[Federal Register Volume 60, Number 12 (Thursday, January 19, 1995)]
[Rules and Regulations]
[Pages 3726-3735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1051]



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DEPARTMENT OF AGRICULTURE
Rural Utilities Service

7 CFR Parts 1710, 1712, 1714, 1717, 1719, and 1785

RIN 0572-AA69


Loan Policies and Procedures for Electric Loans

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Utilities Service (RUS) hereby amends its 
regulations for electric loans. Key provisions of this regulation 
include: Lengthening the allowable construction financing period for 
most electric loans; clarifying RUS requirements for supplemental 
financing concurrent with municipal rate loans; substantially modifying 
the requirement that borrowers develop and maintain certain levels of 
equity; and clearly setting forth the documents required for a complete 
loan application. In addition, this regulation eliminates some policies 
and procedures that have become obsolete. This regulation is intended 
to simplify loan application procedures for borrowers and reduce 
administrative costs to the Government.

EFFECTIVE DATE: This rule is effective February 21, 1995.

FOR FURTHER INFORMATION CONTACT: Sue Arnold, Financial Analyst, U.S. 
Department of Agriculture, Rural Utilities Service, room 2230-s, 14th 
Street and Independence Avenue, SW., Washington, DC 20250-1500. 
Telephone: 202-720-0736. FAX 202-742-4120.

SUPPLEMENTARY INFORMATION: This rule has been determined to be not 
significant for the purposes of Executive Order 12866 and therefore has 
not been reviewed by the Office of Management and Budget (OMB). The 
Administrator of RUS has determined that the Regulatory Flexibility Act 
(5 U.S.C. 601 et seq.) does not apply to this rule. The Administrator 
of RUS 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. 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. 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 
electric loans and loan guarantees made pursuant to the Rural 
Electrification Act of 1936, as amended (7 U.S.C. 901 et seq.) (RE 
Act), 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; and (3) Will not require administrative 
proceedings before any parties may file suit challenging the provisions 
of this rule.

Information Collection and Recordkeeping Requirements

    The existing recordkeeping and reporting burdens contained in this 
rule were approved by 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.
    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 

[[Page 3727]]
Information and Regulatory Affairs, Office of Management and Budget, 
Attention: Desk Officer for USDA, room 3201, NEOB, Washington, DC 
20503.

Background

    On August 5, 1994, at 59 FR 39972, the Rural Electrification 
Administration (REA) proposed several amendments to pre-loan 
regulations affecting both insured and guaranteed electric loans 
pursuant to the Rural Electrification Act of 1936, as amended (7 U.S.C. 
901 et seq.) (RE Act). These amendments are intended to enhance the 
delivery of customer service by facilitating the application process 
for borrowers, and reducing administrative costs to the Government. Key 
provisions of the proposed rule include lengthening the allowable 
construction financing period for many electric loans; substantially 
revising the requirement that borrowers achieve and maintain certain 
levels of equity; and clearly listing the documents required for a 
complete loan application.
    Since publication of the proposed rule, the Federal Crop Insurance 
Reform and Department of Agriculture Reorganization Act of 1994 (Pub. 
L. 103-354, 108 Stat. 3178) (Reorganization Act) has been enacted. The 
Reorganization Act requires in section 232(a) that the Secretary of 
Agriculture (Secretary) establish and maintain within the Department of 
Agriculture the Rural Utilities Service (RUS). Section 232(c)(1)(A) 
requires that the Secretary carry out through RUS electric loan 
programs authorized under the RE Act. Secretary's Memorandum 1010-1, 
Reorganization of the Department of Agriculture, issued October 20, 
1994, abolished REA and established RUS. On December 27, 1994, the 
Department of Agriculture published a notice in the Federal Register at 
59 FR 66517 announcing this reorganization. In other words, RUS is the 
successor to REA with respect to electric loan and loan guarantee 
programs under the RE Act.
    Rules formerly published by REA were reassigned to RUS pursuant to 
a final rule published in the Federal Register on December 27, 1994, at 
59 FR 66438. Therefore, this final rule culminating a rulemaking 
proceeding initiated by REA is being published by RUS. According to 7 
CFR 1710.3 of the rule changing nomenclature, the terms ``RUS 
bulletin'' and ``RUS form'' have the same meaning as the terms ``REA 
bulletin'' and ``REA form, `` respectively.
    The period for public comments on the REA proposed rule expired 
October 4, 1994. Twenty-one comments were received from individual 
borrowers, associations representing borrowers, a lender that provides 
supplemental financing to electric borrowers, and an engineering 
consulting firm. In general, comments expressed support for the 
proposed rule. A number of comments addressed specific provisions.

Loan Period

    The first of the amendments in the proposed rule lengthens the 
allowable loan period to 4 years for both insured and guaranteed loans 
for the construction of distribution and transmission facilities and 
for improvements to generation facilities. The loan period, sometimes 
referred to as the financing period, means the period of time during 
which the facilities included in a loan application will be 
constructed. In the past, loans to distribution borrowers were limited 
to a 2 year loan period, and loans to power supply borrowers to a 3 
year period. Some borrowers needed to apply for loans every 2 or 3 
years in order to meet their financing needs. RUS believes that 
allowing a longer loan period will, in the long run, significantly 
reduce loan application costs to Agency customers, including RUS 
borrowers and supplemental lenders, as well as loan processing costs to 
the Government. Borrowers will still have the option of applying for 
loans for a shorter period, if they so desire, and RUS reserves the 
right to limit loans to a period of less than 4 years under certain 
circumstances.
    Most commentors supported the changes proposed. Several requested 
that RUS allow more loan fund advances on a municipal rate loan made 
for a longer loan period. The proposed rule at 7 CFR 1714.6(a)(2) would 
allow up to 6 advances from a municipal rate loan if the loan period is 
2 years or less, and up to 8 advances if the loan period is longer than 
2 years. A limit on the number of loan fund advances from municipal 
rate loans was first set forth in the rule published December 20, 1993, 
at 58 FR 66260, that established the municipal rate loan program. As 
noted in the preamble to this rule at 58 FR 66261, the limit was 
intended to provide borrowers with financial flexibility, while 
minimizing the administrative costs to the Government of tracking 
multiple advances, each bearing its own interest rate, interest rate 
term, and rollover maturity date. Agency research conducted before 
publication of the 1993 rule indicated that the vast majority of loans 
were fully advanced in 6 or fewer advances.
    The comment period on the 1993 rule closed on March 21, 1994, and 
no comments on were received on limiting the number of advances. RUS 
believes that 8 advances from a municipal rate loan with a 4 year loan 
period will allow the borrowers sufficient flexibility. Because 
hardship rate loans and guaranteed loans bear a single interest rate 
for the entire amount, and there are no interest rate terms or rollover 
maturity dates associated with these loans, there is no limit on the 
number of advances.
    One commentor, an engineering consulting firm, opposed a 4 year 
loan period. The commentor questioned RUS' ability to maintain adequate 
engineering oversight over facilities constructed under a longer 
construction work plan (CWP). RUS is confident that electric system 
reliability will not suffer as a result of a longer financing period. 
RUS reserves in, Sec. 1710.106(f), the right to approve a loan period 
shorter than the period requested by the borrower if a loan for the 
longer period would fail to meet RUS requirements for loan feasibility 
and security.

Fund Advance Period

    In conjunction with lengthening the allowable loan period, the rule 
proposed lengthening the fund advance period, which is the period 
during which RUS may advance funds to the borrower from an insured 
loan. Agency policy first promulgated in 1984 provides that the fund 
advance period terminates automatically 4 years after the date of the 
loan contract. To allow borrowers to complete construction projects 
based on a loan period of more than 2 years, the rule proposed, in 
Sec. 1714.56, that funds from insured loans approved on or after the 
effective date of the rule may be advanced for a period beginning on 
the date of the loan note and lasting 1 year longer than the loan 
period, provided that the fund advance period may not be shorter than 4 
years. In other words, if the loan period is 3 years or less, the fund 
advance period would terminate 4 years after the date of the loan note; 
if the loan period is 4 years, the fund advance period would terminate 
5 years after the date of the note. The Administrator may approve an 
extension of the fund advance period if the borrower meets the 
requirements of Sec. 1714.56(c).
    Several commentors expressed support for the proposed change. One 
commentor suggested that the fund advance period be calculated from the 
date of the first advance, rather than from the date of the loan note. 
RUS believes, as stated in the preamble to the proposed rule, that, 
dating the fund advance period from the date of the loan note assists 
both the borrower and RUS, 

[[Page 3728]]
by providing a fixed date that is determined as early as possible.
    On April 7, 1993, at 58 FR 18043, REA published a proposed 
amendment to 7 CFR part 1785, where provisions for automatic 
termination of the insured electric loans were originally published, 
that would, in effect, redesignate subpart A as 7 CFR 1785 subpart F. 
Since automatic termination of the fund advance period on insured 
electric loans is more closely related to the subject matter of part 
1714 than of part 1785, RUS has determined that setting out the 
requirements in detail in part 1714 would better serve the public. 
Therefore, the rule published today removes subpart A (proposed subpart 
F) of part 1785.

Supplemental Financing

    Another amendment in the proposed rule clarifies policy on 
supplemental financing requirements. Except in cases of financial 
hardship, applicants for a municipal rate insured loan are required to 
obtain a portion of their loan funds from a supplemental source without 
an RUS guarantee. The method for determining the supplemental financing 
percentage for each individual loan is set forth in 7 CFR 1710.110(c) 
(1) and (2). For most borrowers, this percentage is based on the 
borrower's plant revenue ratio (PRR), as defined in Sec. 1710.2. To 
clarify the requirement for those borrowers whose PRR changes between 
the time of the loan application and the time of loan approval, the 
rule proposed to codify the policy of using the PRR based on the most 
recent year-end data available on the date of loan approval.
    The rule further proposed to clarify policies in cases where 
termination or rescission of an insured loan, or its associated 
supplemental loan, substantially affects the overall proportion of RUS 
and supplemental financing to a borrower. Under longstanding policy, 
the amount of supplemental financing required on that borrower's next 
municipal rate loan is adjusted to maintain the overall proportion of 
RUS to supplemental financing. The rule published today clarifies that 
the adjustment will only be made following rescission or termination of 
more than 5 percent of an insured loan subject to supplemental 
financing. No adjustment will be made based on rescission of a hardship 
rate loan where no supplemental financing was required. The amendment 
will also set forth the formula used to compute the adjustment.
    Most commentors supported the proposed changes. One commentor 
suggested an alternative to PRR in determining the amount of 
supplemental financing required. RUS is analyzing other possible 
methods of targeting assistance to needy communities. Changes in the 
methodology for determining the supplemental financing proportions may 
be proposed at a later date.

Amortization of Principal

    In conjunction with lengthening the allowable loan period, the 
agency proposed that principal amortization on advances made more than 
2 years after the date of the note begin with the loan payment billed 
in the next full month after the month of the advance. For example, 
principal amortization on funds advanced any time during the month of 
June of the third year after the date of the note would begin with the 
bill sent to the borrower in July of that year. In cases of financial 
hardship, the Administrator may approve a principal deferment period of 
up to 2 years for any advances made after the second year of the loan.
    Most commentors expressed support for the proposed provisions. One 
commentor believed that provisions concerning amortization are more 
restrictive than provisions for deferral of principal permitted by 
section 12 of the RE Act. Section 12 deferrals of principal are 
permitted for the specific purposes set forth in the RE Act. Regulatory 
provisions for amortization, on the other hand, apply uniformly to all 
loans. RUS believes that the provisions in the proposed rule concerning 
amortization of principal are appropriate.

Final Maturity

    Another amendment makes technical changes in the method used to 
evaluate final maturity of loans. RUS loans must be repaid with 
interest within a period, up to 35 years, that approximates the 
expected useful life of the facilities financed. The old rule based 
expected useful life on the weighted average of the depreciation rates 
proposed by the borrower. The amendment provides that final maturity 
will based on the weighted average useful life of the facilities 
financed, instead of depreciation rates.
    One commentor objected to the proposed change, stating that the 
agency should continue to base final maturity on depreciation rates, 
and that depreciation rates should be modified to more accurately 
reflect useful life. RUS agrees that depreciation rates should reflect 
useful life. However, basing loan maturity directly on useful life is a 
more straightforward approach that RUS believes will reduce 
administrative costs for both the borrowers and the Government.
    To facilitate the determination of the final maturity, RUS is 
incorporating into the final rule published today, a provision from a 
proposed rule published by REA on August 20, 1993, at 58 FR 44288. 
According to this proposed rule, Long-Range Financial Forecasts of 
Electric Borrowers, for the purpose of determining final loan maturity, 
the borrower may either (1) Certify that at least 90 percent of the 
loan funds are for facilities that have a useful life of 33 years or 
longer, or (2) Submit a schedule showing the costs and useful life of 
those facilities with a useful life of less than 33 years. Loan 
maturity will be based on the weighted average of these useful lives.
    Since exact useful life is often difficult to predict, RUS may add 
up to two years to the composite average useful life in order to 
compute loan maturity. In other words, if the weighted average useful 
life of the facilities is 33 years, the final maturity for the loan may 
be up to 35 years.
    The comment period on the 1993 proposed rule, as extended by a 
notice published September 30, 1993, at 58 FR 48800, closed on October 
20, 1993. No commentors objected to the proposed method of 
approximating the useful life of the facilities financed. Accordingly, 
the rule published today includes this methodology in paragraph 
1710.115(b). To set forth the specific loan application document for 
the information about useful life, a new paragraph 1710.401(a)(3)(ii) 
is added requiring that Form 740c, Cost Estimates and Loan Budget for 
Electric Borrowers, include as a note, either a certification that at 
least 90 percent of the loan funds are for facilities that have a 
useful life of 33 years or longer, or a schedule showing the costs and 
useful life of those facilities with a useful life of less than 33 
years. The paragraphs designated in the proposed rule as 
1710.401(a)(3)(ii) and (iii) are included in the final rule as 
1710.401(a)(3)(iii) and (iv), respectively. Language in paragraph 
1710.401(c)(1) of the proposed rule requiring a proposed schedule of 
the useful life of facilities as part of the Long-range financial 
forecast is removed from this final rule. A final rule on long-range 
financial forecasts will be published at a later date.

Equity

    The rule proposed replacing the requirement that certain borrowers 
prepare a formal equity development plan with a more general 
requirement that the borrower's capitalization is adequate to enable 
the borrower to meet its financial needs and to provide electric 
service consistent with the RE Act. Capital structure will be measured 

[[Page 3729]]
by equity as a percentage of total assets and will be a factor in RUS's 
evaluation of loan feasibility pursuant to = 1710.112, in determining 
borrower eligibility for advance approval of a lien accommodation 
pursuant to 7 CFR 1717.854, and in evaluating certain other borrower 
requests under the mortgage.
    Most commentors expressed support for this proposal. One commentor 
opposed the proposal, arguing that the requirement to prepare and 
follow an equity development plan better supports borrowers requesting 
rate increases from state public utility commissions, and better 
positions borrowers to obtain financing at market rates and replace old 
plant with new more expensive plant. RUS agrees that reasonable levels 
of equity are an important component of credit quality. However, as 
stated in the preamble to the proposed rule, agency experience with 
equity development plans has demonstrated that such plans are an 
unnecessary and burdensome means of achieving the desired result.
    One commentor requested that those borrowers who have adopted 
equity development plans as a condition for obtaining an electric loan 
be permitted to amend these plans pursuant to the new rule. RUS points 
out that the new rule establishes, in Sec. 1710.112(b)(10), a new loan 
feasibility criterion addressing the borrower's capitalization. It 
would not be feasible to revisit each loan that required an equity 
development plan as a condition of loan approval in the light of the 
new loan feasibility criterion.

Credit Reform

    A policy change mandated by the Federal Credit Reform Act of 1990 
(2 U.S.C. 661f), affects loans approved on or after October 1, 1991. 
The Federal Credit Reform Act requires Federal agencies to match funds 
obligated, disbursed, and collected with their intended purposes. 
Therefore, the rule proposed, in Sec. 1710.106(f), that advances of 
funds from a loan made on or after that date be made only for primary 
budget purposes included in that particular loan, unless the borrower 
applies for and RUS approves a budget transfer. Primary budget purposes 
as listed in RUS Bulletin 26-1, Budgetary Control and Advance of Loan 
Funds, and on RUS Form 595, Financial Requirement and Expenditure 
Statement, are (1) Distribution, (2) Transmission, (3) Generation, (4) 
Headquarters Facilities, (5) Acquisitions, and (6) All Other.
    Only one comment addressed this provision. The commentor recognized 
the requirements of Federal Credit Reform, but hopes that RUS can find 
a way to be flexible. The rule provides this flexibility by providing 
that RUS may approve a budget transfer.

Loan Application Documents

    Finally, the rule proposed to add new subpart I to part 1710 to set 
forth a list of the documents and procedures required for a loan 
application. This list is intended to facilitate the application 
process for borrowers and supplemental or other lenders. The general 
requirement to submit each of the documents is set forth in existing 
part 1710 or in other RUS regulations. The proposed new subpart I is 
simply a summary list for the convenience of the public. RUS is 
exploring possibilities for electronic submission of certain documents.
    Most commentors expressed support for such a list. Several had 
specific suggestions for the list. A few commentors suggested a 
materiality threshold for determining whether the lists of pending 
actions by third parties and pending regulatory actions 
(Sec. 1710.401(a)(1)(iv) and (v), respectively), are required. Another 
would like a clear definition of a material change to real property 
(Sec. 1710.401(a)(7)). RUS believes that the nature of these matters 
precludes any rule of thumb for determining materiality. This 
suggestion cannot be accepted.
    However, another commentor suggested that the borrower be allowed 
to combine into a single statement from counsel information on pending 
litigation and the state regulatory approvals (Secs. 1710.401(a)(6) and 
(15), respectively). RUS has no objection to accepting, in a single 
statement, information from counsel required by Sec. 1710.401(a)(6), 
(7), and (15), and clarification has been added to Sec. 1710.401(a)(6).
    One commentor requested that the borrower be required to submit the 
rate disparity and consumer income data needed for certain municipal 
rate loans subject to the interest rate cap and for some hardship rate 
loans to RUS prior to submitting the loan application. Language in 
Sec. 1710.401(a)(8) encourages borrowers to provide this information to 
the RUS general field representative prior to submitting the 
application.
    One commentor questioned the reference to subpart H of part 1710 in 
connection with the requirement to submit a Demand Side Management Plan 
(Sec. 1710.401(c)(2)(iv)). Subpart H of part 1710, Demand Side 
Management and Renewable Energy Systems, was published January 4, 1994, 
at 59 FR 494. Another suggested that RUS establish a threshold level 
test for determining the need for RUS approval of security offered to a 
supplemental lender (Sec. 1710.405(b)). RUS believes that the right to 
approve collateral offered to a supplemental lender is necessary for 
RUS to protect its loan security.
    One commentor requested that RUS provide the borrower with written 
grounds if a loan cannot be approved. Such language has been added to 
Sec. 1710.406(b). See also Secs. 1710.401(d)(3) and (4) and .401(e).

Conforming Amendments to RUS Regulations

    The rule published today includes conforming amendments to 
Secs. 1710.7(d)(1)(vi), 1717.856(d), and 1717.860(e) to reflect the 
elimination of the requirement to submit an equity development plan.

Other Regulations

    On August 27, 1991, at 56 FR 42461, REA published 7 CFR Parts 1712 
and 1719 that established pre- and post-loan policies for 90 percent 
REA guarantees of certain loans from qualified private lenders. This 
program was authorized under section 314 of the RE Act. The Rural 
Electrification Loan Restructuring Act of 1993, Pub. L. 103-129, signed 
by President Clinton on November 1, 1993, amended section 314 of the RE 
Act to abolish this 90 percent guarantee program. RUS is, therefore, 
removing 7 CFR parts 1712 and 1719. Regulations affecting loan 
guarantees under sections 306, 306A, and 311 of the RE Act will be 
published at a later date.

Other Issuances

    Electric Operations Manual, EOM-1 Guide for the Preparation of 
Electric Distribution Loan Applications is rescinded effective February 
21, 1995.
    In addition, this rule consolidates, updates, and, in some 
instances, revises information contained in the following RUS 
Bulletins:

20-5  Extensions of Payments of Principal and Interest
20-9  Loan Payments and Statements
26-1  Budgetary Control and Advance of Electric Loan Funds
86-3  Headquarters Facilities for Electric Borrowers

    When this regulation and other related rules are effective, these 
publications will be rescinded, in whole or in part, or revised.
    Finally, RUS is rescinding RUS Bulletins 101-3, Business Management 
for Board Members of Electric Cooperatives, and 103-1, A Practical 
Approach to Making Policy, effective February 21, 1995. These bulletins 
were last issued in 1978 and 1959, respectively, and RUS believes the 

[[Page 3730]]
information they contain is obsolete and unnecessary.

List of Subjects

7 CFR Part 1710

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

7 CFR Part 1712

    Administrative practice and procedure, Electric power, Electric 
utilities, Guaranteed program, Loan programs--energy, Reporting and 
recordkeeping requirements, Rural areas.

7 CFR Part 1714

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

7 CFR Part 1717

    Administrative practice and procedure, Electric power, Electric 
utilities, Intergovernmental relations, Investments, Lien 
accommodation, Lien subordination, Loan programs--energy, Reporting and 
recordkeeping requirements, Rural development.

7 CFR Part 1719

    Administrative practice and procedure, Electric power, Electric 
utilities, Guaranteed program, Loan programs--energy, Reporting and 
recordkeeping requirements, Rural areas.

7 CFR Part 1785

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

    For the reasons set out in the preamble and under the authority of 
7 U.S.C. 90 et seq., RUS amends 7 CFR Chapter XVII 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 continues to read as 
follows:

    Authority: 7 U.S.C. 901-950(b); Public Law 99-591, 100 Stat. 
3341-16; Public Law 103-354, 108 Stat. 3178.

    2. Section 1710.2 is amended by removing the existing definition of 
``Loan Period'' and adding two new definitions in alphabetical order to 
read as follows:


Sec. 1710.2  Definitions and rules of construction.

    (a) * * *
    Fund advance period means the period of time during which the 
Government may advance loan funds to the borrower. See 7 CFR 1714.56.
* * * * *
    Loan period means the period of time during which the facilities 
included in a loan application will be constructed. It commences with 
the date shown on page 1, in the block headed ``Cost Estimates as of,'' 
of RUS Form 740c, Cost Estimates and Loan Budget for Electric 
Borrowers, which is the same as the date on the Financial and 
Statistical Report submitted with the loan application. The loan period 
may be up to 4 years for distribution borrowers and, except in the case 
of a loan for new generating and associated transmission facilities, up 
to 4 years for the transmission facilities and improvements or 
replacements of generation facilities for power supply borrowers. The 
loan period for new generating facilities is determined on a case by 
case basis.
* * * * *
    3. Section 1710.7 is amended by removing and reserving paragraph 
(d)(1)(vi).
    4. Section 1710.106 is amended by redesignating paragraph (d) as 
paragraph (e) and adding new paragraphs (d) and (f) to read as follows:


Sec. 1710.106  Uses of loan funds.

* * * * *
    (d) A distribution borrower may request a loan period of up to 4 
years. Except in the case of loans for new generating and associated 
transmission facilities, a power supply borrower may request a loan 
period of not more than 4 years for transmission and substation 
facilities and improvements or replacements of generation facilities. 
The loan period for new generating facilities is determined on a case 
by case basis. The loan period for DSM activities will be determined in 
accordance with Sec. 1710.355. The Administrator may approve a loan 
period shorter than the period requested by the borrower, if in the 
Administrator's sole discretion, a loan made for the longer period 
would fail to meet RUS requirements for loan feasibility and loan 
security set forth in Secs. 1710.112 and 1710.113, respectively.
* * * * *
    (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.
    5. Section 1710.110 is amended by revising paragraph (c)(1)(ii) and 
adding a new paragraph (c)(3) to read as follows:


Sec. 1710.110  Supplemental financing.

* * * * *
    (c) Supplemental financing required for municipal rate loans--(1) 
Distribution borrowers.
* * * * *
    (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
------------------------------------------------------------------------

* * * * *
    (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:

 
[[Page 3731]]

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 = (A x C1)+(B x C2)-D

where:

A = The total funds ($) actually advanced from the first loan, 
including both RUS loan funds and funds from the supplemental loan, 
plus any unadvanced funds still available to the borrower after the 
rescission.
B = The total amount ($) for facilities of the new loan request, 
including both RUS funds and funds from supplemental loans.
C1 = The proportion (%) of supplemental financing required on the 
old loan according to paragraphs (a), (c)(1) and (c)(2) of this 
section.
C2 = The proportion (%) of supplemental financing required on the 
new loan according to paragraphs (a), (c)(1) and (c)(2) of this 
section.
D = The amount ($) of supplemental funds actually advanced on the first 
loan, plus any unadvanced supplemental funds still available to the 
borrower after the rescission.
* * * * *
    6. Section 1710.112 is amended by adding a new paragraph (b)(10) to 
read as follows:


Sec. 1710.112  Loan feasibility.

* * * * *
    (b) * * *
    (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.
    7. Section 1710.115 is amended by revising paragraph (b) to read as 
follows:


Sec. 1710.115  Final maturity.

* * * * *
    (b) Loans made or guaranteed by RUS for facilities owned by the 
borrower generally must be repaid with interest within a period, up to 
35 years, that approximates the expected useful life of the facilities 
financed. The expected useful life shall be based on the weighted 
average of the useful lives that the borrower proposes for the 
facilities financed by the loan, provided that the proposed useful 
lives are deemed appropriate by RUS. RUS Form 740c, Cost Estimates and 
Loan Budget for Electric Borrowers, submitted as part of the loan 
application must include, as a note, either a statement certifying that 
at least 90 percent of the loan funds are for facilities that have a 
useful life of 33 years or longer, or a schedule showing the costs and 
useful life of those facilities with a useful life of less than 33 
years. The useful lives proposed by the borrower for the facilities 
financed must be consistent with the borrower's proposed depreciation 
rates for these facilities. In states where the borrower must obtain 
state regulatory authority approval of depreciation rates for rate 
making purposes, the depreciation rates used for the purposes of this 
paragraph shall be the rates currently approved by the state authority 
or rates for which the borrower plans to seek state authority approval, 
provided that these rates are deemed appropriate by RUS. In other 
states, if the rates proposed by the borrower are not deemed 
appropriate by RUS, RUS will base expected useful life on the 
depreciation rates listed in Bulletin 183-1, or its successor, revising 
such rates as necessary to reflect current industry practice (for 
availability of bulletins, see Sec. 1710.5.). Final maturities for 
loans for the implementation of programs for demand side management and 
energy resource conservation and on and off grid renewable energy 
sources not owned by the borrower will be determined by RUS. Due to the 
uncertainty of predictions over an extended period of time, RUS may add 
up to 2 years to the composite average useful life of the facilities in 
order to determine final maturity.
* * * * *


Sec. 1710.116  [Removed and Reserved]

    8. Section 1710.116 is removed and reserved.
    9. Section 1710.251 is amended by revising paragraph (b) to read as 
follows:


Sec. 1710.251  Construction work plans--distribution borrowers.

* * * * *
    (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.
* * * * *
    10. Section 1710.252 is amended by revising paragraph (b) to read 
as follows:


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

* * * * *
    (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.
* * * * *
    11. Subpart I is added to part 1710 to read as follows:

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

Sec.
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 3732]]


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


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 
Loan Application, or a computer generated equivalent as this list.
    (1) Transmittal letter. A letter signed by the borrower's manager 
indicating the actual corporate name and taxpayer identification number 
of the borrower and addressing the following items:
    (i) The need for flood hazard insurance;
    (ii) Breakdown of requested loan funds by state;
    (iii) A listing of the counties served by the borrower;
    (iv) A listing of threatened actions by third parties that could 
adversely affect the borrower's financial condition, including 
annexations or other actions affecting service territory, loads, or 
rates; and
    (v) A listing of pending regulatory proceedings pertaining to the 
borrower.
    (2) Board resolution. This document is the formal request by the 
borrower's board of directors for a loan from RUS. The board resolution 
shall include:
    (i) The requested loan amount, loan term, final maturity, and 
method of amortization (Sec. 1710.110(b));
    (ii) The sources and amounts of any supplemental or other 
financing;
    (iii) Authorization for RUS to release appropriate information to 
supplemental or other lender(s), and authorization for these lenders to 
release appropriate information to RUS; and
    (iv) For an insured loan, a statement of whether the application is 
for a municipal rate loan, with or without the interest rate cap, or a 
hardship loan. If the application is for a municipal rate loan, the 
board resolution must indicate whether the borrower intends to elect 
the prepayment option. See 7 CFR 1714.4(c).
    (3) RUS Form 740c, Cost Estimates and Loan Budget for Electric 
Borrowers. This form together with its attachments lists the 
construction, equipment, facilities and other cost estimates from the 
construction work plan or engineering and cost studies, and the sources 
of financing for each component. The date on page 1 of the form is the 
beginning date of the loan period and shall be the same as the date on 
the Financial and Statistical Report submitted with the application 
(paragraph (a)(5) of this section). Form 740c also includes the 
following information, exhibits, and attachments:
    (i) Description of funds and materials. This description details 
the availability of materials and equipment, any unadvanced funds from 
prior loans, and any general funds the borrower designates, to 
determine the amount of such materials and funds to be applied against 
the capital requirements estimated for the loan period.
    (ii) Useful life of facilities financed by the loan. Form 740c must 
include, as a note, either a statement certifying that at least 90 
percent of the loan funds are for facilities that have a useful life of 
33 years or longer, or a schedule showing the costs and useful life of 
those facilities with a useful life of less than 33 years. This 
statement or schedule will be used to determine the final maturity of 
the loan. See Sec. 1710.115.
    (iii) Reimbursement schedule. This schedule lists the date, amount, 
and identification number of each inventory of work orders and special 
equipment summary that form the basis for the borrower's request for 
reimbursement of general funds on the RUS Form 740c. See Sec. 1710.109. 
If the borrower is not requesting reimbursement, this schedule need not 
be submitted.
    (iv) Location of consumers. If the application is for a municipal 
rate loan subject to the interest rate cap, or for a loan at the 
hardship rate, and the average number of consumers per mile of the 
total electric system exceeds 17, Form 740c must include, as a note, a 
breakdown of funds included in the proposed loan to furnish or improve 
service to consumers located in an urban area. See 7 CFR 1714.7(c) and 
1714.8(d). This breakdown must indicate the method used by the borrower 
for allocating loan funds between urban and non urban consumers.
    (4) RUS Form 740g, Application for Headquarters Facilities. This 
form lists the individual cost estimates from the construction work 
plan or other engineering study that support the need for RUS financing 
for any warehouse and service type facilities included, and funding 
requested for such facilities shown on RUS Form 740c. If no loan funds 
are requested for headquarters facilities, Form 740g need not be 
submitted.
    (5) Financial and statistical report. Distribution borrowers shall 
submit these data on RUS Form 7; power supply borrowers shall use RUS 
Form 12. The form shall contain the most recent data available, which 
shall not be more than 60 days old when received by RUS.
    (6) Pending litigation statement. A statement from the borrower's 
counsel listing any pending litigation, including levels of related 
insurance coverage and the potential effect on the borrower. This 
statement and the statements from counsel required by paragraphs (a)(7) 
and (15) of this section may be combined into a single document.
    (7) Mortgage information. A new mortgage will be required if this 
is a borrower's first application for a loan under the RE Act. A 
restated mortgage, or a mortgage supplement will be required if there 
has been a material change to the real property owned by the borrower 
since the most recent RUS loan, loan guarantee, or lien accommodation, 
if the requested loan would cause the borrower to exceed its previously 
authorized debt limit, or if RUS otherwise determines it necessary. If 
there has been no material change to the real property owned by the 
borrower since the most recent RUS loan or loan guarantee, the borrower 
must submit an opinion of its counsel to that effect. If a new or 
restated mortgage or a mortgage supplement is required, the borrower 
must provide the following:
    (i) Property schedule. For a new or restated mortgage or for a 
mortgage supplement, the following information shall be submitted in a 
form satisfactory to RUS: 

[[Page 3733]]

    (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, 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.
    (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 

[[Page 3734]]
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 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 1712--[REMOVED]

    12. Part 1712 is removed.

PART 1714--PRE-LOAN POLICIES AND PROCEDURES FOR INSURED ELECTRIC 
LOANS

    13. The authority citation for part 1714 continues to read as 
follows:

    Authority: 7 U.S.C. 901-950(b); Pub. L 99-591, 100 Stat. 3341; 
Pub. L. 103-353, 108 Stat. 3178 (7 U.S.C. 6941 et seq).

    14. Section 1714.6 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 1714.6  Interest rate term.

    (a) * * *
    (2) The following limits apply to the number of advances of funds 
that may be made to the borrower on any municipal rate loan:
    (i) If the loan period is 2 years or less, not more than 6 
advances;
    (ii) If the loan period is more than 2 years, not more than 8 
advances.
* * * * *
    15. Subpart B is added to part 1714 to read as follows:

Subpart B--Terms of Insured Loans

Sec.
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.

Subpart B--Terms of Insured Loans


Sec. 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 

[[Page 3735]]
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).
    (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.
    (e) RUS will rescind the balance of any loan funds not advanced to 
a borrower as of the final date approved for advancing funds.


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 =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

    16. The authority citation for part 1717 continues to read as 
follows:

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


Secs. 1717.856 and 1717.860  [Amended]

    17. Part 1717 is amended by removing and reserving 
Secs. 1717.856(d) and 1717.860(e).

PART 1719--[REMOVED]

    18. Part 1719 is removed.

PART 1785--LOAN ACCOUNT COMPUTATIONS, PROCEDURES AND POLICIES FOR 
ELECTRIC AND TELEPHONE BORROWERS

    19. The authority citation for part 1785 continues to read as 
follows:

    Authority: 7 U.S.C. 901 et seq.; Title 1, Subtitle D, sec. 1403, 
Omnibus Budget Reconciliation Act of 1987, Pub. L. 100-203, 101 
Stat. 1330; Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq).


Subpart A  [Removed and Reserved]

    20. Subpart A of part 1785 is removed and reserved.

    Dated: January 9, 1995.
Bob J. Nash,
Under Secretary, Rural Economic and Community Development.
[FR Doc. 95-1051 Filed 1-18-95; 8:45 am]
BILLING CODE 3410-15-P