan, which has been approved by RUS, 
for improving the telecommunications network of those Telecommunications 
Providers covered by the plan. A Modernization Plan must conform to the 
provisions of 7 CFR part 1751, subpart B.
    Negotiation--Any form of purchasing or contracting other than sealed 
competitive bidding. Any contract awarded without using the sealed 
competitive bidding procedure is a negotiated contract.
    Outside plant--The facilities that conduct electrical or optical 
signals between the central office and the subscriber's network 
interface or between central offices.
    Performance bond--A surety bond on a form satisfactory to RUS 
guaranteeing the contractor's faithful performance of a contract.
    P&S (plans and specifications)--An RUS contract form, the 
appropriate specifications, and such additional information and 
documents needed to provide a clear, accurate, and complete 
understanding of the installations to be made or construction to be 
performed.
    Project--The construction or installation described in the P&S.
    Responsive bid--A bid that complies with the requirements of the 
plans and specifications.
    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.
    RUS--the Rural Utilities Service, an agency of the United States 
Department of Agriculture established pursuant to Section 232 of the 
Federal Crop Insurance and Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to Rural Electrification Administration with respect to administering 
certain electric and telecommunications program. See 7 CFR 1700.1.

[[Page 398]]

    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; 64 FR 16604, Apr. 6, 1999]



Sec. 1753.3  Preconstruction review.

    (a) Advance RUS approval must be obtained for any construction that 
does not conform to RUS standards and specifications or the approved LD, 
such as construction of extensions to serve subscribers in areas not 
included in the LD (See 7 CFR part 1737). For loans approved after RUS 
approval of the modernization plan in the borrower's state, the proposed 
construction must conform to the modernization plan, as required by 7 
CFR part 1751, subpart B. To obtain approval, the borrower shall submit 
a written proposal containing:
    (1) A description of the work, indicating any deviations from the 
approved LD or RUS standards and specifications.
    (2) An engineering study covering the deviations if there are 
changes in the design.
    (3) A cost estimate for labor, engineering, materials, and 
overheads.
    (4) If applicable, a brief analysis from the borrower demonstrating 
that the proposed changes conform to the modernization plan.
    (b) Before any construction, including interim construction, is 
initiated, the GFR shall meet with the borrower to review the LD to 
determine if any significant changes have occurred since its approval by 
RUS. It is important that the design and construction of the proposed 
facilities be based on the latest information on subscriber needs.
    (c) If the borrower and GFR agree that there have been no 
significant changes, the borrower may proceed.
    (d) If the GFR finds that the LD is no longer satisfactory, the 
borrower shall prepare an amendment to the LD incorporating the 
necessary revisions (See 7 CFR part 1737). The borrower must obtain RUS 
approval of the LD amendment before proceeding with engineering 
activities on any project to be financed with loan funds.

[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; 64 FR 16604, Apr. 6, 1999]



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.

[[Page 399]]

    (b) Contract construction. (1) RUS approval of the borrower's award 
of the contract is not required if the contractor is selected through 
sealed competitive bidding, the bid amount is $500,000 or less and the 
contractor is not a company or organization affiliated with the 
borrower. This does not relieve the borrower of the requirements of 
bidding or bid evaluation set contained in this part.
    (2) RUS approval of the borrower's award of the contract is required 
for all other competitively-bid and for negotiated major construction 
contracts.
    (3) The requirements and procedures for sealed competitive bidding 
are presented in 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; 64 FR 16604, Apr. 6, 
1999]



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 Telecommunications Systems of RUS Borrowers, I.P. 300-4. 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. The materials and equipment 
must be year 2000 compliant, as defined in 7 CFR 1735.22(e).
    (d) All materials and equipment financed with loan funds are subject 
to the ``Buy American'' provision (7 U.S.C. 901 et seq. as amended in 
1938).
    (e) All software, software systems, and firmware financed with loan 
funds must be year 2000 compliant, as defined in 7 CFR 1732.22(e).

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, and amended at 59 FR 43716, Aug. 25, 1994; 63 FR 45679, Aug. 27, 
1998; 64 FR 16605, Apr. 6, 1999]



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 specifications prepared by the borrower's engineer. The 
specifications prepared by the borrower's engineer and based on general 
engineering requirements shall be subject to review and approval by RUS 
for all major construction, including major projects which would be 
exempted from RUS approval under paragraph (e) of this section.

[[Page 400]]

    (d) The P&S shall be based on the LD approved by RUS. Section 1753.3 
presents the requirements and procedures for obtaining RUS approval for 
construction that does not conform to the LD approved by RUS.
    (e) RUS approval of P&S is required for construction that is 
estimated to cost over $500,000 or 25% of the total loan, whichever is 
less, and for all building construction. P&S for all other construction 
are exempt from RUS review and approval except that, at the time of 
contract approval, RUS will examine the plans and specifications for 
conformity with the loan purposes and to determine that they comply with 
other requirements of this part.
    (f) RUS will approve only contracts that will provide for at least 
the following requirements.
    (1) Equal employment opportunity provision. If this provision is not 
already in the contract, RUS Contract Form 270, Equal Opportunity 
Addendum, shall be attached and made a part of the contract.
    (2) Liquidated damages provision. (i) If not covered by the 
contract, an appropriate liquidated damages provision, in a form 
prescribed by RUS, shall be included and made a part of the contract
    (ii) The liquidated damages must be based upon the borrower's best 
estimate of the damages it would incur as a result of the contractor's 
default.
    (3) Insurance and bond requirements. (i) The insurance provision 
shall provide coverage as required by 7 CFR 1788.
    (ii) A contractor's bond shall be furnished as required by 7 CFR 
part 1788.
    (iii) The borrower is responsible for ensuring that its contractor 
complies with the insurance and bond requirements.
    (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; 64 FR 16605, Apr. 6, 
1999]



Sec. 1753.8  Contract construction procedures.

    (a) Sealed, competitive bidding--(1) Bid opening date. The borrower 
is responsible for scheduling the bid opening date. If RUS review of P&S 
is required by Sec. 1753.7, the borrower shall wait until approval has 
been received before setting the date. In setting the date, sufficient 
time should be allowed for the bidders to examine the project site and 
prepare their bids. The borrower shall notify GFR of the bid date and 
invite GFR to attend.
    (2) Invitations to bid. The borrower is responsible for sending 
invitations to prospective bidders and taking any other action necessary 
to procure full, free, and competitive bidding. The borrower should 
obtain from its engineer a list of prospective bidders and a 
recommendation indicating which bidders are considered qualified. The 
minimum number of contractors to be invited to bid on contracts for 
various types of facilities is set forth in subparts D, E, F, or H.
    (3) Qualifying bidders. If the notice and instructions to bidders 
require that bidders show evidence of meeting certain requirements, the 
borrower shall qualify bidders before issuing P&S to them. Procedures 
for qualifying bidders are contained in subparts D, E, and F.
    (4) Receipt of bids. The borrower shall write on the outside 
envelope of any bid or bid amendment, the date and time the bid was 
received. Any bid received from an unqualified bidder or after the time 
specified for opening shall be returned promptly to the bidder unopened.
    (5) Procedure when fewer than three bids are received. If fewer than 
three valid bids are received, the borrower shall consult with RUS to 
determine whether the bids are to be opened or returned unopened. RUS 
requires that the project be rebid if fewer than three bids are received 
and RUS determines that one or more other bidders with an express 
interest in bidding is available and could meet the bid requirements, 
but was not invited to bid. RUS shall also require rebidding if it is 
found that qualified bidders were discouraged from bidding by 
unreasonable bid requirements (such as late notification

[[Page 401]]

to bidders) or if the borrower fails to follow the bid procedure.
    (6) Conduct of bid openings. The borrower shall conduct bid openings 
open to the public. The borrower should be able to contact its attorney 
for immediate consultation.
    (7) Review of bids. The borrower shall review all bids prior to 
reading any bid results to determine that:
    (i) The bid guarantees are adequate.
    (ii) All minor errors or irregularities made through inadvertence 
are corrected or waived. Failing this, the bid shall be rejected as 
nonresponsive.
    (iii) In the event of non-minor errors or irregularities, the bid is 
rejected and the bid price not disclosed.
    (8) Reading of bids. Bid prices shall not be read until the borrower 
has reviewed all bids to determine if there are any minor errors or 
irregularities that may affect the recommendation as to award. These 
shall be made public at the same time the bid price is announced.
    (9) Evaluating bids. The borrower shall consider the same alternates 
in all bids in determining the low bid.
    (10) Rejection. The borrower shall reject:
    (i) All bids if quoted prices are not acceptable or if the 
specifications were ambiguous and resulted in bidders having different 
interpretations of the requirements.
    (ii) Any bid that is not responsive, or is incomplete, or submitted 
by an unqualified bidder, or unbalanced between labor and materials or 
other respects.
    (11) Award of contract. (i) The borrower shall obtain from the 
engineer the determination of the lowest responsive bid, a tabulation of 
all bids and the engineer's recommendation for award of the contract. 
Contract award is subject to RUS approval if either the cost of the 
project is over $500,000 or the contract is with an organization 
affiliated with the borrower. Contract award of all other projects is 
not subject to RUS approval.
    (ii) If an award is made, the borrower shall award the contract to 
the lowest responsive bidder. The borrower may award the contract 
immediately upon determination of the lowest responsive bidder if the 
following conditions are met:
    (A) The project is included in an approved loan and adequate funds 
were budgeted in the loan and are available.
    (B) All applicable RUS procedures were followed, including those in 
the Notice and Instructions to Bid in the standard forms of contract.
    (iii) If RUS approval of the award of contract is required under 
this paragraph (a)(11), the borrower shall send to RUS for consideration 
of approval of the award:
    (A) Two copies of the low bid.
    (B) The engineer's recommendation and the tabulation of all bids.
    (C) Evidence of acceptance of the low bid by the borrower, such as:
    (1) Certified copy of board resolution or
    (2) letter or telegram to RUS signed by a properly authorized 
corporate official.
    (iv) If RUS approval of the award of contract is not required under 
this paragraph (a)(11), the borrower shall keep a file available for 
inspection by RUS. The file shall be kept for at least two years and 
shall include:
    (A) One copy of all received bids.
    (B) The engineer's recommendation and tabulation of all bids 
including ``Buy American'' evaluations, if any, and all other 
evaluations required by law.
    (C) Evidence of acceptance of the low bid by the borrower, such as a 
copy of the board resolution certified by the Secretary of the board.
    (12) Execution of contract. (i) The borrower shall submit to RUS 
three original counterparts of the contract executed by the contractor 
and borrower.
    (ii) If RUS approves the contract, it shall return one copy to the 
borrower and send one copy to the contractor.
    (b) Negotiated construction contracts. (1) For the construction of 
certain facilities the borrower may negotiate a contract rather than 
solicit sealed competitive bids. Refer to the appropriate subparts E, F, 
or H for specific requirements and procedures.
    (2) For negotiated purchases, borrowers shall use RUS contract 
forms, standards, and specifications.
    (3) For all contract forms except RUS Form 773:

[[Page 402]]

    (i) After a satisfactory negotiated proposal has been obtained, the 
borrower shall submit it to RUS for approval, along with the engineer's 
recommendation, and evidence of acceptance by the borrower.
    (ii) If RUS approves the negotiated proposal, the borrower shall 
submit three copies of the contract, executed by the contractor and 
borrower, to RUS for approval.
    (iii) If RUS approves the contract, RUS shall return one copy of the 
contract to the borrower and one copy to the contractor.
    (4) For RUS Form 773, the borrower is responsible for negotiating a 
satisfactory proposal, executing contracts, and closing the contract. 
See subparts F and I of this part for requirements for major and minor 
construction, respectively, on Form 773.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, as amended at 59 FR 43716, Aug. 25, 1994; 64 FR 16605, Apr. 6, 
1999]



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) The amendment causes an unbonded contract to require a 
contractor's performance bond. This would occur when a contract that is 
executed in an amount below that requiring a performance bond by 7 CFR 
part 1788, subpart C, is amended to an amount above that amount.
    (b) Advance RUS approval to execute other contract amendments is not 
required. These amendments may be submitted to RUS at any time prior to 
closeout. If a borrower wishes to receive an advance of funds based on 
an amended contract amount (i.e., amendments that increase a contract by 
less than 20%), the borrower may initiate an increase in the amount 
approved for advance by submitting three copies of the amendment to RUS 
for approval.
    (c) For each amendment executed, the borrower shall make certain 
that:

[[Page 403]]

    (1) The contractor's bond covers the additional work to be 
performed. If the amendment by itself (or together with preceding 
amendments) increases the original contract price by 20% or more, a bond 
extension will be required to bring the penal sum of the bond to the 
total amended contract price.
    (2) If an amendment covers construction in a county or state not 
included in the original contract, the borrower and contractor are 
licensed to do business in that location.
    (d) Upon execution of any amendment that causes the amended contract 
amount to exceed the original contract amount by 20% or more, three 
copies of the amendment shall be submitted to RUS for approval.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, as amended at 64 FR 16605, Apr. 6, 1999]



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 contain provisions regarding 
engineering and architectural services performed by or for RUS 
telecommunications borrowers. This part implements certain of the 
provisions by setting forth the requirements and procedures to be 
followed by borrowers in selecting architects and engineers and 
obtaining architectural and engineering services by contract or by force 
account.
    (2) Borrowers shall obtain architectural and engineering services 
only from persons or firms which are not affiliated with, and have not 
represented, a contractor, vendor or manufacturer who may provide labor, 
materials, or equipment to the borrower under any current loan.
    (3) Preloan architectural and engineering services may be provided 
by qualified personnel on the borrower's staff or by consultants. 
Neither the selection of a preloan architect or engineer by a borrower, 
nor the contractual arrangements with them, requires RUS approval.
    (4) Postloan architectural and engineering services shall be 
obtained by borrowers from registered architects and engineers licensed 
in the State in which the facilities will be located, except where RUS 
has approved the borrower to provide these services by the force account 
method. When the extent of the proposed major or minor construction is 
such that the postloan engineering involved is within the capabilities 
of employees on the borrower's staff, the borrower may request RUS 
approval to provide such services. This method of providing engineering 
services is referred to as force account engineering. Refer to 
Sec. 1753.17(c).
    (5)(i) For major construction, services provided by architects and 
engineers not on the borrower's staff must be provided under Form 220, 
Architectural Service Contract, or Form 217, Postloan Engineering 
Service Contract--Telecommunications. These contracts require RUS 
approval.
    (ii) For minor construction, borrowers may use the contracts in 
paragraph (a)(5)(i) of this section for postloan architectural or 
engineering services or any other form of contract, such as Form 245, 
Engineering Service Contract, Special Services--Telephone. RUS approval 
of contracts for postloan architectural or engineering services 
associated with minor construction, except for buildings covered in 
paragraph (a)(6) of this section, is not required.
    (6) For buildings to be constructed with RUS funds, postloan 
architectural or engineering services shall be obtained if (1) the 
construction cost exceeds $50,000 (prefab buildings using manufacturer's 
specifications approved by RUS are exempt from this requirement) or (2) 
soil or seismic conditions require special design considerations.
    (b) For the purpose of this subpart B:
    (1) Contract--The services contract between the borrower and its 
architect or engineer.
    (2) Force Account Engineering--Any preloan or postloan engineering 
services performed by the borrower's staff.
    (3) Postloan engineering services--The design, procurement, and 
inspection of

[[Page 404]]

construction to accomplish the objectives of a loan as stated in a LD 
approved by RUS.
    (4) Preloan engineering services--The planning and design work 
performed in preparing a LD. This consists of helping the borrower 
determine the objectives for a loan, including consideration of RUS's 
requirements relating to the modernization plan, selecting the most 
effective and efficient methods of meeting loan objectives, and 
preparing the LD which describes the objectives and presents the method 
selected to meet them.
    (c) Single copies of RUS forms and publications cited in this part 
are available free from Administrative Services Division, Rural 
Utilities Service, United States Department of Agriculture, Washington, 
DC 20250-1500. These forms and publications may be reproduced.
    (d)(1) All outside architects and engineers employed by RUS 
telephone borrowers shall have insurance coverage as required by 7 CFR 
part 1788.
    (2) Borrowers shall ensure that their architects and engineers 
comply with the insurance requirements of their contracts. See 7 CFR 
1788.54.
    (e)(1) Borrowers shall make prompt payments to architects and 
engineers as required by the contract.
    (2) RUS shall not make loan funds available for late payment 
interest charges.

[54 FR 3984, Jan. 27, 1989. Redesignated at 55 FR 39397, Sept. 27, 1990, 
as amended at 58 FR 66259, Dec. 20, 1993; 59 FR 17464, Apr. 13, 1994; 64 
FR 16605, Apr. 6, 1999]



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) The borrower shall use Form 220 when contracting for 
architectural services for major construction, except that the borrower 
may use either Form 220 or Form 217 if the building is an unattended 
central office building.
    (2) The borrower and the architect negotiate the fees for services 
under Form 220.
    (3) Reasonable modifications or additions to the terms and 
provisions in Form 220 may be made, subject to RUS approval, to obtain 
the specific services needed for a building.
    (4)(i) Three copies of Form 220, executed by the borrower and the 
architect, shall be sent to GFR to be forwarded to RUS for approval. RUS 
will review the contract terms and conditions. RUS will not approve the 
contract if, in RUS's judgment:
    (A) Unacceptable modifications have been made to the contract form.
    (B) The contract will not accomplish loan purposes.
    (C) The architectural service fees are unreasonable.
    (D) The contract presents unacceptable loan security risk to RUS.
    (ii) If RUS approves the contract, RUS will send one copy to the 
architect and one copy to the borrower.
    (5) Loan funds will not be available to pay for the preliminary 
architectural services if a loan is not made for the construction 
project, or if the construction project is abandoned.
    (6) Subpart D of 7 CFR part 1753 sets forth the requirements and 
procedures to be followed by borrowers constructing central office, 
warehouse, and garage buildings with RUS loan funds.
    (c)(1) RUS telephone borrowers shall obtain two copies of a 
completed Form 284, Final Statement of Architect's Fees, when all 
services and obligations required under the architectural services 
contract have been completed. All fees shown on the statement shall be 
supported by detailed information where appropriate. For example: out-
of-pocket expense, cost plus, and per diem types of compensation shall 
be listed separately with labor, transportation, etc., itemized for each 
service involving these types of compensation.
    (2) If Form 284 and supporting data are satisfactory, the borrower 
shall approve the statement, sign both copies, and send one copy to the 
GFR.
    (3) Upon approval of Form 284 by RUS, the borrower shall promptly 
make final payment to the architect.

[54 FR 3984, Jan. 27, 1989. Redesignated at 55 FR 39397, Sept. 27, 1990, 
as amended at 59 FR 43717, Aug. 25, 1994; 64 FR 16606, Apr. 6, 1999]

[[Page 405]]



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 engineering fees, on Form 
506, shall be included.
    (ii) RUS will review the contract terms and conditions. RUS will not 
approve the contract if, in RUS's judgement:
    (A) Unacceptable modifications have been made to the contract form.
    (B) The contract will not accomplish loan purposes.
    (C) The engineering service fees are unreasonable.
    (D) The contract presents unacceptable loan security risk to RUS.
    (E) The consulting engineering firm is affiliated with or has 
represented a contractor, vendor, or manufacturer who may provide labor, 
materials, or equipment to the borrower under any current loan.
    (2) Minor construction. When a borrower contracts for an engineering 
firm to inspect and certify construction accounted for under the work 
order procedure or the Contract for Miscellaneous Construction Work and 
Maintenance Services, Form 773 (See 7 CFR part 1753 subpart I), the 
borrower shall require that the certification be signed by a licensed 
engineer.
    (c)(1) Major construction. When the extent and complexity of the 
proposed construction is such that the engineering involved is within 
the capabilities of employees on the borrower's staff, borrowers may 
request RUS approval to provide such services.
    (i) The request shall include:
    (A) A description of services to be performed.
    (B) The name and qualifications of the employee to be in charge. RUS 
requires this employee to meet the State experience requirements for 
registered engineers. In the absence of specific State experience 
requirements, the employee must have at least eight years experience in 
the design and construction of telecommunication facilities, with at 
least two years of the work experience at a supervisory level. RUS does 
not require professional registration of this employee, but this does 
not relieve the borrower from compliance with applicable State 
registration requirements which may require a licensed individual to 
perform such services.
    (C) The names, qualifications, and responsibilities of other 
principal employees who will be associated with providing the 
engineering services.
    (D) A letter signed by an authorized representative of the borrower 
authorizing the engineering services to be performed by force account 
and certifying the information supporting the request.
    (ii) RUS shall notify the borrower by letter of approval or 
disapproval to perform force account engineering. The letter shall set 
forth any conditions associated with an approval or the reasons for 
disapproval.
    (iii) RUS's approval of force account engineering for major 
construction shall be only for the specific projects named in the notice 
of approval.
    (2) Minor construction. (i) When the borrower proposes to perform 
the inspection and certification of minor construction, the following 
shall be submitted to the RUS:
    (A) A copy of the employee's qualifications and experience record, 
unless previously submitted. RUS requires a minimum of four years of 
construction

[[Page 406]]

and inspection experience. The employee cannot be engaged in the actual 
construction.
    (B) A letter signed by an authorized representative of the borrower 
authorizing the performance of these services by the employee, subject 
to RUS approval, and certifying the supporting information.
    (ii) RUS shall notify the borrower by letter of approval or 
disapproval of the borrower's staff employee to perform the inspection 
and certification of construction. The approval shall be limited to the 
employee's area of expertise.
    (d)(1) Subject to the requirements of this part and other applicable 
regulations, RUS will make loan funds available for the architectural 
and engineering services up to the amounts included in the approved 
loan.
    (2) Advance of funds shall be requested on an FRS as set forth in 7 
CFR part 1744 subpart C.
    (e) The borrower shall obtain status of contract and force account 
proposal reports from the engineer once each month. The report shall 
show for each contract or FAP the approved contract or FAP amount, the 
date of approval, the scheduled date construction was to begin and the 
actual date construction began, the scheduled completion date, the 
estimated or actual completion date, the estimated or actual date of 
submission of closeout documents, and an explanation of delays or other 
pertinent data relative to progress of the project. One copy of this 
report shall be submitted to the GFR.
    (f)(1) Upon completion of all services required under the 
engineering service contract Form 217, the borrower shall obtain from 
the engineer four copies of the Final Statement of Engineering Fee, Form 
506.
    (2) If the statement is satisfactory, the borrower shall sign all 
copies and send three to the GFR.
    (3) After RUS approval of Form 506, one copy shall be sent to the 
borrower and one copy sent to the engineer.
    (4) The borrower shall promptly make final payment to the engineer.

[54 FR 3984, Jan. 27, 1989. Redesignated at 55 FR 39397, Sept. 27, 1990, 
and amended at 59 FR 43717, Aug. 25, 1994; 64 FR 16606, Apr. 6, 1999]



Sec. 1753.18  Engineer and architect contract closeout certifications.

    A certification of completion and inspection of construction signed 
by the borrower and countersigned in accordance with accepted 
professional engineering and architectural practice, by the engineer or 
architect, shall be prepared as evidence of completion of a major 
construction project. This certification shall make reference to the 
contract number and contract amount, and shall include the following:
    (a) A statement that the construction is complete and was done in 
accordance with the RUS approved system design or layout or subsequent 
RUS approved changes.
    (b) A statement that the construction was for loan purposes.
    (c) A statement that construction used RUS-accepted materials and 
was in accordance with specifications published by RUS covering the 
construction which were in effect when the contract was executed, or in 
the absence of such specifications, that it meets other applicable 
specifications and standards (specify), and that it meets all applicable 
national and local code requirements as to strength and safety.
    (d) A statement that the construction complies with the ``Buy 
American'' provision (7 U.S.C. 903 note) of the Rural Electrification 
Act of 1936 (7 U.S.C. 901 et seq.).
    (e) A statement that all necessary approvals have been obtained from 
regulatory bodies and other entities with jurisdiction over the project.
    (f) A statement that all closeout documents required by this part 
have been examined and found complete such that the Contractor has 
fulfilled all obligations under the contract except for warranty 
coverage.
    (g) A statement that the engineer or architect is not affiliated 
with and does not represent the contractor, vendor, or manufacturer who 
is a participant in the contract.

[64 FR 16606, Apr. 6, 1999]



Secs. 1753.19-1753.20  [Reserved]


Subpart C [Reserved]

[[Page 407]]



                  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 headquarters, commercial office, 
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. In addition, 
preliminary plans and specifications for headquarters and commercial 
office buildings to be constructed with loan funds are subject to RUS 
approval.
    (d) RUS Form 257, Contract to Construct Buildings, shall be used for 
the construction of all headquarters, commercial office, central office, 
warehouse, and garage buildings with loan funds. Refer to Sec. 1753.26 
for further instructions.
    (e) The borrower shall use the sealed competitive bid procedure for 
all building construction, except for:
    (1) Minor construction using subpart I procedures.
    (2) Major construction, where the borrower has received advanced 
approval to perform the construction by force account.
    Refer to 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 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; 64 FR 16606, Apr. 6, 
1999]



Sec. 1753.26  Plans and specifications (P&S).

    (a) For headquarters and commercial office buildings only, the 
borrower shall prepare preliminary P&S showing the floor plan and 
general architectural details of the building to be constructed using 
loan funds. In particular, the preliminary P&S shall address the 
requirements of Sec. 1753.25(f) and the Uniform Relocation Assistance 
and Real Property Acquisition Policies Act of 1970 (42 U.S.C. 4601 et 
seq.). The P&S shall be submitted to the GFR and are subject to RUS 
approval.

[[Page 408]]

    (b) The borrower shall prepare P&S for construction of all 
buildings. Each set of P&S shall include:
    (1) RUS Contract Form 257, Contract to Construct Buildings, 
completed to the extent explained in (c) of this section.
    (2) Complete and detailed specifications covering materials and 
workmanship.
    (3) A detailed building plan. Where the building is to house 
electronic apparatus, the detailed plan or specifications shall include 
the equipment environmental requirements and special equipment required.
    (4) A site plan for each building showing the building location and 
giving the legal description of the site. Sufficient information must be 
provided for the site so that it can be identified as the same property 
on which title opinion was submitted to RUS. The legal description shall 
be typed on the site plan. The borrower shall also furnish topographical 
information and a description of any proposed site development work and 
show proposed connections for public utilities.
    (c) RUS Contract Form 257 shall be completed as follows:
    (1) List of names or kinds of buildings and locations--Site plan and 
specifications must be identified with the appropriate building.
    (2) Alternates--The borrower shall keep the number of alternates to 
a minimum. Items for which alternates are to be taken shall be fully 
described on a separate sheet in the specifications and the details 
shown on the plans, when necessary, and identified by the alternate 
number. The Notice and Instructions to Bidders shall explain how bids 
will be evaluated with respect to alternates.
    (3) Time for construction--A reasonable time for completion of 
construction, considering local conditions, shall be determined by the 
borrower and inserted in the space provided. Too short a construction 
period may discourage bidders or influence their bids. Completion of the 
building, where central office equipment is involved, shall be 
coordinated with delivery of the equipment. The time of completion shall 
allow adequate drying time before the central office equipment is stored 
or installed in the building.
    (d) The plans and specifications shall show the identification and 
date of the model code used for seismic safety design considerations, 
and the seismic factor used. See 7 CFR part 1792, subpart C.
    (e) Two sets of the building plans and specifications shall be 
prepared and submitted to the GFR.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, as amended at 59 FR 43717, Aug. 25, 1994; 64 FR 16606, Apr. 6, 
1999]



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.
    (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.

[[Page 409]]



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 immediate submission to 
RUS of an amendment under Sec. 1753.11, a final contract amendment 
showing the changes shall be prepared.
    (2) Upon completion of the project, the borrower shall obtain 
certifications from the architect or engineer that the project and all 
required documentation are satisfactory and complete. The requirements 
for this certification are contained in Sec. 1753.18.
    (3) The engineer's or architect's contract closeout certification 
and the final amendment shall be submitted to RUS as a basis for the 
final advance of funds for the contract.
    (4) After all required RUS approvals are obtained, final payment is 
made in accordance with article III of RUS Form 257 once the borrower 
has received the architect's or engineer's certifications regarding 
satisfactory completion of the project.
    (c) Upon completion of force account construction, the borrower 
shall:
    (1) Arrange with its architect or engineer and the GFR for final 
inspection of the project.
    (2) Complete, with the assistance of its architect or engineer, the 
documents listed in the following table that are required for the 
closeout of force account construction.

                            Documents Required To Closeout Construction of Buildings
----------------------------------------------------------------------------------------------------------------
                                                      Use with      No. of copies prepared      Distribution
                                                -------------------           by           ---------------------
         RUS Form No.             Description                      ------------------------
                                                 Contract   Force               Architect/  Borrower  Contractor
                                                           account  Contractor   engineer
----------------------------------------------------------------------------------------------------------------
238..........................  Construction or          X  .......  ..........        (3)   (to RUS)   (to RUS)
                                Equipment
                                Contract
                                Amendment (if
                                not previously
                                submitted, send
                                to RUS for
                                approval).
181..........................  Certificate of           X  .......  ..........          2          1          1
                                Completion
                                (contract
                                construction) \
                                1\.
231..........................  Certificate of           X  .......          1   ..........         1  ..........
                                Contractor.
224..........................  Waiver and               X  .......          1   ..........         1  ..........
                                Release of Lien
                                From Each
                                Supplier.
213..........................  Certificate (buy         X  .......          1   ..........         1  ..........
                                American).
None \2\.....................  ``As Built''             X        X  ..........          1          1  ..........
                                Plans and
                                Specifications.
None.........................  Guarantees,              X  .......          1   ..........         1  ..........
                                Warranties,
                                Bonds,
                                Operating or
                                Maintenance
                                Instructions,
                                etc.
None.........................  Architect/               X        X  ..........          2          1          1
                                Engineer
                                seismic safety
                                certification.
----------------------------------------------------------------------------------------------------------------
\1\ Cost of materials and services furnished by borrower are not to be included in Total Cost on RUS Form 181.
\2\ When only minor changes were made during construction, two copies of a statement to that effect from the
  Architect will be accepted instead of the ``as built'' Plans and Specifications.


[[Page 410]]

    (3) Make distribution of the completed documents as indicated in the 
table in this section.
    (d) Final payment shall not be made until RUS has approved the 
closeout documents.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39396, Sept. 27, 
1990, as amended at 59 FR 43717, Aug. 25, 1994; 64 FR 16606, Apr. 6, 
1999]



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.
    (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 I.P. 
300-4, ``List of Materials Acceptable for Use on Telecommunications 
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.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, as amended at 64 FR 16607, Apr. 6, 1999]



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.

[[Page 411]]

    (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) RUS review of P&S is required for construction estimated to cost 
over $500,000 total or estimated to cost more than 25% of the total 
loan, whichever is less.
    (1) If RUS review is required, the borrower shall submit one copy of 
the P&S to the GFR for RUS review.
    (2) RUS will review the P&S and notify the borrower in writing of 
approval or disapproval.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, as amended at 64 FR 16607, Apr. 6, 1999]



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:
    (1) Solicitation of bids. (i) After RUS approval of the 
specifications and equipment requirements (required only for projects 
expected to exceed $500,000 or 25% of the loan, whichever is less), the 
borrower shall send ``Notice and Instructions to Bidders'' to suppliers 
with central office equipment included in the current Informational 
Publication (I.P.) 300-4, ``List of Materials Acceptable for Use on 
Telecommunications Systems of RUS Borrowers.'' I.P. 300-4 is a 
subscription item available from the Superintendent of Documents, U.S. 
Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. 
This ``Notice'' may also be sent to suppliers of non-domestic equipment 
currently accepted by RUS as meeting RUS technical standards. 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 P&S.
    (2) Technical Sessions. (i) The borrower shall schedule individual 
technical sessions by the suppliers, notify each supplier of its 
scheduled date and time, notify the GFR of all scheduled dates and 
times, and request the following be available at the technical session:
    (A) Lists of equipment, material and software.
    (B) Proposed floor plan.
    (C) Power and heat dissipation calculations.
    (D) List of exceptions to plans and specifications.
    (E) Protection and grounding requirements.
    (F) Description of how office administration, maintenance and 
traffic collection are handled with step-by-step examples and printouts.
    (G) Explanation of processor and/or memory expansion required to 
meet ultimate size. This shall include discussions of software, 
processor memory, and hardware additions needed for line additions and 
the introduction of various future services; the relative costs of 
installing the necessary hardware and software initially as compared 
with the anticipated cost if installed at

[[Page 412]]

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 
the changes to P&S (required only for projects that are expected to 
exceed $500,000 or 25% of the loan, whichever is less), sealed bids 
shall be solicited from only those bidders whose technical proposals 
meet P&S requirements. When fewer than three bidders are adjudged 
qualified by the borrower to bid, RUS approval must be obtained to 
proceed. Generally, RUS will grant such approval only if the borrower 
can demonstrate to the satisfaction of RUS that a good faith effort was 
made to obtain at least three competitive bids. This would be 
demonstrated if all suppliers currently listed in I.P. 300-4 were 
invited to submit technical proposals.
    (vi) The borrower shall invite the GFR to attend the technical 
sessions.
    (3) Bidding and award of contract. (i) All bids must be completed, 
dated, and signed prior to submission.
    (ii) The bid opening and award of contract shall be conducted in 
accordance with the procedure set forth in 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 
(required only for contracts expected to exceed $500,000 or 25% of the 
loan, whichever is less), the borrower shall send two complete copies of 
the approved P&S to the supplier an 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) If the contract is expected to exceed $500,000 or 25% of the 
loan, whichever is less, changes in the P&S resulting from the technical 
session shall be subject to RUS review and approval.
    (4) The submitted proposal shall be based on the agreed-upon results 
of the technical evaluation and must be complete, dated, and signed.
    (5) The borrower shall obtain an award recommendation from its 
engineer.
    (6) The following shall be sent to RUS for review and approval:

[[Page 413]]

    (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 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

[[Page 414]]

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 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

[[Page 415]]

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 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.

[[Page 416]]

    (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. If the total cost exceeds $500,000, 
RUS approval of the award of contract is required. The borrower shall in 
this case submit its plan and the supplier's proposal to GFR. If the 
cost does not exceed $500,000, the borrower's award of contract is not 
subject to RUS approval.
    (3) If RUS approval was required by paragraph (e)(2) of this 
section, upon RUS approval the purchase may be made using RUS Contract 
Form 525, or 545, or when applicable, the procedures contained in 
subpart I of this part.
    (4) If the purchase is to be made by contract, three executed copies 
of the contract with attachments are to be submitted to the RUS.
    (5) Installation of the central office equipment and materials 
procured by RUS Contract Form 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, as amended at 59 FR 17679, Apr. 14, 1994; 64 FR 16607, Apr. 6, 
1999]



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. Amendments that must be submitted to RUS 
for approval, as required by Sec. 1753.11, shall be submitted promptly. 
All other amendments may be submitted to RUS with the engineer's 
contract closeout certification.
    (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 as 
part of the partial closeout and final closeout of RUS Contract Form 
525. Tests that will demonstrate compliance with the requirements of 7 
CFR 1755.522 are contained in RUS Bulletin 1753E-201. Other tests 
demonstrating compliance will be acceptable. RUS Bulletin 1753E-201 is 
available from RUS, Program Support and Regulatory Analysis, STOP 1522, 
1400 Independence Ave., SW., Washington, DC 20250-1522.
    (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

[[Page 417]]

closeout procedure contained in RUS Contract Form 525, the borrower 
shall:
    (1) Obtain from the engineer a certification of partial closeout.
    (2) Submit one copy of the summary to RUS with an FRS.
    (f) Final contract closeout procedure. The documents required for 
the final closeout of the central office equipment contract, RUS 
Contract Forms 525 and 545, are listed in the following table, which 
also indicates the number of copies and their distribution. The 
procedure to be followed is as follows:

                        Documents Required To Closeout Central Office Equipment Contract
----------------------------------------------------------------------------------------------------------------
                                            Use with                 Prepared by              Distribution
                                   -----------------------------------------------------------------------------
  RUS Form No.      Description       RUS Form     RUS Form
                                        525          545       Contractor    Engineer     Borrower    Contractor
----------------------------------------------------------------------------------------------------------------
238............  Construction or              X            X  ...........          (3)     (to RUS)     (to RUS)
                  Equipment
                  Contract
                  Amendment (if
                  not previously
                  submitted, send
                  to RUS for
                  approval).
754............  Certificate of               X  ...........            3            3            2            1
                  Completion and
                  Certificate of
                  Contractor and
                  Indemnity
                  Agreement (if
                  submitted, Form
                  744 is not
                  required).
517............  Results of                   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  ...........            2            1            1
                  Completion--Not
                  Including
                  Installation.
224............  Waiver and                   X  ...........            1  ...........            1  ...........
                  Release of Lien
                  (from each
                  supplier).
231............  Certificate of               X  ...........            1  ...........            1  ...........
                  Contractor.
213............  Certificate (Buy             X            X            1  ...........            1  ...........
                  American).
None...........  Switching                    X            X            2  ...........            2  ...........
                  Diagram, as
                  installed.
None...........  Set of Drawings              X            X            2  ...........            2  ...........
                  (each set to
                  include all the
                  drawings
                  required under
                  the
                  Specification,
                  RUS Form 522).
----------------------------------------------------------------------------------------------------------------

    (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:

[[Page 418]]

    (A) Prepare and assemble the documents listed in the table in this 
section, 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 the table available for GFR 
review on the date of final inspection.
    (iv) Distribute the documents as indicated in the table. The 
documents listed for RUS shall be retained by the borrower for 
inspection by RUS for at least two years from the date of the engineer's 
contract closeout certificate.
    (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.
    (g) Once RUS approval has been obtained for any required amendments, 
the borrower shall obtain certifications from the engineer that the 
project and all required documentation are satisfactory and complete. 
The requirements for the final contract certification are contained in 
Sec. 1753.18.
    (h) Once these certifications have been received, final payment 
shall be made according to the payment terms of the contract. Copies of 
the certifications shall be submitted with the FRS, requesting the 
remaining funds on the contract.

[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; 62 FR 32477, June 16, 1997; 64 FR 16608, Apr. 6, 1999]



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) Contract Form 515, which is for $250,000 or less, may, at the 
borrower's option, be negotiated. See Sec. 1753.48(b).
    (3) RUS Form 773 may be used for minor outside plant projects which 
are not competitively bid because they cannot be designed and staked at 
the time of contract execution. Projects of this nature include routine 
line extensions and placement of subscriber drops. See subpart I of this 
part.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, and amended at 59 FR 43717, Aug. 25, 1994; 64 FR 16608, Apr. 6, 
1999]



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.

[[Page 419]]

    (v) RUS Form 515g (Bulletin 345-154)--Specifications and Drawings 
for Service Entrance and Station Protector Installation.
    (b) Preparation of plans and specifications. Each set of plans and 
specifications shall include:
    (1) RUS Contract Form 515, ``Telephone System Construction Contract 
(Labor and Materials).''
    (2) The specifications described in paragraph (a)(2) of this section 
as specified by the borrower in the RUS Contract Form 515.
    (3) Description of special assembly units and guide drawings, if 
any.
    (4) Key, detail, and cable layout maps.
    (5) RUS Contract Form 787, ``Supplement A to Construction Contract, 
RUS Contract Form 515,'' when the borrower proposes to provide any 
materials to the contractor. The borrower shall not order materials for 
a contractor without RUS approval. In such cases the borrower must 
attach Form 787 and a ``List of Owner's Materials on Hand'' and/or a 
``List of Materials Ordered by Owner but Not Delivered'' to contract 
Form 515 (See 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) If the 
project does not exceed $500,000 or 25% of the loan, whichever is less, 
the borrower shall furnish GFR one set of P&S. The borrower may then 
proceed with procurement in accordance with Sec. 1753.48.
    (2) If the project exceeds $500,000 or 25% of the loan, whichever is 
less, RUS approval of P&S is required. Two sets of P&S shall be 
furnished to GFR. RUS will return one set to the borrower upon notice of 
approval. The borrower may then proceed with procurement in accordance 
with Sec. 1753.48.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, 55 FR 53488, Dec. 31, 1990; 64 FR 16609, Apr. 6, 1999]



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 the contract shall 
be conducted in accordance with Secs. 1753.5(b)(1) and 1753.8(a).
    (ii) If Sec. 1753.8 requires RUS approval of award of the bid, the 
borrower shall submit to RUS two copies of the assembly unit sections of 
the apparent lowest responsive bid accepted by the borrower.
    (b) Negotiated procurement. (1) Competitive bids are not required 
for outside plant construction that is estimated to cost $250,000, or 
less, inclusive of labor and materials.

[[Page 420]]

    (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.
    (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.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, as amended at 64 FR 16609, Apr. 6, 1999]



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.

[[Page 421]]

    (b) Documents required. The following table lists the documents 
required to closeout the RUS contract Form 515.

                              Documents Required To Closeout Construction Contract
                                                 [RUS Form 515]
----------------------------------------------------------------------------------------------------------------
                                                               No. of copies prepared         Distribution
                                                                         by            -------------------------
        RUS Form No.                    Description          --------------------------
                                                               Contractor    Engineer     Borrower    Contractor
----------------------------------------------------------------------------------------------------------------
724.........................  Final Inventory--Certificate    ...........            2            1            1
                               of Completion.
724a........................  Final Inventory--Assembly       ...........            2            1            1
                               Units.
None........................  Contractor's Bond Extension             (3)  ...........     (to RUS)     (to RUS)
                               (send to RUS when required).
281.........................  Tabulation of Materials                   2  ...........            1            1
                               Furnished by Borrower.
213.........................  Certificate--``Buy American''.            1  ...........            1  ...........
None........................  Listing of Construction Change  ...........            1            1  ...........
                               Orders.
224.........................  Waiver and Release of Lien                1  ...........            1  ...........
                               (from each supplier).
231.........................  Certificate of Contractor.....            1  ...........            1  ...........
527.........................  Final Statement of              ...........            2            1            1
                               Construction.
None........................  Reports on Results of           ...........            1            1            1
                               Acceptance Tests.
None........................  Set of Final Staking Sheets...  ...........            1            1  ...........
None........................  Tabulation of Staking Sheets..  ...........            1            1  ...........
None........................  Correction Summary (legible     ...........            1            1  ...........
                               copy).
None........................  Treated Forest Products         ...........  ...........            1  ...........
                               Inspection Reports or
                               Certificates of Compliance
                               (prepared by inspection
                               company or supplier).
None........................  Final Key Map (when             ...........            1            1  ...........
                               applicable).
None........................  Final Central Office Area and   ...........            1            1  ...........
                               Town Maps.
----------------------------------------------------------------------------------------------------------------

    (c) Closeout procedure. (1) After construction has been completed in 
accordance with the plans and specifications, and acceptance tests have 
been made, the borrower shall arrange the time for a final inspection to 
be made by the borrower's engineer, the contractor, the GFR and a 
representative of the borrower.
    (2) Final inventory documents. (i) The borrower shall obtain 
certifications from the engineer that the project and all required 
documentation are satisfactory and complete. Requirements for these 
contract closeout certifications are contained in Sec. 1753.18.
    (ii) The borrower shall prepare and distribute the final inventory 
documents in accordance with the tables contained in this section. The 
documents listed for RUS shall be retained by the borrower for 
inspection by RUS for at least two years from the date of the engineer's 
contract closeout certification.

                          Step-by-Step Procedure for Closeout of Construction Contract
                                                 [RUS Form 515]
----------------------------------------------------------------------------------------------------------------
                      Sequence
----------------------------------------------------           By                         Procedure
        Step No.                    When
----------------------------------------------------------------------------------------------------------------
1......................  Upon Completion of          Borrower's Engineer..  Prepares the following: a set of
                          Construction.                                      Detail Maps and a set (when
                                                                             applicable) of Key Maps which show
                                                                             in red the work done under the 515
                                                                             contract; a Tabulation of Staking
                                                                             Sheet; and a tentative Final
                                                                             Inventory, RUS Forms 724 and 724a.
2......................  After acceptance tests      Borrower's Engineer..  Forwards letter to the borrower with
                          made.                                              copies to the GFR stating that the
                                                                             project is ready for final
                                                                             inspection. Schedules inspection
                                                                             date.
3......................  Upon receipt of letter      GFR..................  Advises borrower whether attending
                          from Borrower's Engineer.                          the final inspection will be
                                                                             possible.

[[Page 422]]

 
4......................  By inspection date........  Borrower's Engineer..  Obtains and makes available the
                                                                             following documents: a set of ``as
                                                                             constructed'' detail maps and (when
                                                                             applicable) ``as built'' key maps;
                                                                             a list of construction change
                                                                             orders; the final staking sheets;
                                                                             the tabulation staking sheets; the
                                                                             treated forest products inspection
                                                                             reports or certificates of
                                                                             compliance; the tentative final
                                                                             inventory, RUS Forms 724 and 724a;
                                                                             the tentative tabulation, RUS Form
                                                                             231 (if borrower furnished part of
                                                                             material); and, a report of results
                                                                             of acceptance tests.
5......................  During inspection.........  Borrower's Engineer..  Issues instructions to contractor
                                                                             covering corrections to be made in
                                                                             construction as a result of
                                                                             inspection.
6......................  During inspection.........  Contractor...........  Corrects construction on basis of
                                                                             instructions from the borrower's
                                                                             engineer. The corrections should
                                                                             proceed closely behind the
                                                                             inspection in order that the
                                                                             borrower's engineer can check the
                                                                             corrections before leaving the
                                                                             system.
7......................  During inspection.........  Borrower's Engineer..  Inspects and approves corrected
                                                                             construction. Marks inspected areas
                                                                             on the key map, if available,
                                                                             otherwise on the detail maps.
8......................  Upon completion of          Borrower's Engineer..  Prepares or obtains all the closeout
                          inspection.                                        documents listed in Table 3.
9......................  After signing final         Borrower.............  Prepares and submits to RUS the
                          inventory.                                         engineer's certifications of
                                                                             completion and a Financial
                                                                             Requirement Statement, RUS Form
                                                                             481, requesting amount necessary to
                                                                             make final payment due under
                                                                             contract.
10.....................  On receipt of final         Borrower.............  Promptly forwards check for final
                          advance.                                           payment to contractor.
11.....................  During subsequent loan      RUS Field Accountant.  Examines borrower's construction
                          fund audit review                                  records for compliance with the
                          following final payment.                           construction contract and Subpart
                                                                             F, and examines RUS Form 281
                                                                             (Tabulation of Materials Furnished
                                                                             by Borrower) if any, for
                                                                             appropriate costs.
----------------------------------------------------------------------------------------------------------------

    (iii) When the total inventory price exceeds the maximum contract by 
more than 20 percent, an extension to the contractor's bond is required.
    (iv) The borrower shall submit the engineer's contract closeout 
certification with FRS for the final advance of funds.
    (3) Final payment shall be made according to the payment provisions 
of article III of RUS Form 515, except that certificates and other 
documents required to be submitted to or approved by the Administrator 
shall be submitted to and approved by the Owner.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, and amended at 59 FR 43717, Aug. 25, 1994; 64 FR 16609, Apr. 6, 
1999]



Secs. 1753.50-1753.55  [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

[[Page 423]]

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:
    (i) The scope of the construction to be undertaken, stating briefly 
the facilities and equipment to be installed and other pertinent data.
    (ii) The name and qualifications of the construction supervisor who 
will be directly in charge of construction, the names and qualifications 
of the construction foremen, and the availability of qualified 
construction personnel. The construction supervisor must have at least 5 
years outside plant construction experience with at least 2 years at the 
supervisory level on RUS financed projects. Construction foremen must 
have at least 3 years of outside plant construction experience.
    (iii) The availability of equipment for construction, exclusive of 
equipment needed for normal operation and maintenance.
    (2) [Reserved]
    (b) Force Account Proposal (FAP). Upon receiving RUS approval to use 
the force account method, the borrower, prior to any construction 
activity or the purchase of materials or equipment, shall submit to RUS 
two copies of its FAP. The FAP shall consist of:
    (1) The RUS Contract Form 515 and appropriate supporting attachments 
that normally would be provided as plans and specifications for contract 
construction. See 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.

[[Page 424]]

    (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.



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 
the following table. The following is a brief description of the 
closeout documents:

Documents Required To Close Out Force Account Outside Plant Construction
------------------------------------------------------------------------
         RUS Form No.                         Description
------------------------------------------------------------------------
817, 817a, 817b..............  Final Inventory Force Account
                                Construction and Certificate of
                                Engineer. Submit one copy to RUS, if
                                required \1\
213..........................  Certificate--``Buy American'' (as
                                applicable from each supplier).
None.........................  Detail Maps.
None.........................  Key map, if applicable.
None.........................  Staking Sheets.
None.........................  Tabulation of staking sheets.
None.........................  Treated Forest Products Inspection
                                Reports or Certificates of Compliance
                                (prepared by inspection company or
                                supplier).
------------------------------------------------------------------------
\1\ RUS Forms 817, 817a, and 817b are to be submitted to GFR only if
  required in paragraph (c)(5) of this section. Otherwise, the final
  inventory documents are to be assembed and retained by the borrower
  for at least two years.

    (c) Closeout procedures. (1) The borrower shall notify the GFR when 
the project is ready for final inspection.
    (2) The GFR shall be invited to make the final inspection 
accompanied by the engineer and the borrower.
    (3) The borrower shall correct all deficiencies found during the 
final inspection.
    (4) The borrower may request the assistance of an RUS field 
accountant to review the borrower's record of construction expenditures 
and assist the borrower with any accounting problems in connection with 
construction expenditures.
    (5) After inspection, the final inventory documents shall be 
assembled as indicated in the table in this section. RUS Forms 817, 
817a, and 817b are to be submitted to GFR only if the amount of the 
closeout exceeds the original force account proposal by 20% or more. 
Otherwise, the final inventory documents are to be assembed and retained 
by the borrower for at least two years.
    (6) Upon approval of the closeout documents, RUS will notify the 
borrower of approval and of any adjustments to be made in funds advanced 
in connection with the construction.
    (d) The above are not intended to be a complete description of the 
requirements of the documents relating to RUS's closeout procedure. 
Refer to the documents for additional requirements.

[55 FR 3572, Feb. 2, 1990. Redesignated at 55 FR 39397, Sept. 27, 1990, 
as amended at 64 FR 16610, Apr. 6, 1999]

[[Page 425]]



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 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

[[Page 426]]

grounding plan and detailed installation information. The installation 
information is to enable acceptance testing by the borrower upon 
completion of the installation.
    (2) For initial equipment purchases that qualify as major 
construction, the borrower shall obtain proposals from at least three 
suppliers of equipment of different manufacturers.
    (3) For equipment additions to increase the capacity of existing 
systems, the borrower may negotiate for equipment of a specific type and 
manufacture. RUS approval to negotiate in this instance is not required 
if these additions were specifically described in the LD approved by RUS
    (4) For new system additions, the borrower may request RUS approval 
to negotiate for additional equipment for the purpose of standardization 
on a system basis, provided RUS approved the procurement method used for 
the initial equipment purchase. RUS approval to negotiate must be 
obtained before release of the P&S to the seller.
    (5) RUS will not approve negotiation with a seller of non-domestic 
equipment for the purpose of standardization, because such a purchase 
does not meet the ``Buy American'' provision.
    (6) RUS recommends, but does not require, that borrowers include 
installation by the seller for initial installations of special 
equipment that qualify as major construction.
    (7) Special equipment may be installed by the borrower if it has 
qualified personnel and test equipment available to install the 
equipment and make the required acceptance tests, and written approval 
is given by RUS.
    (8) Installations, whether by the borrower or the seller, must meet 
the installation requirements of 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 P&S and, 
for projects estimated to exceed $500,000 or 25% of the loan, whichever 
is less, sends two copies to GFR for approval.
    (ii) For projects estimated to exceed $500,000 or 25% of the loan, 
whichever is less, RUS will either approve P&S in writing or notify the 
borrower of the reasons for withholding approval.
    (iii) For projects estimated to cost less than $500,000 or 25% of 
the loan, whichever is less, the borrower may proceed with procurement 
upon completion of the P&S.
    (iv) If the borrower has employed full competitive bidding in the 
selection, a contract may be executed with the successful bidder and the 
borrower may proceed to paragraph (b)(2)(vi) of this section.
    (v) If the borrower did not follow a fully competitive bidding 
process as described in Sec. 1753.8, the selection, along with a summary 
of all proposals and an engineer's recommendation, shall be sent to RUS. 
RUS shall approve the proposal selection in writing or notify the 
borrower of any reason for withholding approval.
    (vi) The borrower sends three executed contracts including 
specifications to RUS for approval.
    (vii) After RUS approval of the contract, one copy will be returned 
to the borrower and one copy will be sent to the seller.
    (3) Equipment additions to existing systems. Purchase procedures for 
equipment additions to existing systems are the same as for initial 
system purchase except that the borrower may negotiate for equipment of 
a specific type and manufacture instead of obtaining proposals from 
three or more sellers.
    (4) New system additions. (i) The borrower prepares the P&S and, if 
the

[[Page 427]]

project is estimated to exceed $500,000 or 25% of the loan, whichever is 
less, sends two copies to the GFR for approval. The borrower may request 
RUS approval to negotiate for the purpose of standardization on a system 
basis prior to preparing the P&S.
    (ii) RUS notifies the borrower in writing as to whether the borrower 
may negotiate for specific equipment. If P&S were required to be 
submitted to RUS under paragraph (b)(4)(i) of this section, RUS notifies 
the borrower in writing of P&S approval (or notifies the borrower of the 
reasons for withholding approval).
    (iii) The remainder of the purchase procedure for new system 
additions is the same as for initial equipment purchase.
    (c) Contract amendments. (1) The general requirements for contract 
amendments are set forth in Sec. 1753.11.
    (2) The borrower shall prepare any required amendments to the 
special equipment contract, arrange for the execution by all parties, 
and submit these amendments to RUS in accordance with Sec. 1753.11(d). 
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 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. When the acceptance tests have been 
completed and all deficiencies have been corrected, the borrower:
    (i) Assembles and distributes the documents listed in the following 
table that are required for the closeout of the special equipment 
contract. The documents listed for RUS shall be retained by the borrower 
for inspection by RUS for at least two years from the date of the 
engineer's contract closeout certification.

                           Documents Required To Close Out Special Equipment Contracts
                                             [RUS Forms 397 and 398]
----------------------------------------------------------------------------------------------------------------
                                          No. of copies prepared by                           Distribution
  RUS Form No.      Description    ---------------------------------------   Engineer  -------------------------
                                      Form 397     Form 398    Contractor                 Borrower    Contractor
----------------------------------------------------------------------------------------------------------------
238              Construction or    ...........          (3)  ...........          (3)     (to RUS)     (to RUS)
                  Equipment
                  Contract
                  Amendment (if
                  not previously
                  submitted, send
                  to RUS for
                  approval).
396              Certificate of     ...........            2  ...........  ...........            1            1
                  Completion--
                  Special
                  Equipment
                  Contract
                  (Including
                  Installation).
396a             Certificate of     ...........  ...........  ...........            2            1            1
                  Completion--
                  Special
                  Equipment
                  Contract (Not
                  Including
                  Installation).
744              Certificate of               1  ...........  ...........  ...........            1  ...........
                  Contractor and
                  Indemnity
                  Agreement.
213              Certificate (Buy             1  ...........            1  ...........            1  ...........
                  American).

[[Page 428]]

 
None             Report in                    1  ...........  ...........            1            1  ...........
                  writing,
                  including all
                  measurements and
                  other
                  information
                  required under
                  Part II of the
                  applicable
                  specifications.
None             Set of                       1  ...........            1  ...........            1  ...........
                  maintenance
                  recommendations
                  for all
                  equipment
                  furnished under
                  the contract.
----------------------------------------------------------------------------------------------------------------

    (ii) Obtains certifications from the engineer that the project and 
all required documentation are satisfactory and complete. Requirements 
for this contract closeout certification are contained in Sec. 1753.18.
    (iii) Submits copies of the engineer's certifications to RUS with 
the FRS requesting the remaining funds on the contract.
    (iv) Makes final payment in accordance with the payment terms of the 
contract.

[54 FR 39267, Sept. 25, 1989. Redesignated at 55 FR 39397, Sept. 27, 
1990, and amended at 59 FR 43718, Aug. 25, 1994; 64 FR 16611, Apr. 6, 
1999]



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 containing the requirements and procedures to be followed by 
borrowers for minor construction of telecommunications facilities using 
RUS loan funds. Terms used in this subpart are defined in Sec. 1753.2.
    (b) [Reserved]

(Approved by the Office of Management and Budget under control number 
0572-0062)

[55 FR 3573, Feb. 2, 1990. Redesignated at 55 FR 39397, Sept. 27, 1990, 
as amended at 64 FR 16611, Apr. 6, 1999]



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'', 
by RUS Contract Form 515, or by work order construction. The rules for 
using Form 515 for minor construction are contained in subpart F of this 
part.

[64 FR 16612, Apr. 6, 1999]



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

[[Page 429]]

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.
    (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 dated in the same 
calendar year is limited to the following amounts for the following 
discrete categories of minor construction. The date of the Form 773 
contract is the date the Form 773 contract is executed.
    (1) For outside plant construction, the limit is $500,000 or ten per 
cent (10%) of the borrower's previous calendar year's outside plant 
total construction, whichever is greater.
    (2) For central office equipment, the limit is $500,000.
    (3) For special equipment and buildings, the limit is $250,000 in 
each category.
    (c) A single minor construction project may be a discrete element of 
a somewhat larger overall project, such as the provision and 
installation of a standby power generator or heating/air conditioning 
equipment in connection with a building modification or expansion 
project or the splicing on a major cable placement project. It cannot be 
a portion, by dividing into smaller segments, of a discrete major 
construction project, such as the placement of a continuous cable 
facility.
    (d) RUS approval must be obtained in advance for minor construction 
unless all of the following conditions are met:
    (1) RUS has approved the engineering design.
    (2) All standard RUS procedures are followed, including 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

[[Page 430]]

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; 64 FR 16612, Apr. 6, 1999]



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 
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.

[[Page 431]]

    (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.
    (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

[[Page 432]]

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 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]



PART 1755--TELECOMMUNICATIONS STANDARDS AND SPECIFICATIONS FOR MATERIALS, EQUIPMENT AND CONSTRUCTION--Table of Contents



Sec.
1755.1-1755.2  [Reserved]
1755.3  Field trials.
1755.4-1755.25  [Reserved]
1755.26  RUS standard contract forms.
1755.27  Borrower contractual obligations.
1755.28  Notice and publication of listed contract forms.
1755.29  Promulgation of new or revised contract forms.
1755.30  List of telecommunications standard contract forms.
1755.31-1755.96  [Reserved]
1755.97  Incorporation by reference of telecommunications standards and 
          specifications.
1755.98  List of telecommunications specifications included in other 7 
          CFR parts.

[[Page 433]]

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.
1755.398-1755.399  [Reserved]
1755.400  RUS standard for acceptance tests and measurements of 
          telecommunications plant.
1755.401  Scope.
1755.402  Ground resistance measurements.
1755.403  Copper cable telecommunications plant measurements.
1755.404  Fiber optic cable telecommunications plant measurements.
1755.405  Voiceband data transmission measurements.
1755.406  Shield or armor ground resistance measurements.
1755.407  Data formats.
1755.408-1755.499  [Reserved]
1755.500  RUS standard for service installations at customers access 
          locations.
1755.501  Definitions applicable to Secs. 1755.501 through 1755.510.
1755.502  Scope.
1755.503  General.
1755.504  Demarcation point.
1755.505  Buried services.
1755.506  Aerial wire services
1755.507  Aerial cable services.
1755.508  Customer access location protection.
1755.509  Mobile homes.
1755.510  Construction and assembly unit drawings.
1755.511-1755.521  [Reserved]
1755.522  RUS general specification for digital, stored program 
          controlled central office equipment.
1755.523-1755.699  [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.



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

[[Page 434]]

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 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

[[Page 435]]

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 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

[[Page 436]]

as three copies of the RUS Form 399b, ``RUS Telecommunications Field 
Trial'', and forward them, together 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. 1755.4-1755.25  [Reserved]



Sec. 1755.26  RUS standard contract forms.

    (a) The standard loan agreement between RUS and its borrowers 
provides that, in accordance with applicable RUS regulations, borrowers 
shall use standard contract forms promulgated by RUS for construction, 
procurement, engineering services, and architectural services financed 
by a loan or guaranteed by RUS. This part implements these provisions of 
the RUS loan agreement and prescribes the procedures that RUS follows in 
promulgating standard contract forms that borrowers are required to use. 
Part 1753 prescribes when and how borrowers are required to use these 
standard forms of contracts.
    (b) Contract forms. RUS promulgates standard contract forms, 
identified in Sec. 1755.30(c), List of Standard Contract Forms, that 
borrowers are required to use.

[64 FR 6500, Feb. 10, 1999]



Sec. 1755.27  Borrower contractual obligations.

    (a) Loan agreement. As a condition of a loan or loan guaranteed 
under the RE Act, borrowers are normally required to enter into RUS loan 
agreements pursuant to which the borrowers agree to use RUS standard 
contract forms for construction, procurement, engineering services, and 
architectural services financed in whole or in part by the RUS loan. To 
comply with the provisions of the loan agreements as implemented by this 
part, borrowers must use those contract forms identified in the list of 
telecommunications standard contract forms, set forth in Sec. 1755.30(c) 
of this part.
    (b) Compliance. (1) If a borrower is required by part 1753 to use a 
listed contract form, the borrower shall use the listed contract form in 
the format available from RUS. The forms shall not 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 as to indicate the difference from the listed 
contract form.
    (2) The borrower may use electronic reproductions of a contract form 
if the contract documents submitted for RUS approval are exact 
reproductions of the RUS form and include the following certification by 
the borrower: I (Insert name of the person.), certify that the attached 
(Insert name of the contract form.), between (Insert name of the 
parties.), dated (Insert contract date.) is an exact reproduction of RUS 
Form (Insert form number), dated (Insert date of RUS form).

________________________________________________________________________
  (Signature)

________________________________________________________________________

[[Page 437]]

  (Title)

________________________________________________________________________
(Employer's Address)

    (c) Amendment. Where a borrower has entered into a contract in the 
form required by 7 CFR part 1753, no change may be made in the terms of 
the contract, by amendment, waiver or otherwise, without the prior 
written approval of RUS.
    (d) Waiver. RUS may waive for good cause, on a case-by-case basis, 
the requirements imposed on a borrower pursuant to this part. Borrowers 
seeking an RUS waiver must provide RUS with a written request explaining 
the need for the waiver.
    (e) Violations. A failure on the part of the borrower to use listed 
contracts as prescribed in 7 CFR part 1753 is a violation of the terms 
of the loan agreement with RUS and RUS may exercise any and all remedies 
available under the terms of the agreement or otherwise.

[64 FR 6500, Feb. 10, 1999]



Sec. 1755.28  Notice and publication of listed contract forms.

    (a) Notice. Upon initially entering a loan agreement with RUS, 
borrowers will be provided with all listed contract forms. Thereafter, 
new or revised listed contract forms promulgated by RUS, including RUS 
approved exceptions and alternatives, will be sent by regular or 
electronic mail to the borrower's address as identified in its loan 
agreement with RUS.
    (b) Availability. Listed contract forms are published by RUS. 
Interested parties may obtain the forms from the Rural Utilities 
Service, Program Development and Regulatory Analysis, U.S. Department of 
Agriculture, Stop 1522, Washington DC 20250-1522, telephone number (202) 
720-8674. The list of contract forms can be found in Sec. 1755.30(c).

[64 FR 6500, Feb. 10, 1999]



Sec. 1755.29  Promulgation of new or revised contract forms.

    RUS may, from time to time, promulgate new contract forms or revise 
or eliminate existing contract forms. In so doing, RUS shall publish a 
notice of rulemaking in the Federal Register announcing, as appropriate, 
a revision in, or a proposal to amend Sec. 1755.30(c), List of 
telecommunications standard contract forms. The amendment may change the 
existing identification of a listed contract form by, for example, 
changing the issuance date of the listed contract form or identifying a 
new required contract form. The notice of rulemaking will describe the 
new standard contract form or substantive change in the listed contract 
form, as the case may be, and the issues involved. The standard contract 
form or relevant portions thereof may be appended to the supplementary 
information section of the notice of rulemaking. As appropriate, the 
notice of rulemaking shall provide an opportunity for interested persons 
to provide comments. RUS shall send, by regular or electronic mail, a 
copy of each such Federal Register document to all borrowers.

[64 FR 6500, Feb. 10, 1999]



Sec. 1755.30  List of telecommunications standard contract forms.

    (a) General. The following is a list of RUS telecommunications 
program standard contract forms for procurement, construction, 
engineering services, and architectural services. Borrowers are required 
to use these contract forms by the terms of their RUS loan agreements 
implemented by part 1753 and this part.
    (b) Issuance Date. Where part 1753 requires the use of a standard 
contract form in connection with RUS financing, the borrower shall use 
the appropriate form identified in Sec. 1755.30(c), List of 
Telecommunications Standard Contract Forms, published as of the date the 
borrower releases the plans and specifications to solicit bids or price 
quotes.
    (c) List of telecommunications standard contract forms.
    (1) RUS Form 157, issued 10-77, Construction Work Plan and cost 
Distribution--Telephone.
    (2) RUS Form 158, issued 10-77, Certification of Contract or Force 
Account Approval.
    (3) RUS Form 159, issued 10-77, Summary of Completed Construction.
    (4) RUS Form 168b, issued 2-04, Contractor's Bond.

[[Page 438]]

    (5) RUS Form 168c, issued 2-04, Contractor's Bond.
    (6) RUS Form 181a, issued 3-66, Certificate of Completion (Force 
Account Construction).
    (7) RUS Form 187, issued 2-04, Certificate of Completion, Contract 
Construction.
    (8) RUS Form 213, issued 2-04, Certificate (Buy American).
    (9) RUS Form 216, issued 7-67, Construction Change Order.
    (10) RUS Form 217, issued 3-97, Postloan Engineering Services 
Contract--Telecommunications Systems.
    (11) RUS Form 220, issued 6-98, Architectural Services Contract.
    (12) RUS Form 224, issued 2-04, Waiver and Release of Lien.
    (13) RUS Form 231, issued 2-04, Certificate of Contractor.
    (14) RUS Form 238, issued 2-04, Construction or Equipment Contract 
Amendment.
    (15) RUS Form 242, issued 11-58, Assignment of Engineering Service 
Contract.
    (16) RUS Form 245, issued 11-75, Engineering Services Contract, 
Special Services--Telephone.
    (17) RUS Form 257, issued 2-04, Contract to Construct Buildings.
    (18) RUS Form 257a, issued 10-69, Contractor's Bond.
    (19) RUS Form 274, issued 6-81, Bidder's Qualifications.
    (20) RUS Form 276, issued 5-59, Bidder's Qualifications for Buried 
Plant Construction.
    (21) RUS Form 281 issued 5-61, Tabulation of Materials Furnished by 
Borrower.
    (22) RUS Form 282, issued 11-53, Subcontract (Under Construction or 
Equipment Contracts).
    (23) RUS Form 284, issued 4-72, Final Statement of Cost for 
Architectural Service and Certificate of Architect.
    (24) RUS Form 307, issued 2-04, Bid Bond.
    (25) RUS Form 396, issued 3-64, Certificate of Completion--Special 
Equipment Contract (Including Installation).
    (26) RUS Form 396a, issued 3-64, Certificate of Completion--Special 
Equipment Contract (Not Including Installation).
    (27) RUS Form 397, issued September 25, 2000, Special Equipment 
Contract (Including Installation).
    (28) RUS Form 397f, issued 2-63, Contractor's Bond (Special 
Telephone Equipment).
    (29) Addendum No. 1 to RUS Form 397, issued 7-78, Special Equipment 
Contract (Including Installation).
    (30) RUS Form 398, issued 11-62, Special Equipment Contract (Not 
Including Installation).
    (31) RUS Form 399, issued 8-82, Supplemental Agreement to Equipment 
Contract for Field Trial.
    (32) RUS Form 399a, issued 8-82, Supplemental Agreement to Equipment 
Contract for Field Trial (Secondary-Delivery, Installation, Operation).
    (33) RUS Form 506, issued 3-97, Statement of Engineering Fee--
Telecommunications.
    (34) RUS Form 515, issued September 17, 2001, Telecommunications 
Systems Construction Contract (Labor and Materials).
    (35) RUS Form 517, issued 9-64, Results of Acceptance Tests
    (36) RUS Form 525, issued 7-94, Central Office Equipment Contract 
(Including Installation).
    (37) Addendum to RUS Form 525, issued 7-94, Central Office Equipment 
Contract (Including Installation) and RUS Form 545 Central Office 
Equipment Contract (Not Including Installation).
    (38) RUS Form 525a, issued 10-62, Contractor's Bond (Central Office 
Equipment).
    (39) RUS Form 526, issued 8-66, Construction Contract Amendment.
    (40) RUS Form 527, issued 3-71, Statement of Construction, Telephone 
System `` Outside Plant.
    (41) RUS Form 545, issued November 4, 1999, Central Office Equipment 
Contract (Not Including Installation).
    (42) RUS Form 553, issued 5-67, Check List for Review of Plans and 
Specifications.
    (43) RUS Form 724 issued 10-63, Final Inventory, Telephone 
Construction Contract.
    (44) RUS Form 724a issued 4-61, Final Inventory, Telephone 
Construction--Telephone Construction Contract (Labor and Materials), 
columns 1-8.

[[Page 439]]

    (45) RUS Form 724b issued 3-61, Final Inventory, Telephone 
Construction Contract (Labor and Materials), columns 9-14.
    (46) RUS Form 744, issued 2-62, Certificate of Contractor and 
Indemnity Agreement.
    (47) RUS Form 752a, issued 5-66, Certificate of Completion Central 
Office Equipment-Not Including Installation.
    (48) RUS Form 754, issued 6-66, Certificate of Completion and 
Certificate of Contractor and Indemnity Agreement.
    (49) RUS Form 771, Issued 10-75, Summary of Work Orders (Inspected 
by RUS Field Engineer).
    (50) RUS Form 771a, issued 10-75, Summary of Work Orders (Inspected 
by Licensed Engineer or Borrower's Staff Engineer).
    (51) RUS Form 773, issued 12-90, Miscellaneous Construction Work and 
Maintenance Services Contract.
    (52) RUS Form 787, issued 8-63, Supplement A to Construction 
Contract.
    (53) RUS Form 817, issued 6-60, Final Inventory, Telephone Force 
Account Construction.
    (54) RUS Form 817a, issued 6-60, Final Inventory, Telephone Force 
Account Construction, columns 1-8.
    (55) RUS Form 817b, issued 6-60, Final Inventory, Telephone Force 
Account Construction, Columns 9-14.
    (56) RUS Form 835, issued 3-66, Preloan Engineering Service 
Contract, Telephone System Design.

[64 FR 6501, Feb. 10, 1999, as amended at 64 FR 53887, Oct. 5, 1999; 65 
FR 51750, Aug. 25, 2000; 69 FR 7111, Feb. 13, 2004]



Secs. 1755.31-1755.96  [Reserved]



Sec. 1755.97  Incorporation by reference of telecommunications standards 
and specifications.

    The following telecommunications bulletins have been approved for 
incorporation by reference by the Director of the Office of the Federal 
Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. These 
bulletins contain construction standards and specifications for 
materials and equipment and may be obtained from the Rural Utilities 
Service, Program Development and Regulatory Analysis, 1400 Independence 
Ave., SW, Stop 1522, Room 4028 South Building, Washington, DC 20250-
1522. The bulletins are available for inspection at RUS, at the address 
above, and at the National Archives and Records Administration (NARA). 
For information on the availability of this material at NARA, call 202-
741-6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html. These materials are 
incorporated as they exist on the date of the approval and 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 meaning as the terms ``REA form'', ``REA 
standards form'', ``REA specification'', and ``REA bulletin'', 
respectively, unless otherwise indicated. The table of bulletins 
follows:

----------------------------------------------------------------------------------------------------------------
        RUS Bulletin No.          Specification No.   Date last issued      Title of standard or specification
----------------------------------------------------------------------------------------------------------------
345-39.........................  ..................  Aug. 19, 1985.....  RUS specification for telephone station
                                                                          protectors.
345-50.........................  PE-60.............  Sept. 1979........  RUS specification for trunk carrier
                                                                          systems.
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.
345-65.........................  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.
345-180........................  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

[[Page 440]]

 
1753F-150......................  Form 515a.........  9/17/01...........  Specifications and Drawings for
                                                                          Construction of Direct Buried Plant.
1753F-151......................  Form 515b.........  9/12/01...........  Specifications and Drawings for
                                                                          Construction of Underground Plant.
1753F-152......................  Form 515c.........  9/17/01...........  Specifications and Drawings for
                                                                          Construction of Aerial Plant.
1753F-153......................  Form 515d.........  9/17/01...........  Specifications and Drawings for Service
                                                                          Installation at Customer Access
                                                                          Locations.
----------------------------------------------------------------------------------------------------------------


[48 FR 57470, Dec. 30, 1983]

    Editorial Note: For Federal Register citations affecting 
Sec. 1755.97, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and on GPO Access.



Sec. 1755.98  List of telecommunications specifications included in other 
7 CFR parts.

    The following specifications are included throughout 7 CFR chapter 
XVII. These 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 meaning as the terms 
``REA form,'' ``REA standard form,'' ``REA specification,'' and ``REA 
bulletin,'' respectively, unless otherwise indicated. The list of 
specifications follows:

----------------------------------------------------------------------------------------------------------------
               Section                  Issue date                               Title
----------------------------------------------------------------------------------------------------------------
1728.202                                    09-02-93  RUS Specification for Quality Control and Inspection of
                                                       Timber Products.
----------------------------------------------------------------------------------------------------------------



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 National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/
federal--register/code--of--federal--regulations/ibr--locations.html. 
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 National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html. Copies are available from IEEE Service Center, 455 Hoes 
Lane, Piscataway, New Jersey 08854, telephone number 1 (800) 678-4333.
    (b) General. (1) Only Rural Utilities Service (RUS) accepted filled 
cable and

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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.
20................................  Yellow............  Slate.
21................................  Violet............  Blue.

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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 443]]

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 444]]

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 445]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.002

    (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:

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[[Page 447]]


[GRAPHIC] [TIFF OMITTED] TR26JA95.004


[[Page 448]]


[GRAPHIC] [TIFF OMITTED] TR26JA95.005


[[Page 449]]


[GRAPHIC] [TIFF OMITTED] TR26JA95.006

    (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

[[Page 450]]

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

    (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 451]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.008

    (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:

[[Page 452]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.009

    (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;

[[Page 453]]

    (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 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.

[[Page 454]]

    (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 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

[[Page 455]]

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 456]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.010

    (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 457]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.011


[[Page 458]]


[GRAPHIC] [TIFF OMITTED] TR26JA95.012

    (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:

[[Page 459]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.013

    (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

[[Page 460]]

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                 No. of
             ------------------------------------------------   shield
   19 AWG                                                        bond
                  22 AWG          24 AWG          26 AWG      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 461]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.014


[[Page 462]]


[GRAPHIC] [TIFF OMITTED] TR26JA95.015


[[Page 463]]


[GRAPHIC] [TIFF OMITTED] TR26JA95.016


[[Page 464]]


[GRAPHIC] [TIFF OMITTED] TR26JA95.017

    (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

[[Page 465]]

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:
[GRAPHIC] [TIFF OMITTED] TR26JA95.018


[[Page 466]]


[GRAPHIC] [TIFF OMITTED] TR26JA95.019

    (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.

[[Page 467]]

    (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 468]]

[GRAPHIC] [TIFF OMITTED] TR26JA95.020

    (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]

[[Page 469]]



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 
National Archives and Records Administration (NARA) and the Rural 
Utilities Service, Administrative Services Division, room 0175-S, U.S. 
Department of Agriculture, Washington, DC 20250, telephone 202-382-9551. 
For information on the availability of this material at NARA, call 202-
741-6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html. 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; 69 FR 18803, Apr. 9, 2004]



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.
    (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.

[[Page 470]]

    (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 National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. 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 National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html. 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 471]]

    (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 472]]

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 473]]

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.

[[Page 474]]

    (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 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

[[Page 475]]

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 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 476]]

    (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.
    (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 477]]

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 478]]


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

[[Page 479]]

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 
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 Sec. 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 480]]

    (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 481]]

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 482]]



                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 @ 50  deg.C
------------------------------------------------------------------------
                                               Load in newtons (pound-
                                                       force)
------------------------------------------------------------------------
Control...................................  ----------------
Heat Age..................................  ----------------
Humidity Exposure.........................  ----------------

[[Page 483]]

 
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; 69 FR 18803, Apr. 9, 2004]



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 National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html.
    (3) 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 484]]

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 485]]

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  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 497]]

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 12010 volts or 22010 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 498]]

[GRAPHIC] [TIFF OMITTED] TR29AU95.007

    (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.

[[Page 499]]

    (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 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

[[Page 500]]

    (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;
    (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

[[Page 501]]

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;
    (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;

[[Page 502]]

    (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 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.

[[Page 503]]

    (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 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:

[[Page 504]]



------------------------------------------------------------------------
                                                   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)
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:

[[Page 505]]

    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:________________________________________________________

                               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

[[Page 506]]

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, as amended at 69 FR 18803, Apr. 9, 2004]



Secs. 1755.398-1755.399  [Reserved]



Sec. 1755.400  RUS standard for acceptance tests and measurements of telecommunications plant.

    Sections 1755.400 through 1755.407 cover the requirements for 
acceptance tests and measurements on installed copper and fiber optic 
telecommunications plant and equipment.

[62 FR 23960, May 2, 1997]



Sec. 1755.401  Scope.

    (a) Acceptance tests outlined in Secs. 1755.400 through 1755.407 are 
applicable to plant constructed by contract or force account. This 
testing standard provides for the following:
    (1) Specific types of tests or measurements for the different types 
of telecommunications plant and equipment;
    (2) The method of measurement and types of measuring equipment;
    (3) The expected results and tolerances permitted to meet the 
acceptable standards and objectives;
    (4) Suggested formats for recording the results of the measurements 
and tests; and
    (5) Some probable causes of nonconformance and methods for 
corrective action, where possible.
    (b) Alternative methods of measurements that provide suitable 
alternative results shall be permitted with the concurrence of the Rural 
Utilities Service (RUS).
    (c) For the purpose of this testing standard, a ``measurement'' 
shall be defined as an evaluation where quantitative data is obtained 
(e.g., resistance in ohms, structural return loss in decibels (dB), 
etc.) and a ``test'' shall be defined as an evaluation where no 
quantitative data is obtained (e.g., a check mark indicating conformance 
is usually the result of the test).

[[Page 507]]

    (d) The sequence of tests and measurements described in this 
standard have been prepared as a guide. Variations from the sequence may 
be necessary on an individual application basis.
    (e) There is some overlap in the methods of testing shown; also, the 
extent of each phase of testing may vary on an individual basis. The 
borrower shall determine the overall plan of testing, the need and 
extent of testing, and the responsibility for each phase of testing.

[62 FR 23960, May 2, 1997]



Sec. 1755.402  Ground resistance measurements.

    (a) The resistance of the central office (CO) and the remote 
switching terminal (RST) ground shall be measured before and after it 
has been bonded to the master ground bar (MGB) where it is connected to 
the building electric service ground.
    (b) The ground resistance of electronic equipment such as span line 
repeaters, carrier terminal equipment, concentrators, etc. shall be 
measured.
    (c) Method of measurement. The connection of test equipment for the 
ground resistance measurement shall be as shown in Figure 1. Refer to 
RUS Bulletin 1751F-802, ``Electrical Protection Grounding 
Fundamentals,'' for a comprehensive discussion of ground resistance 
measurements.
    (d) Test equipment. The test equipment for making this measurement 
is shown in Figure 1 as follows:

[[Page 508]]

[GRAPHIC] [TIFF OMITTED] TR02MY97.023

    (e) Applicable results. (1) For the CO and RST, the resistance after 
the bond has been made to the MGB electric service ground shall not 
exceed 5 ohms. Where the measured ground resistance exceeds 5 ohms, the 
borrower shall determine what additional grounding, if any, shall be 
provided.
    (2) For electronic equipment, the ground resistance shall not exceed 
25 ohms. Where the measured ground resistance exceeds 25 ohms, the 
borrower shall determine what additional grounding, if any, shall be 
provided.

[[Page 509]]

    (3) When ground resistance measurements exceed the ground resistance 
requirements of paragraphs (e)(1) and (e)(2) of this section, refer to 
RUS Bulletin 1751F-802, ``Electrical Protection Grounding 
Fundamentals,'' for suggested methods of reducing the ground resistance.
    (f) Data record. Results of the CO and RST ground resistance 
measurements shall be recorded. A suggested format similar to Format I, 
Outside Plant Acceptance Tests--Subscriber Loops, in Sec. 1755.407 or a 
format specified in the applicable construction contract may be used. 
Results of the electronic equipment ground resistance measurements shall 
be recorded. A suggested format similar to Format II, Outside Plant 
Acceptance Tests--Trunk Circuits, in Sec. 1755.407 or a format specified 
in the applicable construction contract may be used. Data showing 
approximate moisture content of the soil at the time of measurement, the 
temperature, the type of soil and a description of the test equipment 
used shall also be included.
    (g) Probable causes for nonconformance. Refer to RUS Bulletin 1751F-
802, ``Electrical Protection Grounding Fundamentals,'' and 
Telecommunications Engineering and Construction Manual (TE&CM) Section 
810, ``Electrical Protection of Electronic Analog and Digital Central 
Office Equipment,'' for possible causes of nonconformance and suggested 
methods for corrective action.

[62 FR 23960, May 2, 1997]



Sec. 1755.403  Copper cable telecommunications plant measurements.

    (a) Shield or shield/armor continuity. (1) Tests and measurements 
shall be made to ensure that cable shields or shield/armors are 
electrically continuous. There are two areas of concern. The first is 
shield or shield/armor bonding within a pedestal or splice and the 
second is shield or shield/armor continuity between pedestals or 
splices.
    (2) Measurement techniques outlined here for verification of shield 
or shield/armor continuity are applicable to buried cable plant. 
Measurements of shield continuity between splices in aerial cable plant 
should be made prior to completion of splicing. Conclusive results 
cannot be obtained on aerial plant after all bonds have been completed 
to the supporting strand, multigrounded neutral, etc.
    (3) Method of measurement. (i) The shield or shield/armor resistance 
measurements shall be made between pedestals or splices using either a 
Wheatstone bridge or a volt-ohm meter. For loaded plant, measurements 
shall be made on cable lengths that do not exceed one load section. For 
nonloaded plant, measurements shall be made on cable lengths that do not 
exceed 5,000 feet (ft) (1,524 meters (m)). All bonding wires shall be 
removed from the bonding lugs at the far end of the cable section to be 
measured. The step-by-step measurement procedure shall be as shown in 
Figure 2.
    (ii) Cable shield or shield/armor continuity within pedestals or 
splices shall be measured with a cable shield splice continuity test 
set. The step-by-step measurement procedure outlined in the 
manufacturer's operating instructions for the specific test equipment 
being used shall be followed.
    (4) Test equipment. (i) The test equipment for measuring cable 
shield or shield/armor resistance between pedestals or splices is shown 
in Figure 2 as follows:

[[Page 510]]

[GRAPHIC] [TIFF OMITTED] TR02MY97.024

    (ii) A cable shield splice continuity tester shall be used to 
measure shield or shield/armor continuity within pedestals or splices.
    (5) Applicable results. (i) The shield or shield/armor resistance 
per 1000 ft and per kilometer (km) for cable diameters and types of 
shielding materials are given in Table 1 (English Units) and Table 2 
(Metric Units), respectively as follows:

             Table 1--Shield Resistance @ 68  deg.F (20  deg.C) Cable Diameters Versus Shield Types
                                                 [English Units]
----------------------------------------------------------------------------------------------------------------
                                                           Nominal resistance ohm/1000 ft.
   Outside diameter inches (in.)   -----------------------------------------------------------------------------
                                         A            B            C            D            E            F
----------------------------------------------------------------------------------------------------------------
0.40-0.49.........................         0.77         1.54         1.65         1.96         2.30         5.51
0.50-0.59.........................         0.64         1.28         1.37         1.63         1.91         4.58
0.60-0.69.........................         0.51         1.03         1.10         1.31         1.53         3.67
0.70-0.79.........................         0.44         0.88         0.94  ...........         1.31         3.14

[[Page 511]]

 
0.80-0.89.........................         0.38         0.77         0.82  ...........         1.14         2.74
0.90-0.99.........................         0.35         0.69         0.74  ...........         1.03         2.47
1.00-1.09.........................         0.31         0.62         0.66  ...........         0.92         2.20
1.10-1.19.........................         0.28         0.56         0.60  ...........         0.84         2.00
1.20-1.29.........................         0.26         0.51         0.55  ...........         0.77         1.84
1.30-1.39.........................         0.24         0.48         0.51  ...........         0.71         1.70
1.40-1.49.........................         0.22         0.44         0.47  ...........         0.65         1.57
1.50-1.59.........................         0.21         0.41         0.44  ...........         0.61         1.47
1.60-1.69.........................         0.19         0.38         0.41  ...........         0.57         1.37
1.70-1.79.........................         0.18         0.37         0.39  ...........         0.54         1.30
1.80-1.89.........................         0.17         0.35         0.37  ...........         0.51         1.24
1.90-1.99.........................         0.16         0.33         0.35  ...........         0.49         1.17
2.00-2.09.........................         0.15         0.31         0.33  ...........         0.46         1.10
2.10-2.19.........................         0.15         0.29         0.31  ...........         0.43         1.03
2.20-2.29.........................         0.14         0.28         0.30  ...........         0.42         1.00
2.30-2.39.........................         0.14         0.27         0.29  ...........         0.40         0.97
2.40-2.49.........................         0.13         0.25         0.27  ...........         0.38         0.90
2.50-2.59.........................         0.12         0.24         0.26  ...........         0.36         0.87
2.60-2.69.........................         0.12         0.23         0.25  ...........         0.35         0.83
2.70-2.79.........................         0.11         0.22         0.24  ...........         0.33         0.80
2.80-2.89.........................         0.11         0.22         0.24  ...........         0.33         0.80
2.90-2.99.........................         0.11         0.22         0.23  ...........         0.32         0.77
3.00-3.09.........................         0.10         0.21         0.22  ...........         0.31         0.73
3.10-3.19.........................         0.10         0.20         0.21  ...........         0.29         0.70
3.20-3.29.........................         0.10         0.20         0.21  ...........         0.29         0.70
3.30-3.39.........................         0.09         0.19         0.20  ...........         0.28         0.67
3.40-3.49.........................         0.09         0.18         0.19  ...........         0.26         0.63
3.50-3.59.........................         0.09         0.18         0.19  ...........         0.26         0.63
3.60-3.69.........................         0.08         0.17         0.18  ...........         0.25         0.60
3.70-3.79.........................         0.08         0.17         0.18  ...........         0.25         0.60
3.80-3.89.........................         0.08         0.16         0.17  ...........         0.24         0.57
3.90-3.99.........................         0.08         0.16         0.17  ...........         0.24         0.57
4.00-4.99.........................         0.07         0.15         0.16  ...........         0.22         0.53
----------------------------------------------------------------------------------------------------------------
Where: Column A-10 mil Copper shield.
Column B--5 mil Copper shield.
Column C--8 mil Coated Aluminum and 8 mil Coated Aluminum/6 mil Coated Steel shields.
Column D--7 mil Alloy 194 shield.
Column E--6 mil Alloy 194 and 6 mil Copper Clad Stainless Steel shields.
Column F--5 mil Copper Clad Stainless Steel and 5 mil Copper Clad Alloy Steel shields.


             Table 2--Shield Resistance @ 68  deg.F (20  deg.C) Cable Diameters Versus Shield Types
                                                 [Metric Units]
----------------------------------------------------------------------------------------------------------------
                                                              Nominal Resistance ohm/km
 Outside diameter millimeters (mm) -----------------------------------------------------------------------------
                                         A            B            C            D            E            F
----------------------------------------------------------------------------------------------------------------
10.2--12.5........................         2.53         5.05         5.41         6.43         7.55        18.08
12.7--15.0........................         2.10         4.20         4.49         5.35         6.27        15.03
15.2--17.5........................         1.67         3.38         3.61         4.30         5.02        12.04
17.8--20.1........................         1.44         2.89         3.08  ...........         4.30        10.30
20.3--22.6........................         1.25         2.53         2.69  ...........         3.74         8.99
22.9--25.1........................         1.15         2.26         2.43  ...........         3.38         8.10
25.4--27.7........................         1.02         2.03         2.16  ...........         3.02         7.22
27.9--30.2........................         0.92         1.84         1.97  ...........         2.76         6.56
30.5--32.8........................         0.85         1.67         1.80  ...........         2.53         6.04
33.0--35.3........................         0.79         1.57         1.67  ...........         2.33         5.58
35.6--37.8........................         0.72         1.44         1.54  ...........         2.13         5.15
38.1--40.4........................         0.69         1.34         1.44  ...........         2.00         4.82
40.6--42.9........................         0.62         1.25         1.34  ...........         1.87         4.49
43.2--45.5........................         0.59         1.21         1.28  ...........         1.77         4.26
45.7--48.0........................         0.56         1.15         1.21  ...........         1.67         4.07
48.3--50.5........................         0.52         1.08         1.15  ...........         1.61         3.84
50.8--53.1........................         0.49         1.02         1.08  ...........         1.51         3.61
53.3--55.6........................         0.49         0.95         1.02  ...........         1.41         3.38
55.9--58.2........................         0.46         0.92         0.98  ...........         1.38         3.28
58.4--60.7........................         0.46         0.89         0.95  ...........         1.31         3.18
61.0--63.2........................         0.43         0.82         0.89  ...........         1.25         2.95

[[Page 512]]

 
63.5--65.8........................         0.39         0.79         0.85  ...........         1.18         2.85
66.0--68.3........................         0.39         0.75         0.82  ...........         1.15         2.72
68.6--70.9........................         0.36         0.72         0.79  ...........         1.08         2.62
71.1--73.4........................         0.36         0.72         0.79  ...........         1.08         2.62
73.7--75.9........................         0.36         0.72         0.75  ...........         1.05         2.53
76.2--78.5........................         0.33         0.69         0.72  ...........         1.02         2.39
78.7--81.0........................         0.33         0.66         0.69  ...........         0.95         2.30
81.3--83.6........................         0.33         0.66         0.69  ...........         0.95         2.30
83.6--86.1........................         0.29         0.62         0.66  ...........         0.92         2.20
86.4--88.6........................         0.29         0.59         0.62  ...........         0.85         2.07
88.9--91.2........................         0.29         0.59         0.62  ...........         0.85         2.07
91.4--93.7........................         0.26         0.56         0.59  ...........         0.82         1.97
94.0--96.3........................         0.26         0.56         0.59  ...........         0.82         1.97
96.5--98.8........................         0.26         0.52         0.56  ...........         0.79         1.87
99.1--101.3.......................         0.26         0.52         0.56  ...........         0.79         1.87
101.6--103.9......................         0.23         0.49         0.52  ...........         0.72         1.74
----------------------------------------------------------------------------------------------------------------
Where: Column A--10 mil Copper shield.
Column B--5 mil Copper shield.
Column C--8 mil Coated Aluminum and 8 mil Coated Aluminum/6 mil Coated Steel shields.
Column D--7 mil Alloy 194 shield.
Column E--6 mil Alloy 194 and 6 mil Copper Clad Stainless Steel shields.
Column F--5 mil Copper Clad Stainless Steel and 5 mil Copper Clad Alloy Steel shields.

    (ii) All values of shield and shield/armor resistance provided in 
Tables 1 and 2 in (a)(5)(i) of this section are considered 
approximations. If the measured value corrected to 68  deg.F (20  deg.C) 
is within 30 percent (%) of the value shown in Table 1 or 2, 
the shield and shield/armor shall be assumed to be continuous.
    (iii) To correct the measured shield resistance to the reference 
temperature of 68  deg.F (20  deg.C) use the following formulae:

R68=Rt/[1+A(t-68)] for English Units
R20=Rt/[1+A(t-20)] for Metric Units

Where:

R68=Shield resistance corrected to 68  deg.F in ohms.
R20=Shield resistance corrected to 20  deg.C in ohms.
Rt=Shield resistance at measurement temperature in ohms.
A=Temperature coefficient of the shield tape.
t=Measurement temperature in  deg.F or (  deg.C).

    (iv) The temperature coefficients (A) for the shield tapes to be 
used in the formulae referenced in paragraph (a)(5)(iii) of this section 
are as follows:
    (A) 5 and 10 mil copper = 0.0021 for English units and 0.0039 for 
Metric units;
    (B) 8 mil coated aluminum and 8 mil coated aluminum/6 mil coated 
steel = 0.0022 for English units and 0.0040 for Metric units;
    (C) 5 mil copper clad stainless steel and 5 mil copper clad alloy 
steel = 0.0024 for English units and 0.0044 for Metric units;
    (D) 6 mil copper clad stainless steel = 0.0019 for English units and 
0.0035 for Metric units; and
    (E) 6 and 7 mil alloy 194 = 0.0013 for English units and 0.0024 for 
Metric units.
    (v) When utilizing shield continuity testers to measure shield and 
shield/armor continuity within pedestals or splices, refer to the 
manufacturer's published information covering the specific test 
equipment to be used and for anticipated results.
    (6) Data record.Measurement data from shield continuity tests shall 
be recorded together with anticipated Table 1 or 2 values (see paragraph 
(a)(5)(i) of this section) in an appropriate format to permit 
comparison. The recorded data shall include specific location, cable 
size, cable type, type of shield or shield/armor, if known, etc.
    (7) Probable causes for nonconformance.Among probable causes for 
nonconformance are broken or damaged

[[Page 513]]

shields or shield/armors, bad bonding harnesses, poorly connected 
bonding clamps, loose bonding lugs, etc.
    (b) Conductor continuity.After placement of all cable and wire plant 
has been completed and joined together in continuous lengths, tests 
shall be made to ascertain that all pairs are free from grounds, shorts, 
crosses, and opens, except for those pairs indicated as being defective 
by the cable manufacturer. The tests for grounds, shorts, crosses, and 
opens are not separate tests, but are inherent in other acceptance tests 
discussed in this section. The test for grounds, shorts, and crosses is 
inherent when conductor insulation resistance measurements are conducted 
per paragraph (c) of this section, while tests for opens are inherent 
when tests are conducted for loop resistance, insertion loss, noise, or 
return loss measurements, per paragraphs (d), (e), or (f) of this 
section. The borrower shall make certain that all defective pairs are 
corrected, except those noted as defective by the cable manufacturer in 
accordance with the marking provisions of the applicable cable and wire 
specifications. All defective pairs that are not corrected shall be 
reported in writing with details of the corrective measures attempted.
    (c) Dc insulation resistance (IR) measurement. (1) IR measurements 
shall be made on completed lengths of insulated cable and wire plant.
    (2) Method of measurement. (i) The IR measurement shall be made 
between each conductor and all other conductors, sheath, shield and/or 
shield/armor, and/or support wire electrically connected together and to 
the main distributing frame (MDF) ground. The measurement shall be made 
from the central office with the entire length of the cable under test 
and, where used with all protectors and load coils connected. For COs 
containing solid state arresters, the solid state arresters shall be 
removed before making the IR measurements. Field mounted voice frequency 
repeaters, where used, may be left connected for the IR test but all 
carrier frequency equipment, including carrier repeaters and terminals, 
shall be disconnected. Pairs used to feed power remote from the CO shall 
have the power disconnected and the tip and ring conductors shall be 
opened before making IR tests. All conductors shall be opened at the far 
end of the cable being measured.
    (ii) IR tests are normally made from the MDF with all CO equipment 
disconnected at the MDF, but this test may be made on new cables at 
field locations before they are spliced to existing cables. The method 
of measurement shall be as shown in Figure 3 as follows:

[[Page 514]]

[GRAPHIC] [TIFF OMITTED] TR02MY97.025

    (iii) If the IR of the conductor cannot be measured because of 
breakdown of lightning arresters by the test voltage, the arrester units 
shall be removed and the conductor IR retested. If the IR then meets the 
minimum requirements, the conductor will be considered satisfactory. 
Immediately following the IR tests, all arrester units which have been 
removed shall be reinstalled.
    (3) Test equipment. (i) IR measurements shall be made with either an 
insulation resistance test set or a direct current (dc) bridge type 
megohmmeter.

[[Page 515]]

    (ii) The IR test set shall have an output voltage not to exceed 500 
volts dc and shall be of the hand cranked or battery operated type.
    (iii) The dc bridge type megohmmeter, which may be alternating 
current (ac) powered, shall have scales and multiplier which make it 
possible to accurately read IR from 1 megohm to 1 gigohm. The voltage 
applied to the conductors under test shall not exceed ``250 volts dc'' 
when using an instrument having adjustable test voltage levels. This 
will help to prevent breakdown of lightning arresters.
    (4) Applicable results. (i) For all new insulated cable or wire 
facilities, the expected IR levels are normally greater than 1,000 to 
2,000 megohm-mile (1,609 to 3,218 megohm-km). A value of 500 megohm-mile 
(805 megohm-km) at 68  deg.F (20  deg.C) shall be the minimum acceptable 
value of IR. IR varies inversely with the length and the temperature.
    (ii) The megohm-mile (megohm-km) value for a conductor may be 
computed by multiplying the actual scale reading in megohms on the test 
set by the length in miles (km) of the conductor under test.
    (iii) The objective insulation resistance may be determined by 
dividing 500 by the length in miles (805 by the length in km) of the 
cable or wire conductor being tested. The resulting value shall be the 
minimum acceptable meter scale reading in megohms.
    (iv) Due to the differences between various insulating materials and 
filling compounds used in manufacturing cable or wire, it is impractical 
to provide simple factors to predict the magnitude of variation in 
insulation resistance due to temperature. The variation can, however, be 
substantial for wide excursions in temperature from the ambient 
temperature of 68  deg.F (20  deg.C).
    (v) Borrowers should be certain that tip and ring IR measurements of 
each pair are approximately the same. Borrowers should also be certain 
that IR measurements are similar for cable or wire sections of similar 
length and cable or wire type. If some pairs measure significantly 
lower, borrowers should attempt to improve these pairs in accordance 
with cable manufacturer's recommendations.

    Note: Only the megohm-mile (megohm-km) requirement shall be cause 
for rejection, not individual measurement differences.

    (5) Data record.The measurement data shall be recorded. Suggested 
formats similar to Format I, Outside Plant Acceptance Tests--Subscriber 
Loops, or Format II, Outside Plant Acceptance Tests--Trunk Circuits, in 
Sec. 1755.407 or formats specified in the applicable construction 
contract may be used.
    (6) Probable causes for nonconformance.(i) When an IR measurement is 
below 500 megohm-mile (805 megohm-km), the cable or wire temperature at 
the time of testing must then be taken into consideration. If this 
temperature is well above 68  deg.F (20  deg.C), the measurement shall 
be disregarded and the cable or wire shall be remeasured at a time when 
the temperature is approximately 68  deg.F (20  deg.C). If the result is 
then 500 megohm-mile (805 megohm-km) or greater, the cable or wire shall 
be considered satisfactory.
    (ii) Should the cable or wire fail to meet the 500 megohm-mile (805 
megohm-km) requirement when the temperature is known to be approximately 
68  deg.F (20  deg.C) there is not yet justification for rejection of 
the cable or wire. Protectors, lightning arresters, etc., may be a 
source of low insulation resistance. These devices shall be removed from 
the cable or wire and the cable or wire IR measurement shall be 
repeated. If the result is acceptable, the cable or wire shall be 
considered acceptable. The removed devices which caused the low 
insulation resistance value shall be identified and replaced, if found 
defective.
    (iii) When the cable or wire alone is still found to be below the 
500 megohm-mile (805 megohm-km) requirement after completing the steps 
in paragraph (c)(6)(i) and/or paragraph (c)(6)(ii) of this section, the 
test shall be repeated to measure the cable or wire in sections to 
isolate the piece(s) of cable or wire responsible. The cable or wire 
section(s) that is found to be below the 500 megohm-mile (805 megohm-km) 
requirement shall be either repaired in accordance with the cable or 
wire manufacturer's recommended procedure or shall be replaced as 
directed by the borrower.

[[Page 516]]

    (d) Dc loop resistance and dc resistance unbalance measurement.(1) 
When specified by the borrower, dc loop resistance and dc resistance 
unbalance measurements shall be made on all cable pairs used as trunk 
circuits. The dc loop resistance and dc resistance unbalance 
measurements shall be made between CO locations. Measurements shall 
include all components of the cable path.
    (2) Dc loop resistance and dc resistance unbalance measurements 
shall be made on all cable pairs used as subscriber loop circuits when:
    (i) Specified by the borrower;
    (ii) A large number of long loops terminate at one location (similar 
to trunk circuits); or
    (iii) Circuit balance is less than 60 dB when computed from noise 
measurements as described in paragraph (e) of this section.
    (3) Dc resistance unbalance is controlled to the maximum possible 
degree by the cable specification. Allowable random unbalance is 
specified between tip and ring conductors within each reel. Further 
random patterns should occur when the cable conductor size changes. 
Cable meeting the unbalance requirements of the cable specification may 
under some conditions result in unacceptable noise levels as discussed 
in paragraph (d)(6)(iii) of this section.
    (4) Method of measurement. The method of measurement shall be as 
detailed in Figures 4 and 5.
    (5) Test equipment. The test equipment is shown in Figures 4 and 5 
as follows:

[[Page 517]]

[GRAPHIC] [TIFF OMITTED] TR02MY97.026


[[Page 518]]


[GRAPHIC] [TIFF OMITTED] TR02MY97.027

    (6) Applicable results. (i) The measured dc loop resistance shall be 
within 5% of the calculated dc loop resistance when corrected for 
temperature.
    (ii) The calculated dc loop resistance is computed as follows:
    (A) Multiply the length of each different gauge by the applicable 
resistance per unit length as shown in Table 3 as follows:

[[Page 519]]



           Table 3--DC Loop Resistance @ 68  deg.F (20  deg.C)
------------------------------------------------------------------------
                                                  Loop resistance
        American wire gauge (AWG)        -------------------------------
                                           ohms/1000 ft       ohms/km
------------------------------------------------------------------------
19......................................            16.1            52.8
22......................................            32.4           106.3
24......................................            51.9           170.3
26......................................            83.3           273.3
------------------------------------------------------------------------

    (B) Add the individual resistances for each gauge to give the total 
calculated dc loop resistance at a temperature of 68  deg.F (20  deg.C).
    (C) Correct the total calculated dc loop resistance at the 
temperature of 68  deg.F (20  deg.C) to the measurement temperature by 
the following formulae:

Rt=R68x[1+0.0022xt--68)] for English Units
Rt=R20x[1+0.0040x(t--20)] for Metric Units

Where:

Rt = Loop resistance at the measurement temperature in ohms.
R68 = Loop resistance at a temperature of 68  deg.F in ohms.
R20 = Loop resistance at a temperature of 20  deg.C in ohms.
t = Measurement temperature in  deg.F or (  deg.C).

    (D) Compare the calculated dc loop resistance at the measurement 
temperature to the measured dc loop resistance to determine compliance 
with the requirement specified in paragraph (d)(6)(i) of this section.
    (iii) Resistance varies directly with temperature change. For copper 
conductor cables, the dc resistance changes by 1% for every 5  deg.F 
(2.8  deg.C) change in temperature from 68  deg.F (20  deg.C).
    (iv) The dc resistance unbalance between the individual conductors 
of a pair shall not exceed that value which will result in a circuit 
balance of less than 60 dB when computed from noise measurements as 
described in paragraph (e) of this section. It is impractical to 
establish a precise limit for overall circuit dc resistance unbalance 
due to the factors controlling its contribution to circuit noise. These 
factors include location of the resistance unbalance in relation to a 
low impedance path to ground (close to the central office) and the 
magnitude of unbalance in short lengths of cable making up the total 
circuit length. The objective is to obtain the minimum unbalance 
throughout the entire circuit when it is ascertained through noise 
measurements that dc resistance unbalance may be contributing to poor 
cable balance.
    (v) Pairs with poor noise balance may be improved by reversing tip 
and ring conductors of pairs at cable splices. Where dc resistance 
unbalances are systematic over the total trunk circuit or loop circuit 
length, tip and ring reversals may be made at frequent intervals. Where 
the unbalances are concentrated in a shorter section of cable, only one 
tip and ring reversal should be required. Concentrated dc resistance 
unbalance produces maximum circuit noise when located adjacent to the 
central office. Concentrated dc resistance unbalance will contribute to 
overall circuit noise at a point approximately two-thirds (\2/3\) of the 
distance to the subscriber. All deliberate tip and ring reversals shall 
be tagged and identified to prevent plant personnel from removing the 
reversals when resplicing these connections in the future. The number of 
tip and ring reversals shall be held to a minimum.
    (vi) A systematic dc resistance unbalance can sometimes be 
accompanied by other cable parameters that are marginal. Among these are 
pair-to-pair capacitance unbalance, capacitance unbalance-to-ground, and 
150 kilohertz (kHz) crosstalk loss. Engineering judgment has to be 
applied in each case. Rejection of cable for excessive dc resistance 
unbalance shall only apply to a single reel length, or shorter.
    (7) Data record.The measurement data for dc loop resistance and dc 
resistance unbalance shall be recorded. Suggested formats similar to 
Format I for subscriber loops and Format II for trunk

[[Page 520]]

circuits in Sec. 1755.407 or formats specified in the applicable 
construction contract may be used.
    (8) Probable causes for nonconformance. Dc loop resistance and dc 
resistance unbalance are usually the result of the resistance of 
individual conductors used in the manufacture of the cable. Resistance 
unbalance can be worsened by defective splicing of the conductors 
(splicing connectors, improper crimping tool, etc.).
    (e) Subscriber loop measurement (loop checking). (1) When specified 
by the borrower, insertion loss and noise measurements shall be 
performed on subscriber loops after connection of a line circuit to the 
loop by the one person method using loop checking equipment from the 
customer access location. For this method, the central office should be 
equipped with a 900 ohm plus two microfarad quiet termination and a 
milliwatt generator having the required test frequencies; or a portable 
milliwatt generator having the desired frequencies may be used, 
especially, where several small offices are involved.
    (2) At a minimum, insertion loss and frequency response of 
subscriber loop plant shall be measured at 1,000, 1,700, 2,300, and 
2,800 Hertz (Hz). When additional testing frequencies are desired, the 
additional frequencies shall be specified in the applicable construction 
contract.
    (3) Measurements of insertion loss and noise shall be made on five 
percent or more of the pairs. A minimum of five pairs shall be tested on 
each route. Pairs shall be selected on a random basis with greater 
consideration in the selection given to the longer loops. Consideration 
shall be given to measuring a large percentage, up to 100 percent, of 
all loops.
    (4) Method of measurement--(i) Insertion loss. The step-by-step 
measurement procedure shall be as shown in Figure 6. The output level of 
the milliwatt generator tones shall be determined prior to leaving the 
CO. This shall be accomplished by dialing the milliwatt generator number 
from a spare line at the MDF and measuring with the same equipment to be 
used in the tests at customer access locations. The output levels shall 
be recorded for reference later. Insertion loss measurements shall be 
made across the tip and ring terminals of the pair under test. Figure 6 
is as follows:

[[Page 521]]

[GRAPHIC] [TIFF OMITTED] TR02MY97.028

    (ii) Noise. The step-by-step measurement procedure shall be as shown 
in Figure 7. Prior to leaving the CO for testing, dial the 900 ohm plus 
two microfarad quiet termination from a spare pair and measure the 
termination to determine that it actually is quiet. Circuit noise 
(noise-metallic) shall be measured at the customer access location 
across the tip and ring terminals of the pair under test. Power 
influence (direct reading with loop checking equipment) shall be 
measured at the customer access location from tip and ring conductors-
to-ground (this connection is completed via the test

[[Page 522]]

unit). The power influence measurement includes the entire talking 
connection from the quiet termination to the customer. (That is, the 
power influence measurement includes all the CO equipment which normally 
makes up the connection.) Figure 7 is as follows:
[GRAPHIC] [TIFF OMITTED] TR02MY97.029

    (5) Test equipment. (i) Loop checking equipment which is available 
from several manufacturers may be used for these measurements. The 
equipment

[[Page 523]]

should have the capability of measuring loop current, insertion loss, 
circuit noise (NM) and power influence (PI). The test equipment 
manufacturer's operating instructions shall be followed.
    (ii) There should be no measurable transmission loss when testing 
through loop extenders.
    (6) Applicable results--(i) Insertion loss. (A) For D66 loaded 
cables (a specific loading scheme using a 66 millihenry inductor spaced 
nominally at 4,500 ft [1,371 m] intervals) measured at a point one-half 
section length beyond the last load point, the measured nonrepeated 
insertion loss shall be within 10% at 1000, 1700, 2300, and 2800 Hz, 
15% at 3400 Hz and 20% at 4000 Hz of the calculated insertion loss at 
the same frequencies and temperature.
    (B) For H88 loaded cables (a specific loading scheme using an 88 
millihenry inductor spaced nominally at 6,000 ft [1,829 m] intervals) 
measured at a point one-half section length beyond the last load point, 
the measured nonrepeatered insertion loss shall be within 10% at 1000, 
1700, and 2300 Hz, 15% at 2800 Hz, and 20% at 3400 Hz of the 
calculated insertion loss at the same frequencies and temperature.
    (C) For nonloaded cables, the measured insertion loss shall be 
within 10% at 1000, 1700, 2300, and 2800 Hz, 15% at 3400 Hz and 20% 
at 4000 Hz of the calculated insertion loss at the same frequencies and 
temperature.
    (D) For loaded cables, the calculated loss at each desired frequency 
shall be computed as follows:
    (1) Multiply the length in miles (km) of each different gauge in the 
loaded portion of the loop (between the office and a point one-half load 
section beyond the furthest load point) by the applicable decibel (dB)/
mile (dB/km) value shown in Table 4 or 5. This loss represents the total 
loss for each gauge in the loaded portion of the loop;
    (2) Multiply the length in miles (km) of each different gauge in the 
end section or nonloaded portion of the cable (beyond a point one-half 
load section beyond the furthest load point) by the applicable dB/mile 
(dB/km) value shown in Table 6. This loss represents the total loss for 
each gauge in the nonloaded portion of the loop; and
    (3) The total calculated insertion loss is computed by adding the 
individual losses determined in paragraphs (e)(6)(i)(D)(1) and 
(e)(6)(i)(D)(2) of this section.
    (E) For nonloaded cables, the calculated loss at each desired 
frequency shall be computed by multiplying the length in miles (km) of 
each different gauge by the applicable dB/mile (dB/km) value shown in 
Table 6 and then adding the individual losses for each gauge to 
determine the total calculated insertion loss for the nonloaded loop.
    (F) The attenuation information in Tables 4, 5, and 6 are based on a 
cable temperature of 68  deg.F (20  deg.C). Insertion loss varies 
directly with temperature. To convert measured losses for loaded cables 
to a different temperature, use the following value for copper 
conductors: For each 5  deg.F ( 2.8  deg.C) change in the temperature 
from 68  deg.F (20  deg.C), change the insertion loss at any frequency 
by 1%. To convert measured losses for nonloaded cables to a different 
temperature, use the following value for copper conductors: For each 10 
 deg.F (5.6  deg.C) change in the temperature from 68  deg.F (20 
deg.C), change the insertion loss at any frequency by 1%. Tables 4, 5, 
and 6 are as follows:

Table 4--Frequency Attenuation @ 68  deg.F (20  deg.C) D66 Loaded Exchange Cables 83 nanofarad (nF)/mile (52 nF/
                                                 km) (See Note)
----------------------------------------------------------------------------------------------------------------
                                                                Attenuation dB/mile (dB/km) AWG
               Frequency (Hz)                -------------------------------------------------------------------
                                                     19               22               24               26
----------------------------------------------------------------------------------------------------------------
200.........................................      0.41 (0.26)      0.67 (0.42)      0.90 (0.56)      1.21 (0.75)
400.........................................      0.43 (0.26)      0.77 (0.48)      1.09 (0.68)      1.53 (0.95)
600.........................................      0.44 (0.27)      0.80 (0.49)      1.17 (0.73)      1.70 (1.06)
800.........................................      0.44 (0.27)      0.81 (0.50)      1.21 (0.75)      1.80 (1.12)
1000........................................      0.44 (0.27)      0.82 (0.51)      1.23 (0.76)      1.86 (1.15)
1200........................................      0.45 (0.28)      0.83 (0.52)      1.24 (0.77)      1.91 (1.19)
1400........................................      0.45 (0.28)      0.83 (0.52)      1.26 (0.78)      1.94 (1.20)
1600........................................      0.45 (0.28)      0.84 (0.52)      1.26 (0.78)      1.96 (1.22)
1800........................................      0.45 (0.28)      0.84 (0.52)      1.27 (0.78)      1.98 (1.23)

[[Page 524]]

 
2000........................................      0.46 (0.29)      0.85 (0.53)      1.28 (0.79)      1.99 (1.24)
2200........................................      0.46 (0.29)      0.85 (0.53)      1.29 (0.80)      2.01 (1.25)
2400........................................      0.47 (0.29)      0.86 (0.53)      1.30 (0.81)      2.02 (1.26)
2600........................................      0.47 (0.29)      0.87 (0.54)      1.31 (0.81)      2.04 (1.27)
2800........................................      0.48 (0.30)      0.88 (0.55)      1.32 (0.82)      2.07 (1.29)
3000........................................      0.49 (0.30)      0.89 (0.55)      1.34 (0.83)      2.10 (1.30)
3200........................................      0.50 (0.31)      0.91 (0.57)      1.36 (0.84)      2.13 (1.32)
3400........................................      0.52 (0.32)      0.93 (0.58)      1.40 (0.87)      2.19 (1.36)
3600........................................      0.54 (0.34)      0.97 (0.60)      1.45 (0.90)      2.26 (1.40)
3800........................................      0.57 (0.35)      1.02 (0.63)      1.52 (0.94)      2.36 (1.47)
4000........................................      0.62 (0.38)      1.10 (0.68)      1.63 (1.01)      2.53 (1.57)
----------------------------------------------------------------------------------------------------------------
Note: Between end-section lengths of 2,250 ft (686 m) for D66 loading.


  Table 5--Frequency Attenuation @ 68  deg.F (20  deg.C) H88 Loaded Exchange Cables 83 nF/ mile (52 nF/km) (See
                                                      Note)
----------------------------------------------------------------------------------------------------------------
                                                                Attenuation dB/mile (dB/km) AWG
               Frequency (Hz)                -------------------------------------------------------------------
                                                     19               22               24               26
----------------------------------------------------------------------------------------------------------------
200.........................................      0.40 (0.25)      0.66 (0.41)      0.90 (0.56)      1.20 (0.75)
400.........................................      0.42 (0.26)      0.76 (0.47)      1.08 (0.67)      1.53 (0.95)
600.........................................      0.43 (0.27)      0.79 (0.49)      1.16 (0.72)      1.70 (1.06)
800.........................................      0.43 (0.27)      0.80 (0.50)      1.20 (0.75)      1.80 (1.12)
1000........................................      0.43 (0.27)      0.81 (0.50)      1.23 (0.76)      1.86 (1.15)
1200........................................      0.44 (0.27)      0.82 (0.51)      1.24 (0.77)      1.91 (1.19)
1400........................................      0.44 (0.28)      0.82 (0.51)      1.25 (0.78)      1.94 (1.20)
1600........................................      0.44 (0.27)      0.83 (0.52)      1.26 (0.78)      1.97 (1.22)
1800........................................      0.45 (0.28)      0.84 (0.52)      1.28 (0.79)      1.99 (1.24)
2000........................................      0.46 (0.29)      0.85 (0.53)      1.29 (0.80)      2.02 (1.26)
2200........................................      0.47 (0.29)      0.86 (0.53)      1.31 (0.81)      2.06 (1.28)
2400........................................      0.48 (0.30)      0.89 (0.55)      1.34 (0.83)      2.10 (1.30)
2600........................................      0.50 (0.31)      0.92 (0.57)      1.39 (0.86)      2.18 (1.35)
2800........................................      0.53 (0.33)      0.97 (0.60)      1.47 (0.91)      2.29 (1.42)
3000........................................      0.59 (0.37)      1.07 (0.66)      1.60 (0.99)      2.48 (1.54)
3200........................................      0.71 (0.44)      1.26 (0.78)      1.87 (1.16)      2.86 (1.78)
3400........................................      1.14 (0.71)      1.91 (1.19)      2.64 (1.64)      3.71 (2.30)
3600........................................      4.07 (2.53)      4.31 (2.68)      4.65 (2.90)      5.30 (3.29)
3800........................................      6.49 (4.03)      6.57 (4.08)      6.72 (4.18)      7.06 (4.39)
4000........................................      8.22 (5.11)      8.27 (5.14)      8.36 (5.19)      8.58 (5.33)
----------------------------------------------------------------------------------------------------------------
Note: Between end-section lengths of 3,000 ft (914 m) for H88 loading.


   Table 6--Frequency Attenuation @ 68  deg.F (20  deg.C) Nonloaded Exchange Cables 83 nF/ mile (52 nF/km) AWG
----------------------------------------------------------------------------------------------------------------
                                                                Attenuation dB/mile (dB/km) AWG
               Frequency (Hz)                -------------------------------------------------------------------
                                                     19               22               24               26
----------------------------------------------------------------------------------------------------------------
200.........................................      0.58 (0.36)      0.82 (0.51)      1.03 (0.64)      1.30 (0.81)
400.........................................      0.81 (0.51)      1.15 (0.71)      1.45 (0.90)      1.84 (1.14)
600.........................................      0.98 (0.61)      1.41 (0.87)      1.77 (1.10)      2.26 (1.40)
800.........................................      1.13 (0.70)      1.62 (1.01)      2.04 (1.27)      2.60 (1.61)
1000........................................      1.25 (0.78)      1.80 (1.12)      2.28 (1.42)      2.90 (1.80)
1200........................................      1.36 (0.84)      1.97 (1.22)      2.50 (1.55)      3.17 (1.97)
1400........................................      1.46 (0.91)      2.12 (1.32)      2.69 (1.67)      3.42 (2.12)
1600........................................      1.55 (0.96)      2.26 (1.40)      2.87 (1.78)      3.65 (2.27)
1800........................................      1.63 (1.01)      2.39 (1.48)      3.04 (1.89)      3.87 (2.40)
2000........................................      1.71 (1.06)      2.51 (1.56)      3.20 (1.99)      4.08 (2.53)
2200........................................      1.78 (1.11)      2.62 (1.63)      3.35 (2.08)      4.27 (2.65)
2400........................................      1.85 (1.15)      2.73 (1.70)      3.49 (2.17)      4.45 (2.76)
2600........................................      1.91 (1.19)      2.83 (1.76)      3.62 (2.25)      4.63 (2.88)
2800........................................      1.97 (1.22)      2.93 (1.82)      3.75 (2.33)      4.80 (2.98)
3000........................................      2.03 (1.26)      3.02 (1.88)      3.88 (2.41)      4.96 (3.08)
3200........................................      2.08 (1.29)      3.11 (1.93)      4.00 (2.48)      5.12 (3.18)
3400........................................      2.13 (1.32)      3.19 (1.98)      4.11 (2.55)      5.27 (3.27)
3600........................................      2.18 (1.35)      3.28 (2.04)      4.22 (2.62)      5.41 (3.36)

[[Page 525]]

 
3800........................................      2.22 (1.38)      3.36 (2.09)      4.33 (2.69)      5.55 (3.45)
4000........................................      2.27 (1.41)      3.43 (2.13)      4.43 (2.75)      5.69 (3.53)
----------------------------------------------------------------------------------------------------------------

    (G) For loaded subscriber loops, the 1 kHz loss shall be 
approximately 0.45 dB per 100 ohms of measured dc loop resistance. This 
loss shall be the measured loss less the net gain of any voice frequency 
repeaters in the circuit. Testing shall also be conducted to verify that 
the loss increases gradually as the frequency increases. The loss on H88 
loaded loops should be down only slightly at 2.8 kHz but drop rapidly 
above 2.8 kHz. The loss on D66 loaded loops shall be fairly constant to 
about 3.4 kHz and there shall be good response at 4.0 kHz. When voice 
frequency repeaters are in the circuit there will be some frequency 
weighting in the build-out network and the loss at the higher 
frequencies will be greater than for nonrepeatered loops.
    (H) For nonloaded subscriber loops, the 1 kHz loss shall be 
approximately 0.9 dB per 100 ohms of measured dc loop resistance. 
Testing shall also be conducted to verify that the loss is approximately 
a straight line function with no abrupt changes. The 3 kHz loss should 
be approximately 70% higher than the 1 kHz loss.
    (ii) Noise. The principal objective related to circuit noise (noise-
metallic) and the acceptance of new plant is that circuit noise levels 
be 20 dBrnc or less (decibels above reference noise, C-message weighted 
(a weighting derived from listening tests, to indicate the relative 
annoyance or speech impairment by an interfering signal of frequency (f) 
as heard through a ``500-type'' telephone set)). For most new, properly 
installed, plant construction, circuit noise will usually be 
considerably less than 20 dBrnc unless there are unusually long sections 
of telephone plant in parallel with electric power facilities and/or 
power influence of paralleling electric facilities is abnormally high. 
When circuit noise is 20 dBrnc or less, the loop plant shall be 
considered acceptable. When measured circuit noise is greater than 20 
dBrnc, loop plant shall still be considered acceptable providing circuit 
balance (power influence reading minus circuit noise readings) is 60 dB 
or greater and power influence readings are 85 dBrnc or greater. When 
circuit noise is greater than 20 dBrnc and circuit balance is less than 
60 dB and/or power influence is less than 85 dBrnc, loop plant shall not 
be considered acceptable and the loop plant shall be remedied to make 
circuit balance equal to or greater than 60 dB.
    (7) Data record. Measurement data shall be recorded. A suggested 
format similar to Format I for subscriber loops in Sec. 1755.407 or a 
format specified in the applicable construction contract may be used.
    (8) Probable causes for nonconformance--(i) Insertion loss. Some of 
the more common causes for failing to obtain the desired results may be 
due to reversed load coil windings, missing load coils, bridge taps 
between load coils, load coil spacing irregularities, excessive end 
sections, cables having high or low mutual capacitance, load coils 
having the wrong inductance, load coils inadvertently installed in 
nonloaded loops, moisture or water in cable, split pairs, and improperly 
spliced connections. The above factors can occur singularly or in 
combination. Experience to date indicates that the most common problems 
are missing load coils, reversed load coil windings or bridge taps.
    (ii) Noise. Some of the common causes for failing to obtain the 
desired results may be due to high power influence from paralleling 
electrical power systems, poor telephone circuit balance, discontinuous 
cable shields, inadequate bonding and grounding of cable shields, high 
capacitance unbalance-to-ground of the cable pairs, high dc loop 
resistance unbalance, dc loop current less than 20 milliamperes, etc. 
The

[[Page 526]]

above factors can occur singularly or in combination. See TE&CM Section 
451, Telephone Noise Measurement and Mitigation, for steps to be taken 
in reducing telecommunications line noise.
    (f) One-person open circuit measurement (subscriber loops). (1) When 
specified by the borrower, open circuit measurements shall be made on 
all loaded and nonloaded subscriber loops upon completion of the cable 
work to verify that the plant is free from major impedance 
irregularities.
    (2) For loaded loops, open circuit measurements shall be made using 
one of the following methods:
    (i) Impedance or pulse return pattern, with cable pair trace 
compared to that of an artificial line of the same length and gauge. For 
best results, a level tracer or fault locator with dual trace capability 
is required;
    (ii) Return loss using a level tracer, with cable pair compared to 
an artificial line of the same length and gauge connected in lieu of a 
Precision Balance Network (PBN). This method can be made with level 
tracers having only single trace capability; or
    (iii) Open circuit structural return loss using a level tracer. This 
method can be made with level tracer having only single trace 
capability.
    (3) Of the three methods suggested for loaded loops, the method 
specified in paragraph (f)(2)(ii) of this section is the preferred 
method because it can yield both qualitative and quantitative results. 
The methods specified in paragraphs (f)(2)(i) and (f)(2)(iii) of this 
section can be used as trouble shooting tools should irregularities be 
found during testing.
    (4) For nonloaded loops, open circuit measurements shall be made 
using the method specified in paragraph (f)(2)(i) of this section.
    (5) Method of measurement. Open circuit measurements shall be made 
at the CO on each loaded and nonloaded pair across the tip and ring 
terminals of the pair under test. All CO equipment shall be disconnected 
at the MDF for this test. For loaded loops containing voice frequency 
repeaters installed in the CO or field mounted, the open circuit 
measurement shall be made after the repeaters have been disconnected. 
Where field mounted repeaters are used, the open circuit measurement 
shall be made at the repeater location in both directions.
    (i) Impedance or pulse return pattern. The step-by-step measurement 
procedure using the impedance or pulse return pattern for loaded and 
nonloaded loops shall be as shown in Figure 8. An artificial line of the 
same makeup as the cable to be tested shall be set up. The traces of the 
impedance or pulse return pattern from the cable pair and the artificial 
line shall be compared and should be essentially identical. If the 
impedance or pulse return traces from the cable pair are different than 
the artificial line trace, cable faults are possible. When the cable 
pair trace indicates possible defects, the defects should be identified 
and located. One method of identifying and locating defects involves 
introducing faults into the artificial line until its trace is identical 
with the cable trace.
    (ii) Return loss balanced to artificial line. The step-by-step 
measurement procedure using the return loss balanced to artificial line 
for loaded loops shall be as shown in Figure 9. An artificial line of 
the same makeup as the cable to be tested shall be set up. The 
artificial line is connected to the external network terminals of the 
test set. The cable pair under test is compared to this standard. When 
defects are found, they should be identified and located by introducing 
faults into the artificial line. This is more difficult than with the 
method referenced in paragraph (f)(5)(i) of this section since this 
measurement is more sensitive to minor faults and only a single trace is 
used.
    (iii) Open circuit structural return loss using level tracer. The 
step-by-step measurement procedure using the level tracer for loaded 
loops shall be as shown in Figure 10. The cable pair is compared to a 
PBN.
    (6) Test equipment. Equipment for performing these tests is shown in 
Figures 8 through 10. For loaded loops, artificial loaded lines must be 
of the same gauge and loading scheme as the line under test. For 
nonloaded loops, artificial nonloaded lines must be of the same gauge as 
the line under test. Artificial lines should be arranged using

[[Page 527]]

switches or other quick connect arrangements to speed testing and 
troubleshooting. Figures 8 through 10 are as follows:
[GRAPHIC] [TIFF OMITTED] TR02MY97.030


[[Page 528]]


[GRAPHIC] [TIFF OMITTED] TR02MY97.031


[[Page 529]]


[GRAPHIC] [TIFF OMITTED] TR02MY97.032

    (7) Applicable results. (i) For loaded and nonloaded loops, the two 
traces in the pulse return pattern or impedance method (paragraph 
(f)(5)(i) of this section) shall be essentially identical. The degree of 
comparison required of the two traces is to be determined by experience.
    (ii) For loaded loops, results for return loss measurements using a 
level tracer, with artificial line, in lieu of a PBN (paragraph 
(f)(5)(ii) of this section) shall meet the following requirements:
    (A) For D66 and H88 loaded cables the structural return loss (SRL) 
values shall range between 28 and 39 dB, respectively, at the critical 
frequency of structural return loss (CFSRL) within the pass band of the 
loading system being used. The minimum SRL value for uniform gauge shall 
be 25 dB CFSRL. These SRL values apply for loaded cables of uniform 
gauge for the

[[Page 530]]

entire length of the subscriber loop circuit. Subscriber loop circuits 
shall meet the loading spacing deviations and the cable mutual 
capacitance requirements in the applicable RUS cable specifications;
    (B) For mixed gauge loaded cables the SRL values shall be 25 and 27 
dB CFSRL, respectively, and the minimum SRL value shall be 22 dB CFSRL; 
and
    (C) The two traces in the pulse return pattern should be essentially 
identical. The degree of comparison required of the two traces is 
determined by experience.
    (iii) For loaded loops, the results of open circuit structural 
return loss measurements using a level tracer (paragraph (f)(5)(iii) of 
this section) shall meet the following requirements. For D66 and H88 
loaded cables with uniform or mixed gauges, the worst value allowed for 
measured open circuit structural return loss between 1,000-3,500 Hz and 
1,000-3,000 Hz, respectively, shall be approximately 0.9 dB (round trip) 
for each 100 ohms outside plant dc loop resistance including the 
resistance of the load coils. The value of 0.9 dB per 100 ohms for the 
round trip loss remains reasonably accurate as long as:
    (A) The subscriber end section of the loaded pair under test is 
approximately 2,250 ft (685 m) for D66 loading or 3,000 ft (914 m) for 
H88 loading in length; and
    (B) The one-way 1,000 Hz loss does not exceed 10 dB.
    (iv) For loaded loops, the measured value of open circuit structural 
return loss can only be as accurate as the degree to which the dc loop 
resistance of the loaded pair under test is known. Most accurate results 
shall be obtained when the dc loop resistance is known by actual 
measurements as described in paragraph (d) of this section. Furthermore, 
where the dc loop resistance is measured at the same time as the open 
circuit structural return loss, no correction for temperature is needed 
because the loss is directly proportional to the loop resistance. Where 
it is not practical to measure the dc loop resistance, it shall be 
calculated and corrected for temperature as specified in paragraph 
(d)(6)(ii) of this section. When measuring existing plant, care shall be 
taken to verify the accuracy of the records, if they are used for the 
calculation of the dc loop resistance. For buried plant, the temperature 
correction shall be based at the normal depth of the cable in the 
ground. (Temperature can be measured by boring a hole to cable depth 
with a ground rod, placing a thermometer in the ground at the cable 
depth, and taking and averaging several readings during the course of 
the resistance measurements.) For aerial cable it shall be based on the 
temperature inside the cable sheath.
    (v) For loaded loops, the best correlation between the measured and 
the expected results shall be obtained when the cable is of one gauge, 
one size, and the far end section is approximately 2,250 ft (685 m) for 
D66 loading or 3,000 ft (914 m) for H88 loading. Mixing gauges and cable 
sizes will result in undesirable small reflections whose frequency 
characteristics and magnitude cannot be accurately predicted. In 
subscriber loop applications, cable gauge may be somewhat uniform but 
the cable pair size most likely will not be uniform as cable pair sizes 
taper off toward the customer access location and a downward adjustment 
of 1 dB of the allowed value shall be acceptable. ``Long'' end sections 
(as defined in TE&CM Section 424, ``Guideline for Telecommunications 
Subscriber Loop Plant'') lower the expected value, a further downward 
adjustment of 3 dB in the allowed value shall be acceptable.
    (vi) For loaded loops, the limiting factor when making open circuit 
structural return loss measurements is when the 1,000 Hz one-way loss of 
the loaded cable pair under test becomes 10 dB or greater; it becomes 
difficult to detect the presence of irregularities beyond the 10 dB 
point on the loop. To overcome this difficulty, loaded loops having a 
one-way loss at 1,000 Hz greater than 10 dB shall be opened at some 
convenient point (such as a pedestal or ready access enclosure) and loss 
measurements at the individual portions measuring less than 10 dB one-
way shall be made separately. When field mounted voice frequency 
repeaters are used, the measurement shall be made at the repeater 
location in both directions.
    (8) Data record.(i) When performing a pulse return pattern or 
impedance open

[[Page 531]]

circuit measurement on loaded and nonloaded loops, a ``check mark'' 
indicating that the pair tests good or an ``X'' indicating that the pair 
does not test good shall be recorded in the SRL column. A suggested 
format similar to Format I for subscriber loops in Sec. 1755.407 or a 
format specified in the applicable construction contract may be used.
    (ii) When performing open circuit return loss measurements using the 
return loss balanced to an artificial line or return loss using a level 
tracer on loaded loops, the value of the poorest (lowest numerical 
value) SRL and its frequency in the proper column between 1,000 and 
3,500 Hz for D66 loading or between 1,000 and 3,000 Hz for H88 loading 
shall be recorded. A suggested format similar to Format I for subscriber 
loops in Sec. 1755.407 or a format specified in the applicable 
construction contract may be used.
    (9) Probable causes for nonconformance. Some of the more common 
causes for failing to obtain the desired results may be due to reversed 
load coil windings, missing load coils, bridge taps between load coils, 
load coil spacing irregularities, excessive end sections, cables having 
high or low mutual capacitance, load coils inadvertently installed in 
nonloaded loops, moisture or water in the cable, load coils having the 
wrong inductance, split pairs, and improperly spliced connectors. The 
above can occur singularly or in combination. Experience to date 
indicates that the most common problems are missing load coils, reversed 
load coil windings or bridge taps.
    (g) Cable insertion loss measurement (carrier frequencies). (1) When 
specified by the borrower, carrier frequency insertion loss measurements 
shall be made on cable pairs used for T1, T1C, and/or station carrier 
systems. Carrier frequency insertion loss shall be made on a minimum of 
three pairs. Select at least one pair near the outside of the core unit 
layup. If the three measured pairs are within 10% of the calculated loss 
in dB corrected for temperature, no further testing is necessary. If any 
of the measured pairs of a section are not within 10% of the calculated 
loss in dB, all pairs in that section used for carrier transmission 
shall be measured.
    (2) Method of measurement. The step-by-step method of measurement 
shall be as shown in Figure 11.
    (3) Test equipment. The test equipment is shown in Figure 11 as 
follows:

[[Page 532]]

[GRAPHIC] [TIFF OMITTED] TR02MY97.033

    (4) Applicable results. (i) The highest frequency to be measured is 
determined by the type of carrier system. For T1 type carrier, the 
highest frequency is normally 772 kHz. For T1C type carrier, the highest 
frequency is normally 1576 kHz. The highest frequency to be measured for 
station carrier is 140 kHz.
    (ii) The measured insertion loss of the cable shall be within 10% 
of the calculated loss in dB when the loss is corrected for temperature.
    (iii) The calculated insertion loss is computed as follows:

[[Page 533]]

    (A) Multiply the length of each different gauge by the applicable dB 
per unit length as shown in Table 7 or 8 as follows:

               Table 7--Cable Attenuation @ 68  deg.F (20  deg.C) Filled Cables--Solid Insulation
----------------------------------------------------------------------------------------------------------------
               Frequency (kHz)                              Attenuation dB/mile (dB/km) Gauge (AWG)
----------------------------------------------------------------------------------------------------------------
                                                     19               22               24               26
----------------------------------------------------------------------------------------------------------------
10..........................................        2.8 (1.7)        4.8 (2.9)        6.4 (3.9)        8.5 (5.3)
20..........................................        3.2 (2.0)        5.8 (3.6)        8.2 (5.1)       11.2 (6.9)
40..........................................        3.6 (2.2)        6.5 (4.0)        9.6 (6.0)       13.9 (8.6)
60..........................................        4.0 (2.5)        6.9 (4.2)       10.3 (6.4)       15.2 (9.4)
80..........................................        4.5 (2.8)        7.3 (4.5)       10.7 (6.6)       16.0 (9.9)
100.........................................        4.9 (3.0)        7.7 (4.7)       11.1 (6.8)      16.5 (10.2)
112.........................................        5.2 (3.2)        8.0 (4.9)       11.3 (7.0)      16.8 (10.5)
120.........................................        5.4 (3.3)        8.1 (5.0)       11.5 (7.1)      17.0 (10.6)
140.........................................        5.8 (3.6)        8.6 (5.3)       11.9 (7.4)      17.4 (10.8)
160.........................................        6.2 (3.8)        9.0 (5.6)       12.3 (7.6)      17.8 (11.1)
180.........................................        6.6 (4.1)        9.5 (5.9)       12.7 (7.9)      18.2 (11.3)
200.........................................        7.0 (4.3)       10.0 (6.2)       13.2 (8.2)      18.6 (11.5)
300.........................................        8.7 (5.4)       12.2 (7.5)       15.4 (9.6)      20.6 (12.8)
400.........................................       10.0 (6.2)       14.1 (8.8)      17.7 (11.0)      22.9 (14.2)
500.........................................       11.2 (6.9)       15.9 (9.8)      19.8 (12.3)      25.2 (15.6)
600.........................................       12.2 (7.5)      17.5 (10.9)      21.8 (13.6)      27.4 (17.0)
700.........................................       13.2 (8.2)      19.0 (11.8)      23.6 (14.7)      29.6 (18.4)
772.........................................       13.8 (8.5)      19.9 (12.4)      24.8 (15.4)      31.4 (19.5)
800.........................................       14.2 (8.8)      20.1 (12.5)      27.4 (17.1)      31.7 (19.7)
900.........................................       14.8 (9.2)      21.6 (13.4)      29.0 (18.0)      33.8 (21.0)
1000........................................       15.8 (9.8)      22.7 (14.1)      31.1 (19.3)      35.9 (22.3)
1100........................................      16.4 (10.2)      23.8 (14.8)      32.7 (20.3)      38.0 (23.6)
1200........................................      17.4 (10.8)      24.8 (15.4)      34.3 (21.3)      40.0 (24.9)
1300........................................      17.9 (11.1)      25.9 (16.1)      35.4 (22.0)      41.7 (25.9)
1400........................................      19.0 (11.8)      26.9 (16.7)      37.0 (23.0)      43.3 (26.9)
1500........................................      19.5 (12.1)      28.0 (17.4)      38.0 (23.6)      44.3 (27.6)
1576........................................      20.1 (12.4)      29.0 (18.0)      39.0 (24.3)      44.4 (28.2)
----------------------------------------------------------------------------------------------------------------


              Table 8--Cable Attenuation @ 68  deg.F (20  deg.C) Filled Cables--Expanded Insulation
----------------------------------------------------------------------------------------------------------------
                                                            Attenuation dB/mile (dB/km) Gauge (AWG)
               Frequency (kHz)               -------------------------------------------------------------------
                                                     19               22               24               26
----------------------------------------------------------------------------------------------------------------
10..........................................        3.0 (1.8)        4.9 (3.0)        6.5 (4.0)        8.6 (5.3)
20..........................................        3.5 (2.1)        6.0 (4.1)        8.5 (5.2)       11.5 (7.1)
40..........................................        4.0 (2.5)        7.0 (4.3)       10.2 (6.3)       14.4 (8.9)
60..........................................        4.5 (2.8)        7.5 (4.6)       11.1 (6.8)       16.0 (9.9)
80..........................................        5.2 (3.3)        7.9 (4.9)       11.3 (6.9)      16.2 (10.1)
100.........................................        5.8 (3.6)        8.4 (5.2)       11.6 (7.2)      16.4 (10.2)
112.........................................        6.0 (3.8)        8.8 (5.4)       11.9 (7.4)      16.6 (10.3)
120.........................................        6.2 (3.9)        9.0 (5.6)       12.1 (7.5)      16.9 (10.5)
140.........................................        6.6 (4.1)        9.5 (5.9)       12.7 (7.9)      17.2 (10.7)
160.........................................        6.9 (4.3)       10.0 (6.2)       13.2 (8.2)      17.4 (10.8)
180.........................................        7.4 (4.6)       10.6 (6.6)       13.7 (8.5)      17.9 (11.1)
200.........................................        7.9 (4.9)       11.1 (6.9)       14.2 (8.8)      18.5 (11.5)
300.........................................        9.5 (5.9)       13.2 (8.2)      16.8 (10.5)      21.6 (13.4)
400.........................................       11.1 (6.9)       15.3 (9.5)      19.5 (12.1)      24.3 (15.1)
500.........................................       12.1 (7.5)      17.9 (11.1)      22.2 (13.8)      27.4 (17.1)
600.........................................       13.7 (8.5)      19.5 (12.1)      24.3 (15.1)      29.6 (18.4)
700.........................................       14.8 (9.2)      21.1 (13.1)      26.4 (16.4)      32.2 (20.0)
772.........................................       15.3 (9.5)      21.6 (13.4)      27.4 (17.1)     33.8 (21.90)
800.........................................       15.8 (9.8)      22.2 (13.8)      28.0 (17.4)      34.4 (21.3)
900.........................................      17.0 (10.5)      23.8 (14.8)      29.6 (18.4)      36.4 (22.6)
1000........................................      17.4 (10.8)      24.8 (15.4)      31.1 (19.3)      38.5 (23.9)
1100........................................      17.9 (11.1)      26.4 (16.4)      33.3 (20.7)      40.6 (25.3)
1200........................................      19.0 (11.8)       27.4 (17.1      34.3 (21.3)      42.2 (26.2)
1300........................................      19.5 (12.1)      28.5 (17.7)      35.9 (22.3)      43.8 (27.2)
1400........................................       20.1 (12.5      29.6 (18.4)      37.0 (23.0)      45.9 (28.5)
1500........................................      20.6 (12.8)      30.6 (19.0)      38.5 (23.9)      47.5 (29.5)
1576........................................      21.6 (13.4)      31.1 (19.3)      39.1 (24.3)      48.6 (30.2)
----------------------------------------------------------------------------------------------------------------


[[Page 534]]

    (B) Add the individual losses for each gauge to give the total 
calculated insertion loss at a temperature of 68  deg.F (20  deg.C);
    (C) Correct the total calculated insertion loss at the temperature 
of 68  deg.F (20  deg.C) to the measurement temperature by the following 
formulae:

At=A68x[1+0.0012x(t-68)] for English Units
At=A20x[1+0.0022x(t--20)] for Metric Units

Where:

At=Insertion loss at the measurement temperature in dB.
A68=Insertion loss at a temperature of 68  deg.F in dB.
A20=Insertion loss at a temperature of 20  deg.C in dB.
t=Measurement temperature in  deg.F or (  deg.C); and

    (D) Compare the calculated insertion loss at the measurement 
temperature to the measured insertion loss to determine compliance with 
the requirement specified in paragraph (g)(4)(ii) of this section. 
(Note: Attenuation varies directly with temperature. For each 10  deg.F 
(5.6  deg.C) change in temperature increase or decrease the attenuation 
by 1%.)
    (iv) If the measured value exceeds the 10% allowable variation, the 
cause shall be determined and corrective action shall be taken to remedy 
the problem.
    (5) Data record. Results of carrier frequency insertion loss 
measurements for station, T1, and/or T1C type carrier shall be recorded. 
Suggested formats similar to Format III, Outside Plant Acceptance Tests-
-T1 or T1C Carrier Pairs, and Format IV, Outside Plant Acceptance Tests-
-Station Carrier Pairs, in Sec. 1755.407 or formats specified in the 
applicable construction contract may be used.
    (6) Probable causes for nonconformance. If the measured loss is low, 
the cable records are likely to be in error. If the measured loss is 
high, there may be bridge taps, load coils or voice frequency build-out 
capacitors connected to the cable pairs or the cable records may be in 
error. Figures 12 and 13 are examples that show the effects of bridge 
taps and load coils in the carrier path. Figures 12 and 13 are as 
follows:

[[Page 535]]

[GRAPHIC] [TIFF OMITTED] TR02MY97.034


[[Page 536]]


[GRAPHIC] [TIFF OMITTED] TR02MY97.035


[62 FR 23962, May 2, 1997]



Sec. 1755.404  Fiber optic cable telecommunications plant measurements.

    (a) Armor continuity. (1) Tests and measurements shall be made to 
ensure that the armor of fiber optic cables is continuous. There are two 
areas of concern. The first is armor bonding within a splice and the 
second is armor continuity between splices.
    (2) Measurement techniques outlined here for verification of armor 
continuity are applicable to buried fiber optic cable plant. 
Measurements of armor continuity between splices in aerial, armored, 
fiber optic cable should be made prior to completion of splicing. 
Conclusive results cannot be obtained on aerial plant after all bonds 
have been completed to the supporting strand, multigrounded neutral, 
etc.
    (3) Method of measurement. Armor continuity within splices shall be 
measured with a cable shield splice

[[Page 537]]

continuity test set. The step-by-step measurement procedure outlined in 
the manufacturer's operating instructions for the specific test 
equipment being used shall be followed.
    (4) Test equipment. A cable shield splice continuity tester shall be 
used to measure armor continuity within splices.
    (5) Applicable results. When utilizing shield continuity testers to 
measure armor continuity within splices, refer to the manufacturer's 
published information covering the specific test equipment to be used 
and for anticipated results.
    (6) Data record. Measurement data from armor continuity tests shall 
be recorded together with anticipated values in an appropriate format to 
permit comparison. The recorded data shall include specific location, 
cable size, and cable type, if known, etc.
    (7) Probable causes for nonconformance. Among probable causes for 
nonconformance are broken or damaged armors, bad bonding harnesses, 
poorly connected bonding clamps, loose bonding lugs, etc.
    (b) Fiber optic splice loss measurement. (1) After placement of all 
fiber optic cable plant has been completed and spliced together to form 
a continuous optical link between end termination points, splice loss 
measurements shall be performed on all field and central office splice 
points.
    (2) Method of measurement. (i) Field splice loss measurements shall 
be made between the end termination points at 1310 and/or 1550 
nanometers for single mode fibers and in accordance with Figure 14. Two 
splice loss measurements shall be made between the end termination 
points. The first measurement shall be from termination point A to 
termination point B. The second measurement shall be from termination 
point B to termination point A.
    (ii) CO splice loss measurements shall be made at 1310 and/or 1550 
nanometers for single mode fibers and in accordance with Figure 15. Two 
splice loss measurements shall be made between the end termination 
points. The first measurement shall be from termination point A to 
termination point B. The second measurement shall be from termination 
point B to termination point A.
    (3) Test equipment. The test equipment is shown in Figures 14 and 
15. The optical time domain reflectometer (OTDR) used for the testing 
should have dual wave length capability. Figures 14 and 15 are as 
follows:

[[Page 538]]

[GRAPHIC] [TIFF OMITTED] TR02MY97.036


[[Page 539]]


[GRAPHIC] [TIFF OMITTED] TR02MY97.037

    (4) Applicable results. (i) The splice loss for each single mode 
field splice shall be the bi-directional average of the two OTDR 
readings. To calculate the actual splice loss, substitute the OTDR 
readings maintaining the sign of the loss (+) or apparent gain (-) into 
the following equation:

[[Page 540]]

[GRAPHIC] [TIFF OMITTED] TN07MY97.000

    (ii) When specified in the applicable construction contract, the 
splice loss of each field splice at 1310 and/or 1550 nanometers shall 
not exceed the limit specified in the contract.
    (iii) When no limit is specified in the applicable construction 
contract, the splice loss of each field splice shall not exceed 0.2 dB 
at 1310 and/or 1550 nanometers.
    (iv) The splice loss for each single mode CO splice shall be the bi-
directional average of the two OTDR reading. To calculate actual splice 
loss, substitute the OTDR reading, maintaining the sign of the loss (+) 
or apparent gain (-), into the equation specified in paragraph (b)(4)(i) 
of this section.
    (v) When specified in the applicable construction contract, the 
splice loss of each central office splice at 1310 and/or 1550 nanometers 
shall not exceed the limit specified in the contract.
    (vi) When no limit is specified in the applicable construction 
contract, the splice loss of each central office splice shall not exceed 
1.2 dB at 1310 and/or 1550 nanometers.
    (5) Data record. The measurement data shall be recorded. A suggested 
format similar to Format V, Outside Plant Acceptance Test--Fiber Optic 
Telecommunications Plant, in Sec. 1755.407 or a format specified in the 
applicable construction contract may be used.
    (6) Probable causes for nonconformance. When the results of the 
splice loss measurements exceed the specified limits the following 
factors should be checked:
    (i) Proper end preparation of the fibers;
    (ii) End separation between the fiber ends;
    (iii) Lateral misalignment of fiber cores;
    (iv) Angular misalignment of fiber cores;
    (v) Fresnel reflection;
    (vi) Contamination between fiber ends;
    (vii) Core deformation; or
    (viii) Mode-field diameter mismatch.
    (c) End-to-end attenuation measurement. (1) After placement of all 
fiber optic cable plant has been completed and spliced together to form 
a continuous optical link between end termination points, end-to-end 
attenuation measurements shall be performed on each optical fiber within 
the cable.
    (2) Method of measurement. For single mode fibers, the end-to-end 
attenuation measurements of each optical fiber at 1310 and/or 1550 
nanometers in each direction between end termination points shall be 
performed in accordance with Figure 16.
    (3) Test equipment. The test equipment is shown in Figure 16 as 
follows:

[[Page 541]]

[GRAPHIC] [TIFF OMITTED] TR02MY97.038

    (4) Applicable results. The end-to-end attenuation of each single 
mode optical fiber at 1310 and/or 1550 nanometers shall not exceed the 
limits specified in the applicable construction contract.
    (5) Data record. The measurement data shall be recorded. A suggested 
format similar to Format V for fiber optic telecommunications plant in 
Sec. 1755.407 or on a format specified in the applicable construction 
contract may be used.
    (6) Probable causes for nonconformance. Failure of each optical 
fiber to meet the end-to-end attenuation limit could be attributed to 
the following:
    (i) Excessive field or central office splice loss;
    (ii) Excessive cable attenuation; or

[[Page 542]]

    (iii) Damage to the fiber optic cable during installation.
    (d) End-to-end fiber signature measurement. (1) After placement of 
all fiber optic cable plant has been completed and spliced together to 
form a continuous optical link between end termination points, end-to-
end fiber signature testing shall be performed on each optical fiber 
within the cable.
    (2) Method of measurement. For single mode fibers, the end-to-end 
fiber signature measurement of each optical fiber in each direction 
shall be performed between end termination points at 1310 and/or 1550 
nanometers in accordance with Figure 17.
    (3) Test equipment. The test equipment is shown in Figure 17 as 
follows:

[[Page 543]]

[GRAPHIC] [TIFF OMITTED] TR02MY97.039

    (4) Applicable results. The appearance of each optical fiber between 
end termination points.
    (5) Data record. Plot the trace of each optical fiber and retain as 
a permanent record for future comparison if needed.
    (6) Probable causes for nonconformance. None.

[62 FR 23989, May 2, 1997; 62 FR 25017, May 7, 1997]

[[Page 544]]



Sec. 1755.405  Voiceband data transmission measurements.

    (a) The data transmission measurements listed in this section shall 
be used to determine the acceptability of trunk and nonloaded subscriber 
loop circuits for data modem transmission.
    (b) Signal-to-C notched noise (S/CNN) measurement. (1) When 
specified by the borrower, S/CNN measurements shall be made on trunk 
circuits and nonloaded subscriber loops. For trunk circuits, the 
measurement shall be made between CO locations. For nonloaded subscriber 
loops, the measurement shall be made from the CO to the station 
protector of the NID at the customer's access location.
    (2) S/CNN is the logarithmic ratio expressed in dB of a 1,004 Hz 
holding tone signal compared to the C-message weighted noise level. S/
CNN is one of the most important transmission parameters affecting the 
performance of data transmission because proper modem operation requires 
low noise relative to received power level. Since modulated carriers are 
used in data communication systems, noise measurements need to be 
performed with power on the connection to activate equipment having 
signal-level-dependent noise sources. For 4 kHz channels, a 1,004 Hz 
holding tone is used to activate the signal-dependent equipment on the 
channel or connection.
    (3) Method of measurement. The S/CNN measurement shall be made using 
a 1,004 Hz holding tone at -13 dBm0 (decibels relative to one milliwatt, 
referred to a zero transmission level point) and performed in accordance 
with American National Standards Institute (ANSI) T1.506-1990, American 
National Standard for Telecommunications--Network Performance--
Transmission Specifications for Switched Exchange Access Network 
including supplement ANSI T1.506a-1992, and American National Standards 
Institute/Institute of Electrical and Electronics Engineers (ANSI/IEEE) 
743-1984, IEEE Standard Methods and Equipment for Measuring the 
Transmission Characteristics of Analog Voice Frequency Circuits. The 
ANSI T1.506-1990, American National Standard for Telecommunications--
Network Performance--Transmission Specifications for Switched Exchange 
Access Network is incorporated by reference in accordance with 5 U.S.C. 
522(a) and 1 CFR part 51. Copies of ANSI T1.506-1990 are available for 
inspection during normal business hours at RUS, room 2845, U.S. 
Department of Agriculture, STOP 1598, Washington, DC 20250-1598, or at 
the National Archives and Records Administration (NARA). For information 
on the availability of this material at NARA, call 202-741-6030, or go 
to: http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. Copies are available from ANSI, 
Customer Service, 11 West 42nd Street, New York, New York 10036, 
telephone number (212) 642-4900. The ANSI/IEEE 743-1984, IEEE Standard 
Methods and Equipment for Measuring the Transmission Characteristics of 
Analog Voice Frequency Circuits is incorporated by reference in 
accordance with 5 U.S.C. 522(a) and 1 CFR part 51. Copies of ANSI/IEEE 
743-1984 are available for inspection during normal business hours at 
RUS, room 2845, U.S. Department of Agriculture, STOP 1598, Washington, 
DC 20250-1598, or at the National Archives and Records Administration. 
Copies are available from ANSI, Customer Service, 11 West 42nd Street, 
New York, New York 10036, telephone number (212) 642-4900.
    (4) Test equipment. The equipment for performing the measurement 
shall be in accordance with ANSI/IEEE 743-1984.
    (5) Applicable results. The S/CNN for both trunk and nonloaded 
subscriber loop circuits shall not be less than 31 dB.
    (6) Data record. The measurement data shall be recorded. Suggested 
formats similar to Format VI, Voiceband Data Transmission Tests--
Nonloaded Subscriber Loops, and Format VII, Voiceband Data Transmission 
Tests--Trunk Circuits, in Sec. 1755.407 or formats specified in the 
applicable construction contract may be used.
    (7) Probable causes for nonconformance. Some of the causes for 
failing to obtain the desired results may be due to excessive harmonic 
distortion, quantizing noise, phase and amplitude jitter, and loss in 
digital pads used for level settings.
    (c) Signal-to-intermodulation distortion (S/IMD) measurement. (1) 
When specified

[[Page 545]]

by the borrower, S/IMD measurements shall be made on trunk circuits and 
nonloaded subscriber loops. For trunk circuits, the measurement shall be 
made between CO locations. For nonloaded subscriber loops, the 
measurement shall be made from the CO to the station protector of the 
NID at the customer's access location.
    (2) S/IMD is a measure of the distortion produced by extraneous 
frequency cross products, known as intermodulation products, when a 
multi-tone tone signal is applied to a system.
    (3) Intermodulation distortion (IMD) is caused by system 
nonlinearities acting upon the harmonic frequencies produced from an 
input of multiple tones. The products resulting from IMD can be more 
damaging than noise in terms of producing data transmission errors.
    (4) IMD is measured as a signal to distortion ratio and is expressed 
as the logarithmic ratio in dB of the composite power of four resulting 
test frequencies to the total power of specific higher order distortion 
products that are produced. The higher order products are measured at 
both the 2nd order and 3rd order and are designated R2 and R3, 
respectively. The four frequency testing for IMD is produced with four 
tones of 857, 863, 1,372, and 1,388 Hz input at a composite power level 
of -13 dBm0.
    (5) Method of measurement. The S/IMD measurement shall be performed 
in accordance with ANSI T1.506-1990 and ANSI/IEEE 743-1984.
    (6) Test equipment. The equipment for performing the measurement 
shall be in accordance with ANSI/IEEE 743-1984.
    (7) Applicable results. The 2nd order (R2) S/IMD for both trunk and 
nonloaded subscriber loop circuits shall not be less than 40 dB. The 3rd 
order (R3) S/IMD for both trunk and nonloaded subscriber loop circuits 
shall not be less than 40 dB.
    (8) Data record. The measurement data shall be recorded. Suggested 
formats similar to Format VI for nonloaded subscriber loops and Format 
VII for trunk circuits in Sec. 1755.407 or formats specified in the 
applicable construction contract may be used.
    (9) Probable causes for nonconformance. Some of the causes for 
failing to obtain the desired results may be due to channel 
nonlinearities, such as compression and clipping, which cause harmonic 
and intermodulation distortion in a voiceband signal.
    (d) Envelope delay distortion (EDD) measurement. (1) When specified 
by the borrower, EDD measurements shall be made on trunk circuits and 
nonloaded subscriber loops. For trunk circuits, the measurement shall be 
made between CO locations. For nonloaded subscriber loops, the 
measurement shall be made from the CO to the station protector of the 
NID at the customer's access location.
    (2) EDD is a measure of the linearity or uniformity of the phase 
versus frequency characteristics of a transmission facility. EDD is also 
known as relative envelope delay (RED).
    (3) EDD is specifically defined as the delay relative to the 
envelope delay at the reference frequency of 1,704 Hz. EDD is typically 
measured at two frequencies, one low and one high in the voiceband. The 
low frequency measurement is made at 604 Hz. The high frequency 
measurement is made at 2,804 Hz.
    (4) Method of measurement. The EDD measurement shall be performed in 
accordance with ANSI T1.506-1990 and ANSI/IEEE 743-1984.
    (5) Test equipment. The equipment for performing the measurement 
shall be in accordance with ANSI/IEEE 743-1984.
    (6) Applicable results. The EDD for both trunk and nonloaded 
subscriber loop circuits at the low frequency of 604 Hz shall not exceed 
1,500 microseconds. The EDD for both trunk and nonloaded subscriber loop 
circuits at the high frequency of 2,804 Hz shall not exceed 1,000 
microseconds.
    (7) Data record. The measurement data shall be recorded. Suggested 
formats similar to Format VI for nonloaded subscriber loops and Format 
VII for trunk circuits in Sec. 1755.407 or formats specified in the 
applicable construction contract may be used.
    (8) Probable causes for nonconformance. Some of the causes for 
failing to obtain the desired results may be due to nonlinearity of the 
phase versus frequency

[[Page 546]]

characteristic of the transmission facility. This nonlinear phase versus 
frequency characteristic of the transmission facility causes the various 
frequency components to travel at different transit times which results 
in successively transmitted data pulses to overlap at the receive end. 
The overlapping of the pulses at the receive end results in distortion 
of the received signal. Excessive EDD on the transmission facility may 
be reduced using data modems with equalization or by conditioning the 
transmission line.
    (e) Amplitude jitter (AJ) measurement. (1) When specified by the 
borrower, AJ measurements shall be made on trunk circuits and nonloaded 
subscriber loops. For trunk circuits, the measurement shall be made 
between CO locations. For nonloaded subscriber loops, the measurement 
shall be made from the CO to the station protector of the NID at the 
customer's access location.
    (2) AJ is any fluctuation in the peak amplitude value of a fixed 
tone signal at 1,004 Hz from its nominal value. AJ is expressed in peak 
percent amplitude modulation.
    (3) AJ is measured in two separate frequency bands, 4-300 Hz and 20-
-300 Hz. The 4--300 Hz band is important for modems employing echo 
canceling capabilities. The 20-300 Hz band is used for modems that do 
not employ echo cancelers.
    (4) Amplitude modulation can affect the error performance of 
voiceband data modems. The measurement of amplitude jitter indicates the 
total effect on the amplitude of the holding tone of incidental 
amplitude modulation and other sources including quantizing and message 
noise, impulse noise, gain hits, phase jitter, and additive tones such 
as single-frequency interference.
    (5) Method of measurement. The AJ measurement shall be performed in 
accordance with ANSI T1.506-1990 and ANSI/IEEE 743-1984.
    (6) Test equipment. The equipment for performing the measurement 
shall be in accordance with ANSI/IEEE 743-1984.
    (7) Applicable results. The AJ for both trunk and nonloaded 
subscriber loop circuits in the 4--300 Hz frequency band shall not 
exceed 6%. The AJ for both trunk and nonloaded subscriber loop circuits 
in the 20--300 Hz frequency band shall not exceed 5%.
    (8) Data record. The measurement data shall be recorded. Suggested 
formats similar to Format VI for nonloaded subscriber loops and Format 
VII for trunk circuits in Sec. 1755.407 or formats specified in the 
applicable construction contract may be used.
    (9) Probable causes for nonconformance. Some of the causes for 
failing to obtain the desired results may be due to excessive S/CNN, 
impulse noise, and phase jitter.
    (f) Phase jitter (PJ) measurement. (1) When specified by the 
borrower, PJ measurements shall be made on trunk circuits and nonloaded 
subscriber loops. For trunk circuits, the measurement shall be made 
between CO locations. For nonloaded subscriber loops, the measurement 
shall be made from the CO to the station protector of the NID at the 
customer's access location.
    (2) PJ is any fluctuation in the zero crossings of a fixed tone 
signal (usually 1,004 Hz) from their nominal position in time within the 
voiceband. PJ is expressed in terms of either degrees peak-to-peak 
( deg. p-p) or in terms of a Unit Interval (UI). One UI is equal to 
360 deg. p-p.
    (3) PJ measurements are typically performed in two nominal frequency 
bands. The frequency bands are 20-300 Hz band and either the 2-300 Hz 
band or the 4-300 Hz band. The 20-300 Hz band is important to all phase-
detecting modems. The 4-300 Hz band or the 2-300 Hz band is important 
for modems employing echo canceling capabilities.
    (4) Phase jitter can affect the error performance of voiceband data 
modems that use phase detection techniques. The measurement of phase 
jitter indicates the total effect on the holding tone of incidental 
phase modulation and other sources including quantizing and message 
noise, impulse noise, phase hits, additive tones such as single-
frequency interference, and digital timing jitter.
    (5) Method of measurement. The PJ measurement shall be performed in 
accordance with ANSI T1.506-1990 and ANSI/IEEE 743-1984.
    (6) Test equipment. The equipment for performing the measurement 
shall be in accordance with ANSI/IEEE 743-1984.

[[Page 547]]

    (7) Applicable results. The PJ for both trunk and nonloaded 
subscriber loop circuits in the 4-300 Hz frequency band shall not exceed 
6.5 deg. p-p. The PJ for both trunk and nonloaded subscriber loop 
circuits in the 20-300 Hz frequency band shall not exceed 10.0 deg. p-p.
    (8) Data record. The measurement data shall be recorded. Suggested 
formats similar to Format VI for nonloaded subscriber loops and Format 
VII for trunk circuits in Sec. 1755.407 or formats specified in the 
applicable construction contract may be used.
    (9) Probable causes for nonconformance. Some of the causes for 
failing to obtain the desired results may be due to excessive S/CNN, 
impulse noise, and amplitude jitter.
    (g) Impulse noise measurement. (1) When specified by the borrower, 
impulse noise measurements shall be made on trunk circuits and nonloaded 
subscriber loops. For trunk circuits, the measurement shall be made 
between CO locations. For nonloaded subscriber loops, the measurement 
shall be made from the CO to the station protector of the NID at the 
customer's access location.
    (2) Impulse noise is a measure of the presence of unusually large 
noise excursions of short duration that are beyond the normal background 
noise levels on a facility. Impulse noise is typically measured by 
counting the number of occurrences beyond a particular noise reference 
threshold in a given time interval. The noise reference level is C-
message weighted.
    (3) Method of measurement. The impulse noise measurement shall be 
performed using a 1,004 Hz tone at -13 dBm0 and in accordance with ANSI 
T1.506-1990 and ANSI/IEEE 743-1984.
    (4) Test equipment. The equipment for performing the measurement 
shall be in accordance with ANSI/IEEE 743-1984.
    (5) Applicable results. The impulse noise for both trunk and 
nonloaded subscriber loop circuits shall not exceed 65 dBrnC0 (decibels 
relative to one picowatt reference noise level, measured with C-message 
frequency weighting, referred to a zero transmission level point). The 
impulse noise requirement shall be based upon a maximum of 5 counts in a 
5 minute period at equal to or greater than the indicated noise 
thresholds.
    (6) Data record. The measurement data shall be recorded. Suggested 
formats similar to Format VI for nonloaded subscriber loops and Format 
VII for trunk circuits in Sec. 1755.407 or formats specified in the 
applicable construction contract may be used.
    (7) Probable causes for nonconformance. Some of the causes for 
failing to obtain the desired results may be due to excessive transient 
signals originating from the various switching operations.

[62 FR 23996, May 2, 1997, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. 1755.406  Shield or armor ground resistance measurements.

    (a) Shield or armor ground resistance measurements shall be made on 
completed lengths of copper cable and wire plant and fiber optic cable 
plant.
    (b) Method of measurement. (1) The shield or armor ground resistance 
measurement shall be made between the copper cable and wire shield and 
ground and between the fiber optic cable armor and ground, respectively. 
The measurement shall be made either on cable and wire lengths before 
splicing and before any ground connections are made to the cable or wire 
shields or armors. Optionally, the measurement may be made on cable and 
wire lengths after splicing, but all ground connections must be removed 
from the section under test.
    (2) The method of measurement using either an insulation resistance 
test set or a dc bridge type megohmmeter shall be as shown in Figure 18 
as follows:

[[Page 548]]

[GRAPHIC] [TIFF OMITTED] TR02MY97.040

    (c) Test equipment. (1) The shield or armor ground resistance 
measurements may be made using an insulation resistance test set, a dc 
bridge type megohmmeter, or a commercially available fault locator.
    (2) The insulation resistance test set should have an output voltage 
not to exceed 500 volts dc and may be hand cranked or battery operated.
    (3) The dc bridge type megohmmeter, which may be ac powered, should 
have

[[Page 549]]

scales and multipliers which make it possible to accurately read 
resistance values of 50,000 ohms to 10 megohms. The voltage that is 
applied to the shield or armor during the test should not be less than 
``250 volts dc'' nor greater than ``1,000 volts dc'' when using an 
instrument having adjustable test voltage levels.
    (4) Commercially available fault locators may be used in lieu of the 
above equipment, if the devices are capable of detecting faults having 
resistance values of 50,000 ohms to 10 megohms. Operation of the devices 
and method of locating the faults should be in accordance with 
manufacturer's instructions.
    (d) Applicable results. (1) For all new copper cable and wire 
facilities and all new fiber optic cable facilities, the shield or armor 
ground resistance levels normally exceed 1 megohm-mile (1.6 megohm-km) 
at 68  deg.F (20  deg.C). A value of 100,000 ohm-mile (161,000 ohm-km) 
at 68  deg.F (20  deg.C) shall be the minimum acceptable value of the 
shield or armor ground resistance.
    (2) Shield or armor ground resistance varies inversely with length 
and temperature. In addition other factors which may affect readings 
could be soil conditions, faulty test equipment and incorrect test 
procedures.
    (3) For the resistance test method and dc bridge type megohmmeter, 
the ohm-mile (ohm-km) value for the shield or armor ground resistance 
shall be computed by multiplying the actual scale reading in ohms on the 
test set by the length in miles (km) of the cable or wire under test.
    (4)(i) The objective shield or armor ground resistance may be 
determined by dividing 100,000 by the length in miles (161,000 by the 
length in km) of the cable or wire under test. The resulting value is 
the minimum acceptable meter scale reading in ohms. Examples for 
paragraphs (d)(3) and (d)(4) of this section are as follows:

Equation 1. Test Set: Scale Reading * Length = Resistance-Length
75,000 ohms * 3 miles = 225,000 ohm-mile
(75,000 ohms * 4.9 km = 367,000 ohm-km)

Equation 2. 100,000 ohm-mile / Length = Minimum Acceptable Meter Scale 
    Reading
100,000 ohm-mile / 3 miles = 33,333 ohms
(161,000 ohm-km / 4.9 km = 32,857 ohms)

    (ii) Since the 33,333 ohms (32,857 ohms) is the minimum acceptable 
meter scale reading and the meter scale reading was 75,000 ohms, the 
cable is considered to have met the 100,000 ohm-mile (161,000 ohm-km) 
requirement.
    (5) Due to the differences between various jacketing materials used 
in manufacturing cable or wire and to varying soil conditions, it is 
impractical to provide simple factors to predict the magnitude of 
variation in shield or armor to ground resistance due to temperature. 
The variations can, however, be substantial for wide excursions in 
temperature from the ambient temperature of 68  deg.F (20  deg.C).
    (e) Data record. The data shall be corrected to the length 
requirement of ohm-mile (ohm-km) and a temperature of 68  deg.F (20 
deg.C) and shall be recorded on a form specified in the applicable 
construction contract.
    (f) Probable causes for nonconformance. (1) When results of 
resistance measurements are below the 100,000 ohm-mile (161,000 ohm-km) 
requirement at 68  deg.F (20  deg.C), the jacket temperature, soil 
conditions, test equipment and method shall be reviewed before the cable 
or wire is considered a failure. If the temperature is approximately 68 
deg.F (20  deg.C) and soil conditions are acceptable, and a reading of 
less than 100,000 ohm-mile (161,000 ohm-km) is indicated, check the 
calibration of the equipment; as well as, the test method. If the 
equipment was found to be out of calibration, recalibrate the equipment 
and remeasure the cable or wire. If the temperature was 86  deg.F (30 
deg.C) or higher, the cable or wire shall be remeasured at a time when 
the temperature is approximately 68  deg.F (20  deg.C). If the test was 
performed in unusually wet soil, the cable or wire shall be retested 
after the soil has reached normal conditions. If after completion of the 
above steps, the resistance value of 100,000 ohm-mile (161,000 ohm-km) 
or greater is obtained, the cable or wire shall be considered 
acceptable.
    (2) When the resistance value of the cable or wire is still found to 
be below 100,000 ohm-mile (161,000 ohm-km) requirement after completion 
of the steps listed in paragraph (f)(1) of this

[[Page 550]]

section, the fault shall be isolated by performing shield or armor 
ground resistance measurements on individual cable or wire sections.
    (3) Once the fault or faults have been isolated, the cable or wire 
jacket shall be repaired in accordance with Sec. 1755.200, RUS Standard 
for Splicing Copper and Fiber Optic Cables or the entire cable or wire 
section may be replaced at the request of the borrower.

[62 FR 23998, May 2, 1997]



Sec. 1755.407  Data formats.

    The following suggested formats listed in this section may be used 
for recording the test data:
[GRAPHIC] [TIFF OMITTED] TR02MY97.041


[[Page 551]]


[GRAPHIC] [TIFF OMITTED] TR02MY97.042


[[Page 552]]


[GRAPHIC] [TIFF OMITTED] TR02MY97.043


[[Page 553]]


[GRAPHIC] [TIFF OMITTED] TR02MY97.044


[[Page 554]]


[GRAPHIC] [TIFF OMITTED] TR02MY97.045


[[Page 555]]


[GRAPHIC] [TIFF OMITTED] TR02MY97.046


[[Page 556]]


[GRAPHIC] [TIFF OMITTED] TR02MY97.047


[62 FR 24000, May 2, 1997]



Secs. 1755.408-1755.499  [Reserved]



Sec. 1755.500  RUS standard for service installations at customers access locations.

    (a) Sections 1755.501 through 1755.510 cover service installations 
at permanent or mobile home customer access locations. Sections 1755.501 
through 1755.510 do not cover service installations at customer access 
locations associated with boat yards or marinas.
    (b) Service installations for customer access locations in boat 
yards or marinas shall be performed in accordance with Article 800, 
Communications Circuits, of the American National Standards Institute/
National Fire Protection Association (ANSI/NFPA) 70-1999, National 
Electrical Code[reg] (NEC[reg]). The National Electrical Code[reg] and 
NEC[reg] are registered trademarks of the National Fire Protection 
Association, Inc., Quincy, MA 02269. The ANSI/NFPA 70-

[[Page 557]]

1999, NEC[reg] is incorporated by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51. Copies are available from NFPA, 1 Batterymarch 
Park, P.O. Box 9101, Quincy, Massachusetts 02269-9101, telephone number 
1 (800) 344-3555. Copies of ANSI/NFPA 70-1999, NEC[reg], are available 
for inspection during normal business hours at Rural Utilities Service 
(RUS), room 2905, U.S. Department of Agriculture, 1400 Independence 
Avenue, SW., STOP 1598, Washington, DC 20250-1598, or at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.

[66 FR 43317, Aug. 17, 2001, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. 1755.501  Definitions applicable to Secs. 1755.501 through 1755.510.

    For the purpose of this section and Secs. 1755.502 through 1755.510, 
the following terms are defined as follows:
    American National Standards Institute (ANSI). A private sector 
standards coordinating body which serves as the United States source and 
information center for all American National Standards.
    Ampacity. As defined in the ANSI/NFPA 70-1999, NEC[reg]: The 
current, in amperes, that a conductor can carry continuously under the 
conditions of use without exceeding its temperature rating. (Reprinted 
with permission from NFPA 70-1999, the National Electrical Code[reg], 
Copyright[copy] 1998, National Fire Protection Association, Quincy, MA 
02269. This reprinted material is not the complete and official position 
of the National Fire Protection Association, on the referenced subject 
which is represented only by the standard in its entirety.) The National 
Electrical Code[reg] and NEC[reg] are registered trademarks of the 
National Fire Protection Association, Inc., Quincy, MA 02269. The ANSI/
NFPA 70-1999, NEC[reg], is incorporated by reference in accordance with 
5 U.S.C. 552(a) and 1 CFR part 51. Copies are available from NFPA, 1 
Batterymarch Park, P.O. Box 9101, Quincy, Massachusetts 02269-9101, 
telephone number 1 (800) 344-3555. Copies of ANSI/NFPA 70-1999, 
NEC[reg], are available for inspection during normal business hours at 
RUS, room 2905, U.S. Department of Agriculture, 1400 Independence 
Avenue, SW., STOP 1598, Washington, DC 20250-1598, or at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.
    AWG. American Wire Gauge.
    BET. Building entrance terminal.
    Bonding (Bonded). As defined in the ANSI/NFPA 70-1999, NEC[reg]: The 
permanent joining of metallic parts to form an electrically conductive 
path that will ensure electrical continuity and the capacity to conduct 
safely any current likely to be imposed. (Reprinted with permission from 
NFPA 70-1999, the National Electrical Code[reg], Copyright[copy] 1998, 
National Fire Protection Association, Quincy, MA 02269. This reprinted 
material is not the complete and official position of the National Fire 
Protection Association, on the referenced subject which is represented 
only by the standard in its entirety.)
    Bonding harness wire. A reliable electrical conductor purposefully 
connected between metal parts which are required to be electrically 
connected (bonded) to one another to ensure the metal parts are at 
similar electrical potential.
    Building entrance terminal (BET). A BET is comprised of a housing 
suitable for indoor and outdoor installation which contains quick-
connect or binding post terminals for terminating both 
telecommunications service cable conductors and inside wiring cable 
conductors. The BET also includes primary station protectors and a means 
of terminating the metallic shields of service entrance cables.
    Demarcation point (DP). As defined in the Federal Communications 
Commission (FCC) rules in 47 CFR part 68: The point of demarcation or 
interconnection between telecommunications company communications 
facilities and terminal equipment, protective apparatus, or wiring at a 
subscriber's premises. Carrier-installed facilities at, or constituting, 
the demarcation point

[[Page 558]]

shall consist of wire or a jack conforming to subpart F of 47 CFR part 
68. ``Premises'' as used herein generally means a dwelling unit, other 
building or a legal unit of real property such as a lot on which a 
dwelling unit is located, as determined by the telecommunications 
company's reasonable and nondiscriminatory standard operating practices. 
The ``minimum point of entry'' as used herein shall be either the 
closest practicable point to where the wiring crosses a property line or 
the closest practicable point to where the wiring enters a multiunit 
building or buildings. The telecommunications company's reasonable and 
nondiscriminatory standard operating practices shall determine which 
shall apply. The telecommunications company is not precluded from 
establishing reasonable clarifications of multiunit premises for 
determining which shall apply. Multiunit premises include, but are not 
limited to, residential, commercial, shopping center, and campus 
situations.
    (1) Single unit installations. For single unit installations 
existing as of August 13, 1990, and installations installed after that 
date, the demarcation point shall be a point within 12 inches (in.) (305 
millimeters (mm)) of the primary protector, where there is no protector, 
within 12 in. (305 mm) of where the telecommunications wire enters the 
customer's premises.
    (2) Multiunit installations. (i) In multiunit premises existing as 
of August 13, 1990, the demarcation point shall be determined in 
accordance with the local carrier's reasonable and nondiscriminatory 
standard operating practices. Provided, however, that where there are 
multiple demarcation points within the multiunit premises, a demarcation 
point for a customer shall not be further inside the customer's premises 
than a point 12 in. (305 mm) from where the wiring enters the customer's 
premises.
    (ii) In multiunit premises in which wiring is installed after August 
13, 1990, including additions, modifications, and rearrangements of 
wiring existing prior to that date, the telecommunications company may 
establish a reasonable and nondiscriminatory practice of placing the 
demarcation point at the minimum point of entry. If the 
telecommunications company does not elect to establish a practice of 
placing the demarcation point at the minimum point of entry, the 
multiunit premises owner shall determine the location of the demarcation 
point or points. The multiunit premises owner shall determine whether 
there shall be a single demarcation point for all customers or separate 
such locations for each customer. Provided, however, that where there 
are multiple demarcation points within the multiunit premises, a 
demarcation point for a customer shall not be further inside the 
customer's premises than a point 12 in. (305 mm) from where the wiring 
enters the customer's premises.
    DP. Demarcation point.
    Eligible country. 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.
    FCC. Federal Communications Commission.
    Fuse link. As defined in the ANSI/NFPA 70-1999, NEC[reg]: A fine 
gauge section of wire or cable that serves as a fuse (that is, open-
circuits to interrupt the current should it become excessive) that 
coordinates with the telecommunications cable and wire plant, and 
protective devices. (Reprinted with permission from NFPA 70-1999, the 
National Electrical Code[reg], Copyright[copy] 1998, National Fire 
Protection Association, Quincy, MA 02269. This reprinted material is not 
the complete and official position of the National Fire Protection 
Association, on the referenced subject which is represented only by the 
standard in its entirety.)
    Grounding conductor. As defined in the ANSI/NFPA 70-1999, NEC[reg]: 
A conductor used to connect equipment or the grounded circuit of a 
wiring system to a grounding electrode or electrodes. (Reprinted with 
permission from NFPA 70-1999, the National Electrical Code[reg], 
Copyright[copy] 1998, National Fire Protection Association, Quincy, MA 
02269. This reprinted material is not the complete and official position 
of the National Fire Protection Association, on

[[Page 559]]

the referenced subject which is represented only by the standard in its 
entirety.)
    Listed. As defined in the ANSI/NFPA 70-1999, NEC[reg]: Equipment, 
materials, or services included in a list published by an organization 
that is acceptable to the authority having jurisdiction and concerned 
with evaluation of products or services, that maintains periodic 
inspection of production of listed equipment or materials or periodic 
evaluation of services, and whose listing states that either the 
equipment, material, or services meets identified standards or has been 
tested and found suitable for a specified purpose. (Reprinted with 
permission from NFPA 70-1999, the National Electrical Code[reg], 
Copyright[copy] 1998, National Fire Protection Association, Quincy, MA 
02269. This reprinted material is not the complete and official position 
of the National Fire Protection Association, on the referenced subject 
which is represented only by the standard in its entirety.)
    Manufactured home. As defined in the ANSI/NFPA 70-1999, NEC[reg]: A 
factory-assembled structure or structures that bears a label identifying 
it as a manufactured home that is transportable in one or more sections, 
that is built on a permanent chassis and designed to be used as a 
dwelling with or without a permanent foundation where connected to the 
required utilities, and includes the plumbing, heating, air 
conditioning, and electric systems contained therein. Unless otherwise 
indicated, the term ``mobile home'' includes manufactured homes. Fine 
Print Note (FPN) No. 1: See the applicable building code for definition 
of the term permanent foundation. FPN No. 2: See 24 CFR part 3280, 
Manufactured Home Construction and Safety Standards, of the Federal 
Department of Housing and Urban Development for additional information 
on the definition. (Reprinted with permission from NFPA 70-1999, the 
National Electrical Code[reg], Copyright[copy] 1998, National Fire 
Protection Association, Quincy, MA 02269. This reprinted material is not 
the complete and official position of the National Fire Protection 
Association, on the referenced subject which is represented only by the 
standard in its entirety.)
    Mobile home. As defined in the ANSI/NFPA 70-1999, NEC[reg]: A 
factory-assembled structure or structures transportable in one or more 
sections that is built on a permanent chassis and designed to be used as 
a dwelling without a permanent foundation where connected to the 
required utilities, and includes the plumbing, heating, air-
conditioning, and electric systems contained therein. Unless otherwise 
indicated, the term ``mobile home'' includes manufactured homes. 
(Reprinted with permission from NFPA 70-1999, the National Electrical 
Code[reg], Copyright[copy] 1998, National Fire Protection Association, 
Quincy, MA 02269. This reprinted material is not the complete and 
official position of the National Fire Protection Association, on the 
referenced subject which is represented only by the standard in its 
entirety.)
    Motor home. As defined in the ANSI/NFPA 70-1999, NEC[reg]: A 
vehicular unit designed to provide temporary living quarters for 
recreational, camping, or travel use built on or permanently attached to 
a self-propelled motor vehicle chassis or on a chassis cab or van that 
is an integral part of the completed vehicle. (Reprinted with permission 
from NFPA 70-1999, the National Electrical Code[reg], Copyright[copy] 
1998, National Fire Protection Association, Quincy, MA 02269. This 
reprinted material is not the complete and official position of the 
National Fire Protection Association, on the referenced subject which is 
represented only by the standard in its entirety.)
    Network interface device (NID). A NID is comprised of a housing 
suitable for outdoor installation which contains a compartment 
accessible by only telecommunications employees which includes a primary 
station protector and the means for terminating telecommunications 
service wire conductors and metallic shields, and a compartment 
accessible by customers which includes an RJ-11 plug and jack of the 
type specified in the FCC rules in 47 CFR part 68.
    NID. Network interface device.
    Primary station protector. An assembly which complies with RUS 
Bulletin 345-39, RUS Specification for Telephone

[[Page 560]]

Station Protectors. Copies of RUS Bulletin 345-39 are available upon 
request from RUS, U.S. Department of Agriculture (USDA), 1400 
Independence Avenue, SW., STOP 1522, Washington, DC 20250-1522, FAX 
(202) 720-4120.
    Qualified Installer. A person who has extensive installation 
experience, complete knowledge and understanding of RUS Bulletin 1751F-
805, Electrical Protection At Customer Locations; RUS Bulletin 1753F-153 
(RUS Form 515d), Specifications and Drawings for Service Installations 
at Customer Access Locations, and applicable portions of the ANSI/NFPA 
70-1999, NEC[reg], and ANSI/IEEE C2-1997, NESC. Copies of RUS Bulletins 
1751F-805 and 1753F-153 are available upon request from RUS/USDA, 1400 
Independence Avenue, SW., STOP 1522, Washington, DC 20250-1522, FAX 
(202) 720-4120.
    Recreational vehicle. As defined in the ANSI/NFPA 70-1999, NEC[reg]: 
A vehicular-type unit primarily designed as temporary living quarters 
for recreational, camping, or travel use, which either has its own 
motive power or is mounted on or drawn by another vehicle. The basic 
entities are: travel trailer, camping trailer, truck camper, and motor 
home. (Reprinted with permission from NFPA 70-1999, the National 
Electrical Code[reg], Copyright[copy] 1998, National Fire Protection 
Association, Quincy, MA 02269. This reprinted material is not the 
complete and official position of the National Fire Protection 
Association, on the referenced subject which is represented only by the 
standard in its entirety.)
    RUS. Rural Utilities Service.
    RUS accepted (material and equipment). Equipment which RUS has 
reviewed and determined that:
    (1) Final assembly or manufacture of the equipment is completed in 
the United States, its territories and possessions, or in an eligible 
country;
    (2) The cost of components within the material or equipment 
manufactured in the United States, its territories and possessions, or 
in an eligible country is more than 50 percent of the total cost of all 
components used in the material or equipment; and
    (3) The material or equipment is suitable for use on systems of RUS 
telecommunications borrowers.
    RUS technically accepted (material and equipment). Equipment which 
RUS has reviewed and determined that the material or equipment is 
suitable for use on systems of RUS telecommunications borrowers but the 
material or equipment does not satisfy both paragraphs (1) and (2) of 
this definition:
    (1) Final assembly or manufacture of the equipment is not completed 
in the United States, its territories and possessions, or in an eligible 
country; and
    (2) The cost of components within the material or equipment 
manufactured in the United States, its territories and possessions, or 
in an eligible country is 50 percent or less than the total cost of all 
components used in the material or equipment.
    SEA. Service entrance aerial.
    SEB. Service entrance buried.
    Travel trailer. As defined in the ANSI/NFPA 70-1999, NEC[reg]: A 
vehicular unit, mounted on wheels, designed to provide temporary living 
quarters for recreational, camping, or travel use, of such size and 
weight as not to require special highway movement permits when towed by 
a motorized vehicle, and of gross trailer area less than 320 square feet 
(29.7 square meters). (Reprinted with permission from NFPA 70-1999, the 
National Electrical Code[reg], Copyright[copy] 1998, National Fire 
Protection Association, Quincy, MA 02269. This reprinted material is not 
the complete and official position of the National Fire Protection 
Association, on the referenced subject which is represented only by the 
standard in its entirety.)
    Truck camper. As defined in the ANSI/NFPA 70-1999, NEC[reg]: A 
portable unit constructed to provide temporary living quarters for 
recreational, travel or camping use, consisting of a roof, floor, and 
sides, designed to be loaded onto and unloaded from the bed of a pick-up 
truck. (Reprinted with permission from NFPA 70-1999, the National 
Electrical Code[reg], Copyright[copy] 1998, National Fire Protection 
Association, Quincy, MA 02269. This reprinted material is not the 
complete and official position of the National Fire Protection 
Association, on the referenced subject which is

[[Page 561]]

represented only by the standard in its entirety.)

[66 FR 43317, Aug. 17, 2001, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. 1755.502  Scope.

    (a) Sections 1755.503 through 1755.510 cover approved methods of 
making service installations at customer access locations in 
telecommunications systems of RUS borrowers.
    (b) Requirements in Secs. 1755.503 through 1755.510 cover facilities 
of the type described in the FCC rules in 47 CFR part 68 for one and 
multi-party customer owned premises wiring.

[66 FR 43317, Aug. 17, 2001]



Sec. 1755.503  General.

    (a) For the purposes of this section and Secs. 1755.504 through 
1755.510, a NID shall be as defined in Sec. 1755.501 and shall contain 
both a fuseless primary station protector and a modular plug and jack 
for each conductor pair, up to a maximum of 11 pairs, and shall be 
provided by the telecommunications company and used by customers.
    (b) For the purposes of this section and Secs. 1755.504 through 
1755.510, BET shall be as defined in Sec. 1755.501 and shall contain 
both primary station protectors and connector terminals for each 
conductor pair, of 12 or more pairs, and shall be provided by the 
telecommunications company and used by customers. The primary station 
protectors may be either fuseless or fused.
    (c) The requirements provided in this section and Secs. 1755.504 
through 1755.510 have been designed to coordinate with the provisions of 
the ANSI/NFPA 70-1999, NEC[reg], and the American National Standards 
Institute/Institute of Electrical and Electronics Engineers, Inc. (ANSI/
IEEE) C2-1997, National Electrical Safety Code (NESC). The National 
Electrical Code[reg] and NEC[reg] are registered trademarks of the 
National Fire Protection Association, Inc., Quincy, MA 02269. The ANSI/
NFPA 70-1999, NEC[reg], and the ANSI/IEEE C2-1997, NESC, are 
incorporated by reference in accordance with 5 U.S.C. 552(a) and 1 CFR 
part 51. Copies of ANSI/NFPA 70-1999, NEC[reg], are available from NFPA, 
1 Batterymarch Park, P.O. Box 9101, Quincy, Massachusetts 02269-9101, 
telephone number 1 (800) 344-3555. Copies of ANSI/IEEE C2-1997, NESC, 
are available from IEEE Service Center, 455 Hoes Lane, Piscataway, New 
Jersey 08854, telephone number 1 (800) 678-4333. Copies of the ANSI/NFPA 
70-1999, NEC[reg], and the ANSI/IEEE C2-1997, NESC, are available for 
inspection during normal business hours at RUS, room 2905, U.S. 
Department of Agriculture, 1400 Independence Avenue, SW., STOP 1598, 
Washington, DC 20250-1598, or at the National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/
federal--register/code--of--federal--regulations/ibr--locations.html. 
Most state and local authorities require that utility construction 
comply with either the ANSI/NFPA 70-1999, NEC[reg], and ANSI/IEEE C2-
1997, NESC, or some earlier editions of the ANSI/NFPA 70, NEC[reg], and 
ANSI/IEEE C2, NESC. Some authorities have their own more stringent codes 
which may or may not be embellishments of the ANSI/NFPA 70, NEC[reg], 
and ANSI/IEEE C2, NESC.
    (d) RUS borrowers shall make certain that all construction financed 
with RUS loan funds comply with:
    (1) The provisions of this section and Secs. 1755.504 through 
1755.510 and the ANSI/NFPA 70-1999, NEC[reg], and ANSI/IEEE C2-1997, 
NESC codes, or any more stringent local codes; or
    (2) The provisions of this section and Secs. 1755.504 through 
1755.510 with borrower added adjustments to bring construction into 
compliance with any more stringent local codes.
    (e) This section and Secs. 1755.504 through 1755.510 are intended 
primarily for the installer who will perform the work. It assumes that 
decisions regarding the selection of grounding electrodes, locations, 
and types of equipment have been made by the RUS borrower or the 
engineer delegated by the RUS borrower.
    (f) Only a qualified installer as defined in Sec. 1755.501 shall be 
assigned to make installations without advance planning and without 
direct supervision.
    (g) This section and Secs. 1755.504 through 1755.509 contain 
information which is normally not provided on the

[[Page 562]]

construction drawings which are included in Sec. 1755.510.
    (h) All work shall be conducted in a careful and professional 
manner. Service wire and cable shall not be trampled on, run over by 
vehicles, pulled over or around abrasive objects or otherwise subjected 
to abuse.
    (i) When situations not covered by this section and Secs. 1755.504 
through 1755.510 arise, the RUS borrower or the engineer delegated by 
the borrower, shall specify the installation procedure to be used. The 
requirements of paragraph (j) of this section shall be complied with in 
every installation.
    (j) NIDs, BETs, and fused primary station protectors shall be 
installed and grounded to meet the requirements of the ANSI/NFPA 70-
1999, NEC[reg], or local laws or ordinances, whichever are more 
stringent.
    (k) Battery polarity and conductor identification shall be 
maintained throughout the system as indicated on construction drawings 
815 and 815-1 contained in Sec. 1755.510. Color codes and other means of 
conductor identification of buried and aerial service wires shall 
conform to the requirements of this section and Secs. 1755.504 through 
1755.510.
    (l) All materials for which RUS makes acceptance determinations, 
such as service wires and cables, ground rods, ground rod clamps, etc., 
used in service entrance installations shall be RUS accepted or RUS 
technically accepted. Borrowers shall require contractors to obtain the 
borrower's approval before RUS technically accepted materials are to be 
used in service entrance installations. Borrower's shall also ensure 
that the cost of the RUS technically accepted materials are at least 6 
percent less than the cost of equivalent RUS accepted materials, as 
specified in ``Buy American'' Requirement of the Rural Electrification 
Act of 1938, as amended (7 U.S.C. 903 note). Materials used in service 
entrance installations which are of the type which RUS does not make 
acceptance determinations shall be of a suitable quality for their 
intended application as determined by the RUS borrower or the engineer 
delegated by the RUS borrower.
    (m) On completion of an installation, borrowers shall require the 
installer to make all applicable tests required by Secs. 1755.400 
through 1755.407, RUS standard for acceptance tests and measurements of 
telecommunications plant.

[66 FR 43317, Aug. 17, 2001, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. 1755.504  Demarcation point.

    (a) The demarcation point (DP) provides the physical and electrical 
interface between the telecommunications company's facilities and the 
customer's premises wiring.
    (b) The Federal Communications Commission (FCC) rules in 47 CFR part 
68 require telecommunications providers to establish a ``DP'' which 
marks a separation of the provider's facilities from the customer's 
(owned) premises wiring and equipment.
    (c) RUS borrowers shall observe the FCC DP requirement by installing 
NIDs, BETs, or fused primary station protectors when required by section 
800-30(a)(2) of ANSI/NFPA 70-1999, NEC [reg], at all new or 
significantly modified customer access locations which are financed with 
RUS loan funds. The National Electrical Code [reg] and NEC [reg] are 
registered trademarks of the National Fire Protection Association, Inc., 
Quincy, MA 02269. The ANSI/NFPA 70-1999, NEC [reg], is incorporated by 
reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies 
are available from NFPA, 1 Batterymarch Park, P. O. Box 9101, Quincy, 
Massachusetts 02269-9101, telephone number 1 (800) 344-3555. Copies of 
ANSI/NFPA 70-1999, NEC [reg], are available for inspection during normal 
business hours at RUS, room 2905, U.S. Department of Agriculture, 1400 
Independence Avenue, SW., STOP 1598, Washington, DC 20250-1598, or at 
the National Archives and Records Administration (NARA). For information 
on the availability of this material at NARA, call 202-741-6030, or go 
to: http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.
    (d) For all customer access locations of less than 12 pairs, RUS 
borrowers shall establish DPs by using either NIDs or fused primary 
station protectors when required by section 800-

[[Page 563]]

30(a)(2) of ANSI/NFPA 70-1999, NEC [reg]. For customer access locations 
of 12 pairs or greater, RUS borrowers shall establish DPs using either 
NIDs, BETs, or fused primary station protectors when required by section 
800-30(a)(2) of ANSI/NFPA 70-1999, NEC [reg].

[66 FR 43317, Aug. 17, 2001, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. 1755.505  Buried services.

    (a) Buried services of two or three pairs shall consist of Service 
Entrance Buried (SEB) assembly units, in accordance with RUS Bulletin 
1753F-153 (RUS Form 515d), Specifications and Drawings for Service 
Installations at Customer Access Locations. The wire used for buried 
services shall conform to the requirements of Sec. 1755.860, RUS 
specification for filled buried wires, and shall be RUS accepted or RUS 
technically accepted. The conductor size for two and three pair buried 
service wires shall be 22 American Wire Gauge (AWG). Copies of RUS 
Bulletin 1753F-153 are available upon request from RUS/USDA, 1400 
Independence Avenue, SW., STOP 1522, Washington, DC 20250-1522, FAX 
(202) 690-2268.
    (b) Buried services of six or more pairs shall be RUS accepted or 
RUS technically accepted 22 AWG filled buried cable conforming to the 
requirements of Sec. 1755.390, RUS specification for filled telephone 
cables.
    (c) Buried service wire or cable shall be terminated in buried plant 
housings using either splicing connectors or filled terminal blocks in 
accordance with the applicable paragraphs of Sec. 1755.200, RUS standard 
for splicing copper and fiber optic cables.
    (d) Buried service wire or cable shall be identified at buried plant 
housings in accordance with construction drawing 958 contained in 
Sec. 1755.510.
    (e) Buried service wire or cable shall be installed up to the 
building in the same general manner as buried exchange cable but in 
addition must meet the following requirements:
    (1) Light weight lawn plows or trenchers shall be used;
    (2) The shortest feasible route commensurate with the requirements 
of Sec. 1755.508(i), (j), and (k), and paragraph (f)(1) of this section 
shall be followed;
    (3) Buried service wire or cable shall be plowed or trenched to a 
depth of 12 in. (305 mm) or greater where practicable in soil, 36 in. 
(914 mm) in ditches, or 3 in. (76 mm) in rock. Depths shall be measured 
from the top of the wire or cable to the surface of the ground or rock;
    (4) In the case of a layer of soil over rock either the minimum 
depth in rock measured to the surface of the rock, or the minimum depth 
in soil measured to the surface of the soil may be used; and
    (5) Where adequate advance planning has been done, burial of 
telecommunications services jointly with electric power services may be 
feasible. If a decision has been reached by management to provide joint 
occupancy services, the services may be installed using the 
recommendations in RUS Bulletin 1751F-640, ``Design of Buried Plant--
Physical Considerations.'' Copies of RUS Bulletin 1751F-640 are 
available upon request from RUS/USDA, 1400 Independence Avenue, SW., 
STOP 1522, Washington, DC 20250-1522, FAX (202) 720-4120.
    (f) Buried service wire or cable shall be installed on or in 
buildings as follows:
    (1) Each buried service wire or cable shall contact the building as 
close to the NID, BET, or fused primary station protector as 
practicable. Service wire or cable runs on buildings shall normally 
consist of a single vertical run held to the minimum practical length. 
Horizontal and diagonal runs shall not be permitted.
    (2) Buried service wire or cable shall be located so as to avoid 
damage from lawn mowers, animals, gardening operations, etc.
    (3) Buried service wire or cable shall be installed against a 
foundation wall or pillar to provide adequate support and mechanical 
protection.
    (4) Where it is likely that the service wire or cable shall be 
subjected to mechanical damage, the wire or cable shall be enclosed in a 
guard in accordance with assembly unit drawing BM83 contained in 
Sec. 1755.510.
    (5) The first above-ground attachment for a buried service wire or 
cable, unless it is enclosed in a guard, shall not be more than 4 in. 
(100 mm) above final grade.

[[Page 564]]

    (6) Uninsulated attachment devices may be used to attach buried 
service wire and cable to masonry and other types of noncombustible 
buildings and on any type of building if fuseless primary station 
protectors incorporated in NIDs or BETs are used and installations fully 
comply with section 800-30(a)(1) of ANSI/NFPA 70-1999, NEC [reg]. The 
National Electrical Code [reg] and NEC [reg] are registered trademarks 
of the National Fire Protection Association, Inc., Quincy, MA 02269. The 
ANSI/NFPA 70-1999, NEC [reg], is incorporated by reference in accordance 
with 5 U.S.C. 552(a) and 1 CFR part 51. Copies are available from NFPA, 
1 Batterymarch Park, P.O. Box 9101, Quincy, Massachusetts 02269-9101, 
telephone number 1(800)344-3555. Copies of ANSI/NFPA 70-1999, NEC [reg], 
are available for inspection during normal business hours at RUS, room 
2905, U.S. Department of Agriculture, 1400 Independence Avenue, SW., 
STOP 1598, Washington, DC 20250-1598, or at the National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html.
    (7) Insulated attachments shall be used to separate service wires or 
cables from woodwork where section 800-30(a)(2) of ANSI/NFPA 70-1999, 
NEC [reg] requiring the use of fused primary station protectors must be 
observed.
    (8) Minimum separation between buried service wire or cable and 
other facilities shall be as listed in Table 1, as follows:

 Table 1--Minimum Separation for Telecommunications Wires and Cables on
                             or in Buildings
------------------------------------------------------------------------
                                                  Minimum clearance in.
                                                         [mm] 1 2
        Foreign facility or obstruction             telecommunications
                                                    company's wires or
                                                          cables
------------------------------------------------------------------------
Electric supply wire including neutral and
 grounding conductors:
    Open.......................................                  4 [102]
    In conduit.................................                 2 [50.8]
Radio and television antennas, Lead-in and                       4 [102]
 grounding conductors..........................
Lightning rods and lightning conductors........              3 72 [1830]
All foreign grounding conductors except                         2 [50.8]
 lightning rod ground conductors...............
Neon signs and associated wiring...............                  6 [150]
Metallic objects--pipes (gas, cold water, oil,                4 2 [50.8]
 sewer) and structures.........................
Wires or cables of another communications                      2 [50.8]
 system........................................
------------------------------------------------------------------------
\1\ If minimum separation cannot be obtained, nonshielded wire and cable
  facilities shall be protected with either porcelain tubes or flexible
  tubing as modified by Notes (3) and (4) of this table.
\2\ Separation applies to crossings and parallel runs.
\3\ If this separation cannot be obtained, bond the telecommunications
  grounding conductors or grounding electrode to the lightning rod
  grounding conductor or grounding electrode with at least a Number
  (No.) 6 AWG copper, insulated, ground wire. With this provision a
  minimum separation of 4 in. (100 mm) is acceptable but this provision
  must not be utilized if the separation cited in this table can be
  maintained.
\4\ Increase to a minimum of 3 in. (75 mm) separation from steam or hot
  water pipes, heating ducts, and other heat sources.

    (9) Wire and cable attachments to buildings for outside mounted 
NIDS, BETs, or fused primary station protectors shall be in accordance 
with construction drawing 962 contained in Sec. 1755.510.
    (10) Appropriate devices for attaching service wire or cable on or 
in buildings vary with the type of building construction and the wire or 
cable size. Figures 1 and 2 illustrate various types of anchoring 
devices and their applications. The size and type of fastening device 
for the wire or cable size and type of surface shall be in accordance 
with the manufacturer's recommendation; Figures 1 and 2 are as follows:

[[Page 565]]

[GRAPHIC] [TIFF OMITTED] TR17AU01.001


[[Page 566]]


[GRAPHIC] [TIFF OMITTED] TR17AU01.002

    (11) Experience indicates that there are objections from many owners 
of buildings covered with aluminum or vinyl siding to the drilling of 
holes in the siding for the attachment of wires or cables, and NIDs, 
BETs, or fused primary station protectors. It is, therefore, important 
to obtain permission from the owner before drilling holes in such 
siding.
    (12) If the NID, BET, or fused primary station protector must be 
mounted inside (not recommended by RUS), the service entrance into the 
building shall be installed in accordance with section 800-12(c) of 
ANSI/NFPA 70-1999, NEC[reg]. After pulling-in the wire or cable, the

[[Page 567]]

free space around the cable or wire shall be carefully sealed both 
outside and inside with a duct sealer that has RUS acceptance or RUS 
technical acceptance.
    (13) If the customer requests an all buried installation for an 
alarm system or objects to above-ground facilities because of appearance 
and one-party service is involved, the entrance hole shall be made below 
grade as shown in sketch C of construction drawing 510-2 contained in 
Sec. 1755.510. Care shall be exercised to prevent damage to the building 
foundation. The hole shall be sealed as specified in paragraph (f)(12) 
of this section. The installation shall comply with all the requirements 
of section 800-12(c) of ANSI/NFPA 70-1999, NEC[reg].
    (g) When the NID, BET, or fused primary station protector is to be 
installed inside the building, the installation shall comply with 
section 800-12(c) of ANSI/NFPA 70-1999, NEC[reg], and the outside plant 
wire or cable shall preferably be installed in a rigid metal or 
intermediate metal conduit that is grounded to an electrode in 
accordance with section 800-40(b) of ANSI/NFPA 70-1999, NEC[reg], as 
shown in sketch A of Figure 3 in paragraph (h)(2) of this section. The 
shield of the outside plant wire or cable shall be bonded to the 
grounding terminal of the NID, BET, or fused primary station protector 
which in turn shall be connected to the closest, existing, and 
accessible grounding electrode, of the electrodes cited in section 800-
40(b) of ANSI/NFPA 70-1999, NEC[reg].
    (h) An inside NID, BET, or fused primary station protector 
installation may also be made without use of a rigid metal or 
intermediate metal conduit provided that the ingress of the outside 
plant wire or cable complies with section 800-12(c) of ANSI/NFPA 70-
1999, NEC[reg], and provided either of the following are observed:
    (1) The NID, BET, or fused primary station protector is located as 
close as practicable to the point where the outside plant wire or cable 
emerges through an exterior wall. The length of outside plant wire or 
cable exposed within the building shall be as short as practicable but 
in no case shall it be longer than 50 feet (ft) (15.2 meters (m)) in 
accordance with the allowable exception No. 3 of section 800-50 of ANSI/
NFPA 70-1999, NEC[reg]. See sketch B of Figure 3 in paragraph (h)(2) of 
this section. The shield of the outside plant wire or cable shall be 
bonded to the grounding terminal of the NID, BET, or fused primary 
station protector which in turn shall be connected to the closest, 
existing and accessible grounding electrode, of the electrodes cited in 
section 800-40(b) of ANSI/NFPA 70-1999, NEC[reg] (Fine print Note No. 2 
of ANSI/NFPA 70-1999, NEC[reg], section 800-50, warns that the full 50 
ft (15.2 m) may not be authorized for outside unlisted cable (not in a 
metal or intermediate metal conduit) within a building if it is 
practicable to place the NID, BET, or fused primary station protector 
closer than 50 ft (15.2 m) to the cable entrance point, e.g., if there 
is an acceptable and accessible grounding electrode of the type cited in 
section 800-40(b) of ANSI/NFPA 70-1999, NEC[reg], anywhere along the 
proposed routing of the outside cable within the building); or
    (2) Where the NID, BET, or fused primary station protector must be 
located within the building remote from the entrance point and the 
entrance point of the outside plant wire or cable cannot be designed to 
be closer to the NID, BET, or fused primary station protector location, 
the outside plant wire or cable shall be spliced, as close as 
practicable to the point where the outside plant wire or cable emerges 
through an outside wall, to an inside wiring cable that is ``Listed'' as 
being suitable for the purpose in accordance with part E of article 800 
of ANSI/NFPA 70-1999, NEC[reg]. The length of outside plant wire or 
cable exposed within the building shall be as short as practicable but 
in no case shall it be longer than 50 ft (15.2 m) in accordance with the 
allowable exception No. 3 of section 800-50 of ANSI/NFPA 70-1999, 
NEC[reg]. See sketch C of Figure 3. The shield of the outside plant wire 
or cable shall be bonded to the grounding terminal of the NID, BET, or 
fused primary station protector which in turn shall be connected to the 
closest, existing, and accessible grounding electrode, of the electrodes 
cited in section 800-40(b) of ANSI/NFPA 70-1999, NEC[reg] (Fine print 
Note No. 2 of the ANSI/NFPA 70-1999, NEC[reg], section 800-50,

[[Page 568]]

warns that the full 50 ft (15.2 m) may not be authorized for outside 
unlisted cable (not in a metal or intermediate metal conduit) if it is 
practicable to place the NID, BET, or fused primary station protector 
closer than 50 ft (15.2 m) to the cable entrance point, e.g., if there 
is an acceptable and accessible grounding electrode of the type cited in 
section 800-40(b) of ANSI/NFPA 70-1999, NEC[reg], anywhere along the 
proposed routing of the outside cable within the building). Figure 3 is 
as follows:
[GRAPHIC] [TIFF OMITTED] TR17AU01.003


[[Page 569]]


    (i) The polarity of buried wire or cable ``tip'' and ``ring'' 
conductors shall be maintained by making the connections in accordance 
with Table 2, as follows:

                    Table 2--Color Codes For Tip And Ring Connections of Inside Wiring Cable
----------------------------------------------------------------------------------------------------------------
                                                     Tip                                    Ring
                                 -------------------------------------------------------------------------------
              Pair                                                                                   Color of
                                  Color of insulation    Color of marking   Color of insulation      marking
----------------------------------------------------------------------------------------------------------------
1...............................  White..............  Blue...............  Blue...............  White
2...............................  White..............  Orange.............  Orange.............  White
3...............................  White..............  Green..............  Green..............  White
4...............................  White..............  Brown..............  Brown..............  White
5...............................  White..............  Slate..............  Slate..............  White
6...............................  Red................  Blue...............  Blue...............  Red
7...............................  Red................  Orange.............  Orange.............  Red
8...............................  Red................  Green..............  Green..............  Red
9...............................  Red................  Brown..............  Brown..............  Red
10..............................  Red................  Slate..............  Slate..............  Red
11..............................  Black..............  Blue...............  Blue...............  Black
12..............................  Black..............  Orange.............  Orange.............  Black
13..............................  Black..............  Green..............  Green..............  Black
14..............................  Black..............  Brown..............  Brown..............  Black
15..............................  Black..............  Slate..............  Slate..............  Black
16..............................  Yellow.............  Blue...............  Blue...............  Yellow
17..............................  Yellow.............  Orange.............  Orange.............  Yellow
18..............................  Yellow.............  Green..............  Green..............  Yellow
19..............................  Yellow.............  Brown..............  Brown..............  Yellow
20..............................  Yellow.............  Slate..............  Slate..............  Yellow
21..............................  Violet.............  Blue...............  Blue...............  Violet
22..............................  Violet.............  Orange.............  Orange.............  Violet
23..............................  Violet.............  Green..............  Green..............  Violet
24..............................  Violet.............  Brown..............  Brown..............  Violet
25..............................  Violet.............  Slate..............  Slate..............  Violet
----------------------------------------------------------------------------------------------------------------


[66 FR 43317, Aug. 17, 2001, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. 1755.506  Aerial wire services

    (a) Aerial services of one through six pairs shall consist of 
Service Entrance Aerial (SEA) assembly units, in accordance with RUS 
Bulletin 1753F-153 (RUS Form 515d), Specifications and Drawings for 
Service Installations at Customer Access Locations. The wire used for 
aerial services shall conform to the requirements of Secs. 1755.700 
through 1755.704, RUS specification for aerial service wires, and shall 
be RUS accepted or RUS technically accepted. Copies of RUS Bulletin 
1753F-153 are available upon request from RUS/USDA, 1400 Independence 
Avenue, SW., STOP 1522, Washington, DC 20250-1522, FAX (202) 720-4120.
    (b) If aerial wire services are to be connected to aerial cable 
pairs, the NIDs or fused primary station protectors and grounds shall be 
installed and connected before the aerial service wires are attached to 
the customer's structure.
    (c) Kinks or splices shall not be permitted in aerial service wire 
spans.
    (d) Aerial service wires shall be run in accordance with the 
construction drawings contained in Sec. 1755.510 and shall conform to 
all clearance requirements of the ANSI/NFPA 70-1999, NEC[reg], and ANSI/
IEEE C2-1997, NESC, or local laws or ordinances, whichever are the most 
stringent. The National Electrical Code[reg] and NEC[reg] are registered 
trademarks of the National Fire Protection Association, Inc., Quincy, MA 
02269. The ANSI/NFPA 70-1999, NEC[reg], and ANSI/IEEE C2-1997, NESC, are 
incorporated by reference in accordance with 5 U.S.C. 552(a) and 1 CFR 
part 51. Copies of ANSI/NFPA 70-1999, NEC[reg], are available from NFPA, 
1 Batterymarch Park, P.O. Box 9101, Quincy, Massachusetts 02269-9101, 
telephone number 1 (800) 344-3555. Copies of ANSI/IEEE C2-1997, NESC, 
are available from IEEE Service Center, 455 Hoes Lane, Piscataway, New 
Jersey 08854, telephone number 1 (800) 678-4333. Copies of ANSI/NFPA 70-
1999, NEC[reg], and ANSI/IEEE C2-1997, NESC, are

[[Page 570]]

available for inspection during normal business hours at RUS, room 2905, 
U.S. Department of Agriculture, 1400 Independence Avenue, SW., STOP 
1598, Washington, DC 20250-1598, or at the National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/
federal--register/code--of--federal--regulations/ibr--locations.html.
    (e) Aerial service wire shall be installed using the maximum 
practicable sag consistent with the required ground clearance and good 
construction practices. In no event shall the minimum sags be less than 
the values shown on construction drawing 505 contained in Sec. 1755.510 
for various span lengths and loading areas provided. Span lengths shall 
not exceed 250 ft (76 m).
    (f) To reduce vibration and galloping, aerial service wire shall be 
twisted one complete turn for each 10 ft (3 m) of span length at the 
time of installation.
    (g) The methods of attaching aerial service wires at poles shall be 
as illustrated in construction drawings 503-2 and 504 contained in 
Sec. 1755.510.
    (h) Horizontal and vertical climbing spaces on poles used jointly 
with power circuits shall be provided in conformance with the 
requirements of Rule 236 of ANSI/IEEE C2-1997, NESC.
    (i) Not more than four aerial service wires shall be distributed 
from any one 7/16 in. (10 mm) drive hook, or more than two aerial 
service wires from any one 5/16 in. (8 mm) drive hook. Aerial service 
wires and drive hooks shall be arranged so that the load does not pull 
the drive hook out of the pole. When more than one drive hook is 
required, the drive hooks shall be staggered with a minimum separation 
of 1 in. (25.4 mm) horizontally on centers and 1.5 in. (40 mm) 
vertically on centers. If drive hooks are placed within 3 in. (76 mm) of 
the top of the pole and on the opposite side of the pole's 
circumference, a vertical separation of at least 3 in. (76 mm) shall be 
provided. A drive hook shall not be placed on the top of a pole or stub 
pole.
    (j) When connecting aerial service wires to cable pairs at 
terminals, sufficient slack shall be provided so that each aerial 
service wire shall reach any binding post position as shown on 
construction drawing 312-1 contained in Sec. 1755.510.
    (k) Aerial service wire attachments on utility poles and the manner 
of placing bridle rings and entering cable terminals shall be as shown 
on construction drawing 503-2 contained in Sec. 1755.510.
    (l) Not more than two conductors shall be connected to any terminal 
binding post. Where it is necessary to bridge more than two aerial 
service wires at the same closure, the aerial service wires shall be 
terminated in aerial service wire terminals connected in parallel with a 
No. 20 AWG bridle wire which shall be terminated on the binding posts of 
the filled terminal block.
    (m) Where aerial service wire is attached to aerial plastic cable, 
it shall be brought directly into a ready-access closure and shall be 
terminated on the binding posts of the filled terminal block as shown on 
construction drawing 503-2 contained in Sec. 1755.510.
    (n) The conductor of copper coated steel reinforced aerial service 
wires identified by tracer ridges shall be used as the ring (negative 
battery) conductor of the pair, and shall normally be connected to the 
right or lower binding post of a pair on filled terminal blocks and NIDs 
or fused primary station protectors.
    (o) Nonmetallic reinforced aerial service wire pair identification. 
(1) The tip and ring conductors of nonmetallic reinforced aerial service 
wires shall be identified in accordance with Table 3, as follows:

     Table 3--Nonmetallic Reinforced Aerial Service Wire Color Code
------------------------------------------------------------------------
                                             Conductor color
          Pair number           ----------------------------------------
                                           Tip                 Ring
------------------------------------------------------------------------
1..............................  White/Blue or White....  Blue
2..............................  White/Orange or White..  Orange
3..............................  White/Green or White...  Green

[[Page 571]]

 
4..............................  White/Brown or White...  Brown
5..............................  White/Slate or White...  Slate
6..............................  Red/Blue or Red........  Blue
------------------------------------------------------------------------

    (2) The ring (negative battery) conductor of the pair shall normally 
be connected to the right or lower binding post of a pair on filled 
terminal blocks and NIDs or fused primary station protectors.
    (p) When it is necessary to avoid intervening obstacles between a 
pole and a building, span clamp attachments shall be used to support the 
aerial service wires at points between the poles that are supporting the 
cable on the suspension strand as indicated by construction drawings 
501-1 and 501-2 contained in Sec. 1755.510.
    (q) Aerial service wire strung from pole to pole shall be placed 
entirely below or entirely above any existing wire or cable. When 
adequate ground clearance can be obtained, preference shall be given to 
placing aerial service wire below wire and cable.
    (r) When more than one aerial service wire is installed from pole to 
pole, the first aerial service wire shall be sagged in accordance with 
construction drawing 505 contained in Sec. 1755.510. Succeeding aerial 
service wires shall be sagged with 2 in. (50.8 mm) more sag for each 
aerial service wire.
    (s) Aerial service wire spans from pole lines to buildings shall 
follow the shortest feasible route commensurate with the requirements of 
paragraph (t) of this section and shall be sagged in accordance with 
construction drawing 505 contained in Sec. 1755.510. The route shall 
avoid trees and other obstructions to the extent practicable. Where 
trees cannot be avoided, tree trimming permission shall be obtained from 
the owner or the owner's representative, and all limbs and foliage 
within 2 ft (600 mm) of the finally sagged wire shall be removed. If 
tree trimming permission cannot be obtained, the matter shall be 
referred to the borrower for resolution before proceeding with the 
installation.
    (t) Aerial service wires shall contact buildings as closely as 
practicable at a point directly above the NID, or fused primary station 
protector. Generally, horizontal drop wire runs on buildings shall not 
exceed 20 ft (6 m). The warning given in Sec. 1755.505(f)(11) regarding 
drilling holes in aluminum and vinyl siding applies also to attaching 
aerial service wires.
    (u) The point of the first building attachment shall be located so 
that the aerial service wire will be clear of roof drainage points.
    (v) Where practicable, aerial service wires shall pass under 
electrical guys, power distribution secondaries and services, tree 
limbs, etc.
    (w) Aerial service wire shall not pass in front of windows or 
immediately above doors.
    (x) Aerial service wires shall be routed so as to have a minimum 
clearance of 2 ft (600 mm) from any part of a short wave, ham radio, 
etc. antenna mast and a television antenna mast in its normal vertical 
position and of the possible region through which it sweeps when being 
lowered to a horizontal position.
    (y) Aerial service wires shall be installed such that all clearances 
and separations comply with either section 237 of ANSI/IEEE C2-1997, 
NESC, or ANSI/NFPA 70-1999, NEC[reg], or local laws or ordinances, 
whichever is the most stringent.
    (z) Aerial service wire attachments to buildings shall be as 
follows:
    (1) First attachments on buildings shall be made in accordance with 
construction drawings 506, 507, or 508-1 contained in Sec. 1755.510, as 
applicable;
    (2) Intermediate attachments on buildings shall be made in 
accordance with construction drawings 510 or 510-1 contained in 
Sec. 1755.510; and
    (3) Uninsulated attachments shall be permitted to be used as 
follows:

[[Page 572]]

    (i) Wherever NIDS are used as permitted by section 800-30(a)(1) of 
the ANSI/NFPA 70-1999, NEC[reg]; and
    (ii) On masonry and other types of nonflammable buildings.
    (aa) Insulated attachments shall be used on wooden frame, metallic 
siding and other types of combustible buildings where fused primary 
station protectors are used, as required by section 800-30(a)(2) of 
ANSI/NFPA 70-1999, NEC[reg].
    (bb) Aerial service wire runs on buildings shall be attached 
vertically and horizontally in a neat and most inconspicuous possible 
manner. See construction drawing 513 contained in Sec. 1755.510. 
Horizontal runs on buildings are undesirable and shall be kept to a 
minimum. Diagonal runs shall not be made.
    (cc) Aerial service wire runs on buildings shall be located so as 
not to be subjected to damage from passing vehicles, pedestrians, or 
livestock.
    (dd) Minimum separation between aerial service wires and other 
facilities on or in buildings shall be in accordance with 
Sec. 1755.505(f)(8), Table 1.
    (ee) Appropriate devices for attaching aerial service wires to 
buildings vary with the type of building construction and with the type 
of customer access location equipment. Table 4 lists various types of 
attachments and their application with respect to construction, customer 
access location equipment, and proper mounting devices. Construction 
drawings 506 through 513 contained in Sec. 1755.510 illustrate 
requirements with respect to various angles of service wire contacts and 
uses of various attachments. Table 4 is as follows:

[[Page 573]]

[GRAPHIC] [TIFF OMITTED] TR17AU01.004

    Notes: 1. Screw dimensions are minimum. Where appropriate, either or 
both dimensions shall be increased. All wood screws for exterior use 
shall be stainless steel. All other exterior metal devices shall be 
stainless steel, zinc coated steel, silicon bronze, or corrosion 
resistant aluminum alloy.
    2. Toggle bolt dimensions are minimum. Where appropriate, either or 
both dimensions shall be increased.
    3. All devices should be attached to studding.
    4. Screw-type devices shall be secured by means of expansion-type 
anchors. Equivalent manual or machine-driven devices may be used. Where 
toggle bolts are specified equivalent devices may be used.
    5. Pilot holes shall be provided for screws and bridle rings in 
shingles and dropsiding.
    6. Attachment device not applicable.

[[Page 574]]

    7. Attachment device applicable but no separate fastening device 
required.
    8. To convert English units to Metric units use 1 in. = 25.4 mm.

    (ff) Fastener spacings for vertical and horizontal runs on frame or 
masonry buildings shall not be more than 6 ft (2 m) apart. Fasteners 
should be spaced close enough to prevent the aerial service wire from 
``slapping'' against the building during windy conditions.
    (gg) When it is necessary to pass behind or around obstructions such 
as downspouts and vertical conduits, the aerial service wire shall be 
supported firmly with attachment devices placed not more than 6 in. (152 
mm) from the obstruction as illustrated in Figures 4 and 5 of paragraph 
(hh) of this section. Preferably, the aerial service wire should be 
routed behind obstructions to minimize the possibility of mechanical 
damage to the aerial service wire in the event repair work to the 
obstruction is required.
    (hh) When passing around building projections of masonry or wood or 
around corners, aerial service wires shall be installed as illustrated 
in Figures 5 and 6. Figures 4, 5, and 6 are as follows:

[[Page 575]]

[GRAPHIC] [TIFF OMITTED] TR17AU01.005


[[Page 576]]


[GRAPHIC] [TIFF OMITTED] TR17AU01.006


[[Page 577]]


[GRAPHIC] [TIFF OMITTED] TR17AU01.007

    (ii) In areas where ice and snow conditions are severe, aerial 
service wires shall be located so that ice and snow falling from the 
roof will not strike the wires. However, where aerial service wires must 
pass under the sloping part of the roof, first attachments shall be made 
as close as practicable to the eaves.
    (jj) If two aerial service wire spans are required to the same 
building, the first attachment shall be such that both aerial service 
wires can be attached at the same attachment device. Refer to 
construction drawing 508-1 contained in Sec. 1755.510. Where more than 
two aerial service wires are required, additional attachment devices

[[Page 578]]

in the same general location on the building shall be used.
    (kk) When two or more aerial service wire runs are required on the 
same building they shall share the same type of attachment devices.
    (ll) Aerial service wire entrances to buildings shall conform to 
sketch B of construction drawing 510-2 contained in Sec. 1755.510, 
unless the entrance is made through a conduit.
    (mm) When the aerial service wire approaches the entrance hole from 
above, a 1.5 in. (40 mm) minimum drip loop shall be formed in accordance 
with sketch B of construction drawing 510-2 contained in Sec. 1755.510.
    (nn) If an entrance conduit which slopes upward from outside to 
inside is available and suitably located, it shall be used for the 
aerial service wire entrance.

[66 FR 43317, Aug. 17, 2001, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. 1755.507  Aerial cable services.

    (a) Where more than six pairs are needed initially, and where an 
aerial service is necessary, the service shall consist of 22 AWG filled 
aerial cable of a pair size adequate for the ultimate anticipated 
service needs of the building. The cable shall comply with the 
requirements of Sec. 1755.390, RUS specification for filled telephone 
cables, and shall be RUS accepted or RUS technically accepted.
    (b) Aerial cable services shall be constructed in accordance with 
specific installation specifications prepared by the RUS borrower or the 
engineer delegated by the borrower.
    (c) Unless otherwise specified in the installation specifications, 
aerial cable service installations shall meet the following 
requirements:
    (1) Strand supported lashed construction shall be used.
    (2) Where practicable a \5/16\ in. (8 mm) utility grade strand and 
automatic clamps shall be used in slack spans to avoid damage to the 
building.
    (3) Construction on poles shall comply with applicable construction 
drawings for regular line construction. Aerial service cable shall be 
spliced to the main cable in accordance with Sec. 1755.200, RUS standard 
for splicing copper and fiber optic cables.
    (4) Where practicable, aerial cable shall pass under electrical 
guys, distribution secondaries, and services.
    (5) The suspension strand shall be attached to the building by wall 
brackets as indicated in Figure 7 as follows:

[[Page 579]]

[GRAPHIC] [TIFF OMITTED] TR17AU01.008

    (i) If taut spans are necessary, appropriate size strand may be used 
if the pull is in line with one wall of the building, or within 20 
degrees of being in line as illustrated in sketch A of Figure 7. If the 
angle of pull is greater than 20 degrees from the building, the wall 
bracket shall be reinforced against pullout by an arrangement equivalent 
to sketch B of Figure 7. Taut spans may be strung using the 
recommendations in RUS Bulletin 1751F-630, Design of Aerial Plant. The 
same tension as would be used in normal line construction so as not to 
exceed 60 percent of the breaking strength of the strand under maximum 
loading shall be used. Taut spans shall

[[Page 580]]

not exceed 100 ft (30.5 m) in length and the cable weight shall not 
exceed 1 pound/foot (lb/ft) [1.5 kilogram/meter (kg/m)] except when 
equivalent combinations of greater span lengths with cable weight less 
than 1 lb/ft (1.5 kg/m) are permissible. Copies of RUS Bulletin 1751F-
630 are available upon request from RUS/USDA, 1400 Independence Avenue, 
SW., STOP 1522, Washington, DC 20250-1522, FAX (202) 720-4120.
    (ii) When an attachment must be made to the face of a building wall 
away from a corner, a ``U'' type wall bracket shall be used as indicated 
in sketch C of Figure 7. Only slack span construction with \5/16\ in. (8 
mm) utility grade strand shall be permitted in this situation. The bail 
of the automatic clamp shall be protected by a wire rope thimble.
    (6) Aerial cable shall be located on the rear or side of the 
building and shall be run only in a horizontal or a vertical direction. 
The cable route shall be selected so as to avoid building projections 
and obstructions to the extent practicable.
    (7) Cable attachment devices shall be located on solid masonry or on 
studs of wood frame buildings. Cable attachment devices may be installed 
on sheet surface materials only when such materials are reinforced with 
a backing material which allows penetration and firm holding of the 
attachment devices through the backing material.
    (8) The minimum separation on or in buildings between cable and 
other facilities shall be as indicated in Sec. 1755.505(f)(8), Table 1.
    (9) On horizontal runs, cable clamps shall be placed so that the 
attachment is below the cable. On vertical runs, cable clamps shall be 
placed so that the attachment is on the same side as horizontal runs. 
Cable clamps shall be placed on the inside of cable bends.
    (10) On horizontal runs, cable clamps shall be placed not more than 
16 in. (400 mm) apart for cable diameters equal to or greater than 1 in. 
(25.4 mm) and 24 in. (600 mm) apart for cable diameters less than 1 in. 
(25.4 mm).
    (11) On vertical runs, cable clamps shall be approximately 24 in. 
(600 mm) apart for all sizes of cable.
    (12) For the cable entrance, holes shall be bored slightly larger in 
diameter than the cable and shall slope upward from outside to inside. A 
duct sealer having RUS acceptance or RUS technical acceptance shall be 
applied to both ends of the hole after the cable is pulled in.
    (13) Section 1755.505(g) and (h) shall also apply to aerial cable 
services.

[66 FR 43317, Aug. 17, 2001]



Sec. 1755.508  Customer access location protection.

    (a) All customer access locations shall be protected.
    (b) Customer access location protection shall consist of installing 
the telecommunications facilities with proper clearances and insulation 
from other facilities, providing primary voltage limiting protection, 
fuse links, NIDs, BETs, or fused primary station protectors, if 
required, and adequate bonding and grounding.
    (c) All NIDs shall be RUS accepted or RUS technically accepted or 
the RUS borrower shall obtain RUS regional office approval on a case by 
case basis as applicable.
    (d) All BETs shall be RUS accepted or RUS technically accepted.
    (e) All fused primary station protectors shall be RUS accepted or 
RUS technically accepted.
    (f) NIDs, BETs, or fused primary station protectors shall be mounted 
outside for all applications except for those described in paragraphs 
(g)(1) through (g)(3) of this section.
    (g) NIDs, BETs, or fused primary station protectors may be mounted 
inside when:
    (1) Large buildings are to be served and the customer requests an 
inside installation;
    (2) Buried alarm circuits are requested by the subscriber; or
    (3) The customer requests an all buried installation for appearance 
or to prevent the drilling of holes in aluminum or vinyl siding.
    (h) Outside mounted NIDs, BETs, or fused primary station protectors 
shall be easily accessible and shall be located between 3 to 5 ft (1 to 
1.5 m) above final grade.
    (i) The locations of NIDs, BETs, or fused primary station protectors 
shall be selected with emphasis on utilizing the shortest primary 
station protector

[[Page 581]]

grounding conductor practicable and on grounding of the 
telecommunications primary station protector to the electric service 
grounding system established at the building served utilizing electrodes 
(c) through (g) cited in section 800-40(b)(1) of ANSI/NFPA 70-1999, 
NEC[reg]. The National Electrical Code[reg] and NEC[reg] are registered 
trademarks of the National Fire Protection Association, Inc., Quincy, MA 
02269. The ANSI/NFPA 70-1999, NEC[reg], is incorporated by reference in 
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies are available 
from NFPA, 1 Batterymarch Park, P. O. Box 9101, Quincy, Massachusetts 
02269-9101, telephone number 1 (800) 344-3555. Copies of ANSI/NFPA 70-
1999, NEC[reg], are available for inspection during normal business 
hours at RUS, room 2905, U.S. Department of Agriculture, 1400 
Independence Avenue, SW., STOP 1598, Washington, DC 20250-1598, or at 
the National Archives and Records Administration (NARA). For information 
on the availability of this material at NARA, call 202-741-6030, or go 
to: http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.
    (j) If access to the building electric service grounding system, as 
referenced in paragraph (i) of this section, is not possible or is not 
reasonable (telecommunications primary station protector grounding 
conductor will be longer than 10 ft (3 m)), the NID, BET, or fused 
primary station protector shall be located as close as practicable to 
electrodes (a) or (b) cited in section 800-40(b)(1) of ANSI/NFPA 70-
1999, NEC[reg].
    (k) In addition, the NID, BET, or fused primary station protector 
shall be located in, on, or immediately adjacent to the structure or 
building to be served as close as practicable to the point at which the 
telecommunications service wire attaches to the building, making sure 
that the telecommunications primary station protector grounding 
conductor is connected to the closest, existing, and accessible 
electrode, of the electrodes cited in paragraph (i) or (j) of this 
section.
    (l) For the preferred customer access location installation, the 
ANSI/NFPA 70-1999, NEC[reg], permits the telecommunications grounding 
conductor to be connected to the metallic conduit, service equipment 
closure, or electric grounding conductor as shown in Figure 8 of 
paragraph (l)(2) of this section.
    (1) Connections to metallic conduits shall be made by ground straps 
clamped over a portion of the conduit that has been cleaned by sanding 
down to bare metal.
    (2) Connections to metallic service equipment closures shall be made 
by attaching a connector which is listed for the purpose by some 
organization acceptable to the local authority (State, county, etc.) per 
article 100 of ANSI/NFPA 70-1999, NEC[reg], definition for ``Listed'' 
(for example connectors listed for the purpose by Underwriters 
Laboratories (UL)). Figure 8 is as follows:

[[Page 582]]

[GRAPHIC] [TIFF OMITTED] TR17AU01.009

    (m) Where it is not possible to accomplish the objective of 
paragraphs (i), (j), and (k) of this section, interior metallic pipes 
may be used to the maximum practicable extent to gain access to the 
electric service ground as shown in Figure 9. Note that the water pipe 
in Figure 9 is electrically continuous between electric and 
telecommunications bonds to the cold water pipe and it is used only as a 
portion of a bonding conductor and, therefore, does not have to be 
``acceptable'' as a ground electrode but may be floating (isolated from 
ground by a plastic pipe section). ANSI/NFPA 70-1999, NEC[reg], requires 
that metal piping be used as a bonding conductor in this manner only 
when

[[Page 583]]

the connectors to the pipe are within 1.5 m (5 ft) of where the pipe 
enters the premises. This is not the preferred installation. The RUS 
preferred installation has the telecommunications primary station 
protector grounded directly to an accessible location near the power 
grounding system. See paragraph (l) of this section. Figure 9 is as 
follows:
[GRAPHIC] [TIFF OMITTED] TR17AU01.010


[[Page 584]]


    (n) Where the telecommunications premises system at a customer's 
access location is grounded to a separate electrode (of any type) this 
telecommunications grounding electrode must be bonded to the electric 
grounding system with a No. 6 AWG or larger copper insulated grounding 
conductor. Bonding of separate electrodes is a requirement of the ANSI/
NFPA 70-1999, NEC [reg].
    (o) The NID, BET, or fused primary station protector pair size shall 
be selected for the number of lines anticipated within five years.
    (p) When lightning damage is considered probable or customer access 
locations are remote from the borrower's headquarters, use of maximum 
duty gas tube primary station protectors incorporated in NIDs, BETs, or 
fused primary station protectors should be considered. (See RUS TE&CM 
823, Electrical Protection by Use of Gas Tube Arresters). Copies of RUS 
TE&CM 823 are available upon request from RUS/USDA, 1400 Independence 
Avenue, SW., STOP 1522, Washington, DC 20250-1522, FAX (202) 720-4120.
    (q) NIDs or BETs incorporating fuseless station protectors shall 
always be used in preference to fused station protectors or BETs 
incorporating fused protectors, when in the judgment of the RUS borrower 
or the engineer delegated by the RUS borrower, the requirements of ANSI/
NFPA 70-1999, NEC [reg], for fuseless station protectors can be met.
    (r) A fuse link consisting of a copper conductor two gauges (AWG) 
finer (numerically higher) conductivity than the aerial service wire 
shall be provided between the cable and aerial service wire where NIDs 
or BETs incorporating fuseless station protectors are used. Thus for a 
22 AWG drop, a fuse link of No. 24 AWG or finer copper wire shall be 
provided. If the cable circuit is No. 24 gauge or finer, the cable 
conductors serve as the fuse link for the 22 AWG aerial service wire and 
no separate fuse link is necessary. (Note: The fuse link or the 
facilities serving as the fuse link must be located between the 
telecommunications facilities that are exposed to possible power cross 
and the customer drop where there is no exposure to possible power 
cross.)
    (s) RUS's buried plant practices require buried main line plant to 
be protected against power contacts to aerial plant extensions and 
aerial inserts by No. 24 AWG fuse links at every buried-aerial junction.
    (t) In aerial cable plant, fuse links are usually provided by No. 24 
AWG leads on filled terminal blocks regardless of the gauge of the cable 
conductors. This practice is acceptable if the ampacity of the aerial 
service wire is sufficiently higher than the fuse link's ampacity.
    (u) The grounding and bonding of each NID, BET, or fused primary 
station protector shall be selected by consulting paragraphs (i) through 
(n) of this section. The ``first choice'' assembly unit shall be 
selected whenever the prevailing conditions make its use practicable. 
The NID, BET, or fused primary station protector assembly unit selected 
shall be installed in accordance with the appropriate construction 
drawing specified in RUS Bulletin 1753F-153 (RUS Form 515d), 
Specifications and Drawings for Service Installations at Customer Access 
Locations (Incorporated by reference at Sec. 1755.97). Copies of RUS 
Bulletin 1753F-153 are available upon request from RUS/USDA, 1400 
Independence Avenue, SW., STOP 1522, Washington, DC 20250-1522, FAX 
(202) 720-4120.
    (v) The minimum size grounding conductor that can be used with a 
single NID; a group of NIDs; a multipair NID; fused protector; or BET 
shall be in accordance Table 5, as follows:

       Table 5--Grounding Conductor Size Versus Number of Circuits
------------------------------------------------------------------------
                                            Number of circuits
  Minimum grounding conductor   ----------------------------------------
              size                Fuseless (carbon
                                    or gas tube)            Fused
------------------------------------------------------------------------
12 AWG, copper,         1 to 2............  1 to 3.
 insulated.
10 AWG, copper,         3 to 5............  4 to 7.
 insulated.
6 AWG, copper,          6 or more.........  8 or more.
 insulated.
------------------------------------------------------------------------


[[Page 585]]

    (w) Grounding conductor runs between the NID, BET, or fused station 
protector and the ground electrode shall conform to the following:
    (1) The shortest, most direct route practicable shall be used;
    (2) Sharp bends in the grounding conductor shall be avoided during 
installation;
    (3) No splices shall be made in the grounding conductor;
    (4) Grounding conductors shall not be fished through walls, under 
floors, or placed in bridle rings or any metal conduit unless the 
grounding conductor is bonded to the conductor at both ends of the 
metallic conduit;
    (5) Grounding conductor runs from an outside mounted NID, BET, or 
fused station protector to an inside ground electrode shall use the same 
entrance as the station wire; and
    (6) Grounding conductor runs from an outside mounted NID, BET, or 
fused station protector to an outside ground electrode at the building 
shall be attached to the exterior surface of the building or buried. If 
buried, the grounding conductor shall be either plowed or trenched to a 
minimum depth of 12 in. (300 mm). When trenched, the trenches shall be 
as close to the side of the building as practicable, backfilled, and 
tamped to restore the earth to its original condition.
    (x) Telecommunications grounding connectors shall be RUS accepted or 
RUS technically accepted. Grounding and bonding conductors shall be made 
of copper. Where the grounding and bonding conductors must be connected 
to aluminum electric service grounding conductors, bimetal grounding 
connectors shall be used.
    (y) Grounding conductor attachments shall conform to the following:
    (1) Galvanized nails or clamps, or nickel-copper alloy staples shall 
be used for grounding conductor attachments in accordance with Table 6 
in paragraph (y)(3) of this section;
    (2) Grounding conductors, station or buried service wires in 
parallel runs may share the same fastening device when the device is 
specifically designed for two wires. See Table 6 in paragraph (y)(3) of 
this section for station wire and grounding conductor fasteners; and
    (3) Grounding conductor fasteners shall be placed 12 to 18 in. (300 
to 450 mm) apart on straight runs and 2 to 4 in. (50.8 to 100 mm) apart 
at corners and at bends. Table 6 is as follows:

[[Page 586]]

[GRAPHIC] [TIFF OMITTED] TR17AU01.011

    Notes: 1. Screw dimensions are minimum. Where appropriate, either or 
both dimensions shall be increased. All wood screws for exterior use 
shall be stainless steel. All other exterior metal devices shall be 
stainless steel, zinc coated steel, silicon bronze, or corrosion 
resistant aluminum alloy.
    2. Toggle bolt dimensions are minimum. Where appropriate, either or 
both dimensions shall be increased.
    3. Wall screw anchors may be used in wall board, plaster or tile 
walls. Screws and nails in masonry shall be secured by means of 
expansions type anchors. Equivalent manual or machine-driven devices may 
be used. Where toggle bolts are specified, equivalent devices may be 
used.
    4. Lead holes shall be drilled for screws, nails, and bridle rings 
in shingles and dropsiding.

[[Page 587]]

    5. Sheet metal screws shall be used except where toggle bolts are 
required. Where wood sheathing under sheet metal siding is encountered, 
the sheet metal may be drilled or punched and a wood screw used.
    6. Machine-driven staples of nickel-copper composition may be used 
for exterior wiring.
    7. Galvanized clamps and wiring nails may be used for exterior and 
interior wiring. Enameled clamps shall be used for interior wiring only. 
Where toggle bolts or equivalent devices require holes in the structure 
larger than the clamp being fastened, a suitable washer of sufficient 
size to cover the hole must be used under the clamp.
    8. Double clamp may be used where two 22 AWG station wires, 
two 12 AWG grounding conductors, or one 22 AWG station 
wire and one 12 grounding conductor parallels one another.
    9. For converting English units to Metric units use 1 in. = 25.4 mm.

    (z) Grounding conductors shall be separated from non-
telecommunications company wires in accordance with section 800-12(b) of 
ANSI/NFPA 70-1999, NEC[reg].
    (aa) Grounding conductors run through metal conduits shall be bonded 
to the conduit at each end. RUS accepted and RUS technically accepted 
pipe type ground clamps and grounding connectors shall be used for 
bonding.
    (bb) Where NID, BET, or fused station protector assembly units 
require grounding conductor connections to pipe systems, the following 
apply:
    (1) The connection shall be made to a cold water pipe of an 
operating water system;
    (2) The connection point shall be preferably inside the building;
    (3) Allow a minimum of 6 in. (152 mm) between the last fastener and 
the point where the grounding conductor first touches the water pipe;
    (4) Leave 2 in. (50.8 mm) of slack in the grounding conductor to 
avoid breaking the conductor at the terminating point. Tape the 
grounding conductor to the pipe where possible to avoid movement. In no 
case, shall the grounding conductor be coiled or wrapped around the 
pipe;
    (5) The pipe shall be cleaned with fine sand paper to make a good 
electrical connection. Care should be taken to avoid damaging the pipe 
while cleaning it;
    (6) Attach the pipe grounding conductor connector to the cleaned 
area of pipe and tighten. Care shall be exercised to avoid deforming, 
crushing, or otherwise damaging the pipe. A simple continuity check with 
an ohmmeter between the connector and the pipe will indicate whether or 
not a good electrical contact has been made. Set the ohmmeter to ``Rx1'' 
scale to ensure that a low resistance contact is made;
    (7) A warning tag shall be attached to the ground clamp with the 
following or equivalent statement: ``Call the telecommunications company 
if this connector or grounding conductor is loose or must be removed;'' 
and
    (8) When the water pipe is used, the ANSI/NFPA 70-1999, NEC[reg], 
requires that metal piping be used as a bonding conductor in this manner 
only when the connections to the pipe are within 5 ft (1.5 m) of where 
the pipe enters the premises.
    (cc) Bonding conductors shall consist of either copper or tinned 
copper insulated wires of appropriate sizes.
    (1) Bonding conductors shall be run and attached in the same manner 
as grounding conductors.
    (2) Attaching and terminating devices for bonding conductors shall 
be adequate for the size of wire involved. The No. 6 AWG copper 
insulated conductor or larger shall not be terminated by bending it 
around a threaded stud.
    (dd) Where NID, BET, or fused station protector assembly units 
require a driven ground rod the following shall apply to the ground rod 
installation:
    (1) Locate the ground rod at least 1 ft (300 mm) from buildings, 
poles, trees and other obstruction;
    (2) Ground rods shall not be installed within 6 ft (2 m) of electric 
service ground rods (Note: This minimum separation is provided to avoid 
mutual impedance effects of multiple grounding electrodes that will 
deleteriously degrade the effective impedance-to-earth if grounding 
electrodes are installed any closer than 6 ft (2 m) to one another. This 
requirement is included for cases where the telecommunications company 
is not allowed, for some reason, to observe the RUS preferred grounding 
method of attaching the primary protector grounding conductor directly 
to an accessible point on the

[[Page 588]]

building electric service grounding system. RUS believes that if the 
primary protector location can be sited within 6 ft (2 m) of the 
electric service ground rod then the electric service ground rod could 
be used as the preferred telecommunications grounding electrode and a 
separate telecommunications ground rod is unnecessary);
    (3) A hole, 15 in. (350 mm) deep and 6 in. (150 mm) in diameter, 
shall be dug at the location where the ground rod is to be driven;
    (4) Where ``slip-on'' type ground rod clamps are used instead of 
``clamp-around'' type clamps, the ground rod clamps shall be placed onto 
the rod prior to driving the rod into the ground (Note there should be 
one clamp for the NID, BET, or fused station protector grounding 
conductor and one clamp for the conductor required to bond the 
telecommunications ground rod to the electric grounding system). 
However, the clamp shall not be tightened until the rod is completely 
driven. The end of the rod shall be placed in the bottom of the hole and 
the rod shall be aligned vertically adjacent to one wall of the hole 
prior to driving. The rod shall be driven until its tip is 12 in. (300 
mm) below final grade. The grounding conductor shall then be attached, 
the clamp shall be tightened, and hole backfilled. Clamps employed in 
this manner shall be suitable for direct burial and shall be RUS 
accepted or RUS technically accepted; and
    (5) Where rods are manually driven, a large number of blows from a 
light hammer (4 lbs (1.8 kg)) shall be used instead of heavy 
sledgehammer type blows. This should keep the rod from bending.
    (ee) Terminations on fuseless primary station protectors 
incorporated in NIDs and on fused primary station protectors shall be as 
shown in Figures 10, 11, 12, and 13 of paragraph (ee)(1) of this 
section, Figure 14 of paragraph (ee)(4) of this section, and Figure 15 
of paragraph (ee)(6) of this section. The inner jackets of buried 
service wires and outer jackets of cables used as service drops shall be 
extended into the NID or the fused primary station protector. A 10 in. 
(250 mm) length of each spare wire shall be left in NIDs or fused 
primary station protectors. The spare wires shall be coiled up neatly 
and stored in the NID or fused primary station protector housing.
    (1) The shields of buried service wires may be connected to the 
ground binding post using RUS accepted or RUS technically accepted 
buried service shield bond connectors as shown in Figure 10 for NIDs and 
Figure 11 for fused primary station protectors. RUS accepted or RUS 
technically accepted buried service wire harness wires designed for 
customer access location installations may also be used for terminating 
buried service wire shields to the ground binding post of the NID as 
shown in Figure 12 and Figure 13 for fused primary station protectors. 
Figures 10 through 13 are as follows:

[[Page 589]]

[GRAPHIC] [TIFF OMITTED] TR17AU01.012


[[Page 590]]


[GRAPHIC] [TIFF OMITTED] TR17AU01.013


[[Page 591]]


[GRAPHIC] [TIFF OMITTED] TR17AU01.014


[[Page 592]]


[GRAPHIC] [TIFF OMITTED] TR17AU01.015

    (2) On buried service drops and aerial service drops of more than 6 
pairs using RUS accepted or RUS technically accepted cables, the shields 
shall be terminated with a RUS accepted or RUS technically accepted 
cable shield bonding connector and extended to the ground binding post 
of the NID, BET, or fused primary station protector with an RUS accepted 
or RUS technically accepted bonding harness wire. The installation of 
the shield bond connector and bonding harness wire shall be in 
accordance with the manufacturer's instructions.
    (3) The shield and other conductors at the fuseless primary station 
protector incorporated in the NID shall be

[[Page 593]]

terminated as shown on Figure 14 in paragraph (ee)(4) of this section. 
The pronged or cupped washer shall be placed above the shield. The 
grounding conductor shall be placed around the post on top of the 
pronged or cupped washer. A flat washer shall be placed above the 
grounding conductor.
    (4) The station wire signaling ground conductor, if required, shall 
be placed above the first flat washer and beneath the second flat washer 
as indicated in Figure 14 as follows:
[GRAPHIC] [TIFF OMITTED] TR17AU01.016


[[Page 594]]


    (5) The shield and other conductors at the fused primary station 
protector shall be terminated as shown on Figure 15 in paragraph (ee)(6) 
of this section. The pronged or cupped washer shall be placed above the 
shield. The grounding conductor shall be placed around the post on top 
of the pronged or cupped washer. A flat washer shall be placed above the 
grounding conductor.
    (6) The station wire signaling ground conductor, if required, shall 
be placed above the first flat washer and beneath the second flat washer 
as indicated in Figure 15 as follows:
[GRAPHIC] [TIFF OMITTED] TR17AU01.017


[[Page 595]]


    (7) Indoor NIDs or BETs that are equipped with ``Quick Connect'' 
type terminals shall not have more than one wire connected per clip. No. 
19 AWG copper and No. 18 AWG copper covered-steel reinforced aerial 
service wire conductors shall not be connected to quick connect 
terminals. Nonmetallic reinforced aerial service wire using No. 22 AWG 
copper conductors may be connected to the quick connect terminals.
    (8) Tip and ring connections and other connections in multipair NIDs 
or BETs shall be as indicated in Figure 16 as follows:
[GRAPHIC] [TIFF OMITTED] TR17AU01.018


[[Page 596]]


    (ff) System polarity and conductor identification shall be 
maintained in NIDs, BETs, or fused primary station protectors in 
accordance with construction drawings 815 and 815-1 contained in 
Sec. 1755.510.

[66 FR 43317, Aug. 17, 2001, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. 1755.509  Mobile homes.

    (a) Customer access location installations at mobile homes shall be 
treated the same whether the homes are mounted on permanent foundations 
or temporary foundations and shall be installed as specified in 
Secs. 1755.500 through 1755.510. For the purpose of this section, mobile 
homes include manufactured homes, motor homes, truck campers, travel 
trailers, and all forms of recreational vehicles. Customer access 
location installations at mobile homes can be considerably different 
than customer access location installations at regular homes and 
borrowers shall be certain that the two types of installations are 
properly applied.
    (b) The method of customer access location installation prescribed 
by the ANSI/NFPA 70-1999, NEC[reg] for a mobile home depends on how the 
electric power is installed at the mobile home and it can involve 
considerable judgment on the part of the telecommunications installer. 
The National Electrical Code[reg] and NEC[reg] are registered trademarks 
of the National Fire Protection Association, Inc., Quincy, MA 02269. The 
ANSI/NFPA 70-1999, NEC[reg], is incorporated by reference in accordance 
with 5 U.S.C. 552(a) and 1 CFR part 51. Copies are available from NFPA, 
1 Batterymarch Park, P. O. Box 9101, Quincy, Massachusetts 02269-9101, 
telephone number 1 (800) 344-3555. Copies of ANSI/NFPA 70-1999, 
NEC[reg], are available for inspection during normal business hours at 
RUS, room 2905, U.S. Department of Agriculture, 1400 Independence 
Avenue, SW., STOP 1598, Washington, DC 20250-1598, or at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. The ANSI/NFPA 70-1999, NEC[reg], 
requires primary station protectors to be located where specific 
acceptable grounding electrodes exist. The ANSI/NFPA 70-1999, NEC[reg], 
allows station protector installations to be at the location of the 
power meter or the electric disconnecting means apparatus serving the 
mobile home providing these electric facilities are installed in the 
manner specifically defined by the ANSI/NFPA 70-1999, NEC[reg]. The 
ANSI/NFPA 70-1999, NEC[reg], requires the station protectors to be 
installed at the nearest of a number of other meticulously defined ANSI/
NFPA 70-1999, NEC[reg], acceptable electrodes where the protector cannot 
be installed at the power meter or the electric disconnecting means 
apparatus serving the mobile home. The provisions can be confusing.
    (c) NIDs shall be installed at mobile homes as follows:
    (1) Where the mobile home electric service equipment (power meter, 
etc.,) or the electric service disconnecting means associated with the 
mobile home is located within 35 ft (10.7 m) of the exterior wall of the 
mobile homes it serves, the NID shall be installed in accordance with 
Figure 17 as follows:

[[Page 597]]

[GRAPHIC] [TIFF OMITTED] TR17AU01.019

    (2) Where the mobile home electric service equipment (power meter, 
etc.,) or the electric service disconnecting means associated with the 
mobile home is located more than 35 ft (10.7 m) from the exterior wall 
of the mobile homes it serves, the NID shall be installed in accordance 
with Figure 18 as follows:

[[Page 598]]

[GRAPHIC] [TIFF OMITTED] TR17AU01.020

    (d) The service wire and station wire shall be terminated in the NID 
in accordance with Figure 19 in paragraph (e) of this section.
    (e) Installation of the station wire and grounding conductor at the 
mobile home shall be in accordance with Figure 20. Figures 19 and 20 are 
as follows:

[[Page 599]]

[GRAPHIC] [TIFF OMITTED] TR17AU01.021


[[Page 600]]


[GRAPHIC] [TIFF OMITTED] TR17AU01.022


[66 FR 43317, Aug. 17, 2001, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. 1755.510  Construction and assembly unit drawings.

    (a) The construction and assembly unit drawings in this section 
shall be used by borrowers to assist the installer in making the 
customer access location installations.
    (b) The asterisks appearing on the construction drawings indicate 
that the items are no longer listed in the RUS Informational Publication 
(IP) 344-2, ``List of Materials Acceptable for Use on Telecommunications 
Systems of RUS Borrowers.'' RUS IP 344-2 can

[[Page 601]]

be obtained from the Superintendent of Documents, P. O. Box 371954, 
Pittsburgh, PA 15250-7954, telephone number (202) 512-1800.
    (c) Drawings BM50, BM83, 312-1, 501-1, 501-2, 503-2, 504, 505, 506, 
507, 508-1, 510, 510-1, 510-2, 513, 815, 815-1, 958, and 962 are as 
follows:
[GRAPHIC] [TIFF OMITTED] TR17AU01.023


[[Page 602]]


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[[Page 603]]


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[[Page 619]]


[GRAPHIC] [TIFF OMITTED] TR17AU01.041


[66 FR 43327, Aug. 17, 2001]



Secs. 1755.511-1755.521  [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

[[Page 620]]

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 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 National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html.
    (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 National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html.
    (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 
National Archives and Records Administration (NARA). For information on 
the availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.
    (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 National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html.
    (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

[[Page 621]]

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 National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.
    (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 National Archives and Records Administration (NARA). 
For information on the availability of this material at NARA, call 202-
741-6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html.
    (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 National Archives and Records Administration (NARA). 
For information on the availability of this material at NARA, call 202-
741-6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html.
    (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 National Archives and Records Administration (NARA). 
For information on the availability of this material at NARA, call 202-
741-6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html.
    (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 National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.
    (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

[[Page 622]]

0175-S, Washington, DC 20250. The bulletin may be inspected at the 
National Archives and Records Administration (NARA). For information on 
the availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.
    (b) 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 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.

[[Page 623]]

    (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 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.

[[Page 624]]

    (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.
    (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

[[Page 625]]

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   -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);
    (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.

[[Page 631]]

    (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).
    (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

[[Page 632]]

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 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

[[Page 633]]

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 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.

[[Page 634]]

    (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 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.

[[Page 635]]

    (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 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.

[[Page 636]]



                                                                                          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
         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

[[Page 637]]

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


[[Page 638]]

    (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 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.

[[Page 639]]



------------------------------------------------------------------------
                        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        1.8
                                                           6
  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

[[Page 640]]

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.

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

[[Page 641]]

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.

       Figure 1--Measuring the Effects of Low Frequency Induction
[GRAPHIC] [TIFF OMITTED] TC14NO91.091

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

[[Page 642]]

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.
    (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

[[Page 643]]

    (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).
    (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 644]]

                      Figure 2--Charger Noise Test
[GRAPHIC] [TIFF OMITTED] TR01JA93.386

The manufacturer may elect to eliminate the capacitor C from the 
measurement.

    A. Capacitance in [mu] F = 30,000 [mu] 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 [mu] 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:
    (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,

[[Page 645]]

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 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:

[[Page 646]]



------------------------------------------------------------------------
                                                     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.
    (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

[[Page 647]]

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 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.

[[Page 648]]



                             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 [mu]  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 [mu]   5 each Polarity  AC arrester, if
                                   Service         [sigma]        s             at 1 minute      used, must be
                                   Connection      clamping V                   intervals        removed.
                                                   of arrester                                   Communications
                                                   employed at                                   line arresters,
                                                   10kV/[mu] s                                   if used, remain
                                                                                                 in place.
 
Voltage Surge                     High Impedance  1000V or +3    10x1000 [mu]  Same             All primary
                                   Paths Exposed   [sigma] dc     s                              arresters, if
                                   to Surges       breakdown of                                  used, must be
                                                   arrester                                      removed.
                                                   employed
 
Arrester Response Delay           Paths           +3 [sigma]     100V/[mu] s   Same             Same
                                   protected by    breakdown of   rise decay
                                   arresters,      arrester       to 1/2 V.
                                   such as gas     employed at    in tube's
                                   tubes, with     100V/[mu] s    delay time
                                   breakdown       of rise
                                   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 649]]

                Figure 4--Explanation of Surge Waveshape
[GRAPHIC] [TIFF OMITTED] TC14NO91.087

    Surge Waveshape is defined as follows:
    Rise Time x Time to Decay to Half Crest Value
    (For example, 10 x 1000 [mu] 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 650]]

                Figure 5--Explanation of Surge Waveshape
[GRAPHIC] [TIFF OMITTED] TC14NO91.088

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            [infin]                2500
1                         4            [infin]                2500
2                         3            [infin]                2500
3                         2            [infin]                1670
4                         1            [infin]                1250
5                         0            [infin]                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 651]]

                   Figure 6--60 Hz Current Surge Test
[GRAPHIC] [TIFF OMITTED] TC14NO91.089

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 [ohm] 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 time for the surge to decay to half voltage 
shall equal at least the delay time of the tube, as explained in Figure 
7.

[[Page 652]]

          Figure 7--Explanation of Arrester Response Delay Time
[GRAPHIC] [TIFF OMITTED] TC14NO91.090

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 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

[[Page 653]]

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 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

[[Page 654]]

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 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.

[[Page 655]]

    (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:
    (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;

[[Page 656]]

    (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.
    (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.

[[Page 657]]

    (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 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

[[Page 658]]

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:
    (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

[[Page 659]]

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 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

[[Page 660]]

    (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 Sec. 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

                               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.

[[Page 661]]

    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..............................................
                                                            ------------
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:

[[Page 662]]

                             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 663]]



                                                                   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 664]]

    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

        7. Traffic Data-Line Originating and Terminating Traffic

    7.1  Originating Line Traffic--Estimated per Busy Hour (Includes all 
Lines Associated With RST's):

[[Page 665]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    (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 666]]

    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 --------

                      8. Trunk Circuit Requirements

    8.1  Interoffice Trunking

[[Page 667]]



                                          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 668]]

    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:
----------------------------------------------------------------------------------------------------------------

    9.5  Pollable Systems
    9.5.1  Polling device to be provided on this contract


[[Page 669]]


---- 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:______________________________________________________
________________________________________________________________________
________________________________________________________________________
    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..............................................  ...

[[Page 670]]

 
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
------------------------------------------------------------------------
                                            ............................
                                            ............................
                                            ............................
                                            ............................
------------------------------------------------------------------------

    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

[[Page 671]]

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 ----
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

[[Page 672]]

---- 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 ------.
    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 
--------.

[[Page 673]]

    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 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).
________________________________________________________________________


[[Page 674]]

________________________________________________________________________
________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

           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;
    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:

[[Page 675]]



----------------------------------------------------------------------------------------------------------------
                           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 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:_______________________________________________________________

________________________________________________________________________


[[Page 676]]

________________________________________________________________________
________________________________________________________________________
    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:_______________________________________________________________

________________________________________________________________________

________________________________________________________________________

                       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:_______________________________________________________________


[[Page 677]]

________________________________________________________________________
________________________________________________________________________

________________________________________________________________________
    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:_______________________________________________________________

________________________________________________________________________

________________________________________________________________________
    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:_______________________________________________________________

________________________________________________________________________

________________________________________________________________________

                      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:_______________________________________________________________

________________________________________________________________________


[[Page 678]]

________________________________________________________________________
________________________________________________________________________
    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:_______________________________________________________________

________________________________________________________________________

________________________________________________________________________
    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:_______________________________________________________________

________________________________________________________________________

________________________________________________________________________

[[Page 679]]

                    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________________________________________________________________

________________________________________________________________________

________________________________________________________________________

    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:_______________________________________________________________

________________________________________________________________________

________________________________________________________________________

[[Page 680]]

    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; 69 FR 18803, 
Apr. 9, 2004]



Secs. 1755.523-1755.699  [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

[[Page 681]]

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 
National Archives and Records Administration (NARA). For information on 
the availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. Copies are available from ICEA, P. O. 
Box 440, South Yarmouth, 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

[[Page 682]]

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 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, as amended at 69 FR 18803, Apr. 9, 2004]

[[Page 683]]



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 National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. 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, 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.

[[Page 684]]

    (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.
    (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).

[[Page 685]]

    (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 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, as amended at 69 FR 18803, Apr. 9, 2004]



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

[[Page 686]]

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 National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/
federal--register/code--of--federal--regulations/ibr--locations.html. 
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:
    (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

[[Page 687]]

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);
    (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, as amended at 69 FR 18803, Apr. 9, 2004]



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.

[[Page 688]]

    (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 National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html. 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, 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

[[Page 689]]

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 
National Archives and Records Administration (NARA). For information on 
the availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. 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
                       Conductor--AWG                        Elongation--
                                                               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:

 
------------------------------------------------------------------------
                                               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.

[[Page 690]]

    (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                      --
  [le]5.0 (Initial Melt Index)....      --              110
 
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
------------------------------------------------------------------------

    (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 1  deg.C
Crystalline propylene/ethylene Copolymer    130 1  deg.C
------------------------------------------------------------------------


[[Page 691]]

    (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 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

[[Page 692]]

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 10\12\ 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.
    (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:

[[Page 693]]

    (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.)
                                            Copper-Clad Alloy Steel
                                            0.1270 0.0127
                                            (0.0050 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 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.

[[Page 694]]

    (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
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

[[Page 695]]

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:
[GRAPHIC] [TIFF OMITTED] TC14NO91.092

    (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.
    (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

[[Page 696]]

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)
------------------------------------------------------------------------

    (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

[[Page 697]]

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:
    (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.

[[Page 698]]

    (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.
    (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

[[Page 699]]

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 Sec. 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 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

[[Page 700]]

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 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

[[Page 701]]

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:

                                    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:----------------------


[[Page 702]]


                            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..............  ----------          ----------          ----------          ----------
----------------------------------------------------------------------------------------------------------------


                         Insulation Compression
------------------------------------------------------------------------
                                                      Failures
------------------------------------------------------------------------
Control...................................  ----------------
Heat Age..................................  ----------------
Humidity Exposure.........................  ----------------
Temperature Cycling.......................  ----------------
------------------------------------------------------------------------


                    Jacket Slip Strength @ 50  deg.C
------------------------------------------------------------------------
                                               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 Sec. 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.

[[Page 703]]

      Appendix C to Sec. 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; 69 
FR 18803, Apr. 9, 2004]



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 
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 National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html. Copies are available

[[Page 704]]

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 
National Archives and Records Administration (NARA). For information on 
the availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. 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 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 National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/
federal--register/code--of--federal--regulations/ibr--locations.html. 
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 National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html. 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

[[Page 705]]

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.
    (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

[[Page 706]]

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      16.5 (2400)
 square inch (psi))........................................
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 -
401  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 1151  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 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

[[Page 707]]

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
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.

[[Page 708]]

    (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 
0.20300.0254 mm (0.00800.0010 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 (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

[[Page 709]]

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 1001  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 -101  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):

------------------------------------------------------------------------
                                            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)x100

    (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.

[[Page 710]]

    (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 233  deg.C:

------------------------------------------------------------------------
                                                   Mutual capacitance
                                               -------------------------
             Number of cable pairs               Nanofarad/  (Nanofarad/
                                                 kilometer      mile)
------------------------------------------------------------------------
12............................................         524       (837)
Over 12.......................................         522       (834)
------------------------------------------------------------------------

    (ii) The root mean square (rms) deviation of the mutual capacitance 
of all pairs from the average mutual capacitance of that reel shall not 
exceed 3.0 % when calculated in accordance with ASTM D 4566-90.
    (iii) The mutual conductance (corrected for length and gauge) of any 
pair shall not exceed 3.7 micromhos/kilometer (micromhos/km) (6.0 
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 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 1.00.1 kHz and a 
temperature of 233  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 1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 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:
[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.

[[Page 711]]

    (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 201  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 201  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
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:

[[Page 712]]



------------------------------------------------------------------------
           Cable outside diameter                  Mandrel diameter
------------------------------------------------------------------------
<40 mm (1.5 in.)............................  15x
[ge]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 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.

[[Page 713]]

    (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 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.

[[Page 714]]

    (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:

                            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 Sec. 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

[[Page 715]]

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) 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

[[Page 716]]

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..........................................................  ...........  ...........  ...........  ...........
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..........................................................  ...........  ...........  ...........  ...........

[[Page 717]]

 
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 Sec. 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; 69 FR 18803, Apr. 9, 2004]



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:

[[Page 718]]



 
 
------------------------------------------------------------------------
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 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 National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. 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 National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html. 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

[[Page 719]]

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:
    (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.

[[Page 720]]

    (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 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

[[Page 721]]

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 (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

[[Page 722]]

(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 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

[[Page 723]]

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 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.

[[Page 724]]

    (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 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.

[[Page 725]]



------------------------------------------------------------------------
                                                               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 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),

[[Page 726]]

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:

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;

[[Page 727]]

    (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 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.

[[Page 728]]

    (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 Sec. 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 
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

[[Page 729]]

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 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,

[[Page 730]]

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 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:------------


[[Page 731]]


                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
                                  ------------------------------------------------------------------------------
                                                                                                 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 @ 50  deg.C
------------------------------------------------------------------------
                                               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; 69 
FR 18803, Apr. 9, 2004]



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 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

[[Page 732]]

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 National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. 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 National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://

[[Page 733]]

www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html. 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 National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html. 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

[[Page 734]]

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 are available for inspection during normal business hours at 
RUS, room 2845, U.S. Department of Agriculture, Washington, DC 20250-
1500, or at the National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html. 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 9.01.0 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 50.03.0 micrometers or 
62.53.0 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 1252.0 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 25015 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

[[Page 735]]

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 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 -201  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

[[Page 736]]

 
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.
    (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

[[Page 737]]

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 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

[[Page 738]]

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 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 681 
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 2.60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

[[Page 739]]

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 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    ...........            50            50
     material, Maximum.........
    <0.41 (Initial Melt Index).          100
    0.41-2.00 (Initial Melt                             50  ............
     Index)....................
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:


[[Page 740]]


Minimum Average Thickness: 75 % of nominal thickness
Minimum Thickness: 70 % of nominal thickness
Maximum Eccentricity: 40 % of nominal thickness
[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 235  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-

[[Page 741]]

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 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 131020 and 
155020 nanometers and must not exceed 0.1 dB for dispersion-shifted 
fiber at 155020 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/
(nm2/km) 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/(nm/km)) and must have a 
maximum dispersion slope of 0.095 ps/(nm2/km) 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

[[Page 742]]

130020 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 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 0.200.015 for the 50/125 micrometer design and 
0.2750.015 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 131020 and 155020 nanometers, dispersion-shifted single mode 
fibers at 155020 nanometers and multimode fibers at 130020 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

[[Page 743]]

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 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 235  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 235  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;

[[Page 744]]

    (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
    (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.

[[Page 745]]

    (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 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 Sec. 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 235  deg.C.

[[Page 746]]

    (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
    (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 235  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 
652  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.

[[Page 747]]

    (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 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 748]]


                                       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
----------------------------------------------------------------------------------------------------------------
5
----------------------------------------------------------------------------------------------------------------
6
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7
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8
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9
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10
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11
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12
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23
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24
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[[Page 749]]


              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 750]]

 
4
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[[Page 751]]


               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 752]]

 
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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 753]]

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; 69 FR 18803, Apr. 9, 2004]



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 National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html. 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),

[[Page 754]]

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 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 National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html. 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

[[Page 755]]

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 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,

[[Page 756]]

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.
    (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

[[Page 757]]

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 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

[[Page 758]]

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 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

[[Page 759]]

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.
    (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 760]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.000

    (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

[[Page 761]]

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
                                      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

[[Page 762]]

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 243  deg.C 
(755  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 763]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.001

    (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 764]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.002

    (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 
381  deg.C (1002  deg.F) and an ambient temperature of 251  deg.C 
(772  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 222  deg.C (71.64 
deg.F);
    (B) Lower the temperature of the water and the immersed test panels 
to -282  deg.C (-18.44  deg.F) and stabilize for 24 hours;
    (C) Thaw the water with the samples to 222  deg.C (71.64  deg.F) 
and stabilize for 24 hours;

[[Page 765]]

    (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 -282  deg.C (159.8, 71.6, 
and -18.44  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 
492\1/2\ C (1204\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 222  deg.C (71.64 
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 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

[[Page 766]]

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 767]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.003

    (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.

[[Page 768]]



------------------------------------------------------------------------
                                 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 769]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.004

    (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.

[[Page 770]]

    (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 771]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.005

    (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 772]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.006


[[Page 773]]


[GRAPHIC] [TIFF OMITTED] TR21OC94.007

    (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

[[Page 774]]

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:
[GRAPHIC] [TIFF OMITTED] TR21OC94.008


[[Page 775]]


    (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:
[GRAPHIC] [TIFF OMITTED] TR21OC94.009

    (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 776]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.010

    (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

[[Page 777]]

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 cm\2\ (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 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

[[Page 778]]

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 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

[[Page 779]]

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 780]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.011

    (A) High humidity. The test housing shall be placed in an 
environmental test chamber at 953% 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 1x106 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 1x106 
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 1x10\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)

[[Page 781]]

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 953% 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 1x106 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 953%. 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 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 801  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 801  deg.C (1762  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

[[Page 782]]

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 783]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.012

    (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 784]]

[GRAPHIC] [TIFF OMITTED] TR21OC94.013

    (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

[[Page 785]]

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 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

[[Page 786]]

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 1x10\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 1x10\6\ ohms when cross-
connect modules are tested by a procedure similar to that described in 
and paragraphs (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.

[[Page 787]]

    (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 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

[[Page 788]]

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.
    (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, as amended at 69 FR 18803, Apr. 9, 2004]

   PART 1757--TELEPHONE SYSTEMS OPERATIONS AND MAINTENANCE [RESERVED]

[[Page 789]]



PART 1767--ACCOUNTING REQUIREMENTS FOR RUS ELECTRIC BORROWERS--Table of Contents



                      Subpart A--General [Reserved]

Sec.
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., 1921 et seq., 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).
    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:

[[Page 790]]

    (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.
    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

[[Page 791]]

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 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

[[Page 792]]

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.
    (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.

[[Page 793]]



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. RUS grants a departure to any 
borrower electing to delay implementation of the functional (activity-
based) accounting requirements of this part through December 31, 1997. 
Requests for departures from the RUS USoA shall be addressed, in 
writing, to the Director, Program Accounting Services Division (PASD).
    (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 except as provided for in paragraphs 
(d)(1) through (d)(5) of this section. Requests for approval shall be 
addressed, in writing, to the Director, PASD. The specific deferrals set 
forth in paragraphs (d)(1) through (d)(5) of this section may be 
implemented without the prior written approval of RUS provided that the 
deferrals comply with Statement No. 71 and that the RUS borrowers 
implementing such deferrals continue to meet the requirements set forth 
in Statement No. 71 for doing so:
    (1) The deferral and amortization of prior service pension costs 
(See

[[Page 794]]

Sec. 1767.41, Interpretation No. 606, Pension Costs), remapping expenses 
(See Sec. 1767.41, Interpretation No. 613, Mapping Costs), and 
preliminary survey and investigation charges (See Sec. 1767.17, 
Interpretation No. 111, Engineering Contracts for System Planning);
    (2) The deferral of any current period expense or expenses, on a 
cumulative basis for the fiscal year, only if a borrower would have met 
each of its financial tests or coverage ratios that it has covenanted 
with RUS to meet for that fiscal year, had the deferral not been made;
    (3) The deferral of any cost that will be fully amortized within the 
next 12 succeeding months;
    (4) The accelerated amortization of any previously deferred expense; 
and
    (5) The deferral of revenues coincident with a moratorium imposed by 
the National Rural Electric Cooperative Association on its Retirement 
and Security Program, provided, however, that the deferral is for the 
sole purpose of offsetting future pension costs.
    (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 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; 62 
FR 42289, Aug. 6, 1997]



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.

[[Page 795]]

    (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 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

[[Page 796]]

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.
    (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.

[[Page 797]]

    (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 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

[[Page 798]]

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:
    (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.

[[Page 799]]

    (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:
    (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

[[Page 800]]

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 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

[[Page 801]]

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 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

[[Page 802]]

(``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.
    (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

[[Page 803]]

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, 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

[[Page 804]]

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 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:

[[Page 805]]

[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.
    (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,

[[Page 806]]

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 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

[[Page 807]]

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. (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.

[[Page 808]]

    (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.
    (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);

[[Page 809]]

    (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 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.

[[Page 810]]

    (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;
    (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;

[[Page 811]]

    (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;
    (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

[[Page 812]]

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.
    (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

[[Page 813]]

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 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

[[Page 814]]

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:
    (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.

[[Page 815]]

    (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 
salary, employee pensions and benefits, social security and other 
payroll taxes, injuries and damages, and other 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 is chargeable hereto. Specific instructions and training in a 
particular type of work is chargeable to the appropriate functional 
account (See paragraph (c)(19) of this section); and
    (viii) Secretarial work for supervisory personnel, but not general 
clerical and stenographic work chargeable to other accounts.
    (2) Expense items:
    (i) Employee pensions and benefits;
    (ii) Social security and other payroll taxes;
    (iii) Injuries and damages;
    (iv) Consultants' fees and expenses; and
    (v) Meals, traveling, and incidental expenses.
    (b) Maintenance. (1) The cost of maintenance chargeable to the 
various operating expense and clearing accounts includes labor, employee 
pensions and benefits, social security and other payroll taxes, injuries 
and damages, materials, overheads, and other expenses incurred in 
maintenance work. A list of work operations applicable generally to 
utility plant is included in this paragraph (b). 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;

[[Page 816]]

    (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.
    (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.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42290, Aug. 6, 1997]



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
109-110 [Reserved]
111  Accumulated Provision for Amortization of Electric Utility Plant
112-113 [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

[[Page 817]]

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
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

[[Page 818]]

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.

              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

[[Page 819]]

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 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).)
    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

[[Page 820]]

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.

                           109-110 [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 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.

                           112-113 [Reserved]

               114  Electric Plant Acquisition Adjustments

    A. This account shall include the difference between the cost to the 
accounting

[[Page 821]]

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 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.

[[Page 822]]

       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 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.

[[Page 823]]

    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 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.

  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

[[Page 824]]

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.
    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

[[Page 825]]

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 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.

[[Page 826]]

 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 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.

[[Page 827]]

                     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 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.

           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

[[Page 828]]

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 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

[[Page 829]]

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).)
    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

[[Page 830]]

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 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

[[Page 831]]

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 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:

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

[[Page 832]]

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 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

[[Page 833]]

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
202-207 [Reserved]
208  Donated Capital
209-210 [Reserved]
211  Consumers' Contributions for Debt Service
212-214 [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
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

[[Page 834]]

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 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.

                           202-207 [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.

[[Page 835]]

                           209-210 [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.

                           212-214 [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.

                             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 year, these amounts 
should be transferred from Account 219.1, or Account 219.2 to Account 
201.2, Patronage Capital Assignable, when appropriate.

[[Page 836]]

                             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.
    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.

[[Page 837]]

           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.

               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

[[Page 838]]

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.
    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.

[[Page 839]]

               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 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

[[Page 840]]

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

                    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 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

[[Page 841]]

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 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.)

[[Page 842]]

                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, 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

[[Page 843]]

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 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 of 
retirement, no entries are required in this account if it can be 
determined that the

[[Page 844]]

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 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

[[Page 845]]

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, 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.

[[Page 846]]

    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.
    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

[[Page 847]]

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).

                    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

[[Page 848]]

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.
    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.
    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,

[[Page 849]]

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 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

[[Page 850]]

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 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.

[[Page 851]]

    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 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

[[Page 852]]

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 
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.
    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).)

[[Page 853]]

                    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.
    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.

[[Page 854]]

    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.
    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.

[[Page 855]]

    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.
    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.

[[Page 856]]

    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.
    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 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.

[[Page 857]]

    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 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.

[[Page 858]]

    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 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.

[[Page 859]]

    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.
    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.

[[Page 860]]

                          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.
    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.
    Note: It is intended that this account include only such large units 
as are generally self-propelled or mounted on movable equipment.

[[Page 861]]

                      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]
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

[[Page 862]]

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 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

[[Page 863]]

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 and retirement 
activities shall be included in the cost of construction or the 
retirement.
    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 
charged to nonutility operations, the specific functional operations, 
maintenance, and administrative expense accounts, and to construction 
and retirement activities on a basis related to payroll either directly 
or by transfers from this account.
    Note E: Property taxes applicable to the various utility functions 
shall be charged to the specific functional operations and 
administrative expense accounts either directly or by transfers from 
this account.
    Note F: 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.

    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.

[[Page 864]]

              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 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

[[Page 865]]

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.

              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.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42290, Aug. 6, 1997]



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

[[Page 866]]

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 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 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.


[[Page 867]]


    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.

                                  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

[[Page 868]]

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.

                            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.

[[Page 869]]

    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 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

[[Page 870]]

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

                           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

433-439 [Reserved]

                            Retained Earnings

                           433-439 [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.
    B. Account 440 shall be subaccounted as follows:


[[Page 871]]


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 (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

[[Page 872]]

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--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.

[[Page 873]]

                    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.
    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 expenses.

    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

[[Page 874]]

                       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
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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

[[Page 875]]

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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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.
    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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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,

[[Page 876]]

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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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.

[[Page 877]]

                     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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, and materials used, and expenses 
incurred in operating prime movers, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Taxes.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Lubricants and control system oils.
    2. Generator cooling gases.
    3. Circulating water purification supplies.
    4. Cooling water purchased.

[[Page 878]]

    5. Motor and generator brushes.

                 506  Miscellaneous Steam Power Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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 879]]

                    512  Maintenance of Boiler Plant

    A. This account shall include the cost of labor, employee pensions 
and benefits, social security and other payroll taxes, injuries and 
damages, 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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and materials used and expenses incurred in the maintenance of electric 
plant, the book cost 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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.
    2. Handling of coolants and heat transfer materials.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Taxes.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:

[[Page 880]]

    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.

[[Page 881]]

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.

[[Page 882]]

    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.

[[Page 883]]

    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of the 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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

[[Page 884]]

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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.

[[Page 885]]

    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.
    3. Building service.
    4. Care of grounds including snow removal, and grass cutting.
    5. Snow removal from roads and bridges.
    6. Miscellaneous labor.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and

[[Page 886]]

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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.

                         Other Power Generation

                               (Operation)

               546  Operation Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and

[[Page 887]]

damages, 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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.

[[Page 888]]

    3. Building service.
    4. Care of grounds, including snow removal, and grass cutting.
    5. Miscellaneous labor.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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).)

                     552  Maintenance of Structures

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and

[[Page 889]]

damages, 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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Expenses:


[[Page 890]]


    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 the policy shall be credited to this account.

                          Transmission Expenses

                               (Operation)

               560  Operation Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)

[[Page 891]]

    13. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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.

[[Page 892]]

                       563  Overhead Line Expenses

                     564  Underground Line Expenses

    A. These accounts shall include the cost of labor, employee pensions 
and benefits, social security and other payroll taxes, injuries and 
damages, property insurance, property taxes, 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.
    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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damage, 
materials used, and expenses incurred in transmission map and record 
work, transmission office expenses, and other transmission expenses not 
provided for elsewhere.

[[Page 893]]

                                  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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and

[[Page 894]]

damages, 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).)

                                  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.
    g. Relocating 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

    Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 services 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

                  572  Maintenance of Underground Lines

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and

[[Page 895]]

damages, 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.
    l. Repairs to oil or gas equipment in high-voltage cable system and 
replacement of oil or gas.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

          573  Maintenance of Miscellaneous Transmission Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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).)

[[Page 896]]

                          581  Load Dispatching

    This account (the keeping of which is optional with the utility) 
shall include the cost of labor, employee pensions and benefits, social 
security and other payroll taxes, injuries and damages, property 
insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.

[[Page 897]]

    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, 
employee pensions and benefits, social security and other payroll taxes, 
injuries and damages, property insurance, property taxes, materials 
used, and expenses incurred in the operation of overhead and underground 
distribution lines.

                                  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 purpose.
    11. Electrolysis surveys.
    12. Inspecting and adjusting line testing equipment.

Taxes:


[[Page 898]]


    1. Federal and State unemployment.
    2. F.I.C.A,
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.

[[Page 899]]

    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.

[[Page 900]]

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses

    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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:


[[Page 901]]


    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.

[[Page 902]]

    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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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 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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.

[[Page 903]]

    h. Sampling, testing, changing, purifying, and replenishing 
insulating oil.
    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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

                  594  Maintenance of Underground Lines

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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:

[[Page 904]]

    a. Cleaning ducts.
    b. Repairing any underground service plant.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

                  595  Maintenance of Line Transformers

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.

[[Page 905]]

    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42291, Aug. 6, 1997]



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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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 Sec. 1767.17(a).)

                       902  Meter Reading Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct

[[Page 906]]

labor dollars or direct labor hours, applicable to the labor items 
detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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 by mail.
    4. Transportation, meals, and incidental expenses.

              903  Customer Records and Collection Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.
    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.

[[Page 907]]

    20. Determining consumption and computing estimated or average 
consumption when performed by employees other than those engaged in 
reading meters.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:
    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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 expenses, 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 
in 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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred not provided for in other accounts.

                                  Items

Labor:

    1. General clerical and stenographic work.
    2. Miscellaneous labor.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein, or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.

[[Page 908]]

    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42311, Aug. 6, 1997; 62 
FR 43201, Aug. 12, 1997]



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.

               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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor

[[Page 909]]

costs charged herein or, in the absence of specific employee 
identification, the portion of employee pensions and benefits, allocated 
on the more equitable basis of either direct labor dollars or direct 
labor hours, applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.


[[Page 910]]


Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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.
    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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or

[[Page 911]]

deaths to employees or others and damages to the property of others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Communication service.
    2. Printing, postage, and office supplies expenses.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42313, Aug. 6, 1997]



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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.

[[Page 912]]

    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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Supplies and expenses pertaining to demonstration, experimental, 
and development activities.
    2. Booth and temporary space rental.
    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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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.


[[Page 913]]


    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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Communication service.

[[Page 914]]

    2. Printing, postage, office supplies, and expenses applicable to 
sales activities, except those chargeable to Account 913, Advertising 
Expenses.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42315, Aug. 6, 1997]



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, 
employee pensions and benefits, social security and other payroll taxes, 
injuries and damages, 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 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.

[[Page 915]]

                                  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, employee pensions and benefits, social security and 
other payroll taxes, injuries and damages, and the 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 and retirement either directly or by 
transfers to construction and retirement 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, employee pensions and benefits, social 
security and other payroll taxes, and the 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.
    Note D: The cost of insurance or reserve accruals applicable to the 
various utility functions shall be charged to the specific functional 
operations and the appropropriate miscellaneous administrative expense 
accounts either directly or by transfers from this account.

                        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, employee pensions and benefits, 
social security and other payroll taxes, injuries and damages, 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 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.

[[Page 916]]

    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 and retirement activities 
either directly or by transfers from this account to the applicable 
construction and retirement work orders.
    Note C: The cost of insurance or reserve accruals applicable to the 
various utility functions shall be charged to the specific functional 
operations and the appropropriate miscellaneous administrative expense 
accounts either directly or by transfers from this account.
    Note D: 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 E: The cost of labor, employee pensions and benefits, social 
security and other payroll taxes, and the 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, the 
specific functional operations, maintenance, and administrative expense 
accounts, and to construction and retirement activities 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 the operations, maintenance, administrative, 
construction or retirement accounts will be readily available.

                                  Items

    1. Payment of pensions to retirees on a nonaccrual 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.

    Note A: The cost of labor, employee pensions and benefits, social 
security and other payroll taxes, injuries and damages, and the 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.

[[Page 917]]

    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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in advertising and related 
activities, the cost of which by their content and purpose are not 
provided for elsewhere.

                                  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.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.
Insurance:


[[Page 918]]


    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by 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 Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

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, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, 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.
Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. 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.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    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.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and

[[Page 919]]

amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. 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.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

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, 
employee pensions and benefits, social security and other payroll taxes, 
injuries and damages, materials used, and expenses incurred in the 
maintenance of 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.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42317, Aug. 6, 1997]



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. Interpretations Nos. 133, 134, 137, 403, 404, 602, 606, 
618, 627, 628, and 629 adopt and implement the provisions of standards 
issued by the Financial Accounting Standards Board (FASB). Each 
interpretation includes a synopsis of the requirements of the standard 
as well as specific accounting requirements and interpretations required 
by RUS. The synopsis provides general information to assist borrowers in 
determining whether the standard applies to an individual cooperative's 
operations. The synopsis is not intended to change the requirements of 
the FASB standards unless it is set forth in the section entitled RUS 
Accounting Requirements in each interpretation. If a particular borrower 
believes a conflict exists between the FASB standard and an RUS 
interpretation, the borrower shall contact the Director, PASD, to seek 
resolution of the issue.

[[Page 920]]



                             Numerical Index
 
            Num- ber                               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 Cost
134                               Utility Plant Phase-in Plans
135                               Accounting for Removal or Relocation
                                   of Electric Facilities Resulting from
                                   the Action of Others
136                               Storm Damage
137                               Impairment of Long-Lived Assets.
138                               Automatic Meter Reading Systems-
                                   Turtles.
139                               Global Positioning Systems.
140                               Radio-Based Automatic Meter Reading
                                   Systems.
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
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
630                               Split Dollar Life Insurance.
631                               Special Early Retirement Plan.
 


                          Subject Matter Index
 
                                                                  Number
 
                                A
 
Abandonments--Plant.............................................     133
Acquisition Adjustments--Plant..................................     131
Advertising Expenses............................................     611

[[Page 921]]

 
Assignments--Patronage Capital..................................     501
Attendance at Meetings..........................................     608
Automatic Meter Reading Systems--Radio-Based....................     140
Automatic Meter Reading Systems--Turtles........................     138
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
Discounts Allowed by Power Cooperative to Distribution               617
 Cooperative Owning Transmission Lines..........................
Distribution Cooperative/Power Supply Cooperative Borrowing.....     616
                                E
 
Early Retirement Plan...........................................    631.
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
Global Positioning Systems......................................     139
                                I
 
Impairment of Long-Lived Assets.................................     137
In-substance Defeasance.........................................     622
Insurance--Employee Retirement and Group........................     603
Insurance--Premium on Life of a Borrower Employee...............     605
Insurance--Split Dollar.........................................     630
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
Life Insurance--Split Dollar....................................     630
Line Conversion.................................................     102
Line Relocations................................................     135
Liquidated Damages..............................................     115
Load Control Equipment..........................................     118
Long-Lived Assets-Impairment....................................     137
                                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 Reading Systems--Radio-Based..............................     140
Meter Reading Systems--Turtles..................................     138
Meter Sockets and Meters........................................     120
Minimum--Maximum Voltmeters.....................................     121
Mobile Substations..............................................     107
                                N
 
Neutral--Replacement of.........................................     103

[[Page 922]]

 
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             505
 Organizations..................................................
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
                                R
 
Radio-Based Automatic Meter Reading Systems.....................     140
Rate Discount Allowed by Power Cooperative to a Distribution         617
 Cooperative Owning Transmission Lines..........................
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 Early Retirement Plan...................................     631
Special Equipment...............................................     119
Special Power Cost Study........................................     612
Split Dollar Life Insurance.....................................     630
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
Turtles--Automatic Meter Reading Systems........................     138
                                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

[[Page 923]]

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 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 303, 
Miscellaneous Intangible Plant. 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 303 shall be 
amortized to Account 405, Amortization of Other Electric Plant, over the 
contract term or the estimated useful service life of the plant, 
whichever is shorter. If the related contract or contracts for this 
power supply are terminated, the

[[Page 924]]

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 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.

[[Page 925]]

    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, 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

[[Page 926]]

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 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

[[Page 927]]

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.
    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

[[Page 928]]

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.
    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

[[Page 929]]

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

    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

[[Page 930]]

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 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

[[Page 931]]

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 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

[[Page 932]]

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 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.

[[Page 933]]

                   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 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

[[Page 934]]

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 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

[[Page 935]]

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 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.

[[Page 936]]

    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 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-

[[Page 937]]

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.
    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.

[[Page 938]]

                              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 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;

[[Page 939]]

    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 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--      $1,015.17
 Storm Damage...........................
    Cr. 107.4, Construction Work in       ..............       $1,015.17
     Progress--Storm Damage.............
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-      $4,141.55
 -Storm Damage..........................
    Cr. 108.8X, Retirement Work in        ..............       $4,141.55
     Progress--Storm Damage.............
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--    $312,230.41
 Storm Damage...........................
    Cr. 364, Poles Towers and Fixtures..  ..............     $133,377.55
    Cr. 365, Overhead Conductors and      ..............       59,683.08
     Devices............................
    Cr. 368, Lines Transformers.........  ..............       19,704.60
    Cr. 369, Services...................  ..............       97,651.23
    Cr. 373, Street Lighting and Signal   ..............        1,813.95
     Systems............................
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         $309,104.03
 Depreciation of Distribution Plant.....
    Cr. 108.8X, Retirement Work in        ..............     $309,104.03
     Progress--Storm Damage.............
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             2,101.60
 Systems................................
    Cr. 107.4, Construction Work in       ..............     $259,220.37
     Progress--Storm Damage.............
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

[[Page 940]]

 
    Labor and overhead estimated by           124,515.27
     using standard record unit costs...
                                         -------------------------------
      Total.............................      259,220.37
                                         ===============================
Dr. 108.8X, Retirement Work in Progress--       2,384.00
 Storm Damage...........................
    Cr. 107.4, Construction Work in       ..............       $2,384.00
     Progress--Storm Damage.............
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-      $1,939.74
 -Storm Damage..........................
    Cr. 108.8X, Retirement Work in        ..............       $1,939.74
     Progress--Storm Damage.............
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--    $162,172.06
 Storm Damage...........................
    Cr. 355, Poles and Fixtures.........  ..............      $47,738.45
    Cr. 356, Overhead Conductors &        ..............       80,304.11
     Devices............................
    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         $128,462.82
 Depreciation of Transmission Plant.....
Dr. 108.6, Accumulated Provision for           34,153.50
 Depreciation of Distribution Plant.....
    Cr. 108.8X, Retirement Work in        ..............     $162,616.32
     Progress--Storm Damage.............
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       ..............     $286,488.82
     Progress--Storm Damage.............
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           114,823.20
     using standard record unit costs...
                                         -------------------------------
      Total.............................      286,488.82
                                         ===============================
Dr. 107.4, Construction Work in Progress-        $329.40
 -Storm Damage..........................
    Cr. 108.8X, Retirement Work in        ..............         $329.40
     Progress--Storm Damage.............
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-- ..............     $137,671.22
 Storm Damage...........................
    Cr. 365, Overhead Conductors and      ..............       $4,557.00
     Devices............................
    Cr. 368, Line Transformers..........  ..............      112,815.22
    Cr. 370, Meters.....................  ..............       20,299.00

[[Page 941]]

 
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         $137,341.82
 Depreciation of Distribution Plant.....
    Cr. 108.8X, Retirement Work in        ..............     $137,341.82
     Progress...........................
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       ..............       $1,319.85
     Progress--Storm Damage.............
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                   19,365.86
 Transformers...........................
Dr. 597, Maintenance of Meters..........        6,595.56
    Cr. 107.4, Construction Work in       ..............      $26,568.66
     Progress--Storm Damage.............
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           $32,000.00
 Salaries...............................
Dr. 921, Office Supplies and Expenses...        4,421.69
    Cr. 107.4, Construction Work in       ..............      $36,421.69
     Progress--Storm Damage.............
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       ..............      $36,756.00
     Progress Storm Damage..............
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  ..............      $35,000.00
     Depreciation of Transmission Plant.
    Cr. 108.6, Accumulated Provision for  ..............      240,000.00
     Depreciation of Distribution Plant.
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.

[[Page 942]]

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  ..............      $74,205.00
     Depreciation of Transmission Plant.
    Cr. 108.6, Accumulated Provision for  ..............      191,575.00
     Depreciation of Distribution Plant.
    Cr. 186, Miscellaneous Deferred       ..............          872.00
     Debits.............................
    Cr. 355, Poles and Fixtures.........  ..............      129,056.00
    Cr. 356, Overhead Conductors and      ..............       99,408.00
     Devices............................
    Cr. 364, Poles, Towers and Fixtures.  ..............       78,916.00
    Cr. 365, Overhead Conductors and      ..............       82,840.00
     Devices............................
    Cr. 368, Line Transformers..........  ..............       20,056.00
    Cr. 369, Services...................  ..............       23,108.00
    Cr. 373, Street Lighting and Signal   ..............        1,744.00
     Systems............................
    Cr. 426.5, Other Deductions.........  ..............      219,220.00
    Cr. 571, Maintenance of Overhead      ..............        2,900.00
     Lines..............................
    Cr. 593, Maintenance of Overhead      ..............       26,600.00
     Lines..............................
    Cr. 595, Maintenance of Line          ..............       15,300.00
     Transformers.......................
    Cr. 597, Maintenance of Meters......  ..............        5,200.00
    Cr. 920, Administrative and General   ..............       25,491.00
     Salaries...........................
    Cr. 921, Office Supplies and          ..............        3,509.00
     Expenses...........................
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                   93,462.82
     Depreciation of Transmission Plant.................
    Account 108.6, Accumulated Provision for                  240,599.35
     Depreciation of Distribution Plant.................
    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:
    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

[[Page 943]]

 
    Administrative......................................       36,421.69
                                                         ---------------
      Total Costs.......................................    1,255,837.16
                                                         ===============
                       Distribution of FEMA Funds
Maintenance: 63,324.26/1,255,837.16=.0504=5.0%
Retirement: 609,062.17/1,255,837.16=.4850=48.5%
Construction: 547,029.04/1,255,837.16=.4356 = 43.6%
Administrative: 36,421.69/1,255,837.16=.0290=2.9%
Maintenance: $1,000,000.00x5.0%=........................      $50,000.00
Retirement: $1,000,000.00x48.5%=........................      485,000.00
Construction: $1,000,000.00x43.6%=......................      436,000.00
Administrative: $1,000,000.00x2.9%=.....................       29,000.00
                                                         ---------------
      Total.............................................    1,000,000.00
                                                         ===============
                 Distribution of FEMA Funds--Maintenance
Account 571: 3,675.60/63,324.26=.0580=5.8%
Account 593: 33,687.24/63,324.26=.5320=53.2%
Account 595: 19,365.86/63,324.26=.3058=30.6%
Account 597: 6,595.56/63,324.26=.1041=10.4%
Account 571: $50,000.00x5.8%=...........................       $2,900.00
Account 593: $50,000.00x53.2%=..........................       26,600.00
Account 595: $50,000.00x30.6%=..........................       15,300.00
Account 597: $50,000.00x10.4%=..........................        5,200.00
                                                         ---------------
      Total.............................................       50,000.00
                                                         ===============
               Distribution of FEMA Funds--Retirement Loss
Account 108.5: 93,462.82/609,062.17=.1535=15.3%
Account 108.6: 240,599.35/609,062.17=.3950=39.5%
Account 426.5: 275,000.00/609,062.17=.4515=45.2%
Account 108.5: $485,000.00x15.3%=.......................      $74,205.00
Account 108.6: $485,000.00x39.5%=.......................      191,575.00
Account 426.5: $485,000.00x45.2%=.......................      219,220.00
                                                         ---------------
      Total.............................................      485,000.00
                                                         ===============
                Distribution of FEMA Funds--Construction
Account 186: 1,319.85/547,029.04=.0024=.2%
Account 355: 161,784.05/547,029.04=.2958=29.6%
Account 356: 124,704.77/547,029.04=.2280=22.8%
Account 364: 99,075.40/547,029.04=.1811=18.1%
Account 365: 104,142.22/547,029.04=.1904=19.0%
Account 368: 25,036.07/547,029.04=.0457=4.6%
Account 369: 28,865.08/547,029.04=.0528=5.3%
Account 373: 2,101.67/547,029.04=.0038=.4%
Account 186: $436,000.00x.2%=...........................         $872.00
Account 355: $436,000.00x29.6%=.........................      129,056.00
Account 356: $436,000.00x22.8%=.........................       99,408.00
Account 364: $436,000.00x18.1%=.........................       78,916.00
Account 365: $436,000.00x19.0%=.........................       82,840.00
Account 368: $436,000.00x4.6%=..........................       20,056.00
Account 369: $436,000.00x5.3%=..........................       23,108.00
Account 373: $436,000.00x.4%=...........................        1,744.00
                                                         ---------------
      Total.............................................      436,000.00
                                                         ===============
               Distribution of FEMA Funds--Administrative
Account 920: 32,000.00/36,421.69=.8786=87.9%
Account 921: 4,421.69/36,421.69=.1213=12.1%
Account 920: $29,000.00x87.9%=..........................      $25,491.00
Account 921: $29,000.00x12.1%=..........................        3,509.00
                                                         ---------------
      Total.............................................       29,000.00
                                                         ===============
 


[[Page 944]]

                   137 Impairment of Long-Lived Assets

    Statement of Financial Accounting Standards No. 121, Accounting for 
the Impairment of Long-Lived Assets and for Long-Lived Assets to be 
Disposed of (Statement No. 121), requires reporting entities to review 
all long-lived assets and certain identifiable intangibles that are to 
be held, used, or disposed of by that entity for impairment whenever 
events and changes in circumstances indicate that the carrying amount of 
the asset may not be recoverable. If the sum of the expected future cash 
flows (undiscounted and without interest charges) is less than the 
carrying value of the asset, the entity must recognize an impairment 
loss. The impairment loss is measured as the amount by which the 
carrying amount of the asset exceeds the fair value of the asset. The 
impairment loss is reported as a component of income from continuing 
operations before income taxes for entities presenting an income 
statement and in the statement of activities of not-for-profit 
organizations. Statement No. 121 does not apply to assets included in 
the scope of Statement of Financial Accounting Standards No. 90, 
Regulated Enterprises--Accounting for Abandonments and Disallowances of 
Plant Costs.

                        Assets To Be Held or Used

    Entities are required to review long-lived assets and certain 
identifiable intangibles whenever events or changes in circumstances 
indicate that the carrying value of the asset may not be recoverable. 
For example:
    1. A significant decrease in the market value of an asset;
    2. A significant change in the extent or manner in which an asset is 
used;
    3. A significant physical change in an asset;
    4. A significant adverse change in legal factors or in the business 
climate that could affect the value of an asset;
    5. An adverse action or assessment by a regulator;
    6. An accumulation of costs significantly in excess of the amount 
originally expected to acquire or construct an asset; and
    7. A current period operating or cash flow loss combined with a 
history of operating or cash flow losses or a projection or forecast 
that demonstrates continued losses associated with an asset used for the 
purpose of producing revenue.
    The impairment of the asset is measured by estimating the future 
cash flows expected to result from the use of the asset and its 
disposition. Assets are grouped at the lowest level for which there are 
identifiable cash flows that are largely independent of the cash flows 
of other groups of assets. Future cash flows are those cash inflows that 
are expected to be generated by the asset less the cash outflows 
expected to be necessary to maintain those inflows. If the future cash 
flows (undiscounted and without interest charges) are less than the 
carrying value of the asset, an impairment loss must be recognized. If 
the expected future cash flows are greater than the carrying value of 
the asset, no impairment loss exists.
    The impairment loss is the amount by which the carrying amount 
(acquisition cost less accumulated depreciation) of the asset exceeds 
the fair value of the asset. The fair value of the asset is the amount 
for which the asset could be bought or sold in an arms-length 
transaction between willing parties. A quoted market price is the best 
evidence of fair value. If this information is not available, the fair 
value should be based upon the best information available. Consideration 
should be given to the price of similar assets and valuation techniques 
such as the present value of the expected future cash flows discounted 
at a rate representative of the risk involved, option-pricing models, 
matrix pricing, option-adjusted spread models, and fundamental analysis. 
All available information should be considered when using the above 
pricing techniques.
    If an impairment is recognized, the carrying value of the asset is 
reduced to the lower of its fair value or its carrying value and, if 
depreciable, depreciated over the remaining useful life. Previously 
recognized impairment losses cannot be restored. If the asset was 
acquired in a business combination and there is goodwill resulting from

[[Page 945]]

the transaction, the goodwill is included in the asset grouping and 
reduced or eliminated before any adjustment is made to the carrying 
value of the asset.
    The following financial statement disclosures are required in the 
period in which the impairment is recognized:
    1. A description of the impaired assets and the facts and 
circumstances surrounding the impairment;
    2. The amount of the impairment and how fair value was determined;
    3. The caption in the income statement or the statement of 
activities in which the impairment loss is aggregated if that loss has 
not been presented as a separate caption or reported parenthetically on 
the face of the statement; and
    4. If applicable, the business segment(s) affected.

                          Assets To Be Disposed

    Statement No. 121 also applies to all long-lived assets and certain 
identifiable intangibles for which management, having the authority to 
approve the action, has committed to a plan of disposal except those 
assets covered by APB No. 30, Reporting the Results of Operations--
Reporting the Effects of Disposal of a Segment of a Business, and 
Extraordinary, Unusual and Infrequently Occurring Events and 
Transactions. An asset to be disposed of is carried at the lower of its 
carrying amount (acquisition cost less accumulated depreciation) or its 
fair value less cost to sell.
    The fair value of the asset to be disposed of is computed in the 
same manner as that for an asset to be held or used by the entity. 
Selling costs include the incremental direct cost to transact the sale--
broker commissions, legal fees, title transfer, and other closing costs 
that must be incurred before legal title can be transferred. Costs such 
as insurance, security service, and utilities are generally excluded 
unless these costs are part of a contractual agreement that obligates 
the entity to incur such costs in the future. If the asset's fair value 
is based upon current market price or the current selling price for a 
similar asset, the fair value is considered a current amount and is not 
discounted. If, however, the fair value is based upon discounted 
expected future cash flows and if the sale is to occur beyond one year, 
the cost to sell must also be discounted. Assets covered by this 
statement are not depreciated (amortized) while being held for disposal.
    Subsequent revisions in estimates of fair value less cost to sell 
are reported as adjustments to the carrying amount of the asset to be 
disposed of as long as the carrying amount of the asset does not exceed 
the original carrying amount.
    The following financial statement disclosures are required in the 
period in which the impairment is recognized:
    1. A description of the assets to be disposed of including the facts 
and circumstances leading to the expected disposal, the expected 
disposal date, and the carrying amount of those assets;
    2. If applicable, the business segment(s) in which the assets to be 
disposed of are held;
    3. The amount, if any, of the impairment loss resulting from the 
adoption of this statement;
    4. The gain or loss, if any, resulting from subsequent revisions in 
the estimates of fair value less cost to sell;
    5. The caption in the income statement or statement of activities in 
which the gains or losses are aggregated if those gains or losses have 
not been presented as a separate caption or reported parenthetically on 
the face of the statement; and
    6. The results of operations for assets to be disposed of to the 
extent that those results are included in the entity's results of 
operations for the period and can be identified.

                         Accounting Requirements

    All borrowers must adopt the accounting prescribed by Statement No. 
121.

                    Effective Date and Implementation

    Statement No. 121 is effective for financial statements for fiscal 
years beginning after December 15, 1995. Impairment losses resulting 
from the application of this statement to assets that are held or used 
by the entity must be reported in the period in which

[[Page 946]]

the recognition criteria are first applied and met. Impairment losses 
attributable to assets to be disposed of must be reported as the 
cumulative effect of a change in accounting principle as prescribed in 
Accounting Principles Board Opinion No. 20, Accounting Changes.

             Accounting Journal Entries--Implementation Date

    If a borrower has impaired assets that are held or used at the 
implementation date, the following entry should be recorded:

Dr. 426.5, Other Deductions
Cr. 300 Series of Accounts, Plant Accounts
To record the adoption of Statement No. 121 for the impairment of assets 
    that are held or used.

    If a borrower has impaired assets to be disposed of at the 
implementation date, the following entry should be recorded:

Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting 
    Principle
Cr. 300 Series--Plant Accounts
To record the adoption of Statement No. 121 for assets that are to be 
    disposed.

      Accounting Journal Entries--Subsequent to Implementation Date

    If an asset that is either held, used or to be disposed of becomes 
impaired, the following entry should be recorded:

Dr. 426.5, Other Deductions
Cr. 300 Series--Plant Accounts
To record the impairment of a plant asset.

    If a borrower makes a subsequent revision in the estimate of the 
fair value less the cost to sell of an asset to be disposed of, the 
following entry should be recorded:

Dr. 300 Series--Plant Accounts
Cr. 421, Miscellaneous Nonoperating Income
To revise the fair value of an asset to be disposed.

              138  Automatic Meter Reading Systems--Turtles

    Automatic meter reading systems were developed from technology 
called power line carrier communication systems. One such system, 
developed by Hunt Technologies, Inc., is called by its brand name, the 
Turtle system. In addition to its function as an automated reading 
device, the Turtle can provide outage detection, power failure counts, 
and other potential applications. The current Turtle system does not 
have the capability for applications such as collection of load survey 
or interval data. A Turtle system consists of:
    1. A meter reader mounted (retrofitted) inside the meter;
    2. A receiver located in each substation; and
    3. Monitoring and programming equipment (software and personal 
computer) usually located in the headquarters building.
    The system transmits continuous information one way from the meter 
to a receiver located in the substation. The receiver constantly 
monitors every Turtle meter served by the substation. The substation 
receiver can be sized to monitor up to 3,000 Turtle meter readers at the 
same time. The data is then transmitted to the headquarters monitoring 
equipment via telephone line or an equivalent communication system.
    The technical literature and other information provided by the 
manufacturer indicates that this system can only be used for remote 
meter reading, outage detection, power failure counts, and phase 
identification. At this time, there is no indication that the system 
supports other functions such as home security. Therefore, the 
accounting prescribed for the Turtle meter reading devices and support 
equipment relates only to electric utility operations.

                         Accounting Requirements

    The function of the equipment is the primary factor in determining 
the account in which the equipment shall be recorded. The components of 
the Turtle automatic meter reading system shall be recorded in Account 
370, Meters. The cost of the meter reader encoding device and 
retrofitting the meter with

[[Page 947]]

the meter reader unit shall be capitalized to the cost of the existing 
meter. Any associated operating expenses shall be charged to Account 
586, Meter Expenses, with maintenance expenses charged to Account 597, 
Maintenance of Meters.
    Separate continuing property records shall be established for the 
meters, either fitted or retrofitted with the device; the receiver; the 
personal computer; and the system software. The meters, receivers, and 
personal computer shall be depreciated over the manufacturer's estimated 
useful service life. The system software shall be depreciated over the 
estimated useful service life of the program not to exceed 5 years.

                     139  Global Positioning Systems

    The Global Positioning System (GPS) is a worldwide radio-navigation 
system formed from a network of 24 satellites and their ground stations. 
Utilities are using this advanced technology geographic data collection 
system to update and modernize their system maps. GPS uses a system of 
satellites orbiting the earth to establish plant locations with pinpoint 
accuracy. By triangulating from three satellites and using radio signals 
to measure distances and locate items, system-wide maps can be created 
of the utility's service area. A field inventory is then taken of the 
utility's plant and plotted onto the map. The GPS consists of base 
station equipment, remote station equipment, the GPS program, and 
mapping conversion software.
    All equipment associated with GPS is dedicated to the mapping 
effort. The base station is installed at a fixed location and ties 
satellite measurements into a solid local reference. The remote station 
is a portable receiver that is taken into the field to determine 
locations and is moved from site to site. The GPS program is the 
application software that operates the station equipment and is used by 
layout technicians to gather information of existing and new facilities 
in the field. The conversion software is used for converting the GPS and 
inventory information gathered in the field into a form usable by the 
mapping program.

                         Accounting Requirements

    The function and location of the equipment are the primary factors 
in determining the account in which the equipment shall be recorded. The 
components of the GPS shall be accounted for as follows:
    1. Remote and Base Station Equipment. The cost of the equipment, 
both remote and fixed, shall be capitalized in a subaccount of Account 
391, Office Furniture and Equipment.
    2. GPS Program and Conversion Software for Mapping. The cost of GPS 
program and conversion software shall be capitalized in a subaccount of 
Account 391, Office Furniture and Equipment.
    3. GPS/GIS Field Inventory of System. The cost of performing a GPS/
GIS survey and field inventory of the existing system, by either a 
consultant or the utility's own forces, shall be charged to Account 588, 
Miscellaneous Distribution Expenses.

            140  Radio-Based Automatic Meter Reading Systems

    Radio-based automatic meter reading technology allows meters 
equipped with a low-power radio device called an ERT (Encoder, Receiver, 
Transmitter) to be read from a remote location. The ERT device can 
either be retrofitted to an existing meter or purchased installed in a 
new meter. The ERT device ``encodes'' energy consumption and transmits 
this information to a radio transceiver equipped handheld computer. The 
data collected and stored in the handheld computer is then uploaded to a 
billing computer using specialized software for that purpose.

                         Accounting Requirements

    The function of the equipment is the primary factor in determining 
the account in which the equipment shall be recorded. The components of 
the radio-based automatic meter reading system shall be recorded in 
Account 370, Meters. The cost of the meter reader encoding device and 
retrofitting the meter with the meter reader unit shall be capitalized 
to the cost of the existing meter. Any associated operating expenses 
shall be charged to Account 586, Meter Expenses, with maintenance

[[Page 948]]

expenses charged to Account 597, Maintenance of Meters.
    Separate continuing property records shall be established for the 
meters, either fitted or retrofitted with the device; the handheld 
computer; and the upload software. The meters and handheld computer 
shall be depreciated over the manufacturer's estimated useful service 
life. The upload software shall be depreciated over the estimated useful 
service life of the program not to exceed 5 years.

                       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, 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

[[Page 949]]

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 950]]

    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 951]]

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

[[Page 952]]

    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 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

[[Page 953]]

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'') 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.


[[Page 954]]


    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 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

[[Page 955]]

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.

              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

[[Page 956]]

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 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, retirement, and the 
applicable operations, maintenance, and administrative expense accounts.
    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 and the associated employee pensions and 
benefits and social security and other payroll taxes for 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. Various Operations, Maintenance, and Administrative Expense Accounts
Cr. 242.3, Accrued Employees Vacation and Holidays

[[Page 957]]

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.
    2. The cost of the employer's portion of a retirement and group 
insurance program shall be charged to construction and retirement 
activities and the applicable operations, maintenance, and 
administrative expense accounts based upon a specific identification 
with employees' labor costs charged therein or, in the absence of 
specific employee identification, based upon direct labor dollars or 
direct labor hours depending upon which allocation technique provides 
the most equitable distribution of costs.

                       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 the 
    Various Operations, Maintenance, and Administrative Expense 
    Accounts, 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. Various Operations, Maintenance, and Administrative Expense Accounts
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

[[Page 958]]

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. Various Operations, Maintenance, and Administrative Expense Accounts
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
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. Various Operations, Maintenance, and Administrative Expense Accounts
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.

[[Page 959]]

                      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 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 required, 
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

[[Page 960]]

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 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 
(i.e., 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 the 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 the net periodic pension 
cost is less than the 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

[[Page 961]]

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:
    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

[[Page 962]]

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 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.

[[Page 963]]

    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.
    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. Various Operations, Maintenance, and Administrative Expense Accounts
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. Various Operations, Maintenance, and Administrative Expense Accounts
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

[[Page 964]]

of costs under the provisions of Statement No. 71, the following entries 
shall be recorded:

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
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. Various Operations, Maintenance, and Administrative Expense Accounts
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
To record the payment to NRECA for prior service pension costs.

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
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

[[Page 965]]

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 including the associated pensions and benefits expense and 
payroll taxes, and the related per diem and expenses shall be charged to 
the functional expense accounts. Salaries paid to employees shall also 
be charged to the appropriate functional expense account. 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 and the 
associated employee pensions and benefits and social security and other 
payroll taxes shall be charged to the account to which the employees' 
time is ordinarily charged.
    4. Employees' salary time employee and the associated pensions and 
benefits and social security and other payroll taxes 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 and the associated employee 
pensions and benefits and social security and other payroll taxes spent 
attending a statewide safety school shall be charged to Account 925, 
Injuries and Damages.
    6. The salary time and the associated employee pensions and benefits 
and social security and other payroll taxes spent by a manager or line 
foreman conducting weekly safely meetings shall be charged to 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

[[Page 966]]

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 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.

[[Page 967]]

  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; and Account 184, Transportation Expense--
Clearing, for transportation and garage equipment. The appropriate 
miscellaneous operations or administrative expense account (Account 506, 
524, 539, 549, 566, 588, 905, 910, 916, or 930.2, as appropriate) shall 
be charged 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 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

[[Page 968]]

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 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

[[Page 969]]

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.
    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

[[Page 970]]

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.

                         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

[[Page 971]]

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.

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

[[Page 972]]

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

    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

[[Page 973]]

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, 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:


[[Page 974]]


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. Various Operations, Maintenance, and Administrative Expense Accounts
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. Various Operations, Maintenance, and Administrative Expense Accounts
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 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

[[Page 975]]

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.

                         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

[[Page 976]]

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. Various Operations, Maintenance, and Administrative Expense Accounts
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. Various Operations, Maintenance, and Administrative Expense Accounts
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 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

[[Page 977]]

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.

                    630  Split Dollar Life Insurance

    The National Rural Electric Cooperative Association Split Dollar 
Life Insurance provides life insurance benefits to cooperative 
employees. The benefits provided under this policy consist of two 
components, the face value of the insurance policy and the accumulated 
cash surrender value. While the employee is the owner of the policy, the 
employee must sign a collateral assignment giving the cooperative 
absolute right to the cash surrender value of the policy. Under the 
terms of this collateral assignment, the employee must reimburse the 
cooperative for the premiums paid upon the employee's termination of 
employment or attainment of the age of 62 if the employee wishes to 
maintain the insurance coverage. If death occurs prior to either of 
these events, the premiums paid to date by the cooperative are deducted 
from the death benefits payable to the policy beneficiary.

                         Accounting Requirements

    Financial Accounting Standards Board Technical Bulletin 85-4, 
Accounting for Purchase of Life Insurance (Bulletin 85-4), states that 
the amount that could be realized under an insurance contract as of the 
date of the financial statements should be reported as an asset. The 
change in the cash surrender or contract value of that asset during the 
period should be reported as an adjustment to the premiums paid in 
determining the expense or income to be recognized for the period. The 
cooperative shall, therefore, record the cash surrender value of the 
policy as an asset because of its absolute right to receive that value 
based upon the employee's collateral assignment. Any receivable that may 
occur as a result of the employee reimbursement for the premiums paid is 
contingent upon the employee electing to maintain the insurance coverage 
after

[[Page 978]]

termination of employment or reaching the age of 62 and is not recorded 
as an asset on the cooperative's records.

                       Accounting Journal Entries

    The journal entries required to account for the NRECA Split Dollar 
Life Insurance Program are as follows:

Dr. 124, Other Investments
Cr. Various Operations, Maintenance, and Administrative Expense Accounts
To record an increase in the cash surrender value of the insurance 
    contract.

or

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Cr. 124, Other Investments
To record a decrease in the cash surrender value of the insurance 
    contract.

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 131.1, Cash--General
To record the premium cost of the insurance contract.

                   631  Special Early Retirement Plan

    The Special Early Retirement Plan (SERP) being offered through the 
National Rural Electric Cooperative Association (NRECA) constitutes an 
amendment to its Retirement and Security (R&S) program. The SERP is 
often chosen as a vehicle through which the cooperative may reduce the 
size of its workforce or replace more highly paid employees with lower 
paid entry level employees. If an employee covered by an NRECA 
retirement plan chose to retire before his/her normal retirement date, 
that employee would receive an actuarially reduced benefit. However, 
when a cooperative elects to offer a SERP, no such reduction is 
required. The cooperative selects the criteria under which an employee 
will be eligible to participate such as age, years of service, or a 
combination of age and benefit service requirements. As with other 
amendments to the R&S program, NRECA calculates the cost of the plan 
based upon the criteria selected by the cooperative and allows the 
cooperative to pay the cost immediately or on an installment basis.
    Under this plan, the employee receives full retirement benefits in 
the form of either an immediate lump-sum settlement or annuity payments. 
It is not unusual for the cooperative to add an incentive to encourage 
participation such as medical or life insurance, either in whole or in 
part, until age 65. The actuarial analysis provided by NRECA includes 
the cost of the SERP and the estimated reduction and/or increase in 
costs associated with Statement of Financial Accounting Standards No. 
106, Employer's Accounting for Postretirement Benefits Other Than 
Pensions (Statement No. 106).

     Statement of Financial Accounting Standards No. 87, Employer's 
               Accounting for Pensions (Statement No. 87)

    In accordance with the provisions of Statement No. 87, the costs 
associated with an amendment to a multiemployer plan are recognized when 
they become due and payable. Since NRECA calculates the amount due and 
payable at the time of the amendment, the entire amount due, whether 
paid immediately or financed through NRECA or any other institution, 
must be recognized as an expense at that time. This cost may, however, 
be deferred in accordance with the provisions of Statement of Financial 
Accounting Standards No. 71, Accounting for the Effects of Certain Types 
of Regulation (Statement No. 71).

                       Accounting Journal Entries

    The journal entry required to record the additional pension costs 
associated with the SERP is as follows:

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 131.1, Cash--General

or

Cr. 224, Other Long-Term Debt
To record the prior service pension costs incurred as a result of 
    adopting the SERP.


[[Page 979]]


    If the borrower elects to defer and amortize the cost in accordance 
with Statement No. 71, the following entries shall be recorded:

Dr. 182.3, Other Regulatory Assets
Cr. 131.1, Cash--General

or

Cr. 224, Other Long-Term Debt
To record, under the provisions of Statement No. 71, the deferral of the 
    prior service pension costs incurred as a result of adopting the 
    SERP.

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
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 as 
    they are recovered through rates in accordance with Statement No. 
    71.

                            Statement No. 106

    In the event that net reductions in postretirement benefits result 
from this plan amendment, the reductions are recognized as follows:
    1. The amount of the reduction shall first reduce any existing 
unrecognized prior service cost;
    2. Any remaining reductions shall next reduce any unrecognized 
transition obligation; and
    3. Any remaining reduction shall be recognized in a manner 
consistent with the accounting for prior service postretirement benefit 
costs.
    In accordance with Statement No. 106, prior service postretirement 
benefit costs are recognized in equal amounts in each remaining year of 
service for active plan participants. Because it is an off-balance sheet 
item, only a memorandum entry is required to reduce the amount of 
unrecognized prior service cost.
    At adoption, Statement No. 106 permitted the recognition of the 
transition obligation in one of two ways. The transition obligation was 
recognized over the longer of the average remaining service period of 
current plan participants or 20 years, or it may have been recognized 
immediately. If the delayed recognition option was chosen under 
Statement No. 106, this, too, was an off-balance sheet item that 
requires only a memorandum entry to reduce the amount of unrecognized 
transition obligation. However, if the immediate recognition option was 
chosen, the cooperative either recorded the expense in that year or, 
with RUS approval, deferred the expense under the provisions of 
Statement No. 71. If the expense were recorded, in total, in the year of 
adoption, no unrecognized transition obligation remains to reduce. If, 
however, the transition obligation was deferred in accordance with 
Statement No. 71, the journal entry required to effect the reduction in 
Statement No. 106 expense is as follows:

Dr. 228.3, Accumulated Provision for Pensions and Benefits
Cr. 182.3, Other Regulatory Assets
To record a reduction in the deferred Statement No. 106 transition 
    obligation resulting from the adoption of the SERP.

    Note: The dollar value of this entry must not exceed the deferral 
shown on the balance sheet.

    If, after the two previous reductions have been made, any net credit 
remains, it shall be recognized in a manner consistent with prior 
service costs; that is, as an off balance sheet item that is amortized 
over the remaining service lives (to full eligibility) of the active 
plan participants. The annual amortization reduces amounts normally 
charged to the various operations, maintenance, and administrative 
expense accounts and Account 228.3 as postretirement benefit expenses.

[58 FR 59825, Nov. 10, 1993, as amended at 59 FR 27436, May 27, 1994; 60 
FR 55430, 55435-55438, Nov. 1, 1995; 62 FR 42319-42321, 42323, 42330, 
Aug. 6, 1997]



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]

[[Page 980]]



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.
    (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)

[[Page 981]]



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.
  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.

[[Page 982]]

 
  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.
  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.

[[Page 983]]

 
  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 984]]

 
                      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
 

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                      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
 

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                      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
 

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                      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
 

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                      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
 

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                      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.
 

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                      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.
 
  4540.33    4540.33  Installments Paid on Equity Certificates
                       Subscribed
 

[[Page 991]]

 
                      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).
 
             6560.2   Amortization Expense
 

[[Page 992]]

 
                      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 993]]

 
                      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 994]]

 
                      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.

[[Page 995]]

 
  4270.3     4270.3   Other Long-Term Debt.
 
  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,

[[Page 996]]

business, and affairs of the borrower in accordance with the methods and 
principles of accounting prescribed by the 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.



Secs. 1770.28-1770.45  [Reserved]

 Appendix to Subpart C of Part 1770--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
 

                      101  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

[[Page 997]]

limited to, health care, life insurance, tuition assistance, day care, 
legal services, and 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 998]]

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:

1. Dr. 1130.4/1120.14, Cash--General Fund--Economic Development Grant 
          Funds. Cr.

[[Page 999]]

          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.

              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.

[[Page 1000]]

                         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 Sheet and Income Statement for each majority-owned 
subsidiary included in the consolidated statements.

[[Page 1001]]

    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  Auditor communication.
1773.7  Audit standards.
1773.8  Audit date.
1773.9  Disclosure of fraud, illegal acts, and other noncompliance.
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 and on Internal Control Over 
               Financial Reporting, and Management Letter

1773.20  CPA's submission of the auditor's report, report on compliance, 
          report on compliance and on internal controls over financial 
          reporting, and management letter.
1773.21  Borrower's review and submission of the auditor's report, 
          report on compliance and on internal control over financial 
          reporting, 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 and on internal control over financial 
          reporting.
1773.33  Management letter.
1773.34-1773.37  [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]

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

    Source: 56 FR 63360, Dec. 3, 1991, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 1773 appear at 63 FR 
38722, July 17, 1998.



                      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 telecommunications borrowers and by the Rural Telephone 
Bank (RTB) for its telecommunications 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 complies with the 1994 revision of Government Auditing 
Standards, issued by the Comptroller General of the United States, 
United States General Accounting Office, including amendments dated May 
13, 1999, and July 30, 1999.
    (d) An auditor's report, report on compliance and on internal 
control over financial reporting, 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).
    (2) The management letter must state that the audit was conducted in 
accordance with this part.

[[Page 1002]]

    (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. 75, entitled 
``Engagements to Apply 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; 66 FR 
27835, May 21, 2001]



Sec. 1773.2  Definitions.

    As used in this part:
    AA-PARA means Assistant Administrator, Program Accounting and 
Regulatory Analysis.
    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.
    Borrower means an entity that has an outstanding RUS, RTB, or FFB 
loan or loan guarantee, or that has received a grant for electric, 
telecommunications, distance learning, or telemedicine purposes under 
the act.
    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.
    Fraud has the same meaning prescribed in SAS No. 82 entitled 
``Consideration of Fraud in Financial Statements''.
    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''.
    OIG means the Office of Inspector General, United States Department 
of Agriculture.
    OMB means the Office of Management and Budget.
    Regulatory asset means an asset resulting from an action of a 
regulator as prescribed in Statement of Financial Accounting Standards 
(SFAS) No. 71, 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

[[Page 1003]]

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 
telecommunications programs. See 7 CFR 1700.1.
    RUS Bulletin 1773-1, Policy on Audits of RUS Borrowers, is a 
publication prepared by RUS that contains the RUS regulation 7 CFR part 
1773 and exhibits of sample audit reports, financial statements, and a 
management letter used in preparing audit of RUS borrowers. This 
bulletin is available from USDA, Rural Utilities Service, Program 
Development and Regulatory Analysis, 1400 Independence Ave., SW., Stop 
1522, Washington, DC 20250, or available on the internet at http://
www.usda.gov/rus/.
    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 telecommunications borrowers, 
the Uniform System of Accounts for Telecommunications Companies, 
prescribed by the Federal Communications Commission and published 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, as contained in 7 CFR 
Part 1767, Accounting Requirements for RUS Electric Borrowers, subpart 
B, Uniform System of Accounts.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 66440, Dec. 27, 1994; 60 
FR 2874, Jan. 12, 1995; 63 FR 38722, July 17, 1998; 66 FR 27835, May 21, 
2001]



                    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 funds from 
grants and insured and guaranteed loans approved by RUS and RTB 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 and on internal control over financial reporting, 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.), the Single Audit Act Amendments of 1996 
(31 U.S.C. 7505 et seq.) and OMB Circular A-133, Audits of States, Local 
Governments, and Non-Profit Organizations (copy available from the 
Executive Office of the President, Publication Services, 725 17th St., 
NW., Suite 2200, Washington, DC 20502; 202-395-7332), must comply with 
this part as follows:
    (1) A borrower that expends $300,000 or more in a year in Federal 
awards must have an audit performed and submit an auditor's report 
meeting the requirements of the Single Audit Act of 1984 and the Single 
Audit Act Amendments of 1996.

[[Page 1004]]

    (2) A borrower that expends less than $300,000 in Federal awards 
during the year must have an audit performed in accordance with the 
requirements of this part.
    (3) A borrower must notify RUS, in writing, within 30 days of the as 
of audit date, of the total Federal awards expended during the year and 
must state whether it will have an audit performed in accordance with 
the Single Audit Act of 1984 and the Single Audit Act Amendments of 
1996, or this part.
    (i) A borrower that elects to comply with this part must select a 
CPA that meets the qualifications set forth in Sec. 1773.5.
    (ii) If an audit is performed in accordance with the Single Audit 
Act of 1984 and the Single Audit Act Amendments of 1996, an auditor's 
report that meets the requirements of the Single Audit Act of 1984, and 
the Single Audit Act Amendments of 1996, will be sufficient to satisfy 
that borrower's obligations under this part.
    (e) OMB Circular A-133, Audits of States, Local Governments, and 
Non-Profit Organizations does not apply to audits of RUS electric and 
telecommunications cooperatives and commercial telecommunications 
borrowers.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 63 FR 
38722, July 17, 1998; 66 FR 27835, May 21, 2001]



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 engagement letter.The borrower must enter into an audit 
engagement letter 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 and on internal 
control over financial reporting, and management letter as set forth in 
Sec. 1773.21.
    (1) An annual auditor's report, report on compliance and on internal 
control over financial reporting, 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

[[Page 1005]]

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 and on internal control over 
financial reporting, 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.

[56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27835, May 21, 2001]



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 36 months of the issuance of the previous peer review 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 36 months or at such additional

[[Page 1006]]

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 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) Submission of reports. The CPA must submit to the Assistant 
Administrator, Program Accounting and Regulatory Analysis, 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 Assistant 
Administrator, Program Accounting and Regulatory Analysis, 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 Assistant 
Administrator, Program Accounting and Regulatory Analysis, at least once 
every 36 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 OIG, 
upon request.
    (6) 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 Assistant 
Administrator, Program Accounting and Regulatory Analysis'.

[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 107, Jan. 3, 1996; 63 FR 
38722, July 17, 1998; 66 FR 27835, May 21, 2001]



Sec. 1773.6  Auditor communication.

    (a) During the planning stages of a financial statement audit, GAGAS 
and AICPA standards require the auditor to communicate certain 
information regarding the nature and extent of testing and reporting on 
compliance with laws and regulations and internal control over financial 
reporting. The communication must include the nature of any additional 
testing of compliance and internal control required by laws and 
regulations or otherwise requested, and whether the auditors are 
planning to provide opinions on compliance with laws and regulations and 
internal control over financial reporting. This communication must take 
the form of an audit engagement letter prepared by the CPA and formally 
accepted by the board of directors or an audit committee representing 
the board of directors. The engagement letter must also encompass those 
items prescribed in SAS 83, entitled ``Establishing an Understanding 
with the Client''. It must also include the following:

[[Page 1007]]

    (1) The borrower and the CPA acknowledge that the audit is being 
performed and the auditor's report, report on compliance and on internal 
control over financial reporting, 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 and on internal control over financial 
reporting, 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 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 (OIG and GAO), upon request, and will permit the 
photocopying of all audit-related documents; and
    (7) The CPA will follow the requirements of reporting fraud 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 compliance 
and on internal controls over financial reporting, 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; 63 FR 
38722, July 17, 1998; 66 FR 27835, 27836, May 21, 2001]



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 
report on compliance and on internal control over financial reporting 
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 AA-PARA, RUS, U.S. Department of Agriculture, Washington, DC 
20250-1523. The AA-PARA will endeavor to resolve the matter with the 
borrower.

[56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27836, May 21, 2001]

[[Page 1008]]



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 AA-PARA 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, 20X1, to June 30, must make the change effective no later 
than June 30, 20X3.
    (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, 
20X1, to June 30, 20X3, must have the CPA report on statements in the 
following manner:

------------------------------------------------------------------------
                                              Statements prepared as of
       Previously issued statements                new audit date
------------------------------------------------------------------------
12/31/20X1; 12/31/20X0 (Statement need not  6/30/20X3; 6/30/20X2.
 be reissued).
------------------------------------------------------------------------


[ 56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27835, 27836, May 21, 
2001]



Sec. 1773.9  Disclosure of fraud, illegal acts, and other noncompliance.

    (a) In accordance with GAGAS, the auditor must design the audit to 
provide reasonable assurance of detecting fraud that is material to the 
financial statements and material misstatements resulting from direct 
and material illegal acts, and noncompliance with the provisions of 
contracts or grant agreements that could have a direct and material 
effect on financial statements amounts.
    (b) If specific information comes to the auditor's attention that 
provides evidence concerning the existence of possible illegal acts that 
could have a material indirect effect on the financial statements or 
material noncompliance with the provisions of contracts or grant 
agreements that could have a material indirect effect on the financial 
statements, auditors should apply audit procedures specifically directed 
to ascertaining whether an illegal act or noncompliance with provisions 
of contract or grant agreements has occurred.
    (c) Pursuant to the terms of its audit engagement letter with the 
borrower, the CPA must immediately report, in writing, all instances of 
fraud 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 Assistant Administrator, Program Accounting and Regulatory 
Analysis; 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

[[Page 1009]]

    (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; 66 FR 
27836, May 21, 2001]



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.



Secs. 1773.11-1773.19  [Reserved]



    Subpart C--RUS Requirements for the Submission and Review of the 
  Auditor's Report, Report on Compliance and on Internal Control Over 
               Financial Reporting, and Management Letter



Sec. 1773.20  CPA's submission of the auditor's report, report on 
compliance, report on compliance and on internal controls over financial 
reporting, 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 and on internal control over 
financial reporting, 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 and on internal control over financial reporting, 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 and on internal control over financial 
reporting, 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

[[Page 1010]]

    (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; 66 FR 
27835, May 21, 2001]



Sec. 1773.21  Borrower's review and submission of the auditor's report, 
report on compliance and on internal control over financial reporting, 
and management letter.

    (a) The borrower's board of directors should note and record receipt 
of the auditor's report, report on compliance and on internal control 
over financial reporting, 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 and on internal control over financial 
reporting, and management letter within 120 days of the as of audit 
date. Any provision in RUS's security 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.
    (e) All required submissions to RUS described in paragraphs (a) 
through (d) of this section should be sent to: Assistant Administrator, 
Program Accounting and Regulatory Analysis, Stop 1523, 1400 Independence 
Ave., SW, Washington, DC 20250-1523.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 66 FR 
27835, 27836, May 21, 2001]



Secs. 1773.22-1773.29  [Reserved]



                  Subpart D--RUS Reporting Requirements



Sec. 1773.30  General.

    (a) The CPA must prepare the following (examples of which are set 
forth in RUS Bulletin 1773-1):
    (1) An auditor's report;
    (2) A report on compliance and on internal control over financial 
reporting; and
    (3) A management letter.
    (b) The CPA should deliver the auditor's report, report on 
compliance and on internal control over financial reporting, 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.

[56 FR 63360, Dec. 3, 1991, as amended at 63 FR 38723, July 17, 1998; 66 
FR 27835, 27836, May 21, 2001]



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 report on compliance and 
on internal control over financial reporting issued in conjunction with 
the auditor's report. The auditor's report should also state that the 
report on compliance and on internal control over financial reporting is 
an integral part of a GAGAS audit, and in considering the results of the 
audit, this report should be read along with the auditor's report on the 
financial statements.

[66 FR 27836, May 21, 2001]



Sec. 1773.32  Report on compliance and on internal control over financial reporting.

    As required by GAGAS, the CPA must prepare a written report 
describing the auditors testing of compliance with applicable laws, 
regulations, contracts, and grants, and on internal control over 
financial reporting and

[[Page 1011]]

present the results of those tests. This report must be signed by the 
CPA and must include, as a minimum:
    (a) The scope of the CPA's testing of compliance with laws and 
regulations and internal control over financial reporting including 
whether or not the tests performed provided sufficient evidence to 
support an opinion on compliance or internal control over financial 
reporting and whether the CPA is providing such opinions;
    (b) If conditions believed to be material weaknesses considered to 
be reportable conditions are disclosed, the report should identify the 
material weaknesses that have come to the CPA's attention;
    (c) If no reportable instances of non-compliance and no reportable 
conditions were found, the CPA must issue a report as illustrated in RUS 
Bulletin 1773-1.
    (d) If material instances of non-compliance and reportable 
conditions are identified, the CPA must issue a report as illustrated in 
RUS Bulletin 1773-1.
    (e) Other nonmaterial instances of noncompliance should not be 
disclosed in the report on compliance and on internal control over 
financial reporting, 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 and submitted to RUS 
in compliance with Sec. 1773.21.
    (f) If the CPA has issued a separate letter detailing immaterial 
instances of noncompliance, the report on compliance and on internal 
control over financial reporting must be modified to include a statement 
such as:

    We noted certain immaterial instances of noncompliance, which we 
have reported to the management of (borrower's name) in a separate 
letter dated (month, day, year).

    (g) If the CPA has issued a separate letter to management to 
communicate other matters involving the design and operation of the 
internal control over financial reporting, the report on compliance and 
on internal control over financial reporting must be modified to include 
a statement such as:

    However, we noted other matters involving the internal control over 
financial reporting that we have reported to the management of 
(borrower's name) in a separate letter dated (month, day, year).

    (h) The report must contain the status of known but uncorrected 
significant or material findings and recommendations from prior audits 
that affect the current audit objective.

[63 FR 38723, July 17, 1998, as amended at 66 FR 27836, May 21, 2001]



Sec. 1773.33  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 continuing property records (CPRs) have been 
established, are updated on a current basis, at least annually, and are 
reconciled 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

[[Page 1012]]

comment on any unusual charges or credits to such accounts; and
    (5) Whether RUS approval was obtained for the sale, lease or 
transfer of capital assets secured under the mortgage when approval is 
required, and whether proceeds from the sale or lease of plant, material 
or scrap were 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' loan and security 
instruments have been complied with:
    (1) For electric borrowers, provisions related to:
    (i) The requirements for a borrower to obtain written approval of 
mortgagees to enter into any contract for the management, operation, or 
maintenance of the borrower's system if the contract covers all or 
substantially all (90 percent) of the electric system. For purposes of 
this part, 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 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 substantially all (90 percent) 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
    (ii) The requirement for a borrower to prepare and furnish 
mortgagees annual financial and statistical reports on the borrower's 
financial condition and operations. For borrowers with a December 31 
year end, 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. For borrowers with a year end other than December 31, the CPA 
must state whether the information appears reasonable based upon the 
audit procedures performed. 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 telecommunications borrowers, provisions relating to the 
requirement for a borrower to obtain written approval of the mortgagees 
to enter into:
    (i) Any contract, agreement or lease between the borrower and an 
affiliate other than as allowed under 7 CFR part 1744, subpart E;
    (ii) The requirement for a borrower to prepare and furnish 
mortgagees annual financial and statistical reports on the borrower's 
financial condition and operations. For borrowers with a December 31 
year end, 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. For 
borrowers with a year end other than December 31, the CPA must state 
whether the information appears reasonable based upon the audit 
procedures performed. 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

[[Page 1013]]

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 state whether RUS has approved, in writing, each regulatory 
asset and liability.
    (i) Investments. For electric and telecommunications borrowers, 
provide a detailed schedule of all investments in subsidiary and 
affiliated companies accounted for on either the cost or equity basis. 
This requirement includes investments in corporations, limited liability 
corporations and partnerships, joint ventures, etc. For all investments 
list the name of the entity, ownership percentage, and the principal 
business in which the entity is engaged. For investments recorded on the 
cost basis include the original investment, advances, dividends declared 
or paid in the current and prior years and the net investment. For 
investments recorded on the equity basis include the ownership 
percentage, original investment, advances, and current and prior years' 
earnings and losses, including accumulated losses in excess of the 
original investment.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 61 FR 
108, Jan. 3, 1996. Redesignated and amended at 63 FR 38723, July 17, 
1998; 63 FR 40169, July 28, 1998; 66 FR 27830, May 21, 2001]



Secs. 1773.34-1773.37  [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 and on internal 
control over financial reporting, and management letter.

[56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27835, May 21, 2001]



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

[[Page 1014]]

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
    (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:

[[Page 1015]]

    (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;
    (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.

[[Page 1016]]

    (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:
    (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]



PART 1775--TECHNICAL ASSISTANCE AND TRAINING GRANTS--Table of Contents



Sec.
1775.1  General.
1775.2  [Reserved]
1775.3  Objectives.
1775.4  Definitions.
1775.5  Source of funds.
1775.6  Allocation of funds.
1775.7  Eligibility.
1775.8  Purpose.
1775.9  [Reserved]
1775.10  Limitations.
1775.11  Equal opportunity requirements.
1775.12  Environmental requirements.
1775.13  Preapplications.
1775.14  Priority.
1775.15  [Reserved]
1775.16  Application processing.
1775.17  [Reserved]
1775.18  Grant approval and obligation of funds.
1775.19  Fidelity bond.
1775.20-1775.21  [Reserved]
1775.22  Fund disbursement.
1775.23  Grant cancellation or major changes.
1775.24  Reporting.
1775.25  Audit.
1775.26  Grant Agreement.
1775.27  Grant servicing.
1775.28  Delegation of authority.
1775.29-1775.99  [Reserved]
1775.100  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

    Source: 62 FR 33469, June 19, 1997, unless otherwise noted.



Sec. 1775.1  General.

    This part sets forth the policies and procedures for making 
Technical Assistance grants. Grants for technical assistance and 
training for water and waste disposal facilities are authorized under 
section 306(a)(16)(A) of the Consolidated Farm and Rural Development 
Act, (CONACT), (7 U.S.C. 1926(a)), as

[[Page 1017]]

amended. Grants for solid waste management are authorized under Section 
310B of the CONACT, (7 U.S.C. 1932), as amended. Any processing or 
servicing activity conducted pursuant to this part involving authorized 
assistance to Agency 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 title. Applicants for this 
assistance are required to identify any known relationship or 
association with an Agency employee.



Sec. 1775.2  [Reserved]



Sec. 1775.3  Objectives.

    (a) The objectives of the Technical Assistance and Training Grant 
Program are to:
    (1) Identify and evaluate solutions to water and waste disposal 
problems in rural areas.
    (2) Assist applicants in preparing applications for water and waste 
grants made in accordance with part 1780 of this chapter.
    (3) Improve operation and maintenance of existing water and waste 
disposal facilities in rural areas.
    (b) The objectives of the Solid Waste Management Grant Program are 
to:
    (1) Reduce or eliminate pollution of water resources.
    (2) Improve planning and management of solid waste sites.



Sec. 1775.4  Definitions.

    Association. An entity, including a small city or town, that is 
eligible for Rural Utilities Service (RUS) water and waste financial 
assistance in accordance with Sec. 1780.7 of this chapter.
    Grantee. An entity with whom The Agency has entered into a grant 
agreement under this program to provide technical assistance and/or 
training to associations as defined in this section.
    Low income. Median household income below the poverty line for a 
family of four as defined in Section 673(2) of the Community Services 
Block Grant Act (42 U.S.C. 9902(2)), or below 80 percent of the 
Statewide nonmetropolitan median household income.
    Regional. For purposes of the Solid Waste Management grant program, 
as implemented through this part, regional is defined as any multi-
jurisdictional area including multi-State or any multi-jurisdictional 
area within a State.
    Rural area. For water and waste disposal facilities the terms rural 
or rural area will not include any area in a city or town with 
population in excess of 10,000 inhabitants according to the latest 
decennial census of the United States.
    State. Any of the fifty States, the Commonwealth of Puerto Rico, the 
Western Pacific Territories, Marshall Islands, Federated States of 
Micronesia, Republic of Palau, and the U.S. Virgin Islands.
    Statewide Nonmetropolitan Median Household Income (SNMHI). Median 
household income of the State's nonmetropolitan counties and portions of 
metropolitan counties outside of cities, towns or places of 50,000 or 
more population.

[62 FR 33469, June 19, 1997, as amended at 69 FR 65519, Nov. 15, 2004]



Sec. 1775.5  Source of funds.

    Technical Assistance and Training grants awarded will be made from 
not less than one (1) percent or, at the discretion of the Agency 
Administrator, not more than three (3) percent of any appropriations for 
grants under Section 306(a)(2) of the CONACT, (7 U.S.C. 1926(a)). 
Technical Assistance and Training grant funds not obligated by September 
1 of each fiscal year will be used for water and waste grants made in 
accordance with part 1780 of this chapter. This section does not apply 
to Solid Waste Management grants.



Sec. 1775.6  Allocation of funds.

    Control of Technical Assistance and Training grant and Solid Waste 
Management grant funds will be retained in the National office and 
allocated on a project case basis. These funds are not available for 
obligation by States.



Sec. 1775.7  Eligibility.

    (a) Entities eligible for Technical Assistance and Training (TAT) 
grants are private nonprofit organizations that have been granted tax 
exempt status by the Internal Revenue Service (IRS) of the United 
States.

[[Page 1018]]

    (b) Entities eligible for Solid Waste Management (SWM) grants are 
nonprofit organizations, including:
    (1) Private nonprofit organizations that have been granted tax 
exempt status by the IRS; and
    (2) Public bodies including local governmental-based multi-
jurisdictional organizations.
    (c) Applicants for either TAT or SWM grants must also have the 
proven ability, background, experience, legal authority, and actual 
capacity to provide technical assistance and/or training on a regional 
basis to associations as provided in Sec. 1775.3.



Sec. 1775.8  Purpose.

    (a) Technical Assistance and/or Training Grants may be used to:
    (1) Identify and evaluate solutions to water problems of 
associations in rural areas relating to:
    (i) Source.
    (ii) Storage.
    (iii) Treatment.
    (iv) Distribution.
    (2) Identify and evaluate solutions to waste problems of 
associations in rural areas relating to:
    (i) Collection.
    (ii) Treatment.
    (iii) Disposal.
    (3) Assist associations that have filed a preapplication with the 
Agency in the preparation of water and/or waste loan and/or grant 
applications.
    (4) Provide training to association personnel that will improve the 
management, operation and maintenance of water and waste disposal 
facilities.
    (5) To pay the expenses associated with providing the technical 
assistance and/or training authorized in paragraphs (a) (1) through (4) 
of this section.
    (b) Solid Waste Management grants may be used to:
    (1) Evaluate current landfill conditions to determine threats to 
water resources.
    (2) Provide technical assistance and/or training to enhance operator 
skills in the maintenance and operation of active landfills.
    (3) Provide technical assistance and/or training to help communities 
reduce the solid waste stream.
    (4) Provide technical assistance and/or training for operators of 
landfills which are closed or will be closed in the near future with the 
development/implementation of closure plans, future land use plans, 
safety and maintenance planning, and closure scheduling within permit 
requirements.



Sec. 1775.9  [Reserved]



Sec. 1775.10  Limitations.

    Grant funds may not be used to:
    (a) Recruit applications for the Agency's water and waste loan and/
or any loan and/or grant program.
    (b) Duplicate current services, replacement or substitution of 
support previously provided such as those performed by an association's 
consultant in developing a project.
    (c) Fund political activities.
    (d) Pay for capital assets, the purchase of real estate or vehicles, 
improve and renovate office space, or repair and maintain privately-
owned property.
    (e) Pay for construction or operation and maintenance costs.
    (f) Pay costs incurred prior to the effective date of grants made 
under this part.
    (g) Pay for technical assistance as defined in this part which 
duplicates assistance provided to implement an action plan funded by 
Forest Service (FS) under the National Forest-Dependent Rural 
Communities Economic Diversification Act (7 U.S.C. 6601 note) for 5 
continuous years from the date of grant approval by the FS. To avoid 
duplicate assistance, the grantee shall coordinate with the FS and RUS 
to ascertain if a grant has been made in a substantially similar 
geographical or defined local area in a State for technical assistance 
under the above program. The grantee will provide documentation to FS 
and RUS regarding the contact with each agency. Under its program, the 
FS assists rural communities dependent upon national forest resources by 
establishing rural forestry and economic diversification action teams 
which prepare action plans. Action plans are intended to provide 
opportunities to promote economic diversification and enhance local 
economies

[[Page 1019]]

dependent upon national forest resources.



Sec. 1775.11  Equal opportunity requirements.

    The policies and regulations contained in subpart E of part 1901 of 
this title apply to grants made under this part.



Sec. 1775.12  Environmental requirements.

    The policies and regulations contained in subpart G of part 1940 of 
this title apply to grants made for the purposes in Sec. 1775.8.



Sec. 1775.13  Preapplications.

    (a) Applicants will file an original and one copy of SF-424.1, 
``Application for Federal Assistance (For Non-construction),'' with the 
appropriate Agency office between October 1 and December 31 each fiscal 
year. This form is available in all Agency offices. Applicants proposing 
to provide technical assistance and/or training in only one State will 
apply through the appropriate State Office. The State Office will review 
and forward preapplications, with their recommendations, within seven 
working days to the National Office, Attention: Water and Waste 
Disposal. Applicants providing technical assistance and/or training in 
more than one State will forward the preapplication to the Assistant 
Administrator, Water and Waste, Rural Utilities Service, Washington, DC 
20250. Preapplications for Solid Waste Management grants that cannot be 
funded in the fiscal year received will not be retained for 
consideration for funding in the following fiscal year and will be 
handled as outlined in paragraph (g) of this section.
    (b) All preapplications shall be accompanied by:
    (1) Evidence of applicant's legal existence and authority in the 
form of certified copies of organizational documents and a certified 
list of directors and officers with their respective terms.
    (2) Evidence tax exempt status from the Internal Revenue Service.
    (3) Brief written narrative which includes items such as:
    (i) The proposed service(s) to be provided, including the benefits 
of the technical assistance and/or training.
    (ii) Area to be served.
    (iii) Name of association(s) or type of association(s) that will be 
served.
    (iv) Median household income of the population to be served by each 
association(s).
    (v) Grantee's experience, including experience of key staff members 
and person(s) providing the technical assistance and/or training.
    (vi) The number of months duration of the project or service and the 
estimated time it will take from grant approval to beginning of service.
    (vii) Method used to select the association(s) that will receive the 
service.
    (viii) Brief description of how the service will be provided, such 
as, through currently employed personnel or some other method.
    (ix) Method to be used for delivery of the service, including 
personnel to be utilized and tasks to be contracted, if any.
    (4) Latest financial information to show the organization's 
financial capacity to carry out the proposed work. As a minimum, the 
information should include a balance sheet and an income statement. A 
current audit report is preferred.
    (5) Estimated breakdown of costs including those to be funded by 
grantee as well as other sources.
    (6) Budget and accounting system in place or proposed.
    (7) Evaluation method to determine if objective(s) of the proposed 
activity is being accomplished.
    (c) Upon receipt of a preapplication, the National Office will:
    (1) Review and evaluate the preapplication and accompanying 
documents;
    (2) Request from the Office of General Counsel (OGC), a legal 
determination of applicant's legal existence and authority to provide 
technical assistance and/or training. The legal opinion will be obtained 
from the Regional Attorney servicing the area where the applicant's 
headquarters is located; and
    (3) Normally, respond to the applicant within 45 days after December 
31 of each year using Form AD-622, ``Notice of Preapplication Review 
Action,''

[[Page 1020]]

indicating the action taken on the preapplication.
    (d) Applicants whose preapplications are found to be ineligible will 
be given notice by use of Form AD-622 and advised of their appeal rights 
under subpart B of part 1900 of this title.
    (e) Applicants who are eligible, but do not have the priority 
necessary for further consideration will be notified with Form AD-622, 
which includes the following statements:

    ``Your proposal cannot be funded within the available funds.''
    ``You are advised against incurring obligations which cannot be 
fulfilled without Agency funds.''

    (f) Applicants that are eligible for funding within the available 
funds will be provided forms and instructions for filing a complete 
application. Applicants should be advised against incurring obligations 
which cannot be fulfilled without Agency funds.
    (g) Applicants who have filed preapplications for solid waste 
management grant funds that cannot be funded within the available funds 
will be notified, using Form AD-622, that their preapplication will not 
be retained. They will also be notified that they may file a new 
preapplication when funds again become available using the following 
statement:

    ``If the Agency receives funding for the program in FY --, you may 
file a new preapplication on or after October 1, 19--.''



Sec. 1775.14  Priority.

    (a) The preapplication and supporting information will be used to 
determine the applicant's priority for available funds for the Technical 
Assistance and Training Grant program. The following specific criteria 
will be considered in the competitive selection of Technical Assistance 
and Training Grant recipients:
    (1) Applicant's demonstrated capability and past performance in 
providing technical assistance and/or training to rural associations.
    (2) The extent to which the population of the associations served 
have low income.
    (3) Applicant's financial and if applicable, in-kind resource that 
will maximize use of technical assistance and/or training funds for 
direct staffing of activities that are delivered to the associations.
    (4) The extent to which the project will be cost effective, 
including but not limited to the ratio of proposed personnel to the cost 
of the project, the cost per associations served by the project, and the 
expected benefits from the project.
    (5) How well the proposal coincides with the objectives of the 
Agency's Water and Waste Disposal program authorized in part 1780 of 
this chapter.
    (6) Applicants proposing to serve multi-state, regional, or 
nationwide areas.
    (7) Applicants whose timeframe for completion of the technical 
assistance and/or training grant project is 12 months or less.
    (b) Preapplications received from local governmental-based, multi- 
jurisdictional organizations for the SWM grant program will be given 
priority within the available funds.



Sec. 1775.15  [Reserved]



Sec. 1775.16  Application processing.

    (a) Upon notification on Form AD-622 that the applicant is eligible 
for funding, the following will be submitted to the National Office by 
the applicant:
    (1) SF-424.1.
    (2) Proposed scope of work detailing the training and/or technical 
assistance to be accomplished and timeframes for completion of each 
task.
    (3) Proposed budget.
    (4) Other requested information needed by the Agency to make a grant 
award determination.
    (b) The following forms and documents will be part of the grant 
docket:
    (1) Form RD 400-1, ``Equal Opportunity Agreement.''
    (2) Form RD 400-4, ``Assurance Agreement.''
    (3) Grant Agreement signed by the applicant.
    (4) Scope of work prepared by the applicant.
    (5) Form RD 1940-1, ``Request for Obligation of Funds.''
    (c) If the applicant fails to submit the application and related 
material by the date shown on Form AD-622 (normally 30 days from the 
date of Form

[[Page 1021]]

AD-622), the Agency may discontinue consideration of the application.



Sec. 1775.17  [Reserved]



Sec. 1775.18  Grant approval and obligation of funds.

    (a) The National Office will review the application and other 
documents to determine whether the proposal complies with this part.
    (b) All grants made under this part will be approved and obligated 
by the Agency Administrator or designee.
    (c) The obligation of funds will be handled in accordance with part 
1780 of this chapter.
    (d) An executed copy of the Grant Agreement and scope of work will 
be sent to the applicant on the obligation date, along with a copy of 
Form RD 1940-1. The Agency will retain the executed original of the 
Grant Agreement. The grant will be considered closed on the obligation 
date.
    (e) If the grant is not approved, the applicant will be notified in 
writing of the reason(s) for rejection. The notification to the 
applicant will state that a review of this decision by the Agency may be 
requested by the applicant under subpart B of part 1900 of this title.



Sec. 1775.19  Fidelity bond.

    Prior to the advancing of funds, the grantee will provide fidelity 
bond coverage for the positions of persons entrusted with the receipt 
and disbursement of its funds and the custody of valuable property. The 
amount of the bond will be at least equal to the maximum amount of 
monies that the grantee will have on hand at any one time for technical 
assistance and/or training provided in accordance with the Grant 
Agreement. Unless prohibited by State Law, the United States, acting 
through the Agency, will be named as co-obligee in the bond. The bond 
must be obtained from a company listed in Department of Treasury 
Circular 570, as amended. Form RD 440-24, ``Position Fidelity Schedule 
Bond Declarations,'' may be used. A certified power-of-attorney with 
effective date will be attached to the bond.



Secs. 1775.20-1775.21  [Reserved]



Sec. 1775.22  Fund disbursement.

    Grantees will be reimbursed as follows:
    (a) Standard Form (SF) 270, ``Request for Advance or 
Reimbursement,'' will be completed by the applicant and submitted to the 
National Office not more frequently than monthly.
    (b) Upon receipt of a properly completed SF 270, the funds will be 
requested through the field office terminal system. Ordinarily, payment 
will be made within 30 days after receipt of a proper request for 
reimbursement.
    (c) Grantees are encouraged to use minority banks (a bank which is 
owned by at least 50 percent minority group members) for the deposit and 
disbursement of funds. A list of minority owned banks can be obtained 
from the Office of Minority Business Enterprise, Department of Commerce, 
Washington, DC 20230.



Sec. 1775.23  Grant cancellation or major changes.

    If it is determined that a project will not be funded or if major 
changes in the scope of the project are made after release of the 
approval announcement, the Administrator will notify the Director of 
Legislative Affairs and Public Information Staff (LAPIS) giving the 
reasons for such action. In the case of a grant cancellation, Form RD 
1940-10, ``Cancellation of U.S. Treasury Check and/or Obligation,'' will 
not be submitted to the Finance Office until 5 working days after 
notifying the Director of LAPIS, and grant obligation cancellations will 
not be submitted to the National Office until 5 working days after 
notifying the Director of LAPIS.



Sec. 1775.24  Reporting.

    Standard Form (SF) 269, ``Financial Status Report,'' SF 272, 
``Federal Cash Transactions Report,'' and a project performance activity 
report will be required of all grantees on a quarterly basis. A final 
project performance report will be required with the last SF 269. The 
final report may serve as the last quarterly report. Grantees shall 
constantly monitor performance to ensure that time schedules are being 
met, projected work by time periods is being

[[Page 1022]]

accomplished, and other performance objectives are being achieved. All 
multi-state, regional, and nationwide grantees are to submit an original 
of each report to the National Office. Grantees serving only one State 
are to submit an original of each report to the State Program Official. 
The State Program Official will review and forward to the National 
Office the report with comments. The project performance reports shall 
include, but not be limited to, the following:
    (a) A comparison of actual accomplishments to the objectives 
established for that period;
    (b) Reasons why established objectives were not met;
    (c) Problems, delays, or adverse conditions which will affect 
attainment of overall project objectives, prevent meeting 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
    (d) Objectives and timetable established for the next reporting 
period.



Sec. 1775.25  Audit.

    The grantee will provide an audit report prepared in accordance with 
Sec. 1780.47 of this chapter within 90 days after project completion.



Sec. 1775.26  Grant Agreement.

    RUS Bulletin 1775-1 is a Grant Agreement which sets forth the 
procedures for making and servicing grants made under this part. 
Bulletins, instructions and forms referenced are for use in 
administering grants made under this part and are available from any 
USDA/Rural Development office or the Rural Utilities Service, United 
States Department of Agriculture, Washington, D.C. 20250-1500.



Sec. 1775.27  Grant servicing.

    Grants will be serviced in accordance with the grant agreement and 
subpart E of part 1951 of this title. Subpart B of part 1900 of this 
title will be followed when grants are terminated for cause.



Sec. 1775.28  Delegation of authority.

    The authority under this part is redelegated to the Assistant 
Administrator, Water and Waste, except for the discretionary authority 
contained in Sec. 1775.5. The Assistant Administrator, Water and Waste 
may redelegate the authority in this section.



Secs. 1775.29-1775.99  [Reserved]



Sec. 1775.100  OMB control number.

    The collection of information requirements contained in this part 
have been approved by the Office of Management and Budget and have been 
assigned OMB control number 0575-0123. Public reporting for this 
collection of information is estimated to vary from 15 minutes to 4 
hours per response, with an average of 1 hour per response including 
time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information. Send comments regarding this burden 
estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to Department of 
Agriculture, Clearance Officer, OIRM, Room 404-W, Washington, DC 20250; 
and to the Office of Management and Budget, Paperwork Reduction Project 
(OMB 0575-0123), Washington, DC 20503.

    Effective Date Note: At 69 FR 70878, Dec. 8, 2004, part 1775 was 
revised effective January 7, 2005. For the convenience of the user, the 
revised text is set forth as follows:



PART 1775--TECHNICAL ASSISTANCE GRANTS

                      Subpart A--General Provisions

Sec.
1775.1  General.
1775.2  Definitions.
1775.3  Availability of forms and regulations.
1775.4  Allocation of funds.
1775.5  Limitations.
1775.6  Equal opportunity requirements.
1775.7  Environmental requirements.
1775.8  Other Federal Statutes.
1775.9  OMB control number.

                 Subpart B--Grant Application Processing

1775.10  Applications.
1775.11  Priority.
1775.12  Grant processing.
1775.13  Grant agreement.

[[Page 1023]]

1775.14-1775.17  [Reserved]
1775.18  Fund disbursement.
1775.19  Grant cancellation or major changes.
1775.20  Reporting.
1775.21  Audit or financial statements.
1775.22  [Reserved]
1775.23  Grant servicing.
1775.24  Delegation of authority.
1775.25-1775.30  [Reserved]

           Subpart C--Technical Assistance and Training Grants

1775.31  Authorization.
1775.32  [Reserved]
1775.33  Objectives.
1775.34  Source of funds.
1775.35  Eligibility.
1775.36  Purpose.
1775.37  Allocation of funds.
1775.38-1775.60  [Reserved]

                Subpart D--Solid Waste Management Grants

1775.61  Authorization.
1775.62  [Reserved]
1775.63  Objectives.
1775.64  [Reserved]
1775.65  Eligibility.
1775.66  Purpose.
1775.67  Allocation of funds.
1775.68  Exception authority.
1775.69-1775.99  [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

                      Subpart A--General Provisions

Sec. 1775.1  General.

    This subpart sets forth the general policies and procedures for the 
Technical Assistance and Training and the Solid Waste Management Grant 
Programs. Any processing or servicing activity conducted pursuant to 
this part involving authorized assistance to Rural Development employees 
with Water and Environmental Program responsibility, 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 title. Applicants for this assistance are required to identify any 
known relationship or association with an RUS employee.

Sec. 1775.2  Definitions.

    The following definitions apply to subparts A through D of this 
part.
    Association. An entity, including a small city or town, that is 
eligible for RUS Water and Waste Disposal financial assistance in 
accordance with 7 CFR 1780.7 (a).
    Approval official. Any individual with administrative and legal 
responsibility for Rural Development programs.
    DUNS Number. Data Universal Numbering System number obtained from 
Dun and Bradstreet and used when applying for Federal grants or 
cooperative agreements. A DUNS number may be obtained at no cost, by 
calling 1-866-705-5711.
    Grant agreement. RUS Guide 1775-1. The agreement outlines the terms 
and conditions of the grant awards and establishes the guidelines for 
administering the grant awards.
    Grantee. The entity or organization receiving financial assistance 
directly from the RUS to carry out the project or program under these 
programs.
    Low Income. Median household income (MHI) below 100 percent of the 
statewide non-metropolitan median household income (SNMHI).
    Regional. A multi-State area or any multi-jurisdictional area within 
a State.
    Rural area. Any area not in a city or town with a population in 
excess of 10,000, according to the latest decennial census of the United 
States.
    RUS. The Rural Utilities Service, an Agency of the United States 
Department of Agriculture.
    Solid Waste Management. Refers to the operations, maintenance and 
the recycling of materials disposed of in landfills.
    State. Any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Territory of Guam, the Commonwealth of 
the Northern Mariana Islands, the Republic of the Marshall Islands, the 
Federated States of Micronesia, the Republic of Palau, and the U.S. 
Virgin Islands.
    Technical Assistance. Supervision, oversight, or training by an 
organization for the practical solution of a problem or need of an 
association as defined in this section.

Sec. 1775.3  Availability of forms and regulations.

    Information about the forms, instructions, regulations, bulletins, 
OMB Circulars, Treasury Circulars, standards, documents and publications 
cited in this part is available from any UDSA/Rural Development Office 
or the Rural Utilities Service, United States Department of Agriculture, 
Washington, DC 20250-1500.

Sec. 1775.4  Allocation of funds.

    The National Office of the Rural Utilities Service will administer 
grant funds and will allocate them on a competitive basis.

Sec. 1775.5  Limitations.

    Grant funds may not be used to:
    (a) Duplicate current services or replace or substitute support 
normally provided by other means, such as those performed by an 
association's consultant in developing a project, including feasibility, 
design, and cost estimates.
    (b) Fund political or lobbying activities.

[[Page 1024]]

    (c) Purchase real estate or vehicles, improve or renovate office 
space, or repair and maintain privately owned property.
    (d) Pay the costs for construction, improvement, rehabilitation, 
modification, or operation and maintenance of water, wastewater, and 
solid waste disposal facilities.
    (e) Construct or furnish a building.
    (f) Intervene in the Federal regulatory or adjudicatory proceedings.
    (g) Sue the Federal Government or any other government entities.
    (h) Pay for any other costs that are not allowable under OMB 
Circular A-87, OMB Circular A-110, OMB Circular A-102 or OMB Circular A-
122.
    (i) Make contributions or donations to others.
    (j) Fund projects that duplicate technical assistance given to 
implement action plans under the National Forest-Dependent Rural 
Communities Economic Diversification Act of 1990 (7 U.S.C. 6613). 
Applicants cannot receive both grants made under this part and grants 
that the Forest Service makes to implement the action plans for five 
continuous years from the date of grant approval by the Forest Service.
    (1) The Forest Service helps rural communities that are dependent 
upon national forest resources diversify existing industries and 
economies. It establishes rural forestry and economic diversification 
action teams that prepare technical assistance plans for these rural 
communities to expand their local economies and reduce their dependence 
on national forest resources. The Forest Service provides assistance to 
implement the action plans through grants, loans, cooperative 
agreements, or contracts.
    (2) To avoid duplicate assistance, applicants must contact the 
Forest Service to find out if any geographical areas or local areas in a 
State have received grants for technical assistance to an economically 
disadvantaged community. These areas are defined as national forest-
dependent communities under 7 U.S.C. 6612. Applicants will provide 
documentation to the Forest Service and Rural Utilities Service that 
they have contacted each agency.
    (k) To pay an outstanding judgment obtained by the United States in 
a Federal Court (other than in the United States Tax Court), which has 
been recorded. An applicant will be ineligible to receive a loan or 
grant until the judgment is paid in full or otherwise satisfied.
    (l) Recruit applications for the RUS's water and waste loan or any 
other loan or grant program. Grant funds cannot be used to create new 
business; however, they can be used to assist with application 
preparation.

Sec. 1775.6  Equal opportunity requirements.

    The policies and regulations contained in subpart E of part 1901 of 
this title apply to grants made under this part.

Sec. 1775.7  Environmental requirements.

    The policies and regulations contained in part 1794 of this title 
apply to grants made for the purposes in Secs. 1775.36 and 1775.66.

Sec. 1775.8  Other Federal statutes.

    Other Federal statutes and regulations are applicable to grants 
awarded under this part. These include but are not limited to:
    (a) 7 CFR part 1, subpart A--USDA implementation of Freedom of 
Information Act.
    (b) 7 CFR part 3--USDA implementation of OMB Circular No. A-129 
regarding debt collection.
    (c) 7 CFR part 15, subpart A--USDA implementation of Title VI of the 
Civil Rights Act of 1964, as amended.
    (d) 7 CFR part 1794, RUS Implementation of the National 
Environmental Policy Act.
    (e) 7 CFR part 1901, subpart E--Civil Rights Compliance 
Requirements.
    (f) 7 CFR part 3015--Uniform Federal Assistance Regulations.
    (g) 7 CFR part 3016--USDA Implementation of OMB Circular Nos. A-102 
and A-97, Uniform Administrative Requirements for Grants and Cooperative 
Agreements to State and Local Governments.
    (h) 7 CFR part 3017, as amended--Government-wide Debarment and 
Suspension (Non-procurement); Government-wide Requirements for Drug-Free 
Workplace (Grants), implementing Executive Order 12549 on debarment and 
suspension and the Drug-Free Workplace Act of 1988 (41 U.S.C. 701).
    (i) 7 CFR part 3018-- Restrictions on Lobbying, prohibiting the use 
of appropriated funds to influence Congress or a Federal agency in 
connection with the making of any Federal grant and other Federal 
contracting and financial transactions.
    (j) 7 CFR part 3019--USDA implementation of OMB Circular A-110, 
Uniform Administrative Requirements for Grants and Agreements With 
Institutions of Higher Education, Hospitals, and Other Nonprofit 
Organizations.
    (k) 7 CFR part 3052--USDA implementation of OMB Circular No. A-133 
regarding audits of institutions of higher education and other nonprofit 
institutions.
    (l) 29 U.S.C. 794, section 504--Rehabilitation Act of 1973, and 7 
CFR part 15B (USDA implementation of statute), prohibiting 
discrimination based upon physical or mental handicap in Federally 
assisted programs.

Sec. 1775.9  OMB control number.

    The information collection requirements contained in this part have 
been approved by the Office of Management and Budget and

[[Page 1025]]

have been assigned OMB control number 0572-0112.

                 Subpart B--Grant Application Processing

Sec. 1775.10  Applications.

    (a) Filing period. Applications may be filed on or after October 1 
and must be received by close of business or postmarked by midnight 
December 31. If an application is received either before October 1 or 
after December 31, the receiving office will return it to the applicant.
    (b) Where to file. (1) An applicant will apply to the appropriate 
State Office of Rural Development if the project will serve a single 
state.
    (2) An applicant will apply to the National Office if the project 
will serve multiple states. The application must be submitted to the 
following address: Assistant Administrator, Water and Environmental 
Programs, Rural Utilities Service, Washington, DC 20250-1570.
    (3) Electronic applications will be accepted prior to the filing 
deadline through the Federal Government's eGrants Web site (Grants.gov) 
at http://www.grants.gov. Applicants should refer to instructions found 
on the Grants.gov Web site to submit an electronic application. A DUNS 
number and a Central Contractor Registry (CCR) registration is required 
prior to electronic submission. The sign-up procedures, required by 
Grants.gov, may take several business days to complete.
    (c) Application requirements. To file an application, an 
organization must provide their DUNS number. An organization may obtain 
a DUNS number from Dun and Bradstreet by calling (1-866-705-5711). To 
file a complete application, the following information should be 
submitted:
    (1) Standard Form 424, ``Application for Federal Assistance (For 
Non-Construction).''
    (2) Standard Form 424A & B, ``Budget Information--Non-Construction 
Programs.''
    (3) Form AD-1047, ``Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transaction.''
    (4) Form AD 1049, ``Certification Regarding Drug-Free Workplace 
Requirements (Grants) Alternative I--For Grantees Other Than 
Individuals.''
    (5) Form AD 1048, ``Certification Regarding Debarment.''
    (6) Attachment regarding assistance provided to Rural Development 
Employees as required by RD Instruction 1900-D.
    (7) Form RD 400-4, ``Assurance Agreement.''
    (8) Form RD 400-1, ``Equal Opportunity Agreement.''
    (9) Indirect Cost Rate Agreement (if applicable, applicant must 
include approved cost agreement rate schedule).
    (10) Statement of Compliance for Title VI of the Civil Rights Act of 
1964.
    (11) SF LLL, ``Disclosure of Lobbying Activities'' (include only if 
grant is over $100,000).
    (12) Certification regarding Forest Service grant.
    (d) Supporting information. All applications shall be accompanied 
by:
    (1) Evidence of applicant's legal existence and authority in the 
form of:
    (i) Certified copies of current authorizing and organizational 
documents for new applicants or former grantees where changes were made 
since the last legal opinion was obtained in conjunction with receipt of 
an RUS grant, or, certification that no changes have been made in 
authorizing or organizing documents since receipt of last RUS grant by 
applicant.
    (ii) Current annual corporation report, Certificate of Good 
Standing, or statement they are not required.
    (iii) For public nonprofits, Certificate of Continued Status from 
local attorney (if applicable).
    (iv) Certified list of directors/officers with their respective 
terms.
    (2) Evidence of tax exempt status from the Internal Revenue Service 
(IRS), if applicable.
    (3) Narrative of applicant's experience in providing services 
similar to those proposed. Provide brief description of successfully 
completed projects including the need that was identified and objectives 
accomplished.
    (4) Latest financial information to show the applicant's financial 
capacity to carry out the proposed work. A current audit report is 
preferred, however applicants can submit a balance sheet and an income 
statement in lieu of an audit report.
    (5) List of proposed services to be provided.
    (6) Estimated breakdown of costs (direct and indirect) including 
those to be funded by grantee as well as other sources. Sufficient 
detail should be provided to permit the approval official to determine 
reasonableness, applicability, and allowability.
    (7) Evidence that a Financial Management System is in place or 
proposed.
    (8) Documentation on each of the priority ranking criteria listed in 
Sec. 1775.11 as follows:
    (i) List of the associations to be served and the State or States 
where assistance will be provided. Identify associations by name, or 
other characteristics such as size, income, location, and provide MHI 
and population.
    (ii) Description of the type of technical assistance and/or training 
to be provided and the tasks to be contracted.
    (iii) Description of how the project will be evaluated and provide 
clearly stated goals

[[Page 1026]]

and the method proposed to measure the results that will be obtained.
    (iv) Documentation of need for proposed service. Provide detailed 
explanation of how the proposed services differ from other similar 
services being provided in the same area.
    (v) Personnel on staff or to be contracted to provide the service 
and their experience with similar projects.
    (vi) Statement indicating the number of months it takes to complete 
the project or service.
    (vii) Documentation on cost effectiveness of project. Provide the 
cost per association to be served or proposed cost of personnel to 
provide assistance.
    (viii) Other factors for consideration, such as emergency situation, 
training need identified, health or safety problems, geographic 
distribution, Rural Development Office recommendations, etc.

Sec. 1775.11  Priority.

    The application and supporting information will be used to determine 
the applicant's priority for available funds. All applications will be 
reviewed and scored for funding priority in accordance with RUS Guide 
1775-2. Points will be given only for factors that are well documented 
in the application package and, in the opinion of the RUS, meet the 
objective outlined under each factor. The following is a listing of the 
criteria that will be used to select the applications that meet the 
objectives of the technical assistance program.
    (a) Projects proposing to give priority for available services to 
rural communities having a population less than 5,500 and/or below 
2,500.
    (b) Projects proposing to give priority for available services to 
low income communities.
    (c) Projects that will provide assistance in a multi-State area.
    (d) Points will be awarded for work plans that clearly describe the 
goals and objectives of the project, how they will be accomplished in 
targeted communities, and what measurement of accomplishment will be 
used.
    (e) Projects containing needs assessment (i.e. actual issue or 
problem being addressed) clearly defined and supported by data.
    (f) Projects containing evaluation methods that are specific to the 
activity, clearly defined, measurable, and with projected outcomes.
    (g) Applicants proposing to use at least 75 percent of the total 
grant amount for their own staff, or the staff of an affiliated 
organization to provide services for a project instead of contracting 
with an outside organization for the services.
    (h) Projects providing technical assistance/training that accomplish 
the objective within a 12-month or less timeframe.
    (i) Projects primarily providing ``hands on'' technical assistance 
and training, i.e., on-site assistance as opposed to preparation and 
distribution of printed material, to communities with existing water and 
waste systems which are experiencing operation and maintenance or 
management problems.
    (j) Cash or in kind support of project from non-federal sources.
    (k) Ability to demonstrate sustainability of project without Federal 
financial support.

Sec. 1775.12  Grant processing.

    (a) Single State applications. (1) Grant applications submitted at 
the State level will receive a letter acknowledging receipt and 
confirmation that all information required for a full application was 
included in the packet. The State will notify the applicant of missing 
information. The applicant will have 14 business days to respond.
    (2) The State Office will review applications for eligibility. Those 
applicants that are deemed ineligible will be notified. Applicants 
deemed eligible will be forwarded to the National Office for funding 
consideration.
    (3) The National Office will review all applications received from 
State Offices. Applications will compete on a priority basis and will be 
scored and ranked. The applications receiving the highest scores and 
subject to the availability of funds will be selected for final 
processing. The National Office will send these applications back to the 
State Office for processing. The State Office will notify the 
applicant(s) that they have been selected for funding.
    (4) Applicants not selected for funding due to low priority rating 
shall be notified by the State Office.
    (b) National and multi-State applications. (1) National and multi-
State applications submitted to the National Office will receive a 
letter acknowledging receipt and confirmation that all information 
required for a full application was included in the packet. The National 
Office shall notify the applicant of missing information. The applicant 
will have 14 business days to respond.
    (2) The National Office will review applications for eligibility. 
Those applications that are deemed ineligible will be notified. 
Applications deemed eligible will be reviewed and given a rating score. 
Applications receiving the highest scores will be grouped with those 
received from State Offices for funding consideration.
    (3) The National Office will review all applications received. 
Applications will compete on a priority basis and will be scored and 
ranked. The applications receiving the highest scores and subject to the 
availability of funds will be notified by the National Office that they 
have been selected for funding.

[[Page 1027]]

The National Office shall conduct final processing of multi-State and 
national applications.
    (4) Multi-State and National applicants not selected for funding due 
to low priority rating will be notified by the National Office.
    (c) Low priority applications. Applications that cannot be funded in 
the fiscal year received will not be retained for consideration in the 
following fiscal year and will be handled as outlined in paragraph 
(a)(4) or (b)(4) of this section.

Sec. 1775.13  Grant agreement.

    Applicants selected for funding will complete a grant agreement, RUS 
Guide 1775-1, which outlines the terms and conditions of the grant 
award.

Secs. 1775.14-1775.17  [Reserved]

Sec. 1775.18  Fund disbursement.

    Grantees will be reimbursed as follows:
    (a) SF-270, ``Request for Advance or Reimbursement,'' will be 
completed by the grantee and submitted to either the State or National 
Office not more frequently than monthly.
    (b) Upon receipt of a properly completed SF-270, the funds will be 
requested through the field office terminal system. Ordinarily, payment 
will be made within 30 days after receipt of a proper request for 
reimbursement.
    (c) Grantees are encouraged to use women- and minority-owned banks 
(a bank which is owned at least 50 percent by women or minority group 
members) for the deposit and disbursement of funds.

Sec. 1775.19  Grant cancellation or major changes.

    Any change in the scope of the project, budget adjustments of more 
than 10 percent of the total budget, or any other significant change in 
the project must be reported to and approved by the approval official by 
written amendment to RUS Guide 1775-1. Any change not approved may be 
cause for termination of the grant.

Sec. 1775.20  Reporting.

    (a) Grantees shall constantly 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.
    (b) SF-269, ``Financial Status Report (short form),'' and a project 
performance activity report will be required of all grantees on a 
quarterly basis, due 30 days after the end of each calendar quarter.
    (c) A final project performance report will be required with the 
last SF-269 due 90 days after the end of the last quarter in which the 
project is completed. The final report may serve as the last quarterly 
report.
    (d) All multi-State grantees are to submit an original of each 
report to the National Office. Grantees serving only one State are to 
submit an original of each report to the State Office. The project 
performance reports should detail, preferably in a narrative format, 
activities that have transpired for the specific time period and shall 
include, but not be limited to, the following:
    (1) A comparison of actual accomplishments to the objectives 
established for that period (i.e. number of meetings held, number of 
people contacted, results of activity);
    (2) Analysis of challenges or setbacks that occurred during the 
grant period;
    (3) Copies of fliers, news releases, news articles, announcements 
and other information used to promote services or projects;
    (4) Problems, delays, or adverse conditions which will affect 
attainment of overall project objectives, prevent meeting 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
    (5) Activities planned for the next reporting period.

Sec. 1775.21  Audit or financial statements.

    The grantee will provide an audit report or financial statements as 
follows:
    (a) Grantees expending $500,000 or more Federal funds per fiscal 
year will submit an audit conducted in accordance with OMB Circular A-
133. The audit will be submitted within 9 months after the grantee's 
fiscal year. Additional audits may be required if the project period 
covers more than one fiscal year.
    (b) Grantees expending less than $500,000 will provide annual 
financial statements covering the grant period, consisting of the 
organization's statement of income and expense and balance sheet signed 
by an appropriate official of the organization. Financial statements 
will be submitted within 90 days after the grantee's fiscal year.

Sec. 1775.22  [Reserved]

Sec. 1775.23  Grant servicing.

    Grants will be serviced in accordance with RUS Guide 1775-1 and 
subpart E of part 1951 of this title. When grants are terminated for 
cause, 7 CFR part 11 will be followed.

Sec. 1775.24  Delegation of authority.

    The authority under this part is re-delegated to the Assistant 
Administrator, Water and Environmental Programs, except for the 
discretionary authority contained in Sec. 1775.34 and Sec. 1775.68. The 
Assistant Administrator, Water and Environmental Programs may re-
delegate the authority in this part.

[[Page 1028]]

Secs. 1775.25--1775.30  [Reserved]

           Subpart C--Technical Assistance and Training Grants

Sec. 1775.31  Authorization.

    This subpart sets forth additional policies and procedures for 
making Technical Assistance and Training (TAT) grants authorized under 
Section 306(a)(14)(A) of the Consolidated Farm and Rural Development Act 
(CONACT) (7 U.S.C. 1921 et seq., as amended.

Sec. 1775.32  [Reserved]

Sec. 1775.33  Objectives.

    The objectives of the program are to:
    (a) Identify and evaluate solutions to water and waste problems in 
rural areas.
    (b) Assist applicants in preparing applications for water and waste 
disposal loans/grants.
    (c) Assist associations in improving operation and maintenance of 
existing water and waste facilities in rural areas.

Sec. 1775.34  Source of funds.

    Grants will be made from not less than 1 percent or not more than 3 
percent of any appropriations for grants under Section 306(a)(2) of the 
CONACT. Funds not obligated by September 1 of each fiscal year will be 
used for water and waste disposal grants made in accordance with part 
1780 of this chapter.

Sec. 1775.35  Eligibility.

    (a) Entities eligible for grants must be private nonprofit 
organizations with tax exempt status, designated by the Internal Revenue 
Service. A nonprofit organization is defined as any corporation, trust, 
association, cooperative, or other organization that:
    (1) Is operated primarily for scientific, education, service, 
charitable, or similar purposes in the public interest.
    (2) Is not organized primarily for profit.
    (3) Uses its net proceeds to maintain, improve, and/or expand its 
operations.
    (b) Entities must be legally established and located within a state 
as defined in Sec. 1775.2.
    (c) Organizations must be incorporated by December 31 of the year 
the application period occurs to be eligible for funds.
    (d) Private businesses, Federal agencies, public bodies, and 
individuals are ineligible for these grants.
    (e) Applicants must also have the proven ability, background, 
experience (as evidenced by the organization's satisfactory completion 
of project(s) similar to those proposed), legal authority, and actual 
capacity to provide technical assistance and/or training on a regional 
basis to associations as provided in Sec. 1775.33. To meet the 
requirement of actual capacity, an applicant must either:
    (1) Have the necessary resources to provide technical assistance 
and/or training to associations in rural areas through its staff, or
    (2) Be assisted by an affiliate or member organization which has 
such background and experience and which agrees, in writing, that it 
will provide the assistance, or
    (3) Contract with a nonaffiliated organization for not more than 49 
percent of the grant to provide the proposed assistance.

Sec. 1775.36  Purpose.

    Grants may be made to organizations as defined in Sec. 1775.35 to 
enable such organizations to assist associations to:
    (a) Identify and evaluate solutions to water problems of 
associations in rural areas relating to source, storage, treatment, and/
or distribution.
    (b) Identify and evaluate solutions to waste problems of 
associations in rural areas relating to collection, treatment, and/or 
disposal.
    (c) Prepare water and/or waste disposal loan/grant applications.
    (d) Provide technical assistance/training to association personnel 
that will improve the management, operation, and maintenance of water 
and waste facilities.
    (e) Pay the expenses associated with providing the technical 
assistance and/or training authorized in paragraphs (a) through (d) of 
this section.

Sec. 1775.37  Allocation of funds.

    At least 10 percent of available funds will be used for funding 
single State projects based on the priority criteria.

Secs. 1775.38-1775.60  [Reserved]

                Subpart D--Solid Waste Management Grants

Sec. 1775.61  Authorization.

    This subpart sets forth the policies and procedures for making Solid 
Waste Management (SWM) grants authorized under section 310B of the 
CONACT.

Sec. 1775.62  [Reserved]

Sec. 1775.63  Objectives.

    The objectives of the program are to:
    (a) Reduce or eliminate pollution of water resources, and
    (b) Improve planning and management of solid waste sites.

Sec. 1775.64  [Reserved]

Sec. 1775.65  Eligibility.

    (a) Entities eligible for grants must be either:
    (1) Private nonprofit organizations with tax exempt status 
designated by the Internal Revenue Service. A nonprofit organization is

[[Page 1029]]

defined as any corporation, trust, association, cooperative, or other 
organization that:
    (i) Is operated primarily for scientific, education, service, 
charitable, or similar purposes in the public interest.
    (ii) Is not organized primarily for profit.
    (iii) Uses its net proceeds to maintain, improve, and/or expand its 
operations.
    (2) Public bodies.
    (3) Federally acknowledged or State-recognized Native American tribe 
or group.
    (4) Academic institutions.
    (b) Entities must be legally established and located within a state 
as defined in Sec. 1775.2.
    (c) Organizations must be incorporated by December 31 of the year 
the application period occurs to be eligible for funds.
    (d) Private businesses, Federal agencies, and individuals are 
ineligible for these grants.
    (e) Applicants must also have the proven ability; background; 
experience, as evidenced by the organization's satisfactory completion 
of project(s) similar to those proposed; legal authority; and actual 
capacity to provide technical assistance and/or training on a regional 
basis to associations as provided in Sec. 1775.63. To meet the 
requirement of actual capacity, an applicant must either:
    (1) Have the necessary resources to provide technical assistance 
and/or training to associations in rural areas through its staff, or
    (2) Be assisted by an affiliate or member organization which has 
such background and experience and which agrees, in writing, that it 
will provide the assistance, or
    (3) Contract with a nonaffiliated organization for not more than 49 
percent of the grant to provide the proposed assistance.

Sec. 1775.66  Purpose.

    Grants may be made to organizations as defined in Sec. 1775.65 to 
enable such organizations to assist associations to:
    (a) Provide technical assistance and/or training to reduce the solid 
waste stream through reduction, recycling, and reuse.
    (b) Provide training to enhance operator skills in maintaining and 
operating active landfills.
    (c) Provide technical assistance and/or training for operators of 
landfills which are closed or will be closed in the near future with the 
development/implementation of closure plans, future land use plans, 
safety and maintenance planning, and closure scheduling within permit 
requirements.
    (d) Evaluate current landfill conditions to determine the threats to 
water resources.
    (e) Pay the expenses associated with providing the technical 
assistance and/or training authorized in paragraphs (a) through (d) of 
this section.

Sec. 1775.67  Allocation of funds.

    The maximum amount for a single applicant for a Solid Waste 
Management project will be 25 percent of available grant funds.

Sec. 1775.68  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this part which is not inconsistent with the 
authorizing statute or other applicable law and is determined to be in 
the Government's interest.

Secs. 1775.69-1775.99  [Reserved]



PART 1777--SECTION 306C WWD LOANS AND GRANTS--Table of Contents



Sec.
1777.1  General.
1777.2  [Reserved]
1777.3  Objective.
1777.4  Definitions.
1777.5-1777.10  [Reserved]
1777.11  Making, processing, and servicing loans and grants.
1777.12  Eligibility.
1777.13  Project priority.
1777.14-1777.20  [Reserved]
1777.21  Use of funds.
1777.22-1777.30  [Reserved]
1777.31  Rates.
1777.32-1777.40  [Reserved]
1777.41  Individual loans and grants.
1777.42  Delegation of authority.
1777.43  Bulletins.
1777.44-1777.99  [Reserved]
1777.100  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

    Source: 62 FR 33473, June 19, 1997, unless otherwise noted.



Sec. 1777.1  General.

    (a) This part outlines Rural Utilities Service (RUS) policies and 
procedures for making Water and Waste Disposal (WWD) loans and grants 
authorized under section 306C of the Consolidated Farm and Rural 
Development Act (7 U.S.C. 1926(c)), as amended.
    (b) Agency officials will maintain liaison with officials of other 
Federal, State, regional, and local development agencies to coordinate 
related programs to achieve rural development objectives.
    (c) Agency officials shall cooperate with appropriate State agencies 
in making loans and/or grants that support State strategies for rural 
area development.

[[Page 1030]]

    (d) Funds allocated in accordance with this part will be considered 
for use by Indian tribes within the State regardless of whether State 
development strategies include Indian reservations within the State's 
boundaries. Indians residing on such reservations must have an equal 
opportunity to participate in this program.
    (e) Federal statutes provide for extending the Agency's financial 
programs without regard to race, color, religion, sex, national origin, 
marital status, age, or physical/mental handicap (provided the 
participant possesses the capacity to enter into legal contracts).



Sec. 1777.2  [Reserved]



Sec. 1777.3  Objective.

    The objective of the Section 306C WWD Loans and Grants program is to 
provide water and waste disposal facilities and services to low-income 
rural communities whose residents face significant health risks.



Sec. 1777.4  Definitions.

    Applicant. Entity that receives the Agency loan or grant under this 
part. The entities can be public bodies such as municipalities, 
counties, districts, authorities, or other political subdivisions of a 
State, and organizations operated on a not-for-profit basis such as 
associations, cooperatives, private corporations, or Indian tribes on 
Federal and State reservations, and other Federally recognized Indian 
tribes.
    Colonia. Any identifiable community designated in writing by the 
State or county in which it is located; determined to be a colonia on 
the basis of objective criteria including lack of potable water supply, 
lack of adequate sewage systems, and lack of decent, safe, and sanitary 
housing, inadequate roads and drainage; and existed and was generally 
recognized as a colonia before October 1, 1989.
    Cooperative. A cooperative formed specifically for the purpose of 
the installation, expansion, improvement, or operation of water supply 
or waste disposal facilities or systems.
    Individual. Recipient of a loan or grant through the applicant to 
facilitate use of the applicant's water and/or waste disposal system.
    Rural areas. Includes unincorporated areas and any city or town with 
a population not in excess of 10,000 inhabitants according to the most 
recent decennial census of the United States. They can be located in any 
of the 50 States, the Commonwealth of Puerto Rico, the Western Pacific 
Territories, Marshall Islands, Federated States of Micronesia, Republic 
of Palau, and the U.S. Virgin Islands.
    Statewide Nonmetropolitan Median Household Income (SNMHI). Median 
household income of the State's nonmetropolitan counties and portions of 
metropolitan counties outside of cities, towns or places of 50,000 or 
more population.

[62 FR 33473, June 19, 1997, as amended at 69 FR 65519, Nov. 15, 2004]



Secs. 1777.5-1777.10  [Reserved]



Sec. 1777.11  Making, processing, and servicing loans and grants.

    Unless specifically modified by this part, loans and/or grants will 
be made, processed, and serviced in accordance with part 1780 of this 
chapter.



Sec. 1777.12  Eligibility.

    (a) The provisions of paragraphs (a) (1) and (2) of this section do 
not apply to a rural area recognized as a colonia. Otherwise, the 
facility financed under this part must provide water and/or waste 
disposal services to rural areas of a county where, on the date 
preapplication is received by the Agency, the:
    (1) Per capita income of the residents is not more than 70 percent 
of the most recent national average per capita income, as determined by 
the Department of Commerce; and
    (2) Unemployment rate of the residents is not less than 125 percent 
of the most recent national average unemployment rate, as determined by 
the Bureau of Labor Statistics.
    (b) Residents of the rural area to be served must face significant 
health risks due to the fact that a significant proportion of the 
community's residents do not have access to, or are not served by, 
adequate, affordable, water and/or waste disposal systems. The file

[[Page 1031]]

should contain documentation to support this determination.



Sec. 1777.13  Project priority.

    Paragraphs (a) through (d) of this section indicate items and 
conditions which must be considered in selecting preapplications for 
further development. When ranking eligible preapplications for 
consideration for limited funds, Agency officials must consider the 
priority items met by each preapplication and the degree to which those 
priorities are met.
    (a) Preapplications. The preapplication and supporting information 
submitted with it will be used to determine applicant eligibility and 
the proposed project's priority for available funds. Applicants 
determined ineligible will be advised of their appeal rights in 
accordance with 7 CFR part 11.
    (b) State Office review. All preapplications will be reviewed and 
scored for funding priority at each State Office using RUS Bulletin 
1777-2. Funds will be requested from the National Office, Attention: 
Water and Waste Processing, using RUS Bulletin 1777-3. Eligible 
applicants that cannot be funded should be advised that funds are not 
available and advised of their appeal rights as set forth in 7 CFR part 
11.
    (c) National Office. The National Office will allocate funds on a 
project-by-project basis as requests are received. If the amount of 
funds requested exceeds the amount of funds available, the total project 
score will be used to select projects for funding. The RUS Administrator 
may assign up to 35 additional points that will be considered in the 
total points for items such as geographic distribution of funds, 
severity of health risks, etc.
    (d) Selection priorities. The priorities described below will be 
used to rate preapplications and in selecting projects for funding. 
Points will be distributed as indicated in paragraphs (d)(1) through 
(d)(5) of this section and will be used in selecting projects for 
funding. A copy of RUS Bulletin 1777-2, used to rate applications, 
should be placed in the case file for future reference.
    (1) Population. The proposed project will serve an area with a rural 
population:
    (i) Not in excess of 1,500--30 points.
    (ii) More than 1,500 and not in excess of 3,000--20 points.
    (iii) More than 3,000 and not in excess of 5,500--10 points.
    (2) Income. The median household income of population to be served 
by the proposed project is:
    (i) Not in excess of 50 percent of the statewide nonmetropolitan 
median household income--40 points.
    (ii) More than 50 percent and not in excess of 60 percent of the 
statewide nonmetropolitan median household income--20 points.
    (iii) More than 60 percent and not in excess of 70 percent of the 
statewide nonmetropolitan median household income--10 points.
    (3) Joint financing. The amount of joint financing committed to the 
proposed project is:
    (i) Twenty percent or more private, local, or State funds except 
Federal funds channeled through a State agency--10 points.
    (ii) Five to 19 percent private, local, or State funds except 
Federal funds channeled through a State agency--5 points.
    (4) Colonia. (See definition in Sec. 1777.4). The proposed project 
will provide water and/or waste disposal services to the residents of a 
colonia--50 points.
    (5) Discretionary. In certain cases, the State Program Official may 
assign up to 15 points for items such as natural disaster, to improve 
compatibility/coordination between the Agency's and other agencies' 
selection systems, to assist those projects that are the most cost 
effective, high unemployment rate, severity of health risks, etc. A 
written justification must be prepared and attached to RUS Bulletin 
1777-2 each time these points are assigned.



Secs. 1777.14-1777.20  [Reserved]



Sec. 1777.21  Use of funds.

    (a) Applicant. Funds may be used to:
    (1) Construct, enlarge, extend, or otherwise improve community water 
and/or waste disposal systems. Otherwise

[[Page 1032]]

improve would include extending service lines to and/or connecting 
residence's plumbing to the system.
    (2) Make loans and grants to individuals for extending service lines 
to and/or connecting residences to the applicant's system. The approval 
official must determine that this is a practical and economical method 
of connecting individuals to the community water and/or waste disposal 
system. Loan funds can only be used for loans, and grant funds can only 
be used for grants.
    (3) Make improvements to individual's residence when needed to allow 
use of the water and/or waste disposal system.
    (4) Grants can be made up to 100 percent of eligible project costs.
    (b) Individuals. Funds may be used to:
    (1) Extend service lines to residence.
    (2) Connect service lines to residence's plumbing.
    (3) Pay reasonable charges or fees for connecting to a community 
water and/or waste disposal system.
    (4) Pay for necessary installation of plumbing and related fixtures 
within dwellings lacking such facilities. This is limited to one 
bathtub, sink, commode, kitchen sink, water heater, and outside spigot.
    (5) Construction and/or partitioning off a portion of dwelling for a 
bathroom, not to exceed 4.6 square meters (48 square feet) in size.
    (6) Pay reasonable costs for closing abandoned septic tanks and 
water wells when necessary to protect the health and safety of 
recipients of a grant in paragraphs (b)(1) or (b)(2) of this section and 
is required by local or State law.



Secs. 1777.22-1777.30  [Reserved]



Sec. 1777.31  Rates.

    (a) Applicant loans will bear interest at the rate of 5 percent per 
annum.
    (b) Individual loans will bear interest at the rate of:
    (1) Five percent per annum; or
    (2) The Federal Financing Bank rate for loans of a similar term at 
the time of Agency loan approval, whichever is less.



Secs. 1777.32-1777.40  [Reserved]



Sec. 1777.41  Individual loans and grants.

    (a) The amount of loan and grant funds approved by the Agency will 
be based on the need shown in the application and an implementation plan 
submitted by the applicant. The implementation plan will include such 
things as: purpose, how funds will be used, proposed application 
process, construction requirements, control and disbursement of funds, 
etc. The implementation plan will be attached to RUS Bulletin 1777-1.
    (b) RUS Bulletin 1777-1 is a Memorandum of Agreement which sets 
forth the procedures and regulations for making and servicing loans and 
grants made by applicants to individuals. The State Program Official is 
authorized to enter into a Memorandum of Agreement with any applicant 
providing loans and/or grants to individuals. The Memorandum of 
Agreement can be amended to comply with State law and recommendations by 
the Office of General Counsel. It may also be amended to eliminate 
references to loans and/or grants if no loan and/or grant is involved. 
The State Program Official is responsible for:
    (1) Ensuring that all provisions of the Agreement are understood.
    (2) Determining that the applicant has the ability to make and 
service loans and/or grants in the manner outlined in the Agreement.
    (c) Agency funds remaining after providing individual loans and/or 
grants will be returned to the Agency. The funds should be disbursed to 
individuals within 1 year from the date water and/or waste disposal 
service is available to the individuals. The State Program Official can 
make an exception to this 1 year requirement if written justification is 
provided by the applicant.



Sec. 1777.42  Delegation of authority.

    The State Program Official is responsible for the overall 
implementation of the authorities contained in this part and may 
redelegate any such authority to appropriate Agency employees.

[[Page 1033]]



Sec. 1777.43  Bulletins.

    RUS Bulletin 1780-12 referenced in part 1780 of this chapter and RUS 
Bulletin 1777-1, 1777-2 and 1777-3 are for use in administering loans 
and/or grants made under this part. Bulletins, instructions and forms 
are available from any USDA/Rural Development office or the Rural 
Utilities Service, United States Department of Agriculture, Washington, 
DC 20250-1500.



Secs. 1777.44-1777.99  [Reserved]



Sec. 1777.100  OMB control number.

    The reporting and recordkeeping requirements contained in this part 
have been approved by the Office of Management and Budget and assigned 
OMB control number 0570-0001. Public reporting burden for this 
collection of information is estimated to vary from 5 to 30 hours per 
response with an average of 17.5 hours per response, including the time 
for reviewing instructions, searching existing data sources, gathering 
and maintaining the data needed, and completing and reviewing the 
collection of information. Send comments regarding this burden estimate 
or any other aspect of this collection of information, including 
suggestions for reducing this burden, to U.S. Department of Agriculture, 
Clearance Officer, OIRM, Room 404-W, Washington, DC 20250; and to the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Washington, DC 20503.



PART 1778--EMERGENCY AND IMMINENT COMMUNITY WATER ASSISTANCE GRANTS--Table of Contents



Sec.
1778.1  General.
1778.2  [Reserved]
1778.3  Objective.
1778.4  Definitions.
1778.5  [Reserved]
1778.6  Eligibility.
1778.7  Project priority.
1778.8  [Reserved]
1778.9  Uses.
1778.10  Restrictions.
1778.11  Maximum grants.
1778.12  [Reserved]
1778.13  Set-aside.
1778.14  Other considerations.
1778.15-1778.20  [Reserved]
1778.21  Application processing.
1778.22  Planning development and procurement.
1778.23  Grant closing and disbursement of funds.
1778.24-1778.30  [Reserved]
1778.31  Performing development.
1778.32-1778.33  [Reserved]
1778.34  Grant servicing.
1778.35  Subsequent grants.
1778.36  [Reserved]
1778.37  Forms, Instructions and Bulletins.
1778.38-1778.99  [Reserved]
1778.100  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

    Source: 68 FR 46078, Aug. 5, 2003, unless otherwise noted.



Sec. 1778.1  General.

    (a) This part outlines policies and procedures for making Emergency 
Community Water Assistance Grants (ECWAG) authorized under Section 306A 
of the Consolidated Farm and Rural Development Act, (7 U.S.C. 1926(a)), 
as amended. Any processing or servicing activity conducted pursuant to 
this part involving authorized assistance to Agency 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 title. Applicants for this assistance are required to identify any 
known relationship or association with an Agency employee.
    (b) Agency officials will maintain liaison with officials of other 
Federal, State, regional and local development agencies to coordinate 
related programs to achieve rural development objectives.
    (c) Agency officials shall cooperate with appropriate State agencies 
in making grants that support State strategies for rural area 
development.
    (d) Funds allocated for use in accordance with this part are also to 
be considered for use by Indian tribes within the State regardless of 
whether State development strategies include Indian reservations within 
the State's boundaries. Indians residing on such reservations must have 
an equal opportunity along with other rural residents to participate in 
the benefits of this program. This includes equal application of 
outreach activities of Field Offices.

[[Page 1034]]

    (e) Federal statutes provide for extending the Agency financial 
programs without regard to race, color, religion, sex, national origin, 
marital status, age, or physical/mental handicap (provided the 
participant possesses the capacity to enter into legal contracts).



Sec. 1778.2  [Reserved]



Sec. 1778.3  Objective.

    The objective of the ECWAG Program is to assist the residents of 
rural areas that have experienced a significant decline in quantity or 
quality of water, or in which such a decline is considered imminent, to 
obtain or maintain adequate quantities of water that meets the standards 
set by the Safe Drinking Water Act (42 U.S.C. 300f et seq.) (SDWA).



Sec. 1778.4  Definitions.

    Acute shortage. An acute shortage is a situation in which the system 
either cannot deliver water at all through its distribution system or 
can only deliver water on a sporadic basis.
    Emergency. Occurrence of an incident such as, but not limited to, a 
drought; earthquake; flood; tornado; hurricane; disease outbreak; or 
chemical spill, leakage, or seepage.
    Rural areas. Includes any area not in a city or town with a 
population in excess of 10,000 inhabitants, according to the latest 
decennial census of the United States. located in any of the fifty 
States, the Commonwealth of Puerto Rico, the Western Pacific 
Territories, Marshall Islands, Federated States of Micronesia, Republic 
of Palau, and the U.S. Virgin Islands.
    Significant decline in quality. A significant decline in quality of 
potable water occurs when the present community source or delivery 
system does not meet, as a result of an emergency, the current SDWA 
requirements. For a private source or delivery system a significant 
decline in quality occurs when the water is no longer potable as a 
result of an emergency. As used in this Subpart, the term significant 
decline in quality may also include a situation where a significant 
decline is likely to occur within one year from the date of the filing 
of an application.
    Significant decline in quantity. A significant decline in the 
quantity is caused by a disruption of the potable water supply by an 
emergency. The disruption in quantity of water prevents the present 
source or delivery system from supplying potable water needs to rural 
residents. This would not include a decline in excess water capacity. As 
used in this Subpart, the term significant decline in quantity may also 
include a situation where a significant decline is likely to occur 
within one year from the date of the filing of an application.
    Statewide Nonmetropolitan Median Household Income (SNMHI). Median 
household income of the State's nonmetropolitan counties and portions of 
metropolitan counties outside of cities, towns or places of 50,000 or 
more population.

[68 FR 46078, Aug. 5, 2003, as amended at 69 FR 65519, Nov. 15, 2004]



Sec. 1778.5  [Reserved]



Sec. 1778.6  Eligibility.

    (a) Grants may be made to public bodies and private nonprofit 
corporations serving rural areas. Public bodies include counties, 
cities, townships, incorporated towns and villages, boroughs, 
authorities, districts, and other political subdivisions of a State. 
Public bodies also include Indian tribes on Federal and State 
reservations and other Federally recognized Indian Tribal groups in 
rural areas.
    (b) In the case of grants made to alleviate a significant decline in 
quantity or quality of water available from the water supplies of rural 
residents, the applicant must demonstrate that the decline occurred 
within two years of the date the application was filed with the Agency. 
This would not apply to grants made for repairs, partial replacement, or 
significant maintenance on an established water system. In situations 
involving imminent decline, evidence must be presented to demonstrate 
that the decline is likely to occur within one year of the date the 
application is filed with the Agency.



Sec. 1778.7  Project priority.

    Paragraph (d) of this section indicates items and conditions which 
must

[[Page 1035]]

be considered in selecting applications for further development. When 
ranking eligible applications for consideration for limited funds, 
Agency officials must consider the priority items met by each 
application and the degree to which those priorities are met.
    (a) Applications. The application and supporting information 
submitted with it will be used to determine the proposed project's 
priority for available funds.
    (b) State Office review. All applications will be reviewed and 
scored for funding priority using RUS Bulletin 1778-1. Eligible 
applicants that cannot be funded should be advised that funds are not 
available.
    (c) National Office review. Each year all funding requests will be 
reviewed by the National Office beginning 30 days after funds from the 
annual appropriation are made available to the Agency. Reviews will 
continue throughout the fiscal year as long as funds are available. 
Projects selected for funding will be considered based on the priority 
criteria and available funds. Projects must compete on a national basis 
for available funds, and the National Office will allocate funds to 
State offices on a project by project basis.
    (d) Selection priorities. The priorities described below will be 
used by the State Program Official to rate applications and by the 
Assistant Administrator of Water and Environmental Programs to select 
projects for funding. Points will be distributed as indicated in 
paragraphs (d)(1) through (d)(5) of this section and will be considered 
in selecting projects for funding. A copy of RUS Bulletins 1778-1 and 
1778-2 used to rate applications, should be placed in the case file for 
future reference.
    (1) Population. The proposed project will serve an area with a rural 
population:
    (i) Not in excess of 1,500--30 points.
    (ii) More than 1,500 and not in excess of 3,000--20 points.
    (iii) More than 3,000 and not in excess of 5,000--15 points.
    (iv) Over 5,000--0 points.
    (2) Income. The median household income of population to be served 
by the proposed project is:
    (i) Not in excess of 70% of the statewide nonmetropolitan median 
household income--30 points.
    (ii) More than 70% and not in excess of 80% of the statewide 
nonmetropolitan median household income--20 points.
    (iii) More than 80% and not in excess of 90% of the statewide 
nonmetropolitan median household income--10 points.
    (iv) Over 90% of the statewide nonmetropolitan median household 
income--0 points.
    (3) Significant decline. Points will be assigned for only one of the 
following paragraphs when the primary purpose of the proposed project is 
to correct a significant decline that has occurred in the:
    (i) Quantity of water available from private individually owned 
wells or other individual sources of water--30 points; or
    (ii) Quantity of water available from an established system's source 
of water--20 points; or
    (iii) Quality of water available from private individually owned 
wells or other individual sources of water--30 points; or
    (iv) Quality of water available from an established system's source 
of water--20 points.
    (4) Imminent decline. The proposed project will attempt to avert an 
imminent decline expected to occur during the one-year period following 
the filing of an application--10 points.


(Note: If points were assigned above for a significant decline, no 
points will be awarded for imminent decline.)

    (5) Acute shortage. Grants made in accordance with Sec. 1778.11(b) 
of this part to assist an established water system remedy an acute 
shortage of quality water or correct a significant decline in the 
quantity or quality of water that is available--10 points.
    (6) Discretionary. In certain cases the Administrator may assign up 
to 30 points for items such as geographic distribution of funds, rural 
residents hauling water, severe contamination levels, etc.

[[Page 1036]]



Sec. 1778.8  [Reserved]



Sec. 1778.9  Uses.

    Grant funds may be used for the following purposes:
    (a) Waterline extensions from existing systems.
    (b) Construction of new waterlines.
    (c) Repairs to an existing system.
    (d) Significant maintenance to an existing system.
    (e) Construction of new wells, reservoirs, transmission lines, 
treatment plants, and other sources of water.
    (f) Equipment replacement.
    (g) Connection and/or tap fees.
    (h) Pay costs that were incurred within six months of the date an 
application was filed with the Agency to correct an emergency situation 
that would have been eligible for funding under this part.
    (i) Any other appropriate purpose such as legal fees, engineering 
fees, recording costs, environmental impact analyses, archaeological 
surveys, possible salvage or other mitigation measures, planning, 
establishing or acquiring rights associated with developing sources of, 
treating, storing, or distributing water.
    (j) Assist rural water systems to comply with the requirements of 
the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq.) (FWPCA) 
or the SDWA when such failure to comply is directly related to a recent 
decline in quality of potable water. This would not apply to changes in 
the requirements of FWPCA or SDWA.
    (k) Provide potable water to communities through means other than 
those covered above for not to exceed 120 days when a more permanent 
solution is not feasible in a shorter time frame.



Sec. 1778.10  Restrictions.

    (a) Grant funds may not be used to:
    (1) Assist any city or town with a population in excess of 10,000 
inhabitants according to the most recent decennial census of the United 
States. Facilities financed by RUS may be located in non-rural areas. 
However, loan and grant funds may be used to finance only that portion 
of the facility serving rural areas, regardless of facility location.
    (2) Assist a rural area that has a median household income in excess 
of the statewide nonmetropolitan median household income according to 
the most recent decennial census of the United States.
    (3) Finance facilities which are not modest in size, design, cost, 
and are not directly related to correcting the potable water quantity or 
quality problem.
    (4) Pay loan or grant finder's fees.
    (5) Pay any annual recurring costs that are considered to be 
operational expenses.
    (6) Pay rental for the use of equipment or machinery owned by the 
rural community.
    (7) Purchase existing systems.
    (8) Refinance existing indebtedness, except for short-term debt 
incurred in accordance with Sec. 1778.9(h).
    (9) Make reimbursement for projects developed with other grant 
funds.
    (10) Finance facilities that are not for public use.
    (b) Nothing in paragraph (a)(1) of this section shall preclude rural 
areas from submitting joint proposals for assistance under this part. 
Each entity applying for financial assistance under this part to fund 
their share of a joint project will be considered individually.



Sec. 1778.11  Maximum grants.

    (a) Grants not to exceed $500,000 may be made to alleviate a 
significant decline in quantity or quality of water available to a rural 
area that occurred within two years of filing an application with the 
Agency, or to attempt to avoid a significant decline that is expected to 
occur during the twelve month period following the filing of an 
application.
    (b) Grants made for repairs, partial replacement, or significant 
maintenance on an established system to remedy an acute shortage or 
significant decline in the quality or quantity of potable water, or an 
anticipated acute shortage or significant decline, cannot exceed 
$150,000.
    (c) Grants under this part, subject to paragraphs (a) and (b) of 
this section, shall be made for 100 percent of eligible project costs.

[[Page 1037]]



Sec. 1778.12  [Reserved]



Sec. 1778.13  Set-aside.

    (a) At least 70 percent of all grants made under this grant program 
shall be for projects funded in accordance with Sec. 1778.11(a).
    (b) At least 50 percent of the funds appropriated for this grant 
program shall be allocated to rural areas with populations not in excess 
of 3,000 inhabitants according to the most recent decennial census of 
the United States.



Sec. 1778.14  Other considerations.

    (a) Civil rights compliance requirements. All grants made under this 
part are subject to Title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d et seq.) as outlined in subpart E of part 1901 of this title.
    (b) Environmental requirements. All projects must have appropriate 
environmental reviews in accordance with RUS requirements.
    (c) Uniform Relocation and Real Property Acquisition Policies Act 
(42 U.S.C. 4601 et seq.). All projects must comply with the requirements 
set forth in 7 CFR Part 21.
    (d) Flood and mudslide hazard area precautions. If the project is 
located in a flood or mudslide area, then flood or mudslide insurance 
must be provided as required in subpart A of part 1806 of this title (RD 
Instruction 426.2).
    (e) Governmentwide debarment and suspension (nonprocurement) and 
requirements for drug-free work place. All projects must comply with the 
requirements set forth in the U.S. Department of Agriculture regulations 
7 CFR part 3017 and RD Instruction 1940-M.
    (f) Intergovernmental review. All projects funded under this part 
are subject to Executive Order 12372 (3 CFR, 1983 Comp., p. 197), which 
requires intergovernmental consultation with State and local officials. 
These requirements are set forth in U.S. Department of Agriculture 
regulations 7 CFR part 3015, Subpart V, and RD Instruction 1940-J.



Secs. 1778.15-1778.20  [Reserved]



Sec. 1778.21  Application processing.

    (a) The material submitted with the application should include the 
Preliminary Engineering Report, population and median household income 
of the area to be served, description of project, and nature of 
emergency that caused the problem(s) being addressed by the project. The 
documentation must clearly show that the applicant has had a significant 
decline in the quantity or quality of potable water or an acute shortage 
of potable water, or that such a decline or shortage is imminent, and 
that the proposed project will eliminate or alleviate the problem. For 
projects to be funded in accordance with Sec. 1778.11 (a), evidence must 
be furnished that a significant decline in quantity or quality occurred 
within two years before filing the application with the Agency, or is 
expected to occur within one year after filing the application.
    (b) When favorable action will not be taken on an application, the 
applicant will be notified in writing by the State Program Official of 
the reasons why the request was not favorably considered. Notification 
to the applicant will state that a review of this decision by the Agency 
may be requested by the applicant in accordance with 7 CFR part 11.



Sec. 1778.22  Planning development and procurement.

    Planning development and procurement for grants made under this part 
will be in accordance with subpart C of Part 1780 of this chapter. A 
certification should be obtained from the State agency or the 
Environmental Protection Agency if the State does not have primacy, 
stating that the proposed improvements will be in compliance with 
requirements of the SDWA.



Sec. 1778.23  Grant closing and disbursement of funds.

    (a) Grants will be closed in accordance with Sec. 1780.45 of part 
1780 of this chapter.
    (b) RUS Bulletin 1780-12, ``Water or Waste Grant Agreement,'' will 
be executed by all applicants.
    (c) The Agency's policy is not to disburse grant funds from the 
Treasury until they are actually needed by the applicant. Grant funds 
will be disbursed by using multiple advances.

[[Page 1038]]



Secs. 1778.24-1778.30  [Reserved]



Sec. 1778.31  Performing development.

    (a) Applicable provisions of subpart C of part 1780 of this chapter 
will be followed in performing development for grants made under this 
part.
    (b) After filing an application in accordance with Sec. 1778.21 and 
when immediate action is necessary, the State Program Official may 
concur in an applicant's request to proceed with construction before 
funds are obligated provided the RUS environmental requirements are 
complied with. The applicant must be advised in writing that:
    (1) Any authorization to proceed or any concurrence in bid awards, 
contract concurrence, or other project development activity, is not a 
commitment by the Agency to provide grant funds under this part.
    (2) The Agency is not liable for any debt incurred by the applicant 
in the event that funds are not provided under this part.



Sec. 1778.32-1778.33  [Reserved]



Sec. 1778.34  Grant servicing.

    (a) Grants will be serviced in accordance with Sec. 1951.215 of 
subpart E of part 1951 of this title and subpart O of part 1951 of this 
title.
    (b) The grantee will provide an audit report in accordance with 
Sec. 1780.47 of part 1780 of this chapter.



Sec. 1778.35  Subsequent grants.

    Subsequent grants will be processed in accordance with the 
requirements set forth in this part. The initial and subsequent grants 
made to complete a previously approved project must comply with the 
maximum grant requirements set forth in Sec. 1778.11.



Sec. 1778.36  [Reserved]



Sec. 1778.37  Forms, Instructions and Bulletins.

    Bulletins, instructions and forms referenced are for use in 
administering grants made under this part and are available from any 
USDA/Rural Development office or the Rural Utilities Service, United 
States Department of Agriculture, Washington, DC 20250-1500.



Secs. 1778.38-1778.99  [Reserved]



Sec. 1778.100  OMB control number.

    The information collection requirements contained in this part have 
been approved by the Office of Management and Budget and assigned OMB 
control number 0572-0110.



PART 1779--WATER AND WASTE DISPOSAL PROGRAMS GUARANTEED LOANS--Table of Contents



Sec.
1779.1  General.
1779.2  Definitions.
1779.3  Full faith and credit.
1779.4  Conditions of guarantee.
1779.5-1779.7  [Reserved]
1779.8  Access to lender's records.
1779.9  Environmental requirements.
1779.10-1779.11  [Reserved]
1779.12  Inspections.
1779.13  Appeals.
1779.14-1779.16  [Reserved]
1779.17  Exception authority.
1779.18-1779.19  [Reserved]
1779.20  Eligibility.
1779.21-1779.23  [Reserved]
1779.24  Eligible loan purposes.
1779.25  Ineligible loan purposes.
1779.26  [Reserved]
1779.27  Eligible lenders.
1779.28  Transfer of lenders or borrowers (prior to issuance of Loan 
          Note Guarantee).
1779.29  Fees and charges by lender.
1779.30  Loan guarantee limitations.
1779.31-1779.32  [Reserved]
1779.33  Interest rates.
1779.34  Terms of loan repayment.
1779.35-1779.36  [Reserved]
1779.37  Insurance and fidelity bonds.
1779.38-1779.41  [Reserved]
1779.42  Design and construction requirements.
1779.43  Other Federal, State, and local requirements.
1779.44-1779.46  [Reserved]
1779.47  Economic feasibility requirements.
1779.48  Security.
1779.49-1779.51  [Reserved]
1779.52  Processing.
1779.53  Evaluation of application.
1779.54-1779.58  [Reserved]
1779.59  Review of requirements.
1779.60-1779.62  [Reserved]
1779.63  Conditions precedent to issuance of the Loan Note Guarantee.
1779.64  Issuance of Lender's Agreement, Loan Note Guarantee, and 
          Assignment Guarantee Agreement.
1779.65  Lender's sale or assignment of the guaranteed portion of loan.

[[Page 1039]]

1779.66-1779.68  [Reserved]
1779.69  Loan servicing.
1779.70-1779.72  [Reserved]
1779.73  Replacement of loss, theft, destruction, mutilation, or 
          defacement of Loan Note Guarantee or Assignment Guarantee 
          Agreement.
1779.74  [Reserved]
1779.75  Defaults by borrower.
1779.76-1779.77  [Reserved]
1779.78  Repurchase of loan.
1779.79  [Reserved]
1779.80  Interest rate changes after loan closing.
1779.81  Liquidation.
1779.82  [Reserved]
1779.83  Protective advances.
1779.84  Additional loans or advances.
1779.85  Bankruptcy.
1779.86-1779.87  [Reserved]
1779.88  Transfer and assumptions.
1779.89  Mergers.
1779.90  Disposition of acquired property.
1779.91-1779.93  [Reserved]
1779.94  Determination and payment of loss.
1779.95  Future recovery.
1779.96  Termination of Loan Note Guarantee.
1779.97-1779.99  [Reserved]
1779.100  OMB control number.

    Authority: 5 U.S.C. 301, 7 U.S.C. 1989, 16 U.S.C. 1005.

    Source: 66 FR 23138, May 8, 2001, unless otherwise noted.



Sec. 1779.1  General.

    (a) This part contains the regulations for Water and Waste Disposal 
(WW) loans guaranteed by the Agency and applies to lenders, holders, 
borrowers, and other parties involved in making, guaranteeing, holding, 
servicing, or liquidating such loans.
    (b) The purpose of the WW guaranteed loan program is to provide a 
loan guarantee for the construction or improvement of water and waste 
projects serving the financially needy communities in rural areas. This 
purpose is achieved through bolstering the existing private credit 
structure through the guarantee of quality loans which will provide 
lasting benefits.



Sec. 1779.2  Definitions.

    The following general definitions are applicable to the terms used 
in this part:
    Agency. The Rural Utilities Service which is within the Rural 
Development mission area of the United States Department of Agriculture 
or its successor agencies with authority delegated by the Secretary of 
Agriculture to administer the Water and Waste Disposal Programs.
    Application. An Agency prescribed form to request an Agency 
guarantee (available in any Agency office).
    Arm's length transaction. The sale, release, or disposition of 
assets in which the title to the property passes to a ready, willing, 
and able third party who is not affiliated with, or related to, and has 
no security, monetary, or stockholder interest in the borrower or 
transferor at the time of the transaction.
    Assignment Guarantee Agreement. The signed agreement among the 
Agency, the lender, and the holder setting forth the terms and 
conditions of an assignment of the guaranteed portion of a loan or any 
part thereof (available in any Agency office).
    Borrower. The entity that borrows money from the lender.
    Collateral. Property pledged to secure the guaranteed loan.
    Conditional Commitment for Guarantee. The Agency's written statement 
to the lender that the material submitted is approved subject to the 
completion of all conditions and requirements contained in the 
commitment (available in any Agency office).
    Guaranteed loan. A loan made and serviced by a lender for which the 
Agency and lender have entered into a Lender's Agreement and for which 
the Agency has issued a Loan Note Guarantee.
    Holder. The person or entity (other than the lender) who holds all 
or a part of the guaranteed portion of the loan with no servicing 
responsibilities. When the lender assigns part or all of the guaranteed 
portion of the loan to an assignee, the assignee becomes a holder when 
the Assignment Guarantee Agreement is signed by all parties.
    Immediate family. Individuals who are closely related by blood or by 
marriage, or within the same household, such as a spouse, parent, child, 
brother, sister, aunt, uncle, grandparent, grandchild, niece, or nephew.
    In-house expenses. In-house expenses include, but are not limited 
to, employees' salaries, retainers being paid to lawyers, travel, and 
overhead.

[[Page 1040]]

    Insurance. Fire, windstorm, lightning, hail, explosion, riot, civil 
commotion, aircraft, vehicles, smoke, builder's risk, liability, 
property damage, flood or mudslide, worker's compensation, fidelity 
bond, malpractice, or any similar insurance that is available and needed 
to protect the security or that is required by law.
    Joint financing. Two or more lenders (or any combination of lenders 
and other financial sources) making separate relatively contemporaneous 
loans or grants to supply the funds required by one borrower. For 
example, such joint financing may consist of the Agency's financial 
assistance with the Economic Development Administration, Department of 
Housing and Urban Development (HUD), or other Federal and State 
agencies, and private and quasi-public financial institutions.
    Lender. The person or organization making and responsible for 
servicing the loan. The lender is also referred to in this part as the 
applicant who is requesting a guarantee during the preapplication and 
application stage of processing.
    Lender's Agreement. The signed agreement between the Agency and the 
lender containing the lender's responsibilities when the Loan Note 
Guarantee is issued (available in any Agency office).
    Loan Note Guarantee. The signed commitment issued by the Agency 
containing the terms and conditions of the guarantee of an identified 
loan (available in any Agency office).
    Market value. The amount for which property would sell for its 
highest and best use at a voluntary sale in an arm's length transaction.
    Note. An evidence of debt. In those instances where the Agency 
guarantees a bond issue, ``note'' shall also be construed to include a 
bond or other evidence of indebtedness, as appropriate.
    Participation. Sale of an interest in a loan in which the lender 
retains the note, collateral securing the note, and all responsibility 
for loan servicing and liquidation.
    Principals of borrowers. The owners, officers, directors, entities, 
and supervisors directly involved in the operation and management of the 
borrower.
    Protective advances. Advances made by the lender for the purpose of 
preserving and protecting the collateral where the debtor has failed to, 
and will not or cannot, meet obligations to protect or preserve 
collateral.
    Report of loss. An Agency form used by lenders when reporting a loss 
under an Agency guarantee (available in any Agency office).
    Rural and rural area. Any area not in a city or town with a 
population in excess of 10,000 inhabitants, according to the latest 
decennial census of the United States
    Service area. The area reasonably expected to be served by the 
project being financed by the guaranteed loan.
    State. Any of the 50 States, the Commonwealth of Puerto Rico, the 
Virgin Islands of the United States, Guam, American Samoa, Commonwealth 
of the Northern Mariana Islands, Republic of the Marshall Islands, 
Republic of Palau, and the Federated States of Micronesia.
    State Bond Banks and State Bond Pools.An entity authorized by the 
State to issue State debt instruments and utilize the funds received to 
finance the construction or improvement of drinking water or waste 
disposal facilities.
    State Director. The Rural Development State Director or the staff 
member who has been delegated authority to perform action on behalf of 
the State Director.
    Substantive change. Any change in the purpose of the loan or any 
change in the financial condition of the borrower or the collateral 
which would jeopardize the performance of the loan.
    Transfer and assumption. The conveyance by a debtor to an assuming 
party of the assets, collateral, and liabilities of the loan in return 
for the assuming party's binding promise to pay the outstanding debt.
    Waste disposal. Sanitary sewer (treatment and collection), solid 
waste, and storm drainage facilities.
    WW. An acronym for Water and Waste Disposal.



Sec. 1779.3  Full faith and credit.

    The Loan Note Guarantee constitutes an obligation supported by the 
full faith and credit of the United States and is not contestable except 
for fraud or misrepresentation (including

[[Page 1041]]

negligent misrepresentation) of which the lender or holder has actual 
knowledge, participates in, or condones. A note which provides for the 
payment of interest on interest shall not be guaranteed and 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 not be enforceable 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 the Agency acquires knowledge of the 
foregoing. Any losses occasioned will not be enforceable by the lender 
to the extent that loan funds are used for purposes other than those 
specifically approved by the Agency in its Conditional Commitment for 
Guarantee. 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, 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. The Loan Note Guarantee or Assignment 
Guarantee Agreement in the hands of a holder shall not cover interest 
accruing 90 days after the holder has demanded repurchase by the lender, 
nor shall the Loan Note Guarantee or Assignment Guarantee Agreement in 
the hands of a holder cover interest accruing 90 days after the lender 
or Agency has requested the holder to surrender the evidence of debt for 
repurchase.



Sec. 1779.4  Conditions of guarantee.

    A loan guarantee under this part will be evidenced by a Loan Note 
Guarantee issued by the Agency. Each lender will also execute a Lender's 
Agreement.
    (a) The entire loan will be secured by the same security with equal 
lien priority for the guaranteed and non-guaranteed portions of the 
loan. The non-guaranteed portion of the loan will not be paid first nor 
given any preference or priority over the guaranteed portion.
    (b) The lender will be responsible for servicing the entire loan and 
will remain mortgagee or secured party of record notwithstanding the 
fact that another party may hold a portion of the loan.
    (c) When a guaranteed portion of a loan is sold to a holder, the 
holder shall have all rights of the lender under the Loan Note Guarantee 
to the extent of the portion purchased. The lender will remain bound by 
all the obligations under the Loan Note Guarantee, Lender's Agreement, 
and Agency program regulations. If the Agency makes a payment to a 
holder, then the lender must reimburse the Agency.
    (d) A lender will receive all payments of principal and interest on 
the account of the entire loan and will promptly remit to each holder a 
pro rata share, less any lender servicing fee.
    (e) The lender may retain all of the unguaranteed portion of the 
loan or may sell part of the unguaranteed portion of the loan through 
participation. However, the lender is required to retain 5 percent of 
the loan amount from the unguaranteed portion in their portfolio.



Secs. 1779.5-1779.7  [Reserved]



Sec. 1779.8  Access to lender's records.

    Upon request by the Agency, the lender will permit representatives 
of the Agency (or other agencies of the U.S. Department of Agriculture 
authorized by that Department or the U.S. Government) to inspect and 
make copies of any of the records of the lender pertaining to the 
guaranteed loans. Such inspection and copying may be made during regular 
office hours of the lender or at any other time the lender and the 
Agency agree upon.



Sec. 1779.9  Environmental requirements.

    Facilities financed must undergo an environmental impact analysis in 
accordance with the National Environmental Policy Act and Agency 
requirements as contained in part 1794 of this chapter. In accordance 
with Agency guidance documents (RUS Bulletin 1794A-602; this document is 
available in any Agency State Office or online at http://www.usda.gov/
rus/water/ees/

[[Page 1042]]

index.htm), the environmental review requirements shall be performed by 
the applicant simultaneously and concurrently with the project's 
engineering planning and design. This should provide flexibility to 
consider reasonable alternatives to the project and development methods 
to mitigate any adverse environmental effects. Facility planning and 
design must not only be responsive to the owner's needs but must 
consider the environmental consequences of the proposed project. 
Facility design will incorporate and integrate, where practicable, 
mitigation measures that avoid or minimize adverse environmental 
impacts. The lender must assist the Agency in ensuring that the borrower 
complies with the Agency's environmental review process and implements 
any mitigation measure identified in the environmental review document 
or Conditional Commitment for Guarantee. This assistance includes 
ensuring that the borrower takes no action (for example, initiation of 
construction) or incur any obligations that will have an adverse 
environmental impact or limit the range of alternatives to be considered 
prior to completion of the environmental review process. If construction 
is started prior to completion of the environmental review and the 
Agency is deprived of its opportunity to fulfill its obligation to 
comply with applicable environmental requirements, the application for 
financial assistance may be denied. Satisfactory completion of the 
environmental review process must occur prior to the approval of the 
applicant's request or commitment of Agency resources.



Secs. 1779.10-1779.11  [Reserved]



Sec. 1779.12  Inspections.

    The lender will notify the Agency of any scheduled field inspections 
during construction and after issuance of the Loan Note Guarantee. The 
Agency may attend such field inspections. Any inspections or review 
conducted by the Agency, including those with the lender, are for the 
benefit of the Agency only and not for the benefit of other parties in 
interest. Agency inspections do not relieve any parties in interest of 
their responsibilities to conduct necessary inspections.



Sec. 1779.13  Appeals.

    Only the borrower, lender, or holder can appeal an Agency decision. 
In cases where the Agency has denied or reduced the amount of final loss 
payment to the lender, the adverse decision may be appealed only by the 
lender. A decision by a lender adverse to the interest of the borrower 
is not a decision by the Agency, whether or not concurred in by the 
Agency. Appeals will be handled in accordance with the regulations of 
the National Appeals Division, U.S. Department of Agriculture, published 
at 7 CFR part 11.



Secs. 1779.14-1779.16  [Reserved]



Sec. 1779.17  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this part which is not inconsistent with the 
authorizing statute or other applicable law and is determined to be in 
the Government's interest.



Secs. 1779.18-1779.19  [Reserved]



Sec. 1779.20  Eligibility.

    (a) Availability of credit from other sources. The Agency must 
determine that the borrower is unable to obtain the required credit 
without the loan guarantee from private, commercial, or cooperative 
sources at reasonable rates and terms for loans for similar purposes and 
periods of time. The Agency must also determine if an outstanding 
judgment obtained by the United States in a Federal Court (other than 
the U.S. Tax Court) has been entered against the borrower or if the 
borrower has an outstanding delinquent debt with any Federal agency. 
Such judgment or delinquency shall cause the potential borrower to be 
ineligible to receive a loan guarantee until the judgment is paid in 
full or otherwise satisfied or the delinquency is cured.
    (b) Legal authority and responsibility. (1) Each borrower must have, 
or will obtain, the legal authority necessary to construct, operate, and 
maintain the proposed facility and services. They

[[Page 1043]]

must also have legal authority for obtaining, giving security for, and 
repaying the proposed loan.
    (2) The borrower shall be responsible for operating, maintaining, 
and managing the facility and services, and providing for the continued 
availability and use of the facility and services at reasonable rates 
and terms.
    (c) Applicant. Eligible entities are:
    (1) A public body such as a municipality, county, district, 
authority, or other political subdivision of a State located in a rural 
area.
    (2) An organization operated on a not-for-profit basis, such as an 
association, cooperative, or private corporation. The organization must 
be an association controlled by a local public body or bodies, or have a 
broadly based ownership by or membership of people of the local 
community; or
    (3) Indian tribes on Federal and State reservations and other 
federally recognized Indian tribes.
    (d) Facility location. Facilities must be located in rural areas, 
except: For utility services such as drinking water, sanitary sewer, 
solid waste disposal or storm drainage facilities serving both rural and 
non-rural areas. In such cases, Agency funds may be used to finance only 
that portion serving rural areas, regardless of facility location.
    (e) Facilities for public use. All facilities financed under the 
provisions of this part shall be for public purposes.
    (1) Facilities will be installed to serve any user within the 
service area who desires service and can be feasibly and legally served.
    (2) In no case will boundaries for the proposed service area be 
chosen in such a way that any user or area will be excluded because of 
race, color, religion, sex, marital status, age, disability, or national 
origin.
    (3) The lender will determine that, when feasible and legally 
possible, inequities within the proposed project's service area for the 
same type service proposed will be remedied by the owner on, or before, 
completion of the project. Inequities are defined as unjustified 
variations in availability, adequacy, or quality of service. User rate 
schedules for portions of existing systems or facilities that were 
developed under different financing, rates, terms, or conditions do not 
necessarily constitute inequities.



Secs. 1779.21-1779.23  [Reserved]



Sec. 1779.24  Eligible loan purposes.

    (a) To construct, enlarge, extend, or otherwise improve rural 
drinking water, sanitary sewage, solid waste disposal, and storm 
wastewater disposal facilities.
    (b) To construct or relocate public buildings, roads, bridges, 
fences, or utilities, and to make other public improvements necessary 
for the successful operation or protection of facilities authorized in 
paragraph (a) of this section.
    (c) To relocate private buildings, roads, bridges, fences, or 
utilities, and other private improvements necessary for the successful 
operation or protection of facilities authorized in paragraph (a) of 
this section.
    (d) For payment of other utility connection charges as provided in 
service contracts between utility systems.
    (e) When a necessary part of the project relates to those facilities 
authorized in paragraphs (a), (b), (c) or (d) of this section the 
following may be considered:
    (1) Reasonable fees and costs such as: legal, engineering, 
administrative services, fiscal advisory, recording, environmental 
analyses and surveys, possible salvage or other mitigation measures, 
planning, establishing or acquiring rights;
    (2) Costs of acquiring interest in land: rights, such as water 
rights; leases; permits; rights-of-way; and other evidence of land or 
water control or protection necessary for development of the facility;
    (3) Purchasing or renting equipment necessary to install, operate, 
maintain, extend, or protect facilities;
    (4) Cost of additional applicant labor and other expenses necessary 
to install and extend service;
    (5) In unusual cases such as a low-income area, the cost for 
connecting the user to the main service line;
    (6) Interest incurred during construction in conjunction with 
multiple advances or interest on interim financing;

[[Page 1044]]

    (7) Initial operating expenses, including interest, for a period 
ordinarily not exceeding one year when the applicant is unable to pay 
such expenses;
    (8) The purchase of existing facilities when it is necessary either 
to improve service or prevent the loss of service; and
    (9) Refinancing non-Agency debts incurred by, or on behalf of, an 
applicant when all of the following conditions exist:
    (i) The debts being refinanced are a secondary part of the total 
loan unless the debt being refinanced is an Agency direct loan;
    (ii) The debts were incurred for the facility or service being 
financed or any part thereof; and
    (iii) Arrangements cannot be made with the creditors to extend or 
modify the terms of the debts so that a sound basis will exist for 
making a loan.
    (10) Refinancing Agency debts.



Sec. 1779.25  Ineligible loan purposes.

    Loan funds may not be used to finance:
    (a) Facilities which are not modest in size, design, and cost;
    (b) Loan or grant finder's fees;
    (c) The construction of any new combined storm and sanitary sewer 
facilities;
    (d) Any portion of the cost of a facility which does not serve a 
rural area;
    (e) That portion of project costs normally provided by a business or 
industrial user, such as wastewater pretreatment;
    (f) Rental for the use of equipment or machinery owned by the 
applicant;
    (g) For other purposes not directly related to operating and 
maintenance of the facility being installed or improved; or
    (h) The payment of a judgment which would disqualify an applicant 
for a loan under Sec. 1779.20(a).



Sec. 1779.26  [Reserved]



Sec. 1779.27  Lenders.

    (a) Eligible lenders. Eligible lenders may participate in the loan 
guarantee program. These lenders must be subject to credit examination 
and supervision by an appropriate agency of the United States or a State 
that supervises and regulates credit institutions. A lender must have 
the capability to adequately service loans for which a guarantee is 
requested. Eligible lenders are:
    (1) Any Federal or State chartered bank or savings and loan 
association;
    (2) Any mortgage company that is a part of a bank holding company;
    (3) Co-Bank, National Rural Utilities Cooperative Finance 
Corporation, Farm Credit Bank of the Federal Land Bank, or other Farm 
Credit System institution with direct lending authority authorized to 
make loans of the type guaranteed by this part;
    (4) An insurance company regulated by a State or National insurance 
regulatory agency;
    (5) State Bond Banks or State Bond Pools; and
    (6) Other lenders that possess the legal powers necessary and 
incidental to making and servicing guaranteed loans involving community 
development-type projects. Lenders under this category must be approved 
by the National Office prior to the issuance of the loan guarantee.
    (b) Conflict of interest. When the lender's officers, stockholders, 
directors, or partners (including their immediate families) or the 
borrower, its officers, stockholders, directors, or partners (including 
their immediate families) own, or have management responsibilities in 
each other, the lender must disclose such business or ownership 
relationships. The Agency will determine if such relationships are 
likely to result in a conflict of interest. This does not preclude 
lender officials from being on the borrower's board of directors.



Sec. 1779.28  Transfer of lenders or borrowers (prior to issuance of Loan 
Note Guarantee).

    (a) Prior to issuance of the loan guarantee, the Agency may approve 
the transfer of an outstanding Conditional Commitment for Guarantee from 
the present lender to a new eligible lender: Provided, That:
    (1) The former lender states in writing why it does not wish to 
continue to be the lender for this project;
    (2) No substantive changes in ownership or control of the borrower 
has occurred;

[[Page 1045]]

    (3) No substantive changes in the borrower's written plan, scope of 
work, or changes in the purpose or intent of the project has occurred; 
and
    (4) No substantive changes in the loan agreement or Conditional 
Commitment for Guarantee are required.
    (b) The substitute lender must execute a new application for loan 
and guarantee (available in any Agency office).
    (c) If approved, the Agency will issue a letter of amendment to the 
original Conditional Commitment for Guarantee reflecting the new lender 
who will acknowledge acceptance of the offer in writing.
    (d) Once the Conditional Commitment for Guarantee is issued, the 
Agency will not approve any substitution of borrowers, including changes 
in the form of the legal entity, except a change in the legal entity may 
be requested when the original borrower is replaced with substantially 
the same individuals or officers with the same interest as originally 
approved.



Sec. 1779.29  Fees and charges by lender.

    (a) Routine charges and fees. The lender may establish charges and 
fees for the loan if they do not exceed those charged other borrowers 
for similar types of transactions. ``Similar types of transactions'' 
mean those transactions involving the same type of loan for which a non-
guaranteed loan borrower would be assessed charges and fees.
    (b) Late payment fees. Late payment charges will not be covered by 
the Loan Note Guarantee. Such charges may not be added to the principal 
and interest due under any guaranteed note. Late payment charges may be 
made only if:
    (1) They are routinely made by the lender in all types of loan 
transactions;
    (2) Payment has not been received within the customary timeframe 
allowed by the lender; or
    (3) The lender agrees with the borrower, in writing, that the rate 
or method of calculating the late payment charges will not be changed to 
increase charges while the Loan Note Guarantee is in effect.
    (c) Guarantee fees. The guaranteed loan fee will be the applicable 
guarantee fee rate multiplied by the principal loan amount multiplied by 
the percent of guarantee. The one-time guarantee fee is paid when the 
Loan Note Guarantee is issued.
    (1) The fee will be paid to the Agency by the lender and is 
nonreturnable. The lender may pass the fee to the borrower.
    (2) The guarantee fee rates are available in any Agency office.



Sec. 1779.30  Loan guarantee limitations.

    (a) The guarantee will be 90 percent of eligible loss.
    (b) The lender will retain a minimum of 5 percent of the total loan 
amount. The retained amount must be from the unguaranteed portion of the 
loan and cannot be participated to another lender.



Secs. 1779.31-1779.32  [Reserved]



Sec. 1779.33  Interest rates.

    (a) General. Rates will be negotiated between the lender and the 
borrower. They may be either fixed or variable rates. Interest rates 
will be those rates customarily charged borrowers in similar 
circumstances in the ordinary course of business and are subject to 
Agency review and approval.
    (b) Variable rate publication. A variable interest rate must be tied 
to a base rate published periodically in a recognized national or 
regional financial publication specifically agreed to by the lender and 
borrower. Such an agreement must be documented in the borrower or lender 
loan agreement.
    (1) Interest rate caps and incremental adjustment limitations will 
also be negotiated between the lender and the borrower. Notice of any 
interest rate change proposed by the lender should allow a sufficient 
time period for the borrower to obtain any required State or other 
regulatory approval and to implement any user rate adjustments necessary 
as a result of the interest rate change. The intervals between interest 
rate adjustments will be specified in the loan agreement (but not more 
often than quarterly).
    (2) The lender must incorporate within the variable rate note, the 
provision for adjustment of payments coincident with an interest rate 
adjustment. This

[[Page 1046]]

will ensure the outstanding principal balance is properly amortized 
within the prescribed loan maturity and eliminate the possibility of a 
balloon payment at the end of the loan.
    (c) Changes. Any change in the interest rate between the date of 
issuance of the Conditional Commitment for Guarantee and before the 
issuance of the Loan Note Guarantee must be approved by the Agency. 
Approval of such change will be shown as an amendment to the Conditional 
Commitment for Guarantee.
    (d) Different rates on guaranteed and unguaranteed portion of the 
loan. It is permissible to have one interest rate on the guaranteed 
portion of the loan and another interest rate on the unguaranteed 
portion of the loan, provided the lender and borrower agree, and:
    (1) The rate on the unguaranteed portion does not exceed that 
currently being charged on loans for similar purposes to borrowers under 
similar circumstances; and
    (2) The rate on the guaranteed portion of the loan will not exceed 
the rate on the unguaranteed portion. This requirement does not apply 
when the unguaranteed rate is variable and the guaranteed portion is 
fixed.
    (e) Multi-rates. When multi-rates are used, the lender will provide 
the Agency with the overall effective interest rate for the entire loan. 
Multi-rate loans may be either fixed, variable, or a combination of 
fixed and variable.



Sec. 1779.34  Terms of loan repayment.

    (a) General. Principal and interest on the loan will be due and 
payable as provided in the note except, any interest accrued as the 
result of the borrower's default on the guaranteed loan over and above 
that which would have accrued at the note rate on the guaranteed loan 
will not be guaranteed by the Agency. The lender will structure 
repayments as established in the loan agreement between the lender and 
borrower. Ordinarily, such installments will be scheduled for payment as 
agreed upon by the lender and borrower on terms that reasonably ensure 
repayment of the loan. However, the first installment to include a 
repayment of principal may be scheduled for payment after the project is 
operable and has begun to generate income. Such installment must be due 
and payable within 3 years from the date of the note and at least 
annually thereafter. Interest will be due at least annually from the 
date of the note. Monthly payments will be required except for borrowers 
with income limited to less frequent intervals.
    (b) Term length. The maximum time allowable for final maturity for a 
guaranteed WW loan will be limited to the useful life of the facility, 
not to exceed 40 years.
    (c) Balloon payments. The principal balance should be properly 
amortized within the prescribed loan maturity. Balloon payments at the 
end of the loan are prohibited.



Secs. 1779.35-1779.36  [Reserved]



Sec. 1779.37  Insurance and fidelity bonds.

    The lender must provide evidence that the borrower has adequate 
insurance and fidelity bond coverage by loan closing or start of 
construction, whichever occurs first. Adequate coverage must be 
maintained for the life of the loan and is subject to Agency review and 
approval.



Secs. 1779.38-1779.41  [Reserved]



Sec. 1779.42  Design and construction requirements.

    The lender will provide the Agency with a written certification at 
the end of construction that all funds were utilized for authorized 
purposes. The borrower and the lender will authorize designs and plans 
based upon the preliminary architectural and engineering reports or 
plans approved by the lender and concurred in by the Agency. The 
borrower will take into consideration any lender or Agency comments when 
the facility is being designed.
    (a) Architectural and engineering practices. All project facilities 
must be designed utilizing accepted architectural and engineering 
practices and must conform to applicable Federal, State, and local codes 
and requirements. The lender must ensure that the planned project will 
be completed within the available funds and, once completed, will be 
suitable for the borrower's needs.

[[Page 1047]]

    (b) Construction monitoring. The lender will monitor the progress of 
construction and undertake the reviews and inspections necessary to 
ensure that construction proceeds in accordance with the approved plans, 
specifications, and contract documents and that funds are used for 
eligible project costs. The lender must expeditiously report any 
problems in project development to the Agency.
    (c) Equal employment opportunities. For all construction contracts 
in excess of $10,000, the contractor must comply with Executive Order 
11246 (30 FR 12319, 3 CFR, 1964-1965 Comp., p. 339) entitled ``Equal 
Employment Opportunity'' as amended and as supplemented by applicable 
Department of Labor regulations (41 CFR part 60-1). The borrower and 
lender are responsible for ensuring that the contractor complies with 
these requirements.
    (d) Americans with Disabilities Act. WW loans which involve the 
construction of, or addition to, facilities that accommodate the public 
and commercial facilities as defined by the Americans with Disabilities 
Act (42 U.S.C. 12181--et seq.) must comply with that Act. The lender and 
borrower are responsible for compliance.
    (e) Administrative. When the Agency reviews the preliminary 
architectural and engineering reports or plans, they must also consider 
all applicable Federal laws such as the seismic requirements of 
Executive Order 12699 (55 FR 835, 3 CFR, 1990 Comp., p. 269), the 
debarment requirements of 7 CFR part 3017, and the Copeland Anti-
Kickback Act (18 U.S.C. 874).



Sec. 1779.43  Other Federal, State, and local requirements.

    In addition to the specific requirements of this part and beginning 
on the date of issuance of the Loan Note Guarantee, proposals for 
facilities financed in whole or in part with a loan guaranteed by the 
Agency will be coordinated with all appropriate Federal, State, and 
local agencies. Borrowers and lenders will be required to comply with 
any Federal, State, or local laws or regulatory commission rules which 
are in existence and which affect the project including, but not limited 
to:
    (a) Applicant's authority to design, construct, develop, operate, 
and maintain the proposed facilities;
    (b) Borrowing money, giving security, and raising revenues for 
repayment;
    (c) Land use zoning;
    (d) Health, safety, and sanitation standards as well as design and 
installation standards; and
    (e) Protection of the environment and consumer affairs.



Secs. 1779.44-1779.46  [Reserved]



Sec. 1779.47  Economic feasibility requirements.

    All projects financed under the provisions of this section must be 
based on taxes, assessments, revenues, fees, or other sources of 
revenues in an amount sufficient to provide for facility operation and 
maintenance, a reasonable reserve, and debt payment. The lender is 
responsible for determining the credit quality and economic feasibility 
of the proposed loan and must address all elements of the credit quality 
in a written financial feasibility analysis which includes adequacy of 
equity, cash flow, security, history, and management capabilities. 
Financial feasibility reports must take into consideration any interest 
rate adjustment which may be instituted under the terms of the note. The 
lender's financial credit analysis may also serve as the feasibility 
analysis when sufficient evidence is included to determine economic 
feasibility as well as financial viability. The borrower's consulting 
engineer may complete the financial feasibility analysis for WW systems. 
If the facility is used by businesses and the success or failure of the 
facility is dependent on individual businesses, then the economic 
viability of those businesses must be assessed.
    (a) Exceptions. The Agency loan approval official may exempt the 
lender from the requirement for an independent financial feasibility 
report (when requested by the borrower and the lender) provided the 
approval official determines that the financial feasibility analysis 
prepared by the borrower fairly represents the financial

[[Page 1048]]

feasibility of the facility and the financial feasibility analysis 
contains an accurate projection of the usage, revenues, and expenses of 
the facility.
    (b) Insufficient information. When the lender or Agency has 
insufficient information to determine the borrower's repayment ability, 
an independent feasibility analysis is required.



Sec. 1779.48  Collateral.

    (a) Lender responsibility. The lender is responsible for obtaining 
and maintaining proper and adequate collateral to protect the interest 
of the lender, the holder, and the Government.
    (b) Type of collateral. Collateral must be of such a nature that 
repayment of the loan is reasonably ensured when considered with the 
integrity and ability of project management, soundness of the project, 
and the borrower's prospective earnings. The collateral may include, but 
is not limited to, the following: General obligation bonds, revenue 
bonds, pledge of taxes or assessments, assignment of facility revenue, 
land, easements, rights-of-way, water rights, buildings, machinery, 
equipment, accounts receivable, contracts, cash, or other accounts or 
assignments of leases or leasehold interest.
    (c) Separate collateral. All collateral must secure the entire loan. 
The lender will not take separate security to secure only the 
unguaranteed portion of the loan. The lender will not require 
compensating balances or certificates of deposit as a means of 
eliminating the lender's exposure on the unguaranteed portion of the 
loan.



Secs. 1779.49-1779.51  [Reserved]



Sec. 1779.52  Processing.

    (a) Preapplications. (1) The preapplication package may be submitted 
either alone or the necessary information may be submitted 
simultaneously with the application. The preapplication package will 
contain:
    (i) An Application for Federal Assistance on a form provided by the 
Agency (available in any Agency office);
    (ii) State intergovernmental or other type review comments and 
recommendations for the borrower's project (clearinghouse comments, if 
applicable);
    (iii) Supporting documentation necessary to make an eligibility 
determination such as financial statements, audits, copies of 
organizational documents, or existing debt instruments; and
    (iv) Documentation of lender eligibility in accordance with 
Sec. 1779.27.
    (2) If the Agency determines that the project may meet requirements 
and is likely to be funded, the lender must submit a complete 
application if it has not previously submitted one.
    (b) Applications. Contents of application package:
    (1) Application for Loan and Guarantee on a form prescribed by the 
Agency (available in any Agency office);
    (2) Proposed loan agreement;
    (3) Environmental Report. (See RUS Bulletin 1794A-602; this document 
is available in any Agency State Office or online at http://
www.usda.gov/rus/water/ees/index.htm);
    (4) Preliminary architectural or engineering report (PER);
    (5) Cost estimates;
    (6) Appraisal reports (as appropriate);
    (7) Credit reports (as appropriate);
    (8) Financial feasibility analysis and report (as appropriate) if 
not included in PER; and
    (9) Any additional information required.



Sec. 1779.53  Evaluation of application.

    If the Agency determines that the borrower is eligible, the proposed 
loan is for an eligible purpose, there is reasonable assurance of 
repayment ability, sufficient collateral and equity exists, the proposed 
loan complies with all applicable statutes and regulations, the 
environmental impact analyses is complete, and adequate funds are 
available, the Agency will provide the lender and the borrower with the 
Conditional Commitment for Guarantee, listing all conditions for the 
guarantee. Applicable requirements will include the following:
    (a) Approved use of guaranteed loan funds (source and use of funds);
    (b) Rates and terms of the loan;
    (c) Scheduling of payments;
    (d) Number of customers;
    (e) Security and lien priority;
    (f) Appraisals;

[[Page 1049]]

    (g) Insurance and bonding;
    (h) Financial reporting;
    (i) Equal opportunity and nondiscrimination;
    (j) Mitigation measures for environmental issues (if necessary);
    (k) Americans with Disabilities Act;
    (l) By-laws and articles of incorporation changes; and
    (m) Other requirements necessary to protect the Government.



Secs. 1779.54-1779.58  [Reserved]



Sec. 1779.59  Review of requirements.

    (a) Lender and borrower. The lender and borrower must complete and 
sign the Acceptance of Conditions and return a copy to the Agency as 
soon as possible. Notwithstanding the preceding sentence, if certain 
conditions cannot be met, the lender and borrower may propose alternate 
conditions for Agency consideration.
    (b) Cancellation. If the lender decides at any time after receiving 
a Conditional Commitment for Guarantee that it no longer wants a 
guarantee, the lender must immediately advise the Agency of the 
cancellation.
    (c) Modifications. The lender agrees that once the Conditional 
Commitment for Guarantee is issued and accepted by the lender and 
borrower, it will not be modified as to the scope of the project, 
overall facility concept, project purpose, use of proceeds, or other 
terms and conditions.



Secs. 1779.60-1779.62  [Reserved]



Sec. 1779.63  Conditions precedent to issuance of the Loan Note 
Guarantee.

    The Loan Note Guarantee will not be issued until:
    (a) The lender certifies that:
    (1) No changes have been made in the lender's loan conditions and 
requirements since the issuance of the Conditional Commitment for 
Guarantee except those approved in the interim by the Agency in writing.
    (2) All planned property acquisition has been completed and all 
development has been substantially completed in accordance with plans, 
specifications, and applicable building codes. No costs have exceeded 
the amounts approved by the lender and the Agency.
    (3) Required insurance is in effect.
    (4) The loan has been properly closed and the required security 
instruments have been obtained on any after-acquired property that 
cannot be covered initially under State statutory provisions.
    (5) The borrower has marketable title to the collateral then owned 
by the borrower, subject to the instrument securing the loan to be 
guaranteed and subject to any other exceptions approved, in writing, by 
the Agency.
    (6) When required, the entire amount of the loan for working capital 
has been disbursed except in cases where the Agency has approved 
disbursement over an extended time.
    (7) All other requirements of the Conditional Commitment for 
Guarantee have been met.
    (8) Lien priorities are consistent with requirements of the 
Conditional Commitment for Guarantee.
    (9) The loan proceeds have been disbursed for purposes and in 
amounts consistent with the Conditional Commitment for Guarantee and as 
specified on the application for the guaranteed loan. A copy of a 
detailed statement by the lender detailing the use of loan funds will be 
attached to support this certification.
    (10) There has been no substantive adverse change in the borrower's 
financial condition nor any other adverse change in the borrower during 
the period of time from the Agency's issuance of the Conditional 
Commitment for Guarantee to issuance of the Loan Note Guarantee. The 
lender's certification must address all adverse changes of the borrower 
and the guarantors. For purposes of this paragraph (a)(10), the term 
borrower includes any parent, affiliate, or subsidiary of the borrower.
    (11) All Federal, State, and local design and construction 
requirements have been met.
    (12) The lender understands and will meet the requirements of the 
Debt Collection Act (31 U.S.C. Chapter 37).
    (13) The lender would not make the loan without an Agency guarantee.
    (b) The lender has executed and delivered the Lender's Agreement and 
closing report for the guaranteed loan

[[Page 1050]]

along with the appropriate guarantee fee.
    (c) The lender has advised the Agency of plans to sell or assign any 
part of the loan as provided in the Lender's Agreement.
    (d) Where applicable, the lender must certify that the borrower has 
obtained:
    (1) A legal opinion relative to the title to rights-of-way and 
easements. Lenders are responsible for ensuring that borrowers have 
obtained valid, continuous, and adequate rights-of-way and easements 
needed for the construction, operation, and maintenance of a facility.
    (2) A title opinion or title insurance showing ownership of the land 
and all mortgages or other lien defects, restrictions, or encumbrances, 
if any. It is the responsibility of the lender to ensure that the 
borrower has obtained and recorded such releases, consents, or 
subordinations to such property rights from holders of outstanding liens 
or other instruments as may be necessary for the construction, 
operation, and maintenance of the facility and to provide the required 
security. For example, when a site is for major structures and the 
lender and borrower are able to obtain only a right-of-way or easement 
on such a site rather than a fee simple title, such a title opinion must 
be requested.
    (e) If the Loan Note Guarantee cannot be issued before the 
Conditional Commitment expires, the lender must submit a written request 
for an extension of the expiration date. The lender must document and 
certify to paragraph (a)(1) and (a)(11) of this section specifically 
identifying any modifications.
    (f) Coincident with, or immediately after, loan closing, the lender 
will contact the Agency and provide those documents and certifications 
required in this section. For loans to public bodies, lenders may 
require an opinion from recognized bond counsel regarding the adequacy 
of the preparation and issuance of the debt instruments. Only when the 
Agency is satisfied that all conditions for the guarantee have been met 
will the Loan Note Guarantee be executed.



Sec. 1779.64  Issuance of Lender's Agreement, Loan Note Guarantee, and Assignment Guarantee Agreement.

    (a) Lender's Agreement. If the Agency finds that all requirements 
have been met, the lender and the Agency will execute the Lender's 
Agreement. The original will be retained by the Agency and a signed 
duplicate original will be retained by the lender. A separate Lender's 
Agreement must be executed for each loan to be guaranteed by the Agency.
    (b) Loan Note Guarantee. (1) Upon receipt of the executed Lender's 
Agreement and after all requirements have been met, the Agency will 
execute the Loan Note Guarantee. All originals of the Loan Note 
Guarantee will be provided to the lender and attached to the note.
    (2) If the lender has selected the multi-note system, a Loan Note 
Guarantee will be prepared and attached to each note the borrower 
issues. All the notes will be listed on the Loan Note Guarantee. Not 
more than ten notes will be issued for the guaranteed portion (unless 
the Agency and borrower agree otherwise) and one note issued for the 
unguaranteed portion.
    (c) Assignment of Guarantee. In the event the lender assigns the 
guaranteed portion of the loan to a holder, the lender, holder, and 
Agency will execute an Agency prescribed Assignment Guarantee Agreement.
    (d) Failure to meet conditions. If the Agency determines that it 
cannot execute the Loan Note Guarantee because all requirements have not 
been met, the lender will have a reasonable period within which to 
satisfy the objections. If the lender satisfies the objections within 
the time allowed, the guarantee will be issued.
    (e) Loan closing report. The lender will prepare and deliver a 
guaranteed loan closing report for each loan to be guaranteed and a 
guarantee fee to the Agency in return for the Loan Note Guarantee.



Sec. 1779.65  Lender's sale or assignment of the guaranteed portion of 
loan.

    The lender may retain all of the guaranteed loan. The lender must 
not sell or participate any amount of the guaranteed or non-guaranteed 
portion

[[Page 1051]]

of the loan to the borrower or to members of the borrower's immediate 
families, the borrower's officers, directors, stockholders, other 
owners, or a subsidiary or affiliate. Disposition of the guaranteed 
portion of a loan may not be made prior to full disbursement, completion 
of construction, and acquisition of real estate and equipment without 
the prior written approval of the Agency. If the lender desires to 
market all or part of the guaranteed portion of the loan at, or 
subsequent to, loan closing, the loan must not be in default.
    (a) Assignment. Any sale or assignment by the lender of the 
guaranteed portion of the loan must be accomplished in accordance with 
the conditions in the Lender's Agreement.
    (b) Participation. The lender may obtain participation in the loan 
under its normal operating procedures.
    (c) Minimum retention. The lender is required to hold in its own 
portfolio or retain a minimum of 5 percent of the total loan amount. 
This amount must be of the non-guaranteed portion of the loan and cannot 
be participated to another. The lender may sell the remaining amount of 
the non-guaranteed portion of the loan only through participation.



Secs. 1779.66-1779.68  [Reserved]



Sec. 1779.69  Loan servicing.

    (a) Lender responsibilities. The lender is responsible for servicing 
the entire loan in accordance with the lender's loan agreement. The 
unguaranteed portion of the loan will not be paid first nor given any 
preference or priority over the guaranteed portion of the loan. The 
lender is responsible for taking all servicing actions that a prudent 
lender would perform in servicing a portfolio of loans that are not 
guaranteed. This responsibility includes, but is not limited to, the 
collection of payments; obtaining compliance with the covenants and 
provisions in the note, loan agreement, security instrument, or any 
supplemental agreements; obtaining and analyzing financial statements; 
verifying the payment of taxes and insurance premiums; and maintaining 
liens on collateral. The lender must notify the Agency of any violation 
of the loan agreement with the borrower within 30 days of such 
violation.
    (b) Financial reports. The lender must obtain the financial 
statements required by the Loan Agreement. The lender must submit the 
borrower's annual financial statements to the Agency within 120 days of 
the end of the borrower's fiscal year. The lender must analyze the 
financial statements and provide the Agency with a written summary of 
the lender's analysis and conclusions, including trends, strengths, 
weaknesses, extraordinary transactions, and other indications of the 
financial condition of the borrower. Additionally, when applicable, the 
lender will require an audit in accordance with Office of Management and 
Budget (OMB) circulars (available in any Agency office).
    (c) Delinquent loans. The lender will service delinquent loans in 
accordance with the Lender's Agreement and reasonable and prudent 
lending standards.
    (d) Loan balances. The lender must report to the Agency the 
outstanding principal and interest balance on each guaranteed loan 
semiannually.
    (e) Collateral inspections. The lender will inspect the collateral 
as often as necessary to properly service the loan.



Secs. 1779.70-1779.72  [Reserved]



Sec. 1779.73  Replacement of loss, theft, destruction, mutilation, or defacement of Loan Note Guarantee or Assignment Guarantee Agreement.

    (a) Replacement. The Agency may issue a replacement Loan Note 
Guarantee or Assignment Guarantee Agreement which may have been lost, 
stolen, destroyed, mutilated, or defaced to the lender or holder upon 
receipt of a certificate of loss and an indemnity bond in accordance 
with this section.
    (b) Lender responsibilities. When a Loan Note Guarantee or 
Assignment Guarantee Agreement 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 the Agency for 
processing. The requirements for replacement are as follows:

[[Page 1052]]

    (1) A certificate of loss properly notarized which includes:
    (i) Legal name and present address of either the lender or the 
holder who is requesting the replacement forms;
    (ii) Legal name and address of the lender of record;
    (iii) Capacity of person certifying;
    (iv) Full identification of the Loan Note Guarantee or Assignment 
Guarantee Agreement, including the name of the borrower, Agency case 
number, date of the Loan Note Guarantee, Assignment Guarantee Agreement, 
face amount of the evidence of debt purchased, date of evidence of debt, 
present balance of the loan, percentages of guarantee and, if Assignment 
Guarantee Agreement, the original named holder and the percentage of the 
guaranteed portion of the loan assigned to that holder. Any existing 
parts of the document to be replaced must be attached to the 
certificate;
    (v) A full statement of circumstances of the loss, theft, or 
destruction of the Loan Note Guarantee or Assignment Guarantee 
Agreement; and
    (vi) The holder shall present evidence demonstrating current 
ownership of the Loan Note Guarantee and Note or Assignment Guarantee 
Agreement. If the present holder is not the same as the original holder, 
a copy of the endorsement of each successive holder in the chain of 
transfer from the initial holder to present holder must be included. If 
copies of the endorsement cannot be obtained, best available records of 
transfer must be presented to the Agency (e.g., order confirmation, 
canceled checks).
    (2) An indemnity bond acceptable to the Agency shall accompany the 
request for replacement except when the holder is the United States, a 
Federal Reserve Bank, a Federal Government corporation, a State or 
Territory, or the District of Columbia.
    (3) All indemnity bonds must be issued and payable to the United 
States of America. The bond shall be in an amount not less than the 
unpaid principal and interest. The bond shall hold the Government 
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. 1779.74  [Reserved]



Sec. 1779.75  Defaults by borrower.

    (a) Lender notification to Agency. The lender must notify the Agency 
when a borrower is 30 days past due on a payment, has not met its 
responsibilities of providing the required financial statements, or is 
otherwise in default. The lender will continue to keep the Agency 
informed on a bimonthly basis until such time as the loan is no longer 
in default. If a monetary default exceeds 60 days, the lender will 
arrange a meeting with the borrower to resolve the default. The lender 
will provide a summary of the meeting and any decisions or actions 
agreed upon.
    (b) Servicing options. In considering servicing options, the 
prospects for providing a permanent cure without adversely affecting the 
risks to the Agency and the lender must be the paramount objective. 
Temporary curative actions (such as payment deferments or collateral 
subordination) must strengthen the loan and be in the best financial 
interest of the lender and the Agency. Some of these actions may require 
concurrence of the holder.
    (c) Multi-note. If the loan was closed with the multi-note option, 
the lender may need to possess all notes to take some servicing actions. 
In those situations when the Agency is holder of some of the notes, the 
Agency may endorse the notes back to the lender, provided a proper 
receipt is received from the lender which defines the reason for the 
transfer. Under no circumstances will the Agency endorse the original 
Loan Note Guarantee to the lender.



Secs. 1779.76-1779.77  [Reserved]



Sec. 1779.78  Repurchase of loan.

    (a) Repurchase by lender. The lender has the option to repurchase 
the loan from a holder within 30 days of written demand from the holder 
when the borrower is in default not less than 60 days on payment. The 
repurchase will be for an amount equal to the unpaid guaranteed portion 
of principal and accrued interest less the lender's servicing fee. The 
guarantee does not cover the note

[[Page 1053]]

interest to the holder on the guaranteed loan accruing after 90 days 
from the date of the demand letter to the lender. The holder will 
concurrently send a copy of the demand to the Agency. 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 of funds, resolve the problem, and permit the borrower to 
cure the default, where reasonable. The lender will notify the holder 
and the Agency of its decision within 30 days of receipt of demand from 
the holder.
    (b) Agency repurchase. (1) If the lender does not repurchase as 
provided in paragraph (a) of this section, the Agency will purchase from 
the holder the unpaid principal balance of the guaranteed portion 
together with accrued interest to date of repurchase (less the lender's 
servicing fee) within 30 days after a specific written demand directed 
to the Agency. The copy of the demand on the lender is not sufficient. 
The guarantee will not cover the note interest to the holder on the 
guaranteed loan accruing after 90 days from the date of the original 
demand letter. The lender shall not charge the Agency any servicing fees 
nor are any such fees collectible from the Agency.
    (2) The holder's demand to the Agency must include a copy of the 
written demand made upon the lender. The holder or duly authorized agent 
must also include evidence of the right to require payment from the 
Agency. Such evidence will consist of either the original of the Loan 
Note Guarantee properly endorsed to the Agency or the original of the 
Assignment Guarantee Agreement properly assigned to the Agency without 
recourse including all rights, title, and interest in the loan. The 
Agency will be subrogated to all rights of the holder. The holder must 
include in the demand the amount due including unpaid principal, unpaid 
interest to date of demand, and interest subsequently accruing from the 
date of demand to the proposed payment date. Unless otherwise agreed to 
by the Agency, such proposed payment will not be later than 30 days from 
the date of demand.
    (3) The lender must promptly provide the Agency with the information 
necessary for the Agency's determination of the appropriate amount due 
the holder upon the Agency's notification to the lender of the holder's 
demand for payment. This information must be certified by an authorized 
officer of the lender. Any discrepancy between the amount claimed by the 
holder and the information submitted by the lender must be resolved 
before payment will be approved. The Agency will notify both parties and 
such conflict will suspend the running of the 30-day payment 
requirement.
    (4) Any purchase by the Agency does not change, alter, or modify any 
of the lender's obligations to the Agency arising from the loan or 
guarantee nor does it waive any of the Agency's rights against the 
lender. The Agency may set off against the lender all rights inuring to 
the Agency as the holder of the instrument against the Agency's 
obligation to the lender under the Loan Note Guarantee.
    (c) Repurchase for servicing.When the lender determines that 
repurchase of the guaranteed portion of the loan is necessary to service 
the loan, the holder must sell the guaranteed portion to the lender for 
the unpaid principal and interest balance (less the lender's servicing 
fee). The guarantee does not cover interest accruing after 90 days from 
the date the lender's or Agency's letter requesting the holder to tender 
its guaranteed portion. The lender must not repurchase from the holder 
for arbitrage purposes to further its own financial gain. Any repurchase 
must be made only after the lender obtains the Agency written approval. 
If the lender does not repurchase the portion from the holder, the 
Agency may, at its option, purchase such guaranteed portion for 
servicing purposes.



Sec. 1779.79  [Reserved]



Sec. 1779.80  Interest rate changes after loan closing.

    (a) General.Subject to the restrictions below, the borrower, lender, 
and holder (if any) may collectively effect a permanent reduction in the 
interest rate on the guaranteed loan at any time during the life of the 
loan on written

[[Page 1054]]

agreement by all of the applicable parties. After such a permanent 
reduction, the Loan Note Guarantee will only cover losses of interest at 
the reduced interest rate. The Agency must be notified by the lender, in 
writing, within 10 calendar days of the change. When the Agency is a 
holder, it will concur only when it is demonstrated that the change is 
more viable than liquidation and that the Government's financial 
interests are not adversely affected. Factors which will be considered 
in making such determination are the Government's cost of borrowing 
money and the project's enhancement of rural development. The monetary 
recovery must be greater than the liquidation recovery, and a financial 
feasibility analysis must show the project's continued viability.
    (1) Fixed rates cannot be changed to variable rates to reduce the 
interest rate to the borrower unless the variable rate has a ceiling 
which is less than the original fixed rate.
    (2) Variable rates can be changed to a lower fixed rate. In a final 
loss settlement when qualifying rate changes are made with the required 
written agreements and notification, the interest will be calculated for 
the periods the given rates were in effect. The lender must maintain 
records which adequately document the accrued interest claimed.
    (3) The lender is responsible for the legal documentation of 
interest rate changes. However, the lender may not issue a new note.
    (b) Increases.No increases in interest rates will be permitted under 
the loan guarantee except the normal fluctuations in approved variable 
interest rate loans.



Sec. 1779.81  Liquidation.

    Liquidation will occur when the lender concludes that liquidation of 
the guaranteed loan is necessary because of default or third party 
actions that the borrower cannot, or will not, cure or eliminate within 
a reasonable period of time and the Agency concurs with the lender; or 
the Agency, at any time, independently concludes that liquidation is 
necessary. The lender will proceed as expeditiously as possible, 
including giving any notices or taking any legal actions required by the 
security instruments.
    (a) General.If a lender has made a loan guaranteed by the Agency 
under previous regulations, the lender has the option to liquidate the 
loan under the provisions of this part or under the provisions of 
previous regulations. The lender will notify the Agency in writing 
within 10 days after its decision to liquidate, which regulatory 
provisions it chooses to use. The lender may not choose some provisions 
of one regulation and other provisions of the other regulation.
    (b) Acquiring property titles.If a lender acquires title to 
property, the Agency may elect to permit the lender the option of 
calculating the final loss settlement using the net proceeds received at 
the time of the ultimate disposition of the property. The lender must 
submit to the Agency a written request to use this option within 15 days 
of acquiring title and the Agency must agree, in writing, prior to the 
lender submitting any request for estimated loss payment.
    (c) Liquidation plan.The lender will (within 30 days after a 
decision to liquidate) submit to the Agency, in writing, a proposed, 
detailed liquidation plan. Upon approval by the Agency of the 
liquidation plan, the lender will commence liquidation. The lender's 
liquidation plan must include, but is not limited to, the following:
    (1) Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan notes and related security instruments, 
a copy of the payment ledger or other documentation which reflects the 
outstanding loan balance and accrued interest to date, and the method of 
computing the interest;
    (2) A complete list of collateral;
    (3) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including the recommended action for acquiring and disposing of 
all collateral;
    (4) Necessary steps for preservation of the collateral;
    (5) Copies of the borrower's latest available financial statements;

[[Page 1055]]

    (6) An itemized list of estimated liquidation expenses expected to 
be incurred and justification for each expense;
    (7) A schedule to periodically report to the Agency on the progress 
of the liquidation;
    (8) Estimated protective advance amounts with justification;
    (9) Proposed protective bid amounts on collateral to be sold at 
auction and a discussion of how the amounts were determined;
    (10) If a voluntary conveyance is considered, the proposed amount to 
be credited to the guaranteed debt;
    (11) Legal opinions, as needed; and
    (12) If the outstanding balance of principal and interest is less 
than $250,000, the lender will obtain an estimate of fair market and 
potential liquidation value of the collateral. If the outstanding 
balance of principal and interest is $250,000 or more, the lender will 
obtain an independent appraisal report on all collateral securing the 
loan which will reflect the fair market value and potential liquidation 
value. The independent appraiser's fee will be shared equally by the 
Agency and the lender.
    (d) Partial liquidation plan.If actions are necessary to immediately 
preserve and protect the collateral, a partial liquidation plan may be 
submitted and, when approved, must be followed by a complete liquidation 
plan prepared by the lender.
    (e) Disposition of collateral.Disposition of collateral acquired by 
the lender must be approved, in writing, by the Agency when:
    (1) The lender's cost to acquire the collateral of a borrower 
exceeds the potential recovery value of the security and the lender 
proposes abandoning the collateral in lieu of liquidation; or
    (2) The acquired collateral is to be sold to the borrower, 
borrower's stockholders or officers, or the lender or lender's 
stockholders or officers.
    (f) Agency liquidation.The Agency will liquidate at its option only 
when it is a holder and there is reason to believe the lender is not 
likely to initiate liquidation efforts that will result in maximum 
recovery. When the Agency liquidates, proceeds derived from the sale of 
the collateral will be applied first to reasonable liquidation expenses 
and second to the guaranteed portion of the loan.
    (g) Final loss payment.Final loss payments will be made only after 
all collateral has been properly accounted for and liquidation expenses 
are determined to be reasonable and within approved limits. Any 
estimated loss payments made to the lender will be credited against the 
final loss on the guaranteed loan. The amount of an estimated loss 
payment must be credited as a deduction from the principal balance of 
the loan.



Sec. 1779.82  [Reserved]



Sec. 1779.83  Protective advances.

    Protective advances can only be added to the loan account for 
purposes of requirements to preserve the value of the security. 
Protective advances constitute an indebtedness of the borrower to the 
lender and must be secured by collateral to the same extent as principal 
and interest. Protective advances include, but are not limited to, 
advances made for taxes, annual assessments, ground rent, hazard and 
flood insurance premiums affecting the collateral (including any other 
expenses necessary to protect the collateral). Attorney fees are not a 
protective advance.
    (a) Agency approval.The Agency must approve, in writing, all 
protective advances on loans within its loan approval authority which 
exceed a total cumulative advance amount of $5,000 to the same borrower. 
Protective advances must be reasonable when associated with the value of 
the collateral being preserved.
    (b) Preserving collateral.When considering protective advances, 
sound judgment must be exercised in determining that the additional 
funds advanced will actually preserve collateral and recovery is 
actually enhanced by making the advance.



Sec. 1779.84  Additional loans or advances.

    The lender will not make additional expenditures or new loans to the 
borrower without first obtaining the written approval of the Agency even 
though such expenditures or loans will not be guaranteed.

[[Page 1056]]



Sec. 1779.85  Bankruptcy.

    (a) Calculating losses.Report of Loss form (available in any Agency 
office) will be used for calculating estimated and final loss 
determinations.
    (b) Lender responsibility.The lender is responsible for protecting 
the guaranteed loan debt and all the collateral securing it in 
bankruptcy proceedings. These responsibilities include, but are not 
limited to, the following:
    (1) Filing a proof of claim, where necessary, and all necessary 
papers and pleadings;
    (2) Attending and, where necessary, participating in meetings of the 
creditors and all court proceedings;
    (3) Immediately seeking adequate protection of the collateral if it 
is subject to being used by the trustee in bankruptcy or the debtor in 
possession;
    (4) Where appropriate, seeking involuntary conversion of a pending 
chapter 11 case to a liquidation proceeding or seeking dismissal of the 
proceedings; and
    (5) Keeping the Agency adequately and regularly informed, in 
writing, of all aspects of the proceedings.
    (c) Appraisals.In a chapter 9 or chapter 11 reorganization, the 
lender must obtain an independent appraisal of the collateral if the 
Agency believes an independent appraisal is necessary. The Agency and 
the lender will share the appraisal fee equally.
    (d) Liquidation expenses.Only expenses authorized by the court of 
chapter 9 plans or chapter 11 reorganizations, or chapters 11 or 7 
liquidation (unless the liquidation is by the lender), may be deducted 
from the collateral proceeds.
    (e) Repurchase from the holder.The Agency or the lender, with the 
approval of the Agency, may initiate the repurchase of the unpaid 
guaranteed portion of the loan from the holder. If the lender is the 
holder, an estimated loss payment may be filed at the initiation of a 
chapter 7 proceeding or after a chapter 9 or chapter 11 proceeding 
becomes a liquidation proceeding. Any loss payment on loans in 
bankruptcy must be approved by the Agency.
    (f) Chapter 11 bankruptcy. If a borrower has filed for protection 
under chapters 9 or 11 of the United States Code for a reorganization 
(but not chapter 13) and all or a portion of the debt has been 
discharged, the lender may request an estimated loss payment of the 
guaranteed portion of the accrued interest and principal discharged by 
the court. If the court approves revisions to the chapter 9 plan or 
chapter 11 reorganization plan, subsequent estimated loss payments may 
be requested in accordance with the court approved changes. Once the 
reorganization plan has been satisfactorily completed, the lender is 
responsible for submitting the documentation necessary for the Agency to 
review and adjust the estimated loss claim to reflect any actual 
discharge of principal and interest and to reimburse the lender for any 
court ordered interest-rate reduction under the terms of the 
reorganization plan.
    (g) Agency approval of estimated liquidation expenses. The Agency 
must approve, in advance and in writing, the lender's estimated 
liquidation expenses of collateral in a liquidation if the liquidation 
is performed by the lender. These expenses must be reasonable and 
customary and not include in-house expenses of the lender.
    (h) Reconciliation. In the event that the estimated loss payment 
exceeds the actual loss, the lender will reimburse the Agency the amount 
in excess of the actual loss plus interest at the note rate from the 
date of the estimated loss payment.



Secs. 1779.86-1779.87  [Reserved]



Sec. 1779.88  Transfers and assumptions.

    (a) General. For all transfers and assumptions, the lender must 
concur in the plans for disposition of funds in the transferor's debt 
service, reserve, and operation and maintenance account. The Agency will 
approve, in writing, transfers and assumptions of loans to transferees 
who will continue the original purpose of the guaranteed loan subject to 
the following applicable provisions:
    (1) When the transaction is to a member of the borrower's 
organization, it will be at an amount which will not result in a loss to 
the lender.
    (2) Transfers to eligible borrowers will receive preference if 
recovery to the lender from the sale price is not

[[Page 1057]]

less than it would be if the transfer was to an ineligible borrower.
    (3) The present borrower is unable or unwilling to accomplish the 
objectives of the guaranteed loan, and the transfer will be to the 
lender's and Agency's advantage.
    (4) The transferee will assume an amount at least equal to either 
the present market value or the debt, whichever is less.
    (b) Transfers to an eligible borrower. (1) The total indebtedness 
may be transferred to an eligible borrower on the same terms.
    (2) The total indebtedness may be transferred to another eligible 
borrower on different terms not to exceed those terms for which an 
initial guaranteed loan can be made.
    (3) Less than the total indebtedness may be transferred to another 
eligible borrower on the same or different terms and the pro rata share 
of any eligible loss paid to the lender.
    (4) A guaranteed loan for which the transferee is eligible may be 
made in connection with a transfer subject to the policies and 
procedures governing the type of loan being made.
    (5) If the transferor is to receive a payment for the equity, the 
total debt must be assumed.
    (c) Ineligible borrower. Transfers to ineligible borrowers are 
considered only when needed as a method for servicing problem cases when 
an eligible transferee is not available. Transfers should not be 
considered as a means by which members can obtain equity or as a method 
of providing a source of easy credit for purchasers. Transfers must meet 
the following requirements:
    (1) All transfers to ineligible borrowers will include a one-time 
nonrefundable transfer fee to the Agency of no more than 1 percent. 
Transfer fees will be collected, and payments applied, in accordance 
with paragraph (d) of this section.
    (2) For all loans covered by this part, the Agency may approve a 
transfer of indebtedness to, and assumption of, a loan by a transferee 
who does not meet the eligibility requirements for the kind of loan 
being assumed when the ineligible borrower will:
    (i) Make a significant down payment, and
    (ii) Agree to pay the remaining balance within not more than 15 
years. Installments will be at least equal to the amount amortized over 
a period not greater than the remaining life of the debt being 
transferred, and the balance will be due the fifteenth year.
    (3) Interest rates to ineligible transferees will be the rate 
specified in the note of the transferor or the rates customarily charged 
borrowers in similar circumstances in the ordinary course of business 
and are subject to Agency review and approval. The rates may be either 
fixed or variable.
    (i) Transferees must have the ability to repay as determined by the 
lender the debt according to the Assumption Agreement and must have the 
legal authority to enter into the contract. The transferee will submit a 
current balance sheet to the lender. The lender will obtain and analyze 
the credit history of the transferee.
    (ii) The transferor may receive equity payments only when the full 
amount of the debt is assumed. However, equity payments will not be made 
on more favorable terms than those on which the balance of the debt will 
be paid.
    (d) Transfer fees. Transfer fees are a one-time nonrefundable cost 
to be collected by the lender at the time of application or proposal.
    (1) The transfer fees will be a standard fee plus the cost of the 
appraisal.
    (2) The lender will collect and submit the fee to the Agency.
    (3) The Agency may waive the transfer fee if it determines that such 
waiver is in the best interest of the Agency.
    (e) Processing transfers and assumptions. (1) In any transfer and 
assumption case, the transferor (including any guarantor) may be 
released from liability by the lender only with prior Agency written 
concurrence and only when the value of the collateral being transferred 
is at least equal to the amount of the loan, or part of the loan, being 
assumed. If the transfer is for less than the entire debt:
    (i) The Agency must determine that the transferor and any guarantor 
have no reasonable debt-paying ability considering their assets and 
income at the time of transfer, and

[[Page 1058]]

    (ii) The lender must certify that the transferor has cooperated in 
good faith, used due diligence to maintain the collateral against loss, 
and has otherwise fulfilled all of the regulations of this part to the 
best of the borrower's ability.
    (2) The lender will make, in all cases, a complete credit analysis 
to determine viability of the project (subject to the Agency review and 
approval) including any requirement for deposit in an escrow account as 
security to meet the determined equity requirements for the project.
    (3) The lender will confirm that the transaction can be properly 
transferred and the conveyance instruments will be filed, registered, or 
recorded as appropriate and legally permissible.
    (4) The assumption will be made on the lender's form of Assumption 
Agreement and will contain the Agency case number of the transferor and 
transferee.
    (5) Loan terms cannot be changed by the Assumption Agreement unless 
previously approved in writing by the Agency with the concurrence of 
holder and the transferor (including guarantor if it has not been 
released from personal liability). Any new loan terms cannot exceed 
those authorized in this part. The lender's request will be supported 
by:
    (i) An explanation of the reasons for the proposed change in the 
loan terms, and
    (ii) Certification that the lien position securing the guaranteed 
loan will be maintained or improved, and proper hazard insurance will be 
continued in effect.
    (6) In the case of a transfer and assumption, it is the lender's 
responsibility to see that all such transfers and assumptions will be 
noted on all originals of the Loan Note Guarantee. The lender will 
provide the Agency a copy of the Transfer and Assumption Agreement.
    (7) If a loss should occur upon a complete transfer of assets and 
assumption for less than the full amount of the debt and the transferor-
debtor (including personal guarantor) is released from personal 
liability (as provided in paragraph (e)(1)(i) of this section), the 
lender (if holding the guaranteed portion) may file an estimated Report 
of Loss to recover their pro rata share of the actual loss at that time. 
Approved protective advances and accrued interest made during the 
arrangement of a transfer and assumption, if not assumed by the 
transferee, will be entered on the estimated Report of Loss.



Sec. 1779.89  Mergers.

    (a) General. The Agency may approve mergers or consolidations 
(herein referred to as ``mergers'') when the resulting organization will 
be eligible for an Agency guaranteed loan and assumes all the 
liabilities and acquires all the assets of the merged borrower. Mergers 
may be approved when:
    (1) The merger is in the best interest of the Government and the 
merging borrower;
    (2) The resulting borrower can meet all required conditions as 
contained in specific loan note agreements; and
    (3) All property can be legally transferred to the resulting 
borrower.
    (b) Distinguishing mergers from transfers and assumptions. Mergers 
occur when one entity combines with another entity in such a way that 
the first entity ceases to exist as a separate entity while the other 
continues. In a consolidation, two or more entities combine to form a 
new, consolidated entity with the original entity ceasing to exist. Such 
transactions must be distinguished from transfers and assumptions in 
which a transferor will not necessarily go out of existence, and the 
transferee will not always take all the transferor's assets nor assume 
all the transferor's liabilities.



Sec. 1779.90  Disposition of acquired property.

    (a) General. When the lender acquires title to the collateral and 
the final loss claim is not paid until final disposition, the lender 
must proceed as quickly as possible to develop a plan to fully protect 
the collateral, and the lender must dispose of the collateral without 
delay.
    (b) Re-title collateral. Any collateral accepted by the lender must 
not be titled in the Agency's name in whole or in part. The Agency's 
position is that of a guarantor relating to losses, not a lender.

[[Page 1059]]

    (c) Collateral preservation. After acquiring the collateral, the 
lender must protect the collateral from deterioration (weather, 
vandalism, etc.). Hazard insurance in an amount necessary to cover the 
fair market value of the collateral must be maintained.
    (d) Collateral sale. (1) The lender will prepare and submit to the 
Agency a plan on the best method of sale, keeping in mind any 
prospective purchasers. The Agency must approve the plan in writing. If 
an existing approved liquidation plan addresses the disposition of 
acquired property, no further review is required unless modification of 
the plan is needed.
    (2) Anytime there is a case when the conversion of collateral to 
cash can reasonably be expected to result in a negative net recovery 
amount, abandonment of the collateral should be considered. The Agency 
must approve abandonment in writing.



Secs. 1779.91-1779.93  [Reserved]



Sec. 1779.94  Determination and payment of loss.

    In all liquidation cases, final settlement will be made with the 
lender after the collateral is liquidated. The Agency will have the 
right to recover losses paid under the guarantee from any liable party.
    (a) General.If the lender takes title to collateral, any loss will 
be based on the collateral value at the time the lender obtains title.
    (b) Loss calculations.The Report of Loss form (available in any 
Agency office) will be used for calculations of all estimated and final 
loss determinations. Estimated loss payments may only be approved after 
the lender has submitted a liquidation plan approved by the Agency.
    (c) Estimated loss payments.When the lender is conducting the 
liquidation and owns any of the guaranteed portion of the loan, it may 
request an estimated loss payment by submitting an estimate of loss that 
will occur in connection with liquidation of the loan. An estimated loss 
payment may be approved after the Agency has approved the liquidation 
plan.
    (1) The lender will prepare and submit a Report of Loss using the 
appraised value in lieu of amount received from sale of collateral.
    (2) The estimated loss payment shall be calculated as of the date of 
such payment. The total amount of the loss payment remitted by the 
Agency will be applied by the lender on the guaranteed portion of the 
loan debt. Such application does not release the borrower from 
liability. At the time of final loss settlement, the lender may notify 
the borrower that the loss payment has been so applied.
    (3) After liquidation has been completed, a final Report of Loss 
will be submitted by the lender to the Agency.
    (d) Final report of loss.In all cases, a final Report of Loss must 
be submitted to the Agency. Before Agency approval of any final loss 
report, the lender must account for all funds obtained, disposition of 
the collateral, all costs incurred, and any other information necessary 
for the successful completion of liquidation. Upon receipt of the final 
accounting and Report of Loss, the Agency may conduct an audit and will 
determine the final loss. The lender will make its records available to, 
and otherwise assist, the Agency in making any audit it requires of the 
Report of Loss. The documentation accompanying the Report of Loss must 
support the loss claimed.
    (1) The lender must document and show that all of the collateral has 
been accounted for and properly liquidated and that liquidation proceeds 
have been properly accounted for and applied correctly on the loan. The 
Agency must be satisfied that the lender has accomplished this in the 
manner contained herein and that the lender has maximized the 
collections in conducting the liquidation.
    (2) The lender must show a breakdown on any protective advance 
amount as to the payee, purpose of the expenditure, date paid, evidence 
that the amount expended was proper, and that the amount was actually 
paid.
    (3) The lender must show a breakdown of liquidation expenses as to 
the payee, purpose of the expenditure, date paid, evidence that the 
amount expended was proper, and that the amount was actually paid.
    (4) Accrued interest should be supported by attachments showing how

[[Page 1060]]

the amount was accrued by the lender. A copy of the promissory note and 
ledger will be attached. If the interest rate was a variable rate, the 
lender must include documentation of changes in the selected base rate 
and when the changes in the loan rate became effective.
    (e) Liquidation income. Any net rental or other income that has been 
received by the lender from the collateral will be applied on the 
guaranteed loan debt.
    (f) Liquidation costs. Certain reasonable liquidation costs will be 
allowed during the liquidation process. The liquidation costs must be 
submitted as a part of the liquidation plan. Such costs will be deducted 
from gross proceeds received from the disposition of collateral unless 
the costs have been previously determined by the lender (with Agency 
concurrence) to be protective advances. If changed circumstances after 
submission of the liquidation plan require a revision of liquidation 
costs, the lender will obtain the Agency's written concurrence prior to 
proceeding with the proposed changes. No in-house expenses of the lender 
will be allowed.
    (g) Protective advance losses. In those instances where the lender 
made authorized protective advances, the lender may claim recovery for 
the guaranteed portion of any loss of monies advanced as well as 
interest resulting from such protective advances. These claims shall be 
included in the final Report of Loss.
    (h) Final loss approval. After the final Report of Loss has been 
tentatively approved:
    (1) If the actual loss is greater than any estimated loss payment, 
such loss will be paid by the Agency;
    (2) If the actual loss is less than any estimated loss payment, the 
lender will reimburse the Agency;
    (3) If the Agency conducted the liquidation, it will provide an 
accounting to the lender and will pay the lender in accordance with the 
Loan Note Guarantee.
    (i) Loss limits. The amount payable by the Agency to the lender 
cannot exceed the limits contained in the Loan Note Guarantee. If the 
Agency conducts the liquidation, loss occasioned by accruing interest 
will be covered by the guarantee only to the date the Agency accepts 
this responsibility. When the liquidation is conducted by the lender, 
loss occasioned by accruing interest will be covered to the extent of 
the guarantee to the date of final settlement provided the lender 
proceeds expeditiously with the liquidation plan approved by the Agency.



Sec. 1779.95  Future recovery.

    After a loan has been liquidated and a final loss has been paid by 
the Agency, any future funds which may be recovered by the lender will 
be pro-rated between the Agency and the lender in accordance with the 
guaranteed percentage even if the Loan Note Guarantee has been 
terminated.



Sec. 1779.96  Termination of Loan Note Guarantee.

    The Loan Note Guarantee under this part will terminate 
automatically:
    (a) Upon full payment of the guaranteed loan; or
    (b) Upon full payment of any loss obligation or negotiated loss 
settlement except for future recovery provisions; or
    (c) Upon written request from the lender to the Agency, provided 
that the lender holds all of the guaranteed portion and the original 
Loan Note Guarantee is returned to the Agency.



Secs. 1779.97-1779.99  [Reserved]



Sec. 1779.100  OMB control number.

    The reporting and recordkeeping requirements contained in this part 
have been approved by the Office of Management and Budget and have been 
assigned OMB control number 0572-0122.



PART 1780--WATER AND WASTE LOANS AND GRANTS--Table of Contents



              Subpart A--General Policies and Requirements

Sec.
1780.1  General.
1780.2  Purpose.
1780.3  Definitions and grammatical rules of construction.
1780.4  Availability of forms and regulations.
1780.5  [Reserved]
1780.6  Application information.
1780.7  Eligibility.

[[Page 1061]]

1780.8  [Reserved]
1780.9  Eligible loan and grant purposes.
1780.10  Limitations.
1780.11  Service area requirements.
1780.12  [Reserved]
1780.13  Rates and terms.
1780.14  Security.
1780.15  Other Federal, State, and local requirements.
1780.16  [Reserved]
1780.17  Selection priorities and process.
1780.18  Allocation of program funds.
1780.19  Public information.
1780.20-1780.23  [Reserved]
1780.24  Approval authorities.
1780.25  Exception authority.
1780.26-1780.30  [Reserved]

            Subpart B--Loan and Grant Application Processing

1780.31  General.
1780.32  Timeframes for application processing.
1780.33  Application requirements.
1780.34  [Reserved]
1780.35  Processing office review.
1780.36  Approving official review.
1780.37  Applications determined ineligible.
1780.38  [Reserved]
1780.39  Application processing.
1780.40  [Reserved]
1780.41  Loan or grant approval.
1780.42  Transfer of obligations.
1780.43  [Reserved]
1780.44  Actions prior to loan or grant closing or start of 
          construction, whichever occurs first.
1780.45  Loan and grant closing and delivery of funds.
1780.46  [Reserved]
1780.47  Borrower accounting methods, management reporting and audits.
1780.48  Regional commission grants.
1780.49  Rural or Native Alaskan villages.
1780.50-1780.52  [Reserved]

 Subpart C--Planning, Designing, Bidding, Contracting, Constructing and 
                               Inspections

1780.53  General.
1780.54  Technical services.
1780.55  Preliminary engineering reports and Environmental Reports.
1780.56  [Reserved]
1780.57  Design policies.
1780.58-1780.60  [Reserved]
1780.61  Construction contracts.
1780.62  Utility purchase contracts.
1780.63  Sewage treatment and bulk water sales contracts.
1780.64-1780.66  [Reserved]
1780.67  Performing construction.
1780.68  Owner's contractual responsibility.
1780.69  [Reserved]
1780.70  Owner's procurement regulations.
1780.71  [Reserved]
1780.72  Procurement methods.
1780.73  [Reserved]
1780.74  Contracts awarded prior to applications.
1780.75  Contract provisions.
1780.76  Contract administration.
1780.77-1780.79  [Reserved]

 Subpart D--Information Pertaining to Preparation of Notes or Bonds and 
          Bond Transcript Documents for Public Body Applicants

1780.80  General.
1780.81  Policies related to use of bond counsel.
1780.82  [Reserved]
1780.83  Bond transcript documents.
1780.84-1780.86  [Reserved]
1780.87  Permanent instruments for Agency loans.
1780.88  [Reserved]
1780.89  Multiple advances of Agency funds using permanent instruments.
1780.90  Multiple advances of Agency funds using temporary debt 
          instruments.
1780.91-1780.93  [Reserved]
1780.94  Minimum bond specifications.
1780.95  Public bidding on bonds.
1780.96-1780.100  [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

    Source: 62 FR 33478, June 19, 1997, unless otherwise noted.



              Subpart A--General Policies and Requirements



Sec. 1780.1  General.

    (a) This part outlines the policies and procedures for making and 
processing direct loans and grants for water and waste projects. The 
Rural Utilities Service (RUS) shall cooperate fully with State and local 
agencies in making loans and grants to assure maximum support to the 
State strategy for rural development. Agency officials and their staffs 
shall maintain coordination and liaison with State agency and substate 
planning districts.
    (b) The income data used in this part to determine median household 
income must be that which most accurately reflects the income of the 
service area. The median household income of the service area and the 
nonmetropolitan median household income of the State will be determined 
from income data from the most recent decennial census of the United 
States. If there is reason to believe that the census data is not

[[Page 1062]]

an accurate representation of the median household income within the 
area to be served, the reasons will be documented and the applicant may 
furnish, or the Agency may obtain, additional information regarding such 
median household income. Information will consist of reliable data from 
local, regional, State or Federal sources or from a survey conducted by 
a reliable impartial source. The nonmetropolitan median household income 
of the State may only be updated on a national basis by the RUS National 
Office. This will be done only when median household income data for the 
same year for all Bureau of the Census areas is available from the 
Bureau of the Census or other reliable sources. Bureau of the Census 
areas would include areas such as: Counties, County Subdivisions, 
Cities, Towns, Townships, Boroughs, and other places.
    (c) RUS debt instruments will require an agreement that if at any 
time it shall appear to the Government that the borrower is able to 
refinance the amount of the indebtedness to the Government then 
outstanding, 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 
borrower will, upon request of the Government, apply for and accept such 
loan in sufficient amount to repay the Government and will take all such 
actions as may be required in connection with such loan.
    (d) Funds allocated for use under this part are also for the use of 
Indian tribes within the State, regardless of whether State development 
strategies include Indian reservations within the State's boundaries. 
Native Americans residing on such reservations must have equal 
opportunity to participate in the benefits of these programs as compared 
with other residents of the State. Such tribes might not be subject to 
State and local laws or jurisdiction. However, any requirements of this 
part that affect applicant eligibility, the adequacy of RUS's security, 
or the adequacy of service to users of the facility and all other 
requirements of this part must be met.
    (e) RUS financial programs must be extended without regard to race, 
color, religion, sex, national origin, marital status, age, or physical 
or mental handicap.
    (f) Any processing or servicing activity conducted pursuant to this 
part involving authorized assistance to Agency 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 title. Applicants for assistance are required to identify any known 
relationship or association with a RUS employee.
    (g) Water and waste facilities will be designed, installed, and 
operated in accordance with applicable laws which include but are not 
limited to the Safe Drinking Water Act, Clean Water Act and the Resource 
Conservation and Recovery Act.
    (h) RUS financed facilities will be consistent with any current 
development plans of State, multijurisdictional areas, counties, or 
municipalities in which the proposed project is located.
    (i) Each RUS financed facility will be in compliance with 
appropriate State or Federal agency regulations which have control of 
the appropriation, diversion, storage and use of water and disposal of 
excess water.
    (j) Water and waste applicants must demonstrate that they possess 
the financial, technical, and managerial capability necessary to 
consistently comply with pertinent Federal and State laws and 
requirements. In developing water and waste systems, applicants must 
consider alternatives of ownership, system design, and the sharing of 
services.
    (k) Applicants should be aware of and comply with other Federal 
statute requirements including but not limited to:
    (1) Section 504 of the Rehabilitation Act of 1973. Under section 504 
of the Rehabilitation Act of 1973, as amended (29 U.S.C. 794 et seq.), 
no handicapped individual in the United States shall, solely by reason 
of their handicap, be excluded from participation in, be denied

[[Page 1063]]

the benefits of, or be subjected to discrimination under any program or 
activity receiving RUS financial assistance;
    (2) Civil Rights Act of 1964. All borrowers are subject to, and 
facilities must be operated in accordance with, title VI of the Civil 
Rights Act of 1964 (42 U.S.C. 2000d et seq.) and subpart E of part 1901 
of this title, particularly as it relates to conducting and reporting of 
compliance reviews. Instruments of conveyance for loans and/or grants 
subject to the Act must contain the covenant required by 
Sec. 1901.202(e) of this title;
    (3) The Americans with Disabilities Act (ADA) of 1990. This Act (42 
U.S.C. 12101 et seq.) prohibits discrimination on the basis of 
disability in employment, State and local government services, public 
transportation, public accommodations, facilities, and 
telecommunications. Title II of the Act applies to facilities operated 
by State and local public entities which provides services, programs and 
activities. Title III of the Act applies to facilities owned, leased, or 
operated by private entities which accommodate the public; and
    (4) Age Discrimination Act of 1975. This Act (42 U.S.C. 6101 et 
seq.) provides that no person in the United States shall on the basis of 
age, be excluded from participation in, be denied the benefits of, or be 
subjected to discrimination under any program or activity receiving 
Federal financial assistance.



Sec. 1780.2  Purpose.

    Provide loan and grant funds for water and waste projects serving 
the most financially needy communities. Financial assistance should 
result in reasonable user costs for rural residents, rural businesses, 
and other rural users.



Sec. 1780.3  Definitions and grammatical rules of construction.

    (a) Definitions. For the purposes of this part:
    Agency means the Rural Utilities Service and any United States 
Department of Agriculture (USDA) employee acting on behalf of the Rural 
Utilities Service in accordance with appropriate delegations of 
authority.
    Agency identified target areas means an identified area in the State 
strategic plan or other plans developed by the Rural Development State 
Director.
    Approval official means the USDA official at the State level who has 
been delegated the authority to approve loans or grants.
    Equivalent Dwelling Unit (EDU) means the level of service provided 
to a typical rural residential dwelling.
    Parity bonds means bonds which have equal standing with other bonds 
of the same Issuer.
    Poverty line means the level of income for a family of four, as 
defined in section 673(2) of the Community Services Block Grant Act (42 
U.S.C. 9902(2)).
    Processing office means the office designated by the State program 
official to accept and process applications for water and waste disposal 
assistance.
    Project means all activity that an applicant is currently 
undertaking to be financed in whole or part with RUS assistance.
    Protective advances are payments made by a lender for items such as 
insurance or taxes in order to preserve and protect the security or the 
lien or priority of the lien securing the loan.
    Rural and rural areas means any area not in a city or town with a 
population in excess of 10,000 inhabitants, according to the latest 
decennial census of the United States.
    Rural Development means the mission area of the Under Secretary for 
Rural Development. Rural Development State and local offices will 
administer this water and waste program on behalf of the Rural Utilities 
Service.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to section 232 of 
the Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-
354, 108 Stat. 3178), successor to the Farmer's Home Administration and 
the Rural Development Administration with respect to certain water and 
waste disposal loan and grant programs.
    Service area means the area reasonably expected to be served by the 
project.
    Servicing office means the office designated by the State program 
official

[[Page 1064]]

to service water and waste disposal loans and grants.
    Similar system cost means the average annual EDU user cost of a 
system within a community having similar economic conditions and being 
served by the same type of established system. Similar system cost shall 
include all charges, taxes, and assessments attributable to the system 
including debt service, reserves and operation and maintenance costs.
    State program official means the USDA official at the State level 
who has been delegated the responsibility of administering the water and 
waste disposal programs under this regulation for a particular State or 
States.
    Statewide nonmetropolitan median household income means the median 
household income of the State's nonmetropolitan counties and portions of 
metropolitan counties outside of cities, towns or places of 50,000 or 
more population.
    (b) Rules of grammatical 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 section 
include the plural as well as the singular, and the singular as well as 
the plural.

[62 FR 33478, June 19, 1997, as amended at 69 FR 65519, Nov. 15, 2004]



Sec. 1780.4  Availability of forms and regulations.

    Information about the availability of forms, instructions, 
regulations, bulletins, OMB Circulars, Treasury Circulars, standards, 
documents and publications cited in this part is available from any 
USDA/Rural Development office or the Rural Utilities Service, United 
States Department of Agriculture, Washington, DC 20250-1500.



Sec. 1780.5  [Reserved]



Sec. 1780.6  Application information.

    (a) The Rural Development State Director in each State will 
determine the office and staff that will be responsible for delivery of 
the program (processing office) and designate an approving office. 
Applications will be accepted by the processing office.
    (b) The applicant's governing body should designate one person to 
act as contact person with the Agency during loan and grant processing. 
Agency personnel should make every effort to involve the applicant's 
contact person when meeting with the applicant's professional 
consultants or agents.



Sec. 1780.7  Eligibility.

    Facilities financed by water and waste disposal loans or grants must 
serve rural areas.
    (a) Eligible applicant. An applicant must be:
    (1) A public body, such as a municipality, county, district, 
authority, or other political subdivision of a state, territory or 
commonwealth;
    (2) An organization operated on a not-for-profit basis, such as an 
association, cooperative, or private corporation. The organization must 
be an association controlled by a local public body or bodies, or have a 
broadly based ownership by or membership of people of the local 
community; or
    (3) Indian tribes on Federal and State reservations and other 
Federally recognized Indian tribes.
    (b) Eligible facilities. Facilities financed by RUS may be located 
in non-rural areas. However, loan and grant funds may be used to finance 
only that portion of the facility serving rural areas, regardless of 
facility location.
    (c) Eligible projects. (1) Projects must serve a rural area which, 
if such project is completed, is not likely to decline in population 
below that for which the project was designed.
    (2) Projects must be designed and constructed so that adequate 
capacity will or can be made available to serve the present population 
of the area to the extent feasible and to serve the reasonably 
foreseeable growth needs of the area to the extent practicable.
    (3) Projects must be necessary for orderly community development and 
consistent with a current comprehensive community water, waste disposal, 
or other current development plan for the rural area.
    (d) Credit elsewhere. Applicants must certify in writing and the 
Agency shall determine and document that the applicant is unable to 
finance the proposed project from their own resources

[[Page 1065]]

or through commercial credit at reasonable rates and terms.
    (e) Legal authority and responsibility. Each applicant must have or 
will obtain the legal authority necessary for owning, constructing, 
operating, and maintaining the proposed facility or service and for 
obtaining, giving security for, and repaying the proposed loan. The 
applicant shall be responsible for operating, maintaining, and managing 
the facility, and providing for its continued availability and use at 
reasonable user rates and charges. This responsibility shall be 
exercised by the applicant even though the facility may be operated, 
maintained, or managed by a third party under contract or management 
agreement. Guidance for preparing a management agreement is available 
from the Agency. Such contracts, management agreements, or leases must 
not contain options or other provisions for transfer of ownership.
    (f) Economic feasibility. All projects financed under the provisions 
of this section must be based on taxes, assessments, income, fees, or 
other satisfactory sources of revenues in an amount sufficient to 
provide for facility operation and maintenance, reasonable reserves, and 
debt payment. If the primary use of the facility is by business and the 
success or failure of the facility is dependent on the business, then 
the economic viability of that business must be assessed.
    (g) Federal Debt Collection Act of 1990 (28 U.S.C. 3001 et seq.). An 
outstanding judgment obtained by the United States in a Federal Court 
(other than in the United States Tax Court), which has been recorded, 
shall cause the applicant to be ineligible to receive a loan or grant 
until the judgment is paid in full or otherwise satisfied.

[62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999]



Sec. 1780.8  [Reserved]



Sec. 1780.9  Eligible loan and grant purposes.

    Loan and grant funds may be used only for the following purposes:
    (a) To construct, enlarge, extend, or otherwise improve rural water, 
sanitary sewage, solid waste disposal, and storm wastewater disposal 
facilities.
    (b) To construct or relocate public buildings, roads, bridges, 
fences, or utilities, and to make other public improvements necessary 
for the successful operation or protection of facilities authorized in 
paragraph (a) of this section.
    (c) To relocate private buildings, roads, bridges, fences, or 
utilities, and other private improvements necessary for the successful 
operation or protection of facilities authorized in paragraph (a) of 
this section.
    (d) For payment of other utility connection charges as provided in 
service contracts between utility systems.
    (e) When a necessary part of the project relates to those facilities 
authorized in paragraphs (a), (b),(c) or (d) of this section the 
following may be considered:
    (1) Loan or grant funds may be used for:
    (i) Reasonable fees and costs such as: legal, engineering, 
administrative services, fiscal advisory, recording, environmental 
analyses and surveys, possible salvage or other mitigation measures, 
planning, establishing or acquiring rights;
    (ii) Costs of acquiring interest in land; rights, such as water 
rights, leases, permits, rights-of-way; and other evidence of land or 
water control or protection necessary for development of the facility;
    (iii) Purchasing or renting equipment necessary to install, operate, 
maintain, extend, or protect facilities;
    (iv) Cost of additional applicant labor and other expenses necessary 
to install and extend service; and
    (v) In unusual cases, the cost for connecting the user to the main 
service line.
    (2) Only loan funds may be used for:
    (i) Interest incurred during construction in conjunction with 
multiple advances or interest on interim financing;
    (ii) Initial operating expenses, including interest, for a period 
ordinarily not exceeding one year when the applicant is unable to pay 
such expenses;

[[Page 1066]]

    (iii) The purchase of existing facilities when it is necessary 
either to improve service or prevent the loss of service;
    (iv) Refinancing debts incurred by, or on behalf of, an applicant 
when all of the following conditions exist:
    (A) The debts being refinanced are a secondary part of the total 
loan;
    (B) The debts were incurred for the facility or service being 
financed or any part thereof; and
    (C) Arrangements cannot be made with the creditors to extend or 
modify the terms of the debts so that a sound basis will exist for 
making a loan; and
    (v) Prepayment of costs for which RUS grant funds were obligated.
    (3) Grant funds may be used to restore loan funds used to prepay 
grant obligated costs.
    (f) Construction incurred before loan or grant approval.
    (1) Funds may be used to pay obligations for eligible project costs 
incurred before loan or grant approval if such requests are made in 
writing by the applicant and the Agency determines that:
    (i) Compelling reasons exist for incurring obligations before loan 
or grant approval;
    (ii) The obligations will be incurred for authorized loan or grant 
purposes; and
    (iii) The Agency's authorization to pay such obligations is on the 
condition that it is not committed to make the loan or grant; it assumes 
no responsibility for any obligations incurred by the applicant; and the 
applicant must subsequently meet all loan or grant approval 
requirements, including environmental and contracting requirements.
    (2) If construction is started without Agency approval, post-
approval in accordance with this section may be considered, provided the 
construction meets applicable requirements including those regarding 
approval and environmental matters.
    (g) Water or sewer service may be provided through individual 
installations or small clusters of users within an applicant's service 
area. The approval official should consider items such as: quantity and 
quality of the individual installations that may be developed; cost 
effectiveness of the individual facility compared with the initial and 
long term user cost on a central system; health and pollution problems 
attributable to individual facilities; operational or management 
problems peculiar to individual installations; and permit and regulatory 
agency requirements.
    (1) Applicants providing service through individual facilities must 
meet the eligibility requirements in Sec. 1780.7.
    (2) The Agency must approve the form of agreement between the 
applicant and individual users for the installation, operation, 
maintenance and payment for individual facilities.
    (3) If taxes or assessments are not pledged as security, applicants 
providing service through individual facilities must obtain security 
necessary to assure collection of any sum the individual user is 
obligated to pay the applicant.
    (4) Notes representing indebtedness owed the applicant by a user for 
an individual facility will be scheduled for payment over a period not 
to exceed the useful life of the individual facility or the RUS loan, 
whichever is shorter. The interest rate will not exceed the interest 
rate charged the applicant on the RUS indebtedness.
    (5) Applicants providing service through individual or cluster 
facilities must obtain:
    (i) Easements for the installation and ingress to and egress from 
the facility if determined necessary by RUS; and
    (ii) An adequate method for denying service in the event of 
nonpayment of user fees.



Sec. 1780.10  Limitations.

    (a) Loan and grant funds may not be used to finance:
    (1) Facilities which are not modest in size, design, and cost;
    (2) Loan or grant finder's fees;
    (3) The construction of any new combined storm and sanitary sewer 
facilities;
    (4) Any portion of the cost of a facility which does not serve a 
rural area;
    (5) That portion of project costs normally provided by a business or 
industrial user, such as wastewater pretreatment, etc.;

[[Page 1067]]

    (6) Rental for the use of equipment or machinery owned by the 
applicant;
    (7) For other purposes not directly related to operating and 
maintenance of the facility being installed or improved; and
    (8) A judgment which would disqualify an applicant for a loan or 
grant as provided for in Sec. 1780.7(g).
    (b) Grant funds may not be used to:
    (1) Reduce EDU costs to a level less than similar system cost;
    (2) Pay any costs of a project when the median household income of 
the service area is more than 100 percent of the nonmetropolitan median 
household income of the State;
    (3) Pay project costs when other loan funding for the project is not 
at reasonable rates and terms; and
    (4) Pay project costs when other funding is a guaranteed loan 
obtained in accordance with 7 CFR part 1779 of this title.
    (c) Grants may not be made in excess of the following percentages of 
the RUS eligible project development costs. Facilities previously 
installed will not be considered in determining the development costs.
    (1) 75 percent when the median household income of the service area 
is below the higher of the poverty line or 80% of the state 
nonmetropolitan median income and the project is necessary to alleviate 
a health or sanitary problem.
    (2) 45 percent when the median household income of the service area 
exceeds the 80 percent requirements described in paragraph (c)(1) of 
this section but is not more than 100 percent of the statewide 
nonmetropolitan median household income.
    (3) Applicants are advised that the percentages contained in 
paragraphs (c)(1) and (c)(2) of this section are maximum amounts and may 
be further limited due to availability of funds or the grant 
determination procedures contained in Sec. 1780.35 (b).

[62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999; 66 
FR 23151, May 8, 2001]



Sec. 1780.11  Service area requirements.

    (a) All facilities financed under the provisions of this part shall 
be for public use. The facilities will be installed so as to serve any 
potential user within the service area who desires service and can be 
feasibly and legally served. This does not preclude:
    (1) Financing or constructing projects in phases when it is not 
practical to finance or construct the entire project at one time; and
    (2) Financing or constructing facilities where it is not 
economically feasible to serve the entire area, provided economic 
feasibility is determined on the basis of the entire system and not by 
considering the cost of separate extensions to or parts thereof; the 
applicant publicly announces a plan for extending service to areas not 
initially receiving service from the system; and potential users located 
in the areas not to be initially served receive written notice from the 
applicant that service will not be provided until such time as it is 
economically feasible to do so.
    (b) Should the Agency determine that inequities exist within the 
applicants service area for the same type service proposed (i.e., water 
or waste disposal) such inequities will be remedied by the applicant 
prior to loan or grant approval or included as part of the project. 
Inequities are defined as unjustified variations in availability, 
adequacy or quality of service. User rate schedules for portions of 
existing systems that were developed under different financing, rates, 
terms or conditions do not necessarily constitute inequities.
    (c) Developers are normally expected to provide utility-type 
facilities in new or developing areas in compliance with appropriate 
State statutes. RUS financing will be considered to an eligible 
applicant only in such cases when failure to complete development would 
result in an adverse economic condition for the rural area (not the 
community being developed); the proposal is necessary to the success of 
a current area development plan; and loan repayment can be assured by:
    (1) The applicant already having sufficient assured revenues to 
repay the loan; or
    (2) Developers providing a bond or escrowed security deposit as a 
guarantee sufficient to meet expenses attributable to the area in 
question until a sufficient number of the building

[[Page 1068]]

sites are occupied and connected to the facility to provide enough 
revenues to meet operating, maintenance, debt service, and reserve 
requirements. Such guarantees from developers will meet the requirements 
in Sec. 1780.39(c)(4)(ii); or
    (3) Developers paying cash for the increased capital cost and any 
increased operating expenses until the developing area will support the 
increased costs; or
    (4) The full faith and credit of a public body where the debt is 
evidenced by general obligation bonds; or
    (5) The loan is to a public body evidenced by a pledge of tax 
revenue or assessments; or
    (6) The user charges can become a lien upon the property being 
served and income from such lien can be collected in sufficient time to 
be used for its intended purposes.



Sec. 1780.12  [Reserved]



Sec. 1780.13  Rates and terms.

    (a) General. (1) Each loan will bear interest at the rate prescribed 
in RD Instruction 440.1, exhibit B. The interest rates will be set by 
the Agency for each quarter of the fiscal year. All rates will be 
adjusted to the nearest one-eighth of one per centum. The rate will be 
the lower of the rate in effect at the time of loan approval or the rate 
in effect at the time of loan closing unless the applicant otherwise 
chooses.
    (2) If the interest rate is to be that in effect at loan closing on 
a loan involving multiple advances of RUS funds using temporary debt 
instruments, the interest rate charged shall be that in effect on the 
date when the first temporary debt instrument is issued.
    (b) Poverty rate. The poverty interest rate will not exceed 5 per 
centum per annum. All poverty rate loans must comply with the following 
conditions:
    (1) The primary purpose of the loan is to upgrade existing 
facilities or construct new facilities required to meet applicable 
health or sanitary standards; and
    (2) The median household income of the service area is below the 
higher of the poverty line, or 80 percent of the Statewide 
nonmetropolitan median household income.
    (c) Intermediate rate. The intermediate interest rate will be set at 
the poverty rate plus one-half of the difference between the poverty 
rate and the market rate, not to exceed 7 percent per annum. It will 
apply to loans that do not meet the requirements for the poverty rate 
and for which the median household income of the service area is not 
more than 100 percent of the nonmetropolitan median household income of 
the State.
    (d) Market rate. The market interest rate will be set using as 
guidance the average of the Bond Buyer (11-GO Bond) Index for the four 
weeks prior to the first Friday of the last month before the beginning 
of the quarter. The market rate will apply to all loans that do not 
qualify for a different rate under paragraph (b) or (c) of this section.
    (e) Repayment terms. The loan repayment period shall not exceed the 
useful life of the facility, State statute or 40 years from the date of 
the note or bond, whichever is less. Where RUS grant funds are used in 
connection with an RUS loan, the loan will be for the maximum term 
permitted by this part, State statute, or the useful life of the 
facility, whichever is less, unless there is an exceptional case where 
circumstances justify making an RUS loan for less than the maximum term 
permitted. In such cases, the reasons must be fully documented.
    (1) Principal payments may be deferred in whole or in part for a 
period not to exceed 36 months following the date the first interest 
installment is due. If for any reason it appears necessary to permit a 
longer period of deferment, the Agency may authorize such deferment. 
Deferments of principal will not be used to:
    (i) Postpone the levying of taxes or assessments;
    (ii) Delay collection of the full rates which the borrower has 
agreed to charge users for its services as soon as those services become 
available;
    (iii) Create reserves for normal operation and maintenance;
    (iv) Make any capital improvements except those approved by the 
Agency which are determined to be essential to the repayment of the loan 
or to maintain adequate security; and
    (v) Make payment on other debt.

[[Page 1069]]

    (2) Payment date. Loan payments will be scheduled to coincide with 
income availability and be in accordance with State law. If State law 
only permits principal plus interest (P&I) type bonds, annual or 
semiannual payments will be used. Insofar as practical monthly payments 
will be scheduled one full month following the date of loan closing; or 
semiannual or annual payments will be scheduled six or twelve full 
months, respectively, following the date of loan closing or any 
deferment period. Due dates falling on the 29th, 30th or 31st day of the 
month will be avoided.
    (3) In all cases, including those in which RUS is jointly financing 
with another lender, the RUS payments of principal and interest should 
approximate amortized installments.



Sec. 1780.14  Security.

    Loans will be secured by the best security position practicable in a 
manner which will adequately protect the interest of RUS during the 
repayment period of the loan. Specific security requirements for each 
loan will be included in a letter of conditions.
    (a) Public bodies. Loans to such borrowers, including Federally 
recognized Indian tribes as appropriate, will be evidenced by notes, 
bonds, warrants, or other contractual obligations as may be authorized 
by relevant laws and by borrower's documents, resolutions, and 
ordinances. Security, in the following order of preference, will consist 
of:
    (1) The full faith and credit of the borrower when the debt is 
evidenced by general obligation bonds; and/or
    (2) Pledges of taxes or assessments; and/or
    (3) Pledges of facility revenue and, when it is the customary 
financial practice in the State, liens will be taken on the interest of 
the applicant in all land, easements, rights-of-way, water rights, water 
purchase contracts, water sales contracts, sewage treatment contracts, 
and similar property rights, including leasehold interests, used or to 
be used in connection with the facility whether owned at the time the 
loan is approved or acquired with loan funds.
    (b) Other-than-public bodies. Loans to other-than-public body 
applicants and Federally recognized Indian tribes, as appropriate, will 
be secured in the following order of preference:
    (1) Assignments of borrower income will be taken and perfected by 
filing, if legally permissible; and
    (2) A lien will be taken on the interest of the applicant in all 
land, easements, rights-of-way, water rights, water purchase contracts, 
water sales contracts, sewage treatment contracts and similar property 
rights, including leasehold interest, used, or to be used in connection 
with the facility whether owned at the time the loan is approved or 
acquired with loan funds. In unusual circumstances where it is not 
legally permissible or feasible to obtain a lien on such land (such as 
land rights obtained from Federal or local government agencies, and from 
railroads) and the approval official determines that the interest of RUS 
is otherwise adequately secured, the lien requirement may be omitted as 
to such land rights. For existing borrowers where the Agency already has 
a security position on real property, the approval official may 
determine that the interest of the Government is adequately secured and 
not require additional liens on such land rights. When the subsequent 
loan is approved or the acquisition of real property is subject to an 
outstanding lien indebtedness, the next highest priority lien obtainable 
will be taken if the approval official determines that the loan is 
adequately secured.
    (c) Joint financing security. For projects utilizing joint 
financing, when adequate security of more than one type is available, 
the other lender may take one type of security with RUS taking another 
type. For projects utilizing joint financing with the same security to 
be shared by RUS and another lender, RUS will obtain at least a parity 
position with the other lender. A parity position is to ensure that with 
joint security, in the event of default, each lender will be affected on 
a proportionate basis. A parity position will conform with the following 
unless an exception is granted by the approval official:
    (1) It is not necessary for loans to have the same repayment terms. 
Loans made by other lenders involved in joint

[[Page 1070]]

financing with RUS should be scheduled for repayment on terms similar to 
those customarily used in the State for financing such facilities.
    (2) The use of a trustee or other similar paying agent by the other 
lender in a joint financing arrangement is acceptable to RUS. A trustee 
or other similar paying agent will not normally be used for the RUS 
portion of the funding unless required to comply with State law. The 
responsibilities and authorities of any trustee or other similar paying 
agent on projects that include RUS funds must be clearly specified by 
written agreement and approved by the State program official and the 
Office of the General Counsel (OGC). RUS must be able to deal directly 
with the borrower to enforce the provisions of loan and grant agreements 
and perform necessary servicing actions.
    (3) In the event adequate funds are not available to meet regular 
installments on parity loans, the funds available will be apportioned to 
the lenders based on the respective current installments of principal 
and interest due.
    (4) Funds obtained from the sale or liquidation of secured property 
or fixed assets will be apportioned to the lenders on the basis of the 
pro rata amount outstanding; provided, however, funds obtained from such 
sale or liquidation for a project that included RUS grant funds will be 
apportioned as required by the grant agreement.
    (5) Protective advances must be charged to the borrower's account 
and be secured by a lien on the security property. To the extent 
consistent with State law and customary lending practices in the area, 
repayment of protective advances made by either lender, for the mutual 
protection of both lenders, should receive first priority in 
apportionment of funds between the lenders. To ensure agreement between 
lenders, efforts should be made to obtain the concurrence of both 
lenders before one lender makes a protective advance.



Sec. 1780.15  Other Federal, State, and local requirements.

    Proposals for facilities financed in whole or in part with RUS funds 
will be coordinated with appropriate Federal, State and local agencies. 
If there are conflicts between this part and State or local laws or 
regulatory commission regulations, the provisions of this part will 
control. Applicants will be required to comply with Federal, State, and 
local laws and any regulatory commission rules and regulations 
pertaining to:
    (a) Organization of the applicant and its authority to own, 
construct, operate, and maintain the proposed facilities;
    (b) Borrowing money, giving security therefore, and raising revenues 
for the repayment thereof;
    (c) Land use zoning; and
    (d) Health and sanitation standards and design and installation 
standards unless an exception is granted by RUS.



Sec. 1780.16  [Reserved]



Sec. 1780.17  Selection priorities and process.

    When ranking eligible applications for consideration for limited 
funds, Agency officials must consider the priority items met by each 
application and the degree to which those priorities are met. Points 
will be awarded as follows:
    (a) Population priorities. (1) The proposed project will primarily 
serve a rural area having a population not in excess of 1,000--25 
points;
    (2) The proposed project primarily serves a rural area having a 
population between 1,001 and 2,500--15 points;
    (3) The proposed project primarily serves a rural area having a 
population between 2,501 and 5,500--5 points.
    (b) Health priorities. The proposed project is:
    (1) Needed to alleviate an emergency situation, correct 
unanticipated diminution or deterioration of a water supply, or to meet 
Safe Drinking Water Act requirements which pertain to a water system--25 
points;
    (2) Required to correct inadequacies of a wastewater disposal 
system, or to meet health standards which pertain to a wastewater 
disposal system--25 points;
    (3) Required to meet administrative orders issued to correct local, 
State, or Federal solid waste violations--15 points.
    (c) Median household income priorities. The median household income 
of the

[[Page 1071]]

population to be served by the proposed project is:
    (1) Less than the poverty line if the poverty line is less than 80% 
of the statewide nonmetropolitan median household income--30 points;
    (2) Less than 80 percent of the statewide nonmetropolitan median 
household income--20 points;
    (3) Equal to or more than the poverty line and between 80% and 100%, 
inclusive, of the State's nonmetropolitan median household income--15 
points.
    (d) Other priorities. (1) The proposed project will: merge 
ownership, management, and operation of smaller facilities providing for 
more efficient management and economical service--15 points;
    (2) The proposed project will enlarge, extend, or otherwise modify 
existing facilities to provide service to additional rural areas--10 
points;
    (3) Applicant is a public body or Indian tribe--5 points;
    (4) Amount of other than RUS funds committed to the project is:
    (i) 50% or more--15 points;
    (ii) 20% to 49%--10 points;
    (iii) 5%--19%--5 points;
    (5) Projects that will serve Agency identified target areas--10 
points;
    (6) Projects that primarily recycle solid waste products thereby 
limiting the need for solid waste disposal--5 points;
    (7) The proposed project will serve an area that has an unreliable 
quality or supply of drinking water--10 points.
    (e) In certain cases the State program official may assign up to 15 
points to a project. The points may be awarded to projects in order to 
improve compatibility and coordination between RUS's and other agencies' 
selection systems, to ensure effective RUS fund utilization, and to 
assist those projects that are the most cost effective. A written 
justification must be prepared and placed in the project file each time 
these points are assigned.
    (f) Cost overruns. An application may receive consideration for 
funding before others at the State or National Office level when it is a 
subsequent request for a previously approved project which has 
encountered construction cost overruns. The cost overruns must be due to 
high bids or unexpected construction problems that cannot be reduced by 
negotiations, redesign, use of bid alternatives, rebidding or other 
means. Cost overruns exceeding 20% of the development cost at time of 
loan or grant approval or where the scope of the original purpose has 
changed will not be considered under this paragraph.
    (g) National office priorities. In selecting projects for funding at 
the National Office level State program official points may or may not 
be considered. The Administrator may assign up to 15 additional points 
to account for items such as geographic distribution of funds, the 
highest priority projects within a state, and emergency conditions 
caused by economic problems or natural disasters. The Administrator may 
delegate the authority to assign the 15 points to appropriate National 
Office staff.



Sec. 1780.18  Allocation of program funds.

    (a) General. (1) The purpose of this part is to set forth the 
methodology and formulas by which the Administrator of the RUS allocates 
program funds to the States. (The term ``State'' means any of the States 
of the United States, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or the Western Pacific Areas.)
    (2) The formulas in this part are used to allocate program loan and 
grant funds to Rural Development State offices so that the overall 
mission of the Agency can be carried out. Considerations used when 
developing the formulas include enabling legislation, congressional 
direction, and administration policies. Allocation formulas ensure that 
program resources are available on an equal basis to all eligible 
individuals and organizations.
    (3) The actual amounts of funds, as computed by the methodology and 
formulas contained herein, allocated to a State for a funding period, 
are distributed to each State office. The allocated amounts are 
available for review in any Rural Development State office.
    (b) Definitions--(1) Amount available for allocations. Funds 
appropriated or otherwise made available to the Agency for use in 
authorized programs. On occasion, the allocation of funds to

[[Page 1072]]

States may not be practical for a particular program due to funding or 
administrative constraints. In these cases, funds will be controlled by 
the National Office.
    (2) Basic formula criteria, data source and weight. Basic formulas 
are used to calculate a basic State factor as a part of the methodology 
for allocating funds to the States. The formulas take a number of 
criteria that reflect the funding needs for a particular program and 
through a normalization and weighting process for each of the criteria 
calculate the basic State factor (SF). The data sources used for each 
criteria are believed to be the most current and reliable information 
that adequately quantifies the criterion. The weight, expressed as a 
percentage, gives a relative value to the importance of each of the 
criteria.
    (3) Basic formula allocation. The result of multiplying the amount 
available for allocation less the total of any amounts held in reserve 
or distributed by base or administrative allocation times the basic 
State factor for each State. The basic formula allocation (BFA) for an 
individual State is equal to:

BFA=(Amount available for allocation-NO reserve-total base and 
          administrative allocations) x SF.

    (4) Transition formula. (i) A formula based on a proportional amount 
of previous year allocation used to maintain program continuity by 
preventing large fluctuations in individual State allocations. The 
transition formula limits allocation shifts to any particular State in 
the event of changes from year to year of the basic formula, the basic 
criteria, or the weights given the criteria. The transition formula 
first checks whether the current year's basic formula allocation is 
within the transition range (plus or minus 20 percentage points of the 
proportional amount of the previous year's BFA). The formula follows:
[GRAPHIC] [TIFF OMITTED] TR19JN97.000

    (ii) If the current year's State BFA is not within the transition 
range in paragraph (b)(4)(i) of this section, the State formula 
allocation is changed to the amount of the transition range limit 
closest to the BFA amount. After having performed this transition 
adjustment for each State, the sum of the funds allocated to all States 
will differ from the amount of funds available for BFA. This difference, 
whether a positive or negative amount, is distributed to all States 
receiving a formula allocation by multiplying the difference by the SF. 
The end result is the transition formula allocation. The transition 
range will not exceed 40% (plus or minus 20%), but when a smaller range 
is used it will be stated in the individual program section.
    (5) Base allocation.An amount that may be allocated to each State 
dependent upon the particular program to provide the opportunity for 
funding at least one typical loan or grant in each Rural Development 
State office. The amount of the base allocation may be determined by 
criteria other than that used in the basic formula allocation such as 
Agency historic data.
    (6) Administrative allocations.Allocations made by the Administrator 
in cases where basic formula criteria information is not available. This 
form of allocation may be used when the Administrator determines the 
program objectives cannot be adequately met with a formula allocation.
    (7) Reserve.An amount retained under the National Office control for 
each loan and grant program to provide flexibility in meeting situations 
of unexpected or justifiable need occurring during the fiscal year. The 
Administrator may make distributions from this reserve to any State when 
it is determined necessary to meet a program need or Agency objective. 
The Administrator may retain additional amounts to fund authorized 
demonstration programs.

[[Page 1073]]

    (8) Pooling of funds.A technique used to ensure that available funds 
are used in an effective, timely and efficient manner. At the time of 
pooling those funds within a State's allocation for the fiscal year or 
portion of the fiscal year, depending on the type of pooling, that have 
not been obligated by the State are placed in the National Office 
reserve. The Administrator will establish the pooling dates for each 
affected program.
    (i) Mid-year: Mid-year pooling occurs near the midpoint of the 
fiscal year.
    (ii) Year-end: Year-end pooling usually occurs near the first of 
August.
    (iii) Emergency: The Administrator may pool funds at any time that 
it is determined the conditions upon the initial allocation was based 
have changed to such a degree that it is necessary to pool funds in 
order to efficiently carry out the Agency mission.
    (9) Availability of the allocation.Program funds are made available 
to the Agency on a quarterly basis.
    (10) Suballocation by the Rural Development State Director.The State 
Director may be directed or given the option of suballocating the State 
allocation to processing offices. When suballocating the State Director 
may retain a portion of the funds in a State office reserve to provide 
flexibility in situations of unexpected or justified need. When 
performing a suballocation the State Director will use the same formula, 
criteria and weights as used by the National Office.
    (c) Water and waste disposal loans and grants--(1) Amount available 
for allocations.See paragraph (b)(1) of this section.
    (2) Basic formula criteria, data source and weight.See paragraph 
(b)(2) of this section.
    (i) The criteria used in the basic formula are:
    (A) State's percentage of national rural population will be 50 
percent.
    (B) State's percentage of national rural population with incomes 
below the poverty level will be 25 percent.
    (C) State's percentage of national nonmetropolitan unemployment will 
be 25 percent.
    (ii) Data source for each of these criterion is based on the latest 
census data available. Each criterion is assigned a specific weight 
according to its relevance in determining need. The percentage 
representing each criterion is multiplied by the weight factor and 
summed to arrive at a State factor (SF). The SF cannot exceed .05, as 
follows:

SF = (criterion in paragraph (b)(1)(i) of this section x 50 percent) + 
          (criterion in paragraph(b)(1)(ii) of this section x 25 
          percent) + (criterion in paragraph(b)(1)(iii) of this section 
          x 25 percent)

    (3) Basic formula allocation.See paragraph (b)(3) of this section. 
States receiving administrative allocations do not receive formula 
allocations.
    (4) Transition formula.See paragraph (b)(4) of this section. The 
percentage range for the transition formula equals 30 percent (plus or 
minus 15%).
    (5) Base allocation.See paragraph (b)(5) of this section. States 
receiving administrative allocations do not receive base allocations.
    (6) Administrative allocation.See paragraph (b)(6) of this section. 
States participating in the formula and base allocation procedures do 
not receive administrative allocations.
    (7) Reserve.See paragraph (b)(7) of this section. Any State may 
request reserve funds by forwarding a request to the National Office. 
Generally, a request for additional funds will not be honored unless the 
State has insufficient funds to obligate the loan requested.
    (8) Pooling of funds.See paragraph (b)(8) of this section. Funds are 
generally pooled at mid-year and year-end. Pooled funds will be placed 
in the National Office reserve and will be made available 
administratively.
    (9) Availability of the allocation.See paragraph (b)(9) of this 
section. The allocation of funds is made available for States to 
obligate on an annual basis although the Office of Management and Budget 
apportions it to the Agency on a quarterly basis.
    (10) Suballocation by the State Director.See paragraph (b)(10) of 
this section. The State Director has the option to suballocate funds to 
processing offices.



Sec. 1780.19  Public information.

    (a) Public notice of intent to file an application with the Agency. 
Within 60 days of filing an application with the

[[Page 1074]]

Agency the applicant must publish a notice of intent to apply for a RUS 
loan or grant. The notice of intent must be published in a newspaper of 
general circulation in the proposed area to be served.
    (b) General public meeting. Applicants should inform the general 
public regarding the development of any proposed project. Any applicant 
not required to obtain authorization by vote of its membership or by 
public referendum, to incur the obligations of the proposed loan or 
grant, must hold at least one public information meeting. The public 
meeting must be held not later than loan or grant approval. The meeting 
must give the citizenry an opportunity to become acquainted with the 
proposed project and to comment on such items as economic and 
environmental impacts, service area, alternatives to the project, or any 
other issue identified by Agency. To the extent possible, this meeting 
should cover items necessary to satisfy all public information meeting 
requirements for the proposed project. To minimize duplication of public 
notices and public involvement, the applicant shall, where possible, 
coordinate and integrate the public involvement activities of the 
environmental review process into this requirement. The applicant will 
be required, at least 10 days prior to the meeting, to publish a notice 
of the meeting in a newspaper of general circulation in the service 
area, to post a public notice at the applicant's principal office, and 
to notify the Agency. The applicant will provide the Agency a copy of 
the published notice and minutes of the public meeting. A public meeting 
is not normally required for subsequent loans or grants which are needed 
to complete the financing of a project.



Secs. 1780.20-1780.23  [Reserved]



Sec. 1780.24  Approval authorities.

    Appropriate reviews, concurrence, and authorization must be obtained 
for all loans or grants in excess of the amounts indicated in RUS Staff 
Instruction 1780-1.
    (a) Redelegation of authority by State Directors.Unless restricted 
by memorandum from the RUS Administrator, State Directors can redelegate 
their approval authorities to State employees by memorandum.
    (b) Restriction of approval authority by the RUS Administrator. The 
RUS Administrator can make written restrictions or revocations of the 
authority given to any approval official.



Sec. 1780.25  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this part which is not inconsistent with the 
authorizing statute or other applicable law and is determined to be in 
the Government's interest.



Secs. 1780.26-1780.30  [Reserved]



            Subpart B--Loan and Grant Application Processing



Sec. 1780.31  General.

    (a) Applicants are encouraged to contact the Agency processing 
office early in the planning stages of their project. Agency personnel 
are available to provide general advice and assistance regarding RUS 
programs, other funding sources, and types of systems or improvements 
appropriate for the applicants needs. The Agency can also provide access 
to technical assistance and other information resources for other 
project development issues such as public information, income surveys, 
developing rate schedules, system operation and maintenance, and 
environmental compliance requirements. Throughout the planning, 
application processing and construction of the project, Agency personnel 
will work closely and cooperatively with the applicant and their 
representatives, other State and Federal agencies and technical 
assistance providers.
    (b) The processing office will handle initial inquiries and provide 
basic information about the program. They are to provide the 
application, SF 424.2, ``Application for Federal Assistance (For 
Construction),'' assist applicants as needed in completing SF 424.2, and 
in filing a request for intergovernmental review. Federally recognized 
Indian tribes are exempt from intergovernmental review. The processing

[[Page 1075]]

office will explain eligibility requirements and meet with the applicant 
whenever necessary to discuss application processing.
    (c) Applicants can make a written request for an eligibility 
determination in lieu of filing an SF 424.2 along with the information 
required by Sec. 1780.33. Applicants seeking only an eligibility 
determination, should contact the processing office to obtain a list of 
the items needed to make this determination. An eligibility 
determination for loan or grant assistance will not give an applicant 
priority for funding as set forth in Sec. 1780.17.
    (d) Applications that are not developed in a reasonable period of 
time taking into account the size and complexity of the proposed project 
may be removed from the State's active file. Applicants will be 
consulted prior to taking such action.
    (e) Starting with the earliest discussion with prospective 
applicants, the State Environmental Coordinator shall discuss with 
prospective applicants and be available for consultation during the 
application process the environmental review requirements for evaluating 
the potential environmental consequences of the project. Pursuant to 7 
CFR part 1794 and guidance in RUS Bulletin 1794A-602, the environmental 
review requirements shall be performed by the applicant simultaneously 
and concurrently with the project's engineering planning and design. 
This should provide flexibility to consider reasonable alternatives to 
the project and development methods to mitigate identified adverse 
environmental effects. Mitigation measures necessary to avoid or 
minimize any adverse environmental effects must be integrated into 
project design.

[62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998]



Sec. 1780.32  Timeframes for application processing.

    (a) The processing office will determine if the application is 
properly assembled. If not, the applicant will be notified within 
fifteen federal working days as to what additional submittal items are 
needed.
    (b) The processing and approval offices will coordinate their 
reviews to ensure that the applicant is advised about eligibility and 
anticipated fund availability within 45 days of the receipt of a 
completed application.



Sec. 1780.33  Application requirements.

    An initial application consists of the following:
    (a) One copy of a completed SF 424.2;
    (b) A copy of the State intergovernmental comments or one copy of 
the filed application for State intergovernmental review; and
    (c) Two copies of the preliminary engineering report (PER) for the 
project.
    (1) The PER may be submitted to the processing office prior to the 
rest of the application material if the applicant desires a preliminary 
review.
    (2) The processing office will forward one copy of the PER with 
comments and recommendations to the State staff engineer for review upon 
receipt from the applicant.
    (3) The State staff engineer will consult with the applicant's 
engineer as appropriate to resolve any questions concerning the PER. 
Written comments will be provided by the State staff engineer to the 
processing office to meet eligibility determination time lines.
    (d) Written certification that other credit is not available.
    (e) Supporting documentation necessary to make an eligibility 
determination such as financial statements, audits, organizational 
documents, or existing debt instruments. The processing office will 
advise applicants regarding the required documents. Applicants that are 
indebted to RUS will not need to submit documents already on file with 
the processing office.
    (f) Environmental Report. For those actions listed in 
Secs. 1794.22(b) and 1794.23(b), the applicant shall submit, in 
accordance with RUS Bulletin 1794A-602, two copies of the completed 
Environmental Report.
    (1) Upon receipt of the Environmental Report, the processing office 
shall forward one copy of the report with comments and recommendation to 
the State Environmental Coordinator for review.
    (2) The State Environmental Coordinator will consult with the 
applicant

[[Page 1076]]

as appropriate to resolve any environmental concerns. Written comments 
will be provided by the State Environmental Coordinator to the 
processing office to meet eligibility determination time lines.
    (g) The applicant's Internal Revenue Service Taxpayer Identification 
Number (TIN). The TIN will be used by the Agency to assign a case number 
which will be the applicant's or transferee's TIN preceded by State and 
County Code numbers. Only one case number will be assigned to each 
applicant regardless of the number of loans or grants or number of 
separate facilities, unless an exception is authorized by the National 
Office.
    (h) Other Forms and certifications. Applicants will be required to 
submit the following items to the processing office, upon notification 
from the processing office to proceed with further development of the 
full application:
    (1) Form RD 442-7, ``Operating Budget'';
    (2) Form RD 1910-11, ``Application Certification, Federal Collection 
Policies for Consumer or Commercial Debts'';
    (3) Form RD 400-1, ``Equal Opportunity Agreement'';
    (4) Form RD 400-4, ``Assurance Agreement'';
    (5) Form AD-1047, ``Certification Regarding Debarment, Suspension 
and other Responsibility Matters'';
    (6) Form AD-1049, Certification regarding Drug-Free Workplace 
Requirements (Grants) Alternative I For Grantees Other Than Individuals;
    (7) Certifications for Contracts, Grants, and Loans (Regarding 
Lobbying); and
    (8) Certification regarding prohibited tying arrangements. 
Applicants that provide electric service must provide the Agency a 
certification that they will not require users of a water or waste 
facility financed under this part to accept electric service as a 
condition of receiving assistance.

[62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998]



Sec. 1780.34  [Reserved]



Sec. 1780.35  Processing office review.

    Review of the application will usually include the following:
    (a) Nondiscrimination. Boundaries for the proposed service area must 
not be chosen in such a way that any user or area will be excluded 
because of race, color, religion, sex, marital status, age, handicap, or 
national origin. This does not preclude construction of the project in 
phases as noted in Sec. 1780.11 as long as it is not done in a 
discriminatory manner.
    (b) Grant determination. Grants will be determined by the processing 
office in accordance with the following provisions and will not result 
in EDU costs below similar system user cost.
    (1) Maximum grant. Grants may not exceed the percentages in 
Sec. 1780.10(c) of the eligible RUS project development costs listed in 
Sec. 1780.9.
    (2) Debt service. Applicants will be considered for grant assistance 
when the debt service portion of the average annual EDU cost, for users 
in the applicant's service area, exceeds the following percentages of 
median household income:
    (i) 0.5 percent when the median household income of the service area 
is equal to or below 80% of the statewide nonmetropolitan median income.
    (ii) 1.0 percent when the median household income of the service 
area exceeds the 0.5 percent requirement but is not more than 100 
percent the statewide nonmetropolitan household income.
    (3) Similar system cost. If the grant determined in paragraph (b)(2) 
of this section results in an annual EDU cost that is not comparable 
with similar systems, the Agency will determine a grant amount based on 
achieving EDU costs that are not below similar system user costs.
    (4) Wholesale service. When an applicant provides wholesale sales or 
services on a contract basis to another system or entity, similar 
wholesale system cost will be used in determining the amount of grant 
needed to achieve a reasonable wholesale user cost.
    (5) Subsidized cost. When annual cost to the applicant for delivery 
of service

[[Page 1077]]

is subsidized by either the state, commonwealth, or territory, and 
uniform flat user charges regardless of usage are imposed for similar 
classes of service throughout the service area, the Agency may proceed 
with a grant in an amount necessary to reduce such delivery cost to a 
reasonable level.
    (c) User charges. The user charges should be reasonable and produce 
enough revenue to provide for all costs of the facility after the 
project is complete. The planned revenue should be sufficient to provide 
for all debt service, debt reserve, operation and maintenance, and, if 
appropriate, additional revenue for facility replacement of short-lived 
assets without building a substantial surplus. Ordinarily, the total 
debt service reserve will be equal to one average annual loan 
installment which will accumulate at the rate of one-tenth of the total 
each year.

[62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999]



Sec. 1780.36  Approving official review.

    Projects may be obligated as their applications are completed and 
approved.
    (a) Selection of applications for further processing. The 
application and supporting information submitted will be used to 
determine the applications selected for further development and funding. 
After completing the review, the approval official will normally select 
those eligible applications with the highest priority scores for further 
processing. When authorizing the development of an application for 
funding, the following will be considered:
    (1) Funds available in State allocation;
    (2) Anticipated allocation of funds for the next fiscal year; and
    (3) Time necessary for applicant to complete the application.
    (b) Lower scoring projects. (1) In cases where preliminary cost 
estimates indicate that an eligible, high scoring application is 
unfeasible or would require an amount of funding from RUS that exceeds 
either 25 percent of a State's current annual allocation or an amount 
greater than that remaining in the State's allocation, the approval 
official may instead select the next lower scoring application for 
further processing provided the high scoring applicant is notified of 
this action and given an opportunity to revise the proposal and resubmit 
it.
    (2) If it is found that there is no effective way to reduce costs or 
no other funding sources, the approval official, after consultation with 
applicant, may submit a request for an additional allocation of funds 
for the proposed project to the National Office. The request should be 
submitted during the fiscal year in which obligation is anticipated. 
Such request will be considered along with all others on hand. A written 
justification must be prepared and placed in the project file.



Sec. 1780.37  Applications determined ineligible.

    If at any time an application is determined ineligible, the 
processing office will notify the applicant in writing of the reasons. 
The notification to the applicant will state that an appeal of this 
decision may be made by the applicant under 7 CFR part 11.



Sec. 1780.38  [Reserved]



Sec. 1780.39  Application processing.

    (a) Processing conference. Before starting to assemble the full 
application, the applicant should arrange through the processing office 
an application conference to provide a basis for orderly application 
assembly. The processing office will explain program requirements, 
public information requirements and provide guidance on preparation of 
items necessary for approval.
    (b) Professional services and contracts related to the facility. 
Fees provided for in contracts or agreements shall be reasonable. The 
Agency shall consider fees to be reasonable if they are not in excess of 
those ordinarily charged by the profession as a whole for similar work 
when RUS financing is not involved. Applicants will be responsible for 
providing the services necessary to plan projects including design of 
facilities, environmental review and documentation requirements, 
preparation of cost and income estimates, development of proposals for 
organization and financing, and overall operation and maintenance of the 
facility. Applicants

[[Page 1078]]

should negotiate for procurement of professional services, whereby 
competitors' qualifications are evaluated and the most qualified 
competitor is selected, subject to negotiations of fair and reasonable 
compensation. Contracts or other forms of agreement between the 
applicant and its professional and technical representatives are 
required and are subject to RUS concurrence.
    (1) Engineering and architectural services. (i) Applicants shall 
publicly announce all requirements for engineering and architectural 
services, and negotiate contracts for engineering and architectural 
services on the basis of demonstrated competence and qualifications for 
the type of professional services required and at a fair and reasonable 
price.
    (ii) When project design services are procured separately, the 
selection of the engineer or architect shall be done by requesting 
qualification-based proposals and in accordance with this section.
    (iii) Applicants may procure engineering and architectural services 
in accordance with applicable State statutes or local requirements 
provided the State Director determines that such procurement meets the 
intent of this section.
    (2) Other professional services. Professional services of the 
following may be necessary: Attorney, bond counsel, accountant, auditor, 
appraiser, environmental professionals, and financial advisory or fiscal 
agent (if desired by applicant). Guidance on entering into an agreement 
for legal services is available from the Agency.
    (3) Bond counsel. Unless otherwise provided by subpart D of this 
part, public bodies are required to obtain the service of recognized 
bond counsel in the preparation of evidence of indebtedness.
    (4) Contracts for other services. Contracts or other forms of 
agreements for other services including management, operation, and 
maintenance will be developed by the applicant and presented to the 
Agency for review and concurrence. Guidance on entering into a 
management agreement is available from the Agency.
    (c) User estimates. Applicants dependent on users fees for debt 
payment or operation and maintenance expenses shall base their income 
and expense forecast on realistic user estimates. For users presently 
not receiving service, consideration must be given to the following:
    (1) An estimated number of maximum users should not be used when 
setting user fees and rates since it may be several years before all 
residents will need service by the system. In establishing rates a 
realistic number of users should be employed.
    (2) New user cash contributions. The amount of cash contributions 
required will be set by the applicant and concurred in by the approval 
official. Contributions should be an amount high enough to indicate 
sincere interest on the part of the potential user, but not so high as 
to preclude service to low income families. Contributions ordinarily 
should be an amount approximating one year's minimum user fee, and shall 
be paid in full before loan closing or commencement of construction, 
whichever occurs first. Once economic feasibility is ascertained based 
on a demonstration of potential user cash contributions, the 
contribution, membership fee or other fees that may be imposed are not a 
loan requirement under this section. A new user cash contribution is not 
required when:
    (i) The Agency determines that the potential users as a whole in the 
applicant's service area cannot make cash contributions; or
    (ii) State statutes or local ordinances require mandatory use of the 
system and the applicant or legal entity having such authority agrees in 
writing to enforce such statutes, or ordinances.
    (3) An enforceable user agreement with a penalty clause is required 
(RUS Bulletin 1780-9 can be used) except:
    (i) For users presently receiving service; or
    (ii) Where mandatory use of the system is required.
    (4) Individual vacant property owners will not be considered when 
determining project feasibility unless:
    (i) The owner has plans to develop the property in a reasonable 
period of time and become a user of the facility; and

[[Page 1079]]

    (ii) The owner agrees in writing to make a monthly payment at least 
equal to the proportionate share of debt service attributable to the 
vacant property until the property is developed and the facility is 
utilized on a regular basis. A bond or escrowed security deposit must be 
provided to guarantee this monthly payment and to guarantee an amount at 
least equal to the owner's proportionate share of construction costs. If 
a bond is provided, it must be executed by a surety company that appears 
on the Treasury Department's most current list (Circular 570, as 
amended) and be authorized to transact business in the State where the 
project is located. The guarantee shall be payable jointly to the 
borrower and the United States of America.
    (5) Applicants must provide a positive program to encourage 
connection by all users as soon as service is available. The program 
will be available for review and concurrence by the processing office 
before loan closing or commencement of construction, whichever occurs 
first. Such a program shall include:
    (i) An aggressive information program to be carried out during the 
construction period. The applicant should send written notification to 
all signed users in advance of the date service will be available, 
stating the date users will be expected to have their connections 
completed, and the date user charges will begin;
    (ii) Positive steps to assure that installation services will be 
available. These may be provided by the contractor installing the 
system, local plumbing companies, or local contractors;
    (iii) Aggressive action to see that all signed users can finance 
their connections.
    (d) Interim financing. For all loans exceeding $500,000, where funds 
can be borrowed at reasonable interest rates on an interim basis from 
commercial sources for the construction period, such interim financing 
may be obtained so as to preclude the necessity for multiple advances of 
RUS loan funds. However, the approval official may make an exception 
when interim financing is cost prohibitive or unavailable. Guidance on 
informing the private lender of RUS's commitment is available from the 
Agency. When interim commercial financing is used, the application will 
be processed, including obtaining construction bids, to the stage where 
the RUS loan would normally be closed, that is immediately prior to the 
start of construction. The RUS loan should be closed as soon as possible 
after the disbursal of all interim funds.
    (e) Reserve requirements. Provision for the accumulation of 
necessary reserves over a reasonable period of time will be included in 
the loan documents.
    (1) General obligation or special assessment bonds. Ordinarily, the 
requirements for reserves will be considered to have been met if general 
obligation or other bonds which pledge the full faith and credit of the 
political subdivision are used, or special assessment bonds are used, 
and if such bonds provide for the annual collection of sufficient taxes 
or assessments to cover debt service.
    (2) Other than general obligation or special assessment bonds. Each 
borrower will be required to establish and maintain reserves sufficient 
to assure that loan installments will be paid on time, for emergency 
maintenance, for extensions to facilities, and for replacement of short-
lived assets which have a useful life significantly less than the 
repayment period of the loan. Borrowers issuing bonds or other evidences 
of debt pledging facility revenues as security will plan their debt 
reserve to provide for at least one average annual loan installment. The 
debt reserve will accumulate at the rate of one-tenth of an average 
annual loan installment each year unless prohibited by state law.
    (f) Membership authorization. For organizations other than public 
bodies, the membership will authorize the project and its financing. 
Form RD 1942-8, ``Resolution of Members or Stockholders,'' may be used 
for this authorization. The approval official may accept RUS Bulletin 
1780-28, ``Loan Resolution Security Agreement,'' without such membership 
authorization when State statutes and the organization's charter and 
bylaws do not require such authorization; and

[[Page 1080]]

    (1) The organization is well established and is operating with a 
sound financial base; or
    (2) The members of the organization have all signed an enforceable 
user agreement with a penalty clause and have made the required 
meaningful user cash contribution.
    (g) Insurance. The purpose of RUS's insurance requirements is to 
protect the government's financial interest based on the facility 
financed with loan funds. It is the responsibility of the applicant and 
not that of RUS to assure that adequate insurance and fidelity or 
employee dishonesty bond coverage is maintained. The requirements below 
apply to all types of coverage determined necessary. The approval 
official may grant exceptions to normal requirements when appropriate 
justification is provided establishing that it is in the best interest 
of the applicant and will not adversely affect the government's 
interest.
    (1) Insurance requirements proposed by the applicant will be 
accepted if the processing office determines that proposed coverage is 
adequate to protect the government's financial interest. Applicants are 
encouraged to have their attorney, consulting engineer, and/or insurance 
provider(s) review proposed types and amounts of coverage, including any 
deductible provisions.
    (2) The use of deductibles may be allowed by RUS providing the 
applicant has financial resources which would likely be adequate to 
cover potential claims requiring payment of the deductible.
    (3) Fidelity or employee dishonesty bonds. Applicants will provide 
coverage for all persons who have access to funds, including persons 
working under a contract or management agreement. Coverage may be 
provided either for all individual positions or persons, or through 
``blanket'' coverage providing protection for all appropriate employees. 
An exception may be granted by the approval official when funds relating 
to the facility financed are handled by another entity and it is 
determined that the entity has adequate coverage or the government's 
interest would otherwise be adequately protected. The amount of coverage 
required by RUS will normally approximate the total annual debt service 
requirements for the RUS loans.
    (4) Property insurance. Fire and extended coverage will normally be 
maintained on all structures except as noted below. Ordinarily, RUS 
should be listed as mortgagee on the policy when RUS has a lien on the 
property. Normally, major items of equipment or machinery located in the 
insured structures must also be covered. Exceptions:
    (i) Reservoirs, pipelines and other structures if such structures 
are not normally insured;
    (ii) Subsurface lift stations except for the value of electrical and 
pumping equipment therein.
    (5) General liability insurance, including vehicular coverage.
    (6) Flood insurance required for facilities located in special 
flood-and mudslide-prone areas.
    (7) Worker's compensation. The borrower will carry worker's 
compensation insurance for employees in accordance with State laws.
    (h) [Reserved]
    (i) The processing office will assure that appropriate forms and 
documents listed in RUS Bulletin 1780-6 are complete. Letters of 
conditions will not be issued unless funds are available.

[62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998; 
64 FR 29946, June 4, 1999]



Sec. 1780.40  [Reserved]



Sec. 1780.41  Loan or grant approval.

    (a) The processing office will submit the following to the approval 
official:
    (1) Form RD 1942-45, ``Project Summary'';
    (2) Form RD 442-7, ``Operating Budget'';
    (3) Form RD 442-3, ``Balance Sheet'' or a financial statement or 
audit that includes a balance sheet;
    (4) Form RD 442-14, ``Association Project Fund Analysis'';
    (5) ``Letter of Conditions'';
    (6) Form RD 1942-46, ``Letter of Intent to Meet Conditions'';
    (7) Form RD 1940-1, ``Request for Obligation of Funds'';
    (8) Completed environmental review documents including copies of 
public

[[Page 1081]]

notices and appropriate proof of publication, if applicable; and
    (9) Grant determination, if applicable.
    (b) Approval and applicant notification will be accomplished by 
mailing to the applicant on the obligation date a copy of Form RD 1940-
1. The date the applicant is notified is also the date the interest rate 
at loan approval is established.

[62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998]



Sec. 1780.42  Transfer of obligations.

    An obligation of funds established for an applicant may be 
transferred to a different (substituted) applicant provided:
    (a) The substituted applicant is eligible and has the authority to 
receive the assistance approved for the original applicant; and
    (b) The need, purpose(s) and scope of the project for which RUS 
funds will be used remain substantially unchanged.



Sec. 1780.43  [Reserved]



Sec. 1780.44  Actions prior to loan or grant closing or start of 
construction, whichever occurs first.

    (a) Applicants must provide evidence of adequate insurance and 
fidelity or employee dishonesty bond coverage.
    (b) Verification of users and other funds. In connection with a 
project that involves new users and will be secured by a pledge of user 
fees or revenues, the processing office will authenticate the number of 
users. Ordinarily each signed user agreement will be reviewed and 
checked for evidence of cash contributions. If during the review any 
indication is received that all signed users may not connect to the 
system, there will be such additional investigation made as deemed 
necessary to determine the number of users who will connect to the 
system.
    (c) Initial compliance review. An initial compliance review should 
be completed under subpart E of part 1901 of this title.
    (d) Applicant contribution. An applicant contributing funds toward 
the project cost shall deposit these funds in its project account before 
start of construction. Project costs paid with applicant funds prior to 
the required deposit time shall be appropriately accounted for.
    (e) Excess RUS loan and grant funds. If there is a significant 
reduction in project cost, the applicant's funding needs will be 
reassessed. Decreases in RUS funds will be based on revised project 
costs and current number of users, however, other factors including RUS 
regulations used at the time of loan or grant approval will remain the 
same. Obligated loan or grant funds not needed to complete the proposed 
project will be deobligated. Any reduction will be applied to grant 
funds first. In such cases, applicable forms, the letter of conditions, 
and other items will be revised.
    (f) Evidence of and disbursement of other funds. Applicants 
expecting funds from other sources for use in completing projects being 
partially financed with RUS funds will present evidence of the 
commitment of these funds from such other sources. An agreement should 
be reached with all funding sources on how funds are to be disbursed 
before the start of construction. RUS funds will not be used to pre-
finance funds committed to the project from other sources.
    (g) Acquisition of land, easements, water rights, and existing 
facilities. Applicants are responsible for acquisition of all property 
rights necessary for the project and will determine that prices paid are 
reasonable and fair. RUS may require an appraisal by an independent 
appraiser or Agency employee.
    (1) Rights-of-way and easements. Applicants will obtain valid, 
continuous and adequate rights-of-way and easements needed for the 
construction, operation, and maintenance of the facility.
    (i) The applicant must provide a legal opinion relative to the title 
to rights-of-way and easements. Form RD 442-22, ``Opinion of Counsel 
Relative to Rights-of-Way,'' may be used. When a site is for major 
structures such as a reservoir or pumping station and the applicant is 
able to obtain only a right-of-way or easement on such a site rather 
than a fee simple title, the applicant will furnish a title report 
thereon by the applicant's attorney showing ownership of the land and 
all mortgages or

[[Page 1082]]

other lien defects, restrictions, or encumbrances, if any.
    (ii) For user connections funded by RUS, applicants will obtain 
adequate rights to construct and maintain the connection line or other 
facilities located on the user's property. This right may be obtained 
through formal easement or user agreements.
    (2) Title for land or existing facilities. Title to land essential 
to the successful operation of facilities or title to facilities being 
purchased, must not contain any restrictions that will adversely affect 
the suitability, successful operation, security value, or 
transferability of the facility. Preliminary and final title opinions 
must be provided by the applicant's attorney. The opinions must be in 
sufficient detail to assess marketability of the property. Form RD 1927-
9, ``Preliminary Title Opinion,'' and Form RD 1927-10, ``Final Title 
Opinion,'' may be used to provide the required title opinions.
    (i) In lieu of receiving title opinions from the applicant's 
attorney, the applicant may use a title insurance company. If a title 
insurance company is used, the applicant must provide the Agency a title 
insurance binder, disclosing all title defects or restrictions, and 
include a commitment to issue a title insurance policy. The policy 
should be in an amount at least equal to the market value of the 
property as improved. The title insurance binder and commitment should 
be provided to the Agency prior to requesting closing instructions. The 
Agency will be provided a title insurance policy which will insure RUS's 
interest in the property without any title defects or restrictions which 
have not been waived by the Agency.
    (ii) The approval official may waive title defects or restrictions, 
such as utility easements, that do not adversely affect the suitability, 
successful operation, security value, or transferability of the 
facility.
    (3) Water rights. The following will be furnished as applicable:
    (i) A statement by the applicant's attorney regarding the nature of 
the water rights owned or to be acquired by the applicant (such as 
conveyance of title, appropriation and decree, application and permit, 
public notice and appropriation and use).
    (ii) A copy of a contract with another company or municipality to 
supply water; or stock certificates in another company which represents 
the right to receive water.
    (4) Lease agreements. Where the right of use or control of real 
property not owned by the applicant is essential to the successful 
operation of the facility during the life of the loan, such right will 
be evidenced by written agreements or contracts between the owner of the 
property and the applicant. Lease agreements shall not contain 
provisions for restricted use of the site of facility, forfeiture or 
summary cancellation clauses. Lease agreements shall provide for the 
right to transfer, encumber, assign and sub-lease without restriction. 
Lease agreements will ordinarily be written for a term at least equal to 
the term of the loan. Such lease contracts or agreements will be 
approved by the approval official with the advice and counsel of OGC, as 
necessary.
    (h) Obtaining loan closing instructions. The information required by 
OGC will be transmitted to OGC with request for closing instructions. 
Upon receipt of closing instructions, the processing office will discuss 
with the applicant and its engineer, attorney, and other appropriate 
representatives, the requirements contained therein and any actions 
necessary to proceed with closing. State program officials have the 
option to work with OGC to obtain waivers for closing instructions in 
certain cases. Closing instructions are not required for grants.



Sec. 1780.45  Loan and grant closing and delivery of funds.

    (a) Loan closing. Notes and bonds will be completed on the date of 
loan closing except for the entry of subsequent RUS multiple advances 
where applicable. The amount of each note will be in multiples of not 
less than $100. The amount of each bond will ordinarily be in multiples 
of not less than $1,000.
    (1) Form RD 440-22, ``Promissory Note (Association or 
Organization),'' will ordinarily be used for loans to nonpublic bodies.

[[Page 1083]]

    (2) RUS Bulletins 1780-27, ``Loan Resolution (Public Bodies),'' or 
1780-28, ``Loan Resolution Security Agreement,'' will be adopted by 
public and other-than-public bodies. These resolutions supplement other 
provisions in this part.
    (3) Subpart D of this part contains instructions for preparation of 
notes and bonds evidencing indebtedness of public bodies.
    (b) Loan disbursement. (1) Multiple advances. Multiple advances will 
be used only for loans in excess of $100,000. Advances will be made only 
as needed to cover disbursements required by the borrower over a 30-day 
period.
    (i) Subpart D of this part contains instructions for making multiple 
advances to public bodies.
    (ii) Advances will be requested by the borrower in writing. The 
request should be in sufficient amounts to pay cost of construction, 
rights-of-way and land, legal, engineering, interest, and other expenses 
as needed. The borrower may use Form RD 440-11, ``Estimate of Funds 
Needed for 30 Day Period Commencing XXX,'' to show the amount of funds 
needed during the 30-day period.
    (2) RUS loan funds obligated for a specific purpose, such as the 
paying of interest, but not needed at the time of loan closing will 
remain in the Finance Office until needed unless State statutes require 
all funds to be delivered to the borrower at the time of closing. Loan 
funds may be advanced to prepay costs under Sec. 1780.9 (e)(2)(iv). If 
all funds must be delivered to the borrower at the time of closing to 
comply with State statutes, funds not needed at loan closing will be 
handled as follows:
    (i) Deposited in an appropriate borrower account, such as debt 
service or construction accounts; or
    (ii) Deposited in a joint bank account under paragraph (e)(3) of 
this section.
    (c) Grant closing. RUS Bulletin 1780-12 ``Water or Waste System 
Grant Agreement'' of this part will be completed and executed in 
accordance with the requirements of grant approval. The grant will be 
considered closed when RUS Bulletin 1780-12 has been properly executed. 
Processing or approval officials are authorized to sign the grant 
agreement on behalf of RUS. For grants that supplement RUS loan funds, 
the grant should be closed simultaneously with the closing of the loan. 
However, when grant funds will be disbursed before loan closing, as 
provided in paragraph (d)(1) of this section, the grant will be closed 
not later than the delivery date of the first advance of grant funds.
    (d) Grant disbursements. RUS policy is not to disburse grant funds 
from the Treasury until they are actually needed by the applicant. 
Applicant funds will be disbursed before the disbursal of any RUS grant 
funds. RUS loan funds will be disbursed before the disbursal of any RUS 
grant funds except when:
    (1) Interim financing of the total estimated amount of loan funds 
needed during construction is arranged; and
    (2) All interim funds have been disbursed; and
    (3) RUS grant funds are needed before the RUS loan can be closed.
    (e) Use and accountability of funds. (1) Arrangements will be agreed 
upon for the prior concurrence by the Agency of the bills or vouchers 
upon which warrants will be drawn. Form RD 402-2, ``Statement of 
Deposits and Withdrawals,'' or similar form will be used by the Agency 
to monitor funds. Periodic reviews of these accounts shall be made by 
the Agency.
    (2) Pledge of collateral for grants to nonprofit organizations. 
Grant funds must be deposited in a bank with Federal Deposit Insurance 
Corporation (FDIC) insurance coverage. Also, if the balance in the 
account containing grant funds exceeds the FDIC insurance coverage, the 
excess amount must be collaterally secured. The pledge of collateral for 
the excess will be in accordance with Treasury Circular 176.
    (3) Joint RUS/borrower bank account. RUS funds and any funds 
furnished by the borrower including contributions to purchase major 
items of equipment, machinery, and furnishings will be deposited in a 
joint RUS/borrower bank account if determined necessary by the approval 
official. When RUS has a Memorandum of Understanding with another agency 
that provides for the use of joint RUS/borrower accounts, or when RUS is 
the primary source of funds for a project and has determined that the 
use of a joint RUS/borrower bank account is necessary, project

[[Page 1084]]

funds from other sources may also be deposited in the joint bank 
account. RUS shall not be accountable to the source of the other funds 
nor shall RUS undertake responsibility to administer the funding program 
of the other entity. Joint RUS/borrower bank accounts should not be used 
for funds advanced by an interim lender. When funds exceeds the FDIC 
insurance coverage, the excess must have a pledge of collateral in 
accordance with Treasury Circular 176.
    (4) Payment for project costs. Project costs will be monitored by 
the RUS processing office. Invoices will be approved by the borrower and 
their engineer, as appropriate, and submitted to the processing office 
for concurrence. The review and acceptance of project costs, including 
construction pay estimates, by RUS does not attest to the correctness of 
the amounts, the quantities shown or that the work has been performed 
under the terms of the agreements or contracts.
    (f) Use of remaining funds. Funds remaining after all costs incident 
to the basic project have been paid or provided for will not include 
applicant contributions. Funds remaining, may be considered in direct 
proportion to the amounts obtained from each source. Remaining funds 
will be handled as follows:
    (1) Remaining funds may be used for eligible loan or grant purposes, 
provided the use will not result in major changes to the facility(s) and 
the purpose of the loan and grant remains the same;
    (2) RUS loan funds that are not needed will be applied as an extra 
payment on the RUS indebtedness unless other disposition is required by 
the bond ordinance, resolution, or State statute; and
    (3) Grant funds not expended under paragraph (f)(1) of this section 
will be canceled. Prior to the actual cancellation, the borrower, its 
attorney and its engineer will be notified of RUS's intent to cancel the 
remaining funds. The applicant will be given appropriate appeal rights.
    (g) Post review of loan closing. In order to determine that the loan 
has been properly closed the loan docket will be reviewed by OGC. The 
State program official has the option to consult with OGC to obtain 
waivers of this review.

[62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999]



Sec. 1780.46  [Reserved]



Sec. 1780.47  Borrower accounting methods, management reporting and 
audits.

    (a) Borrowers are required to provide RUS an annual audit or 
financial statements.
    (b) Method of accounting and preparation of financial statements. 
Annual organization-wide financial statements must be prepared on the 
accrual basis of accounting, in accordance with generally accepted 
accounting principles (GAAP), unless State statutes or regulatory 
agencies provide otherwise, or an exception is granted by the Agency. An 
organization may maintain its accounting records on a basis other than 
accrual accounting, and make the necessary adjustments so that annual 
financial statements are presented on the accrual basis.
    (c) Record retention. Each borrower shall retain all records, books, 
and supporting material for 3 years after the issuance of the audit or 
management reports. Upon request, this material will be made available 
to RUS, Office of the Inspector General (OIG), United States Department 
of Agriculture (USDA), the Comptroller General, or to their assignees.
    (d) Audits. All audits are to be performed in accordance with the 
latest revision of the generally accepted government auditing standards 
(GAGAS), developed by the Comptroller General of the United States. In 
addition, the audits are also to be performed in accordance with various 
Office of Management and Budget (OMB) Circulars. The type of audit each 
borrower is required to submit will be designated by RUS. Further 
guidance on preparing an acceptable audit can be obtained from RUS. It 
is not intended that audits required by this part be separate and apart 
from audits performed in accordance with State and local laws. To the 
extent feasible, the audit work should be done in conjunction with those 
audits. Audits shall be annual unless otherwise prohibited and supplied 
to the

[[Page 1085]]

processing office as soon as possible but in no event later than 150 
days following the period covered by the audit. OMB Circulars are 
available in any USDA/RUS office.
    (e) Borrowers exempt from audits. All borrowers who are exempt from 
audits, will, within 60 days following the end of each fiscal year, 
furnish the RUS with annual financial statements, consisting of a 
verification of the organization's balance sheet and statement of income 
and expense by an appropriate official of the organization. Forms RD 
442-2, ``Statement of Budget, Income and Equity,'' and 442-3 may be 
used.
    (f) Management reports. These reports will furnish management with a 
means of evaluating prior decisions and serve as a basis for planning 
future operations and financial strategies. In those cases where 
revenues from multiple sources are pledged as security for an RUS loan, 
two reports will be required; one for the project being financed by RUS 
and one combining the entire operation of the borrower. In those cases 
where RUS loans are secured by general obligation bonds or assessments 
and the borrower combines revenues from all sources, one management 
report combining all such revenues is acceptable. The following 
management data will be submitted by the borrower to the processing 
office. These reports at a minimum will include a balance sheet and 
income and expense statement.
    (1) Quarterly reports. A quarterly management report will be 
required for the first year for new borrowers and for all borrowers 
experiencing financial or management problems for one year from the date 
problems were noted. If the borrower's account is current at the end of 
the year, the processing office may waive the required reports.
    (2) Annual management reports. Prior to the beginning of each fiscal 
year the following will be submitted to the processing office. (If Form 
RD 442-2 is used as the annual management report, enter data in column 
three only of Schedule 1, and complete all of Schedule 2.)
    (i) Two copies of the management reports and proposed ``Annual 
Budget''.
    (ii) Financial information may be reported on Form RD 442-2 which 
includes Schedule 1, ``Statement of Budget, Income and Equity'' and 
Schedule 2, ``Projected Cash Flow'' or information in similar format.
    (iii) A copy of the rate schedule in effect at the time of 
submission.
    (g) Substitute for management reports. When RUS loans are secured by 
the general obligation of the public body or tax assessments which total 
100 percent of the debt service requirements, the State program official 
may authorize an annual audit to substitute for other management reports 
if the audit is received within 150 days following the period covered by 
the audit.



Sec. 1780.48  Regional commission grants.

    Grants are sometimes made by regional commissions for projects 
eligible for RUS assistance. RUS has agreed to administer such funds in 
a manner similar to administering RUS assistance.
    (a) When RUS has funds in the project, no charge will be made for 
administering regional commission funds.
    (b) When RUS has no loan or grant funds in the project, an 
administrative charge will be made pursuant to the Economy Act of 1932 
(31 U.C.S. 1535). A fee of 5 percent of the first $100,000 of a regional 
commission grant and 1 percent of any amount over $100,000 will be paid 
to RUS by the commission.
    (1) Appalachian Regional Commission (ARC). RUS Bulletin 1780-23 will 
be followed in determining the responsibilities of RUS. The ARC Federal 
Co-chairman and the State program official will provide each other with 
the necessary notification and certification.
    (2) Other regional commissions. Title V of the Public Works and 
Economic Development Act of 1965 (42 U.S.C. 3121 et seq.) authorizes 
other commissions similar to ARC. RUS Bulletin 1780-23 will be used to 
develop a separate project management agreement between RUS and the 
commission for each project. The agreement should be prepared by the 
State program official as soon as notification is received that a 
commission grant will be made and the amount is confirmed.
    (c) Regional commission grants should be obligated as soon as 
possible

[[Page 1086]]

in accordance with Sec. 1780.41, except that the announcement procedure 
referred to in RUS Staff Instruction 1780-2 is not applicable. Regional 
commission grants will be disbursed from the Finance Office in the same 
manner as RUS funds.

[62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999]



Sec. 1780.49  Rural or Native Alaskan villages.

    (a) General. (1) This section contains regulations for providing 
grants to remedy the dire sanitation conditions in rural Alaskan 
villages using funds specifically made available for this purpose.
    (2) Unless specifically modified by this section, grants will be 
made, processed, and serviced in accordance with this subpart.
    (b) Definitions--(1) Dire sanitation condition. For the purpose of 
this section a dire sanitation condition exists where:
    (i) Recurring instances of a waterborne communicable disease have 
been documented; or
    (ii) No community-wide water and sewer system exists and individual 
residents must haul water to or human waste from their homes and/or use 
pit privies.
    (2) Rural or Native Alaskan village. A rural or Native Alaskan 
community which meets the definition of a village under State statutes 
and does not have a population in excess of 10,000 inhabitants, 
according to the latest decennial Census of the United States.
    (c) Eligibility. (1) The applicant must be a rural or Native Alaskan 
village.
    (2) The median household income of the village cannot exceed 110 
percent of the statewide nonmetropolitan household income.
    (3) A dire sanitation condition must exist in the village.
    (4) The applicant must obtain 25 percent of project development 
costs from State or local contributions. The local contribution can be 
from loan funds authorized under this part.
    (d) Grant amount. Grants will be made for up to 75 percent of the 
project development costs.
    (e) Use of funds. Grant funds can be used to pay reasonable costs 
associated with providing potable water or waste disposal services to 
residents of rural or Native Alaskan villages.
    (f) Construction. (1) If the State of Alaska is contributing to the 
project costs, the project does not have to meet the construction 
requirements of this subpart.
    (2) If a loan is made in accordance with this part for part of the 
local contribution, all of the requirements of this part apply.

[62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999]



Secs. 1780.50-1780.52  [Reserved]



 Subpart C--Planning, Designing, Bidding, Contracting, Constructing and 
                               Inspections



Sec. 1780.53  General.

    This subpart is specifically designed for use by owners including 
the professional or technical consultants or agents who provide 
assistance and services such as engineering, environmental, inspection, 
financial, legal or other services related to planning, designing, 
bidding, contracting, and constructing water and waste disposal 
facilities. These procedures do not relieve the owner of the contractual 
obligations that arise from the procurement of these services. For this 
subpart, an owner is defined as an applicant, borrower, or grantee.



Sec. 1780.54  Technical services.

    Owners are responsible for providing the engineering, architect and 
environmental services necessary for planning, designing, bidding, 
contracting, inspecting, and constructing their facilities. Services may 
be provided by the owner's ``in house'' engineer or architect or through 
contract, subject to Agency concurrence. Engineers and architects must 
be licensed in the State where the facility is to be constructed.



Sec. 1780.55  Preliminary engineering reports and Environmental Reports.

    Preliminary engineering reports (PERs) must conform to customary 
professional standards. PER guidelines for water, sanitary sewer, solid 
waste, and storm sewer are available from the Agency. Environmental 
Reports must

[[Page 1087]]

meet the policies and intent of the National Environmental Policy Act 
and RUS procedures. Guidelines for preparing Environmental Reports are 
available in RUS Bulletin 1794A-602.

[64 FR 29946, June 4, 1999]



Sec. 1780.56  [Reserved]



Sec. 1780.57  Design policies.

    Facilities financed by the Agency will be designed and constructed 
in accordance with sound engineering practices, and must meet the 
requirements of Federal, State and local agencies.
    (a) Environmental review. Facilities financed by the Agency must 
undergo an environmental impact analysis in accordance with the National 
Environmental Policy Act and RUS procedures. Facility planning and 
design must not only be responsive to the owner's needs but must 
consider the environmental consequences of the proposed project. 
Facility design shall incorporate and integrate, where practicable, 
mitigation measures that avoid or minimize adverse environmental 
impacts. Environmental reviews serve as a means of assessing 
environmental impacts of project proposals, rather than justifying 
decisions already made. Applicants may not take any action on a project 
proposal that will have an adverse environmental impact or limit the 
choice of reasonable project alternatives being reviewed prior to the 
completion of the Agency's environmental review.
    (b) Architectural barriers. All facilities intended for or 
accessible to the public or in which physically handicapped persons may 
be employed must be developed in compliance with the Architectural 
Barriers Act of 1968 (42 U.S.C. 4151 et seq.) as implemented by 41 CFR 
101-19.6, section 504 of the Rehabilitation Act of 1973 (42 U.S.C 1474 
et seq.) as implemented by 7 CFR parts 15 and 15b, and Titles II and III 
of the Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et 
seq.).
    (c) Energy/environment. Facility design should consider cost 
effective energy-efficient and environmentally-sound products and 
services.
    (d) Fire protection. Water facilities should have sufficient 
capacity to provide reasonable fire protection to the extent 
practicable.
    (e) Growth capacity. Facilities should have sufficient capacity to 
provide for reasonable growth to the extent practicable.
    (f) Water conservation. Owners are encouraged, when economically 
feasible, to incorporate water conservation practices into a facility's 
design. For existing water systems, evidence must be provided showing 
that the distribution system water losses do not exceed reasonable 
levels.
    (g) Conformity with State drinking water standards. No funds shall 
be made available under this part for a water system unless the Agency 
determines that the water system will make significant progress toward 
meeting the standards established under title XIV of the Public Health 
Service Act (commonly known as the `Safe Drinking Water Act') (42 U.S.C. 
300f et seq.).
    (h) Conformity with Federal and State water pollution control 
standards. No funds shall be made available under this part for a water 
treatment discharge or waste disposal system unless the Agency 
determines that the effluent from the system conforms with applicable 
Federal and State water pollution control standards.
    (i) Combined sewers. New combined sanitary and storm water sewer 
facilities will not be financed by the Agency. Extensions to existing 
combined systems can only be financed when separate systems are 
impractical.
    (j) Dam safety. Projects involving any artificial barrier which 
impounds or diverts water, or the rehabilitation or improvement of such 
a barrier, must comply with the provisions for dam safety as set forth 
in the Federal Guidelines for Dam Safety (Government Printing Office 
stock No. 041-001-00187-5, Superintendent of Documents, Attn: New 
Orders, P.O. Box 371954, Pittsburgh, PA 15250-7954) as prepared by the 
Federal Coordinating Council for Science, Engineering and Technology.
    (k) Pipe. All pipe used shall meet current American Society for 
Testing Materials (ASTM) or American Water Works Association (AWWA) 
standards.
    (l) Water system testing. For new water systems or extensions to 
existing water

[[Page 1088]]

systems, leakage shall not exceed limits set by either ASTM or AWWA 
whichever is the more stringent.
    (m) Metering devices. Water facilities financed by the Agency will 
have metering devices for each connection. An exception to this 
requirement may be granted by the State program official when the owner 
demonstrates that installation of metering devices would be a 
significant economic detriment and that environmental considerations 
would not be adversely affected by not installing such devices. Sanitary 
sewer projects should incorporate water system metering devices whenever 
practicable.
    (n) Economical service. The facility's design must provide the most 
economical service practicable.
    (o) Seismic safety. All new structures, fully or partially enclosed, 
used or intended for sheltering persons or property will be designed 
with appropriate seismic safety provisions in compliance with the 
Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 et seq.), and 
Executive Order 12699, Seismic Safety of Federal and Federally Assisted 
or Regulated New Building Construction (3 CFR, 1990 Comp., p. 269). 
Designs of components essential for system operation and substantial 
rehabilitation of structures that are used for sheltering persons or 
property should incorporate seismic safety provisions to the extent 
practicable. RUS implementing regulations for seismic safety are in 7 
CFR part 1972, subpart C.

[62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998; 
64 FR 29946, June 4, 1999]



Secs. 1780.58-1780.60  [Reserved]



Sec. 1780.61  Construction contracts.

    Contract documents must be sufficiently descriptive and legally 
binding in order to accomplish the work as economically and 
expeditiously as possible.
    (a) Standard construction contract documents. If the construction 
contract documents utilized are not in the format previously approved by 
the Agency, OGC's review of the construction contract documents will be 
obtained prior to their use.
    (b) Contract review and concurrence. The owner's attorney will 
review the executed contract documents, including performance and 
payment bonds, and will certify that they are adequate, and that the 
persons executing these documents have been properly authorized to do 
so. The contract documents, engineer's recommendation for award, and bid 
tabulation sheets will be forwarded to the Agency for concurrence prior 
to awarding the contract. All contracts will contain a provision that 
they are not effective until they have been concurred in by the Agency. 
The State program official or designee is responsible for concurring in 
construction contracts with the legal advice and guidance of the OGC 
when necessary.



Sec. 1780.62  Utility purchase contracts.

    Applicants proposing to purchase water or other utility service from 
private or public sources shall have written contracts for supply or 
service which are reviewed and concurred in by the Agency. To the extent 
practical, the Agency review and concurrence of such contracts should 
take place prior to their execution by the owner. OGC advice and 
guidance may be requested. Form RD 442-30, ``Water Purchase Contract,'' 
may be used when appropriate. If the Agency loan will be repaid from 
system revenues, the contract will be pledged to the Agency as part of 
the security for the loan. Such contracts will:
    (a) Include a commitment by the supplier to furnish, at a specified 
point, an adequate quantity of water or other service and provide that, 
in case of shortages, all of the supplier's users will proportionately 
share shortages.
    (b) Set out the ownership and maintenance responsibilities of the 
respective parties including the master meter if a meter is installed at 
the point of delivery.
    (c) Specify the initial rates and provide a type of escalator clause 
which will permit rates for the association to be raised or lowered 
proportionately as certain specified rates for the supplier's regular 
customers are raised or lowered. Provisions may be made for altering 
rates in accordance with the decisions of the appropriate State

[[Page 1089]]

agency which may have regulatory authority.
    (d) Cover period of time which is at least equal to the repayment 
period of the loan. State program officials may approve contracts for 
shorter periods of time if the supplier cannot legally contract for such 
period, or if the owner and supplier find it impossible or impractical 
to negotiate a contract for the maximum period permissible under State 
law, provided:
    (1) The supplier is subject to regulations of the Federal Energy 
Regulatory Commission or other Federal or State agency whose 
jurisdiction can be expected to prevent unwarranted curtailment of 
supply; or
    (2) The contract contains adequate provisions for renewal; or
    (3) A determination is made that in the event the contract is 
terminated, there are or will be other adequate sources available to the 
owner that can feasibly be developed or purchased.
    (e) Set out in detail the amount of connection or demand charges, if 
any, to be made by the supplier as a condition to making the service 
available to the owner. However, the payment of such charges from loan 
funds shall not be approved unless the Agency determines that it is more 
feasible and economical for the owner to pay such a connection charge 
than it is for the owner to provide the necessary supply by other means.
    (f) Provide for a pledge of the contract to the Agency as part of 
the security for the loan.
    (g) Not contain provisions for:
    (1) Construction of facilities which will be owned by the supplier. 
This does not preclude the use of money paid as a connection charge for 
construction to be done by the supplier.
    (2) Options for the future sale or transfer. This does not preclude 
an agreement recognizing that the supplier and owner may at some future 
date agree to a sale of all or a portion of the facility.
    (h) If it is impossible to obtain a firm commitment for either an 
adequate quantity or sharing shortages proportionately, a contract may 
be executed and concurred in provided adequate evidence is furnished to 
enable the Agency to make a determination that the supplier has adequate 
supply and/or treatment facilities to furnish its other users and the 
applicant for the foreseeable future; and:
    (1) The supplier is subject to regulations of the Federal Energy 
Regulatory Commission or other Federal or State agency whose 
jurisdiction can be expected to prevent unwarranted curtailment of 
supply; or
    (2) A suitable alternative supply could be arranged within the 
repayment ability of the borrower if it should become necessary; or
    (3) Concurrence in the proposed contract is obtained from the 
National Office.



Sec. 1780.63  Sewage treatment and bulk water sales contracts.

    Owners entering into agreements with private or public parties to 
treat sewage or supply bulk water shall have written contracts for such 
service and all such contracts shall be subject to the Agency 
concurrence. Section 1780.62 should be used as a guide to prepare such 
contracts.



Secs. 1780.64-1780.66  [Reserved]



Sec. 1780.67  Performing construction.

    Owners are encouraged to accomplish construction through contracts 
with qualified contractors. Owners may accomplish construction by using 
their own personnel and equipment provided the owners possess the 
necessary skills, abilities and resources to perform the work and 
provided a licensed engineer prepares design drawings and specifications 
and inspects construction and furnishes inspection reports as required 
by Sec. 1780.76. Inspection services may be provided by individuals as 
approved by the State staff engineer. Payments for construction will be 
handled under Sec. 1780.76(e).



Sec. 1780.68  Owner's contractual responsibility.

    This part does not relieve the owner of any responsibilities under 
its contract. The owner is responsible for the settlement of all 
contractual and administrative issues arising out of procurement entered 
into in support of a loan or grant. These include, but are

[[Page 1090]]

not limited to: source evaluation, protests, disputes, and claims. 
Matters concerning violation of laws are to be referred to the 
applicable local, State, or Federal authority.



Sec. 1780.69  [Reserved]



Sec. 1780.70  Owner's procurement regulations.

    Owner's procurement requirements must comply with the following 
standards:
    (a) Code of conduct. Owners shall maintain a written code or 
standards of conduct which shall govern the performance of their 
officers, employees or agents engaged in the award and administration of 
contracts supported by Agency funds. No employee, officer or agent of 
the owner shall participate in the selection, award, or administration 
of a contract supported by Agency funds if a conflict of interest, real 
or apparent, would be involved. Examples of such conflicts would arise 
when: the employee, officer or agent; any member of their immediate 
family; their partner; or an organization which employs, or is about to 
employ, any of the above; has a financial or other interest in the firm 
selected for the award.
    (1) The owner's officers, employees or agents shall neither solicit 
nor accept gratuities, favors or anything of monetary value from 
contractors, potential contractors, or parties to subagreements.
    (2) To the extent permitted by State or local law or regulations, 
the owner's standards of conduct shall provide for penalties, sanctions, 
or other disciplinary actions for violations of such standards by the 
owner's officers, employees, agents, or by contractors or their agents.
    (b) Maximum open and free competition. All procurement transactions, 
regardless of whether by sealed bids or by negotiation and without 
regard to dollar value, shall be conducted in a manner that provides 
maximum open and free competition. Procurement procedures shall not 
restrict or eliminate competition. Examples of what are considered to be 
restrictive of competition include, but are not limited to: placing 
unreasonable requirements on firms in order for them to qualify to do 
business; noncompetitive practices between firms; organizational 
conflicts of interest; and unnecessary experience and bonding 
requirements. In specifying materials, the owner and its consultant will 
consider all materials normally suitable for the project commensurate 
with sound engineering practices and project requirements. The Agency 
shall consider fully any recommendation made by the owner concerning the 
technical design and choice of materials to be used for a facility. If 
the Agency determines that a design or material, other than those that 
were recommended should be considered by including them in the 
procurement process as an acceptable design or material in the water or 
waste disposal facility, the Agency shall provide such owner with a 
comprehensive justification for such a determination. The justification 
will be documented in writing.
    (c) Owner's review. Proposed procurement actions shall be reviewed 
by the owner's officials to avoid the purchase of unnecessary or 
duplicate items. Consideration should be given to consolidation or 
separation of procurement items to obtain a more economical purchase. 
Where appropriate, an analysis shall be made of lease versus purchase 
alternatives, and any other appropriate analysis to determine which 
approach would be the most economical. To foster greater economy and 
efficiency, owners are encouraged to enter into State and local 
intergovernmental agreements for procurement or use of common goods and 
services.
    (d) Solicitation of offers, whether by competitive sealed bid or 
competitive negotiation, shall:
    (1) Incorporate a clear and accurate description of the technical 
requirements for the material, product or service to be procured. When 
it is impractical or uneconomical to make a clear and accurate 
description of the technical requirements, a ``brand name or equal'' 
description may be used to define the performance or other salient 
requirements of a procurement. The specific feature of the name brands 
which must be met by the offeror shall be clearly stated; and
    (2) Clearly specify all requirements which offerors must fulfill and 
all

[[Page 1091]]

other factors to be used in evaluating bids or proposals.
    (e) Affirmative steps should be taken to assure that small, 
minority, and women businesses are utilized when possible as sources of 
supplies, equipment, construction and services.
    (f) Contract pricing. Cost plus a percentage of cost method of 
contracting shall not be used.
    (g) Unacceptable bidders. The following will not be allowed to bid 
on, or negotiate for, a contract or subcontract related to the 
construction of the project:
    (1) An engineer as an individual or firm who has prepared plans and 
specifications or who will be responsible for monitoring the 
construction;
    (2) Any firm or corporation in which the owner's engineer is an 
officer, employee, or holds or controls a substantial interest;
    (3) The governing body's officers, employees, or agents;
    (4) Any member of the immediate family or partners in the entities 
referred to in paragraphs (g)(1), (g)(2) or (g)(3) of this section; or
    (5) An organization which employs, or is about to employ, any person 
in the entities referred to in paragraphs (g)(1), (g)(2), (g)(3) or 
(g)(4) of this section.
    (h) Contract award. Contracts shall be made only with responsible 
parties possessing the potential ability to perform successfully under 
the terms and conditions of a proposed procurement. Consideration shall 
include but not be limited to matters such as integrity, record of past 
performance, financial and technical resources, and accessibility to 
other necessary resources. Contracts shall not be made with parties who 
are suspended or debarred by any Agency of the United States Government.



Sec. 1780.71  [Reserved]



Sec. 1780.72  Procurement methods.

    Procurement shall be made by one of the following methods: Small 
purchase procedures; competitive sealed bids (formal advertising); 
competitive negotiation; or noncompetitive negotiation. Competitive 
sealed bids (formal advertising) is the preferred procurement method for 
construction contracts.
    (a) Small purchase procedures. Small purchase procedures are those 
relatively simple and informal procurement methods that are sound and 
appropriate for a procurement of services, supplies or other property, 
costing in the aggregate not more than $100,000. If small purchase 
procedures are used for a procurement, written price or rate quotations 
shall be requested from at least three qualified sources.
    (b) Competitive sealed bids. In competitive sealed bids (formal 
advertising), an invitation for sealed bids is publicly advertised and a 
firm-fixed-price contract (lump sum or unit price) is awarded to the 
responsible bidder whose bid, conforming with all the material terms and 
conditions of the invitation for bids, is lowest, price and other 
factors considered. When using this method the following shall apply:
    (1) The invitation for bids shall be publicly advertised at a 
sufficient time prior to the date set for opening of bids. The 
invitation shall comply with the requirements in Sec. 1780.70(d). Bids 
shall be solicited from an adequate number of qualified sources;
    (2) All bids shall be opened publicly at the time and place stated 
in the invitation for bids;
    (3) A firm-fixed-price contract award shall be made by written 
notice to that responsible bidder whose bid, conforming to the 
invitation for bids, is lowest. When specified in the bidding documents, 
factors such as discounts and transportation costs shall be considered 
in determining which bid is lowest; and
    (4) Any or all bids may be rejected by the owner when it is in its 
best interest.
    (c) Competitive negotiation. In competitive negotiations, proposals 
are requested from a number of sources and the Request for Proposal is 
publicized. Negotiations are normally conducted with more than one of 
the sources submitting offers. Competitive negotiation may be used if 
conditions are not appropriate for the use of formal advertising and 
where discussions and bargaining with a view to reaching agreement on 
the technical quality, price, other terms of the proposed contract

[[Page 1092]]

and specifications may be necessary. If competitive negotiation is used 
for a procurement, the following requirements shall apply:
    (1) Proposals shall be solicited from an adequate number of 
qualified sources to permit reasonable competition consistent with the 
nature and requirements of the Procurement. The Request for Proposal 
shall be publicized and reasonable requests by other sources to compete 
shall be honored to the maximum extent practicable;
    (2) The Request for Proposal shall identify all significant 
evaluation factors and their relative importance;
    (3) The owner shall provide mechanisms for technical evaluation of 
the proposals received, determination of responsible offerors for the 
purpose of written or oral discussions, and selection for contract 
award; and
    (4) Award may be made to the responsible offeror whose proposal will 
be most advantageous to the owner. Unsuccessful offerors should be 
promptly notified.
    (d) Noncompetitive negotiation. Noncompetitive negotiation is 
procurement through solicitation of a proposal from only one source, or 
after solicitation of a number of sources, competition is determined 
inadequate. Noncompetitive negotiation may be used when the award of a 
contract is not feasible under small purchase or competitive sealed 
bids. Circumstances under which a contract may be awarded by 
noncompetitive negotiations are limited to the following:
    (1) The item is available only from a single source; or
    (2) There exists a public exigency or emergency and the urgency for 
the requirement will not permit a delay incident to competitive 
solicitation; or
    (3) After solicitation of a number of sources, competition is 
determined inadequate; or
    (4) No acceptable bids have been received after formal advertising; 
or
    (5) The procurement is for professional services; or
    (6) The aggregate amount does not exceed $100,000.



Sec. 1780.73  [Reserved]



Sec. 1780.74  Contracts awarded prior to applications.

    Owners awarding construction or other procurement contracts prior to 
filing an application, must provide evidence that is satisfactory to the 
Agency that the contract was entered into without intent to circumvent 
the requirements of Agency regulations.
    (a) Modifications. The contract shall be modified to conform with 
the provisions of this part. Where this is not possible, modifications 
will be made to the extent practicable and, as a minimum, the contract 
must comply with all State and local laws and regulations as well as 
statutory requirements and executive orders related to the Agency 
financing. When all construction is complete and it is impracticable to 
modify the contracts, the owner must provide the certification required 
by paragraph (c) of this section.
    (b) Consultant's certification. Provide a certification by an 
engineer, licensed in the State where the facility is constructed, that 
any construction performed complies fully with the plans and 
specifications.
    (c) Owner's certification. Provide a certification by the owner that 
the contractor has complied with applicable statutory and executive 
requirements related to Agency financing for construction already 
performed.



Sec. 1780.75  Contract provisions.

    In addition to provisions required for a valid and legally binding 
contract, any recipient of Agency funds shall include the following 
contract provisions in all contracts.
    (a) Remedies. Contracts other than small purchases shall contain 
provisions or conditions which will allow for administrative, 
contractual, or legal remedies in instances where contractors violate or 
breach contract terms, and provide for such sanctions and penalties as 
may be appropriate. A realistic liquidated damage provision should be 
included in all contracts for construction.
    (b) Termination. All contracts exceeding $10,000, shall contain 
suitable provisions for termination by the owner including the manner by 
which it will be

[[Page 1093]]

effected and the basis for settlement. In addition, such contracts shall 
describe conditions under which the contract may be terminated for 
default as well as conditions where the contract may be terminated 
because of circumstances beyond the control of the contractor.
    (c) Surety. In all contracts for construction or facility 
improvements exceeding $100,000, the owner shall require bonds or cash 
deposit in escrow assuring performance and payment each in the amount of 
100 percent of the contract cost. The surety will be in the form of 
performance bonds and payment bonds. For contracts of lesser amounts, 
the owner may require surety. When a surety is not provided, contractors 
will furnish evidence of payment in full for all materials, labor, and 
any other items procured under the contract. Form RD 1924-10, ``Release 
by Claimants,'' and Form RD 1924-9, ``Certificate of Contractor's 
Release,'' may be used for this purpose. Companies providing performance 
bonds and payment bonds must hold a certificate of authority as an 
acceptable surety on Federal bonds as listed in Treasury Circular 570 as 
amended and the surety must be listed as having a license to do business 
in the State where the facility is located.
    (d) Equal employment opportunity. All contracts awarded in excess of 
$10,000 by owners shall contain a provision requiring compliance with 
Executive Order 11246 (3 CFR, 1966 Comp., p.339), entitled, ``Equal 
Employment Opportunity,'' as amended by Executive Order 11375 (3 CFR, 
1968 Comp., p. 321), and as supplemented by Department of Labor 
regulations 41 CFR chapter 60.
    (e) Anti-kickback. All contracts for construction shall include a 
provision for compliance with the Copeland ``Anti-Kickback'' Act (18 
U.S.C. 874). This Act provides that each contractor shall be prohibited 
from inducing, by any means, any person employed in the construction, 
completion, or repair of public work, to give up any part of the 
compensation to which they are otherwise entitled. The owner shall 
report suspected or reported violations to the Agency.
    (f) Records. All negotiated contracts (except those of $10,000 or 
less) awarded by owners shall include a provision to the effect that the 
owner, the Agency, the Comptroller General of the United States, or any 
of their duly authorized representatives, shall have access to any 
books, documents, papers, and records of the contractor which are 
directly pertinent to a specific Federal loan or grant program for the 
purpose of making audits, examinations, excerpts, and transcriptions. 
Owners shall require contractors to maintain all required records for 3 
years after making final payment and all other pending matters are 
closed.
    (g) State energy conservation plan. Contracts shall incorporate 
mandatory standards and policies relating to energy efficiency which are 
contained in the State energy conservation plan issued in compliance 
with the Energy Policy and Conservation Act (42 U.S.C. 6201).
    (h) Change orders. The construction contract shall require that all 
contract change orders be concurred in by the Agency.
    (i) Agency concurrence. All contracts must contain a provision that 
they shall not be effective unless and until the State program official 
or designee concurs in writing.
    (j) Retainage. All construction contracts shall contain adequate 
provisions for retainage. No payments will be made that would deplete 
the retainage nor place in escrow any funds that are required for 
retainage nor invest the retainage for the benefit of the contractor. 
The retainage shall not be less than an amount equal to 5 percent of an 
approved partial payment estimate until the project is substantially 
complete and accepted by the owner, consulting engineer and Agency. The 
contract must provide that additional amounts may be retained if the job 
is not proceeding satisfactorily.
    (k) Other compliance requirements. Contracts in excess of $100,000 
shall contain a provision which requires compliance with all applicable 
standards, orders, or requirements issued under section 306 of the Clean 
Air Act (42 U.S.C. 1857(h)), section 508 of the Clean Water Act (33 
U.S.C. 1368), Executive Order 11738 (3 CFR, 1974 Comp., p.209), and 
Environmental Protection Agency (EPA) regulations 40 CFR part

[[Page 1094]]

15, which prohibit the use under non-exempt Federal contracts, grants or 
loans of facilities included on the EPA List of Violating Facilities. 
The provision shall require reporting of violations to the Agency and to 
the U.S. Environmental Protection Agency, Assistant Administrator for 
Enforcement. Solicitations and contract provisions shall include the 
requirements of 4 CFR 15.4(c) as set forth in RUS Bulletin 1780-14.



Sec. 1780.76  Contract administration.

    Owners shall be responsible for maintaining a contract 
administration system to monitor the contractors' performance and 
compliance with the terms, conditions, and specifications of the 
contracts.
    (a) Preconstruction conference. Prior to beginning construction, the 
owner will schedule a preconstruction conference where the consulting 
engineer will review the planned development with the Agency, owner, 
resident inspector, attorney, contractor, and other interested parties. 
The conference will thoroughly cover applicable items included in Form 
RD 1924-16, ``Record of Pre-construction Conference,'' and the 
discussions and agreements will be documented.
    (b) Monitoring reports. The owner is required to monitor 
construction and provide a report to the Agency giving a full 
explanation under the following circumstances:
    (1) Reasons why approved construction schedules were not met;
    (2) Analysis and explanation of cost overruns and how payment is to 
be made for the same; and
    (3) If events occur which have a significant impact upon the 
project.
    (c) Inspection. Full-time resident inspection is required for all 
construction unless a written exception is made by the Agency upon 
written request of the owner. Unless otherwise agreed, the resident 
inspector will be provided by the consulting engineer. Prior to the 
preconstruction conference, the consulting engineer will submit a resume 
of qualifications of the resident inspector to the owner and to the 
Agency for acceptance in writing. If the owner provides the resident 
inspector, it must submit a resume of the inspector's qualifications to 
the project engineer for comments and the Agency for acceptance in 
writing prior to the preconstruction conference. The resident inspector 
will work under the technical supervision of the project engineer and 
the role and responsibilities will be defined in writing.
    (d) Inspector's daily diary. The resident inspector will maintain a 
record of the daily construction progress in the form of a daily diary 
and daily inspection reports. The daily entries shall be made available 
to the Agency personnel and will be reviewed during project inspections. 
The original complete set will be furnished to the owner upon completion 
of construction. RUS Bulletin 1780-18 is available from the Agency for 
preparing daily inspection reports or the reports can be provided in 
other formats approved by the State staff engineer.
    (e) Payment for Construction. Form RD 1924-18, ``Partial Payment 
Estimate,'' or other similar form may be used for construction payments. 
If Form 1924-18 is not used, prior concurrence by the State staff 
engineer must be obtained.
    (1) Payment of contract retainage will not be made until such 
retainage is due and payable under the terms of the contact.
    (2) Invoices for the payment of construction costs must be approved 
by the owner, project engineer and concurred in by the Agency.
    (3) The review and acceptance of project costs, including 
construction payment estimates by the Agency shall not attest to the 
correctness of the amounts, the quantities shown, or that the work has 
been performed under the terms of agreements or contracts.
    (f) Prefinal inspections. A prefinal inspection will be made by the 
owner, resident inspector, project engineer, contractor, representatives 
of other agencies involved, and Agency representative (preferably the 
State staff engineer or designee). The inspection results will be 
recorded by the project engineer and a copy provided to all interested 
parties.
    (g) Final inspection. A final inspection will be made by the Agency 
before final payment is made.

[[Page 1095]]

    (h) Changes in development plans. (1) Changes in development plans 
shall be reviewed and approved by the Agency provided:
    (i) Funds are available to cover any additional costs; and
    (ii) The change is for an authorized loan or grant purpose; and
    (iii) It will not adversely affect the soundness of the facility 
operation or the Agency's security; and
    (iv) The change is within the scope of the contract,
    (2) Changes will be recorded on Form RD 1924-7, ``Contract Change 
Order,'' or other similar form if approved by the State program official 
or designee. Regardless of the form, change orders must be approved by 
the State program official or designee.
    (3) Changes should be accomplished only after Agency approval and 
shall be authorized only by means of contract change order. The change 
order will include items such as:
    (i) Any changes in labor and material;
    (ii) Changes in facility design;
    (iii) Any decrease or increase in quantities based on final 
measurements that are different from those shown in the bidding 
schedule; and
    (iv) Any increase or decrease in the time to complete the project.
    (4) All changes shall be recorded on chronologically numbered 
contract change orders as they occur. Change orders will not be included 
in payment estimates until approved by all parties.



Secs. 1780.77-1780.79  [Reserved]



 Subpart D--Information Pertaining to Preparation of Notes or Bonds and 
          Bond Transcript Documents for Public Body Applicants



Sec. 1780.80  General.

    This subpart includes information for use by public body applicants 
in the preparation and issuance of evidence of debt (bonds, notes, or 
debt instruments, referred to as bonds in this subpart) and other 
necessary loan documents.



Sec. 1780.81  Policies related to use of bond counsel.

    The applicant is responsible for preparation of bonds and bond 
transcript documents. The applicant will obtain the services and opinion 
of recognized bond counsel experienced in municipal financing with 
respect to the validity of a bond issue, except for issues of $100,000 
or less. With prior approval of the approval official, the applicant may 
elect not to use bond counsel. Such issues will be closed in accordance 
with the following:
    (a) The applicant must recognize and accept the fact that 
application processing may require additional legal and administrative 
time;
    (b) It must be established that not using bond counsel will produce 
significant savings in total legal costs;
    (c) The local attorney must be able and experienced in handling this 
type of legal work;
    (d) The applicant must understand that it will likely have to obtain 
an opinion from bond counsel at its expense should the Agency require 
refinancing of the debt;
    (e) Bonds will be prepared in accordance with this regulation and 
conform as closely as possible to the preferred methods of preparation 
stated in Sec. 1780.94; and
    (f) Closing instructions must be issued by OGC.



Sec. 1780.82  [Reserved]



Sec. 1780.83  Bond transcript documents.

    Any questions relating to Agency requirements should be discussed 
with Agency representatives. Bond counsel or local counsel, as 
appropriate, must furnish at least two complete sets of the following to 
the applicant, who will furnish one complete set to the Agency:
    (a) Copies of all organizational documents;
    (b) Copies of general incumbency certificate;
    (c) Certified copies of minutes or excerpts from all meetings of the 
governing body at which action was taken in connection with the 
authorizing and issuing of the bonds;

[[Page 1096]]

    (d) Certified copies of documents evidencing that the applicant has 
complied fully with all statutory requirements incident to calling and 
holding a favorable bond election, if one is necessary;
    (e) Certified copies of the resolutions, ordinances, or other 
documents such as the bond authorizing resolutions or ordinances and any 
resolution establishing rates and regulating use of facility, if such 
documents are not included in the minutes furnished;
    (f) Copies of the official Notice of Sale and the affidavit of 
publication of the Notice of Sale when State statute requires a public 
sale;
    (g) Specimen bond, with any attached coupons;
    (h) Attorney's no-litigation certificate;
    (i) Certified copies of resolutions or other documents pertaining to 
the bond award;
    (j) Any additional or supporting documents required by bond counsel;
    (k) For loans involving multiple advances of Agency loan funds, a 
preliminary approving opinion of bond counsel (or local counsel if no 
bond counsel is involved) if a final unqualified opinion cannot be 
obtained until all funds are advanced. The preliminary opinion for the 
entire issue shall be delivered at or before the time of the first 
advance of funds. It will state that the applicant has the legal 
authority to issue the bonds, construct, operate and maintain the 
facility, and repay the loan, subject only to changes occurring during 
the advance of funds, such as litigation resulting from the failure to 
advance loan funds, and receipt of closing certificates;
    (l) Final unqualified approving opinion of bond counsel, (and 
preliminary approving opinion, if required) or local counsel if no bond 
counsel is involved, including an opinion as to whether interest on 
bonds will be exempt from Federal and State income taxes. With approval 
of the State program official, a final opinion may be qualified to the 
extent that litigation is pending relating to Indian claims that may 
affect title to land or validity of the obligation. It is permissible 
for such opinion to contain language referring to the last sentence of 
section 306 (a)(1) or to section 309A (h) of the Consolidated Farm and 
Rural Development Act (7 U.S.C. 1926 (a)(1) or 1929a (h)).



Secs. 1780.84-1780.86  [Reserved]



Sec. 1780.87  Permanent instruments for Agency loans.

    Agency loans will be evidenced by an instrument determined legally 
sufficient and in accordance with the following order of preference:
    (a) First preference--Form RD 440-22, ``Promissory Note''. Refer to 
paragraph (b) of this section for methods of various frequency payment 
calculations.
    (b) Second preference--single instruments with amortized 
installments. A single instrument providing for amortized installments 
which follows Form RD 440-22 as closely as possible. The full amount of 
the loan must show on the face of the instrument, and there must be 
provisions for entering the date and amount of each advance on the 
reverse or an attachment. When principal payments are deferred, the 
instrument will show that ``interest only'' is due on interest-only 
installment dates, rather than specific dollar amounts. The payment 
period including the ``interest only'' installment cannot exceed 40 
years, the useful life of the facility, or State statute limitations, 
whichever occurs first. The amortized installment, computed as follows, 
will be shown as due on installment dates thereafter.
    (1) Monthly payments. Multiply by twelve the number of years between 
the due date of the last interest-only installment and the final 
installment to determine the number of monthly payments. When there are 
no interest-only installments, multiply by twelve the number of years 
over which the loan is amortized. Then multiply the loan amount by the 
amortization factor and round to the next higher dollar.
    (2) Semiannual payments. Multiply by two the number of years between 
the due date of the last interest-only installment and the due date of 
the final installment to determine the correct number of semiannual 
periods. When there are no interest-only installments, multiply by two 
the number of years over which the loan is amortized.

[[Page 1097]]

Then multiply the loan amount by the applicable amortization factor.
    (3) Annual payments. Subtract the due date of the last interest-only 
installment from the due date of the final installment to determine the 
number of annual payments. When there are no interest-only installments, 
the number of annual payments will equal the number of years over which 
the loan is amortized. Then multiply the loan amount by the applicable 
amortization factor and round to the next higher dollar.
    (c) Third preference--single instruments with installments of 
principal plus interest. If a single instrument with amortized 
installments is not legally permissible, use a single instrument 
providing for installments of principal plus interest accrued on the 
principal balance. For bonds with semiannual interest and annual 
principal, the interest is calculated by multiplying the principal 
balance times the interest rate and dividing this figure by two. 
Principal installments are to be scheduled so that total combined 
interest and principal payments closely approximate amortized payments.
    (1) The repayment terms concerning interest only installments 
described in paragraph (b) of this section apply.
    (2) The instrument shall contain in substance provisions indicating:
    (i) Principal maturities and due dates;
    (ii) Regular payments shall be applied first to interest due through 
the next principal and interest installment due date and then to 
principal due in chronological order stipulated in the bond; and
    (iii) Payments on delinquent accounts will be applied in the 
following sequence:
    (A) Billed delinquent interest;
    (B) Past due interest installments;
    (C) Past due principal installments;
    (D) Interest installment due; and
    (E) Principal installment due.
    (d) Fourth preference--serial bonds with installments of principal 
plus interest. If instruments described under the first, second, and 
third preferences are not legally permissible, use serial bonds with a 
bond or bonds delivered in the amount of each advance. Bonds will be 
numbered consecutively and delivered in chronological order. Such bonds 
will conform to the minimum requirements of Sec. 1780.94. Provisions for 
application of payments will be the same as those set forth in paragraph 
(c)(2)(ii) of this section.
    (e) Coupon bonds. Coupon bonds will not be used unless required by 
State statute. Such bonds will conform to the minimum requirements of 
Sec. 1780.94.



Sec. 1780.88  [Reserved]



Sec. 1780.89  Multiple advances of Agency funds using permanent 
instruments.

    Where interim financing from commercial sources is not used, Agency 
loan proceeds will be disbursed on an ``as needed by borrower'' basis in 
amounts not to exceed the amount needed during 30-day periods.



Sec. 1780.90  Multiple advances of Agency funds using temporary debt instruments.

    When none of the instruments described in Sec. 1780.87 are legally 
permissible or practical, a bond anticipation note or similar temporary 
debt instrument may be used. The debt instrument will provide for 
multiple advances of Agency funds and will be for the full amount of the 
Agency loan. The instrument will be prepared by bond counsel, or local 
counsel if bond counsel is not involved, and approved by the State 
program official and OGC. At the same time the Agency delivers the last 
advance, the borrower will deliver the permanent bond instrument and the 
canceled temporary instrument will be returned to the borrower. The 
approved debt instrument will show at least the following:
    (a) The date from which each advance will bear interest;
    (b) The interest rate as determined by Sec. 1780.13;
    (c) A payment schedule providing for interest on outstanding 
principal at least annually; and
    (d) A maturity date which shall be no earlier than the anticipated 
issuance date of the permanent instruments and no longer than the 40-
year statutory limit.

[[Page 1098]]



Secs. 1780.91-1780.93  [Reserved]



Sec. 1780.94  Minimum bond specifications.

    The provisions of this section are minimum specifications only and 
must be followed to the extent legally permissible.
    (a) Type and denominations. Bond resolutions or ordinances will 
provide that the instruments be either a bond representing the total 
amount of the indebtedness or serial bonds in denominations customarily 
accepted in municipal financing (ordinarily in multiples of not less 
than $1,000). Single bonds may provide for repayment of principal plus 
interest or amortized installments. Amortized installments are preferred 
by the Agency.
    (b) Bond registration. Bonds will contain provisions permitting 
registration for both principal and interest. Bonds purchased by the 
Agency will be registered in the name of ``United States of America'' 
and will remain so registered at all times while the bonds are held or 
insured by the Government. The Agency address for registration purposes 
will be that of the Finance Office.
    (c) Size and quality. Size of bonds and coupons should conform to 
standard practice. Paper must be of sufficient quality to prevent 
deterioration through ordinary handling over the life of the loan.
    (d) Date of bond. Bonds will normally be dated as of the day of 
delivery. However, the borrower may use another date if approved by the 
Agency. Loan closing is the date of delivery of the bonds or the date of 
delivery of the first bond when utilizing serial bonds, regardless of 
the date of delivery of the funds. The date of delivery will be stated 
in the bond if different from the date of the bond. In all cases, 
interest will accrue from the date of delivery of the funds.
    (e) Payment date. Loan payments will be scheduled to coincide with 
income availability and be in accordance with State law.
    (1) If income is available monthly, monthly payments are recommended 
unless precluded by State law. If income is available quarterly or 
otherwise more frequently than annually, payments must be scheduled on 
such basis. However, if State law only permits principal plus interest 
(P&I) type bonds, annual or semiannual payments will be used.
    (2) The payment schedule will be enumerated in the evidence of debt, 
or if that is not feasible, in a supplemental agreement.
    (3) If feasible, the first payment will be scheduled one full month, 
or other period, as appropriate, from the date of loan closing or any 
deferment period. Due dates falling on the 29th, 30th, and 31st day of 
the month will be avoided. When principal payments are deferred, 
interest-only payments will be scheduled at least annually.
    (f) Extra payments. Extra payments are derived from the sale of 
basic chattel or real estate security, refund of unused loan funds, cash 
proceeds of property insurance and similar actions which reduce the 
value of basic security. At the option of the borrower, regular facility 
revenue may also be used as extra payments when regular payments are 
current. Unless otherwise established in the note or bond, extra 
payments will be applied as follows:
    (1) For loans with amortized debt instruments, extra payments will 
be applied first to interest accrued to the date of receipt of the 
payment and second to principal.
    (2) For loans with debt instruments with P&I installments, the extra 
payment will be applied to the final unpaid principal installment.
    (3) For borrowers with more than one loan, the extra payment will be 
applied to the account secured by the lowest priority of lien on the 
property from which the extra payments was obtained. Any balance will be 
applied to other Agency loans secured by the property from which the 
extra payment was obtained.
    (4) For assessment bonds, see paragraph (k) of this section.
    (g) The place of payments on bonds purchased by the Agency will be 
determined by the Agency.
    (h) Redemptions. Bonds will normally contain customary redemption 
provisions. However, no premium will be charged for early redemption on 
any bonds held by the Government.

[[Page 1099]]

    (i) Additional revenue bonds. Parity bonds may be issued to complete 
the project. Otherwise, parity bonds may not be issued unless acceptable 
documentation is provided establishing that net revenues for the fiscal 
year following the year in which such bonds are to be issued will be at 
least 120 percent of the average annual debt serviced requirements on 
all bonds outstanding, including the newly-issued bonds. For purposes of 
this section, net revenues are, unless otherwise defined by State 
statute, gross revenues less essential operation and maintenance 
expenses. This limitation may be waived or modified by the written 
consent of bondholders representing 75 percent of the then-outstanding 
principal indebtedness. Junior and subordinate bonds may be issued in 
accordance with the loan resolution.
    (j) Precautions. The following types of provisions in debt 
instruments should be avoided:
    (1) Provisions for the holder to manually post each payment to the 
instrument.
    (2) Provisions for returning the permanent or temporary debt 
instrument to the borrower in order that it, rather than the Agency, may 
post the date and amount of each advance or repayment on the instrument.
    (3) Provisions that amend covenants contained in RUS Bulletins 1780-
27 or 1780-28.
    (4) Defeasance provisions in loan or bond resolutions. When a bond 
issue is defeased, a new issue is sold which supersedes the contractual 
provisions of the prior issue, including the refinancing requirement and 
any lien on revenues. Since defeasance in effect precludes the Agency 
from requiring refinancing before the final maturity date, it represents 
a violation of the statutory refinancing requirement; therefore, it is 
disallowed. No loan documents shall include a provision of defeasance.
    (k) Assessment bonds. When security includes special assessment to 
be collected over the life of the loan, the instrument should address 
the method of applying any payments made before they are due. It may be 
desirable for such payments to be distributed over remaining payments 
due, rather than to be applied in accordance with normal procedures 
governing extra payments, so that the account does not become 
delinquent.
    (l) Multiple debt instruments. The following will be adhered to when 
preparing debt instruments:
    (1) When more than one loan type is used in financing a project, 
each type of loan will be evidenced by a separate debt instrument or 
series of debt instruments;
    (2) Loans obligated in different fiscal years and those obligated 
with different terms in the same fiscal year will be evidenced by 
separate debt instruments;
    (3) Loans obligated for the same loan type in the same fiscal year 
with the same term may be combined in the same debt instrument;
    (4) Loans obligated in the same fiscal year with different interest 
rates that will be closed at the same interest rate may be combined in 
the same debt instrument.

[62 FR 33478, June 19, 1997, as amended at 64 FR 29947, June 4, 1999]



Sec. 1780.95  Public bidding on bonds.

    Bonds offered for public sale shall be offered in accordance with 
State law and in such a manner to encourage public bidding. The Agency 
will not submit a bid at the advertised sale unless required by State 
law, nor will reference to Agency's rates and terms be included. If no 
acceptable bid is received, the Agency will negotiate the purchase of 
the bonds.



Secs. 1780.96-1780.100  [Reserved]



PART 1781--RESOURCE CONSERVATION AND DEVELOPMENT (RCD) LOANS AND WATERSHED (WS) LOANS AND ADVANCES--Table of Contents



Sec.
1781.1  Purpose.
1781.2  Policy.
1781.3  Authorities, responsibilities, and delegation of authority.
1781.4  Definitions.
1781.5  Eligibility.
1781.6  Loan purposes.
1781.7  Loan and advance limitations and obligations incurred before 
          loan closing.
1781.8  Rates and terms--WS loans and WS advances and RCD loans.

[[Page 1100]]

1781.9  Security, feasibility, evidence of debt, title, insurance, and 
          other requirements.
1781.10  [Reserved]
1781.11  Other considerations.
1781.12  Preapplication and application processing.
1781.13  [Reserved]
1781.14  Planning, options, and appraisals.
1781.15  Planning and performing development.
1781.16  [Reserved]
1781.17  Docket preparation and processing.
1781.18  Feasibility.
1781.19  Approval, closing, and cancellation.
1781.20  Disbursement of WS and RCD loan funds and WS advance funds.
1781.21  Borrower accounting methods, management, reporting, and audits.
1781.22  Subsequent loans.
1781.23  Servicing.
1781.24  State supplements and availability of bulletins, instructions, 
          forms, and memorandums.
1781.25-1781.100  [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

    Source: 62 FR 33500, June 19, 1997, unless otherwise noted.



Sec. 1781.1  Purpose.

    This part prescribes the policies and procedures for making:
    (a) Watershed (WS) loans and Watershed (WS) advances for works of 
improvement in a watershed project; and
    (b) Resource Conservation and Development (RCD) loans for measures 
or projects needed to implement the RCD area plan to achieve objectives 
in an RCD area.



Sec. 1781.2  Policy.

    (a) Rural Utilities Service (RUS), is an agency of the United States 
Department of Agriculture established pursuant to section 232 of the 
Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354, 
108 Stat. 3178), successor to the Farmers's Home Administration. Natural 
Resources Conservation Service (NRCS), is an agency of the United States 
Department of Agriculture established pursuant to section 232 of the 
Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354, 
108 Stat. 3178), successor to the Soil Conservation Service. RUS will 
make WS and RCD loans available to sponsoring local public bodies, 
agencies, and nonprofit organizations to assist them in obtaining the 
local cost of WS works of improvement and RCD measures. Any processing 
or servicing activity conducted pursuant to this part involving 
authorized assistance to RUS 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 title. Applicants for 
this assistance are required to identify any known relationship or 
association with an RUS employee. RUS will assist the local sponsors and 
the NRCS in making loans from NRCS construction funds as WS advances 
when needed for the development of future water supplies or for site 
preservation.
    (b) Rural Development State and local offices will administer these 
programs on behalf of RUS and will coordinate application processing 
with the NRCS and other appropriate State and Federal agencies.



Sec. 1781.3  Authorities, responsibilities, and delegation of authority.

    (a) NRCS provides technical and financial assistance to sponsoring 
local organizations for developing WS and RCD area plans and for 
individual RCD measures or projects and watershed works of improvement. 
The watershed work plan for developing, operating, and maintaining 
watershed works of improvement must be agreed upon by sponsoring local 
organizations and NRCS. When approved, it is the basis for extending 
technical and cost sharing assistance from watershed funds. The RCD area 
plan is prepared for the development of the RCD area by sponsoring local 
organizations with assistance from NRCS and other agencies, endorsed by 
the Governor or by the agency designated by the Governor, and accepted 
by the Secretary of Agriculture or his delegate. It includes objectives, 
planned courses of action, and RCD measures or projects to be developed. 
It is amended as necessary to include continuing activities and needs in 
the RCD area.
    (b) RUS receives and processes applications for WS loans and NRCS WS 
advances and RCD loans and makes and services such loan and advances. WS 
loans are made by RUS from either Public Law 534 (78th Cong.) funds 
authorized in the Flood Control Act of

[[Page 1101]]

1944 (33 U.S.C. 701 et seq.) or Public Law 566 (83rd Cong.) funds 
authorized in the Watershed Protection and Flood Prevention Act of 1954 
(68 Stat. 666) to cover a part or all of the local cost for a watershed 
work of improvement.
    (c) WS loans and WS advances may be made to project sponsors in 
watershed project areas for which:
    (1) A watershed work plan has been approved administratively or by 
resolutions adopted by the Committee on Agriculture and Forestry of the 
Senate and by the Committee on Agriculture of the House of 
Representatives; and
    (2) Federal assistance has been authorized for the installation of 
works of improvement by the Administrator of NRCS.
    (d) RCD loans may be made in areas authorized for RCD program 
assistance by the Secretary of Agriculture and for which an RCD plan 
design or area plan has been accepted by the State NRCS Conservationist.
    (e) Delegation of authority. The Rural Development State Director is 
authorized to approve WS and RCD loans subject to limitations in RUS 
Staff Instruction 1780-1 and conditions of this part. The Rural 
Development State Director is authorized to relegate authority in 
accordance with this part to the Chief, Community Programs; or other 
members of the State Office staff.
    (f) NRCS is responsible for providing technical and financial 
assistance to sponsoring local organizations for planning and developing 
WS and RCD areas. This includes development of WS and RCD plans and WS 
works of improvement and RCD measures or projects.
    (g) RUS is responsible for making and servicing WS loans and 
advances and RCD loans.
    (h) The NRCS-RUS Agreements in RUS Bulletin's 1781 and 1781-2 
include further responsibilities and functions of NRCS and RUS in WS and 
RCD areas.



Sec. 1781.4  Definitions.

    (a) Watershed (WS) project. An authorized area in which watershed 
assistance from NRCS and other U.S. Department of Agriculture (USDA) 
agencies including WS loans and advances may be provided. Watershed 
assistance is provided in two types of watershed projects identified by 
the Public Law under which they are authorized.
    (1) Public Law-534 Watershed. One of the 11 watersheds authorized by 
Congress in the Flood Control Act of 1944 (33 U.S.C. 701 et seq.), 
Public Law 78-534 as amended.
    (2) Public Law-566 Watershed. A small watershed of not more than 
250,000 acres authorized in accordance with the Watershed Protection and 
Flood Prevention Act, August 4, 1954, Public Law 83-566 as amended.
    (b) Resource Conservation and Development (RCD) area. An area in 
which RCD program assistance from NRCS and other USDA agencies has been 
authorized. It usually includes all or part of more than one county and 
may be coterminous with substate planning and development areas. RCD 
loans are authorized under Section 32 of Title III of the Bankhead-Jones 
Farm Tenant Act (7 U.S.C. 1011).
    (c) Watershed plan. A plan agreed upon by sponsoring local 
organizations and the NRCS for developing, operating, and maintaining 
watershed works of improvement.
    (d) RC&D measure plan. A plan document for a land area, directly 
controlled or under the jurisdiction of the sponsoring public bodies or 
public nonprofit organization. It involves one of the measure purposes 
eligible for RC&D cost sharing assistance. The document sets forth what 
will be done, how, when and by whom, and involves RC&D technical and/or 
financial assistance.
    (e) RCD area plan. A plan prepared by sponsoring local organizations 
with assistance from NRCS and other agencies for the development of the 
RCD area which has been endorsed by the Governor or his designated 
agency and accepted by the Secretary of Agriculture or his delegate. It 
includes objectives, planned courses of action, and RCD measures to be 
developed. It is amended as necessary to include continuing activities 
and needs in the RCD area.
    (f) Watershed works of improvement. Structural, nonstructural, and 
land treatment measures included in a watershed plan which are to be 
installed in a watershed project.

[[Page 1102]]

    (g) RCD measure or project. An activity or development indicated in 
the RCD area plan as being needed to achieve RCD area goals and 
objectives.
    (h) Cost sharing. The WS and RCD legislative authorities provide for 
sharing certain costs of installing WS works of improvement or RCD 
measures by the Federal Government and by sponsoring local 
organizations. Federal cost sharing from WS and RCD funds is provided by 
NRCS for certain WS works of improvement and RCD measures. Information 
on amounts, purposes, and procedures for cost sharing is available from 
the NRCS.
    (i) Local cost. The part of the cost of a WS work of improvement or 
a RCD measure or project that is to be paid by a sponsoring local 
organization.
    (j) Public agency or public body. A State agency or department or 
instrumentality, county, municipality or other political subdivision or 
instrumentality of a State or agencies or districts created by or 
pursuant to State law for making improvements of a public nature or 
providing public services such as soil and water conservation districts, 
irrigation districts, drainage districts, flood prevention and control 
districts, school districts, other special purpose districts, municipal 
corporations or similar governmental units.
    (k) Non-profit corporation. Mutual and other irrigation, water 
users, water supply, drainage, or waste disposal companies or 
associations, ditch companies, grazing, recreation and forestry 
associations and similar associations and organizations generally 
designated as private corporations operating on a non-profit basis. They 
may be organized and chartered under special law, general nonprofit 
corporation law, or general profit corporation law, if operated on a 
nonprofit basis under adequate charter, bylaw, mortgage or supplementary 
agreement provisions which will assure continued operation in that 
manner.
    (l) Sponsoring local organization. A local public agency or body or 
a local nonprofit corporation having authority under State law to plan, 
develop, maintain and operate WS works of improvement or RCD measures or 
projects included in a WS or RCD area plan. The name of the sponsoring 
local organization must be included in the plan and sponsorship must be 
evidenced by execution of the plan.
    (m) Watershed loan. A loan made by RUS from watershed funds to a 
sponsoring local organization to develop a WS work of improvement.
    (n) RCD loan. A loan made by RUS from RCD funds to a local 
sponsoring organization to develop a RCD measure or project. RCD loans 
are made from RCD funds to enable sponsoring local organizations to 
provide a part or all of the local share of cost for an RCD measure.
    (o) Watershed advance. A loan made from NRCS watershed construction 
funds to develop a future water supply or for the preservation of a site 
for a work of improvement authorized in a watershed plan.
    (p) Future water supply. Water storage capacity in a reservoir with 
related facilities for release or withdrawal of water to meet future 
needs for municipal or industrial use.
    (q) Preservation of sites. Acquisition to assure their availability 
for planned developments. Land, easements, or rights-of-way essential to 
preserve sites for watershed works of improvement or RCD measures.
    (r) Processing office. Means the office designated by the Rural 
Development State Director to accept and process applications for WS and 
RCD loans and advances.



Sec. 1781.5  Eligibility.

    To be eligible for a WS loan, WS advance, or an RCD loan, the 
sponsoring local organization must meet the following requirements as 
applicable. Questions on eligibility will be referred to the Regional 
Attorney, OGC for legal advise prior to development of a loan docket.
    (a) Be named in the WS or RCD plan as a sponsor of the development 
to be financed.
    (b) Be legally organized and established in the WS or RCD area with 
legal authority, responsibility and capability to develop and operate 
the facility for which assistance is requested.
    (c) Have authority under and comply with Federal, State and local 
laws on such matters as:

[[Page 1103]]

    (1) Organizing, installing, operating, and maintaining proposed WS 
works of improvement or RCD measures or projects.
    (2) Borrowing money, giving security, levying taxes, making 
assessments or raising revenues for operation and maintenance of the 
facility and repayment of loans.
    (3) Land use zoning.
    (4) Acquiring necessary property, lands, and rights.
    (5) Obtaining approval of construction plans and specifications by 
appropriate Federal, State, and local agencies and construction 
facilities.
    (6) Health and sanitation standards, water pollution control, and 
environmental regulations.
    (7) Design and installation standards.
    (8) Public service commission or similar State public body rules and 
regulations.
    (d) Be financially sound and capable of providing service essential 
to the rural development needs of the area.
    (e) If it is a nonprofit corporation.
    (1) Membership should be broadly based and representative of the 
area benefiting from the facility. Membership on the governing board of 
the corporation will be limited to those living in the area to be 
benefited unless for justifiable reasons the Rural Development State 
Director gives prior approval for other than local residents to serve on 
the board of directors.
    (2) The corporation must propose a facility which will primarily 
serve or generate other substantial, tangible benefits for farmers and 
other residents of the area. In the case of a recreational development 
at least two-thirds of the membership must be farmers and other residing 
in the area.
    (3) Nonprofit corporations will not be formed to serve an area which 
could be served by a public agency which has adequate authority to 
provide the needed service unless prior approval of the National Office 
is obtained.



Sec. 1781.6  Loan purposes.

    (a) WS and RCD loans. WS and RCD loans may be used for:
    (1) Water development, storage, treatment and conveyance to farms 
for irrigation and other farm use, including farmstead, livestock, 
orchard, and crop spraying.
    (2) Drainage systems and facilities in farm areas to sustain 
agricultural production or protect farmers and rural residents from 
water damage.
    (3) Agricultural water management practices for annual streamflow 
stabilization, recharging ground water reservoirs, and conserving water 
supplies by management and control of vegetation along waterways and in 
drainage basins.
    (4) Soil conservation and water control facilities such as dikes, 
terraces, detention reservoirs, stream channels, ditches, and other 
special land treatment and stabilization measures needed to protect 
farms and rural residents from water damage, provided such facilities 
cannot be installed or improved under, or will not conflict with, other 
public programs such as those administered by the Corps of Engineers.
    (5) Special treatment measures or equipment primarily, though not 
exclusively, for flood prevention such as:
    (i) Facilities and equipment for fire prevention and control.
    (ii) Tree planting and establishment of other vegetative cover for 
stabilizing critical runoff and sediment-producing areas.
    (iii) Structural and vegetative measures to stabilize stream 
channels and gullies.
    (iv) Basic farm conservation practices to control runoff, erosion, 
and sedimentation.
    (6) Installing, repairing, and improving water storage facilities, 
including outlets for immediate and future domestic, municipal and 
industrial water supply and water quality management, and conveying 
water to treatment facilities or distribution systems. When payment of 
loans for such facilities are primarily dependent upon revenues from use 
of water stored the loan approval official must determine the adequacy 
of facility for use of the water before a loan is closed.
    (7) Public water based recreation and fish and wildlife developer 
loans will only be made to public bodies for the local share of cost for 
such developments for which NRCS is providing technical or financial 
assistance from WS or RCD funds. Loans will not be

[[Page 1104]]

made for developments larger or more elaborate than that which is 
included in the WS or RCD plan. Loans may include funds for:
    (i) Construction of necessary water resource improvements such as 
storage capacity in multipurpose and single purpose reservoirs, water 
level control structures in reservoirs and streams, and stream channel 
improvements necessary for the development of the facilities. This may 
include practices for improvement of fish and wildlife habitat and 
environment and related areas and facilities for proper protection and 
management of the development.
    (ii) Essential developments, improvements, equipment and facilities 
for access, public health and safety, and efficient operation management 
and maintenance; such as energy utilities, water supply and waste 
disposal systems, maintenance buildings, fences, cattle guards, roads 
and trails, parking, picnicking, camping, beaches, playgrounds, and 
related shelters and equipment.
    (iii) Special areas and structures such as forest and other 
vegetative cover, marshes, pits, shelters and fish ladders to provide 
protected natural spawning, breeding, nesting, and feeding for fish and 
wildlife.
    (8) Soil and water management for agriculture-related pollutant 
control. Measures to reduce agriculture-related pollutants that 
adversely affect the community and the general public. Measures may 
include, but are not limited to, holding ponds, debris basins, 
diversions, terraces, and community distribution systems.
    (9) Acquiring fee simple title to lands or perpetual easements, or 
rights-of-way for sites for works of improvement or project measures and 
related costs for removal, relocation, or replacement of existing 
improvements including relocation payments for displaced persons, 
business enterprises and facilities, and other related purposes. Funds 
for land acquisition will be limited to costs necessary for WS works of 
improvement or RCD measures. Final construction plans will indicate 
minimum essential lands and rights-of-way to be acquired. In some cases, 
sponsoring local organizations may need to acquire lands in excess of 
actual needs when it is expedient for planned development. If the Rural 
Development State Director determines that the acquisition of excess 
land is necessary or expedient for the orderly development of a WS works 
of improvement, or RCD measure, he may authorize the action subject to 
the following conditions:
    (i) The applicant must agree to sell excess land as soon as 
practicable and apply the proceeds, together with any income from excess 
land, on the debt to RUS.
    (ii) The applicant must furnish legal evidence of authority to 
acquire additional land and dispose of it as agreed.
    (iii) Evidence must be provided to justify acquisition of additional 
land.
    (iv) Easements for land or water resource protection structures must 
be perpetual and must not include clauses that terminate the easement 
with the dissolution or abandonment of the applicant organization. Loan 
funds will not be used for an easement that deviates in any way from 
that provided in the standard NRCS form unless modifications of it are 
approved by both NRCS and RUS.
    (10) Acquisition of water supply or water right by purchase or by 
appropriation under local, State, and Federal laws. The loan may include 
funds for the purchase of land on which the water supply or water right 
is presently being used when:
    (i) The water supply or water right cannot be purchased without the 
land; and
    (ii) The value of the land is not the major portion of the cost; and
    (iii) Any excess land thus acquired will be sold as soon as possible 
and the proceeds applied on the loan.
    (11) Purchase of equipment and machinery necessary for development 
and operation of planned WS works of improvement or RCD measures or 
projects including:
    (i) Special-purpose equipment. Purchase or rent special-purpose 
equipment to install or maintain any community facility in categories in 
paragraph (a)(11) of this section or to establish on farms soil and 
water conservation measures such as terraces, ponds, land leveling for 
irrigation or drainage, subsoiling, seeding, tree planting, and

[[Page 1105]]

removal of brush, scattered trees, and stumps, provided:
    (A) Such equipment is not otherwise available when needed.
    (B) There is sufficient need and local demand to justify ownership 
or rental.
    (C) Rates to be charged include, among other things, an allowance 
for depreciation, obsolescence, and replacement based upon the 
recommendations of the equipment manufacturer or the experience of 
contractors engaged in providing services for similar types of work.
    (ii) Forestry equipment and services. Purchase or rent basic 
special-purpose equipment, facilities, certain land or land rights, and 
supplies needed for furnishing services for the establishment, 
improvement, protection, and harvesting of timber (not processing) 
suitable for lumber, pulp, poles or posts; providing that the forest 
program and forest practices benefiting from such services are in 
accordance with approved conservation practices for the development, 
use, and control of water resources on farms and in forests. Special-
purpose equipment may include such items as tractors, bull dozers, 
plows, planters, trucks, loaders, fire-fighting equipment, and sprayers. 
Facilities may include such items as ponds and reservoirs, pipelines, 
buildings for storage of equipment and supplies, nurseries, access 
roads, fire lanes, and lookout towers. Supplies may include such things 
as seed, seedlings, fertilizers, fencing, and pesticides. Land or land-
rights acquisition will be limited to that necessary for sites for 
facilities listed above which are directly related to the forestry 
program. Loans for these purposes may be made only when the equipment, 
supplies, and facilities to be provided:
    (A) Are not readily available when needed.
    (B) Will be justified by local need and demand.
    (C) Will be available to users at rates sufficient to cover loan 
amortization, obsolescence, replacement, operation, and cost of 
supplies.
    (D) Will more efficiently serve the group through cooperative 
effort.
    (12) Refinancing debt obligations of the sponsoring local 
organization that were incurred before application for a WS or RCD loan 
when that is not the primary purpose of the loan and:
    (i) The debt being refinanced was for works of improvement or 
measures for which loan funds could be used; and
    (ii) The debt is a valid obligation of the sponsor; and
    (iii) Creditors will not modify payment terms on existing debts, and 
the organization cannot pay existing debts and a loan from RUS over the 
same period of time; and
    (iv) Long-term debts will not be refinanced unless necessary to 
provide a sound basis for the loan or WS advance and concurrence is 
obtained from the National Office.
    (13) If repayment is based on revenues, loan funds (not WS advances) 
can be used for payment of interest installments until the facility is 
generating enough revenue to make accrued interest payments. Loan funds 
for interest payments will not exceed the estimated amount that will 
accrue to the end of the third full calendar year after loan closing 
without prior approval from the National Office.
    (14) Relocation payment to displaced persons, businesses, and farm 
operations and for relocation assistance advisory services in accordance 
with the Uniform Relocation Assistance and Real Property Acquisition 
Policies Act of 1970 (Public Law 91-646, 84 Stat. 1894), the Regulations 
issued by the Secretary of Agriculture under the Act (7 CFR part 21), 
and the Memorandum of Understanding Between NRCS and RUS.
    (15) Services of engineers, architects, attorneys, auditors, 
construction foremen, managers, clerks, and others for organizing, 
planning, surveying, supervising, analyzing, developing, operating, 
managing, and accounting for activities related to loan processing and 
closing and development for which the loan is made.
    (16) Buildings, fences, roads, utilities, facilities, and 
relocation:
    (i) To construct buildings of modest design essential for the 
operation and maintenance of the works of improvement or measure.
    (ii) To provide support facilities and utilities such as gas, 
electricity, water, sewer, and waste disposal.

[[Page 1106]]

    (iii) To build or relocate roads, bridges, utilities, fences, and 
other improvements when necessary to acquire rights-of-ways or to 
construct or operate the facility.
    (17) Services and fees. To pay costs for services for any purposes 
listed under this section such as:
    (i) Fees or other legal expenses for establishing a water right 
through appropriation, agreement, permit, or court decree.
    (ii) Purchase of water stock or membership in an incorporated water 
users' association to acquire a water supply.
    (iii) Costs of labor, technical or professional services, and fees 
to be incurred in obtaining the loan and in planning and completing the 
facilities or services to be financed with loan funds.
    (iv) Services such as those listed in paragraph (a)(16) of this 
section.
    (b) RCD loans. Purposes for which RCD loans may be made in addition 
to those included in paragraph (a) of this section are:
    (1) Solid waste management. Lands, equipment and facilities to 
collect, transport, and dispose of solid waste in sanitary landfills for 
which NRCS is providing technical assistance.
    (2) Shifts-in-land use. Lands for uses such as grazing, forestry, 
wildlife, natural areas and parks, greenbelts, and other open spaces.
    (3) Purchase existing facilities. Purchase existing facilities for 
shift-in-land use, soil and water development, conservation, control and 
use when it is determined that purchase is necessary to provide 
efficient service through a facility owned and operated by a public 
agency (or a nonprofit corporation in a rural area), or the owner is 
either unwilling or unable to make improvements, enlargement, or 
extensions needed to provide significant additional or improved service 
for present users or for a new group of users at reasonable rates.
    (c) NRCS watershed advances. NRCS watershed advances are loans that 
may be made from NRCS construction funds for the following purposes 
included in a watershed work plan agreement:
    (1) To pay construction costs including cost of engineering and 
related services for increasing reservoir capacity (including intake and 
outlet structures) for a future water supply for municipal, domestic, 
industrial, or agricultural uses.
    (2) To preserve sites for authorized watershed works of improvement 
by acquiring land, easements, and rights-of-ways or other property 
rights.



Sec. 1781.7  Loan and advance limitations and obligations incurred before 
loan closing.

    (a) WS and RCD loan limitations. (1) Loans will not be used for:
    (i) Land treatment measures on individual farms except as provided 
in Sec. 1781.6(a)(5)(iv).
    (ii) Buildings and facilities to be used for lodging, dining or 
entertainment purposes.
    (iii) Building industrial parks or constructing facilities in them, 
or establishing private industrial or commercial enterprises, or 
purchasing land to be used primarily for industrial purposes.
    (iv) Paying costs allocated to structural measures for flood 
prevention.
    (v) Facilities for the production and harvesting of fish and 
wildlife such as hatcheries, rearing ponds, and related facilities other 
than those under natural conditions.
    (vi) Facilities primary for treatment and distribution of water or 
for sewerage, collection and treatment for domestic or industrial use or 
for municipal or community systems.
    (vii) Electric generating, transmission, and distribution 
facilities, except when provided as part of the minimum basic facilities 
for recreation and fish and wildlife developments authorized in 
Sec. 1781.6(a)(7).
    (viii) Storm and sanitary sewers and solid waste disposal facilities 
other than authorized in Sec. 1781.6(b)(1).
    (ix) Payment for a tract of land, easements, or rights-of-ways on 
which NRCS will share the cost if the amount to be paid with loan funds 
exceeds the difference between the NRCS share and the value on which the 
NRCS share is based.
    (x) Purchasing tracts of land primarily for later resale to private 
developers or individuals for agricultural or nonagricultural use.

[[Page 1107]]

    (xii) Buildings for residential, commercial, or industrial, use.
    (xiii) Developments on private property primarily for the benefit of 
the individual property owner.
    (xiv) Payment of that part of the cost of facilities, improvements, 
and practices that could be earned by participation in agricultural 
conservation programs unless such cost cannot be covered by purchase 
orders or assignments to material suppliers or contractors. If a loan is 
made for such purposes for which practice or cost share payments exceed 
$500, RUS will obtain an assignment on such payments to be paid on the 
loan.
    (xv) Primarily for water and sewage treatment plants and 
distribution systems.
    (xvi) Drainage facilities primarily for the benefit of other than 
rural areas.
    (xvii) Any single RCD measure that requires a loan of more than 
$500,000.
    (xviii) The total amount of principal outstanding for all WS loans 
made for one or more watershed works of improvement in a single 
watershed project, whether made to one or more sponsoring organizations, 
will not exceed $10,000,000.
    (b) Watershed advance limitations. (1) A WS advance for future water 
supply will not be used for acquiring property rights including lands, 
easements, and rights-of-way; water rights; administration of contracts; 
storage capacity for immediate municipal use; pipelines from the 
reservoir to place of use; or for other uses such as irrigation, fish 
and wildlife, and recreation.
    (2) A WS advance for increasing reservoir capacity for future water 
supply will not exceed 30 percent of the total installation cost of one 
structure.
    (3) A WS advance for site preservation will not exceed that 
determined necessary by NRCS except to purchase land in excess of actual 
needs in accordance with the provisions of Sec. 1781.6(a)(7).
    (4) Before a project agreement is entered into, there must be 
satisfactory evidence that the borrower will develop the site to be 
acquired or will use the future water supply and that revenue will be 
sufficient to meet all scheduled installments.
    (c) Obligations incurred before loan closing. (1) WS loans, WS 
advances, and RCD loans may be used for payment of obligations incurred 
before loan closing when the Rural Development State Director determines 
that:
    (i) The obligations incurred are necessary for planned developments; 
and
    (ii) The obligations are incurred for authorized loan purposes; and
    (iii) Contracts and construction plans meet RUS and NRCS standards; 
and
    (iv) The applicant has legal authority to incur the obligations at 
the time proposed; and
    (v) The Rural Development State Director authorizes such action in a 
letter to the applicant.
    (2) The Rural Development State Director's letter will specifically 
state that the permission is granted on the condition that RUS is not 
committed to make a loan and assumes no responsibility for any 
obligation incurred by the applicant because of the permission granted 
and that the loan will be closed subject to compliance with agency 
regulations including closing instructions of the Regional Attorney 
Office of the General Counsel.



Sec. 1781.8  Rates and terms--WS loans and WS advances and RCD loans.

    (a) Interest rates. The interest rate for WS loans, WS advances and 
RCD loans will be at a rate not to exceed the current market yield for 
outstanding municipal obligations with remaining periods to maturity 
comparable to the average maturity for the loan, adjusted to the nearest 
1/8 of 1 percent.
    (1) For loans, unless otherwise required by State law, interest will 
accrue from date of check delivery where Form RD 440-22, ``Promissory 
Note (Association Organization),'' is used. Where bonds are used 
interest will accrue from the applicable dates recorded on the bonds. 
Where multiple loan disbursements are used interest will accrue from 
date of check.
    (2) Interest on an advance for future water supply will begin as 
required by State law, when water is first used from the future water 
storage capacity installed with advance, or ten years from the scheduled 
date of the completion of the facility, whichever date is the earlier.

[[Page 1108]]

    (3) Interest on an advance for preservation of sites will begin on 
the date the advance is closed.
    (b) Length of repayment period. The repayment period on loans may 
not exceed the shortest of the following periods:
    (1) The statutory limitation on the sponsoring local organization's 
borrowing authority.
    (2) Fifty (50) years for WS loans and WS advances and 30 years for 
RCD loans from the date when the principal benefits from the WS works of 
improvement or RCD measure being financed first become available.
    (3) The useful life of the WS works of improvement or RCD measure 
being financed with loan or advance funds.
    (c) Deferred or partial payments. Deferred or partial payments may 
be authorized in the following circumstances:
    (1) Payments need to be delayed until the receipt of income from 
taxes or other revenues is enough to meet a regular installment but not 
exceed:
    (i) The completion date of the facility; or
    (ii) The date when benefits from the facility begins; but
    (iii) In no case for more than 5 years for other than future water 
supply.
    (2) Payments will depend on the increased returns expected from 
planned improvements, or from the installation on individual farms of 
land development or other soil and water improvements essential for 
obtaining benefits from the improvement to be installed with loan funds.
    (3) They will not be used to permit the accelerated payment of other 
debts, to make capital improvements, or to create operating reserves.
    (4) Where prohibited by State statutes; interest payments will not 
be deferred even though payments on principal may be deferred.
    (5) Loans or advances for future water supply will be repaid within 
the life of the reservoir structure but in no event later than 50 years 
for WS and 30 years for RCD after the reservoir structure is built. 
Payments on the principal amount may be deferred one year after the 
water is first used from the storage capacity installed with the advance 
or for 10 years from the scheduled completion date of the structures, 
whichever occurs first.
    (i) Interest will begin for a future water supply as required by 
State law, or when water is first used from the future storage capacity 
or 10 years from the scheduled date of completion of the facility, 
whichever occurs first.
    (ii) If State law requires that interest be charged and repaid 
before water is first used or earlier than 10 years from completion date 
of the structure, interest payments will be scheduled to comply with 
State law even though payments of principal may be deferred.
    (iii) The borrower should be encouraged to begin repayments as soon 
as practicable after the reservoir is built even though this liberal 
deferment policy exists.
    (iv) WS advances for preservation of sites must be fully repaid 
before beginning construction of the works of improvement for which such 
sites were acquired.
    (A) Unless a WS advance is to be repaid with a WS loan, installments 
will be scheduled at the earliest possible date following the date of 
closing the advance. The date and amount of each such installment will 
be fixed to coincide with the receipt of income from taxes or other 
revenues.
    (B) Payments for both principal and interest on a WS advance for 
preservation of sites may be scheduled for payment in one installment to 
be paid on the date of the closing of a WS loan which includes funds for 
the repayment of the WS advance.
    (C) Interest on a WS advance for preservation of sites will begin on 
the date the WS advance is closed.
    (d) Payment amortization and application. (1) A borrower may make 
prepayments on WS loans, WS advances or RCD loans in any amount at any 
time.
    (2) Payments will be applied first to interest accrued to the date 
of the receipt of payment, and second to the principal balance. If the 
regular payments plus any prepayments exceed the cumulative amount due, 
the excess payments will be applied on the next installment first to 
interest, then principal. Loan refunds and proceeds from the sale of 
security property, however, will be applied on the final unpaid 
installment.

[[Page 1109]]

    (3) Payments will be scheduled annually beginning one year following 
the date of loan closing or one year following the end of any approved 
deferment period, unless another annual due date is required by State 
statute or upon prior written authorization from the National Office. In 
those cases where loans are being made under statutes requiring a 
repayment date other than this, the Rural Development State Director 
will send a copy of the Regional Attorney's opinion that such is 
required, to the Finance Office.
    (4) When a single obligation instrument is used, amortized 
installments will be required. When this cannot be done because of state 
law, serial bonds or a single bond having installments of principal plus 
interest, stated separately, will be used. In cases where the payment of 
interest has been deferred, all collections will be applied to interest 
until such interest has been paid. Also, when a full installment is not 
paid when due, the payment made will be applied first to accrued 
interest.
    (5) In cases where the indebtedness will be represented by serial 
bonds or a single bond having installments of principal plus interest, 
stated separately, annual payments of principal and interest will be 
scheduled to permit them to be paid in amounts approximately equal to 
the amounts that would be required for annual amortized installments.
    (6) If the borrower will be retiring other debts represented by 
bonds or notes, the payment on such bonds may be considered in 
developing the payment schedule for the RUS loan. In some cases, it may 
be desirable to reduce the amount of payments to RUS in the early years 
of the loan in order to preclude the necessity for refinancing the 
outstanding debt. When such payment schedules are proposed, National 
Office authorization will be obtained prior to loan approval.
    (7) Payment date. Insofar as loan payments are consistent with 
income availability, applicable State statutes, and commercial customs 
in the preparation of bonds or other evidence of indebtedness, they 
should be scheduled on a monthly basis either in the bond or other 
evidence of indebtedness or through the use of a supplemental agreement. 
Such requirements will be accomplished not later than the time of loan 
closing. When monthly payments are required, such payments will be 
scheduled beginning one full month following the date of loan closing or 
the end of any approved deferment period. Subsequent monthly payments 
will be scheduled each full month thereafter. In those cases where 
evidence of indebtedness calls for annual or semiannual payments, they 
will be scheduled beginning six or twelve full months, respectively 
following the date of loan closing or the end of any approved deferment 
period. Subsequent payments will be scheduled each sixth or twelfth full 
month respectively, thereafter. When the evidence of indebtedness is 
dated the 29th, 30th, or 31st day of a month, the payment date will be 
scheduled the 28th day of the month.



Sec. 1781.9  Security, feasibility, evidence of debt, title, insurance and other requirements.

    (a) Security. WS loans, WS advances, and RCD loans will be secured 
in accordance with applicable provisions of Sec. 1780.14 of this 
chapter.
    (b) Feasibility. All projects financed under the provisions of this 
part must be based on taxes, assessments, revenues, fees, or other 
satisfactory sources in an amount that will provide for facility 
operation and maintenance, a reasonable reserve, and payment of the 
debt. The Rural Development State Director may obtain needed assistance 
in determining economic feasibility from officials of NRCS and other 
appropriate USDA agencies. See Sec. 1780.7(f) of this chapter for 
applicable economic feasibility requirements and feasibility reports.
    (c) Notes, bonds, and bond transcript documents. See subpart D of 
Part 1780 of this chapter for applicable requirements and provisions.
    (d) Insurance. See Sec. 1780.39(g) of this chapter for requirements.
    (e) National flood insurance. The requirements of the National Flood 
Insurance Act of 1968 (42 U.S.C. 4001 et seq.) as amended by the Flood 
Disaster Protection Act of 1973 (42 U.S.C. 4003 et seq.) will be 
complied with in accordance with applicable provisions of RD

[[Page 1110]]

Instruction 1901-L. Also see Sec. 1780.39(g) of this chapter.
    (f) Borrower contracts and bonds. See subpart C of Part 1780 of this 
chapter for applicable provisions.
    (g) Title requirements. (1) Title evidence for land, easements, and 
rights-of-way to be acquired with proceeds of loans or advances will be 
furnished by the sponsoring local organization in accordance with NRCS 
policies and procedures.
    (2) RUS will specify and approve the form and content of instruments 
for conveying title to or interest in real estate on which a lien will 
be taken to secure a WS loan, WS advance, or RCD loan. These should be 
consistent with the applicable provisions of Sec. 1780.14 of this 
chapter. The Rural Development State Director will make his decision 
after consultation with the Regional Attorney and the State 
Conservationist. He will notify NRCS in writing of his decision. 
Thereafter, title clearance will be completed under NRCS regulations 
except that a marketable title must be obtained on any tract of land, a 
part of which will be sold as excess land in accordance with 
Sec. 1781.6(a)(9). In addition to the title evidence required by NRCS, 
applicants will furnish an opinion of legal counsel on all land and 
interest in land acquired with loan or advance funds.
    (h) Purchasing lands, rights and facilities. The amounts paid for 
lands, rights, and facilities with loan funds will be not more than that 
determined to be reasonable and fair by the loan approval official based 
upon an appraisal of the current market value made by an Rural 
Development employee or an independent appraiser.
    (i) Water rights. Applicants will be required to comply with 
applicable State and local laws and regulations governing appropriating, 
diverting, storing and using water, changing the place and manner of use 
of water, and in disposing of water. All of the rights of any landowner, 
appropriator, or user of water from any source will be fully honored in 
all respects as they may be affected by facilities installed with WS 
loans and advances and RCD loans. If, under the provisions of State law, 
notice of the proposed diversion or storage of water by the applicant 
may be filed, the applicant will be required to file such a notice. An 
applicant must furnish evidence to provide reasonable assurance that its 
water rights will be or have been properly established, will not 
interfere with prior vested rights, will likely not be contested or 
enjoined by other water users or riparian owners, and will be within the 
provisions of any applicable interstate compact.



Sec. 1781.10  [Reserved]



Sec. 1781.11  Other considerations.

    (a) Technical assistance. When pipelines from reservoirs to 
treatment plants are included in watershed work plans, NRCS will not 
furnish engineering services for their design or installation. When such 
pipelines are to be financed by WS or RCD loans, RUS will supervise the 
activities of the private engineers retained for the purpose. Such RUS 
supervision will include, among other things, approval of private 
engineer's contracts, approval of plans and specifications, 
authorization of contract awards, spot checks of engineering inspection, 
and final inspection and acceptance.
    (b) Professional services. Applicants will be responsible for 
providing the services necessary to plan projects including design of 
facilities, preparation of cost and income estimates, development of 
proposals for organization and financing, and overall operation and 
maintenance of the facility. Necessary professional services may include 
such as that of an engineer, architect, attorney, bond counsel, 
accountant, auditor, and financial advisor or fiscal agent. Form RD 442-
19, ``Agreement for Engineering Services,'' may be used when 
appropriate. RUS Bulletin 1780-7, ``Legal Service Agreement'' may be 
used to prepare the agreement for legal services.
    (c) Other services. Contracts for other services such as management, 
operation, and maintenance will be developed by the applicant and 
presented to the RUS official developing the docket for review and 
approval.
    (d) Fees for services. Fees provided for in contracts, agreements or 
services will not be more than those ordinarily charged by the 
profession for similar

[[Page 1111]]

work when RUS financing is not involved.
    (e) State pollution control or Environmental Protection Agency 
standards. Facilities will be designed, installed and operated to 
prevent pollution of water in excess of established standards. Effluent 
disposal will conform with appropriate State and Federal Water Pollution 
Control Standards.
    (f) Water pollution. When repayment of a WS loan, WS advance, or RCD 
loan will be dependent upon income from the use or sale of water, RUS 
approval will be contingent upon a determination that the proposed use 
of stored water for recreation or municipal supply might not be 
permitted by a State health department because the water is being 
polluted from an upstream or other source.
    (g) Environmental requirements. Actions will be taken to comply with 
the National Environmental Policy Act (42 U.S.C. 4321 et seq.) in 
accordance with subpart G of part 1940 of this title. When environmental 
assessments and environmental impact statements have been prepared on WS 
plans or RCD area plans by NRCS, a separate environmental impact 
statement or assessment on WS works of improvement or RCD measures for 
which a WS loan, WS advance, or RCD loan is requested will not be 
necessary unless the NRCS environmental review fails to meet the 
requirements of subpart G of part 1940 of this title. The Rural 
Development State Director should document the action taken by NRCS in 
compliance with the requirements of the National Environmental Policy 
Act and formally adopt the impact statement or assessment if 
satisfactory. If a determination is made that a further analysis of the 
environmental impact is needed, the Rural Development State Director 
will make necessary arrangements with the State NRCS conservationist for 
such action to be taken before a loan is made.
    (h) National Historic Preservation Act. All projects will comply 
with the provisions of the National Historic Preservation Act of 1966 
(16 U.S.C. 470 et seq.) in accordance with RD Instruction 1901-F.
    (i) Civil Rights Act of 1964. Recipients of WS loans, WS advances, 
or RCD loans are subject to Title VI of the Civil Rights Act of 1964 (42 
U.S.C. 2000d et seq.), which prohibits discrimination because of race, 
color, or national origin. Borrowers must agree not to discriminate in 
their operations by signing Form RD 400-4, ``Nondiscrimination 
Agreement,'' before loan closing. This requirement should be discussed 
with the applicant as early in the negotiations as possible. Necessary 
actions will be taken in accordance with RD Instruction 1901-E.
    (j) Appraisals. When required by the Rural Development State 
Director, appraisals will be made by an Rural Development official 
designated or an independent appraiser. Form RD 442-10, ``Appraisal 
Report--Water and Waste Disposal Systems,'' with appropriate 
supplements, may be modified as needed for use with the type of 
facilities being appraised.
    (k) Architectural Barriers Act of 1968. All facilities financed with 
RUS loans and grants which are accessible to the public or in which 
physically handicapped persons may be employed or reside must be 
developed in compliance with this act (42 U.S.C. 4151 et seq.).



Sec. 1781.12  Preapplication and application processing.

    (a) WS and RCD loans--(1) Preapplications. (i) The processing office 
or other person designated by the Rural Development State Director may 
assist the applicant in completing SF 424.1, ``Application for Federal 
Assistance (For Non-construction),'' and will forward one of SF 424.1 to 
the Rural Development State Director.
    (ii) The Rural Development State Director will review SF 424.1 along 
with other necessary information and will coordinate selection of 
preapplications to be processed with NRCS. He will consult with NRCS 
State Conservationist concerning the status of the WS plan or RCD 
measure plan, the estimated time schedule for construction and cost of 
the proposed works to be installed with the loan, cost sharing funds to 
be made available to the applicant, and other pertinent information.
    (iii) Form AD-622, ``Notice of Preapplication Review Action,'' will 
be prepared and signed by the Rural Development State Director within 
forty-

[[Page 1112]]

five (45) days from receipt of the preapplication in the processing 
office stating the results of the review action. An original and one 
copy of Form AD-622 will be sent to the processing office who will 
deliver the original to the applicant.
    (2) Applications. (i) The application includes applicable forms and 
information indicated in RUS Instruction 1780. When the Rural 
Development State Director determines that an application will be 
further processed and Form AD-622 is delivered, he will designate a 
community program specialist (field), or a member of the community 
program staff to assist the processing office and the applicant with 
assembling and processing the application.
    (ii) The processing office should arrange needed conferences with 
the applicant and its legal and engineering consultants, and when 
necessary, arrange for review of other Rural Development officials, and 
provide bulletins, forms, instructions and other assistance with 
assembling and processing the application. A processing checklist and 
time schedule will be established by using Form RD 1942-40, ``Processing 
Check List (Public Bodies),'' or Form RD 1942-39, ``Processing Check 
List (Other than Public Bodies).'' The processing office will send a 
letter and a copy of the processing checklist to the applicant to 
confirm decisions reached at the conference. The original and a copy of 
the processing checklist will be kept in the processing office and will 
be posted current as application processing actions are taken. The copy 
will be circulated from the processing office to the State Office for 
use in updating copies of the forms retained, after which it will be 
returned from the State Office to the processing office.
    (3) Dockets. WS loan, WS advance, and RCD loan dockets will be 
developed and assembled in accordance with applicable RUS Instruction 
1780.
    (b) Watershed advances. Applications for WS advances will be 
developed and processed with NRCS assistance as necessary.
    (1) The Rural Development State Director will arrange with the NRCS 
State Conservationist to be advised when a local sponsoring organization 
applies to NRCS for a WS advance.
    (2) The Rural Development State Director will request the NRCS State 
Conservationist to provide information justifying the WS advance along 
with a written recommendation that it be made. This will include:
    (i) Economic feasibility of the proposed WS advance.
    (ii) Evidence of the legal authority of the sponsoring local 
organization to incur the obligation and make required payments.
    (iii) Any limitations on the issuance of additional bonds or notes 
which may be imposed by the provisions of bond ordinances or on 
resolutions which authorize the issuance of any outstanding obligation 
of the sponsoring local organization.
    (iv) The amount of WS advance funds to be provided, purpose for 
which funds will be used, and date funds will be needed.
    (3) When the above information has been made available to the Rural 
Development State Director, he will send written recommendations 
concerning further action on the WS advance request to the NRCS State 
Conservationist including actions to be taken in the preparation of the 
WS advance docket.
    (c) Combination WS loans and WS advances. If an applicant requests 
both a WS loan and WS advance, the application for the WS loan should 
indicate the amount of the WS advance needed and whether a request for 
it has been made to NRCS. The Rural Development State Director and the 
NRCS State Conservationist will coordinate applicable processing actions 
of such applications. When the Rural Development State Director 
determines that favorable consideration will be given to an application 
for a loan or advance, he will provide instructions to the processing 
office for completing and processing the appropriate docket. Any 
questions concerning eligibility or other legal matters should be 
cleared with the Regional Attorney.
    (d) Review of decision. When it is determined that the 
preapplication or application cannot be given favorable consideration, 
the Rural Development State Director will return it to the processing 
office along with written

[[Page 1113]]

reasons. When the processing office receives this information, it will 
notify the applicant in writing of the reasons why the request was not 
favorably considered. The notification to the applicant will state that 
the RUS Administrator may be requested to review the decision. This 
action will be taken in accordance with Sec. 1780.37 of this chapter.
    (1) Upon receipt of the State Office copy of a review request from 
the applicant, the Rural Development State Director will furnish a 
report on the matter to the Administrator.
    (2) The Administrator will notify the applicant and the Rural 
Development State Director in writing of his decision and the reasons 
therefore.



Sec. 1781.13  [Reserved]



Sec. 1781.14  Planning, options, and appraisals.

    (a) WS and RCD area plans are developed by sponsoring local agencies 
and organizations with technical assistance from NRCS and other Federal 
and State agencies. These plans include WS works of improvement and RCD 
measures to be developed or constructed for which NRCS construction 
funds may be made available on a cost share basis along with funds 
provided by the sponsoring local organization, a portion or all of which 
may be obtained by a WS loan and/or WS advance or a RCD loan.
    (b) Current information on the availability of cost share funds and 
purposes for which they may be used is provided by NRCS. The amount of 
NRCS cost share funds and the amount of funds to be provided by the 
sponsoring local organizations will be indicated in each plan. The 
estimated amount of WS loan, WS advance or RCD loan anticipated by the 
sponsoring local organization should also be included.
    (c) Plans for the development or construction of individual WS works 
of improvement and RCD measures will normally be developed with NRCS 
technical assistance. In every case they will be approved by both the 
NRCS State conservationist and the Rural Development State Director or 
their designated agent when a WS loan, WS advance or RCD loan is made.
    (d) Options and appraisals related to the purchase of real estate 
for which a WS loan, WS advance, or RCD loan is made must be developed 
in accordance with NRCS and RUS requirements and approved by RUS. The 
determination of present market value will be made in accordance with 
Sec. 1780.44(g) of this chapter.



Sec. 1781.15  Planning and performing development.

    Planning and performing development will be handled in accordance 
with subpart C of part 1780 of this chapter and guidance from NRCS.



Sec. 1781.16  [Reserved]



Sec. 1781.17  Docket preparation and processing.

    (a) Loan dockets. Dockets for WS loans, WS advances and RCD loans 
will be prepared in accordance with the applicable provisions of part 
1780 of this chapter.
    (1) Time for preparation of docket. Docket preparation may begin as 
soon as a preliminary draft of the watershed plan or RCD area plan, 
together with an estimate of costs and benefits, have been prepared with 
the assistance of NRCS and approved by the sponsoring local organization 
applicant. However, the applicant must understand that approval of the 
WS loan, WS advance, or RCD loan will not be determined until the work 
plan has been authorized for assistance by NRCS. To the extent 
practicable, docket preparation may be completed by that time to 
facilitate the availability of funds when needed.
    (2) Instructions for preparation of docket. When the Rural 
Development State Director has determined that plans and other 
requirements are completed to the extent that preparation of the loan 
docket may begin, he will send the processing office a memorandum giving 
complete instructions for docket preparation, with a list of documents 
to be included in the docket.
    (3) Objectives of the docket. The docket should include information 
for use in determining that:
    (i) The sponsoring local organization:
    (A) Has legal authority to construct and operate the proposed 
facility, borrow money, give security, incur debt,

[[Page 1114]]

and generate revenue needed for operation, maintenance, reserves, debt 
payment, and other cash requirements.
    (B) Is a sponsor or cosponsor of the WS plan or RCD work plan and is 
otherwise eligible for assistance.
    (ii) Funds will be used for authorized purposes.
    (iii) The source of income to be pledged for debt payment and the 
security proposed is adequate.
    (iv) Actions required for loan closing are administratively 
satisfactory, legally sufficient and properly documented in accordance 
with Agency regulations.
    (4) Assembly of the docket. The docket will be assembled in 
accordance with paragraph (a)(2) of this section and will include the 
following:
    (i) A copy of the WS works of improvement agreement or RCD measure 
agreement.
    (ii) A copy of the Operation and Maintenance Agreement between NRCS 
and the WS or RCD sponsoring local organization for the WS works of 
improvement or the RCD measure.
    (iii) A statement from the NRCS State Conservationist concurring in 
the feasibility of the WS work of improvement or RCD measure and that 
NRCS is providing financial and/or technical assistance in accordance 
with applicable WS or RCD authorities.
    (5) Narrative by processing office. This should be included in or 
attached to the Project Summary. It should relate project costs to 
benefits of the WS or RCD loan or WS advance. Minimum and average 
individual charges, tax levies or assessments should be given where 
applicable. Where taxes or assessments on land will be levied, acres 
should be indicated and average cost per acre should be given. Analyses 
of income from recreational facilities should be based on the best 
information available from local, State, and Federal agencies concerned 
with such recreation facilities. Determination of water rates, 
schedules, and estimated consumption of water should be made by the same 
methods as for loans for domestic water and irrigation.
    (6) Estimates of right-of-way Costs. The docket should include, as 
part of the Project Summary, current estimated costs of easements, 
rights-of-way, and other land rights which must be acquired. The amount 
estimated for such purposes in the WS or RCD plan should reflect current 
conditions.
    (b) Loan processing by State Office--(1) Review of the docket. The 
processing office will check the docket for accuracy and completeness 
and forward it to the State Office with their recommendations. The Rural 
Development State Director will review the docket to determine that:
    (i) All documents are accurate and complete.
    (ii) The proposed loan complies with WS and RCD program policies and 
procedures of both RUS and NRCS.
    (iii) Security is adequate and the repayment plan is sound.
    (iv) Funds requested are for authorized purposes.
    (v) Actions are in compliance with requirements of applicable 
Federal and State laws.
    (2) Letter of conditions. When the Rural Development State Director 
determines that the docket is complete and the proposed activity is 
feasible, he will prepare a proposed letter of conditions under which 
the application may be further processed. The letter will be delivered 
to and discussed with the applicant. Upon acceptance of the conditions 
the applicant will indicate intentions to meet the conditions by a 
letter of interest and the application will be further processed.
    (3) Legal review. The complete docket and proposed letter of 
conditions will be forwarded to the Regional Attorney, OGC for review 
and preparation of closing instructions. If it is not possible to issue 
closing instructions at that time, the Regional Attorney, will issue a 
preliminary legal opinion commenting upon the applicants legal 
existence, authority to incur debt and give security for the WS loan, WS 
advance, or RCD loan requested and actions to be taken before closing 
instructions may be issued.
    (4) Authorization for approval. When the Rural Development State 
Director receives closing instructions or a preliminary legal opinion 
for a WS loan, WS advance, or RCD loan that is not within his approval 
authority he will send this information along with the

[[Page 1115]]

docket, the proposed letter of conditions, and a memorandum recommending 
approval to the National Office. A copy of his memorandum will be sent 
to the processing office. If the proposed action is within the Rural 
Development State Director's approval authority he need not submit the 
material listed in this paragraph (b)(4) to the National Office unless 
he wants review and comments before approval.
    (c) WS advance processing. (1) When the Rural Development State 
Director has concurred with the NRCS State Conservationist in the 
inclusion of a WS advance in a watershed plan, preparation of the 
advance docket can be initiated and will be processed in the same manner 
as for a WS loan. Where both a WS loan and WS advance are planned only 
one docket will be prepared to include both the WS loan and WS advance.
    (2) If the advance appears to be sound and proper, the Rural 
Development State Director will send a proposed memorandum of 
concurrence to the NRCS State Conservationist. The memorandum will state 
that RUS concurs in the execution of a work of improvement agreement for 
which NRCS will obligate advance funds and that RUS will accept the 
proposed obligations of the applicant to repay the advance subject to 
conditions specified in or attached to the memorandum. These conditions 
will include all appropriate requirements in accordance with paragraph 
(b)(2) of this section and will specify compliance with closing 
instructions issued by the Regional Attorney. It will also indicate that 
preparation of the WS advance docket will be in accordance with 
paragraph (a) of this section.
    (3) The Rural Development State Director and the NRCS State 
Conservationist will sign the memorandum of concurrence to NRCS when:
    (i) It has been determined that funds for the advance will be 
obligated by NRCS; and
    (ii) The WS advance docket, has been approved; and
    (iii) Closing instructions have been issued by the Regional 
Attorney; and
    (iv) The Rural Development State Director and NRCS State 
Conservationist have determined that the applicant can comply with all 
requirements of the letter of conditions and closing instructions.



Sec. 1781.18  Feasibility.

    (a) Before WS loan, WS advance, or RCD loan is approved, a 
determination of feasibility will be made by the Rural Development State 
Director based upon a review of plans developed in cooperation with NRCS 
personnel. The feasibility determination must have the concurrence of 
the NRCS State Conservationist before a WS loan, WS advance, or RCD loan 
is approved.
    (b) A written assessment of the project's feasibility will be made 
by the processing office, Architect/Engineer, and Program Chief in their 
recommendations or comments on the Project Summary. These should reflect 
concurrence of the respective NRCS personnel in counterpart positions 
with whom they cooperate in administering these programs.



Sec. 1781.19  Approval, closing, and cancellation.

    (a) Approval and closing actions will be taken in accordance with 
the applicable provisions of part 1780 of this chapter and the following 
requirements have been met:
    (1) The WS or RCD plan has been approved for operations by NRCS and 
the applicant is an official sponsoring or cosponsoring local 
organization for the plan as evidenced by being included in the list of 
sponsoring or co-sponsoring local organizations in the plan.
    (2) Closing instructions or a preliminary legal opinion has been 
prepared by the Regional Attorney.
    (3) The governing body of the applicant's sponsoring local 
organization has formally passed and approved the loan resolution.
    (4) The Rural Development State Director and NRCS State 
Conservationist have determined that all planned actions can be carried 
out as proposed in the project plan and the docket.
    (5) The NRCS State Conservationist and Rural Development State 
Director have mutually agreed on the priority to be given the WS loan or 
WS advance, or RCD loan. In making this determination, consideration 
will be given to the relative priority of the WS

[[Page 1116]]

works of improvement or RCD measures to all other such work in the State 
and the anticipated availability of Federal and local funds to assure 
continuity of action and work until the project is completed. When funds 
are to be provided by NRCS for a WS or RCD loan or a WS advance such 
funds must be obligated by NRCS before closing.
    (6) Public bodies will be required to use bond counsel in accordance 
with subpart D of part 1780 of this chapter.
    (b) When favorable action is not taken on a WS loan, WS advance, or 
RCD loan, the Rural Development State Director will notify the NRCS 
State Conservationist and the applicant in writing and, if possible, 
arrange for a meeting of RUS and NRCS representatives with the applicant 
to explain the action. WS loans, WS advances, or RCD loans may be 
canceled before closing.



Sec. 1781.20  Disbursement of WS and RCD loan funds and WS advance funds.

    (a) WS and RCD loan funds will be disbursed by the processing office 
in accordance with the applicable provisions of Sec. 1780.45 of this 
chapter and RUS Bulletin 1781-1, paragraph (5). Funds will be made 
available to the borrower as needed for payment of development or other 
costs for which the loan is made. The processing office must determine 
that the payment is for an authorized purpose and is for benefits 
accrued to the borrower. This will require evidence from NRCS in 
accordance with the applicable provisions of RUS Bulletin 1781-1, 
``Memorandum of Understanding Between RUS and NRCS.''
    (b) WS advance funds may be disbursed in the same manner as WS loan 
funds if such funds are transferred to RUS by NRCS for disbursement or 
they may be disbursed by NRCS. When WS advance funds are disbursed by 
NRCS, payments from advance of funds will be reported to the Rural 
Development State Director each month to be reported to the Finance 
Office and charged to the borrower's account. This action will be taken 
in accordance with the applicable provisions of RUS Bulletin 1781-1 or 
RUS Bulletin 1781-2 and agreement between the NRCS State Conservationist 
and Rural Development State Director as follows:
    (1) When a future water supply is being developed with NRCS, WS 
advance funds, the NRCS State Conservationist will send the Rural 
Development State Director a monthly report of funds disbursed. This 
will include three (3) copies of Form NRCS-AS-49a and 49b, ``Contract 
Payment Estimate and Construction Progress Report,'' along with a 
transmittal Memorandum showing the sequential number (first, second, 
third, etc.) of the payment, the amount and date of payment, the check 
number by which the payment was made and the cumulative amount of 
advance funds disbursed to date. When the works of improvement, for 
which WS advance funds are used is completed the final report will, in 
addition to the above, show the date that construction was completed and 
the total amount of WS advance funds used.
    (2) WS advances for construction costs will be set out each month on 
Form NRCS-49a. The Rural Development State Director should make 
arrangements with the NRCS State Conservationist to be supplied each 
month with a copy of Form NRCS 49a when advance funds are included 
together with an official statement from the NRCS State Administrative 
Officer giving the date of the check and the exact amount of each 
advance of funds made under the advance provisions of the project 
agreement or of any engineering services agreement or other 
supplementary agreement which further implements the proposal for the 
advance in the project agreement. The original will be sent immediately 
to the Finance Office and a copy provided for the processing office 
file.
    (3) When WS advance funds are used to acquire property for site 
preservation the same reporting procedure as for a future water supply 
will be used except that Form NRCS-AS-49a and 49b if used, should be 
adopted to indicate fund use. As payments are made on land on which a 
mortgage or other security instrument is required, such instruments will 
be executed in accordance with instructions from the Regional Attorney, 
OGC.

[[Page 1117]]

    (4) The Rural Development State Director must send the bond or note 
evidencing WS advance indebtedness of the borrower to the Finance Office 
along with reports of payments from advance funds disbursed by NRCS. A 
copy of the bond or note and copy of each report of payment will be sent 
to the processing office.
    (c) Actions subsequent to closing of loans or advances. Actions will 
be taken in accordance with Sec. 1780.44 of this chapter.



Sec. 1781.21  Borrower accounting methods, management, reporting, and 
audits.

    These activities will be handled in accordance with the provisions 
of Sec. 1780.47 of this chapter.



Sec. 1781.22  Subsequent loans.

    Subsequent loans will be processed in accordance with this part.



Sec. 1781.23  Servicing.

    Servicing will be handled in accordance with the provisions of 
subpart E of part 1951 of this title.



Sec. 1781.24  State supplements and availability of bulletins, instructions, forms, and memorandums.

    (a) State supplements will be issued as needed in accordance with 
applicable provisions of part 1780 of this chapter.
    (b) Bulletins, instructions, forms and memorandums are available 
from any USDA/Rural Development office or the Rural Utilities Service, 
United States Department of Agriculture, Washington, DC. 20250-1500.



Secs. 1781.25-1781.100  [Reserved]



PART 1783--REVOLVING FUNDS FOR FINANCING WATER AND WASTEWATER PROJECTS (REVOLVING FUND PROGRAM)--Table of Contents



                           Subpart A--General

Sec.
1783.1  What is the purpose of the Revolving Fund Program?
1783.2  What Uniform Federal Assistance Provisions apply to the 
          Revolving Fund Program?
1783.3  What definitions are used in this regulation?
1783.4  [Reserved]

                Subpart B--Revolving Loan Program Grants

1783.5  What are the eligibility criteria for grant recipients?
1783.6  When will applications for grants be accepted?
1783.7  What is the grant application process?
1783.8  What are the acceptable methods for submitting applications?
1783.9  What are the criteria for scoring applications?
1783.10  What is the grant agreement?
1983.11  What is the revolving loan fund?
1783.12  What are eligible uses of grant proceeds?
1783.13  What administrative expenses may be funded with grant proceeds?

                 Subpart C--Revolving Loan Program Loans

1783.14  What are the eligibility criteria for RFP loan recipients?
1783.15  What are the terms of RFP loans?
1783.16  How will loans from the revolving fund be serviced?

    Authority: 7 U.S.C. 1926 (a)(2)(B).

    Source: 69 FR 59772, Oct. 6, 2004, unless otherwise noted.



                           Subpart A--General



Sec. 1783.1  What is the purpose of the Revolving Fund Program?

    This part sets forth the policies and procedures for making grants 
to qualified private, non-profit entities to capitalize revolving funds 
for the purpose of providing financing to eligible entities for pre-
development costs associated with proposed water and wastewater projects 
or with existing water and wastewater systems, and short-term costs 
incurred for replacement equipment, small-scale extension of services, 
or other small capital projects that are not part of the regular 
operations and maintenance activities of existing water and wastewater 
systems.



Sec. 1783.2  What Uniform Federal Assistance Provisions apply to the 
Revolving Fund Program?

    (a) This program is subject to the general provisions that apply to 
all grants made by USDA and that are set

[[Page 1118]]

forth in 7 CFR Part 3015--Uniform Federal Assistance Regulations.
    (b) This program is subject to the uniform administrative 
requirements that apply to all grants made by USDA to non-profit 
organizations and that are set forth in 7 CFR Part 3019--Uniform 
Administrative Requirements for Grants And Agreements with Institutions 
of Higher Education, Hospitals, and Other Non-Profit Organizations.
    (c) This program is subject to OMB Circular No. A-122 (Revised): 
Cost Principles for Non-Profit Organizations.



Sec. 1783.3  What definitions are used in this regulation?

    Administrative expenses means expenses incurred by a grant recipient 
that are of the type more particularly described in Sec. 1783.12.
    Applicant means a private, non-profit organization that applies for 
an RFP grant under this part.
    CONACT means the Consolidated Farm and Rural Development Act.
    Eligible entity means an entity eligible to obtain a loan, loan 
guarantee or grant under paragraph 1 or paragraph 2 of section 306(a) 
the CONACT (codified at 7 U.S.C. 1926(a)(1) and (2)).
    Grant agreement means the contract between RUS and the grant 
recipient which sets forth the terms and conditions governing a 
particular grant awarded under this part.
    Grant recipient means a private, non-profit entity that has been 
awarded a grant under this part.
    Loan recipient means an eligible entity that has received an RFP 
loan.
    Revolved funds means the cash portion of the revolving loan fund 
that is not composed of RFP grant funds, including cash comprising 
repayments of RFP loans, fees relating to RFP loans and interest 
collected on RFP loans.
    Revolving loan fund means the loan fund established by the grant 
recipient to carry out the purposes of this part, such fund comprising 
the proceeds of an RFP grant and other related assets.
    RFP means Revolving Fund Program.
    RFP grant means a grant from RUS to a grant recipient under this 
part.
    RFP loan means a loan from a grant recipient using the direct or 
indirect proceeds of an RFP grant awarded under this part.
    Rural and rural area means a city, town or unincorporated area that 
has a population of no more than 10,000 inhabitants, according to the 
latest decennial census of the United States.
    RUS means the Rural Utilities Service, a Federal agency delivering 
the USDA's Rural Development Utilities Program.
    USDA means the United States Department of Agriculture.



Sec. 1783.4  [Reserved]



                Subpart B--Revolving Loan Program Grants



1783.5  What are the eligibility criteria for grant recipients?

    (a) The applicant must be a private entity.
    (b) The applicant must be organized as a non-profit entity.
    (c) The applicant must have the legal capacity and lawful authority 
to perform the obligations of a grantee under this part.

    Example 1 to paragraph (c): If the organization is incorporated as a 
non-profit corporation, it must have corporate authority under state law 
and its corporate charter to engage in the practice of making loans to 
legal entities.
    Example 2 to paragraph (c): If the organization is an unincorporated 
association, state law may prevent the organization from entering into 
binding contracts, such as a grant agreement.

    (d) The applicant must have sufficient expertise and experience in 
making and servicing loans to assure the likelihood that the objectives 
of this part can be achieved.



Sec. 1783.6  When will applications for grants be accepted?

    In Fiscal Year 2004, applications will be accepted for this RFP 
grant program from October 6, 2004, until December 6, 2004, at which 
time the initial application period shall close. An applicant may 
withdraw, substitute, amend or supplement its application at any time 
prior to the closing of the initial application period. Once the initial 
application period has closed, all applications shall be considered 
final. For subsequent fiscal years, if any funds for

[[Page 1119]]

this program are available, the Secretary will publish a notice to that 
effect. The notice will establish the period during which applications 
for such funds may be submitted for consideration.



Sec. 1783.7  What is the grant application process?

    (a) The applicant must complete and submit the following items to 
RUS to apply for a grant under this part:
    (1) Application for Federal Assistance: Standard Form 424;
    (2) Budget Information--Non-Construction Programs: Standard Form 
424A;
    (3) Assurances--Non-Construction Programs: Standard Form 424B;
    (4) Evidence of applicant's legal existence and authority in the 
form of certified copies of organizational documents and a certified 
list of directors and officers with their respective terms;
    (5) Evidence of tax exempt status, and
    (6) Most recent annual audit conducted by an independent auditor.
    (b) The applicant must submit a written work plan that demonstrates 
the ability of the applicant to make and service loans to eligible 
entities under this program and the feasibility of the applicant's 
lending program to meet the objectives of this part.
    (c) The applicant should submit a narrative establishing the basis 
for any claims that it has substantial expertise in making and servicing 
loans. The Secretary will give priority to an applicant that 
demonstrates it has substantial experience of this type.
    (d) The applicant may submit such additional information as it 
elects to support and describe its plan for achieving the objectives of 
the part.



Sec. 1783.8  What are the acceptable methods for submitting applications?

    (a) Applications for RFP grants may be submitted by U.S. Mail. 
Applications submitted by mail must be addressed as follows: Rural 
Utilities Service, U.S. Department of Agriculture, 1400 Independence 
Avenue, SW., STOP 1548, Washington, DC 20250-1548. The outside of the 
application should be marked: ``Attention: Assistant Administrator, 
Water and Environmental Programs.'' Applications submitted by mail must 
be postmarked not later than the filing deadline to be considered during 
the period for which the application was submitted.
    (b) In lieu of submitting an application by U.S. Mail, an applicant 
may file its application electronically by using the Federal 
Government's eGrants Web site (Grants.gov) at http://www.grants.gov. 
Applicants should refer to instructions found on the Grants.gov Web site 
for procedures for registering and using this facility. Applicants who 
have not previously registered on Grants.gov should allow a sufficient 
number of business days to complete the process necessary to be 
qualified to apply for Federal Government grants using electronic 
submissions. Electronic submissions must be filed not later than the 
filing deadline to be considered during the period for which the 
application was submitted.
    (c) The methods of submitting applications may be changed from time 
to time to reflect changes in addresses and electronic submission 
procedures. Applicants should refer to the most recent notice of funding 
availability for notice of any such changes. In the event of any 
discrepancy, the information contained in the notice must be followed.



Sec. 1783.9  What are the criteria for scoring applications?

    (a) Applications that are incomplete or ineligible will be returned 
to the applicant, accompanied by a statement explaining why the 
application is being returned.
    (b) Promptly after an application period closes, all applications 
that are complete and eligible will be ranked competitively based on the 
following scoring criteria:
    (1) Degree of expertise and successful experience in making and 
servicing commercial loans, with a successful record, for the following 
number of full years:
    (i) At least 1 but less than 3 years--5 points
    (ii) At least 3 but less than 5 years--10 points
    (iii) At least 5 but less than 10 years--20 points

[[Page 1120]]

    (iv) 10 or more years--30 points
    (2) Extent to which the work plan demonstrates a well thought out, 
comprehensive approach to accomplishing the objectives of this part, 
clearly defines who will be served by the project, clearly articulates 
the problem/issues to be addressed, identifies the service area to be 
covered by the RFP loans, and appears likely to be sustainable. Up to 40 
points.
    (3) Percentage of applicant contributions. Points allowed under this 
paragraph will be based on written evidence of the availability of funds 
from sources other than the proceeds of an RFP grant to pay part of the 
cost of a loan recipient's project. In-kind contributions will not be 
considered. Funds from other sources as a percentage of the RFP grant 
and points corresponding to such percentages are as follows:
    (i) Less than 20%--ineligible
    (ii) At least 20% but less than 50%--10 points
    (iii) 50% or more--20 points
    (4) Extent to which the goals and objectives are clearly defined, 
tied to the work plan, and are measurable. Up to 15 points.
    (5) Lowest ratio of projected administrative expenses to loans 
advanced. Up to 10 points.
    (6) The evaluation methods for considering loan applications and 
making RFP loans are specific to the program, clearly defined, 
measurable, and are consistent with program outcomes. Up to 20 points.
    (7) Administrator's discretion, considering such factors as creative 
outreach ideas for marketing RFP loans to rural residents; the amount of 
funds requested in relation to the amount of needs demonstrated in the 
work plan; previous experiences demonstrating excellent utilization of a 
revolving loan fund grant; and optimizing the use of agency resources. 
Up to 10 points.
    (c) All qualifying applications under this part will be scored based 
on the criteria contained in this section. Awards will be made based on 
the highest ranking applications and the amount of financial assistance 
available for RFP grants. All applicants will be notified of the results 
in writing on form AD-622.



Sec. 1783.10  What is the grant agreement?

    RUS and the grant recipient will enter into a contract setting forth 
the terms and conditions governing a particular RFP grant award. RUS 
will furnish the form of grant agreement. No funds awarded under this 
part shall be disbursed to the grant recipient before the grant 
agreement is binding and RUS has received a fully executed counterpart 
of the grant agreement.



Sec. 1783.11  What is the revolving loan fund?

    The grant recipient shall establish and maintain a revolving loan 
fund for the purposes set forth in Sec. 1783.12. The revolving loan fund 
shall be comprised of revolving loan fund grant funds and the grant 
recipient's contributed funds. All revolving loan fund loans made to 
loan recipients shall be drawn from the revolving loan fund. All 
revolving loan fund loans shall be serviced and the revolving loan fund 
maintained, in accordance with this part and applicable law.



Sec. 1783.12  What are eligible uses of grant proceeds?

    (a) Grant proceeds shall be used solely for the purpose of 
establishing the revolving loan fund to provide loans to eligible 
entities for:
    (1) Pre-development costs associated with proposed water and 
wastewater projects or with existing water and wastewater systems, and
    (2) Short-term costs incurred for replacement equipment, small-scale 
extension of services, or other small capital projects that are not part 
of the regular operations and maintenance activities of existing water 
and wastewater systems.
    (b) A grant recipient may not use grant funds in any manner 
inconsistent with the terms of the grant agreement.



Sec. 1783.13  What administrative expenses may be funded with grant proceeds?

    RFP grant funds may not be used for any purposes not described in 
Sec. 1783.12, including, without limitation, payment or reimbursement of 
any of the grant recipient's administrative costs or expenses. 
Administrative expenses may, however, be paid or reimbursed from

[[Page 1121]]

revolving loan fund assets that are not RFP grant funds, including 
revolved funds and cash originally contributed by the grant recipient.



                 Subpart C--Revolving Fund Program Loans



Sec. 1783.14  What are the eligibility criteria for RFP loan recipients?

    (a) A loan recipient must be an eligible entity as defined in 
Sec. 1783.3.
    (b) The loan recipient must be unable to finance the proposed 
project from their own resources or through commercial credit at 
reasonable rates and terms.
    (c) The loan recipient must have or will obtain the legal authority 
necessary for owning, constructing, operating and maintaining the 
proposed service or facility, and for obtaining, giving security for, 
and repaying the proposed loan.
    (d) The project funded by the proceeds of an RFP loan must be 
located in, or the services provided as the result of such project must 
benefit, rural areas.



Sec. 1783.15  What are the terms of RFP loans?

    (a) RFP loans under this part--
    (1) Shall have an interest rate that is determined by the grant 
recipient and approved by RUS;
    (2) Shall have a terms not to exceed 10 years; and
    (3) Shall not exceed the lesser of $100,000 or 75 percent of the 
total cost of a project. The total outstanding balance for all loans 
under this program to any one entity shall not exceed $100,000.
    (b) The grant recipient must set forth the RFP loan terms in written 
documentation signed by the loan recipient.
    (c) Grant recipients must develop and use RFP loan documentation 
that conforms to the terms of this part, the grant agreement, and the 
laws of the state or states having jurisdiction.



Sec. 1783.16  How will the loans given from the revolving fund be serviced?

    The grant recipient shall be responsible for servicing all loans, to 
include preparing loan agreements, processing loan payments, reviewing 
financial statements and debt reserves balances, and other 
responsibilities such as enforcement of loan terms. Loan servicing will 
be in accordance with the work plan approved by the Agency when the 
grant is awarded for as long as any loan made in whole or in part with 
Agency grant funds is outstanding.



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

[[Page 1122]]

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.
    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

[[Page 1123]]

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 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]

1786.1-1786.24  [Reserved]

  Subpart B--Prepayment of RUS Guaranteed Federal Financing Bank Loans 
                Pursuant to Section 306(A) of the RE Act

Sec.
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 [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--Listing of Eligible Borrowers
Appendix B to Subpart E--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.

[[Page 1124]]

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]

   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.


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;

[[Page 1125]]

    (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 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

[[Page 1126]]

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) 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.

[[Page 1127]]

    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).
    (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:

[[Page 1128]]

[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 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

[[Page 1129]]

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:
    (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'

[[Page 1130]]

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. 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

[[Page 1131]]

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 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,

[[Page 1132]]

    (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 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)



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 the guaranteed note evidencing the private loan is a valid 
and legally binding

[[Page 1133]]

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 1134]]

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 1135]]

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 1136]]

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 1137]]

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 [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

[[Page 1138]]

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.
[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

[[Page 1139]]

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, 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.

[[Page 1140]]



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 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.

[[Page 1141]]

 
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.

                                                                 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

[[Page 1142]]

 
      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
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.

[[Page 1143]]



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.
    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

[[Page 1144]]

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.
[GRAPHIC] [TIFF OMITTED] TR22MR94.016

Where:

The Greek letter, Sigma ([Sigma]) means the sum of the following terms.
The Greek letter, Pi ([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
--------------------------------------    than       Treasury constant
                                      -----------       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)

[[Page 1145]]

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 
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

[[Page 1146]]

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.
    (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

[[Page 1147]]

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 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

[[Page 1148]]

supply borrower enter into a supplement to the outstanding wholesale 
power contract providing substantially as follows:

                          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.

[[Page 1149]]



Sec. 1786.166  Approvals.

    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.



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]



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.

[[Page 1150]]

    (e) Borrowers may not apply for direct or insured loans for 
facilities, construction of which commenced prior to 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 1151]]

    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 1152]]

    (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 1153]]

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 TELECOMMUNICATIONS BORROWERS--Table of Contents



               Subpart A--Borrower Insurance Requirements

Sec.
1788.1  General and definitions.
1788.2  General insurance requirements.
1788.3  Flood insurance.
1788.4  Disclosure of irregularities and illegal acts.
1788.5  RUS endorsement required.
1788.6  RUS right to place insurance.
1788.7-1788.10  [Reserved]

    Subpart B--Insurance for Contractors, Engineers, and Architects, 
                           Electric Borrowers

1788.11  Minimum insurance requirements for contractors, engineers, and 
          architects.
1788.12  Contractors' bonds.

    Subpart C--Insurance for Contractors, Engineers, and Architects, 
                      Telecommunications Borrowers

1788.46  General.
1788.47  Policy requirements.
1788.48  Contract insurance requirements.
1788.49  Contractors' bond requirements.
1788.50  Acceptable sureties.
1788.51-1788.53  [Reserved]
1788.54  Compliance with contracts.
1788.55  Providing RUS evidence.

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

    Source: 64 FR 2, Jan. 4, 1999, unless otherwise noted.



               Subpart A--Borrower Insurance Requirements



Sec. 1788.1  General and definitions.

    (a) The standard forms of documents covering loans made or 
guaranteed by the Rural Utilities Service contain provisions regarding 
insurance and fidelity coverage to be maintained by each borrower. This 
part implements those provisions by setting forth the requirements to be 
met by all borrowers.
    (b) As used in this part:
    Borrower means any entity with any outstanding loan made or 
guaranteed by RUS.
    Irregularity has the meaning found in Sec. 1773.2.

[[Page 1154]]

    Loan documents means the loan agreement, notes, and mortgage 
evidencing or used in conjunction with an RUS loan.
    Mortgage means the mortgage, deed of trust, security agreement, or 
other security document securing an RUS loan.
    Mortgaged property means any property subject to the lien of a 
mortgage.
    RUS means the Rural Utilities Service and includes the Rural 
Telephone Bank.
    RUS loan means a loan made or guaranteed by RUS.
    (c) RUS may revise these requirements on a case by case basis for 
borrowers with unusual circumstances.



Sec. 1788.2  General insurance requirements.

    (a) Borrowers 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 coverage for utilities of the size and character of the 
borrower and consistent with Prudent Utility Practice. 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 in 
the case of an electric borrower or of the telecommunications industry 
in the case of a telecommunications borrowers 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 act which could have been expected to accomplish the desired 
result at the lowest reasonable cost consistent with cost-effectiveness, 
reliability, safety, and expedition.
    (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 securing an RUS loan, 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 
suspension, cancellation, or termination.
    (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 
borrower's business and which shall be covered by insurance, unless each 
mortgagee shall otherwise agree, the borrower 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 borrower 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 form all costs and expenses in connection therewith.
    (d) Sums recovered under any policy or fidelity bond by the borrower 
for a loss of funds advanced under a note secured by a mortgage or 
recovered by any mortgagee or holder of any note secured by the mortgage 
for any loss under such policy or bond shall, unless applied as provided 
in the preceding paragraph, be used as directed by the borrower's 
mortgage.
    (e) Borrowers shall furnish evidence annually that the required 
insurance and fidelity coverage has been in force for the entire year, 
and that the borrower has taken all steps currently necessary and will 
continue to take all steps necessary to ensure that the coverage will 
remain in force until all

[[Page 1155]]

loans made or guaranteed by RUS are paid in full. Such evidence shall be 
in a form satisfactory to RUS. Generally a certification included as 
part of the RUS Financial and Statistical Report filed by the borrower 
annually (RUS Form 7 or Form 12 for electric borrowers, RUS Form 479 for 
telecommunications borrowers, or the successors to these forms) is 
sufficient evidence of this coverage.



Sec. 1788.3  Flood insurance.

    (a) 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 (42 U.S.C. 
4001, et seq.) The insurance should cover, in addition to the building, 
any machinery, equipment, fixtures, and furnishings contained in the 
building.
    (b) The National Flood Insurance Program (see 44 CFR Part 59 et 
seq.) provides for a standard flood insurance policy; however, other 
existing insurance policies which provide flood coverage may be used 
where flood insurance is available in lieu of the standard flood 
insurance policy. Such policies must be endorsed to provide:
    (1) 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 RUS 
and other mortgagees if any and must include information as to the 
availability of flood insurance coverage under the National Flood 
Insurance Program, and
    (2) That the flood insurance coverage is at least as broad as the 
coverage offered by the Standard Flood Insurance Policy.



Sec. 1788.4  Disclosure of irregularities and illegal acts.

    (a) Borrowers must immediately report, in writing, all 
irregularities and all indications or instances of illegal acts in its 
operations, whether material or not, to RUS and the Office of the 
Inspector General (OIG). See 7 CFR 1773.9(c)(3) for OIG addresses. The 
reporting requirements for borrowers are the same as those for CPA's set 
forth in Sec. 1773.9
    (b) Borrowers are required to make full disclosure to the bonding 
company of the dishonest or fraudulent acts.



Sec. 1788.5  RUS endorsement required.

    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, non-owned, 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 Insurer 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 Insurer to liability of any portion of a claim, 
verdict or judgment in excess of the limits of liability stated in the 
policy.
    3. The Insurer 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 Insurer but for said immunity in suits against 
the Insured or against the Insurer under the policy shall be available 
to the Insurer with respect to such officers and employees in suits 
against such officers and employees or against the Insurer under the 
policy.



Sec. 1788.6  RUS right to place insurance.

    If a borrower fails to purchase or maintain the required insurance 
and fidelity coverage, 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.

[[Page 1156]]



Secs. 1788.7-1788.10  [Reserved]



    Subpart B--Insurance for Contractors, Engineers, and Architects, 
                           Electric Borrowers



Sec. 1788.11  Minimum insurance requirements for contractors, engineers, and architects.

    (a) Each electric borrower shall include the provisions in this 
paragraph in its agreements with contractors, engineers, and architects, 
said agreements that are wholly or partially financed by RUS loans or 
guarantees. The borrower should replace ``Contractor'' with ``Engineer'' 
or ``Architect'' as appropriate.

    1. The Contractor shall take out and maintain throughout the period 
of this Agreement insurance of the following minimum types and amounts:
    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' 
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, non-owned, 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.
    2. The Owner shall have the right at any time to require public 
liability insurance and property damage liability insurance greater than 
those required in paragraphs (a)(1)(b) and (a)(1)(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.
    3. The Owner shall be named as Additional Insured on all policies of 
insurance required in (a)(1)(b) and (a)(1)(c) of this section.
    4. The policies of insurance shall be in such form and issued by 
such insurer as shall be satisfactory to the Owner. The Contractor shall 
furnish the Owner a certificate evidencing compliance with the foregoing 
requirements that shall provide not less than 30 days prior written 
notice to the Owner of any cancellation or material change in the 
insurance.

    (b) Electric borrowers shall also ensure that all architects and 
engineers working under contract with the borrower have insurance 
coverage for Errors and Omissions (Professional Liability Insurance) in 
an amount at least as large as the amount of the architectural or 
engineering services contract but not less than $500,000.
    (c) The borrower may increase the limits of insurance if desired.
    (d) The minimum requirement of $1 million of public liability 
insurance does not apply to contractors performing maintenance work, 
janitorial-type services, meter reading services, rights-of-way mowing, 
and jobs of a similar nature. However, borrowers shall ensure that the 
contractor performing the work has public liability coverage at a level 
determined to be appropriate by the borrower.
    (e) If requested by RUS, the borrower shall provide RUS with a 
certificate from the contractor, engineer, or architect evidencing 
compliance with the requirements of this section.



Sec. 1788.12  Contractors' bonds.

    Electric borrowers shall require contractors to obtain contractors' 
bonds when required by part 1726, Electric System Construction Policies 
and Procedures, of this chapter. Surety companies providing contractors' 
bonds shall be listed as acceptable sureties in the U.S. Department of 
Treasury Circular No. 570. The circular is maintained through periodic 
publication in the Federal Register and is available on the Internet 
under ftp://ftp.fedworld.gov/pub/tel/sureties.txt, and on the Department 
of the Treasury's computer bulletin board at 202-874-6817.

[[Page 1157]]



    Subpart C--Insurance for Contractors, Engineers, and Architects, 
                      Telecommunications Borrowers



Sec. 1788.46  General.

    This subpart sets forth RUS policies for minimum insurance 
requirements for contractors, engineers, and architects performing work 
under contracts which are wholly or partially financed by RUS loans or 
guarantees with telecommunications borrowers.



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. 1788.48, 
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. 1788.49, 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 insurance 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 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, non-owned, 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.
    (d) 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, the contractor shall furnish the 
borrower with an installation floater policy. The policy shall cover all 
risks of damage to the equipment until completion of the installation 
contract.



Sec. 1788.49  Contractors' bond requirements.

    Construction contracts in amounts in excess of $250,000 for 
facilities shall require contractors to secure a contractors' bond, on a 
form approved by RUS, 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 $250,000. RUS Form 
168c is for use when the contractor's surety has accepted a Small 
Business Administration guarantee and the contract is for $1,000,000 or 
less. For minor construction contracts under which work will be done in 
sections and no section will exceed a total cost of $250,000, the 
borrower may waive the requirement for a contractors' bond.

[[Page 1158]]



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. 
The circular is maintained through periodic publication in the Federal 
Register and is available on the Internet under ftp://ftp.fedworld.gov/
pub/tel/sureties.txt, and on the Department of the Treasury's computer 
bulletin board at 202-874-6817.



Secs. 1788.51-1788.53  [Reserved]



Sec. 1788.54  Compliance with contracts.

    It is the responsibility of the borrower to determine, before the 
commencement of work, that the engineer, architect, and the contractor 
have insurance that complies with their contract requirements.



Sec. 1788.55  Providing RUS evidence.

    When RUS shall specifically so direct, the borrower shall also 
require the engineer, the architect, and the contractor, to forward to 
RUS evidence of compliance with their contract 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.



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 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

[[Page 1159]]

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).



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

[[Page 1160]]

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.
    (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

[[Page 1161]]

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 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

[[Page 1162]]

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
    (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

[[Page 1163]]

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-B [Reserved]

      Subpart C--Seismic Safety of Federally Assisted New Building 
                              Construction

Sec.
1792.101  General.
1792.102  Definitions.
1792.103  Seismic design and construction standards for new buildings.
1792.104  Seismic acknowledgments.

    Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.; 42 
U.S.C. 7701 et seq.; E.O. 12699 (3 CFR,1990 Comp., p. 269).

    Source: 58 FR 32437, June 10, 1993, unless otherwise noted.

Subparts A-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 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),

[[Page 1164]]

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).

[58 FR 32437, June 10, 1993, as amended at 65 FR 76916, Dec. 8, 2000]



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.
    Model Code--A building code developed for the adoption of local or 
state authorities or to be used as the basis of a local or state 
building code.
    NEHRP--National Earthquake Hazards Reduction Program.
    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--Rural Utilities Service, and for the purposes of this subpart, 
shall include the Rural Telephone Bank. For the purposes of RTB 
borrowers, as used in this subpart, RUS means RTB and Administrator 
means Governor.
    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; 
65 FR 76916, Dec. 8, 2000; 69 FR 23642, Apr. 30, 2004]



Sec. 1792.103  Seismic design and construction standards for new buildings.

    (a) In the design and construction of federally assisted buildings, 
the borrowers and grant recipients must utilize the seismic provisions 
of the most recent edition of those standards and practices that are 
substantially equivalent to or exceed the seismic safety level in the 
1994, 1997, or 2000 editions of the NEHRP Recommended Provisions for the 
Development of Seismic Regulation for New Buildings.
    (b) Each of the following model codes or standards provides a level 
of seismic safety substantially equivalent to that provided by the 1994 
or 1997 NEHRP Recommended Provisions and are appropriate for federally 
assisted new building construction:
    (1) 1997 International Conference of Building Officials (ICBO) 
Uniform Building Code. Copies of the book or CD-ROM are available from 
the International Conference of Building Officials, 5360 Workman Mill 
Road, Whittier, CA 90601-2298, phone: 1-800-284-4406, fax: 1-888-329-
4226.
    (2) 1995 or 1998 American Society of Civil Engineers (ASCE) 7, 
Minimum Design Loads for Buildings and Other Structures. Copies are 
available from the American Society of Civil Engineers, Publications 
Marketing Department, 1801 Alexander Bell Drive, Reston, VA 20191-4400, 
e-mail: [email protected], fax: 1-703-295-6211.
    (3) 2000 International Code Council (ICC) International Building 
Code. Copies of the book or CD-ROM are available from the International 
Conference of Building Officials, 5360 Workman Mill Road, Whittier, CA 
90601-2298, phone: 1-800-284-4406, fax: 1-888-329-4226.
    (c) The NEHRP Recommended Provisions for the Development of Seismic

[[Page 1165]]

Regulations for New Buildings is available from the Office of 
Earthquakes and Natural Hazards, Federal Emergency Management Agency, 
500 C Street, SW., Washington, DC 20472.

[69 FR 23642, Apr. 30, 2004]



Sec. 1792.104  Seismic acknowledgments.

    For each applicable building, borrowers and grant recipients must 
provide RUS a written acknowledgment from a registered architect or 
engineer responsible for the building design stating that seismic 
provisions pursuant to Sec. 1792.103 of this subpart will be used in the 
design of the building.
    (a) For projects in which plans and specifications are required to 
be submitted to RUS, this acknowledgement shall be on the title page of 
the drawings included with the final plans and specifications. This 
acknowledgement will include the identification and date of the model 
code or standard that is used in the seismic design of the building 
project. The plans and specifications must be dated, signed, and sealed 
by the registered architect or engineer.
    (b) For projects in which plans and specifications are not 
submitted, this acknowledgement shall be in the form of a statement from 
the architect or engineer responsible for the building design. The 
statement shall identify the model code or standard identified that is 
used in the seismic design of the building or buildings and, shall be 
dated and signed.

[69 FR 23642, Apr. 30, 2004]



PART 1794--ENVIRONMENTAL POLICIES AND PROCEDURES--Table of Contents



                           Subpart A--General

Sec.
1794.1  Purpose.
1794.2  Authority.
1794.3  Actions requiring environmental review.
1794.4  Metric units.
1794.5  Responsible officials.
1794.6  Definitions.
1794.7  Guidance.
1794.8-1794.9  [Reserved]

   Subpart B--Implementation of the National Environmental Policy Act

1794.10  Applicant responsibilities.
1794.11  Apply NEPA early in the planning process.
1794.12  Consideration of alternatives.
1794.13  Public involvement.
1794.14  Interagency involvement and coordination.
1794.15  Limitations on actions during the NEPA process.
1794.16  Tiering.
1794.17  Mitigation.
1794.18-1794.19  [Reserved]

                 Subpart C--Classification of Proposals

1794.20  Control.
1794.21  Categorically excluded proposals without an ER.
1794.22  Categorically excluded proposals requiring an ER.
1794.23  Proposals normally requiring an EA.
1794.24  Proposals normally requiring an EA with scoping.
1794.25  Proposals normally requiring an EIS.
1794.26-1794.29  [Reserved]

             Subpart D--Procedure for Categorical Exclusions

1794.30  General.
1794.31  Classification.
1794.32  Environmental report.
1794.33  Agency action.
1794.34-1794.39  [Reserved]

           Subpart E--Procedure for Environmental Assessments

1794.40  General.
1794.41  Document requirements.
1794.42  Notice of availability.
1794.43  Agency finding.
1794.44  Timing of agency action.
1794.45-1794.49  [Reserved]

     Subpart F--Procedure for Environmental Assessments With Scoping

1794.50  Normal sequence.
1794.51  Preparation for scoping.
1794.52  Scoping meetings.
1794.53  Environmental analysis.
1794.54  Agency determination.
1794.55-1794.59  [Reserved]

        Subpart G--Procedure for Environmental Impact Statements

1794.60  Normal sequence.
1794.61  Environmental impact statement.
1794.62  Supplemental EIS.
1794.63  Record of decision.
1794.64  Timing of agency action.
1794.65-1794.69  [Reserved]

[[Page 1166]]

             Subpart H--Adoption of Environmental Documents

1794.70  General.
1794.71  Adoption of an EA.
1794.72  Adoption of an EIS.
1794.73  Timing of agency action.
1794.74  Incorporation of environmental materials.
1794.75-1794.79  [Reserved]

    Authority: 7 U.S.C. 6941 et seq., 42 U.S.C. 4321 et seq.; 40 CFR 
Parts 1500-1508.

    Source: 63 FR 68655, Dec. 11, 1998, unless otherwise noted.



                           Subpart A--General



Sec. 1794.1  Purpose.

    (a) This part contains the policies and procedures of the Rural 
Utilities Service (RUS) for implementing the requirements of the 
National Environmental Policy Act of 1969 (NEPA), as amended (42 U.S.C. 
4321-4346); the Council on Environmental Quality (CEQ) Regulations for 
Implementing the Procedural Provisions of NEPA (40 CFR parts 1500 
through 1508) and certain related Federal environmental laws, statutes, 
regulations, and Executive Orders (EO) that apply to RUS programs and 
administrative actions.
    (b) The policies and procedures contained in this part are intended 
to help RUS officials make decisions that are based on an understanding 
of environmental consequences, and take actions that protect, restore, 
and enhance the environment. In assessing the potential environmental 
impacts of its actions, RUS will consult early with appropriate Federal, 
State, and local agencies and other organizations to provide decision-
makers with information on the issues that are truly significant to the 
action in question.



Sec. 1794.2  Authority.

    (a) This part derives its authority from and is intended to be 
compliant with NEPA, CEQ Regulations for Implementing the Procedural 
Provisions of NEPA, and other RUS regulations.
    (b) Where practicable, RUS will use NEPA analysis and documents and 
review procedures to integrate the requirements of related environmental 
statutes, regulations, and orders.
    (c) This part integrates the requirements of NEPA with other 
planning and environmental review procedures required by law, or by RUS 
practice including but not limited to:
    (1) Endangered Species Act of 1973 (16 U.S.C. 1531 et seq.);
    (2) The National Historic Preservation Act (16 U.S.C. 470 et seq.);
    (3) Farmland Protection Policy Act (7 U.S.C. 4201 et seq.);
    (4) E.O. 11593, Protection and Enhancement of the Cultural 
Environment (3 CFR, 1971 Comp., p. 154);
    (5) E.O. 11514, Protection and Enhancement of Environmental Quality 
(3 CFR, 1970 Comp., p. 104);
    (6) E.O. 11988, Floodplain Management (3 CFR, 1977 Comp., p. 117);
    (7) E.O. 11990, Protection of Wetlands (3 CFR, 1977 Comp., p. 121); 
and
    (8) E.O. 12898, Federal Actions to Address Environmental Justice in 
Minority Populations and Low-Income Populations (3 CFR, 1994 Comp., p. 
859).
    (d) Applicants are responsible for ensuring that proposed actions 
are in compliance with all appropriate RUS requirements. Environmental 
documents submitted by the applicant shall be prepared under the 
oversight and guidance of RUS. RUS will evaluate and be responsible for 
the accuracy of all information contained therein.



Sec. 1794.3  Actions requiring environmental review.

    The provisions of this part apply to actions by RUS including the 
approval of financial assistance pursuant to the Electric, 
Telecommunications, and Water and Waste Programs, the disposal of 
property held by RUS pursuant to such programs, and the issuance of new 
or revised rules, regulations, and bulletins. Approvals provided by RUS 
pursuant to loan contracts and security instruments, including approvals 
of lien accommodations, are not actions for the purposes of this part 
and the provisions of this part shall not apply to the exercise of such 
approvals.



Sec. 1794.4  Metric units.

    RUS normally will prepare environmental documents using non-metric 
equivalents with one of the following two options; metric units in 
parentheses immediately following the non-

[[Page 1167]]

metric equivalents or a metric conversion table as an appendix. 
Environmental documents prepared by or for a RUS applicant should follow 
the same format.



Sec. 1794.5  Responsible officials.

    The Administrator of RUS has the responsibility for Agency 
compliance with all environmental laws, regulations, and EOs that apply 
to RUS programs and administrative actions. Responsibility for ensuring 
environmental compliance for actions taken by RUS has been delegated as 
follows:
    (a) Electric and telecommunications programs. The appropriate 
Assistant Administrator is responsible for ensuring compliance with this 
part for the respective programs.
    (b) Water and waste program. The Assistant Administrator for this 
program is responsible for ensuring compliance with this part at the 
national level. The State Director is the responsible official for 
ensuring compliance with this part for actions taken at the State Office 
level.



Sec. 1794.6  Definitions.

    The following definitions, as well as the definitions contained in 
40 CFR part 1508 of the CEQ regulations, apply to the implementation of 
this part:
    Applicant. The organization applying for financial assistance or 
other approval from either the Electric or Telecommunications programs 
or the organization applying for a loan or grant from the Water and 
Waste program.
    Construction Work Plan (CWP). The document required by 7 CFR part 
1710.
    Distributed Generation. The generation of electricity by a 
sufficiently small electric generating system as to allow 
interconnection of the system near the point of service at distribution 
voltages or customer voltages. A distributed generating system may be 
fueled by any source, including but not limited to renewable energy 
sources.
    Emergency situation. A natural disaster or system failure that may 
involve an immediate or imminent threat to public health, safety, or the 
human environment.
    Environmental Report (ER). The environmental documentation normally 
submitted by applicants for proposed actions subject to compliance with 
Secs. 1794.22 through 1794.24. An ER for the Water and Waste Program 
refers to the environmental review documentation normally included as 
part of the Preliminary Engineering Report.
    Environmental review. Any one or all of the levels of environmental 
analysis described under subpart C of this part.
    Equivalent Dwelling Unit (EDU). Level of water or waste service 
provided to a typical rural residential dwelling.
    Important land resources. Defined pursuant to the U.S. Department of 
Agriculture's Departmental Regulation 9500-3, Land Use Policy, as 
important farmland, prime forestland, prime rangeland, wetlands, and 
floodplains. Copies of this Departmental Regulation are available from 
USDA, Rural Utilities Service, Washington, DC 20250.
    Loan design. Document required by 7 CFR part 1737.
    Multiplexing center. A field site where a telecommunications 
provider houses a device that combines individual subscriber circuits 
onto a single system for economical connection with a switching center. 
The combiner, or ``multiplexer,'' may be mounted on a pole, on a 
concrete pad, or in a partial or full enclosure such as a shelter, or 
small building.
    Natural Resource Management Guide. Inventory of natural resources, 
land uses, and environmental factors specified by Federal, State, and 
local authorities as deserving some degree of protection or special 
consideration. The guide describes the standards or types of protection 
that apply.
    Preliminary Engineering Report (PER). Document required by 7 CFR 
part 1780 for Water and Waste Programs. A PER is prepared by an 
applicant's engineering consultant documenting a proposed action's 
preliminary engineering plan and design and the applicable environmental 
review activities as required in this part. Upon approval by RUS, the 
PER, or a portion thereof, shall serve as the RUS environmental 
document.
    Supervisory Control and Data Acquisition System (SCADA). Electronic 
monitoring and control equipment installed at electric substations and 
switching stations.

[[Page 1168]]

    Third party consultant. A party selected by RUS to prepare the EIS 
for proposed actions described in Sec. 1794.25 where the applicant 
initiating the proposal agrees to fund preparation of the document in 
accordance with the provisions of 7 CFR Part 1789, ``Use of Consultants 
Funded by Borrowers'' and Section 759A of the Federal Agriculture 
Improvement and Reform Act of 1996 (7 U.S.C. 2204b(b)).

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45158, Aug. 1, 2003]



Sec. 1794.7  Guidance.

    (a) Electric and Telecommunications Programs. For further guidance 
in the preparation of public notices and environmental documents, RUS 
has prepared a series of program specific guidance bulletins. RUS 
Bulletin 1794A-600 provides guidance in preparing the ER for proposed 
actions classified as categorical exclusions (CEs) (Sec. 1794.22(a)); 
RUS Bulletin 1794A-601 provides guidance in preparing the ER for 
proposed actions which require EAs (Sec. 1794.23(b) and (c)); and RUS 
Bulletin 1794A-603 provides guidance in conducting scoping for proposed 
actions classified as requiring an EA with scoping or an EIS. Copies of 
these bulletins are available upon request by contacting the Rural 
Utilities Service, Publications Office, Program Development and 
Regulatory Analysis, Stop 1522, 1400 Independence Avenue, SW., 
Washington, DC 20250-1522.
    (b) Water and waste program. RUS Bulletin 1794A-602 provides 
guidance in preparing the ER for proposed actions classified as CEs 
(Sec. 1794.22(b)) and EAs (Sec. 1794.23(b)). A copy of this bulletin is 
available upon request by contacting the appropriate State Director. 
State Directors may provide supplemental guidance to meet state and 
local laws and regulations and to provide for orderly application 
procedures and efficient service to applicants. State Directors shall 
obtain the Administrator's approval for all supplements to RUS Bulletin 
1794A-602. Each State Office shall maintain an updated Natural Resource 
Management Guide and provide applicants with pertinent sections or a 
copy of the current edition thereof.

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45158, Aug. 1, 2003]



Secs. 1794.8-1794.9  [Reserved]



   Subpart B--Implementation of the National Environmental Policy Act



Sec. 1794.10  Applicant responsibilities.

    As described in subpart C of this part, applicants shall prepare the 
applicable environmental documentation concurrent with a proposed 
action's engineering, planning, and design activities. RUS shall assist 
applicants by outlining the types of information required and shall 
provide guidance and oversight in the development of the documentation. 
Documentation shall not be considered complete until all public review 
periods, as applicable, have expired and RUS concurrence, as set forth 
in the appropriate decision document and associated public notice, has 
been issued.



Sec. 1794.11  Apply NEPA early in the planning process.

    The environmental review process requires early coordination with 
and involvement of RUS. Applicants should consult with RUS at the 
earliest stages of planning for any proposal that may require RUS 
action. For proposed actions that normally require an EIS, applicants 
shall consult with RUS prior to obtaining the services of an 
environmental consultant.



Sec. 1794.12  Consideration of alternatives.

    In determining what are reasonable alternatives, RUS considers a 
number of factors. These factors may include, but are not limited to, 
the proposed action's size and scope, state of the technology, economic 
considerations, legal and socioeconomic concerns, availability of 
resources, and the timeframe in which the identified need must be 
fulfilled.



Sec. 1794.13  Public involvement.

    (a) In carrying out its responsibilities under NEPA, RUS shall make 
diligent efforts to involve the public in the environmental review 
process through

[[Page 1169]]

public notices and public hearings and meetings.
    (1) All public notices required by this part shall describe the 
nature, location, and extent of the proposed action and indicate the 
availability and location of additional information. They shall be 
published in newspaper(s) of general circulation within the proposed 
action's area of environmental impact and the county(s) in which the 
proposed action will take place or such other places as RUS determines.
    (2) The number of editions in which the notices should be published 
will be specified in the Bulletins referenced in Sec. 1794.7 or 
established on a project-by-project basis. Alternative forms of notice 
may also be necessary to ensure that residents located in the area 
affected by the proposed action are notified. The applicant should not 
publish notices for compliance with this part until so notified by RUS.
    (3) A copy of all comments received by the applicant concerning 
environmental aspects of the proposed action shall be provided to RUS in 
a timely manner. RUS and applicants shall assess and consider public 
comments both individually and collectively. Responses to public 
comments will be appended to the applicable environmental document.
    (4) RUS and applicants shall make available to the public those 
project related environmental documents that RUS determines will enhance 
public participation in the environmental process. These materials shall 
be placed in locations convenient for the public as determined by RUS in 
consultation with applicants. Included with the documentation shall be a 
list of other project-related information that shall be available for 
inspection through a designated RUS or applicant contact person.
    (5) Public hearings or meetings shall be held at reasonable times 
and locations concerning environmental aspects of a proposed action in 
all cases where, in the opinion of RUS, the need for hearings or 
meetings is indicated in order to develop adequate information on the 
environmental implications of the proposed action. Public hearings or 
meetings conducted by RUS will be coordinated to the extent practicable 
with other meetings, hearings, and environmental reviews which may be 
held or required by other Federal, state and local agencies. Applicants 
shall, as necessary, participate in all RUS conducted public hearings or 
meeting.
    (6) Scoping procedures, in accordance with 40 CFR 1501.7, are 
required for proposed actions normally requiring an EA with scoping 
(Sec. 1794.24) or an EIS (Sec. 1794.25). RUS may require scoping 
procedures to be followed for other proposed actions where appropriate 
to achieve the purposes of NEPA.
    (b) The applicant shall have public notices described in this 
section published in a newspaper(s). Applicants shall obtain proof of 
publication from the newspaper(s) for inclusion into the applicable 
environmental document. Where the proposed action requires an EIS RUS 
shall, in addition to applicant published notices, publish notice in the 
Federal Register.In all cases, RUS may publish notices in the Federal 
Register as appropriate.



Sec. 1794.14  Interagency involvement and coordination.

    In an attempt to reduce or eliminate duplication of effort with 
state or local procedures, RUS will, to the extent possible and in 
accordance with 40 CFR 1506.2, actively participate with any 
governmental agency to cooperatively or jointly prepare environmental 
documents so that one document will comply with all applicable laws. 
Where RUS has agreed to participate as a cooperating agency, in 
accordance with 40 CFR 1501.6, RUS may rely upon the lead agency's 
procedures for implementing NEPA procedures. In addition, RUS shall 
request that:
    (a) The lead agency indicates that RUS is a cooperating agency in 
all NEPA-related notices published for the proposed action;
    (b) The scope and content of the EA or EIS satisfies the statutory 
and regulatory requirements applicable to RUS; and
    (c) The applicant shall inform RUS in a timely manner of its 
involvement in a proposed action where another Federal agency is 
preparing an environmental document so as to permit RUS to adequately 
fulfill its duties as a cooperating agency.

[[Page 1170]]



Sec. 1794.15  Limitations on actions during the NEPA process.

    (a) General. Until RUS concludes its environmental review process, 
the applicant shall take no action concerning the proposed action which 
would have an adverse environmental impact or limit the choice of 
reasonable alternatives being considered in the environmental review 
process (40 CFR 1506.1). The RUS environmental review process is 
concluded when:
    (1) A categorical exclusion determination has been made for 
proposals listed under Secs. 1794.21 and 1794.22.
    (2) Applicant notices announcing the RUS FONSI determination have 
been published for proposals listed under Secs. 1794.23 and 1794.24.
    (3) Applicant notices announcing the RUS Record of Decision have 
been published for proposals listed under Sec. 1794.25.
    (b) Electric program. In determining which applicant activities 
related to a proposed action can proceed prior to completion of the 
environmental review process, RUS must determine, among other matters 
that:
    (1) The activity shall not have an adverse environmental impact and 
shall not preclude the search for other alternatives. 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.
    (2) Expenditures are minimal. To be minimal, the expenditure must 
not exceed the amount of loss which the applicant could absorb without 
jeopardizing the Government's security interest in the event the 
proposed action is not approved by the Administrator, and must not 
compromise the objectivity of RUS environmental review. Not withstanding 
other considerations, expenditures equivalent to up to 10 percent of the 
proposed action's cost normally will not compromise RUS objectivity. 
Expenditures for the purpose of producing documentation required for RUS 
environmental review are excluded from this limitation.

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45159, Aug. 1, 2003]



Sec. 1794.16  Tiering.

    It is the policy of RUS to prepare programmatic level analysis in 
order to tier an EIS and an EA where:
    (a) It is practicable, and
    (b) There will be a reduction of delay and paperwork, or where 
better decision making will be fostered (40 CFR 1502.20).



Sec. 1794.17  Mitigation.

    (a) General. In addition to complying with the requirements of 40 
CFR 1502.14(f), it is RUS policy that a discussion of mitigative 
measures essential to render the impacts of the proposed action not 
significant will be included in or referenced in the Finding of No 
Significant Impact (FONSI) and the Record of Decision (ROD).
    (b) Water and waste program. (1) Mitigation measures which involve 
protective measures for environmental resources cited in this part or 
restrictions or limitations on real property located in the service 
areas of the proposed action shall be negotiated with applicants and any 
relevant regulatory agency so as to be enforceable. All mitigation 
measures incorporating land use issues shall recognize the rights and 
responsibilities of landholders in making private land use decisions and 
recognize the responsibility of governments in influencing how land may 
be used to meet public needs.
    (2) Mitigation measures shall be included in the letter of 
conditions.
    (3) RUS has the responsibility for the post approval construction or 
security inspections or monitoring to ensure that all mitigation 
measures included in the environmental documents have been implemented 
as specified in the letter of conditions.

[[Page 1171]]



Secs. 1794.18-1794.19  [Reserved]



                 Subpart C--Classification of Proposals



Sec. 1794.20  Control.

    Electric and telecommunications programs. For environmental review 
purposes, RUS has identified and established categories of proposed 
actions (Secs. 1794.21 through 1794.25). An applicant may propose to 
participate with other parties in the ownership of a project where the 
applicant(s) does not have sufficient control to alter the development 
of the project. In such a case, RUS shall determine whether the 
applicant participants have sufficient control and responsibility to 
alter the development of the proposed project prior to determining its 
classification. Where the applicant proposes to participate with other 
parties in the ownership of a proposed project and all applicants 
cumulatively own:
    (a) Five percent or less of a project is not considered a Federal 
action subject to this part;
    (b) Thirty-three and one-third percent or more of a project shall be 
treated in its usual category;
    (c) More than five percent but less than 33\1/3\ percent of a 
project, RUS shall determine whether the applicant participants have 
sufficient control and responsibility to alter the development of the 
proposal such that RUS's action will be considered a Federal action 
subject to this part. Consideration shall be given to such factors as:
    (1) Whether construction would be completed regardless of RUS 
financial assistance or approval;
    (2) The stage of planning and construction;
    (3) Total participation of the applicant;
    (4) Participation percentage of each utility; and
    (5) Managerial arrangements and contractual provisions.



Sec. 1794.21  Categorically excluded proposals without an ER.

    (a) General. Certain types of actions taken by RUS do not normally 
require an ER. Proposed actions within this classification are:
    (1) The issuance of bulletins and information publications that do 
not concern environmental matters or substantial facility design, 
construction, or maintenance practices;
    (2) Procurement activities related to the operation of RUS;
    (3) Personnel and administrative actions; and
    (4) Repairs made because of an emergency situation to return to 
service damaged facilities of an applicant's system.
    (b) Electric and telecommunications programs. Applications for 
financial assistance for the types of proposed actions listed in this 
paragraph (b) normally do not require the submission of an ER. These 
types of actions are subject to the requirements of Sec. 1794.31. 
Applicants shall sufficiently identify all proposed actions so their 
proper classification can be determined. Detailed descriptions shall be 
provided for each proposal noted in this section. RUS normally requires 
additional information in addition to a description of what is being 
proposed, to ensure that proposals are properly classified. In order to 
provide for extraordinary circumstances, RUS may require development of 
an ER for proposals listed in this section. Proposed actions within this 
classification are:
    (1) Purchase of land where use shall remain unchanged, or the 
purchase of existing water rights where no associated construction is 
involved;
    (2) Additional or substitute financial assistance for proposed 
actions which have previously received environmental review and approval 
from RUS, provided the scope of the proposal and environmental 
considerations have not changed;
    (3) Rehabilitation or reconstruction of transportation facilities 
within existing rights-of-way (ROW) or generating facility sites. A 
description of the rehabilitation or reconstruction shall be provided to 
RUS;
    (4) Changes or additions to microwave sites, substations, switching 
stations, telecommunications switching or multiplexing centers, 
buildings, or small structures requiring new physical disturbance or 
fencing of less than one acre (0.4 hectare). A description of the 
additions or changes and the area

[[Page 1172]]

to be impacted by the expansion shall be provided to RUS;
    (5) Internal modifications or equipment additions (e.g., computer 
facilities, relocating interior walls) to structures or buildings;
    (6) Internal or minor external changes to electric generating or 
fuel processing facilities and related support structures where there is 
negligible impact on the outside environment. A description of the 
changes shall be provided to RUS;
    (7) Ordinary maintenance or replacement of equipment or small 
structures (e.g., line support structures, line transformers, microwave 
facilities, telecommunications remote switching and multiplexing sites);
    (8) The construction of telecommunications facilities within the 
fenced area of an existing substation, switching station, or within the 
boundaries of an existing electric generating facility site. A 
description of the facilities to be constructed shall be provided to 
RUS;
    (9) SCADA and energy management systems involving no new external 
construction;
    (10) Testing or monitoring work (e.g., soil or rock core sampling, 
monitoring wells, air monitoring);
    (11) Studies and engineering undertaken to define proposed actions 
or alternatives sufficiently so that environmental effects can be 
assessed;
    (12) Construction of electric power lines within the fenced area of 
an existing substation, switching station, or within the boundaries of 
an electric generating facility site;
    (13) Contracts for certain items of equipment which are part of a 
proposed action for which RUS is preparing an EA or EIS, and which meet 
the limitations on actions during the NEPA process as established in 40 
CFR 1506.1(d) and contained in Sec. 1794.15(b)(2);
    (14) Rebuilding of power lines or telecommunications cables where 
road or highway reconstruction requires the applicant to relocate the 
lines either within or adjacent to the new road or highway easement or 
right-of-way. A description of the facilities to be constructed shall be 
provided to RUS;
    (15) Phase or voltage conversions, reconductoring or upgrading of 
existing electric distribution lines, or telecommunication facilities. A 
description of the facilities to be constructed shall be provided to 
RUS;
    (16) Construction of new power lines, substations, or 
telecommunications facilities on industrial or commercial sites, where 
the applicant has no control over the location of the new facilities. 
Related off-site facilities would be treated in their normal category. A 
description of the facilities to be constructed shall be provided to 
RUS;
    (17) Participation by an applicant(s) in any proposed action where 
total applicant financial participation will be five percent or less;
    (18) Construction of a battery energy storage system at an existing 
generating station or substation site. A description of the facilities 
to be constructed shall be provided to RUS.
    (19) Additional bulk commodity storage (e.g., coal, fuel oil, 
limestone) within existing generating station boundaries. A 
certification attesting to the current state of compliance of the 
existing facilities and a description of the facilities to be added 
shall be provided to RUS;
    (20) Proposals designed to reduce the amount of pollutants released 
into the environment (e.g., precipitators, baghouse or scrubber 
installations, and coal washing equipment) which will have no other 
environmental impact outside the existing facility site. A description 
of the facilities to be constructed shall be provided to RUS;
    (21) Construction of standby diesel electric generators (one 
megawatt or less total capacity) and associated facilities, for the 
primary purpose of providing emergency power, at an existing applicant 
headquarters or district office, telecommunications switching or 
multiplexing site, or at an industrial, commercial or agricultural 
facility served by the applicant. A description of the facilities to be 
constructed shall be provided to RUS;
    (22) Construction of onsite facilities designed for the transfer of 
ash, scrubber wastes, and other byproducts from coal-fired electric 
generating stations for recycling or storage at an existing coal mine 
(surface or underground). A description of the facilities to be 
constructed shall be provided to RUS;

[[Page 1173]]

    (23) Changes or additions to an existing water well system, 
including new water supply wells and associated pipelines within the 
boundaries of an existing well field or generating station site. A 
description of the changes or additions shall be provided; and
    (24) Repowering or uprating of an existing unit(s) at a fossil-
fueled generating station in order to improve the efficiency or the 
energy output of the facility. Repowering or uprating that results in 
increased fuel consumption or the substitution of one fuel combustion 
technology with another is excluded from this classification.
    (25) Electric generating facilities of less than 100 kilowatts at 
any one site for the purpose of providing service to customers or 
facilities such as stock tanks and irrigation pumps.
    (26) New bulk commodity storage and associated handling facilities 
within existing fossil-fueled generating station boundaries for the 
purpose of co-firing bio-fuels and refuse derived fuels. A description 
of the facilities to be constructed shall be provided to RUS.
    (c) Water and waste program. Applications for financial assistance 
for certain proposed actions do not normally require the submission of 
an ER. Applicants shall sufficiently identify all proposed actions so 
their proper classification can be determined. These types of actions 
are subject to the requirements of Sec. 1794.31. In order to provide for 
extraordinary circumstances, RUS may require development of an ER for 
proposals listed in this section. Proposed actions within this 
classification are:
    (1) Management actions relating to invitation for bids, award of 
contracts, and the actual physical commencement of construction 
activities;
    (2) Proposed actions that primarily involve the purchase and 
installation of office equipment or motorized vehicles;
    (3) The award of financial assistance for technical assistance, 
planning purposes, environmental analysis, management studies, or 
feasibility studies; and
    (4) Loan closing and servicing activities that do not alter the 
purpose, operation, location, or design of the proposal as originally 
approved, such as subordinations, amendments and revisions to approved 
actions, and the provision of additional financial assistance for cost 
overruns.

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45159, Aug. 1, 2003]



Sec. 1794.22  Categorically excluded proposals requiring an ER.

    (a) Electric and telecommunications programs. Applications for 
financial assistance for the types of proposed actions listed in this 
section normally require the submission of an ER and are subject to the 
requirements of Sec. 1794.32. Proposed actions within this 
classification are:
    (1) Construction of electric power lines and associated facilities 
designed for or capable of operation at a nominal voltage of either:
    (i) Less that 69 kilovolts (kV);
    (ii) Less than 230 kV if no more than 25 miles (40.2 kilometers) of 
line are involved; or
    (iii) 230 kV or greater involving no more than three miles (4.8 
kilometers) of line;
    (2) Construction of buried and aerial telecommunications lines, 
cables, and related facilities;
    (3) Construction of microwave facilities, SCADA, and energy 
management systems involving no more than five acres (2 hectares) of 
physical disturbance at any single site;
    (4) Construction of cooperative or company headquarters, maintenance 
facilities, or other buildings involving no more than 10 acres (4 
hectares) of physical disturbance or fenced property;
    (5) Changes to existing transmission lines that involve less than 20 
percent pole replacement, or the complete rebuilding of existing 
distribution lines within the same ROW. Changes to existing transmission 
lines that require 20 percent or greater pole replacement will be 
considered the same as new construction;
    (6) Changes or additions to existing substations, switching 
stations, telecommunications switching or multiplexing centers, or 
external changes to buildings or small structures requiring one acre 
(0.4 hectare) or more but no more than five acres (2 hectares) of new 
physically disturbed land or fenced property;

[[Page 1174]]

    (7) Construction of substations, switching stations, or 
telecommunications switching or multiplexing centers requiring no more 
than five acres (2 hectares) of new physically disturbed land or fenced 
property;
    (8) Construction of distributed generation totaling 10 MW or less at 
an existing utility, industrial, commercial or educational facility 
site. There is no capacity limit for a generating facility located at or 
adjacent to an existing landfill site that is powered by refuse derived 
fuel. All new associated facilities and related electric power lines 
shall be covered in the ER;
    (9) Installation of new generating units or the replacement of 
existing generating units at a hydroelectric facility or dam which 
result in no change in the normal maximum surface area or normal maximum 
surface elevation of the existing impoundment. All new associated 
facilities and related electric power lines shall be covered in the ER;
    (10) Construction of new water supply wells and associated pipelines 
not located within the boundaries of an existing well field or 
generating station site; and
    (11) Purchase of existing facilities or a portion thereof where use 
or operation will remain unchanged. The results of a facility 
environmental audit can be substituted for the ER.
    (12) Installing a heat recovery steam generator and steam turbine 
with a rating of 200 MW or less on an existing combustion turbine 
generation site for the purpose of combined cycle operation. All new 
associated facilities and related electric power lines shall be covered 
in the ER.
    (b) Water and waste program. For certain proposed actions, 
applications for financial assistance normally require the submittal of 
an ER as part of the PER. These types of actions are subject to the 
requirements of Sec. 1794.32. Proposed actions within this 
classification are:
    (1) Rehabilitation of existing facilities, functional replacement or 
rehabilitation of equipment, or the construction of new ancillary 
facilities adjacent or appurtenant to existing facilities, including but 
not limited to, replacement of utilities such as water or sewer lines 
and appurtenances for existing users with modest or moderate growth 
potential, reconstruction of curbs and sidewalks, street repaving, and 
building modifications, renovations, and improvements;
    (2) Facility improvements to meet current needs with a modest change 
in use, size, capacity, purpose or location from the original facility. 
The proposed action must be designed for predominantly residential use 
with other new or expanded users being small-scale, commercial 
enterprises having limited secondary impacts;
    (3) Construction of new facilities that are designed to serve not 
more than 500 EDUs and with modest growth potential. The proposed action 
must be designed for predominantly residential use with other users 
being small-scale, commercial enterprises having limited secondary 
impacts;
    (4) The extension, enlargement or construction of interceptors, 
collection, transmission or distribution lines within a one-mile (1.6-
kilometer) limit from existing service areas estimated from any boundary 
listed as follows:
    (i) The corporate limits of the community being served;
    (ii) If there are developed areas immediately contiguous to the 
corporate limits of a community, the limits of these developed areas; or
    (iii) If an unincorporated area is to be served, the limits of the 
developed areas;
    (5) Installation of new water supply wells or water storage 
facilities that are required by a regulatory authority or standard 
engineering practice as a backup to existing production well(s) or as 
reserve for fire protection;
    (6) Actions described in Sec. 1794.21(c)(4) which alter the purpose, 
operation, location, or design of the proposed action as originally 
approved, and such alteration is equivalent in magnitude or type as 
described in paragraphs (b)(1) through (b)(5) of this section; and
    (7) The lease or disposal of real property by RUS, which may result 
in a change in use of the real property in the reasonably foreseeable 
future and such change, is equivalent in magnitude or type as described 
in paragraphs (b)(1) through (b)(5).

[[Page 1175]]

    (c) Specialized criteria for not granting a CE for water and waste 
projects. An EA must be prepared if a proposed action normally 
classified as a CE meets any of the following:
    (1) Will either create a new or relocate an existing discharge to or 
a withdrawal from surface or ground waters;
    (2) Will result in substantial increases in the volume or the 
loading of pollutants from an existing discharge to receiving waters;
    (3) Will cause a substantial increase in the volume of withdrawal 
from surface or ground waters at an existing site; or
    (4) Would provide capacity to serve more than 500 EDUs or a 30 
percent increase in the existing population whichever is larger.

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45159, Aug. 1, 2003]



Sec. 1794.23  Proposals normally requiring an EA.

    RUS will normally prepare an EA for all proposed actions which are 
neither categorical exclusions (Secs. 1794.21 and 1794.22) nor normally 
requiring an EIS (Sec. 1794.25). For certain actions within this class, 
scoping and document procedures contained in Secs. 1794.50 through 
1794.54 shall be followed (see Sec. 1794.24). The following are proposed 
actions which normally require an EA and shall be subject to the 
requirements of Secs. 1794.40 through 1794.44.
    (a) General. Issuance or modification of RUS regulations concerning 
environmental matters.
    (b) Telecommunications and water and waste programs. An EA shall be 
prepared for applications for financial assistance for all proposed 
actions not specifically defined as a CE or otherwise specifically 
categorized by the Administrator on a case-by-case basis.
    (c) Electric program. Applications for financial assistance for 
certain proposed actions normally require the preparation of an EA. 
Proposed actions falling within this classification are:
    (1) Construction of fuel cell, combustion turbine, combined cycle, 
or diesel generating facilities of 50 MW (nameplate rating) or less at a 
new site (no existing generating capacity) except for items covered by 
Sec. 1794.22(a)(8). All new associated facilities and related electric 
power lines shall be covered in the EA;
    (2) Construction of fuel cell, combustion turbine, combined cycle, 
or diesel generating facilities of 100 MW (nameplate rating) or less at 
an existing generating site, except for items covered by 
Sec. 1794.22(a)(8). All new associated facilities and related electric 
power lines shall be covered in the EA;
    (3) Construction of any other type of new electric generating 
facility of 20 MW (nameplate rating) or less, except for items covered 
by Sec. 1794.22(a)(8). All new associated facilities and related 
electric power lines shall be covered in the EA;
    (4) Repowering or uprating of an existing unit(s) at a fossil-fueled 
generating station where the existing fuel combustion technology of the 
affected unit(s) is substituted for another (e.g. coal or oil-fired 
boiler is converted to a fluidized bed boiler or replaced with a 
combustion turbine unit);
    (5) Installation of new generating units at an existing 
hydroelectric facility or dam, or the replacement of existing generating 
units at a hydroelectric facility or dam which will result in a change 
in the normal maximum surface area or normal maximum surface elevation 
of the existing impoundment. All new associated facilities and related 
electric power lines shall be covered in the EA;
    (6) A new drilling operation or the expansion of a mining or 
drilling operation;
    (7) Construction of cooperative headquarters, maintenance, and 
equipment storage facilities involving more than 10 acres (4 hectares) 
of physical disturbance or fenced property;
    (8) The construction of electric power lines and related facilities 
designed for and capable of operation at a nominal voltage of 230 kV or 
more involving more than three miles (4.8 kilometers) but not more than 
25 miles (40 kilometers) of line;
    (9) The construction of electric power lines and related facilities 
designed for or capable of operation at a nominal voltage of 69 kV or 
more but less than 230 kV where more than 25 miles (40 kilometers) of 
power line are involved;
    (10) The construction of substations or switching stations requiring 
greater

[[Page 1176]]

than five acres (2 hectares) of new physical disturbance at a single 
site; and
    (11) Construction of facilities designed for the transfer and 
storage of ash, scrubber wastes, and other byproducts from coal-fired 
electric generating stations that will be located beyond the existing 
facility site boundaries.
    (12) Installing a heat recovery steam generator and steam turbine 
with a rating of more than 200 MW on an existing combustion turbine 
generation site for the purpose of combined cycle operation. All new 
associated facilities and related electric power lines shall be covered 
in the EA.
    (13) Construction of a natural gas pipeline to serve an existing 
gas-fueled generating facility.

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45159, Aug. 1, 2003]



Sec. 1794.24  Proposals normally requiring an EA with scoping.

    (a) General. Applications for financial assistance for certain 
proposed actions require the use of a scoping procedure in the 
development of the EA. These types of actions are subject to the 
requirements of Secs. 1794.50 through 1794.54. RUS has the discretion to 
modify or waive the requirements listed in Sec. 1794.52 for a proposed 
action in this category.
    (b) Electric program. Proposed actions falling within this 
classification are:
    (1) The construction of electric power lines and related facilities 
designed for and capable of operation at a nominal voltage of 230 kV or 
more where more than 25 miles (40 kilometers) of power line are 
involved;
    (2) Construction of fuel cell, combustion turbine, combined cycle, 
and diesel generating facilities of more than 50 MW at a new site or 
more than 100 MW at an existing site; and the construction of any other 
type of electric generating facility of more than 20 MW but not more 
than 50 MW (nameplate rating). All new associated facilities and related 
electric power lines shall be covered in any EA or EIS that is prepared.
    (c) Telecommunications and water and waste programs. There are no 
actions normally falling within this classification.

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45159, Aug. 1, 2003]



Sec. 1794.25  Proposals normally requiring an EIS.

    Applications for financial assistance for certain proposed actions 
that may significantly affect the quality of the human environment shall 
require the preparation of an EIS.
    (a) Electric program. An EIS will normally be required in connection 
with proposed actions involving the following types of facilities:
    (1) New electric generating facilities of more than 50 MW (nameplate 
rating) other than fuel cell, combustion turbine, combined cycle, or 
diesel generators. All new associated facilities and related electric 
power lines shall be covered in the EIS; and
    (2) A new mining operation when the applicants have effective 
control (e.g., dedicated mine or purchase of a substantial portion of 
the mining equipment).
    (b) Proposals listed above are subject to the requirements of 
Secs. 1794.60, 1794.61, 1794.63, and 1794.64. Preparation of a 
supplemental draft or final EIS in accordance with 40 CFR 1502.9 shall 
be subject to the requirements of Secs. 1794.62 and 1794.64.
    (c) Telecommunications and water and waste programs. No groups or 
sets of proposed actions normally require the preparation of an EIS. The 
environmental review process, as described in this part, shall be used 
to identify those proposed actions for which the preparation of an EIS 
is necessary. If an EIS is required, RUS shall proceed directly to its 
preparation. Prior completion of an EA is not mandatory.

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45159, Aug. 1, 2003]



Secs. 1794.26-1794.29  [Reserved]



             Subpart D--Procedure for Categorical Exclusions



Sec. 1794.30  General.

    The procedures of this subpart which apply to proposed actions 
classified as CEs in Secs. 1794.21 and 1794.22 provide RUS

[[Page 1177]]

with information necessary to determine if the proposed action meets the 
criteria for a CE. Where, because of extraordinary circumstances, a 
normally categorically excluded action may have a significant effect on 
the quality of the human environment, RUS may require additional 
environmental documentation.



Sec. 1794.31  Classification.

    (a) Electric and telecommunications programs. RUS will normally 
determine the proper environmental classification of projects based on 
its evaluation of the project description set forth in the construction 
work plan or loan design which the applicant is required to submit with 
its application for financial assistance. Each project must be 
sufficiently described to ensure its proper classification. RUS may 
require the applicant to provide additional information on a project 
where appropriate.
    (b) Water and waste program. RUS will normally determine the proper 
environmental classification for projects based on its evaluation of the 
preliminary planning and design information.



Sec. 1794.32  Environmental report.

    (a) For proposed actions listed in Sec. 1794.21(b) and (c), the 
applicant is normally not required to submit an ER.
    (b) For proposed actions listed in Sec. 1794.22(a) and (b), the 
applicant shall normally submit an ER. Guidance in preparing the ER for 
Electric and Telecommunication proposals is contained in RUS Bulletin 
1794A-600. Guidance in preparing the ER for Water and Waste proposals is 
contained in RUS Bulletin 1794A-602. The applicant may be required to 
publish public notices and provide evidence of such if the proposed 
action is located in, impacts, or converts important land resources.



Sec. 1794.33  Agency action.

    RUS may act on an application for financial assistance upon 
determining, based on the review of documents as set forth in 
Sec. 1794.32 and such additional information as RUS deems necessary, 
that the project is categorically excluded.



Secs. 1794.34-1794.39  [Reserved]



           Subpart E--Procedure for Environmental Assessments



Sec. 1794.40  General.

    This subpart applies to proposed actions described in Sec. 1794.23. 
Where appropriate to carry out the purposes of NEPA, RUS may impose, on 
a case-by-case basis, additional requirements associated with the 
preparation of an EA. If at any point in the preparation of an EA, RUS 
determines that the proposed action will have a significant effect on 
the quality of the human environment, the preparation of an EIS shall be 
required and the procedures in subpart G of this part shall be followed.



Sec. 1794.41  Document requirements.

    Applicants will provide an ER in accordance with the appropriate 
guidance documents referenced in Sec. 1794.7. After RUS has evaluated 
the ER and has determined the ER adequately addresses all applicable 
environmental issues, the ER will normally serve as RUS' EA. However, 
RUS reserves the right to prepare its own EA from the information 
provided in the ER. RUS will take responsibility for the scope and 
content of an EA.



Sec. 1794.42  Notice of availability.

    Prior to RUS making a finding in accordance with Sec. 1794.43 and 
upon RUS authorization and guidance, the applicant shall have a notice 
published which announces the availability of the EA and solicits public 
comments on the EA.



Sec. 1794.43  Agency finding.

     If RUS finds, based on an EA that the proposed action will not have 
a significant effect on the quality of the human environment, RUS will 
prepare a FONSI. Upon authorization of RUS, the applicant shall have a 
notice published which informs the public of the RUS finding and the 
availability of the EA and FONSI. The notice shall be prepared and 
published in accordance with RUS guidance.

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45159, Aug. 1, 2003]

[[Page 1178]]



Sec. 1794.44  Timing of agency action.

    RUS may take its final action on proposed actions requiring an EA 
(Sec. 1794.23) at any time after publication of applicant notices that a 
FONSI has been made and any required review period has expired. When 
substantive comments are received on the EA, RUS may provide an 
additional period (15 days) for public review following the publication 
of its FONSI determination. Final action shall not be taken until this 
review period has expired.

[68 FR 45159, Aug. 1, 2003]



Secs. 1794.45-1794.49  [Reserved]



     Subpart F--Procedure for Environmental Assessments With Scoping



Sec. 1794.50  Normal sequence.

    For proposed actions covered by Sec. 1794.24 and other actions 
determined by the Administrator to require an EA with scoping, RUS and 
the applicant will follow the same procedures for scoping and the 
requirements for notices and documents as for proposed actions normally 
requiring an EIS through the point where project scoping has been 
completed. Following project scoping, RUS will make a judgment to have 
an EA prepared or contract for the preparation of an EIS.

[68 FR 45159, Aug. 1, 2003]



Sec. 1794.51  Preparation for scoping.

    (a) As soon as practicable after RUS and the applicant have 
developed a schedule for the environmental review process, RUS shall 
have its notice of intent to prepare an EA or EIS and schedule scoping 
meetings (Sec. 1794.13) published in the Federal Register (see 40 CFR 
1508.22). The applicant shall have published, in a timely manner, a 
notice similar to RUS' notice.
    (b) As part of the early planning, the applicant should consult with 
appropriate Federal, state, and local agencies to inform them of the 
proposed action, identify permits and approvals which must be obtained, 
and administrative procedures which must be followed.
    (c) Before formal scoping is initiated, RUS will require the 
applicant to submit an Alternative Evaluation Study and either a Siting 
Study (generation) or a Macro-Corridor Study (transmission lines).
    (d) The applicant is encouraged to hold public information meetings 
in the general location of the proposed action and any reasonable 
alternatives when such applicant meetings will make the scoping process 
more meaningful. A written summary of the comments made at such meetings 
must be submitted to RUS as soon as practicable after the meetings.

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45160, Aug. 1, 2003]



Sec. 1794.52  Scoping meetings.

    (a) Both RUS and the applicant shall have a notice published which 
announces a public scoping meeting is to be conducted, either in 
conjunction with the notice of intent or as a separate notice.
    (b) The RUS notice shall be published in the Federal Register at 
least 14 days prior to the meeting(s). The applicant's notice shall be 
published in a newspaper at least 10 days prior to the meeting(s). Other 
forms of media may also be used by the applicant to notice the meetings.
    (c) Where an environmental document is the subject of the hearing or 
meeting, that document will be made available to the public at least 10 
days in advance of the meeting.
    (d) The scoping meeting(s) will be held in the area of the proposed 
action at such place(s) as RUS determines will best afford an 
opportunity for public involvement. Any person or representative of an 
organization, or government body desiring to make a statement at the 
meeting may make such statement in writing or orally. The format of the 
meeting may be one of two styles. It can either be of the traditional 
style which features formal presentations followed by a comment period, 
or the open house style in which attendees are able to individually 
obtain information on topics or issues of interest within an established 
time period. The applicant or its consultant shall prepare a record of 
the scoping meeting. The record shall consist of a transcript

[[Page 1179]]

when a traditional meeting format is used or a summary report when an 
open house format is used.
    (e) As soon as practicable after the scoping meeting(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. RUS shall send a copy of this proposed scope to 
cooperating agencies and the applicant, and allow recipients 30 days to 
comment on the scope's adequacy and emphasis. After expiration of the 
30-day period, RUS shall provide written guidance to the applicant 
concerning the scope of environmental study to be performed and 
information to be gathered.

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45160, Aug. 1, 2003]



Sec. 1794.53  Environmental report.

    (a) After scoping procedures have been completed, RUS shall require 
the applicant to develop and submit an ER. The ER shall be prepared 
under the supervision and guidance of RUS staff and RUS shall evaluate 
and be responsible for the accuracy of all information contained 
therein.
    (b) The applicant's ER will normally serve as the RUS EA. After RUS 
has reviewed and found the ER to be satisfactory, the applicant shall 
provide RUS with a sufficient number of copies of the ER to satisfy the 
RUS distribution plan.
    (c) The ER shall include a summary of the construction and operation 
monitoring and mitigation measures for the proposed action. These 
measures may be revised as appropriate in response to comments and other 
information, and shall be incorporated by summary or reference into the 
FONSI.

[68 FR 45160, Aug. 1, 2003]



Sec. 1794.54  Agency determination.

    Following the scoping process and the development of a satisfactory 
ER by the applicant or its consultant that will serve as the agency's 
EA, RUS shall determine whether the proposed action is a major Federal 
action significantly affecting the quality of the human environment. If 
RUS determines the action is significant, RUS will continue with the 
procedures in subpart G of this part. If RUS determines the action is 
not significant, RUS will proceed in accordance with Secs. 1794.42 
through 1794.44. For proposals subject to the procedures of subpart F, 
RUS shall publish notices in the Federal Register that announce the 
availability of the EA and solicit public comments on the EA (refer to 
Sec. 1794.42) and the RUS finding and the availability of the EA and 
FONSI (refer to Sec. 1794.43).

[68 FR 45160, Aug. 1, 2003]



Secs. 1794.55-1794.59  [Reserved]



        Subpart G--Procedure for Environmental Impact Statements



Sec. 1794.60  Normal sequence.

    For proposed actions requiring an EIS (see Sec. 1794.25), the NEPA 
process shall proceed in the same manner as for proposed actions 
requiring an EA with scoping through the point at which the scoping 
process is completed (see Sec. 1794.52).



Sec. 1794.61  Environmental impact statement.

    An EIS shall be prepared in accordance with 40 CFR part 1502. 
Funding, in whole or in part, for an EIS can be obtained from any lawful 
source (e.g., cooperative agreements developed in accordance with 
Section 759A, Federal Agricultural Improvement and Reform Act of 1996, 
Pub. L. 104-127 and 31 U.S.C. 6301). A third-party consultant selected 
by RUS and funded by the applicant (7 CFR part 1789) may prepare the 
EIS.
    (a) After a draft or final EIS has been prepared, RUS and the 
applicant shall concurrently have a notice of availability for the 
document published. The time period allowed for review will be a minimum 
of 45 days for a draft EIS and 30 days for a final EIS. This period is 
measured from the date that the U.S. Environmental Protection Agency 
(EPA) publishes a notice in the Federal Register in accordance with 40 
CFR 1506.10.

[[Page 1180]]

    (b) In addition to circulation required by 40 CFR 1502.19, the draft 
and final EIS (or summaries thereof, at RUS discretion) shall be 
circulated to the appropriate state, regional, and metropolitan 
clearinghouses.
    (c) Where a final EIS does not require substantial changes from 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 shall 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 RUS will provide the draft EIS if requested within 30 
days of publication of notice of availability of the final EIS.

[63 FR 68655, Dec. 11, 1998, as amended at 68 FR 45160, Aug. 1, 2003]



Sec. 1794.62  Supplemental EIS.

    (a) A supplement to a draft or final EIS shall be prepared, 
circulated, and given notice by RUS and the applicant in the same manner 
(exclusive of scoping) as a draft and final EIS (see Sec. 1794.61).
    (b) Normally RUS and the applicant will have published notices of 
intent to prepare a supplement to a final EIS in those cases where a ROD 
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 applicant shall concurrently have a notice of 
availability published. The notice requirements shall be the same as for 
a final EIS and the information supplement shall be circulated in the 
same manner as a final EIS. RUS shall take no final action on any 
proposed modification discussed in the information supplement until 30 
days after the RUS notice of availability or the applicant's notice is 
published, whichever occurs later.



Sec. 1794.63  Record of decision.

    (a) Upon completion of the review period for a final EIS, RUS will 
have its ROD prepared in accordance with 40 CFR 1505.2.
    (b) Separate RUS and applicant notices of availability shall be 
published concurrently. The notices shall summarize the RUS decision and 
announce the availability of the ROD. Copies of the ROD will be made 
available upon request from the point of contact identified in the 
notice.



Sec. 1794.64  Timing of agency action.

    (a) RUS may take its final action or execute commitments on proposed 
actions requiring an EIS or Supplemental EIS at any time after the ROD 
has been published.
    (b) For budgetary purposes some financial assistance may be approved 
conditionally with a stipulation that no funds shall be advanced until a 
ROD has been prepared.



Secs. 1794.65-1794.69  [Reserved]



             Subpart H--Adoption of Environmental Documents



Sec. 1794.70  General.

    This subpart covers the adoption of environmental documents prepared 
by other Federal agencies. Where applicants participate in proposed 
actions for which an EA or EIS has been prepared by or for another 
Federal agency, RUS may adopt the existing EA or EIS in accordance with 
40 CFR 1506.3.



Sec. 1794.71  Adoption of an EA.

    RUS may adopt a Federal EA or EIS 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. 1794.72  Adoption of an EIS.

    (a) Where RUS determines that an existing Federal EIS requires 
additional information to meet the standards for an adequate statement 
for RUS proposed action, RUS may adopt all or a portion of the EIS as a 
part of its draft EIS. The circulation and notice provisions for a draft 
and final EIS (see Sec. 1794.61) apply.
    (b) If RUS was not a cooperating agency but determines that another 
Federal agency's EIS is adequate, RUS shall adopt that agency's EIS as 
its

[[Page 1181]]

final EIS. RUS and the applicant shall have separate notices published 
advising of RUS adoption of the EIS and independent determination of its 
adequacy.
    (c) If the adopted EIS is generally available and meets RUS 
standards, RUS shall have a public notice published informing the public 
of its action and availability of the EIS to interested parties upon 
request. If the adopted EIS is not generally available, RUS shall have a 
public notice published informing the public of its action and will 
circulate copies of the EIS in accordance with 40 CFR 1502.19 and 40 CFR 
1506.3.



Sec. 1794.73  Timing of agency action.

    Where RUS has adopted another agency's environmental documents, the 
timing of the action shall be subject to the same requirements as if RUS 
had prepared the required EA or EIS.



Sec. 1794.74  Incorporation of environmental materials.

    RUS may incorporate into its environmental documents, environmental 
documents or portions thereof prepared by state, or local agencies or 
other parties for purposes other than compliance with the requirements 
of NEPA. RUS will circulate the incorporated documents as a part of its 
EA or draft and final EIS in the same manner as if prepared by RUS.



Sec. 1794.75-1794.79  [Reserved]

[[Page 1183]]



    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 61 FR 
1109, Jan. 16, 1996, and 61 FR 2899, Jan. 30, 1996.

                    SUBCHAPTER A--GENERAL REGULATIONS
Part                                                                Page
1804            [Reserved]

1806            Insurance...................................        1185
1807            [Reserved]

1809            [Reserved]

1810            Interest rates, terms, conditions, and 
                    approval authority......................        1204
    SUBCHAPTER B--LOANS AND GRANTS PRIMARILY FOR REAL ESTATE PURPOSES
1822            Rural housing loans and grants..............        1206
1823            [Reserved]

                       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]

[[Page 1185]]



                    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

[[Page 1186]]

an existing Form FmHA or its successor agency under Public Law 103-354 
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) Standard policies. 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 1187]]

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 1188]]

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 1189]]

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.
    (2) [Reserved]
    (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.

[[Page 1190]]

    (2) Option 2--Up to a maximum deductible of $500 on any project with 
an insurable value not exceeding $200,000.
    (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

[[Page 1191]]

owner of the building, but not of the land. State Directors, with the 
advice 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

[[Page 1192]]

land and other structures adequately 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.
    (2) [Reserved]

[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

[[Page 1193]]

the borrower has adequately maintained insurance; however, if a further 
notice of expiration is received in the 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.

[[Page 1194]]

    (3) Voluntary conveyance of property to the Government and 
foreclosure. Insurance will not be carried on buildings which the 
Government has acquired. 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]

    Effective Date Note: At 69 FR 69103, Nov. 26, 2004, the introductory 
text to paragraph (a)(2) of Sec. 1806.4 was amended by revising the 
first sentence after the paragraph heading, effective February 24, 2005.



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

[[Page 1195]]

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 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

[[Page 1196]]

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 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

[[Page 1197]]

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 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 with7 CFR part 3550. 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

[[Page 1198]]

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 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

[[Page 1199]]

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 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; 67 FR 78326, Dec. 24, 2002]

  Exhibit A to Subpart A of Part 1806--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.

[[Page 1200]]

    (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 the National Flood 
Insurers Association.

    Effective Date Note: At 69 FR 69103, Nov. 26, 2004, Sec. 1806.21 was 
amended in paragraph (a) by adding a sentence at the end, effective 
February 24, 2005. For the convenience of the user, the added text is 
set forth as follows:

Sec. 1806.21  General.

    (a) * * * This subpart does not apply to the Rural Rental Housing, 
Rural Cooperative Housing, or Farm Labor Housing programs of the Rural 
Housing Service.

                                * * * * *



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,

[[Page 1201]]

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 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

[[Page 1202]]

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.
    (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]

[[Page 1203]]



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 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 with7 CFR 
part 3550. 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, as amended at 67 FR 78326, Dec. 24, 2002]

     Exhibit A to Subpart B of Part 1806--Coverage and Premium Rates

    1. The following table sets forth the limits of coverage available 
under the program:

------------------------------------------------------------------------
                               Structure coverage   Contents of coverage
                             ----------------------           4
      Type of structure                            ---------------------
                              Subsidized   Total 3  Subsidized   Total 3
------------------------------------------------------------------------
Single family, residential 1    $35,000    $70,000    $10,000    $20,000
All other, residential 1....    100,000    200,000     10,000     20,000
All nonresidential 2........    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
------------------------------------------------------------------------
 1 Actuarial (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 of Part 1806--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.

[[Page 1204]]

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



 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

[[Page 1205]]

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 1206]]



    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 1207]]

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 7 CFR 
part 3550, 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; 67 FR 78326, Dec. 24, 2003]



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.
    (2) [Reserved]
    (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 1208]]

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 1209]]

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 1210]]

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 7 CFR 3550.70 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 1211]]

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; 67 FR 78326, Dec. 24, 2002]



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.
    (ii) [Reserved]
    (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

[[Page 1212]]

feasible. For a loan to a private nonprofit organization, the provisions 
of subpart B of part 1927 of this chapter 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.

[[Page 1213]]

    (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.
    (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.

[[Page 1214]]

 
                Evidence of Need
                Certified Copy           1         1       1-0
                 of Loan
                 Resolution.
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    BorrowerProject
 Public Law      Characteristics.
 103-354 1944-
 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:

[[Page 1215]]

    (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 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]

    Effective Date Note: At 69 FR 69103, Nov. 26, 2004, Sec. 1822.271 
was amended in the table in paragraph (e) by removing the entire entry 
for ``Form FmHA or its successor agency under Public Law 103-354 1944-
50'' and by revising the form number ``1944-51'' to read ``3560-51'' in 
the last entry of the table, in the second sentence of the introductory 
text of paragraph (g) by removing the words ``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,' and by revising paragraph 
(d)(1), effective February 24, 2005. For the convenience of the user, 
the revised text is set forth as follows:

Sec. 1822.271  Processing applications.

                                * * * * *

    (d) * * *
    (1) Request for obligation of funds and fund analysis. Form RD 3560-
51, ``Multiple Family Housing Obligation Fund Analysis'' will be 
completed in accordance with the Forms Manual Insert (FMI).

                                * * * * *



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]

    Effective Date Note: At 69 FR 69103, Nov. 26, 2004, Sec. 1822.272 
was revised, effective February 24, 2005. For the convenience of the 
user, the revised text is set forth as follows:

Sec. 1822.272  Approval or disapproval of a loan.

    The provisions of 7 CFR part 3560, subpart B will be followed.



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]

    Effective Date Note: At 69 FR 69103, Nov. 26, 2004, Sec. 1822.273 
was revised, effective February 24, 2005. For the convenience of the 
user, the revised text is set forth as follows:

Sec. 1822.273  Actions subsequent to loan approval.

    After the loan is approved, actions to be taken will be in 
accordance with 7 CFR part 3560, subpart B.



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.

[[Page 1216]]

    (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).
    (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]

    Effective Date Note: At 69 FR 69103, Nov. 26, 2004, Sec. 1822.274 
was amended by revising the words ``Form FmHA or its successor agency 
under Public Law 103-354 1944-52'' to read ``Form RD 3560-52'' in both 
the introductory text of paragraph (c) and in paragraph (c)(2), and by 
revising the words ``Form FmHA or its successor agency under Public Law 
103-354 1944-51'' to read ``Form RD 3560-51'' in paragraph (c)(1), 
effective February 24, 2005.



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 7 CFR part 3550, subpart D 
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; 67 
FR 78326, Dec. 24, 2002]

[[Page 1217]]



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]

    Effective Date Note: At 69 FR 69104, Nov. 26, 2004, Sec. 1822.277 
was amended by revising the words ``Sec. 1944.239 of part 1944, subpart 
E of this chapter'' to read ``7 CFR 3560.2,'' effective February 24, 
2005



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 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]

    Effective Date Note: At 69 FR 69104, Nov. 26, 2004, Sec. 1822.278 
was amended in paragraph (f) by revising the words ``Form FmHA or its 
successor agency under Public Law 103-354 1944-52'' to read ``Form RD 
3560-52,'' effective February 24, 2005



Sec. 1822.279  Loan supervision and servicing.

    Loan supervision will be provided according to subpart C of part 
1930 of this

[[Page 1218]]

chapter. Loan servicing will be provided according to subpart B of part 
1965 of this chapter.

[48 FR 56139, Dec. 19, 1983]

    Effective Date Note: At 69 FR 69104, Nov. 26, 2004, Sec. 1822.279 
was revised, effective February 24, 2005. For the convenience of the 
user, the revised text is set forth as follows:

Sec. 1822.279  Loan supervision and servicing.

    Loan supervision and loan servicing will be provided according to 7 
CFR part 3560.

            Exhibits A-B to Subpart G to Part 1822 [Reserved]

Exhibit C to Subpart G of Part 1822--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.

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 [RESERVED]



                       SUBCHAPTERS C-D [RESERVED]



                     SUBCHAPTER E--ACCOUNT SERVICING

                       PARTS 1863-1866 [RESERVED]

[[Page 1219]]



            SUBCHAPTER F--SECURITY SERVICING AND LIQUIDATIONS

                          PART 1872 [RESERVED]



                 SUBCHAPTER G--MISCELLANEOUS REGULATIONS


                       PARTS 1890-1899 [RESERVED]


[[Page 1221]]



                              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
  List of CFR Sections Affected

[[Page 1223]]

            Material Approved for Incorporation by Reference

                     (Revised as of January 1, 2005)

  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 (PARTS 1600-1899)

RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
                                                                   7 CFR


Rural Utilities Service

  Copies of Bulletins may be obtained upon request 
  in person or by mail from Program Development 
  and Regulatory Analysis, 1400 Independence 
  Avenue, SW, Stop 1522, Room 4028 South Building, 
  Washington, DC 20250-1522. 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, P.O. Box 
  371954, Pittsburgh, PA 15250-7954. Telephone: 1-
  866-512-1800; 202-512-1800 if inside Washington 
  DC metropolitan area.)
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) Specifications and Drawings for 14.4/               1728.97
  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\[dprime] Diameter Lead Threat 1/51.
50-16 (DT-4), REA Specifications for Angle                       1728.97
  Suspension Brackets 3/52.
50-19 (DT-7) REA Specifications for Clevis Bolts                 1728.97
  8/53.
50-23 (DT-18) REA Specifications for 60[dprime]                  1728.97
  Wood Crossarm Braces 2/71.
50-31 (D-3) REA Specifications for Pole Top Pins                 1728.97
  with 1[dprime] Diameter Lead Threads 2/79.
50-32 (D-4) REA Specifications for Steel Crossarm                1728.97
  Mounted Pins with 1[dprime] 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.
[[Page 1224]]

50-36 (D-8) REA Specifications for Service Deadend               1728.97
  Clevises 9/52.
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 Specifications--Single Pole Steel                1728.97
  Structures, Complete with Arms 12/71.
50-70 (U-1) REA Specifications 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 Specifications 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 Specifications for Aerial and                         1755.97
  Underground Telephone Cable (PE-22) 1/83.
345-29 REA Specifications for Self-supporting                    1755.97
  Cable (PE-38) 2/82.
345-39 REA Specifications for Telephone Station                  1755.97
  Protectors 3/83.
345-50 REA Specifications for Trunk Carrier          1755.97; 1755.397; 
  Systems (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 Specifications for Telephone Cable                    1755.97
  Splicing Connectors (PE-52) 12/71.
345-55 REA Specifications for Central Office Loop                1755.97
  Extenders and Loop Extender Voice Frequency 
  Repeater Combinations (PE-61) 12/73.
345-55 REA Specifications 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 Specifications for Cable Shield Bonding               1755.97
  Connectors (PE-33) 6/78.
345-66 REA Specifications for Subscriber Carrier                 1755.97
  Systems (PE-64) 9/79.
345-67 REA Specifications for Filled Telephone                   1755.97
  Cables (PE-39) 11/81.
345-69 REA Specifications for Two-wire Voice                     1755.97
  Frequency Repeater Equipment (PE-29) 1/78.
345-72 REA Specifications for Filled Splice Cases                1755.97
  (PE-74) 1/76.
345-75 REA Specifications for Electronic Trunk                   1755.97
Circuits (PE-65) 1/77.
[[Page 1225]]

345-78 REA Specifications for Carbon Arrester                    1755.97
  Assemblies for Use in Protectors (PE-78) 2/80.
345-168 REA Specifications for Equipment for                     1755.97
  Direct 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.
RUS Bulletin 1728F-803, Specifications and                       1728.97
  Drawings for 24.9/14.4 kV Line Construction, 
  October 1998.
RUS Bulletin 1728F-806 (D0806), REA Specifications               1728.97
  and Drawings for Underground Electric 
  Distribution, June 1999.
RUS Bulletin 1728F-810, Electric Transmission                    1728.97
  Specifications and Drawings 34.5 Kv Through 69 
  Kv, March 1998.
RUS Bulletin 1728F-811, Electric Transmission                    1728.97
  Specifications and Drawings 115 Kv Through 230 
  Kv, March 1998.
RUS Bulletin 1728F-700 REA Specifications for Wood               1728.97
  Poles, Stubs and Anchor Logs 7/93.
RUS Bulletin 1753F-150 Specifications and Drawings               1755.97
  for Construction of Direct Buried Plant (RUS 
  Form 515a), September 17, 2001.
RUS Bulletin 1753F-151 Specifications and Drawings               1755.97
  for Construction of Underground Plant (RUS Form 
  515b) September 17, 2001.
RUS Bulletin 1753F-152 Specifications and Drawings               1755.97
  for Construction of Aerial Plant (RUS Form 
  515c), September 17, 2001.
RUS Bulletin 1753F-153 Specifications and Drawings               1755.97
  for Service Installations at Customer Access 
  Locations (Form 515d) September 17, 2001.


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

  25 West 43rd Street, Fourth floor, New York, NY 
  10036 Telephone: (212) 642-4900
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.
ANSI T1.506-1990, Telecommunications-Network                    1755.405
  Performance-Transmission Specifications for 
  Switched Exchange Access Network, including 
  Supplement ANSI T1.506-1992.
ANSI/NFPA 70-1999, National Electrical Code.......  1755.500; 1755.503; 
                                                    1755.504; 1755.505; 
                                                    1755.506; 1755.508; 
                                                                1755.509

[[Page 1226]]

Amerian National Standards Institute/Electronic Industries Association 
(ANSI/EIA)

  Available from: Global Engineering Documents, 15 
  Inverness Way East, Englewood, CO 80112
ANSI/EIA 359-A-84, EIA Standard Colors for Color      1755.860; 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)
IEEE C2-1997, National Electrical Safety Code.....    1755.503; 1755.506
ANSI/IEEE Std 743-1984, Standard Methods and                    1755.405
  Equipment for Measuring the Transmission 
  Characteristics of Analog Voice Frequency 
  Circuits.


American National Standard Institute/Insulated Cable Engineers 
Association, Inc. (ICEA)

  ICEA, P.O. Box 440, South Yarmouth, MA 02664, 
  Telephone: 508-394-4424
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, 1 Batterymarch 
  Park, P.O. Box 9101, Quincy, MA 02269-9101, 
  Telephone: 1(800) 344-3555
NFPA 70-1993, National Electrical Code............              1755.870
ANSI/NFPA 70-1999, National Electrical Code.......  1755.500; 1755.503; 
                                                    1755.504; 1755.505; 
                                                    1755.506; 1755.508; 
                                                                1755.509


American Society for Testing and Materials (ASTM)

  100 Barr Harbor Drive, West Conshohocken, PA 
  19428-2959 Telephone: (610) 832-9585, FAX: (610) 
  832-9555
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-
[[Page 1227]] 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 
  (Static Contacts).
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 Permitivity (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 
[[Page 1228]]stics.

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 
  Rapid Deformation (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:.
[[Page 1229]]

  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
  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 08855, Telephone: 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 Rev. 1, November 1988, Funcational 
  Criteria for Digital Loop Carrier Systems.
Document TR-NWT-000303, Issue 2, December 1992,                 1755.397
including Rev. 1, December 1993, Integrated 
[[Page 1230]] Carrier System Generic 
  Requirements, Objectives, and Interface.
Electronic Industries Association and/or Telecommunications Industries 
Association (EIA/TIA)

  Available from: 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)
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); 
  Cladding Diameter Using Laser-Based Instruments.           (b)(8)(iii)
EIA/TIA 455-51A, Pulse Distortion Measurement of        1755.900(a)(9); 
  Multimode Glass 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 Mode Field Diameter by Far-Field Scanning.                (b)(3)(i)

[[Page 1231]]

EIA/TIA 455-165A, Mode Field Diameter Measurement       1755.900(a)(9); 
  by Near-Field 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)
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)


Department of the Army

  U.S. Army Corps of Engineers, Publications 
  Depot, 2803 52nd Avenue, Hyattsville, MD 20781
Engineering and Design Dam Safety Assurance                1724.55(a)(2)
  Program, ER 1110-2-1155, July 31, 1995.


Edison Electric Institute

  Available from: Raptor Research Foundation, 
  12805 St. Croix Trail South, Hastings, MN 55033
Suggested Practices for Raptor Protection on Power            1724.52(a)
  Lines: The State of the Art in 1996.


Federal Emergency Management Agency (FEMA)

  Mitigation Directorate, P.O. Box 2012, Jessup, 
  MD 20794
Federal Guidelines for Dam Safety, FEMA 93, June       1724.55(a)(1)(ii)
  1979.


General Services Administration

  Specification Section, 490 East L'Enfant Plaza, 
  SW., Washington, DC 20407. Telephone: 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, Inc.

  IEEE Service Center, 445 Hoes Lane, Piscataway, 
  NJ 08855, Telephone: (800)-678-4333
IEEE C2-1997, National Electrical Safety Code.....    1755.503; 1755.506
IEEE Std 730-1989, Standard for Software Quality                1755.522
  Assurance Plans.
IEEE Std 455-1985, Standard Test Procedure for        1755.397; 1755.522
  Measuring Longitudinal Balance of Telephone 
  Equipment Operating in the Voice Band.
1993 National Electrical Safety Code..............      1755.900(a)(6); 
                                                                  (o)(2)

[[Page 1232]]

National Fire Protection Association

  1 Batterymarch Park, P.O. Box 9101, Quincy, 
  Massachusetts 02269-9101
ANSI/NFPA 70-1999, National Electrical Code.......  1755.500; 1755.503; 
                                                    1755.504; 1755.505; 
                                                    1755.506; 1755.508; 
                                                                1755.509


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).


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)

  Available from: Global Engineering Documents, 15 
  Inverness Way East, Englewood, CO 80112, 
  Telephone (800) 854-7179 or Global Engineering 
  Documents, 7730 Carondelet Ave., Suite 470, 
  Clayton, MO 63105, Telephone (800) 854-7179
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 1233]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2005)

                      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--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  [Reserved]
        II  Office of Management and Budget Circulars and Guidance
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements [Reserved]
              

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)

                   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)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      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)

[[Page 1234]]

        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 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      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)
        LV  National Endowment for the Arts (Part 6501)
       LVI  National Endowment for the Humanities (Part 6601)
      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)
       LXI  National Labor Relations Board (Part 7101)
      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)
     LXVII  Institute of Museum and Library Services (Part 7701)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)

[[Page 1235]]

     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                      Title 6--Homeland Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)

                         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 Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       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)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)

[[Page 1236]]

      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 the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    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)
     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  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 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, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)

[[Page 1237]]

       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 1000-
                -1099)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

                      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)
       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  Department of the Treasury (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)
        IV  Emergency Steel Guarantee Loan Board, Department of 
                Commerce (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board, 
                Department of Commerce (Parts 500--599)

                    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)

[[Page 1238]]

       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 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 Industry and Security, 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)
       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)

[[Page 1239]]

          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  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     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)
      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 (Parts 200--299)
       III  Peace Corps (Parts 300--399)

[[Page 1240]]

        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (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)
       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)

                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)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         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]

[[Page 1241]]

       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, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         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 (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

[[Page 1242]]

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       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)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            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 Standards, 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  Employee Benefits Security 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)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)

[[Page 1243]]

        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
       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)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      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)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       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)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 1-
                -199)
        II  Corps of Engineers, Department of the Army (Parts 200-
                -399)

[[Page 1244]]

        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)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                         Title 35  [Reserved]

             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)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)

[[Page 1245]]

        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--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          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 Service, 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)
       102  Federal Management Regulation (Parts 102-1--102-299)
       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)

[[Page 1246]]

            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
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, 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--10010)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (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 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare

[[Page 1247]]

        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)
         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  Corporation for National and Community Service (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)
     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 Homeland Security (Parts 1-
                -199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        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)

[[Page 1248]]

       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  United States 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)
        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  Broadcasting Board of Governors (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)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  RESERVED
        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)

[[Page 1249]]

        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        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)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (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)
        XI  Bureau of Transportation Statistics, Department of 
                Transportation (Parts 1400--1499)
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   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)

[[Page 1250]]

         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
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 1251]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2005)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  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
  Food and Nutrition 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
  Procurement and Property Management, Office of  7, XXXII
  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
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 1252]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
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
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
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
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  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, United States      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
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 1253]]

  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
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  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 Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
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
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
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
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  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                5, III, LXXVII; 14, VI; 
                                                  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

[[Page 1254]]

  Trade Representative, Office of the United      15, XX
       States
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               31, IX
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
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
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 Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
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
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 Nutrition 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
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5

[[Page 1255]]

  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  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
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  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
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V; 42, I
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
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
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  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
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
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; 42, I
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General

[[Page 1256]]

  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
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  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
  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
  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, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
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, XI; 40, 
                                                  IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  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
  Employee Benefits Security Administration       29, XXV
  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 Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A

[[Page 1257]]

  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  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
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
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 and Community Service, Corporation for   45, XII, XXV
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 Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
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 Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
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
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
   Commission
[[Page 1258]]

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
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        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 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
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
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; 28, XI
  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

[[Page 1259]]

Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  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
  Federal Motor Carrier Safety Administration     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 Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            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
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the 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 1261]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations that were 
made by documents published in the Federal Register since January 1, 
2001, 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, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985 and 1986-2000'' published in 
11 separate volumes.

                                  2001

7 CFR
                                                                   66 FR
                                                                    Page
Chapter XVII
1700  Heading revised; eff. 2-11-02................................66294
1710.51  Redesignated as 1710.52; new 1710.51 added; eff. 2-11-02 
                                                                   66294
1710.52  Redesignated from 1710.51; eff. 2-11-02...................66294
1710.102  (b) and (c) redesignated as (c) and (d); new (b) added; 
        eff. 2-11-02...............................................66294
1710.400--1710.407 (Subpart I)  Heading revised; eff. 2-11-02......66295
1710.401  (a)(2)(i) revised........................................66295
1744  Authority citation revised...................................41758
1744.20  Revised...................................................41758
1744.21  Revised...................................................41758
1744.30  Redesignated as 1744.40...................................41760
    Added..........................................................41761
1744.40  Redesignated as 1744.50; new 1744.40 redesignated from 
        1744.30....................................................41760
1744.50  Redesignated as 1744.55; new 1744.50 redesignated from 
        1744.40....................................................41760
    (a)(3) revised.................................................41763
1744.55  Redesignated from 1744.50.................................41760
    (a) revised; (b)(5) removed; (b)(6) redesignated as new (b)(5)
                                                                   41763
1744.20--1744.59 (Subpart B)  Appendices A through F added.........41763
1755.30  (c)(34) revised...........................................43313
1755.97  Heading and introductory text revised; table amended......43314
    Amended........................................................43317
    Effective date corrected.......................................46066
1755.98  Revised...................................................43317
1755.500  Added....................................................43317
1755.501  Added....................................................43317
1755.502  Added....................................................43317
1755.503  Added....................................................43317
1755.504  Added....................................................43317
1755.505  Added....................................................43317
1755.506  Added....................................................43317
1755.507  Added....................................................43317
1755.508  Added....................................................43317
1755.509  Added....................................................43317
1755.510  Added....................................................43317
1773  Authority citation revised............................27830, 27835
1773.1  (a) and (d) amended; (c) and (d)(6) revised................27835
    Regulation at 66 FR 27835 confirmed............................37405
1773.2  Amended....................................................27835
    Regulation at 66 FR 27835 confirmed............................37405
1773.3  (b) revised; (c) amended...................................27835
    Regulation at 66 FR 27835 confirmed............................37405
1773.4  (4)(d) revised; (f) introductory text, (1) and (g) amended
                                                                   27835
    Regulation at 66 FR 27835 confirmed............................37405
1773.5  (c)(5) and (d) removed; (c)(6) and (7) redesignated as 
        (c)(5) and (6); (c)(4)(iii)(C), new (5)(ii) and new 
        (6)(ii) amended............................................27835
    Regulation at 66 FR 27835 confirmed............................37405

[[Page 1262]]

1773.6  (a)(1), (4) and (7) amended................................27835
    Heading and (a) introductory text revised......................27836
    Regulation at 66 FR 27835 and 27836 confirmed..................37405
1773.7  (b) and (c)(4) revised.....................................27836
    Regulation at 66 FR 27835 and 27836 confirmed..................37405
1773.8  (a)(2) and (c) amended.....................................27835
    (a)(1) and (c) table revised...................................27836
    Regulation at 66 FR 27835 and 27836 confirmed..................37405
1773.9  Heading, (a), (b) and (c) introductory text revised........27836
    Regulation at 66 FR 27836 confirmed............................37405
1773.20--1773.29 (Subpart C)  Heading revised......................27836
    Regulation at 66 FR 27836 confirmed............................37405
1773.20  (a), (b) and (c)(6) amended...............................27835
    Regulation at 66 FR 27835 confirmed............................37405
1773.21  (a) and (b) amended.......................................27835
    Heading revised; (e) added.....................................27836
    Regulation at 66 FR 27835 and 27836 confirmed..................37405
1773.30  (b) amended...............................................27835
    (a) revised....................................................27836
    Regulation at 66 FR 27835 and 27836 confirmed..................37405
1773.31  Revised...................................................27836
    Regulation at 66 FR 27836 confirmed............................37405
1773.32  Inroductory text, (a) through (d) and (f) note revised....27836
    Regulation at 66 FR 27836 confirmed............................37405
1773.33  (e)(1)(i), (2)(i), (B) through (ii) and (iv) removed; 
        (e)(1)(ii), (iii), (2)(i)(A) and (iii) redesignated as 
        (e)(1)(i), (ii), (2)(i) and (ii); (c)(1), (5), (e) 
        introductory text, (1) introductory text, (2) inroductory 
        text, new (e)(1)(i) and (2)(i) revised; (i) added..........27830
    Regulation at 66 FR 27830 confirmed............................37405
1773.38  (b) amended...............................................27835
    Regulation at 66 FR 27835 confirmed............................37405
1773  Appendices A through D removed...............................27837
    Regulation at 66 FR 27837 confirmed............................37405
1779  Added........................................................23138
1780.10  (b)(4) amended............................................23151
1786.31  Second (c) correctly removed; CFR correction..............15785
Chapter XVIII
1823  Removed.......................................................1569
    Regulation at 66 FR 1569 eff. date delayed......................8886

                                  2002

7 CFR
                                                                   67 FR
                                                                    Page
Chapter XVII
1703.102  Amended...................................................3040
    Regulation at 67 FR 3040 confirmed.............................10830
1703.103  Revised...................................................3040
    Regulation at 67 FR 3040 confirmed.............................10830
1703.120  Removed...................................................3040
    Regulation at 67 FR 3040 confirmed.............................10830
1703.121  Introductory text revised.................................3040
    Regulation at 67 FR 3040 confirmed.............................10830
1703.122  (a) revised; (e) added....................................3040
    Regulation at 67 FR 3040 confirmed.............................10830
1703.123  (a)(1) revised............................................3040
    Regulation at 67 FR 3040 confirmed.............................10830
1703.125  (e) revised; (h)(2) amended...............................3040
    Regulation at 67 FR 3040 confirmed.............................10830
1703.126  (a)(4) revised............................................3041
    Regulation at 67 FR 3041 confirmed.............................10830
    Corrected......................................................16011
1710  Regulation at 66 FR 66294 confirmed...........................6369
1710.7  Removed....................................................70153
1710.51  Regulation at 66 FR 66294 confirmed........................6369
1710.52  Regulation at 66 FR 66294 confirmed........................6369
1710.102  Regulation at 66 FR 66294 confirmed.......................6369
1710.350--1710.363 (Subpart H)  Removed............................70151

[[Page 1263]]

1710.400--1710.407 (Subpart I)  Regulation at 66 FR 66295 
        confirmed...................................................6369
1710.401  Regulation at 66 FR 66295 confirmed.......................6369
1714  Authority citation revised...................................16969
1714.5  (a) amended................................................16969
1717.154  (a)(1) revised; (a)(2) redesignated as (a)(3); new 
        (a)(2) added...............................................58323
1717.615  (f)(2) revised...........................................70153
1717.904  (c) and (d) removed; (e) redesignated as (c).............70153
1721.100--1721.109 (Subpart B)  Added................................485
Chapter XVIII
Chapter  XVIII Policy statement....................................70529
1806.6  Introductory text amended; eff. 1-23-03....................78326
1806.28  Amended; eff. 1-23-03.....................................78326
1822.263  (c) revised; eff. 1-23-03................................78326
1822.267  (l)(1) revised; eff. 1-23-03.............................78326
1822.275  (c) amended; eff. 1-23-03................................78326

                                  2003

7 CFR
                                                                   68 FR
                                                                    Page
Chapter XVII
1710.2  (a) amended................................................37953
1710.115  (b) revised..............................................24336
1721.101  (b) revised..............................................37953
1721.103  (c) added................................................37953
1721.104  (c)(1)(ii) revised; (d) redesignated as (e); new (d) 
        added......................................................37954
1721.105  (d) redesignated as (e); new (d) added...................37954
1721.106  (a) and (b) heading revised..............................37954
1738  Added.........................................................4687
1738.10  (b) corrected..............................................8989
1755.97  Amended....................................................7898
1778  Revised......................................................46078
1794.6  Amended....................................................45158
1794.7  (a) revised................................................45158
1794.15  (a) existing text amended; (a)(1), (2) and (3) added......45159
1794.21  (b)(25) and (26) added....................................45159
1794.22  (a)(8) and (9) revised; (a)(12) added.....................45159
1794.23  (c)(1), (2) and (3) revised; (c)(12) and (13) added.......45159
1794.24  (b)(2) revised............................................45159
1794.25  (a)(1) revised............................................45159
1794.43  (a) designation, heading and (b) removed..................45159
1794.44  Revised...................................................45159
1794.50  Revised...................................................45159
1794.51  (a) revised...............................................45160
1794.52  (d) amended...............................................45160
1794.53  Revised...................................................45160
1794.54  Revised...................................................45160
1794.61  (b) and (a) heading removed; (a) introductory text, (1), 
        (2) and (3) redesignated as introductory text, (a), (b) 
        and (c)....................................................45160

                                  2004

7 CFR
                                                                   69 FR
                                                                    Page
Title 7  Nomenclature change.......................................18803
Chapter XVII
1720  Added........................................................63049
1724.71  (b) revised................................................7108
1724.74  (c)(1) revised............................................52595
1726.20  Revised....................................................7109
1726.24  (b)(1) revised.............................................7109
1726.25  Revised....................................................7109
1726.27  (a) and (b) revised........................................7109
1726.50  (a)(2) revised.............................................7109
1726.51  (a) revised................................................7109
1726.76  (a)(2) revised.............................................7109
1726.77  (a) revised................................................7109
1726.125  (b) removed; (c) and (d) redesignated as (b) and (c)......7109
1726.175  (a) revised...............................................7109
1726.250  Revised...................................................7109
1726.252  (a) revised; (d) removed..................................7109
1726.254  Removed...................................................7110
1726.255  (c) revised; (d) and (e) removed..........................7110
1726.301  (b) revised...............................................7110
1726.302  (b) revised...............................................7110
1726.304  (c) and (d) revised.......................................7110
    (c)(4) revised.................................................52595
1726.401  Introductory text removed.................................7110
1726.403  Introductory text and (c) revised.........................7110
1726.404  Introductory text revised.................................7111
1730.20  Revised...................................................60540
1730.21  (a) and (c) revised.......................................60540

[[Page 1264]]

1730.22  (a) and (b) introductory text revised.....................60541
1730.26  Heading revised; existing text designated as (a); (a) 
        heading and (b) added......................................60541
1730.27  Added.....................................................60541
1730.28  Added.....................................................60541
1730.29  Added.....................................................60541
1739  Added........................................................44899
1755.30  (c)(4) through (8), (12), (13), (14), (17) and (24) 
        revised.....................................................7111
1775  Revised; eff. 1-7-05.........................................70878
1775.4  Amended....................................................65519
1776  Added........................................................59767
    Regulation at 69 FR 59767 withdrawn............................67263
1777.4  Amended....................................................65519
1778.4  Amended....................................................65519
1780.3  (a) amended................................................65519
1783  Added........................................................59772
1792  Authority citation revised...................................23642
1792.102  Amended..................................................23642
    Regulation at 69 FR 23642 confirmed............................35229
1792.103  Revised..................................................23642
    Regulation at 69 FR 23642 confirmed............................35229
1792.104  Revised..................................................23642
    Regulation at 69 FR 23642 confirmed............................35229
Chapter XVIII
1806  Technical correction.........................................75454
    Comment period extension.......................................77609
1806.4  (a)(2) introductory text amended; interim; eff. 2-24-05....69103
1806.21  (a) amended; interim; eff. 2-24-05........................69103
1822  Authority citation revised; eff. 2-24-05.....................69103
    Technical correction...........................................75454
    Comment period extension.......................................77609
1822.271  (e) table and (g) introductory text amended; (d)(1) 
        revised; interim; eff. 2-24-05.............................69103
1822.272  Revised; interim; eff. 2-24-05...........................69103
1822.273  Revised; interim; eff. 2-24-05...........................69103
1822.274  (c) introductory text, (1) and (2) amended; interim; 
        eff. 2-24-05...............................................69103
1822.277  Amended; interim; eff. 2-24-05...........................69104
1822.278  (f) amended; interim; eff. 2-24-05.......................69104
1822.279  Revised; interim; eff. 2-24-05...........................69104


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