Loan Policies and Procedures for Electric Loans

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