[Federal Register Volume 59, Number 2 (Tuesday, January 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 93-32110]


[[Page Unknown]]

[Federal Register: January 4, 1994]


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Part VIII





Department of Agriculture





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7 CFR Part 1710




Loans for Demand Side Management, Energy Conservation Programs, and On-
Grid and Off-Grid Renewable Energy Systems; Interim Final Rule
DEPARTMENT OF AGRICULTURE

Rural Electrification Administration

7 CFR Part 1710

 
Loans for Demand Side Management, Energy Conservation Programs, 
and On-Grid and Off-Grid Renewable Energy Systems

AGENCY: Rural Electrification Administration, USDA.

ACTION: Interim final rule with request for comments.

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SUMMARY: The Rural Electrification Administration (REA) hereby amends 
its pre-loan regulations for electric loans to incorporate changes to 
electric loan policies required by the Rural Electrification Loan 
Restructuring Act of 1993 (RELRA). This action will permit REA to make 
loans for demand side management (DSM), energy conservation programs, 
and on- and off-grid renewable energy systems.

DATES: This rule is effective January 4, 1994.
    Written comments must be received by REA or carry a postmark or 
equivalent by May 4, 1994.

ADDRESSES: Written comments should be addressed to F. Lamont Heppe, 
Jr., Deputy Director, Program Support Staff, U.S. Department of 
Agriculture, Rural Electrification Administration, room 2230-S, 14th 
Street and Independence Avenue, SW., Washington, DC 20250-1500. REA 
requires a signed original and three copies of all comments (7 CFR 
1700.30(e)). Comments will be available for public inspection during 
regular business hours (7 CFR 1.27(b)).

FOR FURTHER INFORMATION CONTACT: F. Lamont Heppe, Jr., Deputy Director, 
Program Support Staff, U.S. Department of Agriculture, Rural 
Electrification Administration, room 2230-S, 14th Street & Independence 
Avenue, SW., Washington, DC 20250-1500. Telephone: 202-720-0736. FAX: 
202-720-4120.

SUPPLEMENTARY INFORMATION: This regulatory action is issued in 
conformance with Executive Order 12866, Regulatory Planning and Review. 
The Administrator of REA has determined that the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.) does not apply to this rule. The 
Administrator of REA has determined that this rule will not 
significantly affect the quality of the human environment as defined by 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). 
Therefore, this action does not require an environmental impact 
statement or assessment. Section 1710.117 requires borrowers to comply 
with applicable environmental regulations and will cover the activities 
for which assistance is sought under this subpart. This rule is 
excluded from the scope of Executive Order 12372, Intergovernmental 
Consultation, which may require consultation with State and local 
officials. A Notice of Final Rule titled Department Programs and 
Activities Excluded from Executive Order 12372 (50 FR 47034) exempts 
REA electric loans and loan guarantees from coverage under this Order. 
This rule has been reviewed under Executive Order 12778, Civil Justice 
Reform. This rule: (1) Will not preempt any State or local laws, 
regulations, or policies, unless they present an irreconcilable 
conflict with this rule; (2) will not have any retroactive effect; (3) 
will not require administrative proceedings before any parties may file 
suit challenging the provisions of this rule. The program described by 
this rule is listed in the Catalog of Federal Domestic Assistance 
Programs under number 10.850 Rural Electrification Loans and Loan 
Guarantees. This catalog is available on a subscription basis from the 
Superintendent of Documents, the United States Government Printing 
Office, Washington, DC 20402-9325. The existing recordkeeping and 
reporting burdens contained in this rule were approved by the Office of 
Management and Budget (OMB) pursuant to the Paperwork Reduction Act of 
1980 (44 U.S.C. 3501 et seq.), under control numbers 0572-0017, 0572-
0032 and 0572-0103. Because of the deadline imposed by the law, the 
additional recordkeeping and reporting burdens have been submitted to 
OMB for approval on an emergency basis. Send questions or comments 
regarding these burdens or any other aspect of these collections of 
information, including suggestions for reducing the burden, to the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, room 3201, NEOB, Washington, DC 20503. Attention: Desk Officer 
for USDA.

Background

    The Rural Electrification Loan Restructuring Act of 1993, Public 
Law 103-129, 107 Stat. 1356, (RELRA), signed into law by President 
Clinton on November 1, 1993, amends the Rural Electrification Act of 
1936, 7 U.S.C. 901 et seq. (RE Act). The amendments mandate a 
restructuring of the electric loan programs of REA. Loan purposes, the 
definition of ``rural area'', applicable interest rates and loan terms 
and conditions were among the areas affected by RELRA. An interim rule 
implementing these provisions of RELRA were published on December 20, 
1993 at 58 FR 66260.
    The amendments to 7 CFR part 1710, published today implement the 
provision for making loans for demand side management, energy 
conservation programs, on- and off-grid renewable energy systems. This 
provision has a statutory deadline of January 1, 1994.
    Demand side management has become increasingly important to 
electric utilities as they seek ways to make their existing systems 
more efficient and reduce the need for new capacity. REA has supported 
demand side management (DSM) activities in the form of direct load 
control and energy conservation through loans for control equipment and 
principal deferment programs for energy conservation. With the passage 
of RELRA, REA is authorized to expand its role and make loans for all 
types of demand side management activities.
    This authority will be used primarily to finance distribution 
borrower needs. REA believes that most DSM activities must be conducted 
at the distribution level because DSM impacts the consumer's use of 
electricity. Power supply borrowers are eligible for this financing 
assistance, but the level of investment required to support their 
distribution members in this area is not normally expected to require 
loan funds. REA will not make DSM loans or any type of loans directly 
to individuals.
    To be eligible for a loan for DSM programs, which include energy 
conservation programs (except those financed by loan principal 
deferments), and for on-grid renewable energy systems, the loan request 
must be supported by an REA-approved integrated resource plan (IRP). 
REA may also require an IRP, on a case by case basis, for certain large 
or unusual loans for off-grid renewable energy systems. DSM programs 
must also be supported by DSM plan, which must be consistent with the 
borrower's IRP.
    As defined by the Energy Policy Act of 1992 (Pub. L. 102-486) (EP 
Act), an integrated resource plan is ``a planning and selection process 
for new energy resources that evaluates the full range of alternatives, 
including new generation capacity, power purchases, energy conservation 
and efficiency, cogeneration and district heating and cooling 
applications, and renewable energy sources, in order to provide 
adequate and reliable service at the lowest system cost. The process 
shall take into account necessary features for system operation, such 
as diversity, reliability, dispatchability, and other factors of risk 
and shall take into account the ability to verify energy savings 
achieved through energy conservation and efficiency and the projected 
durability of such savings measured over time; and shall treat demand 
and supply side resources on a consistent and integrated basis.''
    In the regulatory text, the term ``IRP'' is used to refer to the 
result of the process rather than the process.
    The EP Act also defines the term ``system cost'' to mean ``all 
direct and quantifiable net costs for an energy resource over its 
available life, including the cost of production, distribution, 
transportation, utilization, waste management, and environmental 
compliance.''
    This subpart establishes policies and requirements for IRPs and DSM 
plans. Many of these requirements are new, although existing 
Secs. 1710.253 and 1710.254, and existing subparts E and G, set forth 
analytical and related requirements for the financing of most 
generation facilities that are the same in many respects to the 
requirements of an IRP. Given the expansion of REA lending authority in 
the relatively new and sometimes uncertain areas of DSM and renewable 
energy systems, it is essential that borrowers make their investment 
decisions based on an IRP in order to ensure informed and prudent 
investment planning.
    If a distribution borrower is a member of a power supply borrower, 
its requests for DSM loans must be based on and be consistent with the 
IRP of the power supply borrower. The IRP of the power supply borrower 
will establish which DSM programs, on-grid renewable energy systems, 
and traditional utility investments, among several feasible 
alternatives, are most cost-beneficial from the standpoint of the power 
supply borrower and its members taken as an integrated system. The DSM 
programs of the individual distribution members must be coordinated 
among all parties to ensure that the DSM programs of one member do not 
jeopardize the financial integrity and loan security of any other 
member or that of the power supply borrower.
    Although DSM must be implemented at the distribution level, a 
significant portion of the benefits and costs of DSM are accrued at the 
power supply level. These benefits and costs are then transferred to 
the distribution borrower through wholesale rates. Consequently, DSM 
planning by distribution borrowers must consider the impacts of their 
activities on their power supplier and the implications of the power 
supplier's wholesale rates.
    Because of the relationship between a power supply borrower and its 
members and the relationship among the members of a power supply 
borrower, it is imperative that the power supply borrower and its 
members coordinate IRP activities per Sec. 1710.356(b)(1) of this 
interim rule.
    If a distribution borrower is not a member of a power supply 
borrower, loan requests for DSM programs and on-grid renewable energy 
systems must be supported by the borrower's own IRP. The IRP must 
address, in particular, any effects its DSM programs will have on the 
wholesale power rates charged by its non-REA financed power supplier.
    The requirements set forth for DSM plans and IRPs are intended to 
provide guidance as these new requirements are implemented. Since these 
areas are new in many respects, REA intends to exercise its discretion 
to administer the specific requirements and procedures with a prudent 
degree of flexibility, especially during the first several months of 
implementation. Comments from the public are invited regarding the 
policies and requirements set forth herein for DSM plans and IRPs.
    This rule includes citations to studies of the Electric Power 
Research Institute (EPRI) and the U.S. Department of Energy which are 
included as reader aids and do not imply REA adoption or endorsement of 
said studies.
    This interim regulation will define DSM and renewable energy 
systems. It will also emphasize REA commitment to finance 
nontraditional (renewables, DSM and energy conservation systems) and 
traditional resources on an equal footing. Borrowers requesting loans 
under this subpart will be required to submit an IRP and a DSM plan in 
most cases.
    Loans under this subsection for facilities to be owned and operated 
by the borrower will generally be treated like loans for usual electric 
facilities. Loans for other purposes will be considered as operational 
loans with terms based on the borrower's program cycle.
    Until REA has developed experience in making loans for these new 
purposes, cumulative loans for DSM and for energy conservation programs 
will be limited to an amount not to exceed 20 percent of the borrower's 
equity.

List of Subjects in 7 CFR Part 1710

    Electric power, Electric utilities, Loan programs--energy, Rural 
areas.

    For the reasons set out in the preamble, REA amends chapter XVII, 
title 7 of the Code of Federal Regulations as follows:

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

    1. The authority citation for part 1710 is revised to read as 
follows:

    Authority: 7 U.S.C. 901-950(b); Pub. L. 99-591, 100 Stat. 3341; 
Delegation of Authority by the Secretary of Agriculture, 7 CFR 2.23; 
Delegation of Authority by the Under Secretary for Small Community 
and Rural Development, 7 CFR 2.72.

    2. Section 1710.2(a) is amended by adding new definitions in 
alphabetical order to read as follows:


Sec. 1710.2  Definitions and rules of construction.

    (a) * * *
    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.
* * * * *
    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.
* * * * *
    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.
* * * * *
    Off-grid renewable energy system means an energy source which is 
not electrically attached to the grid. Off-grid systems are operated as 
an island and will have no direct impact on a utility system's physical 
operations. An off-grid system need not meet electric utility power 
quality standards.
    On-grid renewable energy system means an energy source electrically 
attached to an existing grid. It can be attached on either side of a 
consumer's meter. On-grid systems are operated as part of the overall 
utility system and have a direct impact on a utility system's 
operations. An on-grid system must meet electric utility power quality 
and safety standards.
* * * * *
    Renewable energy system means a source of energy (kWh) used to meet 
borrower electric load that is fueled by any of the following 
technologies: Hydropower, geothermal, biomass, municipal waste, solar 
thermal, photovoltaic, wind, fuel cells not fueled by fossil fuels. 
See, for example, ``Renewable Resources in U.S. Electricity Supply,'' 
February 1993, Publication number DOE/EIA 0561, published by the 
Department of Energy, Energy Information Administration, Forrestal 
Building, EI-231, Washington, DC 20585.
* * * * *


Sec. 1710.118  [Removed and Reserved]

    3. Section 1710.118 is removed and reserved.
    4. Subpart H heading is revised and the text of subpart H is added 
to part 1710 to read as follows:

Subpart H--Demand Side Management and Renewable Energy Systems

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

Subpart H--Demand Side Management and Renewable Energy Systems


Sec. 1710.350  Purpose.

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


Sec. 1710.351  General policy; renewable energy systems.

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


Sec. 1710.352  General policy; energy resource conservation programs.

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


Sec. 1710.353  General policy; demand side management.

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


Sec. 1710.354  Eligible DSM activities.

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


Sec. 1710.355  DSM loan applications.

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


Sec. 1710.356  Integrated resource plans.

    (a)(1) An REA approved IRP is required for all loans that include 
funds for DSM activities, unless the cumulative total of all previous 
DSM loans and the loan under consideration for that applicant is less 
than 1 percent of the applicant's total utility plant.
    (2) An REA approved IRP is required for all loans that include 
funds for on-grid renewable energy systems.
    (3) An REA approved IRP is required for all loans that include 
funds for off-grid renewable energy systems unless the Administrator 
determines that an IRP is not needed to determine that the loan is both 
feasible and secure pursuant to Secs. 1710.112 and 1710.113, 
respectively.
    (b)(1) When an IRP is required, a distribution borrower that is a 
member of a power supply borrower must use the IRP prepared by the 
power supply borrower for its overall system. This IRP must have been 
coordinated with all of the member systems and it must have been 
approved by the board of directors of the power supply borrower. 
Because of the relationship between the power supply borrower and its 
members under which the loans incurred by the power supply borrower are 
primarily to construct, improve or acquire facilities that benefit all 
members directly or indirectly, the security of loans to all parties is 
interlinked. Consequently, DSM activities and renewable energy 
activities must be coordinated among all parties to insure that the 
activities of one member do not jeopardize the financial integrity or 
loan security of any other member or that of the power supply borrower.
    (2) A distribution system that is not a member of an REA financed 
power supply borrower shall prepare its own IRP. An IRP developed by a 
distribution borrower that is not a member of a power supply borrower 
need only address its own system, but shall include an analysis of the 
effects of its DSM activities on its wholesale power costs.
    (c) The IRP shall identify supply side and demand side options and 
analyze their benefits and costs in order to provide adequate and 
reliable electric service to consumers at the lowest cost for the 
system as a whole.
    (d) The IRP shall include necessary features for system operation, 
such as diversity, reliability, dispatchability, and other factors of 
risk; and it shall take into account the ability to verify energy and 
cost savings achieved through DSM, energy conservation, and renewable 
energy systems, and the projected durability of such savings measured 
over time.
    (e) The following elements also included in a DSM plan, pursuant to 
Secs. 1710.357 and 1710.358, shall be included except where REA 
determines that they are not necessary:
    (1) Load shape objectives;
    (2) Wholesale power pricing policy and costs, and their 
relationship to the proposed DSM activities;
    (3) Ownership and costs of DSM related hardware;
    (4) Incentive and marketing costs;
    (5) Communication and control costs; and
    (6) Monitoring methods and costs.
    (f) The IRP shall analyze the DSM effects set forth in 
Sec. 1710.359.


Sec. 1710.357  DSM plans.

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


Sec. 1710.358  Requirements for a DSM plan.

    A DSM plan shall include:
    (a) A list of the DSM activities to be financed by the loan 
including details on implementation such as beginning and completion 
dates and estimated draw downs of loan funds;
    (b) An analysis of the borrower's existing and proposed DSM 
activities, including sources of financing and projections of the 
effects of those activities as set forth in Sec. 1710.359;
    (c) System specific load research and DSM pilot projects as 
required by Sec. 1710.353(f);
    (d) A benefit/cost and net present value cash flow analysis of each 
DSM activity included in the plan. Benefits and costs must be expressed 
in the same units where possible. Short term and long term impacts must 
be addressed. Who benefits and who pays must be clearly identified. 
Objectives of a DSM plan shall be stated in terms of load profile 
adjustments by customer rate class and/or market segment. The benefit/
cost analysis shall include the following steps:
    (1) Identification of objectives, alternatives, and effects;
    (2) Simulation of impacts on the system and its consumers, and the 
probable costs and benefits, including sensitivity/probability and 
scenario analysis; and
    (3) Selection of DSM activities;
    (e) An outline of monitoring and reporting procedures to evaluate 
the performance of the implemented DSM plan;
    (f) A narrative discussing the following:
    (1) Scope of the DSM plan;
    (2) Resources used to develop the DSM plan;
    (3) Internal and external data collection and analysis;
    (4) Analysis method used to screen and evaluate the projected 
programs;
    (5) Analysis of existing and projected plans; and
    (6) Coordination activities with power supplier.


Sec. 1710.359  DSM effects.

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


Sec. 1710.360  Submittal of alternate documentation.

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


Sec. 1710.361  Type and term of loans.

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


Sec. 1710.362  Loan approval.

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


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

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


Sec. 1710.364  Loan limits.

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

    Dated: December 29, 1993.
Michael V. Dunn,
Acting Under Secretary, Small Community and Rural Development.
[FR Doc. 93-32110 Filed 12-30-93; 3:19 pm]
BILLING CODE 3410-15-M