[Code of Federal Regulations]
[Title 7 Volume 11]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1714]
[Page 149-155]
TITLE 7--AGRICULTURE
CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
PART 1714_PRE-LOAN POLICIES AND PROCEDURES FOR INSURED ELECTRIC LOANS--Table
of Contents
Subpart A_General
Sec.
1714.1 [Reserved]
1714.2 Definitions.
1714.3 Applicability of provisions.
1714.4 Interest rates.
1714.5 Determination of interest rates on municipal rate loans.
1714.6 Interest rate term.
1714.7 Interest rate cap.
1714.8 Hardship rate loans.
1714.9 Prepayment of insured loans.
1714.10-1714.49 [Reserved]
Subpart B_Terms of Insured Loans
1714.50-1714.54 [Reserved]
1714.55 Advance of funds from insured loans.
1714.56 Fund advance period.
1714.57 Sequence of advances.
1714.58 Amortization of principal.
1714.59 Rescission of loans.
Authority: 7 U.S.C. 901 et seq.; 1921 et seq.; and 6941 et seq.
Source: 58 FR 66260, Dec. 20, 1993, unless otherwise noted.
Subpart A_General
Sec. 1714.1 [Reserved]
Sec. 1714.2 Definitions.
The definitions set forth in 7 CFR 1710.2 are applicable to this
part, unless otherwise stated. References to specific RUS forms and
other RUS documents, and to specific sections of such forms and
documents, shall include the corresponding forms, documents, sections
and lines in any subsequent revisions of these forms and documents.
Sec. 1714.3 Applicability of provisions.
(a) Insured electric loans approved on or after November 1, 1993. On
November 1, 1993, the Rural Electrification Loan Restructuring Act, Pub.
L. 103-129, 107 Stat. 1356, (RELRA) amended the Rural Electrification
Act of 1936, 7 U.S.C. 901 et seq., (RE Act) to establish a new interest
rate structure for insured electric loans. Insured electric loans
approved on or after this date, are either municipal rate loans or
hardship rate loans. Borrowers meeting the criteria set forth in Sec.
1714.8 are eligible for 5 percent hardship rate loans. The interest rate
on loans to other borrowers is the municipal interest rate, and
borrowers meeting the criteria set forth in Sec. 1714.7 are eligible
for the interest rate cap on their municipal rate loans. Interest rates
for the initial interest rate term and rollover terms (Sec. 1714.6)
will be determined pursuant to Sec. 1714.4. Provisions for prepayment
are set forth in Sec. 1714.9. The provisions of this subpart apply to
loans approved on or after November 1, 1993, unless otherwise stated.
(b) Insured electric loans approved prior to November 1, 1993. These
loans have a single interest rate applicable to the entire loan. The
rate is generally 5 percent, but, in some cases, may be as low as 2
percent. These loans have a single interest rate term and may be prepaid
at face value at any time. Provisions for discounted prepayment of these
loans are set forth in 7 CFR part 1786.
Sec. 1714.4 Interest rates.
(a) Municipal rate loans. Each advance of funds on a municipal rate
loan shall bear interest at a single rate for each interest rate term.
All interest rates applicable to municipal rate loans will be increased
by one eighth of one percent (0.125 percent), if the borrower elects to
include in the loan agreement a prepayment option (call provision),
allowing the borrower to prepay all or a portion of an advance on a date
other than a rollover maturity date. However, no interest rate for any
advances of a loan to a borrower who qualifies for the interest rate cap
may exceed 7 percent.
(b) Hardship rate loans. All advances of funds on hardship rate
loans shall bear interest at a rate of 5 percent.
[[Page 150]]
(c) Application procedure. The borrower's board resolution submitted
with the loan application must indicate whether the application is for a
municipal rate loan, with or without the interest rate cap, or a
hardship rate loan. If the application is for a municipal rate loan, the
board resolution must also indicate whether the borrower intends to
elect the prepayment option.
[58 FR 66260, Dec. 20, 1993, as amended at 67 FR 16969, Apr. 9, 2002]
Sec. 1714.5 Determination of interest rates on municipal rate loans.
(a) RUS will post on the RUS website, Electric Program HomePage, a
schedule of interest rates for municipal rate loans at the beginning of
each calendar quarter. The schedule will show the year of maturity and
the applicable interest rates in effect for all funds advanced on
municipal rate loans during the calendar quarter and all interest rate
terms beginning in the quarter. All interest rates will be adjusted to
the nearest one eighth of one percent (0.125 percent).
(b) The rate for interest rate terms of 20 years or longer will be
the average of the 20 year rates published in the Bond Buyer in the 4
weeks specified in paragraph (d) of this section for the ``11-Bond GO
Index'' of Aa rated general obligation municipal bonds, or the successor
to this index.
(c) The rate for terms of less than 20 years will be the average of
the rates published in the Bond Buyer in the 4 weeks specified in
paragraph (d) of this section in the table of ``Municipal Market Data--
General Obligation Yields'' for Aa rated bonds, or the successor to this
table, for obligations maturing in the same year as the interest rate
term selected by the borrower.
(d) The interest rates on municipal rate loans shall not exceed the
interest rate determined under section 307(a)(3)(A) of the Consolidated
Farm and Rural Development Act (7 U.S.C. 1927(a)(3)(A)) for Water and
Waste Disposal loans. The method used to determine this rate is set
forth in the regulations of the Farmers Home Administration (FmHA) at 7
CFR 1942.17(f) (1) and (4). Pursuant to the FmHA rule, the interest
rates are set using as guidance the average of the Bond Buyer Index for
the four weeks prior to the first Friday of the last month before the
beginning of the quarter. Information about the Bond Buyer is available
by writing Bond Buyer, One State Street Plaza, New York, NY 10004-1549,
or by calling 1-800-982-0633.
[58 FR 66260, Dec. 20, 1993, as amended at 67 FR 16969, Apr. 9, 2002]
Sec. 1714.6 Interest rate term.
(a) Municipal rate loans. Selection of interest rate terms shall be
made by the borrower for each advance of funds. The minimum interest
rate term shall be one year. RUS will send the borrower written
confirmation of each rollover maturity date and the applicable interest
rate.
(1) The initial interest rate term will begin on the date of the
advance. All rollover interest rate terms will begin on the first day of
a month, and except for the last interest rate term to final maturity,
shall end on the last day of a month. All terms except for the initial
interest rate term on an advance, and the last term to final maturity
shall be in yearly increments.
(2) The following limits apply to the number of advances of funds
that may be made to the borrower on any municipal rate loan:
(i) If the loan period is 2 years or less, not more than 6 advances;
(ii) If the loan period is more than 2 years, not more than 8
advances.
(3) For the initial interest rate term of an advance, a letter from
an authorized official of the borrower indicating the selection of the
term shall accompany the request for the advance.
(4) At the end of any interest rate term, the borrower shall pay all
accrued interest and principal balance then due, and either prepay the
remaining principal of the advance at face value, or roll over the
remaining principal for a new term, provided that no interest rate term
may end later than the date of the final maturity.
(i) If the borrower elects to prepay all or part of the remaining
principal of the advance at face value, it must notify the Director of
the appropriate Regional Division or the Power Supply Division in
writing not later than 20 days before the rollover maturity date.
[[Page 151]]
(ii) If the borrower wishes to elect a new interest rate term that
is different from the term previously selected, it must notify RUS in
writing of the new term not later than 20 days before the end of the
current term. The election of the new term shall be addressed to the
Director, Financial Operations Division, Rural Utilities Service,
Washington, DC 20250-1500.
(iii) If the borrower fails to notify RUS within the timeframes set
out in this paragraph of its intention to prepay or elect a different
interest rate term, RUS will automatically roll over the remaining
principal for the shorter of, and at the interest rate applicable to:
(A) A period equal in length to the term that is expiring; or
(B) The remaining period to final maturity.
(b) Hardship rate loans. Loans made at the 5 percent hardship rate
are made for a single term that cannot exceed the final maturity as set
forth in 7 CFR 1710.115. The hardship interest rate applies to the
entire amount of the loan.
[58 FR 66260, Dec. 20, 1993, as amended at 60 FR 3734, Jan. 19, 1995]
Sec. 1714.7 Interest rate cap.
Except as provided in paragraph (c) of this section, the municipal
interest rate may not exceed 7 percent on a loan advance to a borrower
primarily engaged in providing retail electric service if the borrower
meets, at the time of loan approval, either the consumer density test
set forth in paragraph (a) of this section, or both the rate disparity
test for the interest rate cap and the consumer income test set forth in
paragraph (b) of this section.
(a) Low consumer density test. The borrower meets this test if the
average number of consumers per mile of line of its total electric
system, based on the most recent data available at the time of loan
approval is less than 5.50.
(b)(1) Rate disparity test for the interest rate cap. The borrower
meets this test if its average revenue per kWh sold is more than the
average revenue per kWh sold by all electric utilities in the state in
which the borrower provides service. To determine whether a borrower
meets this test, RUS will compare the borrower's average total revenue
with statewide data in the table of Average Revenue per Kilowatthour for
Electric Utilities by Sector, Census Division and State, in the Electric
Power Annual issued by the Energy Information Administration of the
Department of Energy (DOE), or the successor to this table. The test
will be based on the most recent calendar year for which full year DOE
data are available at the time of loan approval and borrower data for
the same year.
(2) Consumer income test.The borrower meets this test if either the
average per capita income of the residents receiving electric service
from the borrower is less than the average per capita income of
residents of the state in which the borrower provides service or the
median household income of the households receiving electric service
from the borrower is less than the median household income of the
households in the state.
(i) To qualify under the consumer income test, the borrower must
include in its loan application information about the location of its
residential consumers. The borrower must provide to RUS, based on the
most recent data available at the time of loan application, either the
number of consumers in each county it serves or the number of consumers
in each census tract it serves. Using the most recently published
decennial census data on income from the Bureau of the Census, RUS will
compare, on a weighted average basis, the average per capita and median
household income of the counties or census tracts served by the borrower
with state figures.
(ii) In cases where conditions have substantially changed so that
the decennial census data no longer accurately describes the economic
conditions of the borrower's consumers, the borrower may provide RUS
with more current income data from a reliable source such as a State
agency. The Administrator has the sole discretion to determine whether
such data submitted by the borrower is sufficient to determine whether
the borrower qualifies under the consumer income test.
(3) Borrowers serving 2 or more states. If a borrower serves
consumers in 2 or more states, the rate disparity test and
[[Page 152]]
the consumer income test will be determined on a weighted average based
on the percentage of the borrower's total consumers that are served in
each state.
(c) High density test. If the average number of consumers per mile
of the borrower's total electric system exceeds 17, the interest rate
cap will not apply to funds used for the purpose of furnishing or
improving electric service to consumers located in an area that is an
urban area at the time of loan approval, notwithstanding that the area
must have been deemed a rural area for the purpose of qualifying for a
loan under this part. (See the definition of ``rural area'' in 7 CFR
1710.2.) If the average number of consumers per mile of line of the
borrower's total electric system exceeds 17, the borrower must include,
as a note on RUS Form 740c, Cost Estimates and Loan Budget for Electric
Borrowers, submitted as part of the loan application for a loan subject
to the interest rate cap, a breakdown of funds included in the proposed
loan to furnish or improve service to consumers located in such urban
areas. For such borrowers only funds for those facilities serving
consumers located outside an urban area are eligible for the interest
rate cap.
Sec. 1714.8 Hardship rate loans.
Except as provided in paragraph (d) of this section, the
Administrator shall make an insured electric loan for eligible purposes
at the 5 percent hardship rate to a borrower primarily engaged in
providing retail electric service if the borrower meets, at the time of
loan approval, both the rate disparity test for hardship and the
consumer income test described in paragraph (a) of this section; or the
extremely high rates test set forth in paragraph (b) of this section. A
loan at the 5 percent hardship rate may also be made to any borrower
pursuant to paragraph (c) of this section who, in the sole discretion of
the Administrator, has experienced a severe hardship. The Administrator
may not require a loan from a supplemental source in connection with a
hardship rate loan.
(a)(1) Rate disparity test for hardship. The borrower meets this
test if its average revenue per kWh sold is not less than 120 percent of
the average revenue per kWh sold by all electric utilities in the state
in which the borrower provides service, and its average residential
revenue per kWh is not less than 120 percent of the average residential
revenue per kWh sold by all electric utilities in the state in which the
borrower provides service. To determine whether a borrower meets this
test, RUS will compare the borrower's average total revenue and average
residential revenue with statewide data in the table of Average Revenue
per Kilowatthour for Electric Utilities by Sector, Census Division and
State, in the Electric Power Annual issued by the Energy Information
Administration of the Department of Energy (DOE), or the successor to
this table. The test will be based on the most recent calendar year for
which full year DOE data are available at the time of loan approval and
borrower data for the same year.
(2) Consumer income test. The borrower meets this test if either the
average per capita income of the residents receiving electric service
from the borrower is less than the average per capita income of the
residents of the state in which the borrower provides service or the
median household income of the residents receiving electric service from
the borrower is less than the median household income of the households
in the state. RUS will determine whether the borrower qualifies under
this test according to the procedure set forth in Sec. 1714.7(b)(2).
(3) Borrowers serving 2 or more states. If a borrower serves
consumers in 2 or more states, the rate disparity test and the consumer
income tests will be determined on a weighted average based on the
percentage of the borrower's total consumers that are served in each
state.
(b) Extremely high rates test. Except as provided in this paragraph,
the Administrator shall make an insured electric loan at the 5 percent
hardship rate to any borrower whose residential revenue exceeds 15.0
cents per kWh sold. Residential revenue shall be calculated for the most
recent full calendar year for which data are available and shall include
sales to both seasonal and nonseasonal consumers. If, at the time of
[[Page 153]]
loan approval, the area to be served is an urbanized area
(notwithstanding that the area must be deemed a rural area to qualify
for a loan under this part (See the definition of ``rural area'' in 7
CFR 1710.2)), then the borrower must satisfy the provisions of
paragraphs (a) and (d) of this section to qualify to the 5 percent
hardship interest rate. If at the time of loan approval, such area is
outside an urbanized area, the loan shall not be subject to the
conditions and limitations set forth in paragraphs (a) and (d) of this
section.
(c) Administrator's discretion. The Administrator may make a
hardship rate loan if, in the sole discretion of the Administrator, the
borrower has experienced a severe hardship. The Administrator shall
consider, among other matters, whether factors beyond the control or
substantial influence of the borrower have had severe adverse effect on
the borrower's ability to provide service consistent with the purposes
of the RE Act, and which prudent management could not reasonably
anticipate and either prevent or insure against. Among the factors that
may be considered are system damage due to unusual weather or other
natural disasters or Acts of God, loss of substantial loads, extreme
rate disparity compared to a contiguous utility, and other factors that
cause severe financial hardship. The Administrator will also consider
whether a hardship rate loan will provide significant relief to the
borrower in dealing with the severe hardship.
(d) High density test. Except as provided in paragraph (b) of this
section, if the average number of consumers per mile of the borrower's
total electric system exceeds 17, the 5 percent hardship rate will not
apply to funds used for the purpose of furnishing or improving electric
service to consumers located in an area that is an urban area at the
time of loan approval, notwithstanding that the area must have been
deemed a rural area for the purpose of qualifying for a loan under this
part. (See the definition of ``rural area'' in 7 CFR 1710.2.) If the
average number of consumers per mile of line of the borrower's total
electric system exceeds 17, the borrower must include, as a note on RUS
Form 740c, Cost Estimates and Loan Budget for Electric Borrowers,
submitted as part of the loan application for a loan at the 5 percent
hardship rate, a breakdown of funds included in the proposed loan to
furnish or improve service to consumers located in urban areas. For such
borrowers only funds for those facilities serving consumers located
outside an urban area are eligible for the 5 percent hardship rate.
(Approved by the Office of Management and Budget under control number
0572-1013)
Sec. 1714.9 Prepayment of insured loans.
This section sets out provisions for prepayment of insured electric
loans at face value. Provisions for discounted prepayment of RUS loans
are set out in 7 CFR part 1786.
(a) Municipal rate loans. Loan documents for municipal rate loans
shall provide for the following:
(1) Prepayment on a rollover maturity date. All, or a portion of,
the outstanding balance on any advance from a municipal rate loan may be
prepaid on any rollover maturity date pursuant to Sec. 1714.6(a)(4).
(2) Prepayment on a date other than a rollover maturity date. A
borrower may elect at the time of loan approval to include a prepayment
option (call provision) that will allow the borrower to prepay all, or a
portion of, the outstanding balance on any advance on a date other than
a rollover maturity date. Interest rates on advances from loans with a
prepayment provision will be increased as set forth in Sec. 1714.4(a).
(b) Hardship rate loans. Loan documents for hardship loans shall
provide that the loan may be prepaid at face value at any time without
penalty.
Sec. Sec. 1714.10-1714.49 [Reserved]
Subpart B_Terms of Insured Loans
Source: 60 FR 3734, Jan. 19, 1995, unless otherwise noted.
[[Page 154]]
Sec. 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 terminates
automatically 4 years after the date of the loan note; a loan with a 4-
year loan period terminates automatically 5 years after the date of the
loan note. The Administrator may extend the fund advance period on any
loan if the borrower meets the requirements of paragraph (c) of this
section. As defined in 7 CFR 1710.2, the loan period begins on the date
shown on page 1 of RUS Form 740c submitted with the loan application.
(b) For loans approved on or after June 1, 1984, and before February
21, 1995, the fund advance period begins on the date of the loan
contract, or the most recent amendment thereto, and terminates
automatically 4 years from the date of the loan contract, or the most
recent amendment thereto, except as provided in paragraph (c) of this
section.
(c) The Administrator may agree to an extension of the fund advance
period for loans approved on or after June 1, 1984, if the borrower
demonstrates to the satisfaction of the Administrator that the loan
funds continue to be needed for approved loan purposes (i.e., facilities
included in an RUS approved construction work plan). Policies for
extension of the fund advance period following certain mergers,
consolidations, and transfers of systems substantially in their entirety
are set forth in 7 CFR 1717.156.
(1) To apply for an extension, the borrower must send to RUS, at
least 120 days before the automatic termination date, the following:
(i) A certified copy of a board resolution requesting an extension
of the Government's obligation to advance loan funds;
(ii) Evidence that the unadvanced loan funds continue to be needed
for approved loan purposes; and
(iii) Notice of the estimated date for completion of construction.
(2) In the case of financial hardship, as determined by the
Administrator, RUS may agree to an extension of the fund advance period
even though the borrower has failed to meet the 120-day requirement of
paragraph (c)(1) of this section.
(3) If the Administrator approves a request for an extension, RUS
will notify the borrower in writing of the extension and the terms and
conditions thereof. An extension will be effective only if it is
obtained in writing prior to the automatic termination date.
(d) Advances of funds from loans approved before June 1, 1984, are
generally made during the first 6 years of the note.
(e) RUS will rescind the balance of any loan funds not advanced to a
borrower as of the final date approved for advancing funds.
[60 FR 3734, Jan. 19, 1995, as amended at 61 FR 66871, Dec. 19, 1996]
Sec. 1714.57 Sequence of advances.
(a) Except as set forth in paragraph (b) of this section, concurrent
loan funds will be advanced in the following order:
(1) 50 percent of the RUS insured loan funds;
(2) 100 percent of the supplemental loan funds;
(3) The remaining amount of the RUS insured loan funds.
(b) At the borrower's request and with RUS approval, all or part of
the supplemental loan funds may be advanced before funds in paragraph
(a)(1) of this section.
[[Page 155]]
Sec. 1714.58 Amortization of principal.
(a) For insured loans approved on or after February 21, 1995:
(1) Amortization of funds advanced during the first 2 years after
the date of the note shall begin no later than 2 years from the date of
the note. Except as set forth in paragraph (a)(2) of this section,
amortization of funds advanced 2 years or more after the date of the
note shall begin with the scheduled loan payment billed in the month
following the month of the advance.
(2) For advances made 2 years or more after the date of the note,
the Administrator may authorize deferral of amortization of principal
for a period of up to 2 years from the date of the advance if the
Administrator determines that failure to authorize such deferral would
adversely affect either the Government's financial interest or the
achievement of the purposes of the RE Act.
(b) For insured loans approved before February 21, 1995,
amortization of principal shall begin 2 years after the date of the note
for advances made during the first and second years of the loan, and 4
years after the date of the note for advances made during the third and
fourth years.
Sec. 1714.59 Rescission of loans.
(a) A borrower may request rescission of a loan with respect to any
funds unadvanced by submitting a certified copy of a resolution by the
borrower's board of directors.
(b) RUS may rescind loans pursuant to Sec. 1714.56.
(c) Borrowers who prepay RUS loans at a discounted present value
pursuant to 7 CFR part 1786, subpart F, are required to rescind the
unadvanced balance of all outstanding electric notes pursuant to 7 CFR
1786.158(j).