[Code of Federal Regulations]
[Title 7, Volume 11]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1780.62]

[Page 1058-1059]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1780--WATER AND WASTE LOANS AND GRANTS--Table of Contents
 
 Subpart C--Planning, Designing, Bidding, Contracting, Constructing and 
                               Inspections
 
Sec. 1780.62  Utility purchase contracts.

    Applicants proposing to purchase water or other utility service from 
private or public sources shall have written contracts for supply or 
service which are reviewed and concurred in by the Agency. To the extent 
practical, the Agency review and concurrence of such contracts should 
take place prior to their execution by the owner. OGC advice and 
guidance may be requested. Form RD 442-30, ``Water Purchase Contract,'' 
may be used when appropriate. If the Agency loan will be repaid from 
system revenues, the contract will be pledged to the Agency as part of 
the security for the loan. Such contracts will:
    (a) Include a commitment by the supplier to furnish, at a specified 
point, an adequate quantity of water or other service and provide that, 
in case of shortages, all of the supplier's users will proportionately 
share shortages.
    (b) Set out the ownership and maintenance responsibilities of the 
respective parties including the master meter if a meter is installed at 
the point of delivery.
    (c) Specify the initial rates and provide a type of escalator clause 
which will permit rates for the association to be raised or lowered 
proportionately as certain specified rates for the supplier's regular 
customers are raised or lowered. Provisions may be made for altering 
rates in accordance with the decisions of the appropriate State agency 
which may have regulatory authority.
    (d) Cover period of time which is at least equal to the repayment 
period of the loan. State program officials may approve contracts for 
shorter periods of time if the supplier cannot legally contract for such 
period, or if the owner and supplier find it impossible or impractical 
to negotiate a contract for the maximum period permissible under State 
law, provided:
    (1) The supplier is subject to regulations of the Federal Energy 
Regulatory Commission or other Federal or State agency whose 
jurisdiction can be expected to prevent unwarranted curtailment of 
supply; or
    (2) The contract contains adequate provisions for renewal; or
    (3) A determination is made that in the event the contract is 
terminated, there are or will be other adequate sources available to the 
owner that can feasibly be developed or purchased.
    (e) Set out in detail the amount of connection or demand charges, if 
any, to be made by the supplier as a condition to making the service 
available to the owner. However, the payment of such charges from loan 
funds shall not be approved unless the Agency determines that it is more 
feasible and economical for the owner to pay such a connection charge 
than it is for the owner to provide the necessary supply by other means.
    (f) Provide for a pledge of the contract to the Agency as part of 
the security for the loan.
    (g) Not contain provisions for:
    (1) Construction of facilities which will be owned by the supplier. 
This does not preclude the use of money paid as a connection charge for 
construction to be done by the supplier.
    (2) Options for the future sale or transfer. This does not preclude 
an agreement recognizing that the supplier and owner may at some future 
date agree to a sale of all or a portion of the facility.
    (h) If it is impossible to obtain a firm commitment for either an 
adequate quantity or sharing shortages proportionately, a contract may 
be executed and concurred in provided adequate evidence is furnished to 
enable the Agency to make a determination that the supplier has adequate 
supply and/or treatment facilities to furnish its other users and the 
applicant for the foreseeable future; and:
    (1) The supplier is subject to regulations of the Federal Energy 
Regulatory Commission or other Federal or State agency whose 
jurisdiction can be expected to prevent unwarranted curtailment of 
supply; or
    (2) A suitable alternative supply could be arranged within the 
repayment ability of the borrower if it should become necessary; or

[[Page 1059]]

    (3) Concurrence in the proposed contract is obtained from the 
National Office.