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

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